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What changed in TIMBERLAND BANCORP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of TIMBERLAND BANCORP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+509 added−556 removedSource: 10-K (2024-12-11) vs 10-K (2023-12-11)

Top changes in TIMBERLAND BANCORP INC's 2024 10-K

509 paragraphs added · 556 removed · 428 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

194 edited+24 added−40 removed200 unchanged
Biggest changeCredit Ratios The following table sets forth the ratios between the ALL, non-accrual loans and total loans at the dates indicated: At September 30, 2023 2022 2021 (Dollars in thousands) ALL $ 15,817 $ 13,703 $ 13,469 Non-accrual loans $ 1,514 $ 2,059 $ 2,854 Loans receivable, net (1) $ 1,318,122 $ 1,146,129 $ 981,923 ALL to loans receivable, net 1.20 % 1.20 % 1.37 % Non-accrual loans to loans receivable, net 0.11 % 0.18 % 0.29 % ALL to non-accrual loans 1044.72 % 665.52 % 471.93 % ________________________________ (1) Loans receivable, net for this table includes the deductions for the undisbursed portion of construction loans in process and net deferred loan origination fees and does not include the deduction for the ALL. 19 The following table sets forth the ALL by loan category at the dates indicated: At September 30, 2023 2022 2021 Amount Percent of Loans in Category to Total Loans Amount Percent of Loans in Category to Total Loans Amount Percent of Loans in Category to Total Loans (Dollars in thousands) Mortgage loans: One- to four-family $ 2,417 17.75 % $ 1,658 14.05 % $ 1,154 11.08 % Multi-family 1,156 8.91 855 7.58 765 8.09 Commercial 7,209 39.84 6,682 42.81 6,813 43.49 Construction - custom and owner/builder 750 9.09 675 9.51 644 10.08 Construction - speculative one- to four-family 148 1.20 130 0.98 188 1.65 Construction - commercial 316 3.58 343 3.22 784 4.01 Construction - multi-family 602 4.01 447 5.14 436 4.81 Construction - land development 274 1.32 233 1.54 124 1.00 Land 406 1.87 397 2.14 470 1.84 Non-mortgage loans: Consumer loans 572 2.88 482 2.98 578 3.28 Commercial business loans 1,967 9.55 1,801 10.05 1,513 10.67 Total allowance for loan losses $ 15,817 100.00 % $ 13,703 100.00 % $ 13,469 100.00 % 20 Analysis of ALL The table below sets forth the ratio of net charge-offs during the period to average loans outstanding during the period: September 30, 2023 2022 2021 (Net Charge-offs) Recoveries Average Loans (Net Charge-Offs) Recoveries to Average Loans (Net Charge-offs) Recoveries Average Loans (Net Charge-Offs) Recoveries to Average Loans (Net Charge-offs) Recoveries Average Loans (Net Charge-Offs) Recoveries to Average Loans (Dollars in thousands) Mortgage Loans: One- to four-family $ — $ 215,854 — % $ — $ 140,516 — % $ — $ 122,291 — % Multi-family — 104,926 — — 88,469 — — 90,569 — Commercial — 547,924 — — 513,152 — — 458,631 — Construction — 151,149 — — 131,960 — — 121,441 — Land — 39,147 — — 31,034 — 45 23,617 0.19 Total mortgage loans — 1,059,000 — — 905,131 — 45 816,549 0.19 Consumer Loans: Home equity — 37,550 — — 33,418 — — 32,988 — Other (3) 2,434 (0.12) (9) 2,369 (0.38) 3 2,848 0.11 Total consumer loans (3) (3) 39,984 (0.12) (9) (9,000) 35,787 (0.38) -0.0038 3 35,836 0.11 Commercial Loans: Commercial business (15) 131,117 (0.01) (27) 114,717 (0.02) 7 174,357 — Total $ (18) $ 1,230,101 — % $ (36) $ 1,055,635 — % $ 55 $ 1,026,742 0.01 % 21 Investment Activities The investment policies of the Bank are established and monitored by the Board of Directors.
Biggest changeThe following table sets forth the ACL by loan category at the dates indicated: At September 30, 2024 2023 2022 Amount Percent of Loans in Category to Total Loans Amount Percent of Loans in Category to Total Loans Amount Percent of Loans in Category to Total Loans (Dollars in thousands) Mortgage loans: One- to four-family $ 2,632 19.75 % $ 2,417 17.75 % $ 1,658 14.05 % Multi-family 1,308 11.71 1,156 8.91 855 7.58 Commercial 6,934 39.57 7,209 39.84 6,682 42.81 Construction - custom and owner/builder 1,328 8.72 750 9.09 675 9.51 Construction - speculative one- to four-family 128 0.76 148 1.20 130 0.98 Construction - commercial 537 1.95 316 3.58 343 3.22 Construction - multi-family 456 1.88 602 4.01 447 5.14 Construction - land development 335 1.17 274 1.32 233 1.54 Land 793 1.94 406 1.87 397 2.14 Non-mortgage loans: Consumer loans 387 3.37 572 2.88 482 2.98 Commercial business loans 2,640 9.18 1,967 9.55 1,801 10.05 Total allowance for credit losses (1) $ 17,478 100.00 % $ 15,817 100.00 % $ 13,703 100.00 % ________________________________ (1) Amounts for fiscal 2024 were calculated using the CECL methodology to determine the allowance for credit losses.
The Bank believes that its lengthy experience in providing residential construction loans has enabled it to establish processing and disbursement procedures to 9 meet the needs of its borrowers while reducing many of the risks inherent with construction lending. The Bank also originates construction loans for commercial properties, multi-family properties, and land development projects.
The Bank believes that its lengthy experience in providing residential construction loans has enabled it to establish processing and disbursement procedures to meet the needs of its borrowers while reducing many of the risks inherent with construction lending. The Bank also originates construction loans 9 for commercial properties, multi-family properties, and land development projects.
SBA 7(a) loans are all adjustable rate loans based on the Prime Rate. Under the SBA 7(a) program, the Bank can 12 sell in the secondary market the guaranteed portion of its SBA 7(a) loans and retain the related unguaranteed portion of these loans, as well as the servicing on such loans, for which it is paid a fee.
SBA 7(a) loans are all adjustable-rate loans based on the Prime Rate. Under the SBA 7(a) program, the Bank can sell in the secondary market the guaranteed portion of its SBA 7(a) loans and retain the related unguaranteed portion of these loans, as 12 well as the servicing on such loans, for which it is paid a fee.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") established the Consumer Financial Protection Bureau ("CFPB") as an independent bureau of the Federal Reserve with responsibility for the implementation of federal financial consumer protection and fair lending laws and regulations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") established the CFPB as an independent bureau of the Federal Reserve with responsibility for the implementation of federal financial consumer protection and fair lending laws and regulations.
An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership, the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not 28 exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution owned by another FDIC-insured institution if certain requirements are met.
An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership, the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution owned by another FDIC-insured institution if certain requirements are met.
While the list set forth below is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various 30 regulations that implement some or all of the foregoing.
While the list set forth below is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement some or all of the foregoing.
A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk: • Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory capital; or • Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk: • Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory capital; or 27 • Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
Federal Reserve policy limits the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the 31 company's capital needs, asset quality and overall financial condition, and that it is inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.
Federal Reserve policy limits the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company's capital needs, asset quality and overall financial condition, and that it is inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.
The Bank conducts operations from: • its main office in Hoquiam (Grays Harbor County); • five branch offices in Grays Harbor County (Ocean Shores, Montesano, Elma and two branches in Aberdeen); • five branch offices in Pierce County (Edgewood, Puyallup, Spanaway, Tacoma and Gig Harbor); • six branch offices in Thurston County (Tumwater, Yelm, two branches in Lacey and two branches in Olympia); • two branch offices in Kitsap County (Poulsbo and Silverdale); • a branch office in King County (Auburn); and • three branch offices in Lewis County (Winlock, Toledo and Chehalis).
The Bank conducts operations from: • its main office in Hoquiam (Grays Harbor County); • five branch offices in Grays Harbor County (Ocean Shores, Montesano, Elma and two branches in Aberdeen); • five branch offices in Pierce County (Edgewood, Puyallup, Spanaway, Tacoma and Gig Harbor); 4 • six branch offices in Thurston County (Tumwater, Yelm, two branches in Lacey and two branches in Olympia); • two branch offices in Kitsap County (Poulsbo and Silverdale); • a branch office in King County (Auburn); and • three branch offices in Lewis County (Winlock, Toledo and Chehalis).
Failure by an institution to comply with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator.
Failure by an institution to comply 26 with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator.
A notice is mailed to the borrower 16 days after the date the payment was due. Attempts to contact the borrower by telephone generally begin on or before the 30 th day of 15 delinquency. If a satisfactory response is not obtained, continuous follow-up contacts are attempted until the loan has been brought current.
A notice is mailed to the borrower 16 days after the date the payment was due. Attempts to contact the borrower by telephone generally begin on or before the 30 th day of delinquency. If a satisfactory response is not obtained, continuous follow-up contacts are attempted until the loan has been brought current.
Descriptions of laws and regulations here and elsewhere in this report do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations. Legislation is introduced from time to time in the U.S. Congress or the 25 Washington State Legislature that may affect the operations of Timberland Bancorp and the Bank.
Descriptions of laws and regulations here and elsewhere in this report do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations. Legislation is introduced from time to time in the U.S. Congress or the Washington State Legislature that may affect the operations of Timberland Bancorp and the Bank.
The Bank actively solicits deposit-related clients and competes for deposits by offering depositors a variety of savings accounts, checking accounts, cash management and other services. Subsidiary Activities The Company has one wholly-owned subsidiary, the Bank. The Bank has one wholly-owned direct subsidiary, Timberland Service Corp. (“Timberland Service”), whose primary function is to provide escrow services.
The Bank actively solicits deposit-related clients and competes for deposits by offering depositors a variety of savings accounts, checking accounts, cash management and other services. Subsidiary Activities The Company has one wholly-owned subsidiary, the Bank. The Bank has one wholly-owned subsidiary, Timberland Service Corp. (“Timberland Service”), whose primary function is to provide escrow services.
The Bank is a member of the FHLB, one of 11 regional Federal Home Loan Banks that administer the home financing credit function of savings institutions, each serving as a reserve or central bank for its 27 members within its assigned region. The FHLB is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System.
The Bank is a member of the FHLB, one of 11 regional Federal Home Loan Banks that administer the home financing credit function of savings institutions, each serving as a reserve or central bank for its members within its assigned region. The FHLB is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System.
Interest received on loans secured by mortgages or deeds of trust on residential properties, certain residential mortgage-backed securities, and certain U.S. government and agency securities is not subject to this tax. 32 Competition The Bank operates in an intensely competitive market for the attraction of deposits and in the origination of loans.
Interest received on loans secured by mortgages or deeds of trust on residential properties, certain residential mortgage-backed securities, and certain U.S. government and agency securities is not subject to this tax. Competition The Bank operates in an intensely competitive market for the attraction of deposits and in the origination of loans.
Risk Factors – Our investment securities portfolio may be negatively impacted by fluctuations in market value and interest rates and result in losses” and "Note 3-Investment Securities of the Notes to the Consolidated Financial Statements contained in Item 8 of this report". Deposit Activities and Other Sources of Funds General .
Risk Factors – Our investment securities portfolio may be negatively impacted by fluctuations in market value and interest rates and result in losses” and "Note 3-Investment Securities" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. 21 Deposit Activities and Other Sources of Funds General .
For additional information, see “Item 2. Properties.” 4 Hoquiam, with a population of approximately 8,800, is located in Grays Harbor County which is situated along Washington State’s central Pacific coast. Hoquiam is located approximately 110 miles southwest of Seattle, Washington and 145 miles northwest of Portland, Oregon.
For additional information, see “Item 2. Properties.” Hoquiam, with a population of approximately 8,800, is located in Grays Harbor County which is situated along Washington State’s central Pacific coast. Hoquiam is located approximately 110 miles southwest of Seattle, Washington and 145 miles northwest of Portland, Oregon.
Institutions with capital meeting or exceeding the ratio and otherwise complying with the specified requirements (including off-balance sheet exposures of 25% or less of total assets and 26 trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements.
Institutions with capital meeting or exceeding the ratio and otherwise complying with the specified requirements (including off-balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements.
Benefit 33 programs available to eligible employees may include 401(k) savings plan, employee stock ownership plan, health and life insurance, health savings accounts and flexible spending accounts, employee assistance program, paid holidays, paid time off, paid volunteer time, paid time off for the employee’s birthday and other leave as applicable.
Benefit programs available to eligible employees may include 401(k) savings plan, employee stock ownership plan, health and life insurance, health savings accounts and flexible spending accounts, employee assistance program, paid holidays, paid time off, paid volunteer time, paid time off for the employee’s birthday and other leave as applicable.
After this preliminary review, the application is processed, which includes obtaining credit reports, financial statements and tax returns or verification of income on the borrowers and guarantors, an independent appraisal of the project, and any other expert reports necessary to evaluate the proposed project.
After this preliminary review, the application is processed, which includes obtaining credit reports, financial statements and tax returns or verification of income on the 10 borrowers and guarantors, an independent appraisal of the project, and any other expert reports necessary to evaluate the proposed project.
These participation loans are underwritten in accordance with the Bank’s underwriting guidelines and are without recourse to the seller other than for fraud. During the years ended September 30, 2023 and 2022, the Bank did not purchase any loan participation interests.
These participation loans are underwritten in accordance with the Bank’s underwriting guidelines and are without recourse to the seller other than for fraud. During the years ended September 30, 2024, 2023 and 2022, the Bank did not purchase any loan participation interests.
Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice. Anti-Money Laundering and Customer Identification.
Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice. Anti-Money Laundering, Bank Secrecy and Customer Identification.
In determining the terms of its deposit accounts, the Bank considers current market interest rates, profitability to the Bank, 22 matching deposit and loan products and its customer preferences and concerns. The Bank actively seeks consumer and commercial checking accounts through checking account acquisition marketing programs.
In determining the terms of its deposit accounts, the Bank considers current market interest rates, profitability to the Bank, matching deposit and loan products and its customer preferences and concerns. The Bank actively seeks consumer and commercial checking accounts through checking account acquisition marketing programs.
Companies must provide the annual disclosures about cybersecurity risk management and governance beginning with their Form 10-K for fiscal years ending on or after December 15, 2023. Other Consumer Protection Laws and Regulations.
Companies must provide the annual disclosures about cybersecurity risk management and governance beginning with their Form 10-K for fiscal years ending on or after December 15, 2023. 29 Other Consumer Protection Laws and Regulations.
Substandard loans are classified as those loans that are inadequately protected by the 17 current net worth and paying capacity of the obligor, or of the collateral pledged. Assets classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt.
Substandard loans are classified as those loans that are inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged. Assets classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt.
