TIMBERLAND BANCORP INC 10-Q

Item 1. Financial Statements (unaudited) TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 2025 and September 30, 2025 (Dollars in thousands, except per share amounts) December 31, 2025 September 30, 2025 (Unaudited) * Assets Cash and cash equivalents: Cash and due from financial institutions $ 23,176 $ 23,649 Interest-bearing deposits in banks 223,688 219,779 Total cash and cash equivalents 246,864 243,428 Certificates of deposit (“CDs”) held for investment, at cost 6,470 7,217 Investment securities held to maturity, at amortized cost (net of allowance for credit losses ("ACL") of $ 34 and $ 36 ), (estimated fair value of $ 129,395 and $ 132,334 ) 133,259 136,861 Investment securities available for sale, at fair value 75,243 78,240 Investments in equity securities, at fair value 867 864 Federal Home Loan Bank of Des Moines (“FHLB”) stock, at cost 2,045 2,045 Other investments, at cost 3,000 3,000 Loans held for sale 3,736 1,127 Loans receivable, net of ACL of $ 18,125 and $ 18,091 1,458,832 1,463,590 Premises and equipment, net 21,826 21,684 Other real estate owned (“OREO”) and other repossessed assets, net 221 221 Accrued interest receivable 7,435 7,393 Bank owned life insurance (“BOLI”) 21,988 21,830 Goodwill 15,131 15,131 Core deposit intangible (“CDI”), net 237 271 Loan servicing rights, net 678 815 Operating lease right-of-use ("ROU") assets 2,856 2,949 Other assets 5,439 6,113 Total assets $ 2,006,127 $ 2,012,779 Liabilities and shareholders’ equity Liabilities Deposits: Non-interest-bearing demand $ 404,300 $ 430,685 Interest-bearing 1,300,182 1,285,950 Total deposits 1,704,482 1,716,635 Operating lease liabilities 3,015 3,077 FHLB borrowings 20,000 20,000 Other liabilities and accrued expenses 10,221 10,453 Total liabilities $ 1,737,718 $ 1,750,165 * Derived from audited consolidated financial statements. See notes to unaudited consolidated financial statements 3 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (continued) December 31, 2025 and September 30, 2025 (Dollars in thousands, except per share amounts) December 31, 2025 September 30, 2025 (Unaudited) * Commitments and contingencies (see Note 12) Shareholders’ equity Preferred stock, $ 0.01 par value; 1,000,000 shares authorized; none issued $ — $ — Common stock, $ 0.01 par value; 50,000,000 shares authorized; 7,879,828 shares issued and outstanding - December 31, 2025 7,889,571 shares issued and outstanding - September 30, 2025 26,025 26,305 Retained earnings 242,617 236,607 Accumulated other comprehensive loss ( 233 ) ( 298 ) Total shareholders’ equity 268,409 262,614 Total liabilities and shareholders’ equity $ 2,006,127 $ 2,012,779 * Derived from audited consolidated financial statements. See notes to unaudited consolidated financial statements 4 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the three months ended December 31, 2025 and 2024 (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended December 31, 2025 2024 Interest and dividend income Loans receivable and loans held for sale $ 22,673 $ 21,032 Investment securities 1,862 2,138 Dividends from mutual funds, FHLB stock and other investments 82 86 Interest-bearing deposits in banks and CDs 2,578 2,001 Total interest and dividend income 27,195 25,257 Interest expense Deposits 8,043 8,084 FHLB borrowings 203 203 Total interest expense 8,246 8,287 Net interest income 18,949 16,970 Provision for (recapture of) credit losses Provision for credit losses - loans 16 52 Recapture of credit losses - investment securities ( 2 ) ( 5 ) Recapture of credit losses - unfunded commitments ( 49 ) ( 20 ) Total provision for (recapture of) credit losses - net ( 35 ) 27 Net interest income after provision for (recapture of) credit losses 18,984 16,943 Non-interest income Net recoveries on investment securities 5 3 Service charges on deposits 989 999 ATM and debit card interchange transaction fees 1,194 1,267 BOLI net earnings 158 166 Gain on sales of loans, net 78 43 Escrow fees 24 18 Servicing income on loans sold 53 27 Other, net 263 174 Total non-interest income, net 2,764 2,697 See notes to unaudited consolidated financial statements 5 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (continued) For the three months ended December 31, 2025 and 2024 (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended December 31, 2025 2024 Non-interest expense Salaries and employee benefits $ 6,453 $ 6,092 Premises and equipment 1,074 950 Advertising 192 181 OREO and other repossessed assets, net 5 — ATM and debit card interchange transaction fees 582 521 Postage and courier 143 121 State and local taxes 457 346 Professional fees 316 346 Federal Deposit Insurance Corporation ("FDIC") insurance 221 210 Loan administration and foreclosure 80 128 Technology and communications 1,055 1,140 Deposit operations 347 332 Amortization of CDI 34 45 Other 472 655 Total non-interest expense, net 11,431 11,067 Income before income taxes 10,317 8,573 Provision for income taxes 2,101 1,713 Net income $ 8,216 $ 6,860 Net income per common share Basic $ 1.04 $ 0.86 Diluted $ 1.04 $ 0.86 Weighted average common shares outstanding Basic 7,885,656 7,958,275 Diluted 7,923,037 7,999,504 Dividends paid per common share $ 0.28 $ 0.25 See notes to unaudited consolidated financial statements 6 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three months ended December 31, 2025 and 2024 (Dollars in thousands) (Unaudited) Three Months Ended December 31 2025 2024 Comprehensive income Net income $ 8,216 $ 6,860 Other comprehensive income (loss) Unrealized holding gain (loss) on investment securities available for sale, net of income taxes of $ 17 , and $( 216 ), respectively 65 ( 812 ) Total other comprehensive income (loss), net of income taxes 65 ( 812 ) Total comprehensive income $ 8,281 $ 6,048 See notes to unaudited consolidated financial statements 7 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the three months ended December 31, 2025 and 2024 (Dollars in thousands, except per share amounts) (Unaudited) Common Stock Accumulated Other Compre-hensive Income (Loss) Number of Shares Amount Retained Earnings Total Balance, September 30, 2024 7,960,127 $ 29,862 $ 215,531 $ 20 $ 245,413 Net income — — 6,860 — 6,860 Other comprehensive loss — — — ( 812 ) ( 812 ) Repurchase of common stock, net of tax ( 27,404 ) ( 884 ) — — ( 884 ) Restricted stock grant forfeitures ( 450 ) — — — — Exercise of stock options 22,400 474 — — 474 Common stock dividends ($ 0.25 per common share) — — ( 1,993 ) — ( 1,993 ) Stock-based compensation expense — 141 — — 141 Balance, December 31, 2024 7,954,673 $ 29,593 $ 220,398 $ ( 792 ) $ 249,199 Balance, September 30, 2025 7,889,571 $ 26,305 $ 236,607 $ ( 298 ) $ 262,614 Net income — — 8,216 — 8,216 Other comprehensive income — — — 65 65 Repurchase of common stock, net of tax ( 29,303 ) ( 1,000 ) — — ( 1,000 ) Restricted stock grant forfeitures ( 2,080 ) — — — — Exercise of stock options 21,640 562 — — 562 Common stock dividends ($ 0.28 per common share) — — ( 2,206 ) — ( 2,206 ) Stock-based compensation expense — 158 — — 158 Balance, December 31, 2025 7,879,828 $ 26,025 $ 242,617 $ ( 233 ) $ 268,409 See notes to unaudited consolidated financial statements 8 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended December 31, 2025 and 2024 (Dollars in thousands) (Unaudited) Three Months Ended December 31, 2025 2024 Cash flows from operating activities Net income $ 8,216 $ 6,860 Adjustments to reconcile net income to net cash provided by (used in) operating activities: (Recapture of) provision for credit losses ( 35 ) 27 Depreciation 363 375 Accretion of discount on purchased loans ( 9 ) ( 8 ) Amortization of CDI 34 45 Stock-based compensation expense 158 141 Net recoveries on investment securities ( 5 ) ( 3 ) Change in fair value of investments in equity securities ( 3 ) 26 Accretion of discounts and premiums on securities ( 277 ) ( 252 ) Gain on sales of loans, net ( 78 ) ( 43 ) Loans originated for sale ( 6,196 ) ( 2,680 ) Proceeds from sales of loans 3,665 2,312 Amortization of loan servicing rights 173 200 BOLI net earnings ( 158 ) ( 166 ) Change in deferred loan origination fees ( 190 ) 20 Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses 426 ( 9,910 ) Net cash provided by (used in) operating activities 6,084 ( 3,056 ) Cash flows from investing activities Net decrease in CDs held for investment 747 2,739 Purchase of investment securities available for sale ( 3,958 ) ( 8,577 ) Proceeds from maturities and prepayments of investment securities held to maturity 3,766 16,119 Proceeds from maturities and prepayments of investment securities available for sale 7,158 2,860 Decrease in loans receivable, net 4,941 9,419 Purchase of premises and equipment ( 505 ) ( 506 ) Net cash provided by investing activities 12,149 22,054 S ee notes to unaudited consolidated financial statements 9 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the three months ended December 31, 2025 and 2024 (Dollars in thousands) (Unaudited) Three Months Ended December 31, 2025 2024 Cash flows from financing activities Net decrease in deposits $ ( 12,153 ) $ ( 17,252 ) Proceeds from exercise of stock options 562 474 Repurchase of common stock, net of tax ( 1,000 ) ( 884 ) Payment of dividends ( 2,206 ) ( 1,993 ) Net cash used in financing activities ( 14,797 ) ( 19,655 ) Net increase (decrease) in cash and cash equivalents 3,436 ( 657 ) Cash and cash equivalents Beginning of period 243,428 164,728 End of period $ 246,864 $ 164,071 Supplemental disclosure of cash flow information Income taxes paid $ — $ — Interest paid $ 8,284 $ 8,543 Supplemental disclosure of non-cash investing activities Other comprehensive income (loss) related to investment securities $ 65 $ ( 812 ) Loans transferred to OREO and other repossessed assets $ — $ 221 See notes to unaudited consolidated financial statements 10 Timberland Bancorp, Inc. and Subsidiary Notes to Unaudited Consolidated Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation: The accompanying unaudited consolidated financial statements of Timberland Bancorp, Inc. and its wholly-owned subsidiary, Timberland Bank (the "Bank") (collectively, "the Company") were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with GAAP. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal recurring nature. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2025 (“2025 Form 10-K”). The unaudited consolidated results of operations for the three months ended December 31, 2025 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2026. (b) Principles of Consolidation: The unaudited consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank's wholly owned subsidiary, Timberland Service Corp. All significant inter-company transactions and balances have been eliminated in consolidation. (c) Operating Segment: The Company's revenue is primarily derived from the business of banking. Management has assigned certain responsibilities by business-line and evaluates financial performance on a Company-wide basis. The Company's financial performance is monitored on a consolidated basis by the Company's Chief Executive Officer, President and Chief Financial Officer, which are considered the Company's chief operating decision makers ("CODMs") for financial oversight. The primary measure of performance is consolidated net income. Financial performance is reviewed monthly by the CODMs. The presentation of financial performance is consistent with amounts and financial statement line items shown in the Company's consolidated balance sheets and consolidated statements of income. All of the Company's operations are considered by management to be aggregated in one reportable operating segment. (d) The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the consolidated balance sheets, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. (e) Certain prior period amounts have been reclassified to conform to the December 31, 2025 presentation with no change to previously reported net income or total shareholders’ equity. 11 Timberland Bancorp, Inc. and Subsidiary Notes to Unaudited Consolidated Financial Statements (2) INVESTMENT SECURITIES Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of December 31, 2025 and September 30, 2025 (dollars in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Credit Losses December 31, 2025 Held to Maturity U.S. Treasury and U.S. government agency securities $ 69,733 $ 5 $ ( 2,340 ) $ 67,398 $ — Mortgage-backed securities ("MBS"): U.S. government agencies 46,175 195 ( 1,199 ) 45,171 — Private label residential 16,247 222 ( 747 ) 15,722 33 Municipal securities 605 4 — 609 — Bank issued trust preferred securities 499 — ( 4 ) 495 1 Total $ 133,259 $ 426 $ ( 4,290 ) $ 129,395 $ 34 December 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available for Sale MBS: U.S. government agencies $ 75,538 $ 449 $ ( 744 ) $ 75,243 Total $ 75,538 $ 449 $ ( 744 ) $ 75,243 September 30, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Credit Losses Held to Maturity U.S. Treasury and U.S. government agency securities $ 69,646 $ 15 $ ( 2,760 ) $ 66,901 $ — MBS: U.S. government agencies 48,735 199 ( 1,357 ) 47,577 — Private label residential 17,376 196 ( 822 ) 16,750 35 Municipal securities 605 6 — 611 — Bank issued trust preferred securities 499 — ( 4 ) 495 1 Total $ 136,861 $ 416 $ ( 4,943 ) $ 132,334 $ 36 September 30, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available for Sale U.S. government securities $ 4,968 $ — $ — $ 4,968 MBS: U.S. government agencies 73,649 382 ( 759 ) 73,272 Total $ 78,617 $ 382 $ ( 759 ) $ 78,240 12 Held to maturity and available for sale investment securities with unrealized losses were as follows as of December 31, 2025 (dollars in thousands): Less Than 12 Months 12 Months or Longer Total Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Held to maturity U.S. Treasury and U.S. government agency securities $ — $ — — $ 57,422 $ ( 2,340 ) 14 $ 57,422 $ ( 2,340 ) MBS: U.S. government agencies 235 ( 1 ) 3 25,805 ( 1,198 ) 38 26,040 ( 1,199 ) Private label residential 14 — 1 13,090 ( 747 ) 15 13,104 ( 747 ) Bank issued trust preferred securities 495 ( 4 ) 1 — — — 495 ( 4 ) Total $ 744 $ ( 5 ) 5 $ 96,317 $ ( 4,285 ) 67 $ 97,061 $ ( 4,290 ) Available for sale MBS: U.S. government agencies $ 10,020 $ ( 52 ) 3 $ 28,258 $ ( 692 ) 24 $ 38,278 $ ( 744 ) Total $ 10,020 $ ( 52 ) 3 $ 28,258 $ ( 692 ) 24 $ 38,278 $ ( 744 ) Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2025 (dollars in thousands): Less Than 12 Months 12 Months or Longer Total Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Held to maturity U.S. Treasury and U.S. government agency securities $ — $ — — $ 56,960 $ ( 2,760 ) 14 $ 56,960 $ ( 2,760 ) MBS: U.S. government agencies 7 — 1 27,776 ( 1,357 ) 42 27,783 ( 1,357 ) Private label residential 341 ( 2 ) 3 14,646 ( 820 ) 14 14,987 ( 822 ) Bank issued trust preferred securities 495 ( 4 ) 1 — — — 495 ( 4 ) Total $ 843 $ ( 6 ) 5 $ 99,382 $ ( 4,937 ) 70 $ 100,225 $ ( 4,943 ) Available for sale U.S. government securities $ 3,977 $ — 1 $ — $ — — $ 3,977 $ — MBS: U.S. government agencies 11,922 ( 67 ) 3 28,947 ( 692 ) 24 40,869 ( 759 ) Total $ 15,899 $ ( 67 ) 4 $ 28,947 $ ( 692 ) 24 $ 44,846 $ ( 759 ) During the three months ended December 31, 2025, the Company recorded a $ 3,000 net realized loss on 13 held to maturity investment securities, all of which had been recognized previously as a credit loss. During the three months ended December 13 31, 2024, the Company recorded a $ 2,000 net realized loss on 13 held to maturity investment securities all of which had been recognized previously as credit losses. The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $ 194.02 million and $ 195.93 million at December 31, 2025 and September 30, 2025, respectively. The contractual maturities of investment securities at December 31, 2025 were as follows (dollars in thousands). Expected maturities may differ from scheduled maturities due to the prepayment of principal or call provisions. Held to Maturity Available for Sale Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due within one year $ 34,886 $ 34,614 $ 2,122 $ 2,125 Due after one year to five years 45,217 43,120 3,752 3,747 Due after five years to ten years 34 141 188 187 Due after ten years 53,122 51,520 69,476 69,184 Total $ 133,259 $ 129,395 $ 75,538 $ 75,243 Credit Quality Indicators and Allowance for Credit Losses Available for Sale Investment Securities The Company assesses each available for sale investment security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors. The Company did not record an ACL on any available for sale investment securities at December 31, 2025 or September 30, 2025. As of both dates, the Company considered the unrealized losses across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that these securities are impaired because of their credit quality or related to any issuer or industry specific event. The Company has the ability and intent to hold the investments until the fair value recovers. Held to Maturity Investment Securities The Company measures expected credit losses on held to maturity investment securities, which are comprised of U.S. government agency and U.S. government mortgage-backed securities, private label mortgage-backed securities, municipal, and other bonds. The Company’s agency and mortgage-backed securities that are issued by U.S. government entities and agencies are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no ACL has been established for these securities. The ACL on the private label mortgage-backed securities, municipal, and other bonds within the held to maturity securities portfolio is calculated using the probability of default/loss given default ("PD/LGD") method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. At December 31, 2025 and September 30, 2025, the ACL on the held to maturity securities portfolio totaled $ 34,000 and $ 36,000 , respectively. 14 The following tables set forth information for the three months ended December 31, 2025 and 2024 regarding activity in the ACL by portfolio segment (dollars in thousands): Three Months Ended December 31, 2025 Three Months Ended December 31, 2024 Beginning Allowance Provision for (Recapture of) Credit Losses Ending Allowance Beginning Allowance Provision for (Recapture of) Credit Losses Ending Allowance Held to Maturity MBS: Private label residential $ 35 $ ( 2 ) $ 33 $ 55 $ ( 3 ) $ 52 Bank issued trust preferred securities 1 — 1 5 ( 2 ) 3 Total $ 36 $ ( 2 ) $ 34 $ 60 $ ( 5 ) $ 55 The ACL on held to maturity securities is included within investment securities held to maturity on the consolidated balance sheets. Changes in the ACL are recorded through the provision for (recapture of) credit losses on the consolidated income statement. Accrued interest receivable on held to maturity investment securities totaled $ 418,000 a t December 31, 2025 and is included in accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Held to maturity investment securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity investment securities are placed on non-accrual status, unpaid interest credited to income is reversed. The Company had $ 32,000 of private label mortgage-backed held to maturity investment securities in non-accrual status at December 31, 2025. The Company monitors the credit quality of investment securities held to maturity using credit ratings from Moody's, S&P and Fitch. The Company monitors the credit ratings on a quarterly basis. The following tables set forth the Company's held to maturity investment securities at December 31, 2025 and September 30, 2025, by credit quality indicator (dollars in thousands): Credit Ratings As of December 31, 2025 AAA/AA/A BBB/BB/B Unrated Total Held to Maturity U.S. Treasury and U.S. government agency securities $ 69,733 $ — $ — $ 69,733 MBS: U.S. government agencies 46,175 — — 46,175 Private label residential 11,734 — 4,513 16,247 Municipal securities 605 — — 605 Bank issued trust preferred securities — — 499 499 Total held to maturity $ 128,247 $ — $ 5,012 $ 133,259 15 Credit Ratings As of September 30, 2025 AAA/AA/A BBB/BB/B Unrated Total Held to Maturity U.S. Treasury and U.S. government agency securities $ 69,646 $ — $ — $ 69,646 MBS: U.S. government agencies 48,735 — — 48,735 Private label residential 12,455 — 4,921 17,376 Municipal securities 605 — — 605 Bank issued trust preferred securities — — 499 499 Total held to maturity $ 131,441 $ — $ 5,420 $ 136,861 Prior to adopting ASU 2016-13 during the year ended September 30, 2024, the Company bifurcated OTTI into (1) amounts related to credit losses which are recognized through earnings and (2) amounts related to all other factors which are recognized as a component of other comprehensive income (loss). To determine the component of the gross OTTI related to credit losses, the Company compared the amortized cost basis of the OTTI security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. The revised expected cash flow estimates for individual securities are based primarily on an analysis of default rates, prepayment speeds and third-party analytic reports. Significant judgment by management was required in this analysis that included, but not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans. The amounts written off due to credit loss remain and continue to be recovered on a cash basis. The following table presents a roll forward of the credit loss component of held to maturity investment securities that have been written down for OTTI with the credit loss component recognized in earnings for the three months ended December 31, 2025 and 2024 (dollars in thousands): Three Months Ended December 31, 2025 2024 Beginning balance of credit loss $ 788 $ 803 Subtractions: Net realized loss previously recorded as credit losses ( 3 ) — Recovery of prior credit loss ( 5 ) ( 2 ) Ending balance of credit loss $ 780 $ 801 16 (3) GOODWILL AND CDI Goodwill is initially recorded when the purchase price paid in a business combination exceeds the estimated fair value of the net identified tangible and intangible assets acquired and liabilities assumed. Goodwill is presumed to have an indefinite useful life and is analyzed annually for impairment. The Company performs an annual review during the third quarter of each fiscal year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. For purposes of goodwill impairment testing, the services offered through the Bank and its subsidiary are managed as one strategic unit and represent the Company's only reporting unit. 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. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment test is used to identify the existence of impairment and the amount of impairment loss and compares the reporting unit’s estimated fair value, including goodwill, to its carrying amount. If the fair value exceeds the carrying amount, then goodwill is not considered impaired. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill allocated to that reporting unit. The Company performed its fiscal year 2025 goodwill impairment test during the quarter ended June 30, 2025. Based on this assessment, the Company determined that it is not "more likely than not" that the Company's fair value is less than its carrying amount, and, therefore, goodwill was determined not to be impaired at May 31, 2025. As of December 31, 2025, management believes that there have been no events or changes in the circumstances since May 31, 2025 that would indicate a potential impairment of goodwill. No assurances can be given, however, that the Company will not record an impairment loss on goodwill in the future. If adverse economic conditions or any decreases in the Company's stock price and market capitalization were deemed to be other than temporary, it may significantly affect the fair value of the Company's goodwill and may trigger impairment charges. Any impairment charge could have a material adverse effect on the Company's results of operations and financial condition. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. As of December 31, 2025, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI. 17 (4) LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES Loans receivable by portfolio segment 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 Mortgage loans: One- to four-family (1) $ 325,724 20.7 % $ 317,691 20.1 % Multi-family 212,331 13.5 207,767 13.2 Commercial real estate 611,989 38.9 610,692 38.7 Construction - custom and owner/builder 102,177 6.5 130,341 8.3 Construction - speculative one- to four-family 15,110 1.0 10,745 0.7 Construction - commercial 20,199 1.3 21,818 1.4 Construction - multi-family 65,856 4.2 45,660 2.9 Construction - land development 2,387 0.2 15,324 1.0 Land 33,521 2.1 35,952 2.3 Total mortgage loans 1,389,294 88.4 1,395,990 88.6 Consumer loans: Home equity and second mortgage 52,569 3.3 50,479 3.2 Other 1,898 0.1 2,034 0.1 Total consumer loans 54,467 3.4 52,513 3.3 Commercial loans: Commercial business 128,397 8.2 126,937 8.1 U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans 20 — 58 — Total commercial loans 128,417 8.2 126,995 8.1 Total loans receivable 1,572,178 100.0 % 1,575,498 100.0 % Less: Undisbursed portion of construction loans in process ("LIP") 89,883 88,289 Deferred loan origination fees, net 5,338 5,528 ACL 18,125 18,091 Subtotal 113,346 111,908 Loans receivable, net $ 1,458,832 $ 1,463,590 __________________ (1) Does not include one- to four-family loans held for sale totaling $ 3.74 million and $ 1.13 million at December 31, 2025 and September 30, 2025, respectively. Loans receivable at December 31, 2025 and September 30, 2025, are reported net of unamortized discounts totaling $ 43,000 and $ 51,000 , respectively. Credit Quality Indicators The Company uses credit risk grades which reflect the Company’s assessment of a loan’s risk or loss potential. The Company categorizes loans into risk grade categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors such as the estimated fair value of the collateral. The Company uses the following definitions for credit risk ratings as part of the on-going monitoring of the credit quality of its loan portfolio: Pass: Pass loans are defined as those loans that meet acceptable quality underwriting standards. Watch: Watch loans are defined as those loans that still exhibit acceptable quality, but have some concerns that justify greater attention. If these concerns are not corrected, a potential for further adverse categorization exists. These concerns could relate to a specific condition peculiar to the borrower, its industry segment or the general economic environment. Special Mention: Special mention loans are defined as those loans deemed by management to have some potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the loan. Substandard: Substandard loans are defined as those loans that are inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. If the weakness or weaknesses are not corrected, there is the distinct possibility that some loss will be sustained. Doubtful: Loans in this classification have the weaknesses of substandard loans with the additional characteristic that the weaknesses make the collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. At December 31, 2025, no loans were classified as doubtful. At September 30, 2025, there was one loan classified as doubtful which is supported by an SBA guarantee of the remaining balance. Loss: Loans in this classification are considered uncollectible and of such little value that continuance as an asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future. At December 31, 2025 and September 30, 2025, there were no loans classified as loss. The following table sets forth the Company's loan portfolio at December 31, 2025 by risk attribute and year of origination as well as current period gross charge-offs (dollars in thousands): Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2026 2025 2024 2023 2022 Prior Revolving Loans Total Loans Receivable One-to four-family Risk Rating Pass $ 136 $ 12,291 $ 40,200 $ 74,354 $ 101,198 $ 89,908 $ — $ 318,087 Watch — — — 550 — 270 — 820 Special Mention — — — — 4,829 — — 4,829 Substandard — — — 1,781 207 — — 1,988 Total one- to four-family $ 136 $ 12,291 $ 40,200 $ 76,685 $ 106,234 $ 90,178 $ — $ 325,724 Multi-family Risk Rating Pass $ 5,505 $ 16,257 $ 13,128 $ 39,852 $ 38,905 $ 85,983 $ 1,594 $ 201,224 Watch — — — — — 11,107 — 11,107 Total multi-family $ 5,505 $ 16,257 $ 13,128 $ 39,852 $ 38,905 $ 97,090 $ 1,594 $ 212,331 Commercial real estate Risk Rating Pass $ 4,464 $ 47,877 $ 25,255 $ 79,316 $ 122,444 $ 303,629 $ 12,017 $ 595,002 Watch — — — — 237 12,087 — 12,324 Special Mention — — — — — 31 — 31 Substandard — — — — 304 4,328 — 4,632 Total commercial real estate $ 4,464 $ 47,877 $ 25,255 $ 79,316 $ 122,985 $ 320,075 $ 12,017 $ 611,989 18 Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2026 2025 2024 2023 2022 Prior Revolving Loans Total Loans Receivable Construction-custom & owner/builder (1) Risk Rating Pass $ 2,341 $ 39,185 $ 5,423 $ 1,500 $ 1,098 $ — $ — $ 49,547 Watch — 767 5,810 3,735 306 1,312 — 11,930 Substandard — — — — 553 — — 553 Total construction-custom & owner/builder $ 2,341 $ 39,952 $ 11,233 $ 5,235 $ 1,957 $ 1,312 $ — $ 62,030 Construction-speculative one-to four-family (1) Risk Rating Pass $ 1,789 $ 5,847 $ 235 $ 322 $ — $ — $ — $ 8,193 Total construction-speculative one-to four-family $ 1,789 $ 5,847 $ 235 $ 322 $ — $ — $ — $ 8,193 Construction-commercial (1) Risk Rating Pass $ 32 $ 9,272 $ 3,100 $ 2,855 $ — $ — $ — $ 15,259 Total construction-commercial $ 32 $ 9,272 $ 3,100 $ 2,855 $ — $ — $ — $ 15,259 Construction-multi-family (1) Risk Rating Pass $ 2,146 $ 18,351 $ 7,800 $ — $ — $ — $ — $ 28,297 Total construction-multi-family $ 2,146 $ 18,351 $ 7,800 $ — $ — $ — $ — $ 28,297 Construction-land development (1) Risk Rating Pass $ — $ — $ — $ 2,067 $ — $ — $ — $ 2,067 Total construction-land development $ — $ — $ — $ 2,067 $ — $ — $ — $ 2,067 Land Risk Rating Pass $ 2,192 $ 8,272 $ 8,652 $ 3,645 $ 5,521 $ 4,133 $ 362 $ 32,777 Watch — — — — 296 448 — 744 Total land $ 2,192 $ 8,272 $ 8,652 $ 3,645 $ 5,817 $ 4,581 $ 362 $ 33,521 Home equity and second mortgage Risk Rating Pass $ 1,029 $ 2,358 $ 4,843 $ 3,260 $ 1,438 $ 2,293 $ 36,982 $ 52,203 Watch — — — — — 10 — 10 Substandard — — — — — 57 299 356 Total home equity and second mortgage $ 1,029 $ 2,358 $ 4,843 $ 3,260 $ 1,438 $ 2,360 $ 37,281 $ 52,569 19 Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2026 2025 2024 2023 2022 Prior Revolving Loans Total Loans Receivable Other consumer Risk Rating Pass $ 439 $ 105 $ 450 $ 381 $ 68 $ 389 $ 40 $ 1,872 Watch — — — — — 6 — 6 Substandard — — — — — — 20 20 Total other consumer $ 439 $ 105 $ 450 $ 381 $ 68 $ 395 $ 60 $ 1,898 Commercial business Risk Rating Pass $ 1,488 $ 10,706 $ 12,455 $ 17,033 $ 25,676 $ 12,959 $ 45,710 $ 126,027 Special Mention — — — — 174 483 650 1,307 Substandard — — — 159 140 510 254 1,063 Total commercial business $ 1,488 $ 10,706 $ 12,455 $ 17,192 $ 25,990 $ 13,952 $ 46,614 $ 128,397 SBA PPP Risk Rating Pass $ — $ — $ — $ — $ — $ 20 $ — $ 20 Total SBA PPP $ — $ — $ — $ — $ — $ 20 $ — $ 20 Total loans receivable, gross (1) Risk Rating Pass $ 21,561 $ 170,521 $ 121,541 $ 224,585 $ 296,348 $ 499,314 $ 96,705 $ 1,430,575 Watch — 767 5,810 4,285 839 25,240 — 36,941 Special Mention — — — — 5,003 514 650 6,167 Substandard — — — 1,940 1,204 4,895 573 8,612 Total loans receivable $ 21,561 $ 171,288 $ 127,351 $ 230,810 $ 303,394 $ 529,963 $ 97,928 $ 1,482,295 Current period gross charge-off $ — $ — $ — $ — $ — $ — $ — $ — _____________________ (1) Net of construction LIP 20 The following table sets forth the Company's loan portfolio at September 30, 2025, by risk attribute and year of origination as well as gross charges offs in the year ending September 30, 2025: Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2025 2024 2023 2022 2021 Prior Revolving Loans Total Loans Receivable One-to four-family Risk Rating Pass $ 10,885 $ 25,692 $ 79,193 $ 102,942 $ 45,274 $ 47,078 $ — $ 311,064 Special Mention — — — 4,846 — — — 4,846 Substandard — — 1,781 — — — — 1,781 Total one- to four-family $ 10,885 $ 25,692 $ 80,974 $ 107,788 $ 45,274 $ 47,078 $ — $ 317,691 Multi-family Risk Rating Pass $ 16,305 $ 13,129 $ 40,004 $ 39,064 $ 22,489 $ 62,516 $ 1,334 $ 194,841 Watch — — — — — 3,264 — 3,264 Substandard — — — — 9,662 — — 9,662 Total multi-family $ 16,305 $ 13,129 $ 40,004 $ 39,064 $ 32,151 $ 65,780 $ 1,334 $ 207,767 Commercial real estate Risk Rating Pass $ 47,145 $ 25,419 $ 79,692 $ 123,631 $ 82,507 $ 225,019 $ 10,212 $ 593,625 Watch — — — 238 — 9,307 — 9,545 Special Mention — — — — — 32 — 32 Substandard — — — — — 7,490 — 7,490 Total commercial real estate $ 47,145 $ 25,419 $ 79,692 $ 123,869 $ 82,507 $ 241,848 $ 10,212 $ 610,692 Construction-custom & owner/builder (1) Risk Rating Pass $ 32,733 $ 33,785 $ 560 $ — $ 758 $ — $ — $ 67,836 Watch — 3,875 5,367 1,855 1,232 — — 12,329 Substandard — — — 553 — — — 553 Total construction-custom & owner/builder $ 32,733 $ 37,660 $ 5,927 $ 2,408 $ 1,990 $ — $ — $ 80,718 Construction-speculative one-to four-family (1) Risk Rating Pass $ 6,375 $ 16 $ 44 $ — $ — $ — $ — $ 6,435 Watch — — 488 — — — — 488 Total construction-speculative one-to four-family $ 6,375 $ 16 $ 532 $ — $ — $ — $ — $ 6,923 Construction-commercial (1) Risk Rating Pass $ 10,284 $ 2,725 $ 2,725 $ — $ — $ — $ — $ 15,734 Total construction-commercial $ 10,284 $ 2,725 $ 2,725 $ — $ — $ — $ — $ 15,734 21 Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2025 2024 2023 2022 2021 Prior Revolving Loans Total Loans Receivable Construction-multi-family (1) Risk Rating Pass $ 11,084 $ 7,604 $ — $ — $ — $ — $ — $ 18,688 Total construction-multi-family $ 11,084 $ 7,604 $ — $ — $ — $ — $ — $ 18,688 Construction-land development (1) Risk Rating Pass $ — $ 358 $ 1,629 $ — $ — $ — $ — $ 1,987 Substandard — — — 11,549 — — — 11,549 Total construction-land development $ — $ 358 $ 1,629 $ 11,549 $ — $ — $ — $ 13,536 Land Risk Rating Pass $ 11,667 $ 9,393 $ 3,741 $ 5,805 $ 1,951 $ 2,339 $ 303 $ 35,199 Watch — — — 298 — 455 — 753 Total land $ 11,667 $ 9,393 $ 3,741 $ 6,103 $ 1,951 $ 2,794 $ 303 $ 35,952 Home equity and second mortgage Risk Rating Pass $ 2,528 $ 5,154 $ 3,574 $ 1,556 $ 237 $ 2,112 $ 34,649 $ 49,810 Watch — — — — — 10 — 10 Substandard — — — — — 57 602 659 Total home equity and second mortgage $ 2,528 $ 5,154 $ 3,574 $ 1,556 $ 237 $ 2,179 $ 35,251 $ 50,479 Other consumer Risk Rating Pass $ 565 $ 459 $ 390 $ 82 $ 48 $ 423 $ 38 $ 2,005 Watch — — — — — 7 — 7 Substandard — — — — — — 22 22 Total other consumer $ 565 $ 459 $ 390 $ 82 $ 48 $ 430 $ 60 $ 2,034 Current period gross write-offs $ 4 $ 1 $ — $ — $ — $ — $ 1 $ 6 Commercial business Risk Rating Pass $ 10,686 $ 12,875 $ 17,674 $ 27,359 $ 5,793 $ 9,870 $ 40,048 $ 124,305 Watch — — — — 649 — — 649 Special Mention — — — 187 304 201 — 692 Substandard — — 159 140 — 790 — 1,089 Doubtful — — 202 — — — — 202 Total commercial business $ 10,686 $ 12,875 $ 18,035 $ 27,686 $ 6,746 $ 10,861 $ 40,048 $ 126,937 Current period gross write-offs $ — $ — $ — $ 241 $ — $ — $ — $ 241 22 Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2025 2024 2023 2022 2021 Prior Revolving Loans Total Loans Receivable SBA PPP Risk Rating Pass $ — $ — $ — $ — $ 58 $ — $ — $ 58 Total SBA PPP $ — $ — $ — $ — $ 58 $ — $ — $ 58 Total loans receivable, gross (1) Risk Rating Pass $ 160,257 $ 136,609 $ 229,226 $ 300,439 $ 159,115 $ 349,357 $ 86,584 $ 1,421,587 Watch — 3,875 5,855 2,391 1,881 13,043 — 27,045 Special Mention — — — 5,033 304 233 — 5,570 Substandard — — 1,940 12,242 9,662 8,337 624 32,805 Doubtful — — 202 — — — — 202 Total loans receivable $ 160,257 $ 140,484 $ 237,223 $ 320,105 $ 170,962 $ 370,970 $ 87,208 $ 1,487,209 Current period gross charge-off $ 4 $ 1 $ — $ 241 $ — $ — $ 1 $ 247 _____________________ ( 1) Net of construction LIP Allowance for Credit Losses The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics. For loans that do not share similar risk characteristics and cannot be evaluated on a collective basis, the Company will evaluate the loan individually. The Company estimates the expected credit losses over the loans' contractual terms, adjusted for expected prepayments. The ACL is calculated for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions. Management has adopted the discounted cash flow ("DCF") methodology for all segments. The Company incorporates a reasonable and supportable forecast that utilizes current period national gross domestic product ("GDP") and national unemployment figures. Each of the loan segments are impacted by those factors. Prepayment rates are established for each segment based on historical averages for the segments, which management believes is an accurate presentation of future prepayment activity. Loans that are evaluated individually are not included in the collective analysis. The ACL on loans that are evaluated individually may be estimated based on their expected cash flows, or in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated selling costs. When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the ACL. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement. Management's evaluation of the ACL is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio. Loss factors are based on the Company's historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of individually evaluated loans and other factors as deemed appropriate. Management also assesses the risk related to reasonable and supportable forecasts that are used. These factors are evaluated on a quarterly basis. Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter. In addition, regulatory agencies, as integral part of their examination process, periodically review the Company's ACL and may require the Company to make adjustments to the ACL based on their judgment about information available to them at the time of their examinations. 23 The following tables set forth information for the three months ended December 31, 2025 and 2024 regarding activity in the ACL by portfolio segment (dollars in thousands): Three Months Ended December 31, 2025 Beginning Allowance Provision for (Recapture of) Credit Losses Charge- Offs Recoveries Ending Allowance Mortgage loans: One- to four-family $ 2,892 $ 62 $ — $ — $ 2,954 Multi-family 1,625 11 — — 1,636 Commercial real estate 7,147 ( 68 ) — — 7,079 Construction – custom and owner/builder 1,268 ( 108 ) — — 1,160 Construction – speculative one- to four-family 112 49 — — 161 Construction – commercial 348 32 — — 380 Construction – multi-family 400 293 — — 693 Construction – land development 412 ( 348 ) — — 64 Land 797 ( 70 ) — — 727 Consumer loans: Home equity and second mortgage 435 13 — — 448 Other 58 ( 4 ) — — 54 Commercial business loans 2,597 154 — 18 2,769 Total $ 18,091 $ 16 $ — $ 18 $ 18,125 Three Months Ended December 31, 2024 Beginning Allowance Provision for (Recapture of) Loan Losses Charge- Offs Recoveries Ending Allowance Mortgage loans: One- to four-family $ 2,632 $ 67 $ — $ — $ 2,699 Multi-family 1,308 3 — — 1,311 Commercial real estate 6,934 ( 42 ) — — 6,892 Construction – custom and owner/builder 1,328 ( 67 ) — — 1,261 Construction – speculative one- to four-family 128 ( 46 ) — — 82 Construction – commercial 537 ( 208 ) — — 329 Construction – multi-family 456 71 — — 527 Construction – land development 335 ( 43 ) — — 292 Land 793 9 — — 802 Consumer loans: Home equity and second mortgage 348 5 — — 353 Other 39 ( 3 ) ( 3 ) — 33 Commercial business loans 2,640 306 ( 241 ) 2 2,707 Total $ 17,478 $ 52 $ ( 244 ) $ 2 $ 17,288 24 Non-Accrual Loans When a loan is 90 days delinquent the accrual of interest is generally discontinued and the loan is placed on non-accrual. All interest accrued but not collected for loans placed on non-accrual is reversed out of interest income. Generally, payments received on non-accrual loans are applied to reduce the outstanding principal balance of the loan. At times interest may be accounted for on a cash basis, depending on the collateral value and the borrower's payment history. A loan is generally not removed from non-accrual until all delinquent principal, interest and late fees have been brought current and the borrower demonstrates repayment ability over a period of not less than six months and all taxes are current. The following tables present an analysis of loans by aging category and portfolio segment at December 31, 2025 and September 30, 2025 (dollars in thousands): 30–59 Days Past Due 60-89 Days Past Due Non- Accrual (1) Past Due 90 Days or More and Still Accruing Total Past Due Current Total Loans December 31, 2025 Mortgage loans: One- to four-family $ — $ 535 $ 1,988 $ — $ 2,523 $ 323,201 $ 325,724 Multi-family — — — — — 212,331 212,331 Commercial real estate — — 304 — 304 611,685 611,989 Construction – custom and owner/builder (2) — — 553 — 553 61,477 62,030 Construction – speculative one- to four-family (2) — — — — — 8,193 8,193 Construction – commercial (2) — — — — — 15,259 15,259 Construction – multi-family (2) — — — — — 28,297 28,297 Construction – land development (2) — — — — — 2,067 2,067 Land — 450 — — 450 33,071 33,521 Consumer loans: Home equity and second mortgage — 135 356 — 491 52,078 52,569 Other — — 20 — 20 1,878 1,898 Commercial business loans — 650 1,063 — 1,713 126,684 128,397 SBA PPP loans — — — — — 20 20 Total $ — $ 1,770 $ 4,284 $ — $ 6,054 $ 1,476,241 $ 1,482,295 (1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual. (2) Net of construction LIP. 25 30–59 Days Past Due 60-89 Days Past Due Non- Accrual (1) Past Due 90 Days or More and Still Accruing Total Past Due Current Total Loans September 30, 2025 Mortgage loans: One- to four-family $ — $ 210 $ 1,781 $ — $ 1,991 $ 315,700 $ 317,691 Multi-family — — — — — 207,767 207,767 Commercial real estate — 255 159 — 414 610,278 610,692 Construction – custom and owner/builder (2) — — 553 — 553 80,165 80,718 Construction – speculative one- to four-family (2) — — — — — 6,923 6,923 Construction – commercial (2) — — — — — 15,734 15,734 Construction – multi-family (2) — — — — — 18,688 18,688 Construction – land development (2) — — — — — 13,536 13,536 Land — — — — — 35,952 35,952 Consumer loans: Home equity and second mortgage — 411 602 — 1,013 49,466 50,479 Other — — 22 — 22 2,012 2,034 Commercial business loans 374 — 1,290 — 1,664 125,273 126,937 SBA PPP loans — — — — — 58 58 Total $ 374 $ 876 $ 4,407 $ — $ 5,657 $ 1,481,552 $ 1,487,209 (1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual. (2) Net of construction LIP. At December 31, 2025, the Company had $ 534,000 of non-accrual loans with an ACL of $ 362,000 and $ 3.75 million of non-accrual loans with no ACL. The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of December 31, 2025 (in thousands): Recorded Investment Related ACL Mortgage loans: One- to four-family $ 1,988 $ — Commercial real estate 304 — Construction - custom and owner/builder 553 — Consumer loans: Home equity and second mortgage 356 — Other 20 20 Commercial business loans 1,063 342 Total $ 4,284 $ 362 26 At September 30, 2025, the Company had $ 1.31 million of non-accrual loans with an ACL of $ 360,000 and $ 3.10 million of non-accrual loans with no ACL. The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of September 30, 2025 (in thousands): Recorded Investment Related ACL Mortgage loans: One- to four-family $ 1,781 $ — Commercial real estate 159 — Construction - custom and owner/builder 553 — Consumer loans: Home equity and second mortgage 602 — Other 22 22 Commercial business loans 1,290 338 Total $ 4,407 $ 360 Loan Modifications to Borrowers Experiencing Financial Difficulty Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the ACL for loans. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL for loans is adjusted by the same amount. The ACL on modified loans is measured using the same credit loss estimation methods used to determine the ACL of all other loans held for investment. These methods incorporate the post-modification of loan terms, as well as defaults and charge-offs associated with historical modified loans. There were no loan modifications to borrowers experiencing financial difficulty during the three months ended December 31, 2025 and 2024. All loans modified during the past twelve months are performing according to modified terms. 27 (5) LEASES At December 31, 2025, the Company has operating leases for three retail bank branch offices and an administrative office. The Company's leases have remaining lease terms of one to twenty-four years , and include options to extend the leases for up to fifteen years . Lease extensions are not certain, and the Company evaluates each lease based on the specific circumstances for the location to determine the probability of exercising the extensions in the calculation of ROU assets and lease liabilities. The components of lease cost (included in the premises and equipment expense category in the consolidated statements of income) are as follows for the three months ended December 31, 2025 and 2024 (dollars in thousands): Three Months Ended December 31, Lease cost: 2025 2024 Operating lease cost $ 126 $ 96 Short-term lease cost — — Total lease cost $ 126 $ 96 The following table provides supplemental information related to operating leases at or for the three months ended December 31, 2025 and 2024 (dollars in thousands): At or For the Three Months Ended December 31 2025 At or For the Three Months Ended December 31, 2024 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 88 $ 83 Weighted average remaining lease term-operating leases 16.6 years 5.8 years Weighted average discount rate-operating leases 4.13 % 2.34 % The Company's leases typically do not contain a discount rate implicit in the lease contracts. As an alternative, the weighted average discount rate used to estimate the present value of future lease payments in calculating the value of the ROU asset and lease liability was determined by utilizing the FHLB fixed-rate credit advance borrowing rate for the term correlating to the remaining term of each lease. Maturities of operating lease liabilities at December 31, 2025 for future fiscal years are as follows (dollars in thousands): Remainder of Fiscal 2026 $ 285 Fiscal 2027 340 Fiscal 2028 344 Fiscal 2029 340 Fiscal 2030 327 Thereafter 3,126 Total lease payments 4,762 Less imputed interest 1,747 Total $ 3,015 28 (6) NET INCOME PER COMMON SHARE Basic net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Nonvested shares of restricted stock are included in the computation of basic earnings per share because the holder has voting rights and shares in non-forfeitable dividends during the vesting period. Diluted net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common stock during the period. Common stock equivalents arise from the assumed conversion of outstanding stock options. Information regarding the calculation of basic and diluted net income per common share for the three months ended December 31, 2025 and 2024, is as follows (dollars in thousands, except per share amounts): Three Months Ended December 31, 2025 2024 Basic net income per common share computation Numerator – net income $ 8,216 $ 6,860 Denominator – weighted average common shares outstanding 7,885,656 7,958,275 Basic net income per common share $ 1.04 $ 0.86 Diluted net income per common share computation Numerator – net income $ 8,216 $ 6,860 Denominator – weighted average common shares outstanding 7,885,656 7,958,275 Effect of dilutive stock options (1) 37,381 41,229 Weighted average common shares outstanding - assuming dilution 7,923,037 7,999,504 Diluted net income per common share $ 1.04 $ 0.86 ____________________________________________ (1) For the three months ended December 31, 2025 and 2024, average options to purchase 1,000 and 96,220 shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per common share because their effect would have been anti-dilutive. 29 (7) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in accumulated other comprehensive income (loss) ("AOCI") by component during the three months ended December 31, 2025 and 2024, are as follows (dollars in thousands): Three Months Ended Three Months Ended December 31, 2025 December 31, 2024 Changes in fair value of available for sale securities Total Changes in fair value of available for sale securities Total Balance of AOCI at the beginning of period $ ( 298 ) $ ( 298 ) $ 20 $ 20 Other comprehensive income (loss) 65 65 ( 812 ) ( 812 ) Balance of AOCI at the end of period $ ( 233 ) $ ( 233 ) $ ( 792 ) $ ( 792 ) __________________________ (1) All amounts are net of income taxes. (8) STOCK COMPENSATION PLANS The Company maintains one active stock compensation plan, the 2019 Equity Incentive Plan (the "2019 Plan"). Under the 2019 Plan, the Company may grant options and awards of restricted stock (with or without performance measures) for up to 350,000 shares of common stock, of which 300,000 shares are reserved for issuance to employees and officers, and 50,000 shares are reserved for issuance to directors and directors emeriti. Shares issued under the 2019 Plan may be purchased in the open market or issued from the Company's authorized and unissued shares. The exercise price of each stock option equals the fair market value of the Company’s common stock on the date of grant. Stock options generally vest in equal annual installments over five years beginning on the first anniversary of the grant date and have a maximum contractual term of ten years . Restricted stock awards typically vest in equal annual installments over a three - or five-year period beginning on the first anniversary of the grant date. At December 31, 2025, 132,935 shares of common stock remained available for further issuance under the 2019 Plan, either as stock options or restricted stock. The Company's 2014 Equity Incentive Plan (the "2014 Plan") expired on January 27, 2025; therefore, no further awards may be granted under the plan. As of December 31, 2025, there were 109,890 shares outstanding that had been previously granted in the 2014 Plan, of which 98,090 were vested and 11,800 were unvested. Stock option activity for the three months ended December 31, 2025 and 2024, is summarized as follows: Three Months Ended December 31, 2025 Three Months Ended December 31, 2024 Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Options outstanding, beginning of period 215,530 $ 26.22 306,240 $ 25.21 Exercised ( 21,640 ) 25.98 ( 22,400 ) 21.17 Forfeited ( 1,800 ) 27.68 ( 600 ) 27.40 Options outstanding, end of period 192,090 $ 26.23 283,240 $ 25.52 The fair value of stock options is determined using the Black-Scholes valuation model. There were no stock options granted during the three months ended December 31, 2025 and 2024. The aggregate intrinsic value of options exercised during the three months ended December 31, 2025 and 2024 was $ 201,000 and $ 239,000 , respectively. 30 At December 31, 2025, there were 33,400 unvested options with an aggregate grant date fair value of $ 223,000 , all of which the Company assumes will vest. The aggregate intrinsic value of unvested options at December 31, 2025 was $ 268,000 . There were 100 options that vested during the three months ended December 31, 2025 with a total fair value of $ 326 . At December 31, 2024, there were 76,530 unvested options with an aggregate grant date fair value of $ 464,000 . There were 100 options that vested during the three months ended December 31, 2024 with a total fair value of $ 326 . Additional information regarding options outstanding at December 31, 2025, is as follows: Options Outstanding Options Exercisable Range of Exercise Prices ($) Number Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Number Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) 15.67 - 19.13 37,155 $ 16.56 3.7 37,155 $ 16.56 3.7 26.50 - 27.40 65,360 27.34 6.0 43,160 27.30 5.6 28.23 - 29.69 69,600 28.73 4.4 59,000 28.82 4.1 31.80 - 33.40 19,975 31.88 3.0 19,375 31.14 2.8 192,090 $ 26.23 4.7 158,690 $ 25.91 4.3 The aggregate intrinsic value of options outstanding at December 31, 2025 and 2024, was $ 1.84 million and $ 1.45 million , respectively. As of December 31, 2025, unrecognized compensation cost related to unvested stock options was $ 210,000 , which is expected to be recognized over a weighted average period of 1.16 years. There were no restricted stock awards granted during the three months ended December 31, 2025 and 2024. The following table presents the activity related to restricted stock for the three months ended December 31, 2025 and 2024: Three Months Ended December 31, 2025 Three Months Ended December 31, 2024 Number of Unvested Shares Weighted Average Grant Date Fair Value Number of Unvested Shares Weighted Average Grant Date Fair Value Restricted stock outstanding beginning of period 70,450 $ 31.94 49,015 $ 29.28 Forfeited ( 2,080 ) 29.50 ( 450 ) 29.28 Restricted stock outstanding end of period 68,370 $ 32.01 48,565 $ 29.28 The fair value of restricted stock awards is equal to the fair value of the Company's stock on the date of the grant. The related stock-based compensation expense is recorded over the requisite service period. At December 31, 2025, unrecognized compensation cost related to unvested restricted stock awards was $ 2.06 million, which is expected to be recognized over a weighted average period of 2.42 years. (9) FAIR VALUE MEASUREMENTS Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are: 31 Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2: Significant observable inputs other than quoted prices included within Level 1, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability based on the best information available in the circumstances. The Company's assets measured at fair value on a recurring basis consist of investment securities available for sale and investments in equity securities. The estimated fair values of available for sale investment securities are based upon quoted market prices (Level 1) and market prices of similar securities or observable inputs (Level 2). The estimated fair values of mutual funds are based upon quoted market prices (Level 1). The Company had no liabilities measured at fair value on a recurring basis at December 31, 2025 and September 30, 2025. The Company's assets measured at estimated fair value on a recurring basis at December 31, 2025 and September 30, 2025, were as follows (dollars in thousands): December 31, 2025 Estimated Fair Value Level 1 Level 2 Level 3 Total Available for sale investment securities MBS: U.S. government agencies $ — $ 75,243 $ — $ 75,243 Investments in equity securities Mutual funds 867 — — 867 Total $ 867 $ 75,243 $ — $ 76,110 September 30, 2025 Estimated Fair Value Level 1 Level 2 Level 3 Total Available for sale investment securities U.S. government securities $ 4,968 $ — $ — $ 4,968 MBS: U.S. government agencies — 73,272 — 73,272 Investments in equity securities Mutual funds 864 — — 864 Total $ 5,832 $ 73,272 $ — $ 79,104 There were no transfers among Level 1, Level 2 and Level 3 during the three months ended December 31, 2025 and the year ended September 30, 2025. The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. The Company uses the following methods and significant assumptions to estimate fair value on a non-recurring basis: Individually Evaluated Collateral-Dependent Loans: Loans for which repayment is substantially expected to be provided through the operation or sale of collateral are considered collateral dependent, and are valued based on the estimated fair value of the collateral, less estimated costs to sell, where applicable. Accordingly, collateral dependent loans are classified within level 3 of the fair value hierarchy. OREO and Other Repossessed Assets, net: OREO and other repossessed assets are recorded at estimated fair value less estimated costs to sell. Estimated fair value is generally determined by management based on a number of factors, including third-party appraisals of estimated fair value in an orderly sale. Estimated costs to sell are based on standard market factors. The valuation of OREO and other repossessed assets is subject to significant external and internal judgment (Level 3). 32 The following table summarizes the balances of assets measured at estimated fair value on a non-recurring basis at December 31, 2025 and September 30, 2025 (dollars in thousands): Estimated Fair Value Total Estimated December 31, 2025 Level 1 Level 2 Level 3 Fair Value Individually evaluated collateral-dependent loans: Commercial business loans $ — $ — $ 173 $ 173 Total loans — — 173 173 OREO and other repossessed assets — — 221 221 Total $ — $ — $ 394 $ 394 Estimated Fair Value Total Estimated September 30, 2025 Level 1 Level 2 Level 3 Fair Value Individually evaluated collateral-dependent loans: Commercial business loans $ — $ — $ 177 $ 177 Total loans — — 177 177 OREO and other repossessed assets — — 221 221 Total $ — $ — $ 398 $ 398 The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a non-recurring basis as of December 31, 2025 and September 30, 2025: Valuation Technique(s) Significant Unobservable Input(s) Range Individually evaluated collateral-dependent loans Market approach Appraised value less estimated selling costs 8 % OREO and other repossessed assets Market approach Lower of appraised value or listing price less estimated selling costs 8 % GAAP requires disclosure of estimated fair values for certain financial instruments. Such estimates are subjective in nature, and significant judgment is required regarding the risk characteristics of various financial instruments at a discrete point in time. Therefore, such estimates could vary significantly if assumptions regarding uncertain factors were to change. In addition, as the Company normally intends to hold the majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for certain items which are not defined as financial instruments but which may have significant value. The Company does not believe that it would be practicable to estimate a fair value for these types of items as of December 31, 2025 and September 30, 2025. Because GAAP excludes certain items from fair value disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company. Additionally, the Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis. 33 The recorded amounts and estimated fair values of financial instruments were as follows as of December 31, 2025 and September 30, 2025 (dollars in thousands): December 31, 2025 Fair Value Measurements Using: Recorded Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 246,864 $ 246,864 $ 246,864 $ — $ — CDs held for investment 6,470 6,470 6,470 — — Investment securities 208,502 204,639 67,398 137,241 — Investments in equity securities 867 867 867 — — FHLB stock 2,045 2,045 2,045 — — Other investments 3,000 3,000 3,000 — — Loans held for sale 3,736 3,787 3,787 — — Loans receivable, net 1,458,832 1,443,563 — — 1,443,563 Accrued interest receivable 7,435 7,435 7,435 — — Financial liabilities Certificates of deposit 431,098 430,840 — — 430,840 FHLB borrowings 20,000 20,026 — — 20,026 Accrued interest payable 1,925 1,925 1,925 — — September 30, 2025 Fair Value Measurements Using: Recorded Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 243,428 $ 243,428 $ 243,428 $ — $ — CDs held for investment 7,217 7,217 7,217 — — Investment securities 215,101 210,574 71,870 138,704 — Investments in equity securities 864 864 864 — — FHLB stock 2,045 2,045 2,045 — — Other investments 3,000 3,000 3,000 — — Loans held for sale 1,127 1,159 1,159 — — Loans receivable, net 1,463,590 1,441,850 — — 1,441,850 Accrued interest receivable 7,393 7,393 7,393 — — Financial liabilities Certificates of deposit 442,521 442,024 — — 442,024 FHLB borrowings 20,000 20,009 — — 20,009 Accrued interest payable 1,963 1,963 1,963 — — (10) RECENT ACCOUNTING PRONOUNCEMENTS In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments in this ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income tax paid information. The ASU requires 34 disclosure in the rate reconciliation of specific categories as well as additional information for reconciling items that meet a quantitative threshold. The amendment requires on an annual basis a reconciliation broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity should apply the amendments in this ASU on a prospective basis. The Company expects this ASU to only impact its annual disclosure requirements and does not expect the adoption of this ASU to have a material impact on its business operations or the Company's consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220): Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures . The amendments in this ASU require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses. In conjunction with recent standards that enhanced the disaggregation of revenue and income tax information, the disaggregated expense information will enable investors to better understand the major components of an entity's income statement. The new standard is effective for annual periods beginning after December 15, 2026, with early adoption permitted. The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of the ASU to have a material impact on its business operations or the Company's consolidated financial statements. In January 2025, the FASB issued ASU 2025-01, Income Statement (Subtopic 220-40): Income Statement-Reporting Comprehensive Income-Expense Disaggregations Disclosures: Clarifying the effective Date . The amendments in this ASU amend the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2025-01 is permitted. In November 2025, The FASB issued ASU 2025-08, Financial Instruments - Credit Losses (Topic 326) Purchased loans . The ASU expands the use of the gross-up method for accounting for certain acquired loans, specifically purchased seasoned loans ("PSLs"). This methods allows entities to recognize an allowance for credit losses at the acquisition date, which is added to the asset's amortized cost basis. The ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company does not expect this ASU to impact the Company's consolidated financial statements since there are no PSLs in the loan portfolio. In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270) Narrow-Scope Improvements. The ASU adds additional interim disclosures from various Codification Topics to ASC 270. It requires entities to disclose events that occurred since the end of the last annual reporting period that materially affect the entity. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of the ASU to have a material impact on its business operations or the Company's consolidated financial statements. Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company's financial position, results of operations or cash flows. (11) REVENUE FROM CONTRACTS WITH CUSTOMERS ASU 2014-09 Revenue from Contracts with Customers ("ASC 606") applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. The majority of the Company's revenues are composed of interest income, deferred loan fee accretion, premium/discount accretion, gains on sales of loans and investments, BOLI net earnings, servicing income on loans sold and other loan fee income, which are not within the scope of ASC 606. Revenue reported as service charges on deposits, ATM and debit card interchange transaction fees, non-deposit investment fees and escrow fees are within the scope of ASC 606. All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income with the exception of gains on sales of OREO and gains on sales/disposition of premises and equipment, which are included in non-interest expense. For the three months ended December 31, 2025, the Company recognized $ 989,000 in service charges on deposits, $ 1.19 million in ATM and debit card interchange transaction fees, $ 24,000 in escrow fees, and $ 23,000 in fee income from non-deposit investment sales included in "Other, net" in non-interest income on the consolidated statement of income, all considered within the scope of ASC 606. For the three months ended December 31, 2024, the Company recognized $ 999,000 in service charges on deposits, 35 $ 1.27 million in ATM and debit card interchange transaction fees, $ 18,000 in escrow fees, and $ 1,000 in fee income from non-deposit investment sales. If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue when it satisfies its performance obligation. Descriptions of the Company's revenue-generating activities that are within the scope of ASC 606 are as follows: • Service Charges on Deposits: The Company earns fees from its deposit customers from a variety of deposit products and services. Non-transaction based fees such as account maintenance fees and monthly statement fees are considered to be provided to the customer under a day-to-day contract with ongoing renewals. Revenue for these non-transaction fees are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees such as non-sufficient fund charges, stop payment charges and wire fees are recognized at the time the transaction is executed, as the contract duration does not extend beyond the service performed. • ATM and Debit Card Interchange Transaction Fees: The Company earns fees from cardholder transactions conducted through third-party payment network providers which consist of interchange fees earned from the payment networks as a debit card issuer. These fees are recognized when the transaction occurs, but may settle on a daily or monthly basis. • Escrow Fees: The Company earns fees from real estate escrow contracts with customers. The Company receives and disburses money and/or property according to the customer's contract. Fees are recognized when the escrow contract closes. • Fee Income from Non-deposit Investment Sales: The Company earns fees from contracts with customers for investment activities. Revenues are generally recognized monthly and are generally based on a percentage of the customer's assets under management or based on investment solutions that are implemented for the customer. (12) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk not recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit - worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. However, such loan to value ratios will subsequently change, based on increases and decreases in the supporting collateral values. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, land and income-producing commercial properties. A summary of the Company's commitments at December 31, 2025 and 2024, are listed below (in thousands): December 31, 2025 December 31, 2024 Undisbursed portion of construction loans in process (see Note 4) $ 89,883 $ 85,350 Undisbursed lines of credit 122,109 115,279 Commitments to extend credit 32,200 16,265 $ 244,192 $ 216,894 The Company maintains a separate ACL related to unfunded loan commitments. Management estimates the amount of expected losses related to unfunded, off-balance sheet commitments over the contractual period in which there is exposure to credit risk from a contractual obligation to extend credit, unless the Company has determined that obligation is unconditionally cancellable. The methodology for calculating the ACL on unfunded loan commitments is similar to the methodology for calculating the ACL on loans but also includes an estimate of the future utilization of the commitment as determined by 36 historical utilization. Credit risk associated with the unfunded commitments is consistent with the loss ratio for each loan segment within the ACL for loans. The ACL on unfunded commitments is recognized in other liabilities and accrued expenses in the consolidated balance sheets and is adjusted as a provision for (recapture of) credit losses on the consolidated income statements. The ACL on unfunded loan commitments totaled $ 383,000 and $ 307,000 at December 31, 2025 and 2024, respectively The following table sets forth information for the three months ended December 31, 2025 and 2024, regarding activity in the ACL on unfunded loan commitments (dollars in thousands): Three Months Ended December 31, 2025 Three Months Ended December 31, 2024 Beginning ACL $ 432 $ 327 Provision for (recapture of) credit losses ( 49 ) ( 20 ) Ending ACL $ 383 $ 307 The Bank has an employee severance compensation plan which expires in 2027 that provides severance pay benefits to eligible employees in the event of a change in control of Timberland Bancorp or the Bank (as defined in the plan). In general, all employees with two or more years of service are eligible to participate in the plan. Under the plan, in the event of a change in control of Timberland Bancorp or the Bank, eligible employees who are terminated or who terminate employment (but only upon the occurrence of events specified in the plan) within 12 months of the effective date of a change in control would be entitled to a payment based on years of service or officer rank with the Bank. The maximum payment for any eligible employee would be equal to 18 months of the employee’s current compensation. Timberland Bancorp has employment agreements with its Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Lending Officer and Chief Technology Officer which provide for severance payments and other benefits if the officers are involuntarily terminated following a change in control of Timberland Bancorp or the Bank. The maximum value of the severance benefits under these agreements is equal to 2.99 times the officer's average annual compensation during the five-year period preceding the effective date of the change in control. Because of the nature of its activities, the Company is subject to various pending and threatened legal actions which arise in the ordinary course of business. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on the future consolidated financial position of the Company.