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Item 2. Management’s Discussion and Analysis

2026-02-06 compared with 2025-08-08 · 158 added, 256 removed, 282 unchanged (59% 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 and nine months ended June 30, 2025.

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, 2025.

Special Note Regarding Forward-Looking Statements

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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:

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 express or implied by our forward-looking statements, including, but not limited to:

• adverse impacts to economic conditions in our local markets or other markets where we have lending relationships;

• effects of employment levels, labor shortages, inflation, recessionary pressures or slowing economic growth;

• changes in interest rate levels, including actions by the Board of Governors of the Federal Reserve System (“Federal Reserve”), 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 monetary and fiscal policy responses thereto, and their impact on consumer behavior;

• the effects of a Federal government shutdown, debt ceiling standoff, or other fiscal policy uncertainty;

• credit risks of lending activities, including loan delinquencies, write-offs, changes in our ACL, and provision for credit losses;

• changes in employment levels, labor shortages inflation, a recession or slowed economic growth;

• changes in interest rate levels and the duration volatility, and the timing and pace of such changes, including actions by the Board of Governors of the Federal Reserve System (“Federal Reserve”), which could materially affect our net interest margin, funding costs, asset values, access to capital and liquidity;

• the impact of inflation, including and related monetary and fiscal policy responses thereto, and the impact their effect on consumer and business behavior;

• Geopolitical developments and international conflicts, including but not limited to tensions or instability in Eastern Europe, the Middle East, and Asia, or the imposition of new or increased tariffs and trade restrictions, could disrupt financial markets, global supply chains, energy commodity prices, or economic activity in specific industry sectors;

• the effects of a Federal government shutdown, a debt ceiling standoff, or other fiscal policy uncertainty;

• credit risks of associated with lending activities, including loan delinquencies, write-offs, changes in our allowance for credit losses ("ACL"), and provision for credit losses;

• fluctuations in the demand for loans, the number of unsold homes, land and other properties, and real estate values in our market areas;

• 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 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;

• legislation or regulatory changes, including but not limited to shifts in capital requirements, banking, securities and tax laws, or consumer protection laws;

• results of examinations of us by regulatory authorities, including the possibility that any such regulatory authorities 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;

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

• legislative or regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules;

• our ability to attract and retain deposits;

• our ability to control operating costs and expenses;

• use of estimates in determining the fair value of assets, which may prove incorrect;

• the ability to adapt to rapid technological changes, including advancements related to artificial intelligence, digital banking platforms, and cybersecurity;

• the use of estimates in determining the fair value of assets, which may prove inaccurate;

• staffing fluctuations in response to changes in product demand or corporate implementation strategies;

• vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;

• the ability to adapt to rapid technological changes, including advancements in artificial intelligence, digital banking, and cybersecurity;

• our ability to retain key members of our senior management team;

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• our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;

• increased competitive pressures among financial services companies, including repricing and competitors' pricing initiatives, and their impact on our market position, loan and deposit products;

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

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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”);

• geopolitical developments and international conflicts, including but not limited to tensions or instability in Eastern Europe, the Middle East, and Asia, or the imposition of new or increased tariffs and trade restrictions, which may disrupt financial markets, global supply chains, energy prices, or economic activity in specific industry sectors;

environmental, social and governance goals and targets;

• effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, domestic political unrest, and other external events;

• environmental, social and governance goals and targets matters;

• effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil domestic political unrest, and other external events;

• other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services;

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Any of the forward-looking statements that we make in this Form 10-Q and in the other public statements we make are based upon management's beliefs and assumptions at the time they are made.

We do not undertake and specifically disclaim any obligation to publicly update or revise any forward-looking statements included in this quarterly report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise.

We do not undertake and specifically disclaim any

obligation to publicly update or revise any forward-looking statements included in this quarterly report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise, except as may be required by law.

In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur and we caution readers not to place undue reliance on any forward-looking statements.

These risks could cause our actual results for fiscal 2025 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company's consolidated financial condition and results of operations as well as its stock price performance.

These risks could cause our actual results for fiscal 2026 and beyond to differ materially from those expressed or implied in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company's consolidated financial condition and results of operations as well as its stock price performance.

Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank.

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 June 30, 2025, the Company had total assets of $1.96 billion, net loans receivable of $1.44 billion, total deposits of $1.67 billion and total shareholders’ equity of $256.66 million.

The Company's business activities generally are limited to passive

investment activities and oversight of its investment in the Bank.

At December 31, 2025, the Company had total assets of $2.01 billion, net loans receivable of $1.46 billion, total deposits of $1.70 billion and total shareholders’ equity of $268.41 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, including the unaudited consolidated financial statements and related data, relates primarily to the Bank's operations.

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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 June 30, 2025.

During the first fiscal quarter of 2026 (fiscal quarter ended December 31, 2025), interest rate trends were influenced by monetary policy actions taken by the Federal Open Market Committee (“FOMC”) of the Federal Reserve.

In the second half of the calendar year 2025, the FOMC reduced the target range for the federal funds rate three times, most recently to a range of 3.50% to 3.75% at December 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.

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

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 management has determined is adequate to cover probable expected credit losses in the loan portfolio.

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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 $351,000 and $640,000 for the three and nine months ended June 30, 2025, respectively, due to loan portfolio growth and the annual update of model assumptions.

The annual update of model assumptions reflects routine adjustments to key inputs used in the credit loss estimation process, including changes in economic forecasts, historical loss experience, prepayment speeds, and other risk factors that influence expected credit losses under the Company's current expected credit loss (“CECL”) methodology.

The Company recorded a provision for credit losses on loans of $264,000 and $810,000 for the three and nine months ended June 30, 2024, respectively.

The Company recorded a provision for credit losses on loans of $16,000 for the three months ended December 31, 2025 compared to a provision for credit losses on loans of $52,000 for the three months ended December 31, 2024.

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

For the three and nine months ended June 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 net earnings, servicing income on loans sold, escrow fees and other operating income.

For the three months ended December 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.

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.

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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 2025 Form 10-K.

Comparison of Financial Condition at June 30, 2025 and September 30, 2024

Total assets increased by $33.72 million, or 1.8%, to $1.96 billion at June 30, 2025 from $1.92 billion at September 30, 2024.

The increase was primarily due to increases in cash and cash equivalents and loans receivable which were partially offset by decreases in investment securities.

The increase in assets was primarily funded by an increase in deposits.

Net loans receivable increased by $19.97 million, or 1.4%, to $1.44 billion at June 30, 2025 from $1.42 billion at September 30, 2024, primarily due to increases in multi-family, one- to four-family, commercial real estate, and land loans as well as smaller increases in other loan categories.

These increases were partially offset by a decrease in construction and commercial business loans as well as smaller decreases in other loan categories.

Total deposits increased by $21.81 million, or 1.3%, to $1.67 billion at June 30, 2025 from $1.65 billion at September 30, 2024, primarily due to increases in certificates of deposit "CDs" account balances.

This increase was partially offset by decreases in money market and non-interest-bearing account balances.

Shareholders’ equity increased by $11.25 million, or 4.6%, to $256.66 million at June 30, 2025 from $245.41 million at September 30, 2024.

The increase was primarily due to net income earned during the current period, partially offset by the payment of dividends to common shareholders, and repurchases of common stock during the nine months ended June 30, 2025.

Comparison of Financial Condition at December 31, 2025 and September 30, 2025

Total assets decreased by $6.65 million, or 0.3%, to $2.006 billion at December 31, 2025 from $2.013 billion at September 30, 2025.

The decrease was primarily due to decreases in investment securities and decreases in net loans receivable.

These decreases were partially offset by increases in cash and cash equivalents.

Net loans receivable decreased by $4.76 million, or 0.3%, to $1.459 billion at December 31, 2025 from $1.464 billion at September 30, 2025, primarily due to decreases in construction and land loans categories.

These decreases were partially offset by increases in one- to four- family, multi-family, home equity and second mortgage loan categories.

Total deposits decreased by $12.15 million, or 0.7%, to $1.704 billion at December 31, 2025 from $1.717 billion at September 30, 2025, primarily due to decreases in non-interest deposit account balances, certificates of deposit "CDs" account balances, and savings account balances.

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

Shareholders’ equity increased by $5.80 million, or 2.2%, to $268.41 million at December 31, 2025 from $262.61 million at September 30, 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 increased by $27.15 million, or 15.5%, to $202.09 million at June 30, 2025 from $174.94 million at September 30, 2024.

The increase was due to a $28.90 million increase in cash and cash equivalents, resulting primarily from an increase in deposits and maturities, prepayments and scheduled amortizations of investment securities.

The overall increase was partially offset by a $1.75 million decrease in CDs held for investment.

Cash and cash equivalents and CDs held for investment increased by $2.69 million, or 1.1%, to $253.33 million at December 31, 2025 from $250.65 million at September 30, 2025.

The increase was due to a $3.44 million increase in cash and cash equivalents, resulting primarily from maturities, prepayments and scheduled amortizations of investment securities and loan payoffs.

The overall increase was partially offset by a $747,000 decrease in CDs held for investment.

Investment Securities:

Investment securities (including investments in equity securities) decreased by $16.32 million, or 6.7%, to $228.90 million at June 30, 2025 from $245.22 million at September 30, 2024.

Investment securities (including investments in equity securities) decreased by $6.60 million, or 3.1%, to $209.37 million at December 31, 2025 from $215.97 million at September 30, 2025.

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

Partially offsetting the decrease were purchases of additional U.S.

government agency mortgage-backed and U.S.

Treasury investment securities.

During the quarter ended June 30, 2025, the Bank initiated a partial restructuring of investment securities which resulted in the sale of $13.86 million of US Treasury and mortgage-backed investment securities with an average yield of 3.87% and the purchase of $13.68 million of mortgage-backed investment securities with an average yield of 4.83%.

The restructuring resulted in a net gain on sale of investment securities of $24,000.

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 increased $8,000, or 0.4%, to $2.05 million at June 30, 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.

FHLB stock remained constant at $2.05 million at December 31, 2025 and September 30, 2025.

Other Investments:

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

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

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

Net loans receivable increased by $19.97 million, or 1.4%, to $1.44 billion at June 30, 2025 from $1.42 billion at September 30, 2024.

The increase was primarily due to a $23.06 million increase in multi-family loans, an $18.45 million increase in one- to four-family loans, an $8.71 million increase in commercial real estate loans and, and smaller increases in other loan categories.

These increases were partially offset by a $16.52 million decrease in construction loans, a $12.2 million decrease in commercial business loans, a $6.39 million increase in the undisbursed portion of construction loans and smaller decreases in other loan categories.

Loan originations increased by $8.20 million, or 4.0%, to $210.81 million for the nine months ended June 30, 2025 from $202.62 million for the nine months ended June 30, 2024.

The increase was primarily due to an increase in originations of commercial real estate and one- to four-family loans.

This increase was partially offset by a decrease in commercial business and construction loan originations.

Net loans receivable decreased by $4.76 million, or 0.3%, to $1.459 billion at December 31, 2025 from $1.464 billion at September 30, 2025.

The decrease was primarily due to an $18.16 million decrease in construction loans and a $2.43 million decrease in land loans.

These decreases were partially offset by an $8.03 million increase in one- to four-family loans, a $4.56 million increase in multi-family loans, a $2.09 million increase in the home equity and second mortgage loans and smaller increases in other loan categories.

Loan originations increased by $992,000, or 1.4%, to $73.06 million for the three months ended December 31, 2025 from $72.07 million for the three months ended December 31, 2024.

The increase was primarily due to increases in originations of commercial business, multi-family and one- to four-family loans.

These increases were partially offset by decreases in construction and commercial real estate 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 increased by $4.47 million, or 49.01%, to $13.60 million for the nine months ended June 30, 2025 from $9.12 million for the nine months ended June 30, 2024, primarily due to an increase 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 $1.36 million, or 58.7%, to $3.66 million for the three months ended December 31, 2025 from $2.31 million for the three months ended December 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 $4,000, or less than 1%, to $21.49 million at both June 30, 2025 and September 30, 2024.

Premises and equipment increased by $142,000, or 0.7%, to $21.83 million at December 31, 2025 from $21.68 million at September 30, 2025.

The modest increase reflects capitalized additions related to facility improvements and equipment purchases during the period, which were largely offset by scheduled depreciation expense.

OREO (Other Real Estate Owned):

At June 30, 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.

At December 31, 2025 and September 30, 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.

BOLI (Bank Owned Life Insurance):

BOLI increased by $502,000, or 2.1%, to $24.11 million at June 30, 2025 from $23.61 million at September 30, 2024.

BOLI increased by $158,000, or 0.7%, to $21.99 million at December 31, 2025 from $21.83 million at September 30, 2025.

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 June 30, 2025 and September 30, 2024.

CDI decreased by $135,000, or 29.9%, to $316,000 at June 30, 2025 from $451,000 at September 30, 2024 due to scheduled amortization.

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

CDI decreased by $34,000, or 12.5%, to $237,000 at December 31, 2025 from $271,000 at September 30, 2025 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 $461,000, or 33.60%, to $911,000 at June 30, 2025 from $1.37 million at September 30, 2024 primarily due to the amortization of servicing rights.

Loan servicing rights, net decreased by $137,000, or 16.8%, to $678,000 at December 31, 2025 from $815,000 at September 30, 2025 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 $13.05 million to $357.51 million at June 30, 2025 from $370.56 million at September 30, 2024.

Small Business Administration decreased by $4.99 million to $352.02 million at December 31, 2025 from $357.01 million at September 30, 2025.

Other Assets:

Other assets increased $1.05 million, or 16.87% to $7.30 million at June 30, 2025 from $6.24 million at September 30, 2024.

This was due to a $724,000 balance due from the SBA and a $397,000 increase in federal income tax benefit.

Deposits increased by $21.81 million, or 1.32%, to $1.67 billion at June 30, 2025 from $1.65 billion at September 30, 2024.

The increase was primarily due to a $48.99 million increase in certificates of deposit account balances and a $1.59 million increase in NOW checking accounts.

These increases were partially offset by a $21.72 million decrease in money market account balances, and a $6.89 million decrease in non-interest bearing demand account balances.

The shift in the deposit mix toward higher-cost funding sources, such as certificates of deposits, reflects continued competitive pricing pressures in the market and customer preferences for higher-yielding deposit products amid the current interest rate environment.

Conversely, balances in non-interest-bearing and money market accounts declined, contributing to a modest increase in the Company’s overall cost of deposits.

At June 30, 2025, the loan-to-deposit ratio was approximately 86.39%, unchanged from September 30, 2024, reflecting continued disciplined loan growth largely funded by core deposit activity.

Other assets decreased $674,000, or 11.0% to $5.44 million at December 31 2025 from $6.11 million at September 30, 2025.

This was mainly due to a $781,000 decrease in the debit card processing prefund amount.

Deposits decreased by $12.15 million, or 0.7%, to $1.70 billion at December 31, 2025 from $1.72 billion at September 30, 2025.

The decrease was primarily due to a $26.39 million decrease in non-interest bearing demand deposits, an $11.42 million decrease in CDs and a $4.19 million decrease in savings account balances.

These decreases were partially offset by a $21.68 million increase in NOW checking and an $8.16 million increase in money market account balances.

The change in deposit balances and mix reflects continued competitive pricing pressures in the current interest rate environment.

While some funds migrated from non-interest-bearing and lower-yielding accounts into higher-yielding transaction products, CDs declined as some customers opted to maintain greater access to funds .

At December 31, 2025, the loan-to-deposit ratio was approximately 85.59%, compared to 85.26% September 30, 2025, reflecting continued disciplined loan growth largely funded by core deposit activity.

Management continues to monitor deposit pricing and mix in the context of liquidity management and efforts to support net interest income and profitability.

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

June 30, 2025 September 30, 2024

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

December 31, 2025 September 30, 2025

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 unchanged at $20.00 million at both June 30, 2025 and September 30, 2024.

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

The borrowings consist of three borrowings:

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Shareholders’ Equity:

Total shareholders’ equity increased by $11.25 million, or 4.6%, to $256.66 million at June 30, 2025 from $245.41 million at September 30, 2024.

The increase was primarily due to net income of $20.72 million and proceeds of $817,000 from the exercise of stock options.

This increase was partially offset by dividend payments to common shareholders of $6.03 million, the repurchase of 123,404 shares of the Company's common stock for $3.85 million and a $795,000 other comprehensive loss for fair value adjustment on available for sale investment securities, resulting from changes in market interest rates during the period.

Total shareholders’ equity increased by $5.80 million, or 2.2%, to $268.41 million at December 31, 2025 from $262.61 million at September 30, 2025.

The increase was primarily due to net income of $8.22 million.

This increase was partially offset by dividend payments to common shareholders of $2.21 million and the repurchase of 29,303 shares of the Company's common stock for $1.00 million, net of tax.

Asset Quality and Commercial Real Estate Portfolio Breakdown:

Non-performing assets to total assets was 0.21% at June 30, 2025 and 0.20% at September 30, 2024.

Non-performing assets increased by $166,000, or 4.2%, to $4.10 million at June 30, 2025 from $3.94 million at September 30, 2024.

The increase was primarily due to a $221,000 increase in OREO and repossessed assets which was partially offset by a $42,000 decrease in non-accrual loans.

The decrease in non-accrual loans was driven by the reductions in the commercial real estate and commercial business portfolios, partially offset by an increase in the one- to four- family portfolio.

Decreases in the commercial real estate and commercial business categories were primarily attributable to loan payoffs.

Substandard loans increased $23.94 million to $32.37 million at June 30, 2025 from $8.43 million at September 30, 2024.

As of June 30, 2025, substandard loans are 1.55% of total loans receivable.

The increase is primarily a result of downgrading three relationships that were previously classified watch and special mention.

The loans are not classified as non-accrual and were performing according to their repayment terms.

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

Non-performing assets to total assets was 0.23% at both December 31, 2025 and September 30, 2025.

Non-performing assets decreased by $126,000, or 2.7%, to $4.54 million at December 31, 2025 from $4.66 million at September 30, 2025.

The decrease was primarily due to a $123,000 decrease in non-accrual loans.

The decrease in non-accrual loans was driven by the reductions in the home equity and second mortgage and commercial business portfolios and partially offset by increases in the commercial real estate and one- to four- family portfolios.

Decreases in the home equity and second mortgage and commercial business categories were primarily attributable to loan payoffs.

Substandard loans decreased $24.19 million to $8.61 million at December 31, 2025 from $32.81 million at September 30, 2025.

As of December 31, 2025, substandard loans are 0.55% of total loans receivable.

The decrease is primarily a result of the largest substandard loan that was secured by a land development project paying off during the quarter and the second largest substandard loan that was secured by an apartment property being upgraded.

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

2025 September 30,

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Commercial real estate 304 159

Construction – custom and owner/builder 553 553

Consumer loans:

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(1) At June 30, 2025 there was one one- to four-family property in the process of foreclosure.

At September 30, 2024, there were no one-to four-family properties in the process of foreclosure.

(1) At both December 31, 2025 and September 30, 2025 there was one one- to four-family property 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 June 30, 2025 and September 30, 2024:

CRE Loan Portfolio Breakdown by Collateral at June 30, 2025

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

CRE Loan Portfolio Breakdown by Collateral at December 31, 2025

($ in thousands)

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Gas stations/convenience stores 25,597 4.2 1.6 1,024 —

Nursing homes 18,434 3.1 1.2 2,304 —

Churches 14,410 2.4 0.9 901 —

Mobile home parks 10,798 1.8 0.7 491 —

Nursing homes 13,456 2.2 0.9 2,243 —

Shopping centers 10,436 1.7 0.7 1,739 —

Mobile home parks 9,174 1.5 0.6 417 —

Other 105,297 17.2 6.7 774 —

Total CRE $ 610,692 100.0 % 38.8 % $ 960 $ 159

Comparison of Operating Results for the Three and Nine Months Ended June 30, 2025 and 2024

Net income increased by $1.18 million, or 19.9%, to $7.10 million for the quarter ended June 30, 2025 from $5.92 million for the quarter ended June 30, 2024.

Net income per diluted common share increased by $0.16, or 21.6%, to $0.90 for the quarter ended June 30, 2025 from $0.74 for the quarter ended June 30, 2024.

The increases in net income and diluted earnings per share for the three months ended June 30, 2025, were primarily due to a $1.64 million increase in net interest income and an $84,000 increase in non-interest income.

These increases were partially offset by a $255,000 increase in the provision for income taxes, a $196,000 increase in the provision for credit losses and a $98,000 increase in non-interest expense.

Net income increased $2.79 million, or 15.6%, to $20.72 million for the nine months ended June 30, 2025 from $17.93 million for the nine months ended June 30, 2024.

Net income per diluted common share increased by $0.39, or 17.7% to $2.60 for the nine months ended June 30, 2025 from $2.21 for the nine months ended June 30, 2024.

The increases in net income and diluted earnings per share were due to a $4.19 million increase in net interest income and a $55,000 increase in non-interest income.

These increases were partially offset by a $744,000 increase in non-interest expense, a $656,000 increase in the provision for income taxes and a $53,000 increase in the provision for credit losses.

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

Net income increased by $1.36 million, or 19.8%, to $8.22 million for the quarter ended December 31, 2025 from $6.86 million for the quarter ended December 31, 2024.

Net income per diluted common share increased by $0.18, or 20.9%, to $1.04 for the quarter ended December 31, 2025 from $0.86 for the quarter ended December 31, 2024.

The increases in net income and diluted earnings per share for the three months ended December 31, 2025, were primarily due to a $1.98 million increase in net interest income and a $67,000 increase in non-interest income.

These increases were partially offset by a $388,000 increase in the provision for income taxes and a $364,000 increase in non-interest expense.

Net Interest Income:

Net interest income increased by $1.64 million, or 10.3%, to $17.62 million for the quarter ended June 30, 2025 from $15.98 million for the quarter ended June 30, 2024.

This increase was due to a 17 basis point increase in the weighted average yield of interest-earning assets to 5.50% at June 30, 2025 from 5.33% at June 30, 2024, and a $39.55 million increase in average total interest-earning assets.

Offsetting some of the benefits was a $33.72 million increase in the average balance of total interest-bearing liabilities.

Total interest and dividend income increased by $1.41 million, or 5.8%, to $25.54 million for the quarter ended June 30, 2025 from $24.14 million for the quarter ended June 30, 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 yield on interest-bearing deposits in banks and CDs.

The average balance of total interest-earning assets increased by $39.55 million, or 2.2%, to $1.86 billion for the quarter ended June 30, 2025 from $1.82 billion for the quarter ended June 30, 2024.

The average balance of loans receivable increased by $58.77 million, or 4.2%, and the average balance of interest-bearing deposits in banks and CDs increased by $17.47 million, or 10.8%.

These increases were partially offset by a decrease in the average balance of investment securities of $36.71 million, or 14.0%.

During the quarter ended June 30, 2025, there was a total of $170,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $133,000 collected for the quarter ended June 30, 2024.

The average yield on interest-earning assets increased by 17 basis points to 5.50% for the quarter ended June 30, 2025 from 5.33% for the quarter ended June 30, 2024.

The average yield on investment securities increased nine basis points to 3.66% for the quarter ended June 30, 2025 compared to the quarter ended June 30, 2024, while the average yield on loans receivable increased 27 basis points to 5.92% during the same period.

Total interest expense decreased by $236,000, or 2.9%, to $7.92 million for the quarter ended June 30, 2025 from $8.16 million for the quarter ended June 30, 2024.

This decrease was due to a decrease in the average cost of interest-bearing liabilities.

The average balance of interest-bearing liabilities increased by $33.72 million, or 2.7%, to $1.27 billion for the quarter ended June 30, 2025 from $1.24 billion for the quarter ended June 30, 2024, primarily due to increases in the average balances of certificate of deposit and NOW checking accounts, partially offset by decreases in the average balance of money market and savings accounts.

The average cost of interest-bearing liabilities decreased to 2.49% for the quarter ended June 30, 2025 from 2.64% for the quarter ended June 30, 2024.

As a result of changes above, the net interest margin ("NIM") increased to 3.80% for the quarter ended June 30, 2025 from 3.53% for the quarter ended June 30, 2024.

Net interest income increased by $4.19 million, or 8.8%, to $51.81 million for the nine months ended June 30, 2025 from $47.62 million for the nine months ended June 30, 2024.

This increase was due to a 29 basis point increase in the weighted average yield on interest-earning assets to 5.46% for the nine months ended June 30, 2025 from 5.17% for the same period in 2024, and a $49.96 million increase in average total interest-earning assets, partially offset by a $58.86 million increase in the average balance of total interest-bearing liabilities and a seven basis point increase in the weighted average yield of interest-bearing liabilities to 2.53% for the nine months ended June 30, 2025 from 2.46% for the same period in 2024.

Total interest and dividend income increased $5.88 million, or 8.42%, to $75.67 million for the nine months ended June 30, 2025 from $69.79 million for the nine months ended June 30, 2024, primarily due to increases in the average yield and average balance of loans receivable, the average balance of interest bearing deposits in bank and CDs held for investment and a higher average yield on investment securities.

These increases were partially offset by a decrease in the average balance of investment securities and a decrease in the average yield on interest-bearing deposits in banks and CDs held for investment.

The average balance of total interest-earning assets increased by $49.96 million, or 2.8%, to $1.85 billion for the nine months ended June 30, 2025 from $1.80 billion for the nine months ended June 30, 2024.

The average balance of loans receivable increased by $78.29 million, or 5.7%, and the average balance of interest-bearing deposits in banks and CDs increased by $29.05 million or 20.2%.

These increases were partially offset by a decrease in the average balance of investment securities of $57.04 million or 19.8% between the periods.

During the nine months ended June 30, 2025, there was a total of $510,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $384,000 collected for the nine months ended June 30, 2024.

The average yield on interest-earning assets increased by 29 basis points to 5.46 for nine months ended June 30, 2025 from 5.17% for the nine months ended June 30, 2024.

The average yield on investment securities increased 39 basis points to 3.58% for the nine months ended June 30, 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 30 basis points to 5.87% during the same period.

Total interest expense increased by $1.69 million, or 7.6%, to $23.86 million for the nine months ended June 30, 2025 from $22.17 million for the nine months ended June 30, 2024.

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

The average balance of interest-bearing liabilities increased $58.86 million, or 4.9%, to $1.26 billion for the nine months ended June 30, 2025 from $1.20 billion for the nine months ended June 30, 2024, primarily due to increases in the average balances of certificates of deposit and money market accounts, partially offset by decreases in NOW checking and savings accounts.

The average cost of interest-bearing liabilities increased to 2.53% for the nine months ended June 30, 2025 from 2.46% for the nine months ended June 30, 2024.

NIM expanded to 3.74% for the nine months ended June 20, 2025 from 3.53% for the nine months ended June 30, 2024.

Net interest income increased by $1.98 million, or 11.7%, to $18.95 million for the quarter ended December 31, 2025 from $16.97 million for the quarter ended December 31, 2024.

This increase was due to a 10 basis point increase in the weighted average yield of interest-earning assets to 5.52% for the quarter ended December 31, 2025 from 5.42% for the quarter ended December 31, 2024, a 16 basis point decrease in the average cost of interest bearing liabilities and a $101.38 million increase in average total interest-earning assets.

The improvement reflects both favorable asset repricing, particularly within the loan portfolio, and a reduction in funding costs driven by repricing and a shift in funding mix.

These benefits were partially offset by a $75.50 million increase in average interest-bearing liabilities.

Total interest and dividend income increased by $1.94 million, or 7.7%, to $27.20 million for the quarter ended December 31, 2025 from $25.26 million for the quarter ended December 31, 2024.

The increase was primarily due to higher yields earned on loans receivable, and growth in the average balance of interest-bearing deposits in banks and CDs.

The average yield on loans increased 28 basis points, reflecting continued asset repricing, while the average balance of loans increased $40.42 million.

The average balance of interest-bearing deposits in banks and CDs increased $89.62 million, although the yield on those balances declined 77 basis points due to changes in short-term interest rates, partially offsetting the benefit of higher balances.

These increases were partially offset by a $28.67 million decrease in the average balance of investment securities.

The average balance of total interest-earning assets increased by $101.38 million, or 5.5%, to $1.95 billion for the quarter ended December 31, 2025 from $1.85 billion for the quarter ended December 31, 2024.

Prepayment penalties, non-accrual interest and late fees totaled $282,000 for the quarter ended December 31, 2025 compared to $123,000 in the prior year quarter and contributed to a 6 basis point increase in the loan portfolio yield.

The overall yield on interest-earning assets increased by 10 basis points to 5.52% for the quarter ended December 31, 2025 from 5.42% for the quarter ended December 31, 2024.

Total interest expense decreased by $41,000, or 0.5%, to $8.25 million for the quarter ended December 31, 2025 from $8.29 million for the quarter ended December 31, 2024.

The decrease occurred despite a $75.50 million increase in the average balance of interest-bearing liabilities, as the average cost of those liabilities declined 16 basis points to 2.46% for the quarter ended December 31, 2025 from 2.62% for the quarter ended December 31, 2024.

The lower funding costs reflects both repricing of deposit products and a shift in funding mix, including growth in lower-costing accounts and a reductions in higher -cost money market and CD accounts.

Average balances of CDs and NOW checking accounts increased, partially offset by decreases in money market and savings account balances.

As a result of changes above, the net interest margin ("NIM") increased to 3.85% for the quarter ended December 31, 2025 from 3.64% for the quarter ended December 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 June 30,

Balance Interest and

Dividends Yield/

Balance Interest and

Dividends Yield/

Interest-earning assets:

Loans receivable (1)(2) $ 1,450,350 $ 21,411 5.92 % $ 1,391,582 $ 19,537 5.65 %

Investment securities (2) 226,375 2,064 3.66 263,087 2,335 3.57

Dividends from mutual funds, FHLB stock and other investments 5,897 83 5.65 5,867 94 6.41

Interest-bearing deposits in banks and CDs 178,887 1,986 4.45 161,421 2,173 5.41

Total interest-earning assets 1,861,509 25,544 5.50 1,821,957 24,139 5.33

Non-interest-earning assets 79,715 82,008

Total assets $ 1,941,224 $ 1,903,965

Interest-bearing liabilities:

NOW checking $ 333,074 1,151 1.39 $ 329,344 1,054 1.29

Money market 304,526 2,398 3.16 326,023 2,882 3.56

Savings 205,592 177 0.35 208,488 140 0.27

Certificates of deposit 363,342 3,417 3.77 311,545 3,261 4.21

Brokered CDs 48,028 578 4.83 45,442 601 5.32

Short-term borrowings 8,794 102 4.65 5,001 70 5.63

Long-term borrowings 11,209 99 3.54 15,000 150 4.02

Total interest-bearing liabilities 1,274,565 7,922 2.49 1,240,843 8,158 2.64

Non-interest-bearing deposits 402,717 413,494

Other liabilities 10,265 10,245

Total liabilities 1,687,547 1,664,582

Shareholders' equity 253,677 239,383

Total liabilities and

shareholders' equity $ 1,941,224 $ 1,903,965

Net interest income $ 17,622 $ 15,981

Interest rate spread 3.01 % 2.69 %

Net interest margin (3) 3.80 % 3.53 %

Ratio of average interest-earning assets to average interest- bearing liabilities 146.05 % 146.83 %

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(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.

Nine Months Ended June 30,

Three Months Ended December 31,

Balance Interest and

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Three months ended

June 30, 2025

December 31, 2025

compared to three months

ended June 30, 2024

increase (decrease) due to Nine months ended

June 30, 2025

compared to nine months

ended June 30, 2024

ended December 31, 2024

increase (decrease) due to

Rate Volume Net

Change Rate Volume Net

Interest-earning assets:

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Provision for Credit Losses:

A $440,000 provision for credit losses was recorded for the quarter ended June 30, 2025, consisting of a $351,000 provision for credit losses on loans which was due to loan portfolio growth and the annual update of model assumptions, a $4,000 recapture of credit losses on investment securities, and a $93,000 provision for credit losses on unfunded commitments which was due to the annual update of model assumptions.

The annual update of model assumptions reflects revised macroeconomic indicators, including slower projected economic growth and modest increases in unemployment, as well as refinements to loss estimates within certain loan segments, particularly commercial real estate.

A $244,000 provision for credit losses was recorded for the quarter ended June 30, 2024, consisting of a $264,000 provision for credit losses on loans, a $12,000 recapture of credit losses on investment securities and an $8,000 recapture of credit losses on unfunded commitments.

We recorded a $713,000 provision for credit losses for the nine months ended June 30, 2025, consisting of a $640,000 provision for credit losses on loans which was due to an increase in loans receivable and the annual update of model assumptions, a $14,000 recapture of credit losses on investment securities which was due to maturities and principal repayments, and a $87,000 provision for credit losses on unfunded loan commitments which was due the annual update of model assumptions.

A $660,000 provision for credit losses was recorded for the nine months ended June 30, 2024, consisting of a $810,000 provision for credit losses on loan, a $20,000 recapture of credit losses on investment securities, and a $130,000 recapture of credit losses on unfunded loan commitments.

For the quarter ended June 30, 2025, net recoveries totaled $2,000 compared to net-charge offs of $36,000 for the quarter ended June 30, 2024.

Non-accrual loans decreased by $42,000, or 1.1%, to $3.84 million at June 30, 2025 from $3.89 million at September 30, 2024, and decreased by $277,000, or 6.7%, from $4.12 million at June 30, 2024.

Total delinquent loans (past

due 30 days or more) and non-accrual loans increased by $1.69 million, or 37.8%, to $6.17 million at June 30, 2025, from $4.48 million at September 30, 2024 and increased by $1.94 million, or 45.8%, from $4.23 million one year ago.

A $35,000 recapture of credit losses was recorded for the quarter ended December 31, 2025, consisting of a $16,000 provision for credit losses on loans, a $2,000 recapture of credit losses on investment securities, and a $49,000 recapture of credit losses on unfunded commitments which was due to construction loans converting to permanent financing.

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, a $5,000 recapture of credit losses on investment securities and an $20,000 recapture of credit losses on unfunded commitments.

For the quarter ended December 31, 2025, net recoveries totaled $18,000 compared to net-charge offs of $242,000 for the quarter ended December 31, 2024.

Non-accrual loans decreased by $123,000, or 2.8%, to $4.28 million at December 31, 2025 from $4.41 million at September 30, 2024, and increased by $1.55 million, or 56.8%, from $2.73 million at December 31, 2024.

Total delinquent loans (past due 30 days or more) and non-accrual loans increased by $397,000, or 7.0%, to $6.05 million at December 31, 2025, from $5.66 million at September 30, 2025 and increased by $2.03 million, or 50.5%, from $4.02 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.

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.

In accordance with GAAP, acquired loans are recorded at their estimated fair value, resulting in a net discount to the loans' contractual amounts, with a portion of this discount reflecting possible credit losses.

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.

The remaining fair value discount associated with acquired loans was $63,000 at June 30, 2025.

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

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.

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

Non-interest Income:

Total non-interest income increased by $84,000, or 3.0%, to $2.88 million for the quarter ended June 30, 2025 from $2.79 million for the quarter ended June 30, 2024.

This increase was primarily due to a $70,000 increase in gain on sale of loans, reflecting a higher volume of fixed-rate one- to four-family mortgages into the secondary market, a $24,000 net gain on sale of investment securities and a $20,000 increase in servicing income on loans sold.

These increases were partially offset by a $48,000 decrease in service charges on deposits, reflecting lower overdraft-related fee activity and a $35,000 decrease in ATM and debit card interchange fees, primarily due to lower transaction volume.

Total non-interest income for the nine months ended June 30, 2025 increased 55,000, or 0.7%, to $8.26 million from $8.20 million for the nine months ended June 30, 2024.

The modest increase reflects offsetting movements across several components.

The primary reasons for the increase were a $115,000 increase in gain on sales of loans, a $64,000 increase in servicing income on loans sold and a $32,000 increase in BOLI net earnings.

These increases were largely offset by a $100,000 decrease in service charges on deposits, reflecting continued moderation in customer overdraft activity, and a $67,000 decrease in ATM and debit card interchange fees consistent with lower card-based transaction volume.

Total non-interest income increased by $67,000, or 2.5%, to $2.76 million for the quarter ended December 31, 2025 from $2.70 million for the quarter ended December 31, 2024.

This increase was primarily due to a $35,000 increase in gain on sale of loans, reflecting a higher volume of fixed-rate one- to four-family mortgages into the secondary market, a $26,000 increase in servicing income on loans sold and smaller increases in several other categories.

These increases were partially offset by a $73,000 decrease in ATM and debit card interchange fees, primarily due to lower transaction volume and a $10,000 decrease in service charges on deposits, reflecting lower overdraft-related fee activity.

Non-interest Expense:

Total non-interest expense increased by $98,000, or 0.9%, to $11.17 million for the quarter ended June 30, 2025 from $11.07 million for the quarter ended June 30, 2024.

This increase was mainly due to a $235,000 increase in state and local taxes expense and a $78,000 increase in ATM and debit card interchange transaction expense.

These increases were partially offset by a $103,000 decrease in salary and employee benefits and a $93,000 decrease in technology and communications expenses.

The efficiency ratio for the current quarter was 54.48% compared to 58.97% for the comparable quarter one year ago.

Total non-interest expense increased by $364,000, or 3.3%, to $11.43 million for the quarter ended December 31, 2025 from $11.07 million for the quarter ended December 31, 2024.

This increase was mainly due to a $361,000 increase in salary and employee benefits due to annual compensation increases, a $124,000 increase in premises and equipment expense due to expenses related to the addition of the University Place branch, a $111,000 increase in state and local taxes expense and a $61,000 increase in ATM and debit card interchange transaction expense.

These increases were partially offset by an $85,000 decrease in technology and communications expenses due to contract negotiations with our core processor in the second quarter of 2025, a $30,000 decrease in professional fees expense and several expense recoveries on items in the other, net category.

The efficiency ratio for the current quarter improved to 52.65% compared to 56.27% for the comparable quarter one year ago.

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 by $744,000, or 2.3%, to $33.43 million for the nine months ended June 30, 2025 from $32.68 million for the nine months ended June 30, 2024.

The increase was primarily due to a $272,000 increase in state and local taxes expense, a $210,000 increase in professional fees expense and a $152,000 increase in technology and communications expense.

These increases were partially offset by a $97,000 decrease in deposit operations expense, a $96,000 decrease in ATM and debit card interchange transaction expense, due to lower transaction volume and a $67,000 decrease in premises and equipment expense due to lower repair and maintenance costs.

The efficiency ratio improved to 55.65% for the nine months ended June 30, 2025 compared to 58.55% for the same period 2024.

Provision for Income Taxes:

The provision for income taxes increased by $255,000, or 16.6%, to $1.79 million for the quarter ended June 30, 2025 from $1.54 million for the quarter ended June 30, 2024.

The provision for income taxes increased by $388,000, or 22.7%, to $2.10 million for the quarter ended December 31, 2025 from $1.71 million for the quarter ended December 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 20.1% for the quarter ended June 30, 2025 and 20.6% for the quarter ended June 30, 2024.

The provision for income taxes increased by $656,000, or 14.4%, to $5.21 million for the nine months ended June 30, 2025 from $4.55 million for the nine months ended June 30, 2024.

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

The Company's effective tax rate was 20.1% for the nine months ended June 30, 2025 compared to 20.2% for the nine months ended June 30, 2024.

The Company's effective income tax rate was 20.4% for the quarter ended December 31, 2025 and 20.0% for the quarter ended December 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.

While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition.

The Bank must maintain an adequate level of liquidity to help ensure the availability of sufficient funds to fund its operations.

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

At June 30, 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 14.02%.

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 June 30, 2025, the Bank had a total of $624.06 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 June 30, 2025, the Bank had no outstanding balance on the BIC line, under which $70.19 million was available for future borrowings.

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

At June 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 deposits withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are influenced by general interest rates, economic conditions, and competitive factors.

The Bank maintains an adequate level of liquidity to ensure that sufficient funds are available to fund its operations.

It generally holds sufficient cash and short-term investments to meet short-term liquidity needs.

At December 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 16.90%.

The Bank maintains a credit facility with the FHLB providing immediately available borrowings of up to 45% of total assets, limited by available collateral.

At December 31, 2025, the Bank had a total of $708.68 million available for borrowings with the FHLB of which $20.00 million was outstanding.

Additionally, the Bank maintains a short-term borrowing line with the FRB, with total credit based on eligible collateral, under the Borrower-in-Custody program with $71.87 million available and no outstanding balance at December 31, 2025.

The Bank also maintains a $50.00 million overnight borrowing line with Pacific Coast Bankers' Bank ("PCBB") with no outstanding balance at December 31, 2025.

Subject to market conditions, the Bank may utilize these borrowing facilities to fund loan originations and deposits withdrawals, satisfy other financial commitments, repay maturing debt and to pursue investment opportunities as appropriate..

Liquidity management is both a short and long-term responsibility of the Bank's management.

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

During the nine months ended June 30, 2025 and 2024, the Bank originated $210.81 million and $202.62 million of loans, respectively.

At June 30, 2025, the Bank had undisbursed lines of credit and commitments to extend credit totaling $160.86 million and undisbursed construction loans in process totaling $76.27 million.

Investment securities purchased during the nine months ended June 30, 2025 and 2024 totaled $45.99 million and $38.01 million, respectively.

During the three months ended December 31, 2025 and 2024, the Bank originated $73.06 million and $72.07 million of loans, respectively.

At December 31, 2025, the Bank had undisbursed lines of credit and commitments to extend credit totaling $154.31 million and undisbursed construction loans in process totaling $89.88 million.

Investment securities purchased during the three months ended December 31, 2025 and 2024 totaled $3.96 million and $8.58 million, respectively.

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

During the nine months ended June 30, 2025 and 2024, the Bank sold $13.60 million and $14.92 million, respectively, in loans and loan participation interests.

During the nine months ended June 30, 2025 and 2024, the Bank received $170.45 million and $105.43 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 $289.42 million at June 30, 2025 from $248.06 million at September 30, 2024.

CDs that are scheduled to mature in less than one year from June 30, 2025 totaled $374.46 million.

During the three months ended December 31, 2025 and 2024, the Bank sold $3.66 million and $2.31 million, respectively, in loans and loan participation interests.

During the three months ended December 31, 2025 and 2024, the Bank received $66.94 million and $65.16 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) decreased to $329.44 million at December 31, 2025 from $329.75 million at September 30, 2025.

CDs that are scheduled to mature in less than one year from December 31, 2025 totaled $405.34 million.

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

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For the remainder of the 2026 fiscal year, the Bank projects that fixed commitments will include approximately $285,000 of operating lease payments.

During the final three months of the fiscal year ending September 30, 2025 the Bank anticipates pre-tax capital expenditures of approximately $650,000, related to remodeling a leased building for a new branch location.

The branch is expected to open in October 2025.

The Bank has entered into a lease agreement for the new branch which will

increase fixed lease commitments by approximately $96,000 in the 2026 fiscal year.

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

In addition, at June 30, 2025, the Bank had other future obligations and accrued expenses totaling $9.70 million.

All FHLB borrowings are scheduled to mature during fiscal year 2026.

In addition, at December 31, 2025, the Bank had other future obligations and accrued expenses totaling $10.22 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.

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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 June 30, 2025, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.24 million.

At December 31, 2025, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.41 million.

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

The current cash dividend rate is $0.26 per share, a level the Company believes appropriately balances the objectives of investing in the Bank and returning capital to shareholders.

Based on the number of shares outstanding as of June 30, 2025, continued payment at this rate would result in an average total quarterly dividend of approximately $2.05 million.

The cash dividend rate that was announced on January 26, 2026 and will be paid on February 27, 2026 is $0.29 per share, a level the Company believes appropriately balances the objectives of investing in the Bank and returning capital to shareholders.

Based on the number of shares outstanding as of December 31, 2025, continued payment at this rate would result in an average total quarterly dividend of approximately $2.29 million.

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

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On July 22, 2025, the Company announced the adoption of a new stock repurchase program pursuant to which the Company may repurchase up to 5% of the outstanding shares, or 393,842 shares.

The new stock repurchase program replaces the existing stock repurchase program, which had 31,762 shares available to be repurchased.

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.

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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 June 30, 2025, the Bank was considered to be "well-capitalized" under applicable regulatory requirements.

Based on capital levels at December 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 June 30, 2025, to its minimum regulatory capital requirements at that date (dollars in thousands):

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

Actual Regulatory

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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 June 30, 2025, the Bank’s capital exceeded the conservation buffer.

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

Timberland Bancorp, Inc.

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If Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at June 30, 2025, Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 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 June 30, 2025 (dollars in thousands):

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

Leverage Capital Ratio:

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Key Financial Ratios and Data

Three Months Ended June 30, Nine Months Ended

2025 2024 2025 2024

Three Months Ended December 31,

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