If the borrower is other than an individual, the Bank also generally obtains personal guarantees from the principals (with ownership interests of 20% or more) based on a review of personal financial statements. At September 30, 2023, all multi-family loans were performing according to their repayment terms. See "Lending Activities - Non-performing Loans and Delinquencies." Commercial Real Estate Lending .
If the borrower is other than an individual, the Bank also generally obtains personal guarantees from the principals (with ownership interests of 20% or more) based on a review of personal financial statements. At September 30, 2024, all multi-family loans were performing according to their repayment terms. See "Lending Activities - Non-performing Loans and Delinquencies." Commercial Real Estate Lending .
Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements. At September 30, 2023, the Bank was categorized as “well capitalized” under the prompt corrective action regulations of the FDIC.
Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements. At September 30, 2024, the Bank was categorized as “well capitalized” under the prompt corrective action regulations of the FDIC.
The corporate dividends-received deduction is generally 50.0% in the case of dividends received from unaffiliated corporations with which the Company and the Bank will not file a consolidated tax return, except that if the Company or the Bank owns more than 20.0% and less than 80% of the stock of a corporation distributing a dividend, then 65.0% of any dividends received may be deducted.
The corporate dividends-received deduction is generally 50.0% in the case of dividends received from unaffiliated corporations with which the Company and the Bank will not file a consolidated tax return, except that if the Company or the Bank owns more than 20.0% and less than 80% of the stock of a corporation distributing a dividend, then 65.0% of any dividends received may be deducted. 31 Audits .
The following table sets forth certain information at September 30, 2023 regarding the dollar amount of loans maturing in the Bank’s portfolio based on their contractual terms to maturity but does not include potential prepayments. Loans having no stated maturity and overdrafts are reported as due in one year or less.
The following table sets forth certain information at September 30, 2024 regarding the dollar amount of loans maturing in the Bank’s portfolio based on their contractual terms to maturity but does not include potential prepayments. Loans having no stated maturity and overdrafts are reported as due in one year or less.
Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers.
Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage 30 services for customers.
According to Washington law, the Bank may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (i) the amount required for liquidation accounts or (ii) the net worth requirements, if any, imposed by the Director of the Division.
According to Washington law, the Bank may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (i) the amount required for liquidation accounts or (ii) the net worth requirements, if any, imposed by the Director of the DFI.
The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2% to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% DRR. Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2%, and again when it reaches 2.5%.
The revised assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2% to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% DRR. Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2%, and again when it reaches 2.5%.
Our efforts encapsulate our commitment to fostering a robust and engaged workforce, highlighting our focus on talent, well-being, development, and strategic alignment. We are proud of the progress made in enhancing our human capital, recognizing it as a fundamental driver of the Company’s sustained growth.
Our efforts reflect our commitment to fostering a robust and engaged workforce, highlighting our focus on talent, well-being, development, and strategic alignment. We are proud of the progress made in enhancing our human capital, recognizing it as a fundamental driver of the Company’s sustained growth.
Under state law, savings banks in Washington also generally have all the powers that federal savings banks have under federal laws and regulations. The Bank is subject to periodic examination and reporting requirements by and of the Division and the FDIC. The following is a brief description of certain laws and regulations applicable to Timberland Bancorp and the Bank.
Under state law, savings banks in Washington also generally have all the powers that federal savings banks have under federal laws and regulations. The Bank is subject to periodic examination and reporting requirements by and of the DFI and the FDIC. The following is a brief description of certain laws and regulations applicable to Timberland Bancorp and the Bank.
As discussed above, pursuant to the “Small Bank Holding Company” exception, effective August 30, 2018, bank holding companies with less than $3.00 billion in consolidated assets were generally no longer subject to the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank.
As discussed above, pursuant to the “Small Bank Holding Company” exception, effective August 30, 2018, bank holding companies with less than $3.0 billion in consolidated assets were generally no longer subject to the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank.
Although management believes that it uses the best information available to make its determinations, future adjustments to the ALL may be necessary, and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Although management believes that it uses the best information available to make its determinations, future adjustments to the ACL may be necessary, and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing ALL is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate.
In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing ACL is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate.
The construction phase of these loans generally lasts up to 12 months with fixed interest rates typically ranging from 4.88% to 10.50% and with loan-to-value ratios of 80% (or up to 95% with PMI) of the appraised estimated value of the completed property.
The construction phase of these loans generally lasts up to 12 months with fixed interest rates typically ranging from 4.88% to 9.50% and with loan-to-value ratios of 80% (or up to 95% with PMI) of the appraised estimated value of the completed property.
Washington Taxation The Company and the Bank are subject to a business and occupation tax imposed under Washington law at the rate of 1.8% of gross receipts at September 30, 2023. In addition, various municipalities also assess business and occupation taxes at differing rates.
Washington Taxation The Company and the Bank are subject to a business and occupation tax imposed under Washington law at the rate of 1.8% of gross receipts at September 30, 2024. In addition, various municipalities also assess business and occupation taxes at differing rates.
In the case of a speculative or 10 custom construction loan, the Bank reviews the experience and expertise of the builder.
In the case of a speculative or custom construction loan, the Bank reviews the experience and expertise of the builder.
While the Bank believes that it has established its existing ALL in accordance with GAAP, there can be no assurance that regulators, in reviewing the Bank's loan portfolio, will not request the Bank to increase significantly its ALL.
While the Bank believes that it has established its existing ACL in accordance with GAAP, there can be no assurance that regulators, in reviewing the Bank's loan portfolio, will not request the Bank to increase significantly its ACL.
According to the Washington Administrative Code, capital and surplus are defined as a bank's Tier 1 capital, Tier 2 capital and the balance of a bank's allowance for loan losses not included in the bank's Tier 2 capital as reported in the bank's call report.
According to the Washington Administrative Code, capital and surplus are defined as a bank's Tier 1 capital, Tier 2 capital and the balance of a bank's allowance for credit losses not included in the bank's Tier 2 capital as reported in the bank's call report.
Audits . The Company is no longer subject to U.S. federal tax examination by tax authorities for years ended on or before September 30, 2019. For additional information regarding our federal income taxes, see "Note 13-Income Taxes" of the Notes to Consolidated Financial Statements contained in Item 8 of this report.
The Company is no longer subject to U.S. federal tax examination by tax authorities for years ended on or before September 30, 2020. For additional information regarding our federal income taxes, see "Note 13-Income Taxes" of the Notes to Consolidated Financial Statements contained in Item 8 of this report.
In addition, the regulations governing the Company and the Bank may be amended from time to time by the FDIC, DFI, Federal Reserve and the CFPB. Any such legislation or regulatory changes in the future could adversely affect the Company's and the Bank's operations and financial condition. We cannot predict whether any such changes may occur.
In addition, the regulations governing the Company and the Bank may be amended from time to time by the FDIC, DFI, Federal Reserve and the Consumer Financial Protection Bureau ("CFPB"). Any such legislation or regulatory changes in the future could adversely affect the Company's and the Bank's operations and financial condition. We cannot predict whether any such changes may occur.
Item 1. Business General Timberland Bancorp, Inc. (“Timberland Bancorp" or the "Company”), a Washington corporation, was organized on September 8, 1997 for the purpose of becoming the holding company for Timberland Bank (the "Bank").
Item 1. Business General Timberland Bancorp, Inc. (“Timberland Bancorp"), a Washington corporation, was organized on September 8, 1997 for the purpose of becoming the holding company for Timberland Bank (the "Bank").
The Bank’s determination of the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC and the Division which can require a different classification and the establishment of additional loss allowances.
The Bank’s determination of the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC and the DFI which can require a different classification and the establishment of additional loss allowances.
Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable capital requirements. The Bank has not elected to use the CBLR framework as of September 30, 2023.
Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of greater than 8% requires the institution to comply with the generally applicable capital requirements. The Bank has not elected to use the CBLR framework as of September 30, 2024.
Regulation of the Bank The Bank, as a state-chartered savings bank, is subject to regulation and oversight by the FDIC and the Division extending to all aspects of its operations. Insurance of Accounts and Regulation by the FDIC.
Regulation of the Bank The Bank, as a state-chartered savings bank, is subject to regulation and oversight by the FDIC and the DFI extending to all aspects of its operations. Insurance of Accounts and Regulation by the FDIC.
If the Company were subject to regulatory guidelines for bank holding companies with $3.00 billion or more in assets, at September 30, 2023, the Company would have exceeded all regulatory requirements. For additional information, see "Note 17-Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. Federal Securities Laws.
If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at September 30, 2024, the Company would have exceeded all regulatory requirements. For additional information, see "Note 17 - Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. Federal Securities Laws.
A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowing economic growth, among other factors could result in a material increase in the ALL which may adversely affect the Company's financial condition and results of operations.
A further decline in national and local economic conditions, as a result of the effects of inflation, a recession or slowing economic growth, among other factors could result in a material increase in the ACL which may adversely affect the Company's financial condition and results of operations.
As a state-chartered savings bank, the Bank is subject to regulation and oversight by the Division and the applicable provisions of Washington law and regulations of the Division adopted thereunder.
As a state-chartered savings bank, the Bank is subject to regulation and oversight by the DFI and the applicable provisions of Washington law and regulations of the DFI adopted thereunder.
At September 30, 2023, the Bank maintained a credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount to 45% of the Bank’s total assets, limited by available collateral, under which long-term borrowings totaling $15.00 million and short-term borrowings totaling $20.00 million were outstanding at September 30, 2023.
At September 30, 2024, the Bank maintained a credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount to 45% of the Bank’s total assets, limited by available collateral, under which long-term borrowings totaling $20.00 million and no short-term borrowings were outstanding at September 30, 2024.
The Bank receives loan origination fees on many of its mortgage loans and commercial business loans. Loan fees are a percentage of the loan which are charged to the borrower for funding the loan. The amount of fees charged by the Bank (excluding SBA PPP loans) is generally up to 2.0% of the loan amount.
The Bank receives loan origination fees on many of its mortgage loans and commercial business loans. Loan fees are a percentage of the loan which are charged to the borrower for funding the loan. The amount of fees charged by the Bank is generally up to 2.0% of the loan amount.
The largest loan classified as substandard at September 30, 2023 had a balance of $4.73 million and was secured by a commercial real estate property in King County. This loan was not on non-accrual status at September 30, 2023, as the loan was making payments in accordance with its repayment terms and was adequately collateralized.
The largest loan classified as substandard at September 30, 2024 had a balance of $4.62 million and was secured by a commercial real estate property in King County. This loan was not on non-accrual status at September 30, 2024, as the loan was making payments in accordance with its repayment terms and was adequately collateralized.
Grays Harbor County has a population of 77,000 according to the United States ("U.S.") Census Bureau 2022 estimates and a median family income of $86,000 according to 2023 estimates from the Department of Housing and Urban Development (“HUD”). The economic base in Grays Harbor County has been historically dependent on the timber and fishing industries.
Grays Harbor County has a population of 77,000 according to the United States ("U.S.") Census Bureau 2023 estimates and a median family income of $90,000 according to 2024 estimates from the Department of Housing and Urban Development (“HUD”). The economic base in Grays Harbor County has been historically dependent on the timber and fishing industries.
Total base assessment rates currently range from 3 to 30 basis points subject to certain adjustments. In October 2022, the FDIC finalized a rule that increased the initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023 (January 1, 2023 through March 31, 2023).
Total base assessment rates currently range from 2.5 to 32 basis points subject to certain adjustments. In October 2022, the FDIC finalized a rule that increased the initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023 (January 1, 2023 through March 31, 2023).
The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Pierce, Thurston, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 23 branches (including its main office in Hoquiam). The Bank’s deposits are insured up to applicable legal limits by the FDIC.
The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Pierce, Thurston, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 23 branches (including its main office in Hoquiam). The Bank’s deposits are insured up to applicable legal limits by the Federal Deposit Insurance Corporation (the “FDIC”).
Thurston County is home of Washington State’s capital (Olympia), and its economic base is largely driven by state government related employment. According to the Washington State Employment Security Department, the unemployment rate for the Thurston County area decreased to 3.4% at September 30, 2023 from 3.8% at September 30, 2022.
Thurston County is home of Washington State’s capital (Olympia), and its economic base is largely driven by state government related employment. According to the Washington State Employment Security Department, the unemployment rate for the Thurston County area increased to 3.8% at September 30, 2024 from 3.4% at September 30, 2023.
The Bank increases its ALL by charging provisions for loan losses against the Bank's operating income. 18 The Board of Directors reviews the adequacy of the ALL at least quarterly based on management's assessment of current economic conditions, past loss and collection experience, and risk characteristics of the loan portfolio.
The Bank increases its ACL by charging provisions for credit losses against the Bank's operating income. The Board of Directors reviews the adequacy of the ACL at least quarterly based on management's assessment of current economic conditions, past loss and collection experience, and risk characteristics of the loan portfolio.
Other industries that support the economic base are tourism, agriculture, shipping, transportation and technology. According to the Washington State Employment Security Department, the unemployment rate in Grays Harbor County decreased to 4.8% at September 30, 2023 from 5.8% at September 30, 2022.
Other industries that support the economic base are tourism, agriculture, shipping, transportation and technology. According to the Washington State Employment Security Department, the unemployment rate in Grays Harbor County increased to 5.5% at September 30, 2024 from 4.8% at September 30, 2023.
(4) Loans receivable, net for purposes of this table includes the deductions for the undisbursed portion of construction loans in process and deferred loan origination fees and does not include the deduction for the allowance for loan losses.
(4) Loans receivable, net for purposes of this table includes the deductions for the undisbursed portion of construction loans in process and deferred loan origination fees and does not include the deduction for the ACL.
An appraisal of the real estate offered as collateral generally is undertaken by a certified appraiser retained by the Bank. Loan applications are initiated by loan officers and are required to be approved by an authorized loan officer or Bank underwriter, one of the Bank’s Loan Committees or the Bank’s Board of Directors.
An appraisal of the real estate offered as collateral generally is undertaken by a certified appraiser retained by the Bank. Loan applications are initiated by loan officers and must be approved by an authorized loan officer, Bank underwriter, the Bank’s Loan Committees, or the Bank’s Board of Directors.
The economy in Pierce County is diversified with the presence of military related government employment (Joint Base Lewis-McChord), transportation and shipping employment (Port of Tacoma), and aerospace related employment. According to the Washington State Employment Security Department, the unemployment rate for the Pierce County area decreased to 3.9% at September 30, 2023 from 4.3% at September 30, 2022.
The economy in Pierce County is diversified with the presence of military related government employment (Joint Base Lewis-McChord), transportation and shipping employment (Port of Tacoma), and aerospace related employment. According to the Washington State Employment Security Department, the unemployment rate for the Pierce County area increased to 4.5% at September 30, 2024 from 3.9% at September 30, 2023.
At September 30, 2023, the Bank met the requirements to be "well capitalized," and the Bank's CET1 capital exceeded the required conservation buffer. For additional information regarding the Bank's regulatory capital requirements, see "Note 17-Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
At September 30, 2024, the Bank met the requirements to be "well capitalized," and the Bank's CET1 capital exceeded the required conservation buffer. For additional information regarding the Bank's regulatory capital requirements, see "Note 17-Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. Prompt Corrective Action.
Unamortized net deferred loan origination fees totaled $5.24 million at September 30, 2023. Non-performing Loans and Delinquencies. The Bank assesses late fees or penalty charges on delinquent loans of approximately 5% of the monthly loan payment amount.
Unamortized net deferred loan origination fees totaled $5.43 million at September 30, 2024. Non-performing Loans and Delinquencies. The Bank assesses late fees or penalty charges on delinquent loans of approximately 5% of the monthly loan payment amount.
The Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired loan should be placed on non-accrual status, such as the financial strength of the borrower, the collateral value, reasons for delay, payment record, the amount past due and the number of days past due.
The Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether a loan should remain on non-accrual status, such as the financial strength of the borrower, the collateral value, reasons for delay, payment record, the amount past due and the number of days past due.
An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the Bank is not warranted. When the Bank classifies problem assets as either substandard or doubtful, it is required to establish allowances for loan losses in an amount deemed prudent by management.
An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the Bank is not warranted. When the Bank classifies problem assets as either substandard or doubtful, it is required to establish an ACL in an amount deemed prudent by management.
See "Item 1A. Risk Factors - We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that could increase our costs of operations." At September 30, 2023, the Bank had $91.71 million of jumbo certificates of deposit of $250,000 or more.
See "Item 1A. Risk Factors" - We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that could increase our costs of operations. At September 30, 2024, the Bank had $113.58 million of jumbo certificates of deposit of $250,000 or more.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of September 30, 2023, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 84.08% of regulatory capital.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of September 30, 2024, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 72.42% of regulatory capital.
Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm.
Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm. Please see "Item 1C. Cybersecurity".
The Bank has two branches located in Kitsap County. The economic base of Kitsap County is largely supported by military related government employment through the U.S. Navy. According to the Washington State Employment Security Department, the unemployment rate for the Kitsap County area decreased to 3.5% at September 30, 2023 from 3.6% at September 30, 2022.
The Bank has two branches located in Kitsap County. The economic base of Kitsap County is largely supported by military related government employment through the U.S. Navy. According to the Washington State Employment Security Department, the unemployment rate for the Kitsap County area increased to 3.8% at September 30, 2024 from 3.5% at September 30, 2023.
In addition, at September 30, 2023 the Bank’s loans on commercial real estate, as defined by the FDIC, were 289.24% of regulatory capital. Activities and Investments of Insured State-Chartered Financial Institutions. Federal law generally limits the activities and equity investments of FDIC-insured state-chartered banks to those that are permissible for national banks.
In addition, at September 30, 2024 the Bank’s loans on commercial real estate, as defined by the FDIC, were 290.74% of regulatory capital. Activities and Investments of Insured State-Chartered Financial Institutions. Federal law generally limits the activities and equity investments of FDIC-insured state-chartered banks to those that are permissible for national banks.
The Bank has five branches located in Pierce County, and these branches have historically been responsible for a substantial portion of the Bank’s construction lending activities. Thurston County has a population of 299,000 according to the U.S. Census Bureau 2022 estimates and a median family income of $102,500 according to 2023 HUD estimates.
The Bank has five branches located in Pierce County, and these branches have historically been responsible for a substantial portion of the Bank’s construction lending activities. Thurston County has a population of 299,000 according to the U.S. Census Bureau 2023 estimates and a median family income of $116,700 according to 2024 HUD estimates.
The Bank has six branches located in Thurston County. This county has historically had a stable economic base primarily attributable to the state government presence. Kitsap County has a population of 278,000 according to the U.S. Census Bureau 2022 estimates and a median family income of $113,500 according to 2023 HUD estimates.
The Bank has six branches located in Thurston County. This county has historically had a stable economic base primarily attributable to the state government presence. Kitsap County has a population of 278,000 according to the U.S. Census Bureau 2023 estimates and a median family income of $119,700 according to 2024 HUD estimates.
The Bank believes that its jumbo certificates of deposit, which represented 5.9% of total deposits at September 30, 2023, present similar interest rate risks as compared to its other deposits.
The Bank believes that its jumbo certificates of deposit, which represented 6.9% of total deposits at September 30, 2024, present similar interest rate risks as compared to its other deposits.
Speculative construction loans are generally originated for a term of 12 months, with current rates generally ranging fr om 6.50% to 9.50%, an d with a loan-to-value ratio of no more than 80 % of the appraised value of the completed property.
Speculative construction loans are generally originated for a term of 12 months, with current rates generally ranging fr om 6.50% to 10.50%, and with a loan-to-value ratio of no more than 80 % of the appraised value of the completed property.
These allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities and the risks associated with problem assets. When the Bank classifies problem assets as loss, it charges off the balance of the asset against the allowance for loan losses.
These allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities and the risks associated with problem assets. When the Bank classifies problem assets as loss, it charges off the balance of the asset against the ACL.
During the years ended September 30, 2023, 2022 and 2021, the Bank’s total gross loan originations were $361.79 million, $572.46 million and $602.34 million, respectively. Periodically, the Bank purchases loan participation interests in construction, commercial real estate and multi-family loans, secured by properties generally located in Washington State, from other banks.
Loan Originations, Purchases and Sales . During the years ended September 30, 2024, 2023 and 2022, the Bank’s total gross loan originations were $251.44 million, $361.79 million and $572.46 million, respectively. Periodically, the Bank purchases loan participation interests in construction, commercial real estate and multi-family loans, secured by properties generally located in Washington State, from other banks.
The Bank has six branches (including its home office) located in the county. Pierce County is the second most populous county in the state and has a population of 927,000 according to the U.S. Census Bureau 2022 estimates. The county’s median family income is $112,600 according to 2023 HUD estimates.
The Bank has six branches (including its home office) located in the county. Pierce County is the second most populous county in the state and has a population of 929,000 according to the U.S. Census Bureau 2023 estimates. The county’s median family income is $112,300 according to 2024 HUD estimates.
At September 30, 2023, the largest amount outstanding to any one borrower and the borrower’s related entities was $38.12 million (including $5.28 million in available lines of credit), which was secured by various commercial real estate and residential properties and other business assets located primarily in King and Pierce counties, and these loans were performing according to their repayment terms at September 30, 2023.
At September 30, 2024, the largest amount outstanding to any one borrower and the borrower’s related entities was $42.54 million (including $5.83 million in available lines of credit), which was secured by various commercial real estate and residential properties and other business assets located primarily in King and Pierce counties, and these loans were performing according to their repayment terms at September 30, 2024.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFinally, beginning on October 1, 2023, the Company adopted the CECL standard to determine estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses at inception of the loan. The adoption of CECL will change the allowance calculation methodology from a historical incurred loss model to an expected future loss model.
Biggest changeAs a result of the change in methodology from the incurred loss model to the CECL model, on October 1, 2023, the Company recorded a one-time, net of tax charge of $488,000 to retained earnings, a $461,000 increase to the allowance for credit losses on loans, a $92,000 increase to the allowance for credit losses on investment securities and a $65,000 increase to the allowance for credit losses on unfunded commitments.
If our third-party providers encounter difficulties, including those resulting from breakdowns, or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or 44 higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our customers and otherwise conduct business operations could be adversely impacted.
If our third-party providers encounter difficulties, including those resulting from breakdowns, or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our customers and otherwise conduct business operations could be adversely impacted.
The consummation of any future acquisitions may dilute shareholder value or may have an adverse effect upon our operating results while the operations of the acquired business are being integrated into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by our existing operations, or otherwise perform as expected.
The consummation of any future acquisitions may dilute shareholder value or may have an 38 adverse effect upon our operating results while the operations of the acquired business are being integrated into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by our existing operations, or otherwise perform as expected.
If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected. 41 Changes in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability.
If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected. Changes in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability.
An increase in interest rates, change in the programs offered by Freddie Mac or our ability to qualify for their programs may reduce our mortgage revenues, which would negatively impact our non-interest income. The sale of residential mortgage loans to Freddie Mac has historically provided a significant portion of our non-interest income.
An increase in interest rates, change in the programs offered by Freddie Mac or our ability to qualify for their programs may reduce our mortgage revenues, which would negatively impact our non-interest income. The sale of residential mortgage loans to Freddie Mac has historically provided a significant portion of our noninterest income.
In a rising or higher interest rate environment, the demand for mortgage loans, particularly refinancing of existing mortgage loans, tends to fall and 42 our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold. This would result in a decrease in mortgage revenues and a corresponding decrease in non-interest income.
In a rising or higher interest rate environment, the demand for mortgage loans, particularly refinancing of existing mortgage loans, tends to fall and our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold. This would result in a decrease in mortgage revenues and a corresponding decrease in non-interest income.
External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business financial conditions and results of operations. Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve.
External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations. Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve.
Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates (up or down) could adversely affect our net interest margin and, as a result, our net interest income.
Net interest margin is the difference between the yield we earn on interest-earning assets and the rate we pay for deposits and other sources of funding. Changes in interest rates (up or down) could adversely affect our net interest margin and, as a result, our net interest income.
Although the yield we earn on our assets and our funding costs tends to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract.
Although the yield we earn on our interest-earning assets and our funding costs tends to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract.
For example, a decrease in interest rates typically increases the prepayment speeds of loan servicing rights and therefore decreases the fair value of the loan servicing rights. Future decreases in interest rates could decrease the fair value of our loan servicing rights below their recorded amount, which would decrease our earnings.
For example, a decrease in interest rates typically increases the prepayment speeds of loan servicing rights and therefore decreases the fair value of the loan servicing rights. 44 Future decreases in interest rates could decrease the fair value of our loan servicing rights below their recorded amount, which would decrease our earnings.
Changes in the slope of the "yield curve," or the spread between short-term and long-term interest rates, could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates.
Changes in the slope of the 39 "yield curve," or the spread between short-term and long-term interest rates, could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates.
During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations.
During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the 40 decline in loan originations.
We cannot assure that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third-parties on which we rely.
We cannot assure you that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third-parties on which we rely.
A return of recessionary conditions or adverse economic conditions in our local market areas of Grays Harbor, Pierce, Thurston, King, Kitsap and Lewis counties Washington, which we consider to be our primary market area, may reduce our rate of growth, affect our customers' ability to repay loans and adversely impact our business, financial condition, and results of operations.
Recessionary conditions or adverse economic conditions in our local market areas of Grays Harbor, Pierce, Thurston, King, Kitsap and Lewis counties Washington, which we consider to be our primary market area, may reduce our rate of growth, affect our customers' ability to repay loans and adversely impact our business, financial condition, and results of operations.
Although we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and cyber attacks and periodically test our security, these precautions may not protect our systems from compromises or breaches of our security measures, and could result in losses to us or our customers, our loss of business and/or customers, damage to our reputation, the incurrence of additional expenses, disruption to our business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operation.
Although we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and cyberattacks and periodically test our security, these 42 precautions may not protect our systems from compromises or breaches of our security measures, and could result in losses to us or our customers, our loss of business and/or customers, damage to our reputation, the incurrence of additional expenses, disruption to our business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operation.
In addition, legislation is currently pending in Congress that would allow banks and financial institutions to serve marijuana businesses in states where it is legal without any risk of federal prosecution. At September 30, 2023, approximately 1.3% of our total deposits and a portion of our service charges from deposits are from legal marijuana-related businesses.
In addition, legislation is currently pending in Congress that would allow banks and financial institutions to serve marijuana businesses in states where it is legal without any risk of federal prosecution. At September 30, 2024, approximately 1.1% of our total deposits and a portion of our service charges from deposits are from legal marijuana-related businesses.
Unrealized gains and losses on investment securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of investment securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders' equity.
Unrealized gains and losses on investment securities available for sale are reported as a separate component of equity, net of tax. Increases in the fair value of investment securities available for sale resulting from decreases in interest rates could have a positive effect on stockholders' equity.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment.
Such balloon payments may require the borrower to either sell or refinance the underlying property to make the payment, which may increase the risk of default or non-payment.
Risks Related to Laws and Regulations We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that could increase our costs of operations. The banking industry is extensively regulated. Federal banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company's shareholders.
We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that could increase our costs of operations. The financial services industry is extensively regulated. Federal banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company's shareholders.
In addition, deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside our control, may also require an increase in the allowance for loan losses.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may also require an increase in the allowance for credit losses.
While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur. We rely on other companies to provide key components of our business infrastructure. We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations.
While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur. We rely on other companies to provide key components of our business infrastructure. We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations.
If our estimates are incorrect, the ALL may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for increases in the ALL through the provision for losses on loans which is charged against income.
If our estimates are incorrect, the allowance for credit losses for loans may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for increases in our allowance for credit losses through the provision for credit losses which is charged against income.
Future changes in Freddie Mac's program, including our eligibility to participate, the criteria for loans to be accepted or laws that significantly affect the activity of Freddie Mac could materially adversely affect our results of operations if we could not find other purchasers.
Any future changes in its program, including our eligibility to participate in such program, the criteria for loans to be accepted or laws that significantly affect the activity of Freddie Mac could, in turn, materially adversely affect our results of operations if we could not find other purchasers.
At September 30, 2023, we had $251.74 million in certificates of deposit that mature within one year and $1.26 billion in non-interest bearing, NOW checking, savings and money market accounts. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.
At September 30, 2024, we had $313.82 million in certificates of deposit that mature within one year and $1.28 billion in non-interest bearing, NOW checking, savings and money market accounts. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.
We may experience decreases in the fair value of our loan servicing rights, which could reduce our earnings. 45 Loan servicing rights are capitalized at estimated fair value when acquired through the origination of loans that are subsequently sold with servicing rights retained. At September 30, 2023, our loan servicing rights totaled $2.12 million.
We may experience decreases in the fair value of our loan servicing rights, which could reduce our earnings. Loan servicing rights are capitalized at estimated fair value when acquired through the origination of loans that are subsequently sold with servicing rights retained. At September 30, 2024, our loan servicing rights totaled $1.37 million.
Actions by monetary and fiscal authorities, including the Federal Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance. Inflation has risen sharply since the end of 2021 and throughout 2022 at levels not seen for over 40 years. Inflationary pressures, while dissipating, remained elevated throughout the first half of 2023.
Actions by monetary and fiscal authorities, including the Federal Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance. Inflation has risen sharply since the end of 2021 and throughout 2022 at levels not seen for over 40 years.
A deterioration in economic conditions in the market areas we serve as a result of inflation, a recession, the effects of COVID-19 variants or other factors could result in the following consequences, any of which could have a materially adverse impact on our business, financial condition and results of operations: • loan delinquencies, problem assets and foreclosures may increase; • we may increase our allowance for loan losses; • the sale of foreclosed assets may slow; • demand for our products and services may decline possibly resulting in a decrease in our total loans, total deposits, or assets; • collateral for loans made may decline in value, exposing us to increased risk loans, reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and • the amount of our low-cost or non-interest bearing deposits may decrease and the composition of our deposits may be adversely affected.
A deterioration in economic conditions in the market areas we serve as a result of inflation, a recession, war, geopolitical conflicts, adverse weather or other factors could result in the following consequences, any of which could have a materially adverse impact on our business, financial condition and results of operations: • loan delinquencies, problem assets and foreclosures may increase; • we may increase our ACL; • the sale of foreclosed assets may slow; • demand for our products and services may decline possibly resulting in a decrease in our total loans, total deposits, or assets; • collateral for loans made may decline in value, exposing us to increased risk loans, reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and • reduction in our low-cost or noninterest-bearing deposits.
There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets, and lead to accounting charges that could have a material adverse effect on our business, financial condition and results of operations.
There can be no assurance that the declines in market value will not result in ACL on investments, and lead to accounting charges that could have a material adverse effect on our business, financial condition and results of operations.
Management recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that the ALL may be sufficient to absorb losses.
Management also recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions.
If the FOMC further increases the targeted federal funds rate, overall interest rates will likely rise, which will negatively impact our net interest income and may negatively impact both the housing market by reducing refinancing activity and new home purchases and the U.S. economy.
If the FOMC further decreases the targeted federal funds rate, overall interest rates will likely decrease, which may negatively impact our net interest income, but could positively impact both the housing market by increasing refinancing activity and new home purchases and the U.S. economy.
Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss. At September 30, 2023, we had $568.27 million of commercial real estate mortgage loans, representing 39.8% of our total loan portfolio.
Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss. 36 At September 30, 2024, we had $599.22 million of commercial real estate loans, representing 39.6% of our total loan portfolio.
General economic conditions, including inflation, unemployment and money supply fluctuations, also may adversely affect our profitability. Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade. Changes in agreements or relationships between the United States and other countries may also affect these businesses.
General economic conditions, including inflation, unemployment and money supply fluctuations, also may adversely affect our profitability. Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade.
Since March 2022, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve has increased the target range for the federal funds rate by 525 basis points, including 225 basis points during the 2023 fiscal year, to a range of 5.25% to 5.50% as of September 30, 2023.
Since March 2022, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve has increased the target range for the federal funds rate by 475 basis points, including 50 basis points reduction during the 2024 fiscal year, to a range of 4.75% to 5.00% as of September 30, 2024.
Our business may be adversely affected by credit risk associated with residential property. At September 30, 2023, $291.5 million, or 20.4% of our total loan portfolio was secured by one- to four-family mortgage loans and home equity loans.
Our business may be adversely affected by credit risk associated with residential property. At September 30, 2024, $347.04 million, or 22.9% of our total loan portfolio was secured by one- to four-family mortgage loans and home equity loans.
Our non-performing assets adversely affect our net income in various ways: • We do not record interest income on non-accrual loans or non-performing investment securities, except on a cash basis when the collectibility of the principal is not in doubt. • We must provide for probable loan losses through a current period charge to the provision for loan losses. • Non-interest expense increases when we must write down the value of OREO properties, if any, to reflect changing market values. • Non-interest income decreases when we must recognize other-than-temporary impairment on non-performing investment securities. • There are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance costs related to OREO. • The resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activities.
Our non-performing assets adversely affect our net income in various ways: • We do not record interest income on non-accrual loans or non-performing investment securities, except on a cash basis when the collectability of the principal is not in doubt. • We must recognize expected credit losses through a current period charge to the provision for credit losses. • Non-interest expense increases if we must write down the value of OREO properties to reflect market declines. • Non-interest income decreases when we recognize other-than-temporary impairment on non-performing investment securities. • There are legal fees and carrying costs (such as taxes, insurance, and maintenance) associated with OREO. • Managing non-performing assets requires significant management attention, diverting resources from more profitable activities.
While we assess and improve these programs on an ongoing basis, there can be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate all risk and limit losses in our business.
We also maintain a compliance program to identify, measure, assess and report on our adherence to applicable laws, policies and procedures. While we assess and improve these programs on an ongoing basis, there can be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate all risk and limit losses in our business.
Business - How We Are Regulated." These regulations, along with existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures.
These regulations may sometimes impose significant limitations on our operations. These regulations, along with existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures.
Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price. Our evaluation of the fair value of goodwill involves a substantial amount of judgment.
We perform a goodwill evaluation at least annually to test for goodwill impairment. Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price.
Our future success will depend, in part, on our ability to keep pace with the technological changes and to use technology to satisfy and grow customer demand for our products and services and to create additional efficiencies in our operations.
The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. Our future success will depend, in part, on our ability to keep pace with the technological changes and to use technology to satisfy and grow customer demand for our products and services and to create additional efficiencies in our operations.
Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans or other sources could have a substantial negative effect on our liquidity.
Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans or other sources could have a substantial negative effect on our liquidity.
We have concluded that we have a concentration in commercial real estate lending because our balance in commercial real estate loans (including owner-occupied loans) at September 30, 2023 represents more than 300% of total capital.
We have concluded that we do not have a concentration in commercial real estate lending because our balance in commercial real estate loans (including owner-occupied loans) at September 30, 2024 represented 290.74% of total capital.
Actively monitoring construction loans, involving cost comparisons and on-site inspections, adds complexity and cost. Market interest rate hikes also might significantly impact construction loans, affecting end-purchaser borrowing costs, potentially reducing demand or the homeowner's ability to finance the completed home. Further, properties under construction are hard to sell and 37 often need completion for successful sales, complicating problem loan resolution.
Market interest rate hikes also might significantly impact construction loans, affecting end-purchaser borrowing costs, potentially reducing demand or the homeowner's ability to finance the completed home. Further, properties under construction are hard to sell and often need completion for successful sales, complicating problem loan resolution. This might require additional funds or engaging another builder, incurring additional costs and market risks.
Moreover, certain construction loans do not require borrower payments during the term, accumulating interest into the principal. Thus, repayment depends heavily on project success and the borrower's ability to sell, lease, or secure permanent financing, rather than their ability to repay principal and interest directly. Misjudging a project's value could leave us with inadequate security and potential losses upon completion.
Thus, repayment depends heavily on project success and the borrower's ability to sell, lease, or secure permanent financing, rather than their ability to repay principal and interest directly. Misjudging a project's value could leave us with inadequate security and potential losses upon completion. Actively monitoring construction loans, involving cost comparisons and on-site inspections, adds complexity and cost.
Lending money is a substantial part of our business, and each loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment.
Every loan carries a risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment.
For these reasons, we may experience higher rates of delinquencies, default and losses on our residential loans. Our allowance for loan losses may not be sufficient to absorb losses in our loan portfolio.
Consequently, we may experience higher rates of delinquency, default, and losses on our residential loans. Our allowance for credit losses on loans may not be sufficient to absorb losses in our loan portfolio. Lending money is a substantial part of our business.
The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.
The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.
The annual inflation rate in the United States decreased to 3.7% in September 2023 from its high of 7.0% in December 2021, as reported by the U.S. Bureau of Labor Statistics.
Inflationary pressures dissipated throughout fiscal 2024, with the annual inflation rate in the United States decreasing to 2.4% during September 2024 from its high of 7.0% in December 2021, 35 as reported by the U.S. Bureau of Labor Statistics.
The FOMC has paused increases to the target federal funds rate but has not ruled out future increases and hinted that rates will remain higher for longer.
The FOMC has reduced the target federal funds rate by an additional 25 basis points in November of 2024 to the target federal funds rate and has not ruled out future decreases but hinted that rates will remain higher for longer.
At September 30, 2023, our non-performing assets (which consisted solely of non-accruing loans, non-accrual investment securities, and OREO) were $1.60 million, or 0.09% of total assets.
If our non-performing assets increase, our earnings will be adversely affected. At September 30, 2024, our non-performing assets (which consisted solely of non-accruing loans, non-accrual investment securities, and OREO) were $3.94 million, or 0.2% of total assets.
Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. If we are able to raise capital, it may not be on terms that are acceptable to us.
We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance.
As with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses which could have a material adverse effect on our financial condition and results of operations.
As with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately 45 anticipated or identified.
Small to medium-sized businesses may be 36 impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses.
Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, which would adversely impact our results of operations and financial condition.
This type of lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict.
This type of lending is highly sensitive to regional economic conditions, which can affect borrowers' ability to meet their payment obligations and make loss levels difficult to predict.
Any additional provisions will result in a decrease in net income and possibly capital, and may have a material adverse effect on our financial condition and results of operations.
If charge-offs in future periods exceed the allowance for credit losses, we may need additional provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in net income and may have a material adverse effect on our financial condition, results of operations, liquidity and capital.
This risk is affected by, among other things: • the cash flow of the borrower and/or the project being financed; • the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan; • the duration of the loan; • the credit history of a particular borrower; and • changes in economic and industry conditions.
This risk is affected by, among other things: • the cash flow of the borrower and/or the project being financed; • the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan; • the duration of the loan; • the credit history of a particular borrower; and • changes in economic and industry conditions. 37 To address these risks, we maintain an allowance for credit losses on loans, which is a reserve established through a provision for credit losses on loans charged against operating income, that we believe is appropriate to provide for expected losses in our loan portfolio.
Risks Related to Cybersecurity, Third-Parties and Technology The financial services market is undergoing rapid technological changes and, if we are unable to stay current with those changes, we may not be able to effectively compete. The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services.
Risks Related to Cybersecurity, Third-Parties and Technology As of September 30, 2024 there has not been any cybersecurity or related breach of the risk factors discussed below that would require disclosure. The financial services market is undergoing rapid technological changes and, if we are unable to stay current with those changes, we may not be able to effectively compete.
Accordingly, we cannot make assurances that we will be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected.
If we are able to raise capital, it may not be on terms that are acceptable to us. Accordingly, we cannot make assurances that we will be able to raise additional capital if needed on terms that are acceptable to us, or at all.
Risk Related to our Business Strategy We may be adversely affected by risks associated with completed and potential acquisitions. 40 As part of our general growth strategy, on October 1, 2018, we completed the acquisition of South Sound Bank, a Washington-state chartered bank, headquartered in Olympia, Washington.
As part of our general growth strategy, on October 1, 2018, we completed the acquisition of South Sound Bank, a Washington-state chartered bank, headquartered in Olympia, Washington. Although our business strategy emphasizes organic expansion, we also look for and evaluate potential acquisition opportunities.
The FDIC, the Federal Reserve and the Office of the Comptroller of the Currency have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under this guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations.
Under this guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations.
Although our business strategy emphasizes organic expansion, from time to time in the ordinary course of business, we engage in preliminary discussions with potential acquisition targets. There can be no assurance that we will successfully identify suitable acquisition candidates, complete acquisitions or successfully integrate acquired operations into our existing operations or expand into new markets.
There can be no assurance that we will successfully identify suitable acquisition candidates, complete acquisitions or successfully integrate acquired operations into our existing operations or expand into new markets.
Risks Related to our Lending Activities Our real estate construction and land loans expose us to significant risks. We specialize in real estate construction loans for individuals and builders, mainly focusing on residential property development. Our loans are initiated regardless of whether the property used as collateral is under a sales contract.
Interest rates do not necessarily move in the same direction or by the same magnitude as the prices of goods and services. Risks Related to our Lending Activities Our real estate construction and land loans expose us to significant risks. We specialize in real estate construction loans for individuals and builders, mainly focusing on residential property development.
Accordingly, charge-offs on commercial real estate loans may be larger as a percentage of the total principal outstanding than those incurred with our residential or consumer loan portfolios. The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.
Accordingly, charge-offs on commercial real estate loans may be larger as a percentage of the total principal outstanding than those incurred with our residential or consumer loan portfolios. Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.
However, loans for land development or future construction carry additional risks due to longer development periods, vulnerability to real estate value declines, economic fluctuations delaying projects, political changes affecting land use, and the collateral's illiquid nature. During this extended financing-to-completion period, the collateral often generates no cash flow.
As of September 30, 2024, land loans accounted for $29.37 million, or 1.9% of our total loan portfolio. Loans for land development or future construction carry additional risks due to longer development periods, vulnerability to real estate value declines, economic fluctuations delaying projects, political changes affecting land use, and the collateral's illiquid nature.
Additionally, this type of lending often involves higher principal amounts and might be concentrated among a few builders. A downturn in housing or real estate markets could escalate delinquencies, defaults, foreclosures, and compromise collateral value. Some builders have multiple outstanding loans, meaning problems with one loan pose a substantial risk to us.
Factors like shifts in housing demand and unexpected building costs can significantly deviate actual results from estimates. Additionally, this type of lending often involves higher principal amounts and might be concentrated among a few builders. A downturn in housing or real estate markets could escalate delinquencies, defaults, foreclosures, and compromise collateral value.
Bank regulatory agencies also periodically review our ALL and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different from those of management. If charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to replenish the ALL.
Bank regulatory agencies also periodically review our allowance for credit losses and may require an increase in the provision for possible credit losses or the recognition of further loan charge-offs based on their judgment about information available to them at the time of their examination.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Climate change and related legislative and regulatory initiatives may materially affect our business and results of operations.
Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects. 41 Climate change and related legislative and regulatory initiatives may materially affect our business and results of operations. Climate change continues to be a pressing concern, prompting heightened awareness and action on a global scale.
Significant charge-offs to our OREO may have an adverse effect on our financial condition and results of operations. Other Risks Related to Our Business Managing reputational risk is important to attracting and maintaining customers, investors and employees.
Significant charge-offs to our OREO may have an adverse effect on our financial condition and results of operations. Other Risks Related to Our Business Ineffective liquidity management could adversely affect our financial results and condition. Liquidity is essential to our business. We rely on several sources to meet our potential liquidity demands.
We are dependent on key personnel, and the loss of one or more of those key personnel may materially and adversely affect our prospects.
If our risk management framework proves ineffective, we could suffer unexpected losses which could have a material adverse effect on our financial condition and results of operations. We are dependent on key personnel, and the loss of one or more of those key personnel may materially and adversely affect our prospects.
This might require additional funds or engaging another builder, incurring additional costs and market risks. Moreover, speculative construction loans pose additional risks, especially regarding finding end-purchasers for finished projects. As of September 30, 2023, $17.10 million of our construction portfolio consisted of speculative one- to four-family construction loans.
Moreover, speculative construction loans pose additional risks, especially regarding finding end-purchasers for finished projects. As of September 30, 2024, $11.50 million of our construction portfolio consisted of speculative one- to four-family construction loans. We also offer land loans for land acquisition, which can be used for building or recreational purposes.
In addition, any additional capital we obtain may result in the dilution of the interests of existing holders of our common stock. Further, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action.
Further, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action. Our framework for managing risks may not be effective in mitigating risk and loss to us.
Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high. 46 We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity” of this Form 10-K. Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be exceedingly high.
These risks include liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance risk, and reputational risk, among others. We also maintain a compliance program to identify, measure, assess and report on our adherence to applicable laws, policies and procedures.
We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are subject. These risks include liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance risk, and reputational risk, among others.
Construction lending involves inherent risks due to estimating costs in relation to project values. Uncertainties in construction costs, market value, and regulatory impacts make accurately evaluating total project funds and loan-to-value ratios challenging. Factors like shifts in housing demand and unexpected building costs can significantly deviate actual results from estimates.
Notably, approximately $132.10 million of our residential construction loans are structured to convert into permanent loans upon construction completion. Construction lending involves inherent risks due to estimating costs in relation to project values. Uncertainties in construction costs, market value, and regulatory impacts make accurately evaluating total project funds and loan-to-value ratios challenging.
Further, a decline in residential real estate values resulting from a downturn in the Washington housing market may reduce the value of the real estate collateral securing these types of loans and increase our risk of loss if borrowers default on their loans.
A decline in residential real estate values, particularly in the Washington housing market, may reduce the value of collateral securing these loans and increase our risk of loss if borrowers default. Some of our residential mortgage loans are secured by properties with little or no borrower equity, either due to high loan-to-value ratios at origination or declining home values.
This type of lending activity, while potentially more profitable than single-family residential lending, is generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. Collateral evaluation and financial statement analysis in these types of loans requires a more detailed analysis at the time of loan underwriting and on an ongoing basis.
Our emphasis on commercial real estate lending may expose us to increased lending risks. Our current business strategy includes an emphasis on commercial real estate lending. This type of lending activity, while potentially more profitable than single-family residential lending, is generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict.
For those home equity lines secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan, and such repayment and the costs associated with a foreclosure are justified by the value of the property.
Loans with higher loan-to-value ratios are more sensitive to declining property values, resulting in a higher risk of default and loss. Additionally, for home equity lines of credit secured by second mortgages, recovering loan proceeds in the event of default may be difficult unless we repay the first mortgage, which may not be justified by the property’s value.
Higher market interest rates, recessionary conditions or declines in the volume of single-family real estate and/or the sales prices as well as elevated unemployment rates may result in higher than expected loan delinquencies or problem assets, and a decline in demand for our products and services.
Factors such as higher interest rates, recessionary conditions, lower real estate sales volumes and prices, and elevated unemployment may lead to higher loan delinquencies, problem assets, and reduced demand for our products and services, adversely impacting our capital, liquidity, and financial condition.
The appropriate 39 level of the ALL is determined by management through periodic comprehensive reviews and consideration of several factors, including, but not limited to: • an ongoing review of the quality, size and diversity of the loan portfolio; • evaluation of non-performing loans; • historical default and loss experience; • existing economic conditions and management's expectations of future events; • risk characteristics of the various classifications of loans; • the amount and quality of collateral, including guarantees, securing the loans; and • regulatory requirements and expectations.
The appropriate level of the allowance of credit losses is determined by management through periodic comprehensive reviews and consideration of several factors, including, but not limited to our collective loss reserve, for loans evaluated on a pool basis with similar risk characteristics based on our life of loan historical default and loss experience, certain macroeconomic factors, reasonable and supportable forecasts, regulatory requirements, management’s expectations of future events and certain qualitative factors.
Although as of September 30, 2023, all construction and land loans were performing according to their terms, a significant rise in non-performing construction or land loans could materially impact our financial status and operations. Our emphasis on commercial real estate lending may expose us to increased lending risks. Our current business strategy includes an emphasis on commercial real estate lending.
During this extended financing-to-completion period, the collateral often generates no cash flow. As of September 30, 2024, all our construction and land loans were performing according to their terms. A significant rise in non-performing construction or land loans could materially impact our financial condition and results of operations.
As of September 30, 2023, our construction loans totaled $273.84 million, comprising 19.2% of our overall loan portfolio. These were allocated as follows: $203.94 million for residential real estate projects, $51.06 million for commercial projects, and $18.84 million for land development.
Our loans are initiated regardless of whether the property used as collateral is under a sales contract. As of September 30, 2024, our construction loans totaled $219.20 million, comprising 14.5% of our overall loan portfolio. These were allocated as follows: $172.00 million for residential real estate projects, $29.46 million for commercial projects, and $17.74 million for land development.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe lease terms for our leased branches are not individually material. In addition, the Bank operated 24 proprietary automated teller machines ("ATMs") that are part of a nationwide cash exchange network as of September 30, 2023.
Biggest changeThe lease terms for our branches are not individually material. In addition, the Bank operated 24 proprietary automated teller machines ("ATMs") that are part of a nationwide cash exchange network as of September 30, 2024.
Item 2. Properties At September 30, 2023, the Company maintained its headquarters in Hoquiam, Washington, along with 23 full-service bank branches and four administrative offices with an aggregate net book value of $18.51 million. The Company's owns all properties except for one administrative office, the Tacoma branch and the Downtown Lacey branch, which are leased.
Item 2. Properties At September 30, 2024, the Company maintained its headquarters in Hoquiam, Washington, along with 23 full-service bank branches and four administrative offices with an aggregate net book value of $18.51 million. The Company's owns all properties except for one administrative office, the Tacoma branch and the Downtown Lacey branch, which are leased.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe Company is not currently a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of the Company. 47 Item 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeThe Company is not currently a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of the Company. Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStock Repurchases The following table sets forth the Company's repurchases of its outstanding Common Stock during the fourth quarter of the year ended September 30, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet Be Purchased Under the Plans (1) July 1, 2023 - July 31, 2023 — $ — — 404,708 August 1, 2023 - August 31, 2023 — — — 404,708 September 1, 2023 - September 30, 2023 30,566 28.74 30,566 374,142 Total 30,566 $ 28.74 30,566 374,142 (1) On July 25, 2023, the Company announced a new stock repurchase program to purchase 404,708 shares of the Company's common stock.
Biggest changeStock Repurchases The following table sets forth the Company's repurchases of its outstanding common stock during the fourth quarter of the year ended September 30, 2024: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet Be Purchased Under the Plans (1) July 1, 2024 - July 31, 2024 — $ — — 192,025 August 1, 2024 - August 31, 2024 19,471 29.03 19,471 172,554 September 1, 2024 - September 30, 2024 17,388 30.26 17,388 155,166 Total 36,859 $ 29.61 36,859 155,166 ____________________________ (1) On July 25, 2023, the Company announced a stock repurchase program to purchase up to 404,708 shares of the Company's common stock, which replaced the Company's then existing repurchase plan which had 74,212 shares available to be repurchased prior to termination.
The Company is subject to certain restrictions on its ability to repurchase it common stock.
The Company is subject to certain restrictions on its ability to repurchase its common stock.
The new repurchase program does not have a set expiration date and will expire upon repurchase of the full amount of authorized shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions based upon market conditions and available liquidity.
The July 2023 repurchase program does not have a set expiration date and will expire upon repurchase of the full amount of authorized shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions based upon market conditions and available liquidity.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock is traded on the Nasdaq Global Market under the symbol “TSBK.” As of December 4, 2023, there were approximately 400 shareholders of record of the Company's common stock.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders 47 The Company's common stock is traded on the Nasdaq Global Market under the symbol “TSBK.” As of December 4, 2024, there were approximately 401 shareholders of record of the Company's common stock. 48 Dividends Our cash dividend payout policy is reviewed regularly by management and the Board of Directors.
Our future payment of dividends may depend, in part, upon receipt of dividends from the Bank, which are restricted by banking regulations.
No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in future periods. Our future payment of dividends may depend, in part, upon receipt of dividends from the Bank, which are restricted by banking regulations.
Any dividends declared and paid in the future would depend upon a number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in future periods.
Our Board of Directors has declared quarterly cash dividends on our common stock for 48 consecutive quarters. Any dividends declared and paid in the future would depend upon a number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.
Five-Year Stock Performance Graph The following graph compares the cumulative total shareholder return on our common stock with the cumulative total return on the Nasdaq Composite Index and with the S&P 600 Thrifts & Mortgage Finance Index, peer group indices.
The equity compensation plan information presented under subparagraph (d) in Part III, Item 12 of this report is incorporated herein by reference. Five-Year Stock Performance Graph The following graph compares the cumulative total shareholder return on our common stock with the cumulative total return on the Nasdaq Composite Index and with the S&P SmallCap Banks Index, peer group indices.
Removed
Our cash dividend payout policy is reviewed regularly by management and the Board of Directors. Our Board of Directors has declared quarterly cash dividends on our common stock for 44 consecutive quarters.
Added
Total return assumes the reinvestment of all dividends and that the value of the Company’s Common Stock and each index was $100 on September 30, 2019. 49 Year Ended Index 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 9/30/2024 Timberland Bancorp, Inc. $ 100.00 $ 68.14 $ 113.61 $ 112.27 $ 113.83 $ 131.61 NASDAQ Composite Index 100.00 140.96 183.61 135.41 170.76 236.74 S&P US SmallCap Banks Index 100.00 68.74 130.92 118.76 96.92 135.37 * Source: S&P Global Market Intelligence Item 6.
Removed
This marked the Company's 19th stock repurchase plan. Cumulatively, since January 1998, the Company has repurchased 8,366,987 shares of its common stock at an average price of $9.95 per share. The new stock repurchase program replaced the Company's existing repurchase plan which had 74,212 shares available to be repurchased prior to termination.
Removed
The equity compensation plan information presented under subparagraph (d) in Part III, Item 12 of this report is incorporated herein by reference.
Removed
Total 48 return assumes the reinvestment of all dividends and that the value of the Company’s Common Stock and each index was $100 on September 30, 2018.
Removed
Year Ended Index 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 Timberland Bancorp, Inc. $ 100.00 $ 90.52 $ 61.68 $ 102.84 $ 101.63 $ 103.04 NASDAQ Composite Index 100.00 100.52 141.70 184.58 136.12 171.65 S&P 600 Thrifts & Mortgage Finance Index 100.00 93.33 64.16 122.19 110.84 90.46 * Source: S&P Global Market Intelligence For additional information, see Part III, Item 12 of this Form 10-K for information regarding the Company's Equity Compensation Plans, which is incorporated into this Item 5 by reference.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

3 edited+0 added−0 removed0 unchanged
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations 49 General 50 Overview 50 Operating Strategy 51 Selected Financial Data 52 Critical Accounting Policies and Estimates 54 Market Risk and Asset and Liability Management 57 Comparison of Financial Condition at September 30, 2023 and September 30, 2022 58 Comparison of Operating Results for the Years Ended September 30, 2023 and 2022 61 Average Balances, Interest and Average Yields/Cost 63 Rate/Volume Analysis 65 Liquidity and Capital Resources 65 New Accounting Pronouncements 67 Item 7A.
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations 49 General 49 Overview 49 Operating Strategy 50 Selected Financial Data 51 Critical Accounting Estimates 54 Market Risk and Asset and Liability Management 55 Comparison of Financial Condition at September 30, 2024 and September 30, 2023 57 Comparison of Operating Results for the Years Ended September 30, 2024 and 2023 59 Average Balances, Interest and Average Yields/Cost 61 Rate/Volume Analysis 63 Liquidity and Capital Resources 63 New Accounting Pronouncements 65 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 67 Item 8. Financial Statements and Supplementary Data 67 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 124 Item 9A. Controls and Procedures 125 Item 9B. Other Information 125 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 125 PART III. Item 10.
Quantitative and Qualitative Disclosures About Market Risk 65 Item 8. Financial Statements and Supplementary Data 65 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 125 Item 9A. Controls and Procedures 125 Item 9B. Other Information 127 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 127 PART III. Item 10.
Directors, Executive Officers and Corporate Governance 125 Item 11. Executive Compensation 126 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 126 Item 13. Certain Relationships and Related Transactions, and Director Independence 127 Item 14. Principal Accountant Fees and Services 127 PART IV. Item 15. Exhibits and Financial Statement Schedules 128
Directors, Executive Officers and Corporate Governance 127 Item 11. Executive Compensation 128 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 128 Item 13. Certain Relationships and Related Transactions, and Director Independence 129 Item 14. Principal Accountant Fees and Services 129 PART IV. Item 15. Exhibits and Financial Statement Schedules 130

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

138 edited+25 added−38 removed59 unchanged
Biggest changeAt September 30, 2023 2022 2021 2020 2019 (In thousands) SELECTED FINANCIAL CONDITION DATA: Total assets $ 1,839,905 $ 1,860,508 $ 1,792,180 $ 1,565,978 $ 1,247,132 Loans receivable, net 1,302,305 1,132,426 968,454 1,013,875 886,662 Investment securities held-to-maturity 270,218 266,608 69,102 27,890 31,102 Investment securities available-for-sale 41,771 41,415 63,176 57,907 22,532 FHLB stock 3,602 2,194 2,103 1,922 1,437 Other investments 3,000 3,000 3,000 3,000 3,000 Cash and due from financial institutions and interest-bearing deposits in banks 128,721 316,755 580,196 314,452 143,015 Certificate of deposits held for investments 15,188 22,894 28,482 65,545 78,346 BOLI 22,966 22,806 22,193 21,593 21,005 OREO and other repossessed assets — — 157 1,050 1,683 Deposits 1,560,935 1,632,176 1,570,555 1,358,406 1,067,227 FHLB borrowings 35,000 — 5,000 10,000 — Shareholders' equity 233,073 218,569 206,899 187,630 171,067 Year Ended September 30, 2023 2022 2021 2020 2019 (In thousands, except per share data) SELECTED OPERATING DATA: Interest and dividend income $ 79,951 $ 58,508 $ 54,962 $ 55,583 $ 55,725 Interest expense 11,592 2,674 3,104 4,701 4,565 Net interest income 68,359 55,834 51,858 50,882 51,160 Provision for loan losses 2,132 270 — 3,700 — Net interest income after provision for loan losses 66,227 55,564 51,858 47,182 51,160 Non-interest income 11,140 12,624 17,161 17,188 14,341 Non-interest expense 43,373 38,626 34,591 34,063 35,580 Income before income taxes 33,994 29,562 34,428 30,307 29,921 Provision for federal income taxes 6,876 5,962 6,845 6,038 5,901 Net income $ 27,118 $ 23,600 $ 27,583 $ 24,269 $ 24,020 Net income per common share: Basic $ 3.32 $ 2.84 $ 3.31 $ 2.91 $ 2.89 Diluted $ 3.29 $ 2.82 $ 3.27 $ 2.88 $ 2.84 Dividends per common share $ 1.01 $ 0.87 $ 1.03 $ 0.85 $ 0.78 Dividend payout ratio (1) 30.48 % 30.64 % 31.14 % 29.19 % 27.04 % ______________ (1) Cash dividends to common shareholders divided by net income to common shareholders. 52 At September 30, 2023 2022 2021 2020 2019 OTHER DATA: Number of real estate loans outstanding 2,537 2,332 2,290 2,508 2,766 Deposit accounts 56,675 56,380 58,454 58,566 56,380 Full-service offices 23 23 24 24 24 At or For the Year Ended September 30, 2023 2022 2021 2020 2019 KEY FINANCIAL RATIOS: Performance Ratios: Return on average assets (1) 1.50 % 1.27 % 1.64 % 1.75 % 1.96 % Return on average equity (2) 12.01 11.14 13.98 13.59 14.91 Interest rate spread (3) 3.56 3.07 3.13 3.70 4.31 Net interest margin (4) 3.95 3.16 3.25 3.90 4.50 Average interest-earning assets to average interest-bearing liabilities 158.36 160.67 162.08 155.98 148.15 Non-interest expense as a percent of average total assets 2.39 2.09 2.06 2.45 2.91 Efficiency ratio (5) 54.56 56.42 50.12 50.04 54.32 Asset Quality Ratios: Non-accrual and 90 days or more past due loans as a percent of total loans receivable, net 0.12 % 0.18 % 0.29 % 0.28 % 0.34 % Non-performing assets as a percent of total assets (6) 0.09 0.12 0.18 0.27 0.40 Allowance for loan losses as a percent of total loans receivable, net (7) 1.20 1.20 1.37 1.31 1.08 Allowance for loan losses as a percent of non-performing loans (8) 1,044.72 665.52 471.93 461.76 319.49 Net charge-offs (recoveries) to average outstanding loans 0.00 0.00 0.00 0.00 (0.02) Capital Ratios: Total equity-to-assets ratio 12.67 % 11.75 % 11.54 % 11.98 % 13.71 % Average equity to average assets 12.46 11.43 11.74 12.85 13.17 __________________ (1) Net income divided by average total assets.
Biggest changeThe consolidated data is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements of the Company and its subsidiary presented herein. 52 At September 30, 2024 2023 2022 2021 2020 (In thousands) SELECTED FINANCIAL CONDITION DATA: Total assets $ 1,923,475 $ 1,839,905 $ 1,860,508 $ 1,792,180 $ 1,565,978 Loans receivable, net 1,421,523 1,302,305 1,132,426 968,454 1,013,875 Investment securities held-to-maturity 172,097 270,218 266,608 69,102 27,890 Investment securities available-for-sale 72,257 41,771 41,415 63,176 57,907 FHLB stock 2,037 3,602 2,194 2,103 1,922 Other investments 3,000 3,000 3,000 3,000 3,000 Cash and due from financial institutions and interest-bearing deposits in banks 164,728 128,721 316,755 580,196 314,452 Certificate of deposits held for investments 10,209 15,188 22,894 28,482 65,545 BOLI 23,611 22,966 22,806 22,193 21,583 OREO and other repossessed assets — — — 157 1,050 Deposits 1,647,668 1,560,935 1,632,176 1,570,555 1,358,406 FHLB borrowings 20,000 35,000 — 5,000 10,000 Shareholders' equity 245,413 233,073 218,569 206,899 187,630 Year Ended September 30, 2024 2023 2022 2021 2020 (In thousands, except per share data) SELECTED OPERATING DATA: Interest and dividend income $ 94,825 $ 79,951 $ 58,508 $ 54,962 $ 55,583 Interest expense 30,658 11,592 2,674 3,104 4,701 Net interest income 64,167 68,359 55,834 51,858 50,882 Provision for credit losses - net 1,151 2,132 270 — 3,700 Net interest income after provision for credit losses 63,016 66,227 55,564 51,858 47,182 Non-interest income 11,136 11,140 12,624 17,161 17,188 Non-interest expense 43,746 43,373 38,626 34,591 34,063 Income before income taxes 30,406 33,994 29,562 34,428 30,307 Provision for federal income taxes 6,123 6,876 5,962 6,845 6,038 Net income $ 24,283 $ 27,118 $ 23,600 $ 27,583 $ 24,269 Net income per common share: Basic $ 3.02 $ 3.32 $ 2.84 $ 3.31 $ 2.91 Diluted $ 3.01 $ 3.29 $ 2.82 $ 3.27 $ 2.88 Dividends per common share $ 0.95 $ 1.01 $ 0.87 $ 1.03 $ 0.85 Dividend payout ratio (1) 31.50 % 30.48 % 30.64 % 31.14 % 29.19 % ______________ (1) Cash dividends to common shareholders divided by net income to common shareholders. 53 At September 30, 2024 2023 2022 2021 2020 OTHER DATA: Number of real estate loans outstanding 2,593 2,537 2,332 2,290 2,508 Deposit accounts 57,424 56,675 58,380 58,454 58,566 Full-service offices 23 23 23 24 24 At or For the Year Ended September 30, 2024 2023 2022 2021 2020 KEY FINANCIAL RATIOS: Performance Ratios: Return on average assets (1) 1.28 % 1.50 % 1.27 % 1.64 % 1.75 % Return on average equity (2) 10.19 12.01 11.14 13.98 13.59 Interest rate spread (3) 2.72 3.56 3.07 3.13 3.70 Net interest margin (4) 3.54 3.95 3.16 3.25 3.90 Average interest-earning assets to average interest-bearing liabilities 148.97 158.36 160.67 162.08 155.98 Non-interest expense as a percent of average total assets 2.31 2.39 2.09 2.06 2.45 Efficiency ratio (5) 58.09 54.56 56.42 50.12 50.04 Asset Quality Ratios: Non-accrual and 90 days or more past due loans as a percent of total loans receivable, net 0.27 % 0.12 % 0.18 % 0.29 % 0.28 % Non-performing assets as a percent of total assets (6) 0.20 0.09 0.12 0.18 0.27 Allowance for credit losses as a percent of total loans receivable, net (7) 1.21 1.20 1.20 1.37 1.31 Allowance for credit losses as a percent of non-performing loans (8) 449.88 1,044.72 665.52 471.93 461.76 Net charge-offs (recoveries) to average outstanding loans — — — — — Capital Ratios: Total equity-to-assets ratio 12.76 % 12.67 % 11.75 % 11.54 % 11.98 % Average equity to average assets 12.59 12.46 11.43 11.74 12.85 __________________ (1) Net income divided by average total assets.
Subject to market conditions, the 64 Bank expects to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible. Liquidity management is both a short and long-term responsibility of the Bank's management.
Subject to market conditions, the Bank expects to utilize these borrowing facilities from time to time in the 64 future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible. Liquidity management is both a short and long-term responsibility of the Bank's management.
Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time 53 the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto included in Item 8 of this Annual Report on Form 10-K. Overview 49 Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank.
The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto included in Item 8 of this Annual Report on Form 10-K. Overview Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank.
The principal element in achieving this objective is to increase the interest rate sensitivity of the Bank's interest-earning assets by retaining in its portfolio, short-term loans and loans with interest rates subject to periodic adjustments. The Bank relies on retail deposits as its primary source of funds.
The principal element in achieving this objective is to increase the interest rate sensitivity of the Bank's interest-earning assets by retaining in its portfolio, short-term loans and loans with interest rates subject to periodic adjustments. The Bank 56 relies on retail deposits as its primary source of funds.
Accordingly, the valuation of OREO is subject to significant external and internal judgment. If the carrying value of the loan at the date a property is transferred into OREO exceeds the fair value less estimated costs to sell, the excess is charged to the allowance for loan losses.
Accordingly, the valuation of OREO is subject to significant external and internal judgment. If the carrying value of the loan at the date a property is transferred into OREO exceeds the fair value less estimated costs to sell, the excess is charged to the allowance for credit losses.
New Accounting Pronouncements For a discussion of new accounting pronouncements and their impact on the Company, see "Note 1-Summary of Significant Accountion Policies" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
New Accounting Pronouncements For a discussion of new accounting pronouncements and their impact on the Company, see "Note 1-Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
At September 30, 2023, Timberland Bancorp and the Bank were in compliance with all applicable capital requirements. For additional details, see "Note 17-Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report and “Item 1. Business - Regulation of the Bank - Capital Requirements".
At September 30, 2024, Timberland Bancorp and the Bank were in compliance with all applicable capital requirements. For additional details, see "Note 17 - Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report and “Item 1. Business - Regulation of the Bank - Capital Requirements".
(2) Net income divided by average total equity. (3) Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities. (4) Net interest income before provision for (recapture of) loan losses as a percentage of average interest-earning assets. (5) Non-interest expenses divided by the sum of net interest income and non-interest income.
(2) Net income divided by average total equity. (3) Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities. (4) Net interest income before provision for (recapture of) credit losses as a percentage of average interest-earning assets. (5) Non-interest expenses divided by the sum of net interest income and non-interest income.
Comparison of Results of Operations for the Years Ended September 30, 2022 and 2021 See Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2022 previously filed with the SEC.
Comparison of Results of Operations for the Years Ended September 30, 2023 and 2022 See Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2023 previously filed with the SEC.
The Bank also originates commercial business loans and other consumer loans. The profitability of the Company’s operations depends primarily on its net interest income after provision for (recapture of) loan losses.
The Bank also originates commercial business loans and other consumer loans. The profitability of the Company’s operations depends primarily on its net interest income after provision for (recapture of) credit losses.
Non-interest income is also increased by a gain on sale and net recoveries on investment securities and reduced by net OTTI losses on investment securities, if any. Non-interest income is also decreased by valuation allowances on loan servicing rights and increased by recoveries of valuation allowances on loan servicing rights, if any.
Non-interest income is also increased by a gain on sale and net recoveries of OTTI on investment securities, if any. Non-interest income is also decreased by valuation allowances on loan servicing rights and increased by recoveries of valuation allowances on loan servicing rights, if any.
The model provided for the Bank by NXTsoft estimates the changes in the economic value of equity ("EVE") and net interest income in response to a range of assumed changes in market interest rates.
The model provided for the Bank by Kinective estimates the changes in the economic value of equity ("EVE") and net interest income in response to a range of assumed changes in market interest rates.
Accretion of the fair value discount on loans for the years ended September 30, 2023, 2022 and 2021 of $75, $182 and $340 respectively, is included with interest and dividends. (2) Average balances include loans and investment securities on non-accrual status. (3) Includes FHLB borrowings with original maturities of one year or greater.
Accretion of the fair value discount on loans for the years ended September 30, 2024, 2023 and 2022 of $37, $75 and $182 respectively, is included with interest and dividends. (2) Average balances include loans and investment securities on non-accrual status. (3) Includes FHLB borrowings with original maturities of one year or greater.
Based on current objectives, there are no projects scheduled for capital investments in premises and equipment during the fiscal year ending September 30, 2024 that would materially impact liquidity. For the fiscal year ending September 30, 2024, the Bank projects that fixed commitments will include $333,000 of operating lease payments.
Based on current objectives, there are no projects scheduled for capital investments in premises and equipment during the fiscal year ending September 30, 2025 that would materially impact liquidity. For the fiscal year ending September 30, 2025, the Bank projects that fixed commitments will include $336,000 of operating lease payments.
While we believe that the estimates and assumptions used in our determination of the adequacy of the allowance for loan losses are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations.
While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations.
Assuming continued payment during fiscal year 2024 at the rate of $0.23 per share, the average total dividend paid each quarter would be approximately $1.86 million based on the number of current outstanding shares at September 30, 2023. 65 In addition, from time to time, our Board of Directors has authorized stock repurchase plans.
Assuming continued payment during fiscal year 2025 at the rate of $0.25 per share, the average total dividend paid each quarter would be approximately $1.99 million based on the number of current outstanding shares at September 30, 2024. 65 In addition, from time to time, our Board of Directors has authorized stock repurchase plans.
The provision for (recapture of) loan losses is dependent on changes in the loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The allowance for loan losses reflects the amount that the Company believes is adequate to cover probable credit losses inherent in its loan portfolio.
The provision for (recapture of) credit losses on loans is dependent on changes in the loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The ACL on loans reflects the amount that the Company believes is adequate to cover expected credit losses inherent in its loan portfolio.
During the year ended September 30, 2023, a total of $398,000 in non-accrual interest, pre-payment penalties and late fees was collected compared to $629,000 for the year ended September 30, 2022.
During the year ended September 30, 2024, a total of $376,000 in non-accrual interest, pre-payment penalties and late fees was collected compared to $398,000 for the year ended September 30, 2023.
The Company generally sells longer-term fixed-rate residential loans and the guaranteed portion of SBA commercial business loans for asset-liability management purposes and to generate non-interest income. The Company sold $11.54 million in loans during the year ended September 30, 2023 compared to $73.50 million for the year ended September 30, 2022.
The Company generally sells longer-term fixed-rate residential loans and the guaranteed portion of SBA commercial business loans for asset-liability management purposes and to generate non-interest income. The Company sold $14.75 million in loans during the year ended September 30, 2024 compared to $11.54 million for the year ended September 30, 2023.
During the year ended September 30, 2023, the accretion of the purchase accounting fair value discount on loans acquired increased interest income on loans by $75,000 compared to $182,000 for the year ended September 30, 2022.
During the year ended September 30, 2024, the accretion of the purchase accounting fair value discount on loans acquired increased interest income on loans by $37,000 compared to $75,000 for the year ended September 30, 2023.
Includes loans held for sale and interest earned on loans held for sale. Amortized net deferred loan fees, late fees, extension fees and prepayment penalties (year ended September 30, 2023 - $1,373; year ended September 30, 2022 - $3,600 and year ended September 30, 2021 - $6,859) are included with interest and dividends.
Includes loans held for sale and interest earned on loans held for sale. Amortized net deferred loan fees, late fees, extension fees and prepayment penalties (year ended September 30, 2024 - $1,429; year ended September 30, 2023 - $1,373 and year ended September 30, 2022 - $3,600) are included with interest and dividends.
Sharp increases or decreases in interest rates may adversely affect the Bank's earnings. Management of the Bank monitors the Bank's interest rate sensitivity using a model provided by NXTsoft Data Analytics, LLC (“NXTsoft”), a company that specializes in providing interest rate risk and balance sheet management services to the financial services industry.
Sharp increases or decreases in interest rates may adversely affect the Bank's earnings. Management of the Bank monitors the Bank's interest rate sensitivity using a model provided by Kinective, a company that specializes in providing interest rate risk and balance sheet management services to the financial services industry.
Investment securities purchased during the years ended September 30, 2023, 2022 and 2021 totaled $32.60 million, $208.78 million and $71.75 million, respectively. The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments.
Investment securities purchased during the years ended September 30, 2024, 2023 and 2022 totaled $44.95 million, $32.60 million and $208.78 million, respectively. The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments.
The reserve is based upon factors and trends identified by us at the time consolidated financial statements are prepared. Although we use the best information available, future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond our control.
The ACL is based upon factors and trends identified by us at the time financial statements are prepared. Although we use the best information available, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions beyond our control.
There are $20.0 million in scheduled payments and maturities of FHLB borrowings during fiscal year 2024. In addition, at September 30, 2023, there were other future obligations and accrued expenses of $9.03 million. For additional information, see "Note 12-FHLB Borrowings and Other Borrowings" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
There are no scheduled payments and maturities of FHLB borrowings during fiscal year 2025. In addition, at September 30, 2024, there were other future obligations and accrued expenses of $8.82 million. For additional information, see "Note 12 - FHLB Borrowings and Other Borrowings" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At September 30, 2023, the Bank's regulatory liquidity ratio (net cash, and short-term and marketable assets, as a percentage of net deposits and short-term liabilities) was 15.3%.
The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At September 30, 2024, the Bank's regulatory liquidity ratio (net cash, and short-term and marketable assets, as a percentage of net deposits and short-term liabilities) was 12.6%.
The Company's effective income tax rate was 20.2% for the years ended September 30, 2023 and 2022. For additional information on income taxes, see "Note 13-Income Taxes" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
The Company's effective income tax rate was 20.1% for the year ended September 30, 2024 compared to 20.2% for the year ended September 30, 2023. For additional information on income taxes, see "Note 13-Income Taxes" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
For the year ended September 30, 2023, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, an increase in the cash surrender value of BOLI, escrow fees and other operating income.
Net income is also affected by non-interest income and non-interest expense. For the year ended September 30, 2024, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, an increase in the cash surrender value of BOLI, escrow fees and other operating income.
At September 30, 2023, the Bank maintained an unused credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral, under which $35.00 million of the$533.99 million available for borrowings with the FHLB was outstanding at September 30, 2023.
At September 30, 2024, the Bank maintained an unused credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral, under which $20.00 million of the $626.04 million available for borrowings with the FHLB was outstanding at September 30, 2024.
The principal amount of loans serviced for Freddie Mac and the SBA decreased by $23.79 million to $386.50 million at September 30, 2023 from $410.29 million at September 30, 2022. For additional information on loan servicing rights, see "Note 8-Loan Servicing Rights" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
The principal amount of loans serviced for Freddie Mac and the SBA decreased by $15.94 million to $370.56 million at September 30, 2024 from $386.50 million at September 30, 2023. For additional information on loan servicing rights, see "Note 8 - Loan Servicing Rights" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
The estimate of prepayment speeds is based on current market conditions. Actual market conditions could vary significantly from current conditions which could result in the estimated life of the underlying loans being different which would change the fair value of the loan servicing right.
Actual 55 market conditions could vary significantly from current conditions which could result in the estimated life of the underlying loans being different which would change the fair value of the loan servicing right.
Operating Lease Right-of-Use Assets: Operating lease ROU assets decreased by $208,000, or 10.5%, to $1.77 million at September 30, 2023 from $1.98 million at September 30, 2022, primarily due to the amortization of the ROU assets. The operating lease ROU assets at September 30, 2023 represented the present value of two operating leases on branch facilities and one administrative office.
Operating Lease Right-of-Use Assets: Operating lease ROU assets decreased by $297,000, or 16.8%, to $1.48 million at September 30, 2024 from $1.77 million at September 30, 2023, primarily due to the amortization of the ROU assets. The operating lease ROU assets at September 30, 2024 represented the present value of two operating leases on branch facilities and one administrative office.
For additional information on leases, see "Note 9-Leases" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. Other Assets: Other assets increased by $209,000, or 6.2%, to $3.57 million at September 30, 2023 from $3.36 million at September 30, 2022.
For additional information on leases, see "Note 9 - Leases" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. 59 Other Assets: Other assets increased by $2.67 million, or 74.7%, to $6.24 million at September 30, 2024 from $3.57 million at September 30, 2023.
(6) Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing, non-accrual investment securities, OREO and other repossessed assets. (7) Loans receivable is before the allowance for loan losses. (8) Non-performing loans include non-accrual loans and loans past due 90 days or more and still accruing. TDRs that are on accrual status are not included.
(6) Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing, non-accrual investment securities, OREO and other repossessed assets. (7) Loans receivable is before the allowance for credit losses. (8) Non-performing loans include non-accrual loans and loans past due 90 days or more and still accruing.
Business - Investment Activities" and "Note 3-Investment Securities of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
For additional details on investment securities, see "Item 1. Business - Investment Activities" and "Note 3 - Investment Securities" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
CDI: CDI decreased by $271,000 or 28.6%, to $677,000 at September 30, 2023 from $948,000 at September 30, 2022 due to scheduled amortization. For additional information on CDI, see "Note 7-Goodwill and CDI" of the Consolidated Financial Statements contained in Item 8 of this report.
For additional information on goodwill, see "Note 7 - Goodwill and CDI" of the Notes to Consolidated Financial Statements contained in Item 8 of this report. CDI: CDI decreased by $226,000 or 33.4%, to $451,000 at September 30, 2024 from $677,000 at September 30, 2023 due to scheduled amortization.
On July 25, 2023, the Company announced the adoption of a new stock repurchase program pursuant to which the Company may repurchase up to 404,708 shares of Company common stock, of which 374,142 shares remained available for future purchases as of September 30, 2023.
On July 25, 2023, the Company announced the adoption of a stock repurchase program authorizing the repurchase of up to 404,708 shares of Company common stock, of which 155,166 shares remained available for future purchases as of September 30, 2024.
The average yield on interest-earning assets increased to 4.63% for the year ended September 30, 2023 from 3.31% for the year ended September 30, 2022.
The average yield on interest-earning assets increased to 5.24% for the year ended September 30, 2024 from 4.63% for the year ended September 30, 2023.
Loan Servicing Rights, Net: Loan servicing rights decreased by $899,000, or 29.7%, to $2.12 million at September 30, 2023 from $3.02 million at September 30, 2022, primarily due to the amortization of servicing rights and partially offset by additional capitalized Freddie Mac servicing rights for loans being sold with servicing retained.
Loan Servicing Rights, Net: Loan servicing rights decreased by $752,000, or 35.4%, to $1.37 million at September 30, 2024 from $2.12 million at September 30, 2023, primarily due to the amortization of servicing rights and partially offset by additional capitalized Freddie Mac servicing rights for loans being sold with servicing retained.
During the years ended September 30, 2023, 2022 and 2021, the Bank sold $11.54 million, $73.50 million and $150.20 million, respectively, in loans and loan participation interests. During the years ended September 30, 2023, 2022 and 2021, the Bank received $177.31 million, $324.23 million and $500.03 million, respectively, in principal repayments.
During the years ended September 30, 2024, 2023 and 2022, the Bank sold $14.75 million, $11.54 million and $73.50 million, respectively, in loans and loan participation interests. During the years ended September 30, 2024, 2023 and 2022, the Bank received $142.78 million, $177.31 million and $324.23 million, respectively, in loan principal repayments.
The Company recorded a provision for loan losses of $2.1 million for the year ended September 30, 2023, primarily due to increased loan portfolio growth. The Company recorded a provision for loan losses of $270,000 for the year ended September 30, 2022, primarily due to increased loan portfolio growth.
The Company recorded a provision for credit losses on loans of $1.25 million for the year ended September 30, 2024, primarily due to increased loan portfolio growth. The Company recorded a provision for loan losses of $2.1 million for the year ended September 30, 2023, primarily due to increased loan portfolio growth.
For more information regarding fair value accounting, please refer to Note 21 in the Notes to the Consolidated Financial Statements. Loan Servicing Rights Loan servicing rights are recognized as separate assets when rights are acquired through purchase or through sale of loans. Generally, purchased loan servicing rights are capitalized at the cost to acquire the rights.
For more information regarding fair value accounting, please refer to "Note 21-Fair Value Measurements" in the Notes to the Consolidated Financial Statements contained in Item 8 of this report. Loan Servicing Rights Loan servicing rights are recognized as separate assets when rights are acquired through purchase or through sale of loans.
As a result of these changes, the net interest margin increased 79 basis points to 3.95% for the year ended September 30, 2023 from 3.16% for the year ended September 30, 2022.
As a result of these changes, the net interest margin decreased 41 basis points to 3.54% for the year ended September 30, 2024 from 3.95% for the year ended September 30, 2023.
Average total interest-earning assets decreased by $40.10 million, or 2.27%, to $1.73 billion for the year ended September 30, 2023 from $1.77 billion for the year ended September 30, 2022, due to a decrease in the average balance of interest-bearing deposits in banks and CDs which was partially offset by increased in the average balances of loans receivable and investment securities.
Average total interest-earning 60 assets increased by $82.49 million, or 4.77%, to $1.81 billion for the year ended September 30, 2024 from $1.73 billion for the year ended September 30, 2023, due to an increase in the average balance of loans receivable which was partially offset by a decrease in the average balance of investment securities and interest-bearing deposits in banks and CDs.
There were no business combinations during the years ended September 30, 2022, 2021 and 2020, respectively. 55 Goodwill Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment.
Goodwill Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment.
At September 30, 2023, the Company had total assets of $1.84 billion, net loans receivable of $1.30 billion, total deposits of $1.56 billion and total shareholders’ equity of $233.07 million. The Company’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank.
At September 30, 2024, the Company had total assets of $1.92 billion, net loans receivable of $1.42 billion, total 50 deposits of $1.65 billion and total shareholders’ equity of $245.41 million. The Company’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank.
Loan originations decreased by $210.68 million, or 36.8%, to $361.79 million for the year ended September 30, 2023 from $572.46 million for the year ended September 30, 2022. The decrease in loan originations was primarily due to decreases in originations of one- to four- family loans, commercial real estate, construction and commercial business loans.
Loan originations decreased by $110.35 million, or 30.5%, to $251.44 million for the year ended September 30, 2024 from $361.79 million for the year ended September 30, 2023. The decrease in loan originations was primarily due to decreases in originations of one- to four- family loans, commercial real estate, construction and commercial business loans.
For additional information on leases, see "Note 9-Leases" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. 59 Other Liabilities and Accrued Expenses: Other liabilities and accrued expenses increased by $1.33 million or 17.3%, to $9.03 million at September 30, 2023 from $7.70 million at September 30, 2022.
For additional information on leases, see "Note 9 - Leases" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report. Other Liabilities and Accrued Expenses: Other liabilities and accrued expenses decreased by $211,000, or 2.3%, to $8.82 million at September 30, 2024 from $9.03 million at September 30, 2023.
The incremental accretion and the impact on loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the net discount declines. The remaining net discount on these acquired loans was $192,000 at September 30, 2023.
The incremental accretion and the impact on loan yield will change during any period based on the volume of prepayments, and has decreased over time as the balance of the net discount declines. The remaining net discount on acquired loans was $155,000 at September 30, 2024.
The Bank’s liquidity has been negatively impacted by decreases in deposit levels. During the year ended September 30, 2023, deposits decreased by $71.24 million. During the years ended September 30, 2022 and 2021, deposits increased by $61.62 million and $212.20 million, respectively.
The Bank’s liquidity has been impacted by changes in deposit levels. During the year ended September 30, 2024, deposits increased by $86.73 million. During the years ended September 30, 2023 and 2022, deposits decreased by $71.24 million and increased $61.60 million, respectively.
The decrease in total assets was primarily due to a decrease in total cash and cash equivalents, partially offset by increases in loans receivable and, to a lesser extent, investment securities. Cash and cash equivalents were also used to fund the decrease in total deposits.
The increase in total assets was primarily due to increases in total cash and cash equivalents and loans receivable net, partially offset by a decrease in investment securities.
Acquisition-related costs are expensed as incurred unless they are directly attributable to the issuance of the Company's common stock in a business combination and the Company chooses to record these acquisition-related costs through stockholders' equity.
Acquisition-related costs are expensed as incurred unless they are directly attributable to the issuance of the Company's common stock in a business combination and the Company chooses to record these acquisition-related costs through stockholders' equity. There were no business combinations during the years ended September 30, 2024, 2023 and 2022, respectively.
The increase was primarily due to timing differences in the normal course of business and an increase in accrued interest payable. Shareholders' Equity: Total shareholders' equity increased by $14.50 million, or 6.6%, to $233.07 million at September 30, 2023 from $218.57 million at September 30, 2022.
The decrease was primarily due to timing differences in the normal course of business and an increase in accrued interest payable. Shareholders' Equity: Total shareholders' equity increased by $12.34 million, or 5.3%, to $245.41 million at September 30, 2024 from $233.07 million at September 30, 2023.
Total deposits decreased by $71.24 million, or 4.4%, to $1.56 billion at September 30, 2023 from $1.63 billion at September 30, 2022, primarily due to decreases in non-interest bearing account balances, NOW checking account balances, money market account balances, and savings account balances. These decreases were partially offset by increases in certificates of deposit account balances.
Total deposits increased by $86.73 million, or 5.6%, to $1.65 billion at September 30, 2024 from $1.56 billion at September 30, 2023, primarily due to increases in money market and certificate of deposit account balances. These increases were partially offset by decreases in non-interest bearing demand, NOW checking, and savings account balances.
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit decay, and should not be relied upon as indicative of actual results. Furthermore, the computations do not reflect any actions management may undertake in response to changes in interest rates.
(2) No rates in the model are allowed to go below zero. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit decay, and should not be relied upon as indicative of actual results.
The increase was primarily due to increases in miscellaneous receivables (including income tax receivables) and prepaid expenses. Deposits: Deposits decreased by $71.24 million, or 4.4%, to $1.56 billion at September 30, 2023 from $1.63 billion at September 30, 2022.
The increase was primarily due to increases in miscellaneous receivables (including income tax receivables) and prepaid expenses. Deposits: Deposits increased by $86.73 million, or 5.6%, to $1.65 billion at September 30, 2024 from $1.56 billion at September 30, 2023.
Management periodically reviews OREO values to determine whether the property continues to be carried at the lower of its recorded book value or fair value, net of estimated costs to sell. Any further decreases in the value of OREO are considered valuation adjustments and are charged to non-interest expense in the consolidated income statements.
Management periodically reviews OREO values to determine whether the property continues to be carried at the lower of its recorded book value or fair value, net of estimated costs to sell. Any further decreases in the value of OREO are considered an allowance for credit losses.
For sales of mortgage loans, the value of the loan servicing right is estimated and capitalized. Fair value is based on market prices for comparable loan servicing contracts. The fair value of the loan servicing rights includes an estimate of the life of the underlying loans which is affected by estimated prepayment speeds.
The fair value of the loan servicing rights includes an estimate of the life of the underlying loans which is affected by estimated prepayment speeds. The estimate of prepayment speeds is based on current market conditions.
In addition, the determination of the amount of the Banks’ allowance for loan losses is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination.
In addition, the ACL is subject to review the by Bank's regulators as part of the routine examination process, which may result in adjustments to the ACL based upon their judgment of information available to them at the time of their examination.
Based on an interest rate shock analysis prepared by NXTsoft using data at September 30, 2023, an immediate increase in interest rates of 100 basis points would leave the Bank’s projected net interest income virtually level (slight decrease of 0.06%).
Based on an interest rate shock analysis prepared by Kinective using data at September 30, 2024, an immediate increase in interest rates of 100 basis points would decrease the Bank’s projected net interest income by approximately 1.5%. An immediate decrease in interest rates of 100 basis points would decrease the Bank's projected net interest income by approximately 1.4%.
The increase was primarily due to net income of $27.12 million for the year ended September 30, 2023, which was partially offset by the payment of $8.27 million in dividends to common shareholders and the repurchase of 185,399 shares of the Company's common stock for $5.00 million during the year ended September 30, 2023.
The increase was primarily due to net income of $24.28 million for the year ended September 30, 2024, which was partially offset by the payment of $7.65 million in dividends to common shareholders and the repurchase of 218,976 shares of the Company's common stock for $5.96 million during the year ended September 30, 2024.
Operating Strategy The Company is a bank holding company which operates primarily through its subsidiary, the Bank. The Company's primary objective is to operate the Bank as a well-capitalized, profitable, independent, community-oriented financial institution, serving customers in its primary market area of Grays Harbor, Pierce, Thurston, Kitsap, King and Lewis counties.
The Company's primary objective is to operate the Bank as a well-capitalized, profitable, independent, community-oriented financial institution, serving 51 customers in its primary market area of Grays Harbor, Pierce, Thurston, Kitsap, King and Lewis counties. The Company's strategy is to provide products and superior service to small businesses and individuals located in its primary market area.
The accretion of the net fair value discount on acquired loans increased the average yield on loans by one basis point for the year ended September 30, 2023 and two basis points for the year ended September 30, 2022.
The accretion of the net fair value discount on acquired loans had a minor effect on the average yield on loans for the year ended September 30, 2024 and a one basis point increase for the year ended September 30, 2023.
Interest income on loans receivable and loans held for sale increased by $11.83 million, or 23.1%, to $63.15 million for the year ended September 30, 2023 from $51.32 million for the year ended September 30, 2022, primarily due to a $174.47 million increase in the average balance of loans receivable coupled with an increase in the average yield on loans receivable to 5.13% for the year ended September 30, 2023 from 4.86% for the year ended September 30, 2022.
Interest income on loans receivable and loans held for sale increased by $14.28 million, or 22.61%, to $77.43 million for the year ended September 30, 2024 from $63.15 million for the year ended September 30, 2023, primarily due to a $149.43 million increase in the average balance of loans receivable coupled with an increase in the average yield on loans receivable to 5.61% for the year ended September 30, 2024 from 5.13% for the year ended September 30, 2023.
Year Ended September 30, 2023 2022 2021 Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Loans receivable (1)(2) $ 1,230,101 $ 63,154 5.13 % $ 1,055,635 $ 51,324 4.86 % $ 1,026,742 $ 52,539 5.12 % Investment securities (2) 324,436 9,384 2.89 224,850 3,488 1.55 103,328 1,195 1.16 Dividends from mutual funds, FHLB stock and other investments 6,315 270 4.28 6,021 120 1.99 5,989 111 1.85 Interest-bearing deposits in banks and CDs 167,718 7,143 4.26 482,162 3,576 0.74 459,145 1,117 0.24 Total interest-earning assets 1,728,570 79,951 4.63 1,768,668 58,508 3.31 1,595,204 54,962 3.45 Non-interest-earning assets 84,205 83,895 85,939 Total assets $ 1,812,775 $ 1,852,563 $ 1,681,143 Interest-bearing liabilities: NOW checking accounts $ 407,679 $ 3,562 0.87 % $ 449,574 $ 650 0.14 % $ 402,430 $ 605 0.15 % Money market accounts 215,465 1,600 0.74 244,498 766 0.31 186,489 560 0.30 Savings accounts 261,006 415 0.16 278,025 230 0.08 242,598 201 0.08 Certificates of deposit accounts 200,476 5,725 2.86 127,277 1,011 0.79 145,006 1,647 1.14 Short-term borrowings 975 53 5.44 3 — — — — — Long-term borrowings (3) 5,973 237 3.97 1,427 17 1.19 7,686 91 1.18 Total interest-bearing liabilities 1,091,574 11,592 1.06 1,100,804 2,674 0.24 984,209 3,104 0.32 Non-interest-bearing deposits 484,795 529,702 488,833 Other liabilities 10,557 10,224 10,816 Total liabilities 1,586,926 1,640,730 1,483,858 Shareholders' equity 225,849 211,833 197,285 Total liabilities and shareholders' equity $ 1,812,775 $ 1,852,563 $ 1,681,143 Net interest income $ 68,359 $ 55,834 $ 51,858 Interest rate spread 3.56 % 3.07 % 3.13 % Net interest margin (4) 3.95 % 3.16 % 3.25 % Ratio of average interest-earning assets to average interest-bearing liabilities 158.36 % 160.67 % 162.08 % _______________________________________________ (1) Does not include interest on loans on non-accrual status.
Year Ended September 30, 2024 2023 2022 Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Loans receivable (1)(2) $ 1,379,529 $ 77,430 5.61 % $ 1,230,101 $ 63,154 5.13 % $ 1,055,635 $ 51,324 4.86 % Investment securities (2) 278,531 9,129 3.28 324,436 9,384 2.89 224,850 3,488 1.55 Dividends from mutual funds, FHLB stock and other investments 6,147 361 5.87 6,315 270 4.28 6,021 120 1.99 Interest-bearing deposits in banks and CDs 146,855 7,905 5.38 167,718 7,143 4.26 482,162 3,576 0.74 Total interest-earning assets 1,811,062 94,825 5.24 1,728,570 79,951 4.63 1,768,668 58,508 3.31 Non-interest-earning assets 81,470 84,205 83,895 Total assets $ 1,892,532 $ 1,812,775 $ 1,852,563 Interest-bearing liabilities: NOW checking accounts $ 353,000 $ 5,148 1.46 % $ 407,679 $ 3,562 0.87 % $ 449,574 $ 650 0.14 % Money market accounts 285,615 9,248 3.24 215,465 1,600 0.74 244,498 766 0.31 Savings accounts 212,562 529 0.25 261,006 415 0.16 278,025 230 0.08 Certificates of deposit accounts 298,039 12,337 4.14 188,534 5,096 2.70 127,277 1,011 0.79 Brokered deposits 44,330 2,397 5.41 11,942 629 5.27 — — — Short-term borrowings 6,394 361 5.65 975 53 5.44 3 — — Long-term borrowings (3) 15,820 638 4.03 5,973 237 3.97 1,427 17 1.19 Total interest-bearing liabilities 1,215,760 30,658 2.52 1,091,574 11,592 1.06 1,100,804 2,674 0.24 Non-interest-bearing deposits 427,514 484,795 529,702 Other liabilities 10,865 10,557 10,224 Total liabilities 1,654,139 1,586,926 1,640,730 Shareholders' equity 238,393 225,849 211,833 Total liabilities and shareholders' equity $ 1,892,532 $ 1,812,775 $ 1,852,563 Net interest income $ 64,167 $ 68,359 $ 55,834 Interest rate spread 2.72 % 3.57 % 3.07 % Net interest margin (4) 3.54 % 3.95 % 3.16 % Ratio of average interest-earning assets to average interest-bearing liabilities 148.97 % 158.36 % 160.67 % _______________________________________________ (1) Does not include interest on loans on non-accrual status.
The increase was primarily due to net income for the year ended September 30, 2023 of $27.12 million, partially offset by $8.27 million in dividends paid to shareholders and the repurchase of 185,399 shares of common stock for $5.00 million.
The increase was primarily due to net income for the year ended September 30, 2024 of $24.28 million, partially offset by $7.65 million in dividends paid to shareholders and the repurchase of 218,976 shares of common stock for $5.96 million.
Selected Financial Data The following table sets forth certain information concerning the consolidated financial position and results of operations of the Company and its subsidiary at and for the dates indicated. The consolidated data is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements of the Company and its subsidiary presented herein.
Selected Financial Data The following table sets forth certain information concerning the consolidated financial position and results of operations of the Company and its subsidiary at and for the dates indicated.
We increase our allowance for loan losses by charging provisions for probable loan losses against our income. The allowance for loan losses is maintained at a level sufficient to provide for probable losses based on evaluating known and inherent risks in the loan portfolio and upon our continuing analysis of the factors underlying the quality of the loan portfolio.
The ACL is maintained at a level sufficient to provide for expected credit losses based on evaluating known and inherent risks in the loan portfolio and upon our continuing analysis of the factors underlying the quality of the loan portfolio. The ACL is comprised of a general component and a specific component.
The increase in net income was primarily due to a $12.53 million increase in net interest income that was partially offset by a $4.75 million increase in non-interest expense, a $1.86 million increase in the provision for loan losses, a $1.48 million decrease in non-interest income and a $914,000 increase in the provision for income taxes.
The decrease in net income was primarily due to a $4.19 million decrease in net interest income and a $373,000 increase in non-interest expense, partially offset by a $981,000 decrease in the provision for credit losses and a $753,000 decrease in the provision for income taxes.
We continue to originate custom construction and owner/builder construction loans for sale into the secondary market upon the completion of construction. Maintaining strong asset quality. We believe that strong asset quality is a key to our long-term financial success. Non-performing assets have decreased to $1.60 million at September 30, 2023 from $2.17 million at September 30, 2022.
We continue to originate custom construction and owner/builder construction loans for sale into the secondary market upon the completion of construction. Maintaining strong asset quality. We believe maintaining strong asset quality is key to our long-term financial success.
See "Note 1-Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in Item 8 of this report" for a summary of significant accounting policies and the effect on our financial statements and the following: Provision and Allowance for Loan Losses The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.
See "Note 1-Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements contained in Item 8 of this report for a summary of significant accounting policies and the effect on our financial statements and the following: Allowance for Credit Losses The ACL is considered a critical accounting policy due to the significant judgment and subjectivity involved in its determination, as well as the potential for economic changes that could impact its adequacy.
In addition, shareholder’s equity was adversely impacted by unrealized losses on available for sale securities reflecting the increase in market interest rates during the year, resulting in a $1.08 million accumulated other comprehensive loss, net of tax at September 30, 2023. For additional information on shareholders' equity, see the Consolidated Statements of Shareholders' Equity contained in "Item 8.
In addition, shareholder’s equity was positively impacted by unrealized gains on available for sale securities reflecting the decrease in market interest rates during the year, resulting in a recovery of $1.10 million of accumulated other comprehensive loss, net of tax at September 30, 2024.
The increase in interest expense was primarily due to an increase in the average cost of interest-bearing liabilities, primarily deposits. The average cost of interest-bearing liabilities increased to 1.06% for the year ended September 30, 2023 from 0.24% for the year ended September 30, 2022 as market interest rates for deposits increased.
The average cost of interest-bearing liabilities increased to 2.52% for the year ended September 30, 2024 from 1.06% for the year ended September 30, 2023 as market interest rates for deposits increased.
A more detailed explanation of the changes in significant balance sheet categories follows: Cash and Cash Equivalents and CDs Held for Investment: Cash and cash equivalents and CDs held for investment decreased by $194.74 million, or 57.6%, to $143.91 million at September 30, 2023 from $339.65 million at September 30, 2022.
A more detailed explanation of the changes in significant balance sheet categories follows: Cash and Cash Equivalents and CDs Held for Investment: Cash and cash equivalents and CDs held for investment increased by $31.03 million, or 21.6%, to $174.94 million at September 30, 2024 from $143.91 million at September 30, 2023. The increase was primarily a result of increased deposits.
Non-interest expense in certain periods is reduced by gains on the sale of premises and equipment and by gains on the sale of OREO.
Non-interest expense in certain periods is reduced by gains on the sale of premises and equipment and by gains on the sale of OREO. Non-interest income and non-interest expense are affected by the growth of the Company's operations and growth in the number and balances of loan and deposit accounts.
Although the Bank has sought to originate ARM loans, the ability to originate such loans depends to a great extent on market interest rates and borrowers' preferences. Consumer, commercial business and construction loans typically have shorter terms and higher yields than permanent residential mortgage loans and, accordingly, reduce the Bank’s exposure to fluctuations in interest rates.
Consumer, commercial business and construction loans typically have shorter terms and higher yields than permanent residential mortgage loans and, accordingly, reduce the Bank’s exposure to fluctuations in interest rates.
Year Ended September 30, 2023 Compared to Year Ended September 30, 2022 Increase (Decrease) Due to Year Ended September 30, 2022 Compared to Year Ended September 30, 2021 Increase (Decrease) Due to Rate Volume Net Change Rate Volume Net Change (Dollars in thousands) Interest-earning assets: Loans receivable (1) $ 2,993 $ 8,837 $ 11,830 $ (2,666) $ 1,451 $ (1,215) Investment securities 3,899 1,997 5,896 516 1,777 2,293 Dividends from mutual funds, FHLB stock and other investments 144 6 150 8 1 9 Interest-bearing deposits in banks and CDs 7,236 (3,669) 3,567 2,400 59 2,459 Total net change in income on interest-earning assets 14,272 7,171 21,443 258 3,288 3,546 Interest-bearing liabilities: Savings accounts 199 (15) 184 — 29 29 Money market accounts 935 (101) 834 25 181 206 NOW checking accounts 2,978 (66) 2,912 (24) 69 45 Certificates of deposit accounts 3,860 855 4,715 (453) (183) (636) FHLB borrowings 119 154 273 — (74) (74) Total net change in expense on interest-bearing liabilities 8,091 827 8,918 (452) 22 (430) Net change in net interest income $ 6,181 $ 6,344 $ 12,525 $ 710 $ 3,266 $ 3,976 ______________ (1) Excludes interest on loans on non-accrual status.
Year Ended September 30, 2024 Compared to Year Ended September 30, 2023 Increase (Decrease) Due to Year Ended September 30, 2023 Compared to Year Ended September 30, 2022 Increase (Decrease) Due to Rate Volume Net Change Rate Volume Net Change (Dollars in thousands) Interest-earning assets: Loans receivable (1) $ 6,199 $ 8,077 $ 14,276 $ 2,993 $ 8,837 $ 11,830 Investment securities 1,163 (1,418) (255) 3,899 1,997 5,896 Dividends from mutual funds, FHLB stock and other investments 98 (7) 91 144 6 150 Interest-bearing deposits in banks and CDs 1,726 (964) 762 7,236 (3,669) 3,567 Total net change in income on interest-earning assets 9,186 5,688 14,874 14,272 7,171 21,443 Interest-bearing liabilities: Savings accounts 202 (88) 114 199 (15) 184 Money market accounts 6,973 675 7,648 935 (101) 834 NOW checking accounts 2,117 (531) 1,586 2,978 (66) 2,912 Certificates of deposit accounts 3,760 5,249 9,009 3,860 855 4,715 FHLB borrowings 6 703 709 119 154 273 Total net change in expense on interest-bearing liabilities 13,058 6,008 19,066 8,091 827 8,918 Net change in net interest income $ (3,872) $ (320) $ (4,192) $ 6,181 $ 6,344 $ 12,525 ______________ (1) Excludes interest on loans on non-accrual status.
Comparison of Financial Condition at September 30, 2023 and September 30, 2022 Total assets decreased by $20.60 million, or 1.1%, to $1.84 billion at September 30, 2023 from $1.86 billion at September 30, 2022.
Comparison of Financial Condition at September 30, 2024 and September 30, 2023 Total assets increased by $83.57 million, or 4.5%, to $1.92 billion at September 30, 2024 from $1.84 billion at September 30, 2023.
A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowing economic growth, among other factors, could result in a material increase in the allowance for loan losses which would adversely affect the Company's financial condition and results of operations.
A further decline in national and local economic 61 conditions, as a result of the effects of inflation, a recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on the financial condition and results of operations.

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