Higher earnings and dividend at Timberland Bancorp (NASDAQ: TSBK)
Filing Impact
Filing Sentiment
Form Type
10-Q
Timberland Bancorp, Inc. reported stronger quarterly results for the three months ended December 31, 2025. Net income rose to $8.2 million from $6.9 million a year earlier, and diluted earnings per share increased to $1.04 from $0.86. Net interest income improved to $18.9 million as interest income on loans and deposits outpaced funding costs. Asset quality remained solid, with non-accrual loans of $4.3 million on a loan portfolio of about $1.6 billion and an allowance for credit losses of $18.1 million. Total assets were $2.0 billion, deposits were $1.70 billion, and shareholders’ equity increased to $268.4 million. The Company also raised its quarterly dividend to $0.28 per share and continued share repurchases.
Positive
- None.
Negative
- None.
Insights
Quarter shows higher earnings, stable credit quality, and continued capital returns.
Timberland Bancorp generated net income of
Credit costs were modest, with a small net recapture of credit losses of
Capital management remained active. Shareholders’ equity increased to
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2025
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____.
Commission file number 000-23333
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ___
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes _☒_ No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___ No _☒ _
As of February 2, 2026, there were 7,884,326 shares of the registrant's common stock, $.01 par value per share outstanding.
INDEX
PART I. | FINANCIAL INFORMATION | Page | |||||||||
Item 1. | Financial Statements (unaudited) | ||||||||||
Consolidated Balance Sheets | 3 | ||||||||||
Consolidated Statements of Income | 5 | ||||||||||
Consolidated Statements of Comprehensive Income | 7 | ||||||||||
Consolidated Statements of Shareholders’ Equity | 8 | ||||||||||
Consolidated Statements of Cash Flows | 9 | ||||||||||
Notes to Unaudited Consolidated Financial Statements | 11 | ||||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37 | |||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 51 | |||||||||
Item 4. | Controls and Procedures | 51 | |||||||||
PART II. | OTHER INFORMATION | ||||||||||
Item 1. | Legal Proceedings | 51 | |||||||||
Item 1A. | Risk Factors | 52 | |||||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 52 | |||||||||
Item 3. | Defaults Upon Senior Securities | 52 | |||||||||
Item 4. | Mine Safety Disclosures | 52 | |||||||||
Item 5. | Other Information | 52 | |||||||||
Item 6. | Exhibits | 53 | |||||||||
SIGNATURES | |||||||||||
| Certifications | |||||||||||
| Exhibit 31.1 | |||||||||||
| Exhibit 31.2 | |||||||||||
| Exhibit 32 | |||||||||||
| Exhibit 101 | |||||||||||
| Exhibit 104 | |||||||||||
2
PART I. FINANCIAL INFORMATION
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 | $ | $ | |||||||||
| Interest-bearing deposits in banks | |||||||||||
| Total cash and cash equivalents | |||||||||||
| Certificates of deposit (“CDs”) held for investment, at cost | |||||||||||
Investment securities held to maturity, at amortized cost (net of allowance for credit losses ("ACL") of $ | |||||||||||
| Investment securities available for sale, at fair value | |||||||||||
| Investments in equity securities, at fair value | |||||||||||
| Federal Home Loan Bank of Des Moines (“FHLB”) stock, at cost | |||||||||||
| Other investments, at cost | |||||||||||
| Loans held for sale | |||||||||||
Loans receivable, net of ACL of $ | |||||||||||
| Premises and equipment, net | |||||||||||
| Other real estate owned (“OREO”) and other repossessed assets, net | |||||||||||
| Accrued interest receivable | |||||||||||
| Bank owned life insurance (“BOLI”) | |||||||||||
| Goodwill | |||||||||||
| Core deposit intangible (“CDI”), net | |||||||||||
| Loan servicing rights, net | |||||||||||
| Operating lease right-of-use ("ROU") assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and shareholders’ equity | |||||||||||
| Liabilities | |||||||||||
| Deposits: | |||||||||||
| Non-interest-bearing demand | $ | $ | |||||||||
| Interest-bearing | |||||||||||
| Total deposits | |||||||||||
| Operating lease liabilities | |||||||||||
| FHLB borrowings | |||||||||||
| Other liabilities and accrued expenses | |||||||||||
| Total liabilities | $ | $ | |||||||||
* 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, $ | $ | $ | |||||||||
Common stock, $ | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
* 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 | $ | $ | |||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||
| Dividends from mutual funds, FHLB stock and other investments | |||||||||||||||||||||||
| Interest-bearing deposits in banks and CDs | |||||||||||||||||||||||
| Total interest and dividend income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| FHLB borrowings | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| Provision for (recapture of) credit losses | |||||||||||||||||||||||
| Provision for credit losses - loans | |||||||||||||||||||||||
| Recapture of credit losses - investment securities | ( | ( | |||||||||||||||||||||
| Recapture of credit losses - unfunded commitments | ( | ( | |||||||||||||||||||||
| Total provision for (recapture of) credit losses - net | ( | ||||||||||||||||||||||
| Net interest income after provision for (recapture of) credit losses | |||||||||||||||||||||||
| Non-interest income | |||||||||||||||||||||||
| Net recoveries on investment securities | |||||||||||||||||||||||
| Service charges on deposits | |||||||||||||||||||||||
| ATM and debit card interchange transaction fees | |||||||||||||||||||||||
| BOLI net earnings | |||||||||||||||||||||||
| Gain on sales of loans, net | |||||||||||||||||||||||
| Escrow fees | |||||||||||||||||||||||
| Servicing income on loans sold | |||||||||||||||||||||||
| Other, net | |||||||||||||||||||||||
| Total non-interest income, net | |||||||||||||||||||||||
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 | $ | $ | |||||||||||||||||||||
| Premises and equipment | |||||||||||||||||||||||
| Advertising | |||||||||||||||||||||||
| OREO and other repossessed assets, net | |||||||||||||||||||||||
| ATM and debit card interchange transaction fees | |||||||||||||||||||||||
| Postage and courier | |||||||||||||||||||||||
| State and local taxes | |||||||||||||||||||||||
| Professional fees | |||||||||||||||||||||||
| Federal Deposit Insurance Corporation ("FDIC") insurance | |||||||||||||||||||||||
| Loan administration and foreclosure | |||||||||||||||||||||||
| Technology and communications | |||||||||||||||||||||||
| Deposit operations | |||||||||||||||||||||||
| Amortization of CDI | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest expense, net | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
Net income | $ | $ | |||||||||||||||||||||
| Net income per common share | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Dividends paid per common share | $ | $ | |||||||||||||||||||||
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 | $ | $ | |||||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
Unrealized holding gain (loss) on investment securities available for sale, net of income taxes of $ | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss), net of income taxes | ( | ||||||||||||||||||||||
| Total comprehensive income | $ | $ | |||||||||||||||||||||
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 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock, net of tax | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock grant forfeitures | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock, net of tax | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock grant forfeitures | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
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 | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| (Recapture of) provision for credit losses | ( | ||||||||||
| Depreciation | |||||||||||
| Accretion of discount on purchased loans | ( | ( | |||||||||
| Amortization of CDI | |||||||||||
| Stock-based compensation expense | |||||||||||
| Net recoveries on investment securities | ( | ( | |||||||||
| Change in fair value of investments in equity securities | ( | ||||||||||
| Accretion of discounts and premiums on securities | ( | ( | |||||||||
| Gain on sales of loans, net | ( | ( | |||||||||
| Loans originated for sale | ( | ( | |||||||||
| Proceeds from sales of loans | |||||||||||
| Amortization of loan servicing rights | |||||||||||
| BOLI net earnings | ( | ( | |||||||||
| Change in deferred loan origination fees | ( | ||||||||||
| Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses | ( | ||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities | |||||||||||
| Net decrease in CDs held for investment | |||||||||||
| Purchase of investment securities available for sale | ( | ( | |||||||||
| Proceeds from maturities and prepayments of investment securities held to maturity | |||||||||||
| Proceeds from maturities and prepayments of investment securities available for sale | |||||||||||
| Decrease in loans receivable, net | |||||||||||
| Purchase of premises and equipment | ( | ( | |||||||||
| Net cash provided by investing activities | |||||||||||
See 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 | $ | ( | $ | ( | |||||||
| Proceeds from exercise of stock options | |||||||||||
| Repurchase of common stock, net of tax | ( | ( | |||||||||
| Payment of dividends | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Income taxes paid | $ | $ | |||||||||
| Interest paid | $ | $ | |||||||||
| Supplemental disclosure of non-cash investing activities | |||||||||||
| Other comprehensive income (loss) related to investment securities | $ | $ | ( | ||||||||
| Loans transferred to OREO and other repossessed assets | $ | $ | |||||||||
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 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Mortgage-backed securities ("MBS"): | |||||||||||||||||||||||||||||
| U.S. government agencies | ( | ||||||||||||||||||||||||||||
| Private label residential | ( | ||||||||||||||||||||||||||||
| Municipal securities | |||||||||||||||||||||||||||||
| Bank issued trust preferred securities | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| December 31, 2025 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||
| MBS: U.S. government agencies | $ | $ | $ | ( | $ | ||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
| 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 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| MBS: | |||||||||||||||||||||||||||||
| U.S. government agencies | ( | ||||||||||||||||||||||||||||
| Private label residential | ( | ||||||||||||||||||||||||||||
| Municipal securities | |||||||||||||||||||||||||||||
| Bank issued trust preferred securities | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| September 30, 2025 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Available for Sale | |||||||||||||||||||||||
| U.S. government securities | $ | $ | $ | $ | |||||||||||||||||||
| MBS: U.S. government agencies | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
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 | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||
| MBS: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Private label residential | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Bank issued trust preferred securities | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||
| Available for sale | |||||||||||||||||||||||||||||||||||||||||||||||
| MBS: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||
| MBS: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Private label residential | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Bank issued trust preferred securities | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||
| Available for sale | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| MBS: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | |||||||||||||||||||
| Due after one year to five years | |||||||||||||||||||||||
| Due after five years to ten years | |||||||||||||||||||||||
| Due after ten years | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
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 | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Bank issued trust preferred securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
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 at 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 | $ | $ | $ | $ | ||||||||||||||||||||||
| MBS: | ||||||||||||||||||||||||||
| U.S. government agencies | ||||||||||||||||||||||||||
| Private label residential | ||||||||||||||||||||||||||
| Municipal securities | ||||||||||||||||||||||||||
| Bank issued trust preferred securities | ||||||||||||||||||||||||||
| Total held to maturity | $ | $ | $ | $ | ||||||||||||||||||||||
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 | $ | $ | $ | $ | ||||||||||||||||||||||
| MBS: | ||||||||||||||||||||||||||
| U.S. government agencies | ||||||||||||||||||||||||||
| Private label residential | ||||||||||||||||||||||||||
| Municipal securities | ||||||||||||||||||||||||||
| Bank issued trust preferred securities | ||||||||||||||||||||||||||
| Total held to maturity | $ | $ | $ | $ | ||||||||||||||||||||||
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 | $ | $ | |||||||||
| Subtractions: | |||||||||||
| Net realized loss previously recorded as credit losses | ( | ||||||||||
| Recovery of prior credit loss | ( | ( | |||||||||
| Ending balance of credit loss | $ | $ | |||||||||
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.
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) | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multi-family | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction - custom and owner/builder | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction - speculative one- to four-family | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction - commercial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction - multi-family | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction - land development | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total mortgage loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity and second mortgage | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consumer loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial business | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans receivable | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Undisbursed portion of construction loans in process ("LIP") | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred loan origination fees, net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans receivable, net | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
__________________
(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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total one- to four-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Multi-family | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total multi-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction-custom & owner/builder | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-speculative one-to four-family (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total construction-speculative one-to four-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-commercial (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total construction-commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-multi-family (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total construction-multi-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-land development (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total construction-land development | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Land | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total land | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Home equity and second mortgage | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total home equity and second mortgage | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Commercial business | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial business | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| SBA PPP | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total SBA PPP | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Total loans receivable, gross (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans receivable | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total one- to four-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Multi-family | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total multi-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-custom & owner/builder (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction-custom & owner/builder | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-speculative one-to four-family (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction-speculative one-to four-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-commercial (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total construction-commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total construction-multi-family | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Construction-land development (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction-land development | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Land | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total land | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Home equity and second mortgage | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total home equity and second mortgage | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Other consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Commercial business | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial business | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total SBA PPP | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Total loans receivable, gross (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans receivable | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-off | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
_____________________
(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 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Multi-family | |||||||||||||||||||||||||||||||||||
| Commercial real estate | ( | ||||||||||||||||||||||||||||||||||
| Construction – custom and owner/builder | ( | ||||||||||||||||||||||||||||||||||
| Construction – speculative one- to four-family | |||||||||||||||||||||||||||||||||||
| Construction – commercial | |||||||||||||||||||||||||||||||||||
| Construction – multi-family | |||||||||||||||||||||||||||||||||||
| Construction – land development | ( | ||||||||||||||||||||||||||||||||||
| Land | ( | ||||||||||||||||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||||||||
| Home equity and second mortgage | |||||||||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||||||||
| Commercial business loans | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Multi-family | |||||||||||||||||||||||||||||||||||
| Commercial real estate | ( | ||||||||||||||||||||||||||||||||||
| Construction – custom and owner/builder | ( | ||||||||||||||||||||||||||||||||||
| Construction – speculative one- to four-family | ( | ||||||||||||||||||||||||||||||||||
| Construction – commercial | ( | ||||||||||||||||||||||||||||||||||
| Construction – multi-family | |||||||||||||||||||||||||||||||||||
| Construction – land development | ( | ||||||||||||||||||||||||||||||||||
| Land | |||||||||||||||||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||||||||
| Home equity and second mortgage | |||||||||||||||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||||||||||||||
| Commercial business loans | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Multi-family | |||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||||||||||||||
Construction – custom and owner/builder (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – speculative one- to four-family (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – commercial (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – multi-family (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – land development (2) | |||||||||||||||||||||||||||||||||||||||||
| Land | |||||||||||||||||||||||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||||||||||||||
| Home equity and second mortgage | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Commercial business loans | |||||||||||||||||||||||||||||||||||||||||
| SBA PPP loans | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
(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 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Multi-family | |||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||||||||||||||
Construction – custom and owner/builder (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – speculative one- to four-family (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – commercial (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – multi-family (2) | |||||||||||||||||||||||||||||||||||||||||
Construction – land development (2) | |||||||||||||||||||||||||||||||||||||||||
| Land | |||||||||||||||||||||||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||||||||||||||
| Home equity and second mortgage | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Commercial business loans | |||||||||||||||||||||||||||||||||||||||||
| SBA PPP loans | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
(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 | $ | $ | |||||||||
| Commercial real estate | |||||||||||
| Construction - custom and owner/builder | |||||||||||
| Consumer loans: | |||||||||||
| Home equity and second mortgage | |||||||||||
| Other | |||||||||||
| Commercial business loans | |||||||||||
| Total | $ | $ | |||||||||
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 | $ | $ | |||||||||
| Commercial real estate | |||||||||||
| Construction - custom and owner/builder | |||||||||||
| Consumer loans: | |||||||||||
| Home equity and second mortgage | |||||||||||
| Other | |||||||||||
| Commercial business loans | |||||||||||
| Total | $ | $ | |||||||||
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 | $ | $ | |||||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
| Total lease cost | $ | $ | |||||||||||||||||||||
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 | $ | $ | |||||||||||||||||||||||||||
| Weighted average remaining lease term-operating leases | |||||||||||||||||||||||||||||
| Weighted average discount rate-operating leases | % | % | |||||||||||||||||||||||||||
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 | $ | ||||
| Fiscal 2027 | |||||
| Fiscal 2028 | |||||
| Fiscal 2029 | |||||
| Fiscal 2030 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less imputed interest | |||||
| Total | $ | ||||
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(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 | $ | $ | |||||||||||||||||||||
| Denominator – weighted average common shares outstanding | |||||||||||||||||||||||
| Basic net income per common share | $ | $ | |||||||||||||||||||||
| Diluted net income per common share computation | |||||||||||||||||||||||
| Numerator – net income | $ | $ | |||||||||||||||||||||
| Denominator – weighted average common shares outstanding | |||||||||||||||||||||||
| Effect of dilutive stock options (1) | |||||||||||||||||||||||
| Weighted average common shares outstanding - assuming dilution | |||||||||||||||||||||||
| Diluted net income per common share | $ | $ | |||||||||||||||||||||
____________________________________________
(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.
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(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 | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance of AOCI at the end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||
| __________________________ | |||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | $ | |||||||||||||||||||||
| Exercised | ( | ( | |||||||||||||||||||||
| Forfeited | ( | ( | |||||||||||||||||||||
| Options outstanding, end of period | $ | $ | |||||||||||||||||||||
The fair value of stock options is determined using the Black-Scholes valuation model.
There were no
The aggregate intrinsic value of options exercised during the three months ended December 31, 2025 and 2024 was $201,000 and $239,000 , respectively.
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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) | ||||||||||||||||||||||||||||||||||||||
| - | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||||||||||||||||
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 | $ | $ | ||||||||||||||||||||||||
| Forfeited | ( | ( | ||||||||||||||||||||||||
| Restricted stock outstanding end of period | $ | $ | ||||||||||||||||||||||||
(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:
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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 | $ | $ | $ | $ | |||||||||||||||||||
| Investments in equity securities | |||||||||||||||||||||||
| Mutual funds | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2025 | Estimated Fair Value | ||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Available for sale investment securities | |||||||||||||||||||||||
| U.S. government securities | $ | $ | $ | $ | |||||||||||||||||||
| MBS: U.S. government agencies | |||||||||||||||||||||||
| Investments in equity securities | |||||||||||||||||||||||
| Mutual funds | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
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).
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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 | $ | $ | $ | $ | |||||||||||||||||||
| Total loans | |||||||||||||||||||||||
| OREO and other repossessed assets | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Estimated Fair Value | Total Estimated | ||||||||||||||||||||||
| September 30, 2025 | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||
| Individually evaluated collateral-dependent loans: | |||||||||||||||||||||||
| Commercial business loans | $ | $ | $ | $ | |||||||||||||||||||
| Total loans | |||||||||||||||||||||||
| OREO and other repossessed assets | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
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 | |||||||||||||||||||||
| OREO and other repossessed assets | Market approach | Lower of appraised value or listing price less estimated selling costs | |||||||||||||||||||||
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.
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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 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| CDs held for investment | |||||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
| Investments in equity securities | |||||||||||||||||||||||||||||
| FHLB stock | |||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Loans receivable, net | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||||||||
| FHLB borrowings | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||
| Fair Value Measurements Using: | |||||||||||||||||||||||||||||
| Recorded Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| CDs held for investment | |||||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
| Investments in equity securities | |||||||||||||||||||||||||||||
| FHLB stock | |||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Loans receivable, net | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||||||||
| FHLB borrowings | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
(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.
(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,
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$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) | $ | $ | |||||||||||||||
| Undisbursed lines of credit | |||||||||||||||||
| Commitments to extend credit | |||||||||||||||||
| $ | $ | ||||||||||||||||
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 | $ | $ | |||||||||||||||
| Provision for (recapture of) credit losses | ( | ( | |||||||||||||||
| Ending ACL | $ | $ | |||||||||||||||
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this Form 10-Q, the terms “we,” “us,” “our” and the “Company” refer to Timberland Bancorp, Inc. and its consolidated subsidiaries, unless the context indicates otherwise. References to the “Bank” in this Form 10-Q, refer to Timberland Bank, a wholly-owned subsidiary of Timberland Bancorp, Inc., and the Bank’s wholly-owned subsidiary, Timberland Service Corporation.
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 months ended December 31, 2025.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance. These forward-
37
looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results express or implied by our forward-looking statements, including, but not limited to:
•adverse impacts to economic conditions in our local markets or other markets where we have lending relationships;
•changes in employment levels, labor shortages inflation, a recession or slowed economic growth;
•changes in interest rate levels and the duration volatility, and the timing and pace of such changes, including actions by the Board of Governors of the Federal Reserve System (“Federal Reserve”), which could materially affect our net interest margin, funding costs, asset values, access to capital and liquidity;
•the impact of inflation, including and related monetary and fiscal policy responses thereto, and the impact their effect on consumer and business behavior;
•Geopolitical developments and international conflicts, including but not limited to tensions or instability in Eastern Europe, the Middle East, and Asia, or the imposition of new or increased tariffs and trade restrictions, could disrupt financial markets, global supply chains, energy commodity prices, or economic activity in specific industry sectors;
•the effects of a Federal government shutdown, a debt ceiling standoff, or other fiscal policy uncertainty;
•credit risks of associated with lending activities, including loan delinquencies, write-offs, changes in our allowance for credit losses ("ACL"), and provision for credit losses;
•fluctuations in the demand for loans, the number of unsold homes, land and other properties, and real estate values in our market areas;
•secondary market conditions for loans and our ability to sell loans in the secondary market;
•results of examinations of us by regulatory authorities, including the possibility that any such regulatory authorities may, among other things, institute a formal or informal enforcement action against us or our bank subsidiary which could require us to increase our ACL, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;
•the impact of bank failures or adverse developments at other banks and related negative press publicity about the banking industry in general on investor and depositor sentiment;
•legislative or regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules;
•our ability to attract and retain deposits;
•our ability to control operating costs and expenses;
•the ability to adapt to rapid technological changes, including advancements related to artificial intelligence, digital banking platforms, and cybersecurity;
•the use of estimates in determining the fair value of assets, which may prove inaccurate;
•staffing fluctuations in response to changes in product demand or corporate implementation strategies;
•vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;
•our ability to retain key members of our senior management team;
•costs and effects of litigation, including settlements and judgments;
•our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;
•increased competitive pressures among financial services companies;
•changes in consumer spending, borrowing and savings habits;
•the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;
•our ability to pay dividends on our common stock;
•quality and composition of our securities portfolio and the impact of adverse changes in the securities markets;
•inability of key third-party providers to perform their obligations;
•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”);
•environmental, social and governance goals and targets matters;
•effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil domestic political unrest, and other external events;
•other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and
•other risks described elsewhere in this Form 10-Q and our other reports filed with or furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 (the "2025 Form 10-K")
Any of the forward-looking statements that we make in this Form 10-Q and in the other public statements we make are based upon management's beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any
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obligation to publicly update or revise any forward-looking statements included in this quarterly report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise, except as may be required by law. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur and we caution readers not to place undue reliance on any forward-looking statements. These risks could cause our actual results for fiscal 2026 and beyond to differ materially from those expressed or implied in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company's consolidated financial condition and results of operations as well as its stock price performance.
Overview
Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank. The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 23 offices (including its main office in Hoquiam). At December 31, 2025, the Company had total assets of $2.01 billion, net loans receivable of $1.46 billion, total deposits of $1.70 billion and total shareholders’ equity of $268.41 million. The Company's business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Accordingly, the information set forth in this report, including the unaudited consolidated financial statements and related data, relates primarily to the Bank's operations.
The Bank is a community-oriented bank which has traditionally offered a variety of savings products to its retail and business customers while concentrating its lending activities on real estate secured loans. Lending activities have been focused primarily on the origination of loans secured by real estate, including residential construction loans, one- to four-family residential loans, multi-family loans and commercial real estate loans. The Bank also originates commercial business loans and other consumer loans.
The profitability of the Company’s operations depends primarily on its net interest income after provision for (recapture of) credit losses. Net interest income is the difference between interest income, which is the income that the Company earns on interest-earning assets, which are primarily loans and investments, and interest expense, the amount that the Company pays on its interest-bearing liabilities, which are primarily deposits and borrowings (as needed). Net interest income is affected by changes in the volume and mix of interest-earning assets, the interest earned on those assets, the volume and mix of interest-bearing liabilities and the interest paid on those interest-bearing liabilities.
Our net interest income, net interest margin, and net interest spread are primarily influenced by changes in market interest rates, the shape of the yield curve, and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities. These components of net interest income are also affected by the volume and composition of our interest-earning assets, interest-bearing and non-interest-bearing liabilities, and shareholders’ equity. During the first fiscal quarter of 2026 (fiscal quarter ended December 31, 2025), interest rate trends were influenced by monetary policy actions taken by the Federal Open Market Committee (“FOMC”) of the Federal Reserve. In the second half of the calendar year 2025, the FOMC reduced the target range for the federal funds rate three times, most recently to a range of 3.50% to 3.75% at December 31, 2025. Despite the decline in market rates, asset yields increased due to the origination of new loans at higher rates and upward repricing of adjustable-rate loans. At the same time, funding costs declined at a slower pace, which moderated the overall benefit to our net interest margin.
The provision for (recapture of) credit losses on loans is dependent on changes in the loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The ACL on loans reflects the amount that management has determined is adequate to cover probable expected credit losses in the loan portfolio. 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 $16,000 for the three months ended December 31, 2025 compared to a provision for credit losses on loans of $52,000 for the three months ended December 31, 2024.
Net income is also impacted by levels of non-interest income and non-interest expense. For the three months ended December 31, 2025, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income. Non-interest income may also be affected by net recoveries on investment securities and the reversal of previously recognized OTTI losses, if applicable. Additionally, it is reduced by valuation allowances on loan servicing rights and increased by recoveries of such allowances, when recognized. Non-interest expense for the same periods primarily included salaries and
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employee benefits, premises and equipment costs, advertising, ATM and debit card interchange transaction fees, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure-related expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other general operating expenses. In certain periods, non-interest expense may be offset by gains on the sale of premises and equipment or OREO. Both non-interest income and non-interest expense are influenced by the Company’s overall growth and the expansion of its loan and deposit account base.
Results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Critical Accounting Estimates
Management's discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.
The Company's critical accounting estimates are described in the Company’s 2025 Form 10-K under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Estimates.” That discussion highlights estimates that the Company makes that involve uncertainty or potential for substantial change. There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2025 Form 10-K.
Comparison of Financial Condition at December 31, 2025 and September 30, 2025
General: Total assets decreased by $6.65 million, or 0.3%, to $2.006 billion at December 31, 2025 from $2.013 billion at September 30, 2025. The decrease was primarily due to decreases in investment securities and decreases in net loans receivable. These decreases were partially offset by increases in cash and cash equivalents.
Net loans receivable decreased by $4.76 million, or 0.3%, to $1.459 billion at December 31, 2025 from $1.464 billion at September 30, 2025, primarily due to decreases in construction and land loans categories. These decreases were partially offset by increases in one- to four- family, multi-family, home equity and second mortgage loan categories.
Total deposits decreased by $12.15 million, or 0.7%, to $1.704 billion at December 31, 2025 from $1.717 billion at September 30, 2025, primarily due to decreases in non-interest deposit account balances, certificates of deposit "CDs" account balances, and savings account balances. These decreases were partially offset by increases in NOW checking and money market account balances.
Shareholders’ equity increased by $5.80 million, or 2.2%, to $268.41 million at December 31, 2025 from $262.61 million at September 30, 2025. 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 three months ended December 31, 2025.
A more detailed explanation of the changes in significant balance sheet categories follows:
Cash and Cash Equivalents and CDs Held for Investment: Cash and cash equivalents and CDs held for investment increased by $2.69 million, or 1.1%, to $253.33 million at December 31, 2025 from $250.65 million at September 30, 2025. The increase was due to a $3.44 million increase in cash and cash equivalents, resulting primarily from maturities, prepayments and scheduled amortizations of investment securities and loan payoffs. The overall increase was partially offset by a $747,000 decrease in CDs held for investment.
Investment Securities: Investment securities (including investments in equity securities) decreased by $6.60 million, or 3.1%, to $209.37 million at December 31, 2025 from $215.97 million at September 30, 2025. This decrease was primarily due to maturities, prepayments and scheduled amortizations. For additional information on investment securities, see Note 2 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”
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FHLB Stock: FHLB stock remained constant at $2.05 million at December 31, 2025 and September 30, 2025.
Other Investments: Other investments, consisting solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, remained unchanged at $3.00 million at both December 31, 2025 and September 30, 2025. This investment is utilized to help satisfy compliance with the Bank's Community Reinvestment Act investment test requirements.
Loans: Net loans receivable decreased by $4.76 million, or 0.3%, to $1.459 billion at December 31, 2025 from $1.464 billion at September 30, 2025. The decrease was primarily due to an $18.16 million decrease in construction loans and a $2.43 million decrease in land loans. These decreases were partially offset by an $8.03 million increase in one- to four-family loans, a $4.56 million increase in multi-family loans, a $2.09 million increase in the home equity and second mortgage loans and smaller increases in other loan categories.
Loan originations increased by $992,000, or 1.4%, to $73.06 million for the three months ended December 31, 2025 from $72.07 million for the three months ended December 31, 2024. The increase was primarily due to increases in originations of commercial business, multi-family and one- to four-family loans. These increases were partially offset by decreases in construction and commercial real estate loan originations.
The Company generally sells longer-term fixed-rate one- to four-family mortgage loans for asset liability management purposes and to generate non-interest income. Sales of fixed-rate one- to four-family loans increased by $1.36 million, or 58.7%, to $3.66 million for the three months ended December 31, 2025 from $2.31 million for the three months ended December 31, 2024, primarily due to an increase in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.
For additional information on loans, see Note 4 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”
Premises and Equipment: Premises and equipment increased by $142,000, or 0.7%, to $21.83 million at December 31, 2025 from $21.68 million at September 30, 2025. The modest increase reflects capitalized additions related to facility improvements and equipment purchases during the period, which were largely offset by scheduled depreciation expense.
OREO (Other Real Estate Owned): At December 31, 2025 and September 30, 2025, total OREO and other repossessed assets consisted of one commercial real estate property with a value of $221,000 and one land parcel with no recorded value.
BOLI (Bank Owned Life Insurance): BOLI increased by $158,000, or 0.7%, to $21.99 million at December 31, 2025 from $21.83 million at September 30, 2025. The increase was due to net BOLI earnings, representing the increase in the cash surrender value of the BOLI policies.
Goodwill and CDI: The recorded amount of goodwill remained unchanged at $15.13 million at both December 31, 2025 and September 30, 2025. CDI decreased by $34,000, or 12.5%, to $237,000 at December 31, 2025 from $271,000 at September 30, 2025 due to scheduled amortization. For additional information on goodwill and CDI, see Note 3 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”
Loan Servicing Rights, Net: Loan servicing rights, net decreased by $137,000, or 16.8%, to $678,000 at December 31, 2025 from $815,000 at September 30, 2025 primarily due to the amortization of servicing rights. The principal amount of loans serviced for Freddie Mac and the U.S. Small Business Administration decreased by $4.99 million to $352.02 million at December 31, 2025 from $357.01 million at September 30, 2025.
Other Assets: Other assets decreased $674,000, or 11.0% to $5.44 million at December 31 2025 from $6.11 million at September 30, 2025. This was mainly due to a $781,000 decrease in the debit card processing prefund amount.
Deposits: Deposits decreased by $12.15 million, or 0.7%, to $1.70 billion at December 31, 2025 from $1.72 billion at September 30, 2025. The decrease was primarily due to a $26.39 million decrease in non-interest bearing demand deposits, an $11.42 million decrease in CDs and a $4.19 million decrease in savings account balances. These decreases were partially offset by a $21.68 million increase in NOW checking and an $8.16 million increase in money market account balances. The change in deposit balances and mix reflects continued competitive pricing pressures in the current interest rate environment. While some funds migrated from non-interest-bearing and lower-yielding accounts into higher-yielding transaction products, CDs declined as some customers opted to maintain greater access to funds.
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At December 31, 2025, the loan-to-deposit ratio was approximately 85.59%, compared to 85.26% September 30, 2025, reflecting continued disciplined loan growth largely funded by core deposit activity. Management continues to monitor deposit pricing and mix in the context of liquidity management and efforts to support net interest income and profitability.
Deposits consisted of the following at December 31, 2025 and September 30, 2025 (dollars in thousands):
| December 31, 2025 | September 30, 2025 | ||||||||||||||||||||||
| Amount | Percent | Amount | Percent | ||||||||||||||||||||
| Non-interest-bearing demand | $ | 404,300 | 23.7 | % | $ | 430,685 | 25.1 | % | |||||||||||||||
| NOW checking | 367,278 | 21.5 | 345,599 | 20.1 | |||||||||||||||||||
| Savings | 197,490 | 11.6 | 201,678 | 11.7 | |||||||||||||||||||
| Money market | 304,316 | 17.9 | 296,152 | 17.3 | |||||||||||||||||||
| Certificates of deposit under $250 | 256,809 | 15.1 | 256,597 | 14.9 | |||||||||||||||||||
| Certificates of deposit $250 and over | 136,764 | 8.0 | 142,813 | 8.3 | |||||||||||||||||||
| Certificates of deposit - brokered | 37,525 | 2.2 | 43,111 | 2.6 | |||||||||||||||||||
| Total | $ | 1,704,482 | 100.0 | % | $ | 1,716,635 | 100.0 | % | |||||||||||||||
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 December 31, 2025 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%.
Shareholders’ Equity: Total shareholders’ equity increased by $5.80 million, or 2.2%, to $268.41 million at December 31, 2025 from $262.61 million at September 30, 2025. The increase was primarily due to net income of $8.22 million. This increase was partially offset by dividend payments to common shareholders of $2.21 million and the repurchase of 29,303 shares of the Company's common stock for $1.00 million, net of tax.
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Asset Quality and Commercial Real Estate Portfolio Breakdown:
Non-performing assets to total assets was 0.23% at both December 31, 2025 and September 30, 2025. Non-performing assets decreased by $126,000, or 2.7%, to $4.54 million at December 31, 2025 from $4.66 million at September 30, 2025. The decrease was primarily due to a $123,000 decrease in non-accrual loans. The decrease in non-accrual loans was driven by the reductions in the home equity and second mortgage and commercial business portfolios and partially offset by increases in the commercial real estate and one- to four- family portfolios. Decreases in the home equity and second mortgage and commercial business categories were primarily attributable to loan payoffs.
Substandard loans decreased $24.19 million to $8.61 million at December 31, 2025 from $32.81 million at September 30, 2025. As of December 31, 2025, substandard loans are 0.55% of total loans receivable. The decrease is primarily a result of the largest substandard loan that was secured by a land development project paying off during the quarter and the second largest substandard loan that was secured by an apartment property being upgraded.
The following table sets forth information with respect to the Company’s non-performing assets at December 31, 2025 and September 30, 2025 (dollars in thousands):
| December 31, 2025 | September 30, 2025 | ||||||||||
| Loans accounted for on a non-accrual basis: | |||||||||||
| Mortgage loans: | |||||||||||
| One- to four-family (1) | $ | 1,988 | $ | 1,781 | |||||||
| Commercial real estate | 304 | 159 | |||||||||
| Construction – custom and owner/builder | 553 | 553 | |||||||||
| Consumer loans: | |||||||||||
| Home equity and second mortgage | 356 | 602 | |||||||||
| Other | 20 | 22 | |||||||||
| Commercial business loans | 1,063 | 1,290 | |||||||||
| Total loans accounted for on a non-accrual basis | 4,284 | 4,407 | |||||||||
| Accruing loans which are contractually past due 90 days or more | — | — | |||||||||
| Total of non-accrual and 90 days or more past due loans | 4,284 | 4,407 | |||||||||
| Non-accrual investment securities | 32 | 35 | |||||||||
| OREO and other repossessed assets, net | 221 | 221 | |||||||||
| Total non-performing assets | $ | 4,537 | $ | 4,663 | |||||||
| Non-accrual and 90 days or more past due loans as a percentage of loans receivable | 0.29 | % | 0.30 | % | |||||||
| Non-accrual and 90 days or more past due loans as a percentage of total assets | 0.21 | % | 0.22 | % | |||||||
| Non-performing assets as a percentage of total assets | 0.23 | % | 0.23 | % | |||||||
| Loans receivable (2) | $ | 1,476,957 | $ | 1,481,681 | |||||||
| Total assets | $ | 2,006,127 | $ | 2,012,779 | |||||||
___________________________________
(1) At both December 31, 2025 and September 30, 2025 there was one one- to four-family property in the process of foreclosure.
(2) Does not include loans held for sale. Loan balances are before any reduction of the ACL.
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The following tables provide a breakdown of commercial real estate ("CRE") loans by collateral types as of December 31, 2025 and September 30, 2025:
| CRE Loan Portfolio Breakdown by Collateral at December 31, 2025 | ||||||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||
| Collateral Type | Balance | Percent of CRE Portfolio | Percent of Total Loan Portfolio | Average Balance per Loan | Non-Accrual | |||||||||||||||||||||||||||
| Industrial warehouse | $ | 129,108 | 21.1 | % | 8.2 | % | $ | 1,317 | $ | — | ||||||||||||||||||||||
| Medical/dental offices | 84,338 | 13.8 | 5.4 | 1,240 | — | |||||||||||||||||||||||||||
| Office buildings | 68,132 | 11.1 | 4.3 | 811 | 304 | |||||||||||||||||||||||||||
| Other retail buildings | 53,059 | 8.7 | 3.4 | 596 | — | |||||||||||||||||||||||||||
| Mini-storage | 38,098 | 6.2 | 2.4 | 1,524 | — | |||||||||||||||||||||||||||
| Hotel/motel | 31,031 | 5.1 | 2.0 | 2,585 | — | |||||||||||||||||||||||||||
| Restaurants | 28,365 | 4.6 | 1.8 | 579 | — | |||||||||||||||||||||||||||
| Gas stations/convenience stores | 26,468 | 4.3 | 1.7 | 1,018 | — | |||||||||||||||||||||||||||
| Churches | 14,018 | 2.3 | 0.9 | 876 | — | |||||||||||||||||||||||||||
| Nursing homes | 13,379 | 2.2 | 0.9 | 2,230 | — | |||||||||||||||||||||||||||
| Shopping centers | 10,363 | 1.7 | 0.7 | 1,727 | — | |||||||||||||||||||||||||||
| Mobile home parks | 9,160 | 1.5 | 0.6 | 413 | — | |||||||||||||||||||||||||||
| Other | 106,470 | 17.4 | 6.8 | 783 | — | |||||||||||||||||||||||||||
| Total CRE | $ | 611,989 | 100.0 | % | 39.1 | % | $ | 961 | $ | 304 | ||||||||||||||||||||||
| CRE Loan Portfolio Breakdown by Collateral at September 30, 2025 | ||||||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||
| Collateral Type | Balance | Percent of CRE Portfolio | Percent of Total Loan Portfolio | Average Balance per Loan | Non-Accrual | |||||||||||||||||||||||||||
| Industrial warehouse | $ | 129,815 | 21.3 | % | 8.2 | % | $ | 1,311 | $ | 159 | ||||||||||||||||||||||
| Medical/dental offices | 81,831 | 13.4 | 5.2 | 1,240 | — | |||||||||||||||||||||||||||
| Office buildings | 67,840 | 11.1 | 4.3 | 817 | — | |||||||||||||||||||||||||||
| Other retail buildings | 54,497 | 8.9 | 3.5 | 599 | — | |||||||||||||||||||||||||||
| Mini-storage | 38,291 | 6.3 | 2.4 | 1,532 | — | |||||||||||||||||||||||||||
| Hotel/motel | 31,345 | 5.1 | 2.0 | 2,612 | — | |||||||||||||||||||||||||||
| Restaurants | 28,703 | 4.7 | 1.8 | 586 | — | |||||||||||||||||||||||||||
| Gas stations/convenience stores | 25,597 | 4.2 | 1.6 | 1,024 | — | |||||||||||||||||||||||||||
| Churches | 14,410 | 2.4 | 0.9 | 901 | — | |||||||||||||||||||||||||||
| Nursing homes | 13,456 | 2.2 | 0.9 | 2,243 | — | |||||||||||||||||||||||||||
| Shopping centers | 10,436 | 1.7 | 0.7 | 1,739 | — | |||||||||||||||||||||||||||
| Mobile home parks | 9,174 | 1.5 | 0.6 | 417 | — | |||||||||||||||||||||||||||
| Other | 105,297 | 17.2 | 6.7 | 774 | — | |||||||||||||||||||||||||||
| Total CRE | $ | 610,692 | 100.0 | % | 38.8 | % | $ | 960 | $ | 159 | ||||||||||||||||||||||
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Comparison of Operating Results for the Three Months Ended December 31, 2025 and 2024
Net income increased by $1.36 million, or 19.8%, to $8.22 million for the quarter ended December 31, 2025 from $6.86 million for the quarter ended December 31, 2024. Net income per diluted common share increased by $0.18, or 20.9%, to $1.04 for the quarter ended December 31, 2025 from $0.86 for the quarter ended December 31, 2024. The increases in net income and diluted earnings per share for the three months ended December 31, 2025, were primarily due to a $1.98 million increase in net interest income and a $67,000 increase in non-interest income. These increases were partially offset by a $388,000 increase in the provision for income taxes and a $364,000 increase in non-interest expense.
Net Interest Income: Net interest income increased by $1.98 million, or 11.7%, to $18.95 million for the quarter ended December 31, 2025 from $16.97 million for the quarter ended December 31, 2024. This increase was due to a 10 basis point increase in the weighted average yield of interest-earning assets to 5.52% for the quarter ended December 31, 2025 from 5.42% for the quarter ended December 31, 2024, a 16 basis point decrease in the average cost of interest bearing liabilities and a $101.38 million increase in average total interest-earning assets. The improvement reflects both favorable asset repricing, particularly within the loan portfolio, and a reduction in funding costs driven by repricing and a shift in funding mix. These benefits were partially offset by a $75.50 million increase in average interest-bearing liabilities.
Total interest and dividend income increased by $1.94 million, or 7.7%, to $27.20 million for the quarter ended December 31, 2025 from $25.26 million for the quarter ended December 31, 2024. The increase was primarily due to higher yields earned on loans receivable, and growth in the average balance of interest-bearing deposits in banks and CDs. The average yield on loans increased 28 basis points, reflecting continued asset repricing, while the average balance of loans increased $40.42 million. The average balance of interest-bearing deposits in banks and CDs increased $89.62 million, although the yield on those balances declined 77 basis points due to changes in short-term interest rates, partially offsetting the benefit of higher balances. These increases were partially offset by a $28.67 million decrease in the average balance of investment securities.
The average balance of total interest-earning assets increased by $101.38 million, or 5.5%, to $1.95 billion for the quarter ended December 31, 2025 from $1.85 billion for the quarter ended December 31, 2024. Prepayment penalties, non-accrual interest and late fees totaled $282,000 for the quarter ended December 31, 2025 compared to $123,000 in the prior year quarter and contributed to a 6 basis point increase in the loan portfolio yield. The overall yield on interest-earning assets increased by 10 basis points to 5.52% for the quarter ended December 31, 2025 from 5.42% for the quarter ended December 31, 2024.
Total interest expense decreased by $41,000, or 0.5%, to $8.25 million for the quarter ended December 31, 2025 from $8.29 million for the quarter ended December 31, 2024. The decrease occurred despite a $75.50 million increase in the average balance of interest-bearing liabilities, as the average cost of those liabilities declined 16 basis points to 2.46% for the quarter ended December 31, 2025 from 2.62% for the quarter ended December 31, 2024. The lower funding costs reflects both repricing of deposit products and a shift in funding mix, including growth in lower-costing accounts and a reductions in higher -cost money market and CD accounts. Average balances of CDs and NOW checking accounts increased, partially offset by decreases in money market and savings account balances.
As a result of changes above, the net interest margin ("NIM") increased to 3.85% for the quarter ended December 31, 2025 from 3.64% for the quarter ended December 31, 2024.
45
Average Balances, Interest and Average Yields/Cost
The following tables set forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs. Such yields and costs for the periods indicated are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented (dollars in thousands).
| Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | ||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Loans receivable (1)(2) | $ | 1,478,563 | $ | 22,673 | 6.08 | % | $ | 1,438,144 | $ | 21,032 | 5.80 | % | |||||||||||||||||||||||
| Investment securities (2) | 212,672 | 1,862 | 3.47 | 241,345 | 2,138 | 3.51 | |||||||||||||||||||||||||||||
| Dividends from mutual funds, FHLB stock and other investments | 5,912 | 82 | 5.50 | 5,891 | 86 | 6.41 | |||||||||||||||||||||||||||||
| Interest-bearing deposits in banks and CDs | 256,379 | 2,578 | 3.99 | 166,764 | 2,001 | 4.76 | |||||||||||||||||||||||||||||
| Total interest-earning assets | 1,953,526 | 27,195 | 5.52 | 1,852,144 | 25,257 | 5.42 | |||||||||||||||||||||||||||||
| Non-interest-earning assets | 79,280 | 75,534 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 2,032,806 | $ | 1,927,678 | |||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| NOW checking | $ | 368,557 | 1,495 | 1.61 | $ | 328,455 | 1,142 | 1.38 | |||||||||||||||||||||||||||
| Money market | 304,183 | 2,195 | 2.86 | 324,424 | 2,797 | 3.42 | |||||||||||||||||||||||||||||
| Savings | 198,384 | 150 | 0.30 | 205,650 | 144 | 0.28 | |||||||||||||||||||||||||||||
| Certificates of deposit | 401,821 | 3,776 | 3.73 | 331,785 | 3,418 | 4.10 | |||||||||||||||||||||||||||||
| Brokered CDs | 39,282 | 427 | 4.31 | 46,414 | 583 | 4.98 | |||||||||||||||||||||||||||||
| Short-term borrowings | 20,000 | 203 | 4.03 | — | — | — | |||||||||||||||||||||||||||||
| Long-term borrowings | — | — | — | 20,000 | 203 | 4.03 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,332,227 | 8,246 | 2.46 | 1,256,728 | 8,287 | 2.62 | |||||||||||||||||||||||||||||
| Non-interest-bearing deposits | 420,521 | 414,149 | |||||||||||||||||||||||||||||||||
| Other liabilities | 15,640 | 10,146 | |||||||||||||||||||||||||||||||||
| Total liabilities | 1,768,388 | 1,681,023 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 264,418 | 246,655 | |||||||||||||||||||||||||||||||||
| Total liabilities and | |||||||||||||||||||||||||||||||||||
| shareholders' equity | $ | 2,032,806 | $ | 1,927,678 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 18,949 | $ | 16,970 | |||||||||||||||||||||||||||||||
| Interest rate spread | 3.06 | % | 2.81 | % | |||||||||||||||||||||||||||||||
| Net interest margin (3) | 3.85 | % | 3.64 | % | |||||||||||||||||||||||||||||||
| Ratio of average interest-earning assets to average interest- bearing liabilities | 146.64 | % | 147.38 | % | |||||||||||||||||||||||||||||||
_______________
(1)Does not include interest on loans on non-accrual status. Includes loans held for sale. Amortized net deferred loan fees, late fees, extension fees, prepayment penalties, and the accretion of the fair value discount on loans are included with interest and dividends.
(2)Average balances include loans and investment securities on non-accrual status.
(3)Net interest income divided by total average interest-earning assets, annualized.
46
Rate Volume Analysis
The following table sets forth the effects of changing rates and volumes on the net interest income of the Company. Information is provided with respect to the (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate), (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change (sum of the prior columns). Changes in rate/volume have been allocated to rate and volume variances based on the absolute values of each (dollars in thousands).
| Three months ended December 31, 2025 compared to three months ended December 31, 2024 increase (decrease) due to | |||||||||||||||||||||||||||||||||||
| Rate | Volume | Net Change | |||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Loans receivable and loans held for sale | $ | 1,039 | $ | 602 | $ | 1,641 | |||||||||||||||||||||||||||||
| Investment securities | (25) | (251) | (276) | ||||||||||||||||||||||||||||||||
| Dividends from mutual funds, FHLB stock and other investments | (4) | — | (4) | ||||||||||||||||||||||||||||||||
| Interest-bearing deposits in banks and CDs | (364) | 941 | 577 | ||||||||||||||||||||||||||||||||
| Total net increase in income on interest-earning assets | 646 | 1,292 | 1,938 | ||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| NOW checking | 204 | 149 | 353 | ||||||||||||||||||||||||||||||||
| Money market | (435) | (167) | (602) | ||||||||||||||||||||||||||||||||
| Savings | 11 | (5) | 6 | ||||||||||||||||||||||||||||||||
| Certificates of deposit | (418) | 620 | 202 | ||||||||||||||||||||||||||||||||
| Short-term FHLB borrowings | — | 203 | 203 | ||||||||||||||||||||||||||||||||
| Long-term borrowings | — | (203) | (203) | ||||||||||||||||||||||||||||||||
| Total net increase (decrease) in expense on interest-bearing liabilities | (638) | 597 | (41) | ||||||||||||||||||||||||||||||||
| Net increase in net interest income | $ | 1,284 | $ | 695 | $ | 1,979 | |||||||||||||||||||||||||||||
Provision for Credit Losses: A $35,000 recapture of credit losses was recorded for the quarter ended December 31, 2025, consisting of a $16,000 provision for credit losses on loans, a $2,000 recapture of credit losses on investment securities, and a $49,000 recapture of credit losses on unfunded commitments which was due to construction loans converting to permanent financing. A $27,000 provision for credit losses was recorded for the quarter ended December 31, 2024, consisting of a $52,000 provision for credit losses on loans, a $5,000 recapture of credit losses on investment securities and an $20,000 recapture of credit losses on unfunded commitments.
For the quarter ended December 31, 2025, net recoveries totaled $18,000 compared to net-charge offs of $242,000 for the quarter ended December 31, 2024. Non-accrual loans decreased by $123,000, or 2.8%, to $4.28 million at December 31, 2025 from $4.41 million at September 30, 2024, and increased by $1.55 million, or 56.8%, from $2.73 million at December 31, 2024. Total delinquent loans (past due 30 days or more) and non-accrual loans increased by $397,000, or 7.0%, to $6.05 million at December 31, 2025, from $5.66 million at September 30, 2025 and increased by $2.03 million, or 50.5%, from $4.02 million one year ago.
While management believes the estimates and assumptions used in its determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions will not have a material adverse impact on our financial condition and results of operations. A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on the financial condition and results of operations. In addition, the determination of the amount of the ACL is subject to review by bank regulators as part of the routine
47
examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination and have a material adverse impact on the financial condition and results of operations.
For additional information, see Note 4 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”
Non-interest Income: Total non-interest income increased by $67,000, or 2.5%, to $2.76 million for the quarter ended December 31, 2025 from $2.70 million for the quarter ended December 31, 2024. This increase was primarily due to a $35,000 increase in gain on sale of loans, reflecting a higher volume of fixed-rate one- to four-family mortgages into the secondary market, a $26,000 increase in servicing income on loans sold and smaller increases in several other categories. These increases were partially offset by a $73,000 decrease in ATM and debit card interchange fees, primarily due to lower transaction volume and a $10,000 decrease in service charges on deposits, reflecting lower overdraft-related fee activity.
Non-interest Expense: Total non-interest expense increased by $364,000, or 3.3%, to $11.43 million for the quarter ended December 31, 2025 from $11.07 million for the quarter ended December 31, 2024. This increase was mainly due to a $361,000 increase in salary and employee benefits due to annual compensation increases, a $124,000 increase in premises and equipment expense due to expenses related to the addition of the University Place branch, a $111,000 increase in state and local taxes expense and a $61,000 increase in ATM and debit card interchange transaction expense. These increases were partially offset by an $85,000 decrease in technology and communications expenses due to contract negotiations with our core processor in the second quarter of 2025, a $30,000 decrease in professional fees expense and several expense recoveries on items in the other, net category.
The efficiency ratio for the current quarter improved to 52.65% compared to 56.27% for the comparable quarter one year ago. The improvement in the efficiency ratio was due to higher overall revenue, which was partially offset by higher non-interest expense.
Provision for Income Taxes: The provision for income taxes increased by $388,000, or 22.7%, to $2.10 million for the quarter ended December 31, 2025 from $1.71 million for the quarter ended December 31, 2024. The increase in the provision for income taxes was primarily due to higher pre-tax income. The Company's effective income tax rate was 20.4% for the quarter ended December 31, 2025 and 20.0% for the quarter ended December 31, 2024.
Liquidity
The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, the sale of loans, maturing investment securities, maturing CDs held for investment and borrowings, if needed, from the FHLB and FRB. While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are influenced by general interest rates, economic conditions, and competitive factors.
The Bank maintains an adequate level of liquidity to ensure that sufficient funds are available to fund its operations. It generally holds sufficient cash and short-term investments to meet short-term liquidity needs. At December 31, 2025, the Bank's regulatory liquidity ratio (net cash, and short-term and marketable assets, as a percentage of net deposits and short-term liabilities) was 16.90%. The Bank maintains a credit facility with the FHLB providing immediately available borrowings of up to 45% of total assets, limited by available collateral. At December 31, 2025, the Bank had a total of $708.68 million available for borrowings with the FHLB of which $20.00 million was outstanding. Additionally, the Bank maintains a short-term borrowing line with the FRB, with total credit based on eligible collateral, under the Borrower-in-Custody program with $71.87 million available and no outstanding balance at December 31, 2025. The Bank also maintains a $50.00 million overnight borrowing line with Pacific Coast Bankers' Bank ("PCBB") with no outstanding balance at December 31, 2025. Subject to market conditions, the Bank may utilize these borrowing facilities to fund loan originations and deposits withdrawals, satisfy other financial commitments, repay maturing debt and to pursue investment opportunities as appropriate..
Liquidity management is both a short and long-term responsibility of the Bank's management. The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, and (iv) yields available on interest-bearing deposits. Excess liquidity is invested generally in interest-bearing overnight deposits, CDs held for investment and short-term government and agency obligations. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, the FRB and PCBB.
48
The Bank's primary investing activity is the origination of loans and, to a lesser extent, the purchase of investment securities. During the three months ended December 31, 2025 and 2024, the Bank originated $73.06 million and $72.07 million of loans, respectively. At December 31, 2025, the Bank had undisbursed lines of credit and commitments to extend credit totaling $154.31 million and undisbursed construction loans in process totaling $89.88 million. Investment securities purchased during the three months ended December 31, 2025 and 2024 totaled $3.96 million and $8.58 million, respectively.
The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments. During the three months ended December 31, 2025 and 2024, the Bank sold $3.66 million and $2.31 million, respectively, in loans and loan participation interests. During the three months ended December 31, 2025 and 2024, the Bank received $66.94 million and $65.16 million in principal repayments, respectively.
The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment, and investment securities available for sale (including equity securities) decreased to $329.44 million at December 31, 2025 from $329.75 million at September 30, 2025. CDs that are scheduled to mature in less than one year from December 31, 2025 totaled $405.34 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.
Capital expenditures are incurred on an ongoing basis to expand and improve the Bank's product offerings, enhance and modernize technology infrastructure, and to introduce new technology-based products to compete effectively in the various markets. Capital expenditure projects are evaluated based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and the expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.
For the remainder of the 2026 fiscal year, the Bank projects that fixed commitments will include approximately $285,000 of operating lease payments. All FHLB borrowings are scheduled to mature during fiscal year 2026. In addition, at December 31, 2025, the Bank had other future obligations and accrued expenses totaling $10.22 million.
The Bank's management believes that the liquid assets combined with the available lines of credit provide adequate liquidity to meet current financial obligations for at least the next 12 months.
Timberland Bancorp is a separate legal entity from the Bank and must provide for its own liquidity and pay its own operating expenses. In addition to is operating expenses, Timberland Bancorp is responsible for paying any dividends declared, if any, to its shareholders and funds paid for Company stock repurchases. Sources of capital and liquidity for Timberland Bancorp include distributions from the Bank and the issuance of debt or equity securities. However, the Bank’s ability to pay dividends is subject to regulatory limitations, including capital adequacy requirements and supervisory approval under certain circumstances. The Bank maintains strong capital levels and earnings capacity, which support its ability to upstream dividends to Timberland Bancorp, subject to applicable regulatory constraints. At December 31, 2025, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.41 million.
The Company currently expects to continue its practice of paying quarterly cash dividends on its common stock, subject to the discretion of the Board of Directors, which may modify or discontinue this practice at any time and for any reason without prior notice. The cash dividend rate that was announced on January 26, 2026 and will be paid on February 27, 2026 is $0.29 per share, a level the Company believes appropriately balances the objectives of investing in the Bank and returning capital to shareholders. Based on the number of shares outstanding as of December 31, 2025, continued payment at this rate would result in an average total quarterly dividend of approximately $2.29 million.
In addition, from time to time, our Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On July 22, 2025, the Company announced the adoption of a new stock repurchase program pursuant to which the Company may repurchase up to 5% of the outstanding shares, or 393,842 shares. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The repurchase program does not obligate the Company to purchase any particular number of shares.
49
Capital Resources
The Bank, as a state-chartered, federally insured savings bank, is subject to the capital requirements established by the FDIC. Under the FDIC's capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
Consistent with the Bank's goals to operate a sound and profitable organization, it is the Bank's policy to maintain a "well-capitalized" status under the regulatory capital categories of the FDIC. Based on capital levels at December 31, 2025, the Bank was considered to be "well-capitalized" under applicable regulatory requirements. Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.
The following table compares the Bank’s actual capital amounts at December 31, 2025, to its minimum regulatory capital requirements at that date (dollars in thousands):
| Actual | Regulatory Minimum To Be “Adequately Capitalized” | To Be “Well Capitalized” