TIMBERLAND BANCORP INC

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. 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 six months ended March 31, 2026.

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. 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, 2026.

Previous wording

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

Current wording

•the ability to adapt to rapid technological changes, including advancements related to artificial intelligence (“AI”), the use of AI models in credit decisioning, customer service, and operations, including risks of model error, bias, regulatory scrutiny under fair lending laws, and third-party AI dependencies, digital banking platforms, and cybersecurity;

Previous wording

•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”);

Current wording

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

Previous wording

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 24 offices (including its main office in Hoquiam). At March 31, 2026, the Company had total assets of $2.05 billion, net loans receivable of $1.45 billion, total deposits of $1.74 billion and total shareholders’ equity of $271.09 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.

Current wording

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 24 offices (including its main office in Hoquiam). At June 30, 2026, the Company had total assets of $2.06 billion, net loans receivable of $1.50 billion, total deposits of $1.76 billion and total shareholders’ equity of $273.21 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.

Previous wording

Our net interest income, net interest margin, ("NIM"), and net interest spread are primarily influenced by changes in market interest rates, the shape of the yield curve, and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities. These components of net interest income are also affected by the volume and composition of our interest-earning assets, interest-bearing and non-interest-bearing liabilities, and shareholders’ equity. During the six months ended March 31, 2026, 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 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% in December 2025. Despite the decline in market rates, net interest income improved for both the three and six months ended March 31, 2026 compared to the prior year periods, driven by growth in interest-earning assets and a decline in funding costs that outpaced the reduction in asset yields. Our NIM improved modestly for the three months ended March 31, 2026 and more meaningfully for the six months then ended, reflecting the benefit of lower deposit and borrowing costs and continued growth in the average balance of our loan portfolio.

Current wording

During the nine months ended June 30, 2026, 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 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% in December 2025. Despite the decline in market rates, net interest income improved for both the three and nine months ended June 30, 2026 compared to the prior year periods, primarily due to higher loan yields, growth in average loan balances, and lower funding costs. The decline in interest-bearing liability costs more than offset the impact of lower yields on certain interest-earning assets during the three months ended June 30, 2026, while asset yields remained relatively stable during the nine months ended June 30, 2026. As a result, NIM increased modestly for the three months ended June 30, 2026 and improved more significantly for the nine months then ended, reflecting improved funding costs and continued growth in the average balance of the loan portfolio.

Previous wording

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. As the loan portfolio increases, or due to an increase in probable expected losses inherent in the loan portfolio, the ACL may increase, resulting in a decrease to net interest income after the provision. 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 $523,000 and $539,000 for the three and six months ended March 31, 2026 compared to a provision for credit losses on loans of $237,000 and $289,000 for the three and six months ended March 31, 2025.

Current wording

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 expected credit losses in the loan portfolio. As the loan portfolio increases, or due to an increase in expected credit losses inherent in the loan portfolio, the ACL may increase, resulting in an increase in the provision for credit losses and a decrease to net income. Improvement in loan risk ratings, increases in collateral 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 $600,000 and $1.14 million for the three and nine months ended June 30, 2026 compared to a provision for credit losses on loans of $351,000 and $640,000 for the three and nine months ended June 30, 2025.

Previous wording

Net income is also impacted by levels of non-interest income and non-interest expense. For the three and six months ended March 31, 2026, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income. Non-interest income may also be affected by net recoveries on investment securities and the reversal of previously recognized OTTI losses, if applicable. Additionally, it is reduced by valuation allowances on loan servicing rights and increased by recoveries of such allowances, when recognized. Non-interest expense for the same periods primarily included salaries and employee benefits, premises and equipment costs, advertising, ATM and debit card interchange transaction fees, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure-related expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other general operating expenses. In certain periods, non-interest expense may be offset by gains on the sale of premises and equipment or OREO. Both non-interest income and non-interest expense are influenced by the Company’s overall growth and the expansion of its loan and deposit account base.

Current wording

Net income is also impacted by levels of non-interest income and non-interest expense. For the three and nine months ended June 30, 2026, 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 expense, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure-related expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other general operating expenses. In certain periods, non-interest expense may be offset by gains on the sale of premises and equipment or OREO. Both non-interest income and non-interest expense are influenced by the Company’s overall growth, business activities, and operating environment.

Previous wording

General: Total assets increased by $33.61 million, or 1.7%, to $2.05 billion at March 31, 2026 from $2.01 billion at September 30, 2025. The increase was primarily due to increases in cash and cash equivalents, funded mainly by increased deposits. This increase was partially offset by decreases in net loans receivable and investment securities.

Current wording

General: Total assets increased by $48.05 million, or 2.4%, to $2.06 billion at June 30, 2026 from $2.01 billion at September 30, 2025. The increase was primarily due to increases in net loans receivable and BOLI, funded mainly by increased deposits. This increase was partially offset by decreases in investment securities.

Previous wording

Net loans receivable decreased by $12.71 million, or 0.9%, to $1.45 billion at March 31, 2026 from $1.46 billion at September 30, 2025, primarily due to decreases in custom and owner/builder construction, land development, commercial construction and one- to four-family loan categories. These decreases were partially offset by increases in multi-family construction, multi-family, and speculative one-to four-family construction loan categories.

Current wording

Net loans receivable increased by $32.06 million, or 2.2%, to $1.50 billion at June 30, 2026 from $1.46 billion at September 30, 2025, primarily due to increases in the multi-family construction, commercial real estate and speculative one- to four-family construction loan categories. These increases were partially offset by decreases in the one- to four-family, owner/builder and custom construction, land development, commercial construction and commercial business loan categories.

Previous wording

Total deposits increased by $26.58 million, or 1.5%, to $1.74 billion at March 31, 2026 from $1.72 billion at September 30, 2025, primarily due to increases in NOW checking and money market account balances. These increases were partially offset by decreases in non-interest bearing deposit and savings account balances.

Current wording

Total deposits increased by $46.91 million, or 2.7%, to $1.76 billion at June 30, 2026 from $1.72 billion at September 30, 2025, primarily due to increases in money market and NOW checking account balances. These increases were partially offset by decreases in non-interest bearing deposit and savings account balances.

Previous wording

Shareholders’ equity increased by $8.48 million, or 3.2%, to $271.09 million at March 31, 2026 from $262.61 million at September 30, 2025. 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 six months ended March 31, 2026

Current wording

Shareholders’ equity increased by $10.59 million, or 4.0%, to $273.21 million at June 30, 2026 from $262.61 million at September 30, 2025. 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, 2026.

Previous wording

Cash and Cash Equivalents and CDs Held for Investment: Cash and cash equivalents and CDs held for investment increased by $50.00 million, or 19.9%, to $300.64 million at March 31, 2026 from $250.64 million at September 30, 2025. The increase was due to a $51.24 million increase in cash and cash equivalents, resulting primarily from maturities, prepayments and scheduled amortizations of investment securities, loan payoffs and net deposit inflows during the period. The overall increase was partially offset by a $1.24 million decrease in CDs held for investment.

Current wording

Cash and Cash Equivalents and CDs Held for Investment: Cash and cash equivalents and CDs held for investment increased by $3.40 million, or 1.4%, to $254.05 million at June 30, 2026 from $250.64 million at September 30, 2025. The increase was due to a $2.65 million increase in cash and cash equivalents, resulting primarily from maturities, prepayments and scheduled amortizations of investment securities, loan payoffs and net deposit inflows during the period and a $747,000 increase in CDs held for investment.

Previous wording

Investment Securities: Investment securities (including investments in equity securities) decreased by $5.91 million, or 2.7%, to $210.06 million at March 31, 2026 from $215.97 million at September 30, 2025. This decrease was primarily due to maturities, prepayments and scheduled amortizations which was partially offset by the purchase of $24.95 million of new securities. For additional information on investment securities, see Note 2 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Current wording

Investment Securities: Investment securities (including investments in equity securities) decreased by $7.04 million, or 3.3%, to $208.93 million at June 30, 2026 from $215.97 million at September 30, 2025. This decrease was primarily due to maturities, prepayments and scheduled amortizations which was partially offset by the purchase of $31.82 million of new securities. For additional information on investment securities, see Note 2 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Previous wording

FHLB Stock: FHLB stock increased to $2.10 million at March 31, 2026 from $2.05 million at September 30, 2025. The increase was due to FHLB's required annual share assessment, which is based on total assets.

Current wording

FHLB Stock: FHLB stock decreased to $1.65 million at June 30, 2026 from $2.05 million at September 30, 2025. The decrease was due to a decrease in the amount of activity based stock required as outstanding advances have paid off. This decrease was partially offset by an increase due to FHLB's required annual share assessment, which is based on total assets.

Previous wording

Loans: Net loans receivable decreased by $12.71 million, or 0.9%, to $1.45 billion at March 31, 2026 from $1.46 billion at September 30, 2025. The decrease was primarily due to a $26.27 million decrease in custom and owner/builder construction, a $12.41 million decrease in land development construction, a $8.83 million decrease in commercial construction, $6.19 million decrease in one- to four-family loans and smaller decreases in several other loan categories. These decreases were partially offset by a $34.59 million increase in multi-family construction, a $6.34 million increase in multi-family, a $5.10 million increase in speculative one-to four-family construction and smaller increases in other loan categories.

Current wording

Loans: Net loans receivable increased by $32.06 million, or 2.2%, to $1.50 billion at June 30, 2026 from $1.46 billion at September 30, 2025. The increase was primarily due to a $45.61 million increase in multi-family construction, a $35.68 million increase in commercial real estate, a $17.70 million increase in speculative one- to four- family construction and a $6.82 million increase in multi-family loans. These increases were partially offset by a $17.77 million decrease in one- to four- family, a $17.04 million decrease in owner/builder and custom construction, a $14.79 million decrease in land development, an $8.83 million decrease in commercial construction, an $8.09 million decrease in commercial business and smaller net changes in other loan categories.

Previous wording

Loan originations increased by $15.52 million, or 12.1%, to $144.18 million for the six months ended March 31, 2026 from $128.66 million for the six months ended March 31, 2025. The increase was primarily due to increases in originations of construction, multi-family, commercial business and one- to four-family loans. These increases were partially offset by decreases in commercial real estate and land loan originations.

Current wording

Loan originations increased by $67.04 million, or 31.80%, to $277.85 million for the nine months ended June 30, 2026 from $210.81 million for the nine months ended June 30, 2025. The increase was primarily due to increases in originations of construction, commercial real estate, multi-family, consumer, commercial business and one- to four-family loans. These increases were partially offset by decreases in land loan originations.

Previous wording

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 $7.54 million, or 100.7%, to $15.02 million for the six months ended March 31, 2026 from $7.48 million for the six months ended March 31, 2025, primarily due to an increase in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

Current wording

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 $9.25 million, or 68.0%, to $22.85 million for the nine months ended June 30, 2026 from $13.60 million for the nine months ended June 30, 2025, primarily due to an increase in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

Previous wording

Premises and Equipment: Premises and equipment increased by $241,000, or 1.1%, to $21.93 million at March 31, 2026 from $21.68 million at September 30, 2025. The increase reflects capitalized additions related to the University Place branch which opened in January 2026 and facility improvements and equipment purchases for other locations during the period, which were offset by scheduled depreciation expense.

Current wording

Premises and Equipment: Premises and equipment increased by $465,000, or 2.1%, to $22.15 million at June 30, 2026 from $21.68 million at September 30, 2025. The increase reflects capitalized additions related to the University Place branch which opened in January 2026 and facility improvements and equipment purchases for other locations during the period, which were offset by scheduled depreciation expense.

Previous wording

BOLI (Bank Owned Life Insurance): BOLI increased by $313,000, or 1.4%, to $22.14 million at March 31, 2026 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.

Current wording

BOLI (Bank Owned Life Insurance): BOLI increased by $15.56 million, or 71.3%, to $37.39 million at June 30, 2026 from $21.83 million at September 30, 2025. The increase was primarily due to $15.00 million in additional BOLI policies purchased and to a lesser extent net BOLI earnings, representing the increase in the cash surrender value of the BOLI policies.

Previous wording

Goodwill and CDI: The recorded amount of goodwill remained unchanged at $15.13 million at both March 31, 2026 and September 30, 2025. CDI decreased by $68,000, or 25.1%, to $203,000 at March 31, 2026 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.”

Current wording

Goodwill and CDI: The recorded amount of goodwill remained unchanged at $15.13 million at both June 30, 2026 and September 30, 2025. CDI decreased by $102,000, or 37.6%, to $169,000 at June 30, 2026 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.”

Previous wording

Loan Servicing Rights, Net: Loan servicing rights, net decreased by $174,000, or 21.4%, to $641,000 at March 31, 2026 from $815,000 at September 30, 2025 primarily due to the amortization of servicing rights, which exceeded additions from new loan sale activity during the period. The principal amount of loans serviced for Freddie Mac and the U.S. Small Business Administration decreased by $3.87 million to $352.29 million at March 31, 2026 from $356.16 million at September 30, 2025.

Current wording

Loan Servicing Rights, Net: Loan servicing rights, net decreased by $207,000, or 25.4%, to $608,000 at June 30, 2026 from $815,000 at September 30, 2025 primarily due to the amortization of servicing rights, which exceeded additions from new loan sale activity during the period. The principal amount of loans serviced for Freddie Mac and the U.S. Small Business Administration decreased by $8.40 million to $348.61 million at June 30, 2026 from $357.01 million at September 30, 2025.

Previous wording

Other Assets: Other assets increased $1.52 million, or 24.9% to $7.64 million at March 31, 2026 from $6.11 million at September 30, 2025. This was mainly due to an $877,000 increase in total prepaid expenses and a $221,000 increase in the debit card processing prefund amount, as well as increases in other miscellaneous asset balances.

Current wording

Other Assets: Other assets increased $1.55 million, or 25.4% to $7.66 million at June 30, 2026 from $6.11 million at September 30, 2025. This was mainly due to a $788,000 increase in total prepaid expenses and a $297,000 increase in the debit card processing prefund amount, as well as increases in other miscellaneous asset balances.

Previous wording

Deposits: Deposits increased by $26.58 million, or 1.5%, to $1.74 billion at March 31, 2026 from $1.72 billion at September 30, 2025. The increase was primarily due to a $29.66 million increase in money market account balances and a $24.79 million increase in NOW checking account balances. These increases were partially offset by a $22.71 million decrease in non-interest bearing demand account balances, a $3.87 million decrease in savings account balances and a $1.29 million decrease in certificate of deposit account balances. The change in deposit balances and mix reflects continued competitive pricing pressures in the current interest rate environment.

Current wording

Deposits: Deposits increased by $46.91 million, or 2.7%, to $1.76 billion at June 30, 2026 from $1.72 billion at September 30, 2025. The increase was primarily due to a $35.22 million increase in money market account balances and a $28.88 million increase in NOW checking account balances, and a $7.07 million increase in certificate of deposits under $250,000. These increases were partially offset by a $19.72 million decrease in non-interest bearing demand account balances. The change in deposit balances and mix reflects continued competitive pricing pressures in the current interest rate environment.

Previous wording

At March 31, 2026, the loan-to-deposit ratio was approximately 83.30%, compared to 85.26% at 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.

Current wording

At June 30, 2026, the loan-to-deposit ratio was approximately 84.81%, compared to 85.26% at 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.

Previous wording

FHLB Borrowings: The Company has short- and long-term borrowing lines with the FHLB with total credit available on the lines equal to 45% of the Bank's total assets, limited by available collateral. FHLB borrowings remained unchanged at $20.00 million at both March 31, 2026 and September 30, 2025. The borrowings consist of three borrowings: two totaling $15.00 million with scheduled maturities in May 2026, both bearing interest at 3.95%, and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%.

Current wording

FHLB Borrowings: The Company has short- and long-term borrowing lines with the FHLB with total credit available on the lines equal to 45% of the Bank's total assets, limited by available collateral. FHLB borrowings were $10.00 million at June 30, 2026 and $20.00 million at September 30, 2025. The borrowings at June 30, 2026 consist of one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03% and one $5.00 million borrowing maturing in November 2026 with an interest rate of 3.87%. The borrowings at September 30, 2025 consisted of three borrowings: two totaling $15.00 million with scheduled maturities in May 2026, both bearing interest at 3.95%, and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%.

Previous wording

Shareholders’ Equity: Total shareholders’ equity increased by $8.48 million, or 3.2%, to $271.09 million at March 31, 2026 from $262.61 million at September 30, 2025. The increase was primarily due to net income of $15.35 million. This increase was partially offset by dividend payments to common shareholders of $4.50 million and the repurchase of 109,303 shares of the Company's common stock for $4.11 million, net of tax.

Current wording

Shareholders’ Equity: Total shareholders’ equity increased by $10.59 million, or 4.0%, to $273.21 million at June 30, 2026 from $262.61 million at September 30, 2025. The increase was primarily due to net income of $23.07 million and $2.13 million related to stock-based compensation and equity award activity. This increase was partially offset by dividend payments to common shareholders of $6.77 million and the repurchase of 179,303 shares of the Company's common stock for $6.97 million, net of tax and an increase in accumulated other comprehensive loss of $869,000.

Previous wording

Non-performing assets to total assets was 0.47% and 0.23% at March 31, 2026 and September 30, 2025, respectively. Non-performing assets increased by $4.99 million, or 107.1%, to $9.66 million at March 31, 2026 from $4.66 million at September 30, 2025. The increase was primarily due to a $5.00 million increase in non-accrual loans. The increase in non-accrual loans was primarily driven by a $4.70 million increase in the commercial real estate portfolio, reflecting the addition of a hotel/motel relationship, along with a $397,000 increase in commercial business and a $153,000 increase in one- to four- family loans. These increases were partially offset by a $250,000 decrease in the home equity and second mortgage portfolio.

Current wording

Non-performing assets to total assets were 0.43% and 0.23% at June 30, 2026 and September 30, 2025, respectively. Non-performing assets increased by $4.14 million, or 88.8%, to $8.81 million at June 30, 2026 from $4.66 million at September 30, 2025. The increase was primarily due to a $4.15 million increase in non-accrual loans. The increase in non-accrual loans was primarily driven by a $4.37 million increase in the commercial real estate portfolio, reflecting the addition of a $4.31 million hotel/motel relationship placed on non-accrual status during the period, along with a $330,000 increase in commercial business and a $149,000 increase in one- to four- family loans. These increases were partially offset by a $553,000 decrease in custom and owner/builder construction and a $150,000 decrease in the home equity and second mortgage portfolio.

Previous wording

Substandard loans decreased $23.27 million to $9.54 million at March 31, 2026 from $32.81 million at September 30, 2025. As of March 31, 2026, substandard loans are 0.66% 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 period and the second largest substandard loan that was secured by an apartment property being upgraded.

Current wording

Substandard loans decreased $24.14 million to $8.66 million at June 30, 2026 from $32.81 million at September 30, 2025. As of June 30, 2026, substandard loans represented 0.58% of net loans receivable. The decrease is primarily the result of the largest substandard loan that was secured by a land development project paying off during the period and the second largest substandard loan that was secured by an apartment property being upgraded.

Previous wording

(1) At both March 31, 2026 and September 30, 2025 there was one one- to four-family property in the process of foreclosure.

Current wording

(1) At both June 30, 2026 and September 30, 2025 there was a single one- to four-family property in the process of foreclosure.

Previous wording

Comparison of Operating Results for the Three and Six Months Ended March 31, 2026 and 2025

Current wording

Comparison of Operating Results for the Three and Nine Months Ended June 30, 2026 and 2025

Previous wording

Net income increased by $376,000, or 5.6%, to $7.13 million for the quarter ended March 31, 2026 from $6.76 million for the quarter ended March 31, 2025. Net income per diluted common share increased by $0.05, or 5.9%, to $0.90 for the quarter ended March 31, 2026 from $0.85 for the quarter ended March 31, 2025. The increases in net income and diluted earnings per share for the three months ended March 31, 2026, were primarily due to a $1.03 million increase in net interest income and a $120,000 increase in non-interest income. These increases were partially offset by a $465,000 increase in non-interest expense and a $277,000 increase in provision for credit losses.

Current wording

Net income increased by $620,000, or 8.7%, to $7.72 million for the quarter ended June 30, 2026 from $7.10 million for the quarter ended June 30, 2025. Net income per diluted common share increased by $0.08, or 8.9%, to $0.98 for the quarter ended June 30, 2026 from $0.90 for the quarter ended June 30, 2025. The increases in net income and diluted earnings per share for the three months ended June 30, 2026, were primarily due to a $1.18 million increase in net interest income and a $113,000 increase in non-interest income. These increases were partially offset by a $471,000 increase in non-interest expense, a $138,000 increase in provision for income taxes and a $68,000 increase in provision for credit losses.

Previous wording

Net income increased by $1.73 million, or 12.7%, to $15.35 million for the six months ended March 31, 2026 from $13.62 million for the six months ended March 31, 2025. Net earnings per diluted common share increased by $0.23, or 13.5%, to $1.94 for the six months ended March 31, 2026 from $1.71 for the six months ended March 31, 2025. The increases in net income and net earnings per diluted common share were due to a $3.01 million increase in net interest income and a $187,000 increase in non-interest income. These increases were partially offset by a $830,000 increase in non-interest expense and a $216,000 increase in provision for credit losses.

Current wording

Net income increased by $2.35 million, or 11.4%, to $23.07 million for the nine months ended June 30, 2026 from $20.72 million for the nine months ended June 30, 2025. Net earnings per diluted common share increased by $0.32, or 12.3%, to $2.92 for the nine months ended June 30, 2026 from $2.60 for the nine months ended June 30, 2025. The increases in net income and net earnings per diluted common share were due to a $4.19 million increase in net interest income and a $301,000 increase in non-interest income. These increases were partially offset by a $1.30 million increase in non-interest expense, a $559,000 increase in provision for income taxes and a $284,000 increase in provision for credit losses.

Previous wording

Net Interest Income: Net interest income increased by $1.03 million, or 6.0%, to $18.24 million for the quarter ended March 31, 2026 from $17.21 million for the quarter ended March 31, 2025. This increase was primarily due to a $101.78 million increase in average interest-earning assets and a 12 basis point decrease in the average cost of interest bearing liabilities to 2.35% for the quarter ended March 31, 2026 from 2.47% for the quarter ended March 31, 2025. These benefits were partially offset by a six basis point decrease in the weighted average yield on interest-earning assets to 5.42% for the quarter ended March 31, 2026 from 5.48% for the quarter ended March 31, 2025, and a $78.04 million increase in average interest-bearing liabilities.

Current wording

Net Interest Income: Net interest income increased by $1.18 million, or 6.7%, to $18.81 million for the quarter ended June 30, 2026 from $17.62 million for the quarter ended June 30, 2025. This increase was primarily due to a $95.60 million increase in average interest-earning assets and a 16 basis point decrease in the average cost of interest bearing liabilities to 2.33% for the quarter ended June 30, 2026 from 2.49% for the quarter ended June 30, 2025. These benefits were partially offset by a three basis point decrease in yield on interest-earning assets to 5.47% for the quarter ended June 30, 2026 from 5.50% for the quarter ended June 30, 2025, and a $79.69 million increase in average interest-bearing liabilities.

Previous wording

Total interest and dividend income increased by $1.09 million, or 4.4%, to $25.96 million for the quarter ended March 31, 2026 from $24.87 million for the quarter ended March 31, 2025. The increase was primarily due to a $38.10 million increase in average loan balances and a nine basis point improvement in loan yields, which together increased loan interset income by $897,000. The improvement on loan yields reflects continued asset repricing, partially offset by a $19.44 million decrease in the average balance of investment securities. Prepayment penalties, non-accrual interest and late fees totaled $38,000 for the quarter ended March 31, 2026 compared to $201,000 in the prior year quarter which reduced the loan portfolio yield by one basis point. Interest income on deposits in banks and CD's increased $450,000 due to an $83.13 million increase in average balances, partially offset by a 73 basis point decline in yields reflecting lower short-term interest rates. These increases were partially offset by a $252,000 decrease in investment securities income driven by both a $19.48 million decrease in average balance and a 15 basis point decline in yields.

Current wording

Total interest and dividend income increased by $1.13 million, or 4.4%, to $26.67 million for the quarter ended June 30, 2026 from $25.54 million for the quarter ended June 30, 2025. The increase was primarily due to a $39.56 million increase in average loan balances and a 12 basis point improvement in loan yields. The improvement on loan yields reflects continued asset repricing, partially offset by a $19.11 million decrease in the average balance of investment securities. Prepayment penalties, non-accrual interest and late fees totaled $84,000 for the quarter ended June 30, 2026 compared to $102,000 in the prior year quarter. Interest income on deposits in banks and CDs increased $357,000 due to an $75.15 million increase in average balances, partially offset by a 75 basis point decline in yields reflecting lower short-term interest rates. These increases were partially offset by a $276,000 decrease in investment securities income driven by both a $19.11 million decrease in average balance and a 18 basis point decline in yields.

Previous wording

Total interest expense increased by $59,000, or 0.8%, to $7.71 million for the quarter ended March 31, 2026 from $7.65 million for the quarter ended March 31, 2025. The increase was minimal despite a $78.04 million increase in average interest-bearing liabilities, as the average cost of those liabilities declined 12 basis points to 2.35% for the quarter ended March 31, 2026 from 2.47% for the quarter ended March 31, 2025. The lower funding costs reflect repricing of money market accounts and retail certificates of deposit in response to changes in market interest rates, partially offset by higher rates on NOW checking accounts. Average balances of retail CDs, NOW checking accounts and money market accounts increased, while brokered CD and savings account balances declined, reducing higher-cost wholesale funding and reflecting a continued shift toward core deposit funding.

Current wording

Total interest expense decreased by $57,000, or 0.7%, to $7.87 million for the quarter ended June 30, 2026 from $7.92 million for the quarter ended June 30, 2025. The decrease was primarily due to a 16 basis point decrease in average cost of interest-bearing liabilities to 2.33% for the quarter ended June 30, 2026 from 2.49% for the quarter ended June 30, 2025. This was partially offset by a $7.69 million increase in the average balance of interest-bearing liabilities. The lower funding costs reflect repricing of money market accounts and certificates of deposit in response to changes in market interest rates, partially offset by higher rates on NOW checking accounts. Average balances of CDs, NOW checking accounts and money market accounts increased, while brokered CD and savings account balances declined, reducing higher-cost wholesale funding and reflecting a continued shift toward core deposit funding.

Previous wording

As a result of changes above, the NIM increased two basis points to 3.81% for the quarter ended March 31, 2026 from 3.79% for the quarter ended March 31, 2025. The improvement reflects the impact of Federal Reserve rate reductions, which drove a 12 basis point decline in funding costs, more than offsetting a six basis point decrease in asset yields as the effect of lower market rates outpaced the benefit from the increase in average loan balances and repricing of adjustable-rate loans

Current wording

As a result of changes above, NIM increased five basis points to 3.85% for the quarter ended June 30, 2026 from 3.80% for the quarter ended June 30, 2025. The improvement reflects the impact of Federal Reserve rate reductions, which drove a 16 basis point decline in funding costs, more than offsetting a three basis point decrease in asset yields as the effect of lower market rates outpaced the benefit from the increase in average loan balances and repricing of adjustable-rate loans.

Previous wording

Total interest and dividend income increased $3.03 million, or 6.0%, to $53.15 million for the six months ended March 31, 2026 from $50.12 million for the six months ended March 31, 2025. The increase was primarily due to a $39.28 million increase in average loan balances and a 19 basis point improvement in loan yields to 6.04% for the six months ended March 31, 2026, which together increased loan interest income by $2.54 million. The improvement in loan yields reflects continued asset repricing of adjustable-rate loans, supported by $338,000 in prepayment penalties, non-accrual interest and late fees compared to $316,000 in the prior year period. Interest income on deposits in banks and CDs increased $1.03 million due to an $86.40 million increase in average balances, partially offset by a 75 basis point decline in yields to 3.85% for the six months ended March 31, 2026 from 4.60% for the six months ended March 31, 2025, reflecting lower short-term interest rates. These increases were partially offset by a $528,000 decrease in interest income earned on investment securities primarily due to a $24.1 million decrease in average balances.

Current wording

Total interest and dividend income increased $4.16 million, or 5.5%, to $79.82 million for the nine months ended June 30, 2026 from $75.67 million for the nine months ended June 30, 2025. The increase was primarily due to a $39.37 million increase in average loan balances and a 17 basis point improvement in loan yields to 6.04% for the nine months ended June 30, 2026. The improvement in loan yields reflects continued asset repricing of adjustable-rate loans, supported by $431,000 in prepayment penalties, non-accrual interest and late fees compared to $510,000 in the prior year period. Interest income on deposits in banks and CDs increased $1.39 million due to an $82.65 million increase in average balances, partially offset by a 75 basis point decline in yields to 3.80% for the nine months ended June 30, 2026 from 4.55% for the nine months ended June 30, 2025, reflecting lower short-term interest rates. These increases were partially offset by a $792,000 decrease in interest income earned on investment securities due to a $22.38 million decrease in average balances and a 12 basis point decrease in yield.

Previous wording

Total interest expense increased by $16,000, or 0.1%, to $15.96 million for the six months ended March 31, 2026 from $15.94 million for the six months ended March 31, 2025. The increase was limited despite a $76.75 million increase in average interest-bearing liabilities, as the average cost of those liabilities declined 15 basis points to 2.40% for the six months ended March 31, 2026 from 2.55% for the six months ended March 31, 2025. The lower funding costs reflect repricing of money market accounts and retail certificates of deposit in response to Federal Reserve rate reductions during the period, partially offset by higher rates on NOW checking accounts. Average balances of retail CDs, NOW checking accounts and money market accounts increased, while brokered CD and savings account balances declined, reducing higher-cost wholesale funding and reflecting a continued shift toward core deposit funding.

Current wording

Total interest expense decreased by $39,000, or 0.2%, to $23.82 million for the nine months ended June 30, 2026 from $23.86 million for the nine months ended June 30, 2025. The decrease was primarily due to a 15 basis point decrease in the average cost of liabilities to 2.38% for the nine months ended June 30, 2026 from 2.53% for the nine months ended June 30, 2025. This decrease was partially offset by a $77.73 million increase in the average balance of interest-bearing liabilities. The lower funding costs reflect repricing of money market accounts and certificates of deposit in response to Federal Reserve rate reductions during the period, partially offset by higher rates on NOW checking accounts. Average balances of retail CDs, NOW checking accounts and money market accounts increased, while brokered CD and savings account balances declined, reducing higher-cost wholesale funding and reflecting a continued shift toward core deposit funding.

Previous wording

Net interest margin expanded 12 basis points to 3.83% for the six months ended March 31, 2026 from 3.71% for the six months ended March 31, 2025. The improvement reflects a 15 basis point decline in funding costs driven by reductions in money market, certificate of deposit and brokered CD rates following three reductions in the target federal funds rate by the FOMC in the second half of calendar year 2025, to a range of 3.50% to 3.75% in December 2025. These benefits exceeded the three basis point increase in asset yields, which was supported by an increase in average loan balances and the upward repricing of adjustable-rate loans.

Current wording

Net interest margin expanded 10 basis points to 3.84% for the nine months ended June 30, 2026 from 3.74% for the nine months ended June 30, 2025. The improvement reflects a 15 basis point decline in funding costs driven primarily by repricing of money market accounts and CDs following changes in market interest rates (including three reductions in the target federal funds rate by the FOMC in the second half of calendar year 2025, to a range of 3.50% to 3.75% in December 2025) partially offset by higher rates on NOW checking accounts. The improvement also reflects higher loan yields and growth in average loan balances.

Previous wording

Provision for Credit Losses: A $523,000 provision for credit losses was recorded for the quarter ended March 31, 2026, consisting of a $523,000 provision for credit losses on loans, a $3,000 recapture of credit losses on investment securities, and a $3,000 provision for credit losses on unfunded commitments. The provision for credit losses on loans was primarily due to a commercial real estate loan secured by a hotel in Oregon that is a purchased participation with another community bank. A $246,000 provision for credit losses was recorded for the quarter ended March 31, 2025, consisting of a $237,000 provision for credit losses on loans, a $5,000 recapture of credit losses on investment securities and an $14,000 provision for credit losses on unfunded commitments.

Current wording

Provision for Credit Losses: A $508,000 provision for credit losses was recorded for the quarter ended June 30, 2026, consisting of a $600,000 provision for credit losses on loans, a $1,000 recapture of credit losses on investment securities and a $91,000 recapture of credit losses on unfunded commitments. The provision for credit losses on loans was primarily due to loan growth during the quarter and changes in the risk profile of the loan portfolio. 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, a $4,000 recapture of credit losses on investment securities and a $93,000 provision for credit losses on unfunded commitments.