What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2025-02-10 · 231 added, 141 removed, 290 unchanged (56% of the section changed)

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The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements contained in Item 1 of this Form 10-Q.

The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three months ended December 31, 2024.

The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three and six months ended March 31, 2025.

Special Note Regarding Forward-Looking Statements

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These statements relate to our financial condition, results of operations, plans, objectives, future performance or business.

Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance.

Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words "believes," "expects," "anticipates," "estimates," "forecasts,"

"intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance.

These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to:

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• effects of employment levels, labor shortages inflation, a recession or slowed economic growth;

• changes in the interest rate environment, including the past increases in the Board of Governors of the Federal Reserve System (“Federal Reserve”) benchmark rate and duration of such increased levels, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;

• changes in the interest rate environment, including increases or decreases in the Board of Governors of the Federal Reserve System (“Federal Reserve”) benchmark rate and duration of such levels, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;

• the impact of inflation and the Federal Reserve monetary policy;

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• secondary market conditions for loans and our ability to sell loans in the secondary market;

• results of examinations of us by regulatory authorities, which may the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or our bank subsidiary which could require us to increase our ACL, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;

• results of examinations of us by regulatory authorities, which may the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or our bank subsidiary which could require us to increase our allowance for credit losses ("ACL"), write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;

• the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;

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• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board (“FASB”);

• The potential imposition of new tariffs or changes to existing trade policies that could affect economic activity or specific industry sectors;

• the potential for new or increased tariffs, trade restrictions or geopolitical tensions that could affect economic activity or specific industry sectors

• environmental, social and governance goals and targets;

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The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 23 offices (including its main office in Hoquiam).

At December 31, 2024, the Company had total assets of $1.91 billion, net loans receivable of $1.41 billion, total deposits of $1.63 billion and total shareholders’ equity of $249.20 million.

At March 31, 2025, the Company had total assets of $1.93 billion, net loans receivable of $1.42 billion, total deposits of $1.65 billion and total shareholders’ equity of $252.52 million.

The Company's business activities generally are limited to passive investment activities and oversight of its investment in the Bank.

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Net interest income is affected by changes in the volume and mix of interest-earning assets, the interest earned on those assets, the volume and mix of interest-bearing liabilities and the interest paid on those interest-bearing liabilities.

Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and non-interest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period.

Since March 2022, through July 2023, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve had increased the target range for the federal funds rate by 525 basis points, to a range of 5.25% to 5.50%.

Inflation has decreased over the last year and as a result, the Federal Reserve has decreased the target range by 100 basis points in the last four months, to a range of 4.25% to 4.50% at December 31, 2024.

Our net interest income, net interest margin, and net interest spread are primarily influenced by changes in market interest rates, the shape of the yield curve, and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities.

These components of net interest income are also affected by the volume and composition of our interest-earning assets, interest-bearing and non-interest-bearing liabilities, and shareholders’ equity.

During the first fiscal quarter of 2025, interest rate trends were significantly influenced by monetary policy actions taken by the Federal Open Market Committee (“FOMC”) of the Federal Reserve.

In response to ongoing improvements in inflation, the FOMC lowered the target range for the federal funds rate three times during 2024, resulting in a range of 4.25% to 4.50% at March 31, 2025.

Despite the decline in market rates, asset yields increased due to the origination of new loans at higher rates and upward repricing of adjustable-rate loans.

At the same time, funding costs declined, but at a slower pace, which moderated the overall benefit to our net interest margin.

The provision for (recapture of) credit 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.

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Improvement in loan risk ratings, increase in property values, or receipts of recoveries of amounts previously charged off may partially or fully offset any required increases to the ACL on loans due to loan growth or an increase in the probable expected credit losses.

The Company recorded a provision for credit losses on loans of $52,000 and $379,000 for the three months ended December 31, 2024 and 2023, respectively, primarily due to loan portfolio growth.

Net income is also affected by non-interest income and non-interest expense.

For the three months ended December 31, 2024, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income.

Non-interest income is also increased by net recoveries on investment securities and recoveries of prior 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 expense consisted primarily of salaries and employee benefits, premises and equipment, advertising, ATM and debit card interchange transaction fees, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other non-interest expenses.

In certain periods, non-interest expense may be reduced by gains on the sale of premises and equipment and OREO.

Both non-interest income and non-interest expense are affected by the growth of the Company's operations and growth in the number of loan and deposit accounts.

The Company recorded a provision for credit losses on loans of $237,000 and $289,000 for the three and six months ended March 31, 2025, respectively, primarily due to changes in the composition of the portfolio.

The Company recorded a provision for credit losses on loans of $166,000 and $545,000 for the three and six months ended March 31, 2024, respectively.

Net income is also impacted by levels of non-interest income and non-interest expense.

For the three and six months ended March 31, 2025, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income.

Non-interest income may also be affected by net recoveries on investment securities and the reversal of previously recognized OTTI losses, if applicable.

Additionally, it is reduced by valuation allowances on loan servicing rights and increased by recoveries of such allowances, when recognized.

Non-interest expense for the same periods primarily included salaries and employee benefits, premises and equipment costs, advertising, ATM and debit card interchange transaction fees, postage and

courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure-related expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other general operating expenses.

In certain periods, non-interest expense may be offset by gains on the sale of premises and equipment or OREO.

Both non-interest income and non-interest expense are influenced by the Company’s overall growth and the expansion of its loan and deposit account base.

Results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

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There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2024 Form 10-K.

Comparison of Financial Condition at December 31, 2024 and September 30, 2024

Total assets decreased by $14.00 million, or 0.7%, to $1.91 billion at December 31, 2024 from $1.92 billion at September 30, 2024.

The decrease in total assets was primarily due to decreases in loans receivable and investment securities, which were partially offset by increases in several other asset categories.

Net loans receivable decreased by $9.70 million, or 0.7%, to $1.41 billion at December 31, 2024 from $1.42 billion at September 30, 2024, primarily due to decreases in commercial business and commercial real estate loans, as well as construction loans due to an increase in the undisbursed portion of construction loans.

Smaller declines in several other loan categories also contributed to the overall decrease.

These decreases were partially offset by an increase in one- to four-family loans and in several other loan categories.

Total deposits decreased by $17.25 million, or 1.0%, to $1.63 billion at December 31, 2024 from $1.65 billion at September 30, 2024, primarily due to decreases in money market, non-interest bearing and NOW checking account balances.

These decreases were partially offset by increases in certificate of deposit ("CDs") and savings account balances.

Shareholders’ equity increased by $3.79 million, or 1.5%, to $249.20 million at December 31, 2024 from $245.41 million at September 30, 2024.

Comparison of Financial Condition at March 31, 2025 and September 30, 2024

Total assets increased by $9.26 million, or 0.5%, to $1.93 billion at March 31, 2025 from $1.92 billion at September 30, 2024.

The increase was primarily due to increases cash and cash equivalents and other assets which were partially offset by decreases in investment securities and in several other asset categories.

Net loans receivable decreased by $1.45 million, or 0.1%, to $1.42 billion at March 31, 2025 from $1.42 billion at September 30, 2024, primarily due to decreases in construction and commercial business loans as well as smaller decreases in other loan categories.

These decreases were partially offset by an increase in one- to four-family loans and smaller increases in other loan categories.

Total deposits increased by $3.16 million, or 0.2%, to $1.65 billion at March 31, 2025 from $1.65 billion at September 30, 2024, primarily due to increases in certificates of deposit "CDs" and savings account balances.

These increases were partially offset by decreases in money market, non-interest-bearing and NOW checking account balances.

Shareholders’ equity increased by $7.11 million, or 2.9%, to $252.52 million at March 31, 2025 from $245.41 million at September 30, 2024.

The increase was primarily due to net income and proceeds from stock option exercises during the current period.

These increases were partially offset by the payment of dividends to common shareholders, repurchases of common stock and an other comprehensive loss during the three months ended December 31, 2024.

These increases were partially offset by the payment of dividends to common shareholders, repurchases of common stock and an other comprehensive loss during the six months ended March 31, 2025.

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 $3.40 million, or 1.9%, to $171.54 million at December 31, 2024 from $174.94 million at September 30, 2024.

The decrease was due to a $2.74 million decrease in CDs held for investments and a $657,000 decrease in cash and cash equivalents, which was used to fund deposit withdrawals.

Cash and cash equivalents and CDs held for investment increased by $24.99 million, or 14.3%, to $199.92 million at March 31, 2025 from $174.94 million at September 30, 2024.

The increase was due to a $26.48 million increase in cash and cash equivalents, resulting primarily from maturities, prepayments and scheduled amortizations of investment securities as well as an increase in deposits.

The overall increase was partially offset by a $1.50 million decrease in CDs held for investment.

Investment Securities:

Investment securities (including investments in equity securities) decreased by $11.19 million, or 4.6%, to $234.03 million at December 31, 2024 from $245.22 million at September 30, 2024.

Investment securities (including investments in equity securities) decreased by $18.60 million, or 7.6%, to $226.61 million at March 31, 2025 from $245.22 million at September 30, 2024.

This decrease was primarily due to maturities, prepayments and scheduled amortizations.

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For additional information on investment securities, see Note 2 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

FHLB stock remained constant at $2.04 million at December 31, 2024 and September 30, 2024.

FHLB stock increased $8,000, or 0.4%, to $2.05 million at March 31, 2025 from $2.04 million at September 30, 2024.

The increase was due to FHLB's required annual share assessment, which is based on total assets.

Other Investments:

Other investments, consisting solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, was unchanged at $3.00 million at both December 31, 2024 and September 30, 2024.

Other investments, consisting solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, was unchanged at $3.00 million at both March 31, 2025 and September 30, 2024.

This investment is utilized to help satisfy compliance with the Bank's Community Reinvestment Act investment test requirements.

Net loans receivable decreased by $9.70 million, or 0.7%, to $1.41 billion at December 31, 2024 from $1.42 billion at September 30, 2024.

The decrease was primarily due to a $3.43 million decrease in commercial business loans, a $2.17 million decrease in commercial real estate loans and a $13.92 million decrease in construction loans due to a $15.47 million increase in the undisbursed portion of construction loans.

Net loans receivable decreased by $1.45 million, or 0.1%, to $1.42 billion at March 31, 2025 from $1.42 billion at September 30, 2024.

The decrease was primarily due to an $11.02 million decrease in construction loans, including a $5.16 million increase in the undisbursed portion of construction loans, a $7.60 million decrease in commercial business loans, and smaller decreases in other loan categories.

These decreases were partially offset by a $16.30 million increase in one- to four-family loans, and smaller increases in other loan categories.

Loan originations decreased by $16.86 million, or 19.1%, to $72.07 million for the three months ended December 31, 2024 from $88.93 million for the three months ended December 31, 2023.

The decrease in loan originations was primarily due to a decrease in multi-family, commercial business, one- to four-family and consumer loans originated.

The decrease was partially offset by an increase in construction loan originations.

Loan originations increased by $364,000, or 0.2%, to $128.66 million for the six months ended March 31, 2025 from $128.30 million for the six months ended March 31, 2024.

The increase was primarily due to an increase in originations of commercial real estate and construction loans, particularly multi-family construction loans.

This increase was partially offset by a decrease in multi-family and commercial business loan originations.

The Company generally sells longer-term fixed-rate one- to four-family mortgage loans for asset liability management purposes and to generate non-interest income.

Sales of fixed-rate one- to four-

family loans decreased by $1.48 million, or 39.08%, to $2.31 million for the three months ended December 31, 2024 from $9.60 million for the three months ended December 31, 2023, primarily due to a decrease in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

Sales of fixed-rate one- to four-family loans increased by $1.41 million, or 23.25%, to $7.49 million for the six months ended March 31, 2025 from $6.07 million for the six months ended March 31, 2024, primarily due to an increase in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

For additional information on loans, see Note 4 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Premises and Equipment:

Premises and equipment increased by $131,000, or 0.6%, to $21.62 million at December 31, 2024 from $21.49 million at September 30, 2024.

This increase was primarily due to additions from remodeling projects, partially offset by scheduled depreciation.

Premises and equipment decreased by $50,000, or 0.2%, to $21.44 million at March 31, 2025 from $21.49 million at September 30, 2024.

This decrease was primarily due to scheduled depreciation.

OREO (Other Real Estate Owned):

At December 31, 2024, total OREO and other repossessed assets consisted of one commercial real estate property with a value of $221,000 and one land parcel with no recorded value.

At March 31, 2025, total OREO and other repossessed assets consisted of one commercial real estate property with a value of $221,000 and one land parcel with no recorded value.

At September 30, 2024, total OREO and other repossessed assets consisted of one land parcel with no recorded value.

BOLI (Bank Owned Life Insurance):

BOLI increased by $166,000, or 0.7%, to $23.78 million at December 31, 2024 from $23.61 million at September 30, 2024.

BOLI increased by $331,000, or 1.4%, to $23.94 million at March 31, 2025 from $23.61 million at September 30, 2024.

The increase was due to net BOLI earnings, representing the increase in the cash surrender value of the BOLI policies.

Goodwill and CDI:

The recorded amount of goodwill remained unchanged at $15.13 million at both December 31, 2024 and September 30, 2023.

CDI decreased by $45,000, or 10.0%, to $406,000 at December 31, 2024 from $451,000 at September 30, 2024 due to scheduled amortization.

The recorded amount of goodwill remained unchanged at $15.13 million at both March 31, 2025 and September 30, 2024.

CDI decreased by $90,000, or 20.0%, to $361,000 at March 31, 2025 from $451,000 at September 30, 2024 due to scheduled amortization.

For additional information on goodwill and CDI, see Note 3 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Loan Servicing Rights, Net :

Loan servicing rights, net decreased by $177,000, or 12.90%, to $1.20 million at December 31, 2024 from $1.37 million at September 30, 2024 primarily due to the amortization of servicing rights.

The principal amount of loans serviced for Freddie Mac and SBA decreased by $7.46 million to $363.10 million at December 31, 2024 from $370.56 million at September 30, 2024.

Deposits decreased by $17.25 million, or 1.0%, to $1.63 billion at December 31, 2024 from $1.65 billion at September 30, 2024.

The decrease was primarily due to a $15.51 million decrease in money market account balances, a $10.21 million decrease in non-interest bearing demand account balances and a $9.91 million decrease in NOW checking accounts balances in part due to some larger customers ending the calendar year with lower balances.

These decreases were partially offset by a $17.53 million increase in certificates of deposit account balances and a $852,000 increase in savings account balances.

Deposits consisted of the following at December 31, 2024 and September 30, 2024 (dollars in thousands):

December 31, 2024 September 30, 2024

Loan servicing rights, net decreased by $321,000, or 23.40%, to $1.05 million at March 31, 2025 from $1.37 million at September 30, 2024 primarily due to the amortization of servicing rights.

The principal amount of loans serviced for Freddie Mac and the U.S.

Small Business Administration decreased by $10.98 million to $359.58 million at March 31, 2025 from $370.56 million at September 30, 2024.

Other Assets:

Other assets increased $3.09 million, or 33.4% to $9.33 million at March 31, 2025 from $6.24 million at September 30, 2024.

This was due to a $2.00 million investment security that matured but funds had not been received and an increase in the daily prefund deposit for debit card transactions.

Deposits increased by $3.16 million, or 0.2%, to $1.65 billion at March 31, 2025 from $1.65 billion at September 30, 2024.

The increase was primarily due to a $32.98 million increase in certificates of deposit account balances and a $1.86 million increase in savings account balances.

These increases were partially offset by a $26.37 million decrease in money market account balances, and a $5.31 million decrease in non-interest bearing demand account balances.

Deposits consisted of the following at March 31, 2025 and September 30, 2024 (dollars in thousands):

March 31, 2025 September 30, 2024

Amount Percent Amount Percent

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The Company has short- and long-term borrowing lines with the FHLB with total credit available on the lines equal to 45% of the Bank's total assets, limited by available collateral.

FHLB borrowings remained constant at $20.00 million at both December 31, 2024 and September 30, 2024.

FHLB borrowings remained unchanged at $20.00 million at both March 31, 2025 and September 30, 2024.

The borrowings consist of three long-term borrowings:

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Shareholders’ Equity:

Total shareholders’ equity increased by $3.79 million, or 1.5%, to $249.20 million at December 31, 2024 from $245.41 million at September 30, 2024.

Total shareholders’ equity increased by $7.11 million, or 2.9%, to $252.52 million at March 31, 2025 from $245.41 million at September 30, 2024.

The increase was primarily due to net income of $13.62 million and proceeds of $686,000 from the exercise of stock options.

This increase was partially offset by dividend payments to common shareholders of $1.99 million, the repurchase of 27,404 shares of the Company's common stock for $884,000 and an $812,000 other comprehensive loss for fair value adjustment on available for sale investment securities.

This increase was partially offset by dividend payments to common shareholders of $3.98 million, the repurchase of 89,168 shares of the Company's common stock for $2.79 million and a $690,000 other comprehensive loss for fair value adjustment on available for sale investment securities, resulting from changes in market interest rates during the period..

Asset Quality and Commercial Real Estate Portfolio Breakdown:

Non-performing assets to total assets was 0.16% at December 31, 2024 and 0.20% at September 30, 2024.

Non-performing assets decreased by $937,000, or 23.8%, to $3.00 million at December 31, 2024 from $3.94 million at September 30, 2023.

The decrease was primarily due to a $1.15 million decrease in non-accrual loans, with the largest decreases occurring in the commercial business and commercial real estate portfolios.

These decreases were partially offset by a $221,000 increase in OREO.

The following table sets forth information with respect to the Company’s non-performing assets at December 31, 2024 and September 30, 2024 (dollars in thousands):

Non-performing assets to total assets was 0.13% at March 31, 2025 and 0.20% at September 30, 2024.

Non-performing assets decreased by $1.35 million, or 34.2%, to $2.59 million at March 31, 2025 from $3.94 million at September 30, 2024.

The decrease was primarily due to a $1.56 million decrease in non-accrual loans, with the largest decreases occurring in the commercial real estate and commercial business portfolios.

The decrease in both categories was a result of loan payoffs.

These decreases were partially offset by a $221,000 increase in OREO and other repossessed assets.

The following table sets forth information with respect to the Company’s non-performing assets at March 31, 2025 and September 30, 2024 (dollars in thousands):

2025 September 30,

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One- to four-family (1) $ 47 $ 49

Commercial 698 1,158

Commercial real estate 324 1,158

Consumer loans:

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___________________________________

(1) At December 31, 2024 and September 30, 2024, there were no one-to four-family properties in the process of foreclosure.

(1) At March 31, 2025 and September 30, 2024, there were no one-to four-family properties in the process of foreclosure.

(2) Does not include loans held for sale.

Loan balances are before any reduction of the ACL.

The following tables provide a breakdown of commercial real estate ("CRE") loans by collateral types as of December 31, 2024 and September 30, 2024:

CRE Loan Portfolio Breakdown by Collateral at December 31, 2024

The following tables provide a breakdown of commercial real estate ("CRE") loans by collateral types as of March 31, 2025 and September 30, 2024:

CRE Loan Portfolio Breakdown by Collateral at March 31, 2025

($ in thousands)

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Nursing homes 13,606 2.3 0.9 2,268 —

Mobile home parks 10,694 2 1 465 —

Shopping centers 10,578 1.8 0.7 1,762 —

Mobile home parks 8,968 1.5 0.6 448 —

Other 104,443 17.3 6.9 762 —

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Total CRE $ 599,219 100.0 % 39.6 % $ 926 $ 1,158

Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023

Net income increased by $564,000, or 9.0%, to $6.86 million for the quarter ended December 31, 2024 from $6.30 million for the quarter ended December 31, 2023.

Net income per diluted common share increased by $0.09, or 11.7%, to $0.86 for the quarter ended December 31, 2024 from $0.77 for the quarter ended December 31, 2023.

The increases in net income and net income per diluted common share for the three months ended December 31, 2024, were primarily due to a $966,000 increase in net interest income and a $309,000 decrease in the provision for credit losses.

These increases were partially offset by a $443,000 increase in non-interest expense, a $167,000 increase in the provision for income taxes and $101,000 decrease in non-interest income.

Comparison of Operating Results for the Three and Six Months Ended March 31, 2025 and 2024

Net income increased by $1.05 million, or 18.3%, to $6.76 million for the quarter ended March 31, 2025 from $5.71 million for the quarter ended March 31, 2024.

Net income per diluted common share increased by $0.15, or 21.4%, to $0.85 for the quarter ended March 31, 2025 from $0.70 for the quarter ended March 31, 2024.

The increases in net income and net income per diluted common share for the three months ended March 31, 2025, were primarily due to a $1.58 million increase in net interest income and a $72,000 increase in non-interest income.

These increases were partially offset by a $235,000 increase in the provision for income taxes, a $203,000 increase in non-interest expense and $165,000 increase in the provision for credit losses.

Net income increased $1.61 million, or 13.4%, to $13.62 million for the six months ended March 31, 2025 from $12.00 million for the six months ended March 31, 2024.

Net earnings per diluted common share increased by $0.24, or 16.3% to $1.71 for the six months ended March 31, 2025 from $1.47 for the six months ended March 31, 2024.

The increases in net income and net earnings per diluted common share were due to a $2.53 million increase in net interest income and a $145,000 decrease in the provision for credit losses.

These increases were partially offset by a $645,000 increase in non-interest expense, a $403,000 increase in the provision for income taxes and a $29,000 decrease in non-interest income.

Net Interest Income:

Net interest income increased by $966,000, or 6.0%, to $16.97 million for the quarter ended December 31, 2024 from $16.00 million for the quarter ended December 31, 2023.

This increase was due to a 35 basis point increase in the weighted average yield of interest-earning assets to 5.42% at December 31, 2024 from 5.07% at December 31, 2023 and to a $75.76 million increase in average total interest-earning assets.

Partially offsetting the increase in the yield on interest-earning assets, was a a 40 basis point increase in the average cost of interest-bearing liabilities to 2.62% for the current quarter from 2.22% for the quarter ended December 31, 2023 and a $94.91 million increase in average total interest-bearing liabilities.

Total interest and dividend income increased by $2.76 million, or 12.3%, to $25.26 million for the quarter ended December 31, 2024 from $22.50 million for the quarter ended December 31, 2023, primarily due to increases in the average yield earned on and average balance of loans receivable, as well as an increase in the average balance of interest-bearing deposits in banks and CDs and a higher average yield on investment securities.

Net interest income increased by $1.58 million, or 10.1%, to $17.21 million for the quarter ended March 31, 2025 from $15.64 million for the quarter ended March 31, 2024.

This increase was due to a 32 basis point increase in the weighted average yield of interest-earning assets to 5.48% at March 31, 2025 from 5.16% at March 31, 2024, and a $34.16 million increase in average total interest-earning assets.

To a lesser extent, a three basis point decrease in the average rate paid on interest-bearing liabilities, to 2.47% from 2.50%, also contributed to the improvement.

These positive factors were partially offset by a $45.97 million increase in the average balance of total interest-bearing liabilities, which increased the Company’s overall funding costs.

Total interest and dividend income increased by $1.71 million, or 7.4%, to $24.87 million for the quarter ended March 31, 2025 from $23.16 million for the quarter ended March 31, 2024, primarily due to increases in the average yield earned on and average balance of loans receivable, as well as an increase in the average balance of interest-bearing deposits in banks and CDs and a higher average yield on investment securities.

These increases were partially offset by a decrease in the average balance of investment securities and, to a lesser extent, a decrease in the average rate paid on interest-bearing deposits in banks and CDs.

The average balance of total interest-earning assets increased by $75.76 million, or 4.3%, to $1.85 billion for the quarter ended December 31, 2024 from $1.78 billion for the quarter ended December 31, 2023.

The average balance of total interest-earning assets increased by $34.17 million, or 1.9%, to $1.84 billion for the quarter ended March 31, 2025 from $1.81 billion for the quarter ended March 31, 2024.

The average balance of loans receivable increased by $70.58 million, or 5.2%, and the average balance of interest-bearing deposits in banks and CDs increased by $29.05 million, or 20.3%.

These increases were partially offset by a decrease in the average balance of investment securities of $65.51 million, or 22.4% between the periods.

During the quarter ended December 31, 2024, there was a total of $123,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $142,000 collected for the quarter ended December 31, 2023.

The average yield on interest-earning assets increased by 35 basis points to 5.42% for the quarter ended December 31, 2024 from 5.07% for the quarter ended December 31, 2023.

The average yield on investment securities increased 55 basis points to 3.51% for the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023, while the average yield on loans receivable increased 28 basis points to 5.8% during the same period.

Total interest expense increased by $1.80 million, or 27.6%, to $8.29 million for the quarter ended December 31, 2024 from $6.49 million for the quarter ended December 31, 2023.

This increase was due to an increase in the average balance and, to a lesser extent, an increase in the average cost of interest-bearing liabilities, primarily deposits.

The average balance of interest-bearing liabilities increased by $94.91 million, or 8.2%, to $1.26 billion for the quarter ended December 31, 2024 from $1.16 billion for the quarter ended December 31, 2023, primarily due to increases in the average balances of money market and certificate of deposit accounts, partially offset by decreases in the average balance of NOW checking accounts.

The average cost of interest-bearing liabilities increased to 2.62% for the quarter ended December 31, 2024 from 2.22% for the quarter ended December 31, 2023.

As a result of changes above, the net interest margin ("NIM") increased to 3.64% for the quarter ended December 31, 2024 from 3.60% for the quarter ended December 31, 2023.

During the quarter ended March 31, 2025, there was a total of $201,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $99,000 collected for the quarter ended March 31, 2024.

The average yield on interest-earning assets increased by 32 basis points to 5.48% for the quarter ended March 31, 2025 from 5.16% for the quarter ended March 31, 2024.

The average yield on investment securities increased 49 basis points to 3.58% for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, while the average yield on loans receivable increased 33 basis points to 5.90% during the same period.

Total interest expense increased by $131,000, or 1.7%, to $7.65 million for the quarter ended March 31, 2025 from $7.52 million for the quarter ended March 31, 2024.

This increase was due to an increase in the average balance of interest-bearing liabilities.

The average balance of interest-bearing liabilities increased by $45.97 million, or 3.8%, to $1.25 billion for the quarter ended March 31, 2025 from $1.21 billion for the quarter ended March 31, 2024, primarily due to increases in the average balances of certificate of deposit and money market accounts, partially offset by decreases in the average balance of NOW checking accounts.

The average cost of interest-bearing liabilities decreased to 2.47% for the quarter ended March 31, 2025 from 2.50% for the quarter ended March 31, 2024.

As a result of changes above, the net interest margin ("NIM") increased to 3.79% for the quarter ended March 31, 2025 from 3.48% for the quarter ended March 31, 2024.

Net interest income increased by $2.54 million, or 8.0%, to $34.18 million for the six months ended March 31, 2025 from $31.64 million for the six months ended March 31, 2024.

This increase was due to a 34 basis point increase in the weighted average yield of interest-earning assets to 5.44% at March 31, 2025 from 5.10% at March 31, 2024, and a $55.37 million

increase in average total interest-earning assets, partially offset by a $70.58 million increase in the average balance of total interest-bearing liabilities.

Total interest and dividend income increased $4.47 million, or 9.79%, to $50.12 million for the six months ended March 31, 2025 from $45.65 million for the six months ended March 31, 2024, primarily due to a $55.11 million increase in the average balance of interest-earning assets, principally loans and interest bearing-deposits in banks and CDs, and an increase in the average yield on interest-earning assets.

The average balance of total interest-earning assets increased by $55.36 million, or 3.1%, to $1.85 billion for the six months ended March 31, 2025 from $1.79 billion for the six months ended March 31, 2024.

The average balance of loans receivable increased by $87.98 million, or 6.5%, and the average balance of interest-bearing deposits in banks and CDs increased by $34.80 million or 25.9%.

These increases were partially offset by a decrease in the average balance of investment securities of $67.15 million or 22.3% between the periods.

During the six months ended March 31, 2025, there was a total of $316,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $232,000 collected for the six months ended March 31, 2024.

The average yield on interest-earning assets increased by 34 basis points to 5.44% for six months ended March 31, 2025 from 5.10% for the six months ended March 31, 2024.

The average yield on investment securities increased 52 basis points to 3.55% for the six months ended March 31, 2025, compared to the same period in 2024.

This increase was primarily due to the reinvestment of matured or called lower-yielding securities into higher-yielding instruments, as well as upward adjustments in the yields of variable-rate securities in response to the higher interest rate environment.

Similarly, the average yield on loans receivable increased 32 basis points to 5.88% during the same period.

Total interest expense increased by $1.93 million, or 13.8%, to $15.94 million for the six months ended March 31, 2025 from $14.01 million for the six months ended March 31, 2024.

The increase in interest expense was due to an increase in the average cost and an increase in the average balance of interest-bearing liabilities, primarily deposits.

NIM expanded to 3.71% for the six months ended March 31, 2025 from 3.53% for the six months ended March 31, 2024.

Average Balances, Interest and Average Yields/Cost

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Such yields and costs for the periods indicated are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented (dollars in thousands).

Three Months Ended December 31,

Three Months Ended March 31,

Balance Interest and

11 unchanged sentences

Interest-bearing liabilities:

Savings $ 205,650 144 0.28 $ 220,042 121 0.22

NOW checking $ 328,115 1,071 1.32 $ 367,924 1,469 1.61

Money market 306,137 2,401 3.18 270,623 2,115 3.14

Savings 206,054 141 0.28 214,233 124 0.23

Certificates of deposit 343,945 3,241 3.82 295,202 3,051 4.16

Brokered CDs 50,104 600 4.85 40,402 542 5.40

Short-term borrowings — — — 5,001 70 5.63

Long-term borrowings 20,000 198 4.04 15,000 150 4.02

Total interest-bearing liabilities 1,254,355 7,652 2.47 1,208,385 7,521 2.50

Non-interest-bearing deposits 403,738 431,826

Other liabilities 10,064 10,182

Total liabilities 1,668,157 1,650,393

Shareholders' equity 250,112 237,485

Total liabilities and

shareholders' equity $ 1,918,269 $ 1,887,878

Net interest income $ 17,213 $ 15,635

Interest rate spread 3.01 % 2.66 %

Net interest margin (3) 3.79 % 3.48 %

Ratio of average interest-earning assets to average interest- bearing liabilities 146.75 % 149.50 %

_______________

(1) Does not include interest on loans on non-accrual status.

Includes loans held for sale.

Amortized net deferred loan fees, late fees, extension fees, prepayment penalties, and the accretion of the fair value discount on loans are included with interest and dividends.

(2) Average balances include loans and investment securities on non-accrual status.

(3) Net interest income divided by total average interest-earning assets, annualized.

Six Months Ended March 31,

Balance Interest and

Dividends Yield/

Balance Interest and

Dividends Yield/

Interest-earning assets:

Loans receivable (1)(2) $ 1,437,081 $ 41,928 5.85 % $ 1,349,105 $ 37,304 5.53 %

Investment securities (2) 234,078 4,141 3.55 301,218 4,556 3.03

Dividends from mutual funds, FHLB stock and other investments 5,888 168 5.48 6,418 173 5.39

Interest-bearing deposits in banks and CDs 169,444 3,885 4.60 134,643 3,618 5.37

Total interest-earning assets 1,846,491 50,122 5.44 1,791,384 45,651 5.10

Non-interest-earning assets 76,535 81,473

Total assets $ 1,923,026 $ 1,872,857

Interest-bearing liabilities:

NOW checking $ 328,287 2,214 1.35 $ 372,327 2,903 1.56

Money market 315,381 5,199 3.31 247,656 3,444 2.78

Savings 205,849 285 0.28 217,153 245 0.23

Certificates of deposit 337,798 6,659 3.95 281,842 5,731 4.07

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The following table sets forth the effects of changing rates and volumes on the net interest income of the Company.

Information is provided with respect to the (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate), (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change (sum of the prior columns).

volume), and (iii) the net change (sum of the prior columns).

Changes in rate/volume have been allocated to rate and volume variances based on the absolute values of each (dollars in thousands).

Three months ended

December 31, 2024

March 31, 2025

compared to three months

ended December 31, 2023

ended March 31, 2024

increase (decrease) due to Six months ended

March 31, 2025

compared to six months

ended March 31, 2024

increase (decrease) due to

Rate Volume Net

Change Rate Volume Net

Interest-earning assets:

5 unchanged sentences

Interest-bearing liabilities:

Savings 31 (8) 23

Money market 747 720 1,467

NOW checking (250) (148) (398) (367) (322) (689)

Money market 8 278 286 709 1,046 1,755

Savings 22 (5) 17 43 (3) 40

Certificates of deposit (349) 597 248 (476) 1,464 988

1 unchanged sentence

Long-term borrowings — 48 48 — 99 99

Total net increase in expense on interest-bearing liabilities 598 1,197 1,795

Total net increase (decrease) in expense on interest-bearing liabilities (604) 735 131 (223) 2,151 1,928

Net increase in net interest income $ 1,508 $ 70 $ 1,578 $ 2,361 $ 182 $ 2,543

Provision for Credit Losses:

A $27,000 provision for credit losses was recorded for the quarter ended December 31, 2024, consisting of a $52,000 provision for credit losses on loans which was primarily due to an increase in loans receivable, a $5,000 recapture of credit losses on investment securities, and a $20,000 recapture of credit losses on unfunded commitments which was primarily due to a decrease in the balance of unfunded loan commitments.

A $336,000 provision for credit losses was recorded for the quarter ended December 31, 2023, consisting of a $379,000 provision for credit losses on loans, a $10,000 recapture of credit losses on investment securities and a $33,000 recapture of credit losses on unfunded commitments.

For the quarter ended December 31, 2024, net charge-offs were $242,000 compared to $2,000 for the quarter ended December 31, 2023.

Non-accrual loans decreased by $1.15 million, or 29.7%, to $2.73 million at December 31, 2024 from $3.89 million at September 30, 2024, and decreased by $633,000, or 18.8%,from $3.36 million at December 31, 2023.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased by $459,000, or 10.2%, to $4.02 million at December 31, 2024, from $4.48 million at September 30, 2024 and increased by $417,000, or 11.6%, from $3.60 million one year ago.

While management believes the estimates and assumptions used in its 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 will not have a material adverse impact on our financial condition and results of operations.

A further decline in national and local economic conditions, as a result of the effects of inflation, a potential 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.

A $246,000 provision for credit losses was recorded for the quarter ended March 31, 2025, consisting of a $237,000 provision for credit losses on loans which was primarily due to changes in the composition of the loan portfolio, a $5,000 recapture of credit losses on investment securities, and a $14,000 provision for credit losses on unfunded commitments which was primarily due to an increase in the balance of unfunded loan commitments.

An $81,000 provision for credit losses was recorded for the quarter ended March 31, 2024, consisting of a $166,000 provision for credit losses on loans, a $3,000 provision for credit losses on investment securities and a $88,000 recapture of credit losses on unfunded commitments.

We recorded a $272,000 provision for credit losses for the six months ended March 31, 2025, consisting of a $289,000 provision for credit losses on loans which was primarily due to an increase in loans receivable, a $10,000 recapture of credit losses on investment securities which was primarily due to maturities and principal repayments, and a $7,000 recapture of credit losses on unfunded loan commitments which was primarily due to a decrease in the amounts of unfunded loans.

A $417,000 provision for credit losses was recorded for the six months ended March 31, 2024, consisting of a $545,000 provision for credit losses on loan, a $7,000 recapture of credit losses on investment securities, and a $121,000 recapture of credit losses on unfunded loan commitments.

For the quarter ended March 31, 2025, net charge-offs were less than $1,000 compared to $3,000 for the quarter ended March 31, 2024.

Non-accrual loans decreased by $1.56 million, or 40.1%, to $2.33 million at March 31, 2025 from $3.89 million at September 30, 2024, and decreased by $1.28 million, or 35.5%, from $3.61 million at March 31, 2024.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased by $1.16 million, or 25.8%, to $3.32 million at March 31, 2025, from $4.48 million at September 30, 2024 and decreased by $878,000, or 20.9%, from $4.20 million one year ago.

a material adverse impact on our financial condition and results of operations.

A further decline in national and local economic conditions, as a result of the effects of inflation, a potential 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.

In addition, the determination of the amount of the ACL 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 and have a material adverse impact on the financial condition and results of operations.

2 unchanged sentences

With the adoption of CECL, purchased loans are evaluated for impairment in the same manner as the rest of the loan portfolio.

The remaining fair value discount associated with acquired loans was $147,000 at December 31, 2024.

The remaining fair value discount associated with acquired loans was $131,000 at March 31, 2025.

This discount will continue to accrete into income as these loans continue to pay down.

1 unchanged sentence

Non-interest Income:

Total non-interest income decreased by $101,000, or 3.6%, to $2.70 million for the quarter ended December 31, 2024 from $2.80 million for the quarter ended December 31, 2023.

This decrease was primarily due to a $52,000 decrease in other, net non-interest income, largely due to a $63,000 decrease in the fair value of investments in equity securities, $35,000 decrease in gain on sales loans and a $24,000 decrease in service charges on deposits.

These decreases were partially offset by a $10,000 increase in BOLI net earnings.

Total non-interest income increased by $72,000, or 2.8%, to $2.69 million for the quarter ended March 31, 2025 from $2.62 million for the quarter ended March 31, 2024.

This increase was primarily due to an $81,000 increase in gain on sale of loans, reflecting a higher volume of fixed-rate one- to four-family mortgages into the secondary market, and a $43,000 increase in other, net non-interest income, largely due to a $39,000 increase in the fair value of investments in equity securities.

These increases were partially offset by a $36,000 decrease in ATM and debit card interchange fees, primarily due to lower transaction volumes, and a $29,000 decrease in service charges on deposits, attributed to reduced overdraft activity.

Total non-interest income for the six months ended March 31, 2025 decreased $29,000, or 0.5%, to $5.38 million from $5.41 million for the six months ended March 31, 2024.

This decrease was primarily due to a $53,000 decrease in service charges on deposits and a $33,000 decrease in ATM and debit card interchange fees.

These decreases were partially offset by a $45,000 increase in gain on sale of loans and a $19,000 increase in BOLI net earnings.

Non-interest Expense:

Total non-interest expense increased by $443,000, or 4.2%, to $11.07 million for the quarter ended December 31, 2024 from $10.62 million for the quarter ended December 31, 2023.

This increase was primarily due to increased expenses of $181,000 in salary and employee benefits, due to annual salary increases, $166,000 in technology and communications due to increased usage charges, $93,000 in professional fees mainly due to additional costs related to CECL, and $79,000 in other non-interest expenses.

These increases were partially offset by a $94,000 decrease in ATM and debit card interchange transaction fees as a result of a decrease in fraud charges.

Total non-interest expense increased by $203,000, or 1.8%, to $11.19 million for the quarter ended March 31, 2025 from $10.99 million for the quarter ended March 31, 2024.

This increase was mainly due to a $112,000 increase in professional fee expense, an $81,000 increase in technology and communications expense, due to continued investment in digital banking platforms and cybersecurity enhancements, and a $30,000 increase in advertising expense.

These increases were partially offset by an $80,000 decrease in ATM and debit card interchange transaction expense due to renegotiated vendor contracts and lower transaction volume and a $47,000 decrease in salary and employee benefits expense.

The efficiency ratio for the current quarter was 56.25% compared to 60.22% for the comparable quarter one year ago.

The slight improvement in the efficiency ratio was due to higher overall revenue, which was partially offset by higher non-interest expense.

The improvement in the efficiency ratio was due to higher overall revenue, which was partially offset by higher non-interest expense.

Total non-interest expense increased $645,000, or 3.0%, to $22.26 million for the six months ended March 31, 2025 from $21.62 million for the six months ended March 31, 2024.

The increase was primarily due to a $247,000 increase in technology and communications expense, and a $205,000 increase in professional fees expense, for the reasons discussed above, and a $132,000 increase in salary and employee benefits expense, due to annual salary increases.

These increases were partially offset by a $173,000 decrease in ATM and debit card interchange transaction expense, due to lower transaction volume.

The efficiency ratio for the six months ended March 31, 2025 was 56.26% compared to 58.34% for the six months ended March 31, 2024.

Provision for Income Taxes:

The provision for income taxes increased by $167,000, or 10.8%, to $1.71 million for the quarter ended December 31, 2024 from $1.55 million for the quarter ended December 31, 2023.

The provision for income taxes increased by $235,000, or 16.0%, to $1.71 million for the quarter ended March 31, 2025 from $1.47 million for the quarter ended March 31, 2024.

The increase in the provision for income taxes was primarily due to higher pre-tax income.

The Company's effective income tax rate was 20.0% for the quarter ended December 31, 2024 and 19.6% for the quarter ended December 31, 2023.

The Company's effective income tax rate was 20.2% for the quarter ended March 31, 2025 and 20.5% for the quarter ended March 31, 2024.

The provision for income taxes increased by $403,000, or 13.4%, to $3.42 million for the six months ended March 31, 2025 from $3.02 million for the six months ended March 31, 2024.

The increase was primarily due to higher pre-tax income.

The Company's effective tax rate was 20.1% for the six months ended March 31, 2025 compared to 20.0% for the six months ended March 31, 2024.

The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, the sale of loans, maturing investment securities, maturing CDs held for investment and borrowings, if needed, from the FHLB and FRB.

2 unchanged sentences

The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs.

At December 31, 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 12.92%.

At March 31, 2025, 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 14.14%.

The Bank maintains a credit facility with the FHLB that provides for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral.

At December 31, 2024, the Bank had a total of $599.34 million available for borrowings with the FHLB of which $20.00 million was outstanding.

At March 31, 2025, the Bank had a total of $618.87 million available for borrowings with the FHLB of which $20.00 million was outstanding.

The Bank maintains a short-term borrowing line with the FRB with total credit based on eligible collateral:

Borrower-in-Custody ("BIC").

At December 31, 2024, the Bank had no outstanding balance on the BIC line, under which $77.14 million was available for future borrowings.

At March 31, 2025, the Bank had no outstanding balance on the BIC line, under which $76.03 million was available for future borrowings.

The Bank also maintains a $50.00 million overnight borrowing line with Pacific Coast Bankers' Bank ("PCBB").

At December 31, 2024, the Bank did not have an outstanding balance on this borrowing line.

At March 31, 2025, the Bank did not have an outstanding balance on this borrowing line.

Subject to market conditions, the Bank expects to utilize these borrowing facilities from time to time in the future to fund loan originations and deposits 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.

The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected

deposit flows, and (iv) yields available on interest-bearing deposits.

The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, and (iv) yields available on interest-bearing deposits.

Excess liquidity is invested generally in interest-bearing overnight deposits, CDs held for investment and short-term government and agency obligations.

1 unchanged sentence

The Bank's primary investing activity is the origination of loans and, to a lesser extent, the purchase of investment securities.

During the three months ended December 31, 2024 and 2023, the Bank originated $72.07 million and $88.93 million of loans, respectively.

At December 31, 2024, the Bank had undisbursed lines of credit and commitments to extend credit totaling $131.54 million and undisbursed construction loans in process totaling $85.35 million.

Investment securities purchased during the three months ended December 31, 2024 and 2023 totaled $8.58 million and $1.92 million, respectively.

During the six months ended March 31, 2025 and 2024, the Bank originated $128.66 million and $128.30 million of loans, respectively.

At March 31, 2025, the Bank had undisbursed lines of credit and commitments to extend credit totaling $145.17 million and undisbursed construction loans in process totaling $75.04 million.

Investment securities purchased during the six months ended March 31, 2025 and 2024 totaled $22.42 million and $24.13 million, respectively.

The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments.

During the three months ended December 31, 2024 and 2023, the Bank sold $2.31 million and $9.60 million, respectively, in loans and loan participation interests.

During the three months ended December 31, 2024 and 2023, the Bank received $65.16 million and $44.35 million in principal repayments, respectively.

The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment, and investment securities available for sale (including equity securities) increased to $249.46 million at December 31, 2024 from $248.06 million at September 30, 2024.

CDs that are scheduled to mature in less than one year from December 31, 2024 totaled $327.38 million.

During the six months ended March 31, 2025 and 2024, the Bank sold $7.48 million and $11.87 million, respectively, in loans and loan participation interests.

During the six months ended March 31, 2025 and 2024, the Bank received $117.67 million and $84.00 million in principal repayments, respectively.

The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment, and investment securities available for sale (including equity securities) increased to $285.58 million at March 31, 2025 from $248.06 million at September 30, 2024.

CDs that are scheduled to mature in less than one year from March 31, 2025 totaled $343.42 million.

Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

2 unchanged sentences

The amount of capital investment is influenced by, among other things, current and projected demand for services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.

Based on current objectives, there are no capital expenditures projected for the remaining nine months of the fiscal year ending September 30, 2025 that would materially impact liquidity.

Based on current objectives, there are no capital expenditures projected for the remaining six months of the fiscal year ending September 30, 2025 that would materially impact liquidity.

For the remainder of the 2025 fiscal year, the Bank projects that fixed commitments will include $169,000 of operating lease payments.

No FHLB borrowings are scheduled to mature during fiscal year 2025.

In addition, at December 31, 2024, there were other future obligations and accrued expenses of $8.36 million.

In addition, at March 31, 2025, there were other future obligations and accrued expenses of $7.95 million.

The Bank's management believes that the liquid assets combined with the available lines of credit provide adequate liquidity to meet current financial obligations for at least the next 12 months.

1 unchanged sentence

In addition to is operating expenses, Timberland Bancorp is responsible for paying any dividends declared, if any, to its shareholders and funds paid for Company stock repurchases.

Sources of capital and liquidity for Timberland Bancorp include distributions from the Bank and the issuance of debt or equity securities, although there are regulatory restrictions on the ability of the Bank to pay dividends.

At December 31, 2024, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.73 million.

Sources of capital and liquidity for Timberland Bancorp include distributions from the Bank and the issuance of debt or equity securities.

However, the Bank’s ability to pay dividends is subject to regulatory limitations, including capital adequacy requirements and supervisory approval under certain circumstances.

The Bank maintains strong capital levels and earnings capacity, which support its ability to upstream dividends to Timberland Bancorp, subject to applicable regulatory constraints.

At March 31, 2025, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $263,000.

The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice.

The current quarterly common stock dividend rate is $0.25 per share, as approved by the Board of Directors, which is a dividend rate per share that enables the Company to balance multiple objectives of managing and investing in the Bank and returning a substantial portion of cash to shareholders.

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 December 31, 2024 (which assumes no change in the number of shares).

On April 22, 2025 the Board of Directors approved an increase in the quarterly stock dividend rate to $0.26 per share, which is a dividend rate per share that enables the Company to balance multiple objectives of managing and investing in the Bank and returning a substantial portion of cash to shareholders.

Assuming continued payment at this rate for the remainder of the 2025 fiscal year, the average total dividend paid each quarter would be approximately $2.05 million based on the number of shares outstanding at March 31, 2025 (which assumes no change in the number of shares).

In addition, from time to time, our Board of Directors has authorized stock repurchase plans.

1 unchanged sentence

Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.

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 127,762 shares remained available for future purchases as of December 31, 2024.

The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities,

liquidity, and other factors deemed appropriate.

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 65,998 shares remained available for future purchases as of March 31, 2025.

The repurchase program does not obligate the Company to purchase any particular number of shares.

4 unchanged sentences

Consistent with the Bank's goals to operate a sound and profitable organization, it is the Bank's policy to maintain a "well-capitalized" status under the regulatory capital categories of the FDIC.

Based on capital levels at December 31, 2024, the Bank was considered to be "well-capitalized" under applicable regulatory requirements.

Based on capital levels at March 31, 2025, the Bank was considered to be "well-capitalized" under applicable regulatory requirements.

Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.

The following table compares the Bank’s actual capital amounts at December 31, 2024, to its minimum regulatory capital requirements at that date (dollars in thousands):

The following table compares the Bank’s actual capital amounts at March 31, 2025, to its minimum regulatory capital requirements at that date (dollars in thousands):

Actual Regulatory

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Total capital 254,004 20.24 100,386 8.00 125,483 10.00

In addition to the minimum common equity Tier 1 ("CET1"), Tier 1 and total capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of retained income that could be utilized for such actions.

At December 31, 2024, the Bank's CET1 capital exceeded the required capital conservation buffer.

minimum capital levels.

Failure to maintain the required buffer could result in limitations on the Bank’s ability to pay dividends, repurchase shares, and pay discretionary bonuses, based on specified percentages of eligible retained income.

At March 31, 2025, the Bank’s capital exceeded the conservation buffer.

Timberland Bancorp, Inc.

is a bank holding company registered with the Federal Reserve.

Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve.

For a bank holding company with less than $3.0 billion in assets (as of June 30th of the preceding year), the capital guidelines apply on a bank only basis, and the Federal Reserve expects the holding company's subsidiary bank to be well capitalized under the prompt corrective action regulations.

is a bank holding company registered with the Federal Reserve and is subject to capital adequacy requirements under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve.

For bank holding companies with less than $3.0 billion in consolidated assets (as of June 30th of the preceding year), the Federal Reserve capital guidelines are generally applied on a bank only basis.

In such cases, the Federal Reserve expects the subsidiary bank to be well capitalized under the prompt corrective action regulations.

If Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2024, Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2025, Timberland Bancorp, Inc.

would have exceeded all regulatory requirements.

The following table presents for informational purposes the regulatory capital ratios for Timberland Bancorp, Inc.

as of December 31, 2024 (dollars in thousands):

as of March 31, 2025 (dollars in thousands):

Leverage Capital Ratio:

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Key Financial Ratios and Data

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended

2025 2024 2025 2024

PERFORMANCE RATIOS :

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis