What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-12-09 compared with 2024-12-11 · 115 added, 133 removed, 448 unchanged (36% of the section changed)

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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 branches (including its main office in Hoquiam).

At September 30, 2024, the Company had total assets of $1.92 billion, net loans receivable of $1.42 billion, total

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.

At September 30, 2025, the Company had total assets of $2.01 billion, net loans receivable of $1.46 billion, total deposits of $1.72 billion and total shareholders’ equity of $262.61 million.

The Company’s business activities generally are

limited to passive investment activities and oversight of its investment in the Bank.

Accordingly, the information set forth in this report relates primarily to the Bank’s operations.

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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, which stood at 4.00% to 4.25% as of September 30, 2025.

Subsequent to fiscal year end, the FOMC reduced the target federal funds rate by 25 basis points and has not ruled out future decreases.

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 at inception of the loan.

The adoption of CECL changed the allowance calculation methodology from a historical incurred loss model to an expected future loss model.

The adjustment recorded upon our adoption of the CECL standard was not significant to the overall ACL (including the reserve for unfunded commitments) as compared to the allowance for loan losses at September 30, 2023.

Subsequent to fiscal year end, the FOMC reduced the target federal funds rate by 25 basis points.

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.

The Company recorded a provision for credit losses on loans of $853,000 for the year ended September 30, 2025, 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.

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.

For the year ended September 30, 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 cash surrender value increases and death benefit, servicing income on loans, escrow fees and other operating income.

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.

Non-interest income in certain periods can also be 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, amortization of CDI, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure expenses, technology and communications expenses, deposit operation expenses and other non-interest expenses.

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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 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.

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We believe maintaining strong asset quality is key to our long-term financial success.

Non-performing assets, consisting of nonaccrual loans and investment securities, totaled $3.94 million at September 30, 2024, compared to $1.60 million at September 30, 2023.

Non-performing assets, consisting of nonaccrual loans and investment securities, and OREO, totaled $4.44 million at September 30, 2025, compared to $3.94 million at September 30, 2024.

The percentage of non-performing loans to loans receivable, net was 0.30% and 0.27% at September 30, 2025 and 2024, respectively.

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Income before income taxes 36,231 30,406 33,994 29,562 34,428

Provision for federal income taxes 6,123 6,876 5,962 6,845 6,038

Provision for income taxes 7,070 6,123 6,876 5,962 6,845

Net income $ 29,161 $ 24,283 $ 27,118 $ 23,600 $ 27,583

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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.

Generally, purchased loan servicing rights are capitalized at the cost to acquire the rights.

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 estimate of prepayment speeds is based on current market conditions.

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.

Capitalized loan servicing rights are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Valuation of OREO

Real estate properties acquired through foreclosure or by deed-in-lieu of foreclosure are recorded at the lower of cost or fair value less estimated costs to sell.

Fair value is generally determined by management based on a number of factors, including third-party appraisals of fair value in an orderly sale.

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.

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.

Expenses and income from the maintenance and operations and any gains or losses from the sales of OREO are included in non-interest expense.

Business Combinations

The Company applies the acquisition method of accounting for business combinations.

Under the acquisition method, the acquiring entity in a business combination recognizes all the identifiable assets acquired and liabilities assumed at their acquisition date fair values.

Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values.

Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill.

Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized.

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.

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.

An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The qualitative assessment involves judgment by management on determining whether there have been any triggering events that have occurred which would indicate potential impairment.

The qualitative assessment involves judgment by management on determining whether there have been any triggering events that have occurred which

would indicate potential impairment.

If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed.

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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.

relies on retail deposits as its primary source of funds.

The Bank relies on retail deposits as its primary source of funds.

As part of its interest rate risk management strategy, the Bank promotes transaction accounts and certificates of deposit with terms of up to five years.

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-400 (8,144) (10.67) (34,745) (9.52)

(1) Does not include loan fees and includes BOLI income, which is included in non-interest income in the consolidated financial statements.

(1) Does not include loan fees.

Includes BOLI income, which is included in non-interest income in the consolidated financial statements.

(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.

Furthermore, the computations do not reflect any actions management may undertake in response to changes in interest rates.

In the event of a 100 basis point decrease in interest rates, the Bank would be expected to experience a 2.2% decrease in EVE and a 1.4% decrease in net interest income.

The computations do not reflect any actions management may undertake in response to changes in interest rates.

For illustrative purposes, in the event of a 100 basis point decrease in interest rates, the Bank would be expected to experience a 2.2% decrease in EVE and a 2.6% decrease in net interest income.

In the event of a 100 basis point increase in interest rates, a 0.1% decrease in EVE and a 0.5% decrease in net interest income would be expected.

Based upon the modeling described above, the Bank's asset and liability structure generally results in modest decreases in net interest income and EVE in both rising and falling interest rate scenarios.

The Bank’s asset and liability structure generally results in decreases in net interest income and EVE under the hypothetical interest rate scenarios modeled, with changes more pronounced in larger rate movements.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table.

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Total assets increased by $89.30 million, or 4.6%, to $2.01 billion at September 30, 2025 from $1.92 billion at September 30, 2024.

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.

Net loans receivable increased by $119.22 million, or 9.2%, to $1.42 billion at September 30, 2024 from $1.30 billion at September 30, 2023, primarily due to increases in one- to four-family loans, multi-family loans, commercial real estate loans, home equity loans and smaller increases in several other loan categories that were partially offset by decreases in construction and land development loans.

The increase was primarily due to increases in total cash and cash equivalents and loans receivable net, partially offset by a decrease in investment securities.

Net loans receivable increased by $42.07 million, or 3.0%, to $1.46 billion at September 30, 2025 from $1.42 billion at September 30, 2024.

Loan growth was concentrated in the mortgage-related portfolios, with the largest increase occurring in the in multi-family portfolio.

These increases were partially offset by decreases in commercial business loans.

Investment securities (including investments in equity securities) decreased by $29.26 million, or 11.9%, to $215.97 million at September 30, 2025 from $245.22 million at September 30, 2024, primarily due to the maturities of U.S.

Treasury investment securities and to a lesser extent, scheduled amortization.

Partially offsetting these decreases, was the purchase of additional U.S.

These decreases were partially offset by the purchase of additional U.S.

government agency mortgage-backed investment securities and U.S.

Treasury investment securities, all of which were classified as available for sale.

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.

Treasury investment securities.

Total deposits increased by $68.97 million, or 4.2%, to $1.72 billion at September 30, 2025 from $1.65 billion at September 30, 2024, primarily due to increases in certificate of deposit, non-interest bearing demand, and NOW checking account balances.

These increases were partially offset by decreases in money market and savings account balances.

Shareholders' equity increased by $17.20 million, or 7.0%, to $262.61 million at September 30, 2025 from $245.41 million at September 30, 2024.

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.

The increase was primarily due to net income for the year ended September 30, 2025 of $29.16 million,

partially offset by $8.09 million in dividends paid to shareholders and the repurchase of 179,966 shares of common stock for $5.76 million.

A more detailed explanation of the changes in significant balance sheet categories follows:

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Investment securities (including investments in equity securities) decreased by $29.26 million, or 11.9%, to $215.97 million at September 30, 2025 from $245.22 million at September 30, 2024.

The decrease was primarily due $100.87 million of maturities, prepayments and scheduled amortization on held to maturity securities and $14.12 million in maturities, prepayments and scheduled amortization on available for sale investment securities.

The decrease was primarily due to $41.22 million of maturities, prepayments, and scheduled amortization on held to maturity securities, and $28.32 million in maturities, prepayments, scheduled amortization, and the sale of $13.51 million in available for sale investment securities.

The reduction in the portfolio also reflects management’s continued focus on maintaining liquidity and repositioning the investment portfolio in response to the prevailing interest rate environment.

These decreases were partially offset by the purchase of $47.47 million in available for sale investment securities and $5.41 million in held to maturity investment securities.

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Business - Investment Activities" and "Note 3 - Investment Securities" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

FHLB stock decreased by $1.57 million, or 43.5%, to $2.04 million at September 30, 2024 from $3.60 million at September 30, 2023, due to the repayment of a portion of FHLB borrowings and the restructuring of stock ownership requirement by FHLB.

FHLB stock increased by $8,000, or 0.4%, to $2.05 million at September 30, 2025 from $2.04 million at September 30, 2024, as a result of the increase in total assets which increased the Bank's required investment in FHLB stock under the Federal Home Loan Bank's membership and borrowing requirements.

Other Investments:

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Loans Held for Sale:

There were no loans held for sale at September 30, 2024 compared to $400,000 at September 30, 2023, primarily due to the timing and volume of mortgage banking loan sales.

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.

There were $1.13 million in loans held for sale at September 30, 2025 compared to none at September 30, 2024, primarily due to the timing and volume of mortgage banking loan sales.

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

The Company sold $22.60 million in loans during the year ended September 30, 2025 compared to $14.75 million for the year ended September 30, 2024.

Sales of loans over the past year has increased slightly, primarily due to construction loans converting to permanent financing as higher interest rates have slowed down refinancing and purchase activity.

Loan sales increased over the past year primarily due to construction loans converting to permanent financing as higher interest rates continued to slow refinancing and purchase activity and thereby increased the proportion of loans being retained and subsequently sold through normal conversion cycles.

Loans Receivable, Net of Allowance for Credit Losses:

Net loans receivable increased by $42.07 million, or 3.0%, to $1.46 billion at September 30, 2025 from $1.42 billion at September 30, 2024.

The increase was primarily due to a $50.17 million increase in multi-family loans, a $45.90 million increase in one- to four-family loans, a $33.32 million decrease in the undisbursed portion of construction loans, a $30.95 million increase in commercial real estate loans, a $9.63 million increase in home equity loans and smaller changes in other categories.

These increases were partially offset by a $54.64 million decrease in gross construction loans, with the largest decreases occurring in commercial and multi-family construction loans as they converted to permanent financing and smaller decreases in several other loan categories.

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.

These decreases were partially offset by an increase in originations of multi-family and land loans.

The increase was primarily due to a $30.42 million increase in multi-family loans, a $18.57 million increase in one- to four-family loans, an $11.47 million increase in commercial real estate loans, a $6.59 million increase in land loans, a $4.69 million increase in gross construction loans and smaller changes in other categories.

These increases were partially offset by a $18.41 million increase in the undisbursed portion of construction loans in process, a $12.01 million decrease in commercial business loans and smaller decreases in several other loan categories.

Loan originations increased by $59.46 million, or 23.6%, to $310.90 million for the year ended September 30, 2025 from $251.44 million for the year ended September 30, 2024.

The increase in loan originations was primarily due to increases in originations of commercial real estate, construction, one- to four- family loans, consumer, and smaller increases in other categories.

These increases were partially offset by a decrease in originations of commercial business loans.

For additional information on loans, see "Item 1.

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Premises and Equipment, Net:

Premises and equipment decreased by $156,000, or 0.7%, to $21.49 million at September 30, 2024 from $21.64 million at September 30, 2023.

The decrease was primarily due to normal depreciation.

Premises and equipment increased by $198,000, or 0.9%, to $21.68 million at September 30, 2025 from $21.49 million at September 30, 2024.

The increase was primarily due to increases to furniture and equipment, and building and improvements that was partially offset by normal depreciation.

For additional information on premises and equipment, see "Item 2.

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Bank Owned Life Insurance ("BOLI"):

BOLI increased by $645,000, or 2.8%, to $23.61 million at September 30, 2024 from $22.97 million at September 30, 2023.

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

BOLI decreased by $1.78 million, or 7.5%, to $21.83 million at September 30, 2025 from $23.61 million at September 30, 2024.

The decrease was primarily due to a death benefit, which was partially offset by an increase in cash surrender values.

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

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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.

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.

Loan servicing rights decreased by $557,000, or 40.6%, to $815,000 at September 30, 2025 from $1.37 million at September 30, 2024, primarily due to the amortization of servicing rights, which was partially offset by additional capitalized Freddie Mac servicing rights for loans sold with servicing retained during the period.

The principal amount of loans serviced for Freddie Mac and the SBA decreased by $13.55 million to $357.01 million at September 30, 2025 from $370.56 million at September 30, 2024, reflecting normal portfolio runoff and payoffs.

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.

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.

Operating lease ROU assets increased by $1.47 million, or 99.9%, to $2.95 million at September 30, 2025 from $1.48 million at September 30, 2024.

The increase was primarily due to the addition of an operating lease for the University Place branch (scheduled to open in December 2025), which was partially offset by the amortization of the ROU assets.

Operating lease ROU assets at September 30, 2025 represented the present value of three 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 $2.67 million, or 74.7%, to $6.24 million at September 30, 2024 from $3.57 million at September 30, 2023.

The increase was primarily due to increases in miscellaneous receivables (including income tax receivables) and prepaid expenses.

Other assets decreased by $129,000, or 2.07%, to $6.11 million at September 30, 2025 from $6.24 million at September 30, 2024.

The decrease was primarily due to decreases in miscellaneous receivables (including income tax receivables) and prepaid expenses.

Deposits increased by $68.97 million, or 4.2%, to $1.72 billion at September 30, 2025 from $1.65 billion at September 30, 2024.

The increase consisted of a $137.05 million increase in money market account balances and a $68.21 million increase in certificate of deposit account balances.

The increases were partially offset by a $53.40 million decrease in NOW account balances, a $42.75 million decrease in non-interest bearing account balances and a $22.37 million decrease in savings account balances.

The increase consisted of a $74.21 million increase certificate of deposit account balances, a $17.57 million increase in non-interest bearing account balances and a $12.27 million increase in NOW account balances.

These increases were partially offset by a $30.77 million decrease in money market account balances and a $4.32 million decrease in savings account balances.

The changes in deposit balances reflect customer preferences in the current interest rate environment, with growth in certificates of deposit and non-interest bearing accounts supporting funding stability, while declines in money market and savings accounts reflect shifts toward higher-yield or short-term investment alternatives.

For additional information on deposits, see "Item 1.

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FHLB Borrowings:

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.

The Company maintains 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.

At September 30, 2025, the Company had an available borrowing capacity of $619.92 million.

The Company had $20.00 million in FHLB borrowings at September 30, 2024 compared to $35.00 million at September 30, 2023.

At September 30, 2024, FHLB borrowings consisted of three long-term borrowings:

two totaling $15.00 million with scheduled maturities in May 2026, both bearing interest at 3.95% and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%.

The Company had $20.00 million in FHLB borrowings at September 30, 2025 and 2024.

At September 30, 2025, FHLB borrowings consisted of three short-term borrowings:

two totaling $15.00 million with scheduled maturities in May 2026, each bearing interest at 3.95% and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%.

The borrowings provide the Company with a flexible source of liquidity and support its asset-liability management strategy, allowing the Bank to manage funding needs, respond to changes in deposit flows, and maintain adequate liquidity levels to support ongoing operations and loan growth.

For additional information on FHLB borrowings, see "Note 11 - FHLB Borrowings and Other Borrowings" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Operating Lease Liabilities:

Operating lease liabilities decreased by $292,000 or 15.6%, to $1.58 million at September 30, 2024 from $1.87 million at September 30, 2023, primarily due to required annual lease payments.

The operating lease liability at September 30, 2024 represented the present value of two operating leases on branch facilities and one administrative office.

Operating lease liabilities increased by $1.50 million or 95.4%, to $3.08 million at September 30, 2025 from $1.58 million at September 30, 2024, primarily due to the addition of an operating lease for the University Place branch, partially offset by required annual lease payments.

The operating lease liability at September 30, 2025 represented the present value of three 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 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 decrease was primarily due to timing differences in the normal course of business and an increase in accrued interest payable.

Other liabilities and accrued expenses increased by $1.63 million, or 18.5%, to $10.45 million at September 30, 2025 from $8.82 million at September 30, 2024.

The increase was primarily due to timing differences in the normal course of business, partially offset by a decrease in accrued interest payable.

Shareholders' Equity:

Total shareholders' equity increased by $17.20 million, or 7.0%, to $262.61 million at September 30, 2025 from $245.41 million at September 30, 2024.

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.

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 was primarily due to net income of $29.16 million , partially offset by the payment of $8.09 million in dividends to common shareholders and the repurchase of 179,966 shares of the Company's common stock for $5.76 million.

For additional information on shareholders' equity, see the Consolidated Statements of Shareholders' Equity contained in Item 8 of this report.

Comparison of Operating Results for the Years Ended September 30, 2025 and 2024

Net income for the year ended September 30, 2024 decreased by $2.84 million, or 10.5%, to $24.28 million from $27.12 million for the year ended September 30, 2023.

Net income per diluted common share decreased by $0.28, or 8.5%, to $3.01 for the year ended September 30, 2024 from $3.29 for the year ended September 30, 2023.

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.

Non-interest income remained relatively unchanged at $11.14 million for the years ended September 30, 2024 and 2023.

Net income for the year ended September 30, 2025 increased by $4.88 million, or 20.1%, to $29.16 million from $24.28 million for the year ended September 30, 2024.

Net income per diluted common share increased by $0.66, or 21.9%, to $3.67 for the year ended September 30, 2025 from $3.01 for the year ended September 30, 2024.

The increase in net income was primarily due to a $6.03 million increase in net interest income, reflecting growth in average loan balances and a higher net interest margin, and a $1.22 million increase in non-interest income, primarily due to higher BOLI earnings, including a death benefit received during the period.

These increases were partially offset by a $1.64 million increase in non-interest expense.

While salaries and employee benefits remained the largest component of non-interest expense, the increase was modest, with the increase in total expense driven mainly by higher state and local taxes, and professional fees.

Net income was also partially reduced by a $947,000 increase in the provision for income taxes, while the provision for credit losses decreased $217,000, reflecting stable credit quality during the period.

A more detailed explanation of the income statement categories is presented below.

Net Interest Income:

Net interest income decreased by $4.19 million, or 6.1%, to $64.17 million for the year ended September 30, 2024 from $68.36 million for the year ended September 30, 2023.

The decrease was due to higher interest expense resulting from increases in both the average yields and balances of interest-bearing liabilities, which outpaced the increase in interest income and dividend income resulting from increases in the average yield and balance on loans and, to a lesser extent, the average yields on investment securities and interest-bearing deposit in banks and CDs.

Total interest and dividend income increased by $14.87 million, or 18.6%, to $94.83 million for the year ended September 30, 2024 from $79.95 million for the year ended September 30, 2023, due to an increase in the average yields on interest-earning assets, as well as an increase in the average balance of loans.

Net interest income increased by $6.03 million, or 9.4%, to $70.20 million for the year ended September 30, 2025 from $64.17 million for the year ended September 30, 2024.

The increase was primarily due to higher interest and dividend income resulting from increases in both the average yields and balances of loans, which outpaced the increase in interest expense resulting from increases in the average balance on interest-bearing liabilities.

Total interest and dividend income increased by $7.45 million, or 7.9%, to $102.28 million for the year ended September 30, 2025 from $94.83 million for the year ended September 30, 2024, due to an increase in the average yields on interest-earning assets, specifically loans and investment securities, as well as an increase in the average balance of loans.

The average yield on interest-earning assets increased to 5.48% for the year ended September 30, 2025 from 5.24% for the year ended September 30, 2024.

Average total interest-earning

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.

Average total interest-earning assets increased by $55.19 million, or 3.05%, to $1.87 billion for the year ended September 30, 2025 from $1.81 billion for the year ended September 30, 2024, due to an increase in the average balance of loans receivable and an increase in the average balance of interest-bearing deposits in banks and CDs, which was partially offset by a decrease in the average balance of investment securities.

Interest income on loans receivable and loans held for sale increased by $8.10 million, or 10.45%, to $85.53 million for the year ended September 30, 2025 from $77.43 million for the year ended September 30, 2024, primarily due to a $69.27 million increase in the average balance of loans receivable coupled with an increase in the average yield on loans receivable to 5.90% for the year ended September 30, 2025 from 5.61% for the year ended September 30, 2024.

During the year ended September 30, 2025, the accretion of the purchase accounting fair value discount on loans acquired increased interest income on loans by $104,000 compared to $37,000 for the year ended September 30, 2024.

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.

The accretion of the net fair value discount on acquired loans had a two basis-point effect on the average yield on loans for the year ended September 30, 2025 and a minor effect for the year ended September 30, 2024.

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.

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Interest income on investment securities decreased by $932,000, or 10.2%, to $8.20 million for the year ended September 30, 2025 from $9.13 million for the year ended September 30, 2024, due to a $49.21 million decrease in the average balance of investment securities, partially offset by a 29 basis point increase in the average yield on investment securities.

Interest income on interest-bearing deposits in banks and CDs increased by $762,000, or 10.7%, to $7.91 million for the year ended September 30, 2024 from $7.14 million for the year ended September 30, 2023, due to an 112 basis point increase in the average yield resulting from increased market interest rates, partially offset by a $20.85 million decrease in the average balance of interest-bearing deposits in banks and CDs.

The decline in average balances reflected portfolio maturities and scheduled amortization, while the increase in yield resulted from reinvesting maturing or liquidated lower-yielding securities into higher-yielding securities, as interest rates remain relatively high compared with recent years.

Interest income on interest-bearing deposits in banks and CDs increased by $315,000, or 4.0%, to $8.22 million for the year ended September 30, 2025 from $7.91 million for the year ended September 30, 2024, due to a $35.38 million increase in the average balance of interest-bearing deposits in banks and CDs, and was partially offset by an 87 basis point decrease in the average yield resulting from decreased market interest rates.

Total interest expense increased by $1.42 million, or 4.6%, to $32.08 million for the year ended September 30, 2025 from $30.66 million for the year ended September 30, 2024.

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

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.

Average interest-bearing deposits increased by $108.92 million, or 10.0%, to $1.19 billion for the year ended September 30, 2024 from $1.09 billion for the year ended September 30, 2023, primarily due to competitive pricing pressure which resulted in rate matching to retain deposits.

Average short-term borrowings increased by $5.42 million, or 555.8% to $6.4 million for the year ended September 30, 2024 from $975,000 for the year ended September 30, 2023.

Average long-term borrowings increased by $9.8 million, or 164.9% to $15.8 million for the year ended September 30, 2024 from $6.0 million for the year ended September 30, 2023.

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.

The increase was primarily due to higher average balances of certificates of deposit and money market accounts, which increased $59.41 million and $22.70 million, respectively.

These increases more than offset declines in NOW and savings account balances, which decreased $20.61 million and $7.07 million, respectively.

Interest expense on borrowings decreased, $194,000 due to lower average borrowings.

The average cost of interest-bearing liabilities rose by one basis point, to 2.53%, reflecting the combined effect of higher-cost certificates of deposit and lower-cost borrowings.

As a result of these changes, the net interest margin increased 22 basis points to 3.76% for the year ended September 30, 2025 from 3.54% for the year ended September 30, 2024.

Provision for Credit Losses:

A $1.15 million provision for credit losses was recorded for the year ended September 30, 2024 consisting of a $1.25 million provision for credit losses on loans which was primarily due to an increase in loans receivable, a $32,000 recapture of credit losses on investment securities which was primarily due to lower balances resulting from maturities and principal payments and a $71,000 recapture of credit losses on unfunded commitments which was primarily due to a decrease in the balance of unfunded loan commitments.

A $2.13 million provision for loan losses, under the prior incurred loan loss method, was recorded for the year ended September 30, 2023.

The Company had net charge-offs of $54,000 for the year ended September 30, 2024 compared to $18,000 for the year ended September 30, 2023.

Net charge-offs (recoveries) to average outstanding loans was 0.0% for the years ended September 30, 2024 and 2023.

The level of delinquent loans (loans 30 or more days past due) increased by $2.81 million, or 168.9%, to $4.48 million at September 30, 2024 from $1.67 million at September 30, 2023.

Loan classified as substandard increased by $2.05 million, or 32.1%, to $8.44 million at September 30, 2024 from $6.39 million at September 30, 2023, while loans classified as doubtful totaled $202,000 at September 30, 2024 compared to none at September 30, 2023.

Loans designated as special mention totaled $4.40 million at September 30, 2024 compared to none at September 30, 2023.

Non-accrual loans increased by $2.37 million, or 156.6%, to $3.89 million at September 30, 2024 from $1.51 million at September 30, 2023.

A $934,000 provision for credit losses was recorded for the year ended September 30, 2025 consisting of an $853,000 provision for credit losses on loans, primarily due to an increase in loans receivable, a $24,000 recapture of credit losses on investment securities, primarily due to lower balances resulting from maturities and principal payments and a $105,000 provision for credit losses on unfunded commitments, primarily due to an increase in the balance of unfunded loan commitments.

A $1.15 million provision for credit losses was recorded for the year ended September 30, 2024 consisting of a $1.25 million provision for credit losses on loan, primarily due to an increase in loans receivable, a $32,000 recapture of credit losses on investment securities, primarily due to lower balances resulting from maturities and principal payments and a $71,000 recapture of credit losses on unfunded commitments,primarily due to a decrease in the balance of unfunded loan commitments.

During the year ended September 30, 2025, several credit metrics, including delinquent and substandard loans, showed increases compared with the prior year, but overall credit quality remains sound.

Net charge-offs increased to $240,000 for the year ended September 30, 2025 compared to $54,000 for the year ended September 30, 2024, although net charge-offs (recoveries) to average outstanding loans remained low at 0.0% for both periods.

Delinquent loans (loans 30 or more days past due) increased by $1.18 million, or 26.3%, to $5.66 million at September 30, 2025 from $4.48 million at September 30, 2024.

Loans classified as substandard increased by $24.37 million, or 288.9%, to $32.81 million at September 30, 2025 from $8.44 million at September 30, 2024, while loans classified as doubtful totaled $202,000 at both September 30, 2025 and 2024.

Loans designated as special mention totaled $5.57 million at September 30, 2025 compared to $4.40 million at September 30, 2023.

Non-accrual loans increased by $522,000, or 13.4%, to $4.41 million at September 30, 2025 from $3.89 million at September 30, 2024.

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 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 further decline in national and local economic 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.

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.

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Credit discounts are included in the determination of fair value.

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

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 $51,000 at September 30, 2025.

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Non-interest Income:

Total non-interest income was $11.14 million for both the years ended September 30, 2024 and 2023.

Changes in non-interest income include a $128,000 decrease in ATM and debit card interchange transaction fees, a $95,000 decrease in net gain on sale of investment securities and smaller decreases in other categories, offset by a $238,000 increase in service charges on deposits and smaller increases in other categories.

Total non-interest income increased $1.22 million, or 10.9%, to $12.35 million for the year ended September 30, 2025 from $11.14 million for the year ended September 30, 2024.

The increase was primarily due to a $1.06 million increase in BOLI net earnings (largely the result of death benefits received in excess of cash surrender value), and by a $189,000 increase in gain on sales of loans, net and smaller increases in other categories.

These increases were partially offset by a $147,000 decrease in service charges on deposits, a $91,000 decrease in ATM and debit card interchange transaction fees and smaller decreases in other categories.

Non-interest Expense:

Total non-interest expense increased by $373,000, or 0.9%, to $43.75 million for the year ended September 30, 2024 from $43.37 million for the year ended September 30, 2023.

The increase was primarily due to a $719,000 increase in technology and communications, a $397,000 increase in ATM and debit card processing fees, a $172,000 increase in deposit operations, a $168,000 increase in salaries and employee benefits, a $122,000 increase in FDIC insurance expense, a $103,000 increase in state and local taxes, a $83,000 increase in premises and smaller increases in several other expense categories.

These increases were partially offset by a $761,000 decrease in professional fees and smaller decreases in several other categories.

The increase in technology and communications was primarily due to the addition of several new technology products, increased costs and processing volumes.

The increase in ATM and debit card processing fees and deposit operations was mainly due to fraud related expenses.

Total non-interest expense increased by $1.64 million, or 3.8%, to $45.39 million for the year ended September 30, 2025 from $43.75 million for the year ended September 30, 2024.

The increase was primarily due to a $360,000 increase in state and local taxes, a $359,000 increase in professional fees, a $192,000 increase in salaries and employee benefits, a $114,000 increase in premises and equipment, a $105,000 increase in technology and communications and smaller increases in several other expense categories.

These increases were partially offset by a $193,000 decrease in deposit operations, a $105,000 decrease in ATM and debit card processing and smaller decreases in several other categories.

The increase in state and local taxes was primarily due to increased taxable income.

The increase in professional fees was primarily due to an increase in audit and consulting fees.

The increase in salaries and employee benefits was primarily due to annual salary adjustments.

The efficiency ratio for the year ended September 30, 2024 was 58.09% compared to 54.56% for the year ended September 30, 2023.

The change in the efficiency ratio was the result of higher non-interest expenses, coupled with a decrease in overall revenues resulting from the decline in net interest income.

The decrease in deposit operations and ATM and debit card processing was primarily due to reduced customer-related fraud.

The efficiency ratio for the year ended September 30, 2025 improved to 54.98% compared to 58.09% for the year ended September 30, 2024 reflecting the combined impact of higher net interest income and non-interest income relative to total operating expenses.

Provision for Income Taxes:

The provision for income taxes decreased by $753,000, or 11.0% to $6.12 million for the year ended September 30, 2024 from $6.88 million for the year ended September 30, 2023.

The decrease was primarily due to lower pre-tax income.

The provision for income taxes increased by $947,000, or 15.5% to $7.07 million for the year ended September 30, 2025 from $6.12 million for the year ended September 30, 2024.

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

The Company's effective income tax rate was 19.5% for the year ended September 30, 2025 compared to 20.1% for the year ended September 30, 2024.

The decrease in the effective tax rate was primarily due to a higher percentage of non-taxable income.

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.

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

(3) Includes FHLB borrowings with original maturities of one year or greater.

(3) Includes FHLB borrowings with original maturities of one year or more.

(4) Net interest income divided by total average interest-earning assets.

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Certificates of deposit accounts (1,123) 2,529 1,406 3,760 5,249 9,009

FHLB borrowings 6 703 709 119 154 273

Short-term borrowings (111) 20 (91) — — —

Long-term borrowings 2 (105) (103) 6 703 709

Total net change in expense on interest-bearing liabilities (1,443) 2,862 1,419 13,058 6,008 19,066

13 unchanged sentences

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

At September 30, 2024, 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 deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

At September 30, 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 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.

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During the years ended September 30, 2025, 2024 and 2023, the Bank originated $310.90 million, $251.44 million and $361.79 million of loans, respectively.

At September 30, 2024, the Bank had loan commitments, consisting of undisbursed lines of credit and commitment to extend credit, totaling $146.15 million and undisbursed construction loans in process totaling $69.88 million.

At September 30, 2025, the Bank had loan commitments, consisting of undisbursed lines of credit and commitments to extend credit, totaling $158.26 million and undisbursed construction loans in process totaling $88.29 million.

Investment securities purchased during the years ended September 30, 2025, 2024 and 2023 totaled $52.89 million, $44.95 million and $32.60 million, respectively.

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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.

During the years ended September 30, 2025 and 2024, deposits increased by $68.97 million and $86.73 million, respectively.

During the year ended September 30, 2023, deposits decreased by $71.24 million.

Our liquid assets in the form of cash and cash equivalents, CDs held for investment and investment securities available for sale increased to $328.89 million at September 30, 2025 from $247.19 million at September 30, 2024.

The increase was primarily a result of increased deposits and a decrease in total investment securities, due to maturities and prepayments outpacing purchases.

The increase was primarily a result of increased deposits which were offset by a decrease in total investment securities, due to maturities and prepayments outpacing purchases.

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

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For the fiscal year ending September 30, 2026, the Bank projects that fixed commitments will include $377,000 of operating lease payments.

There are no scheduled payments and maturities of FHLB borrowings during fiscal year 2025.

FHLB borrowings of $20.0 million mature during the fiscal year 2026.

In addition, at September 30, 2025, there were other future obligations and accrued expenses of $10.45 million.

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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-K

Item 7. Management’s Discussion and Analysis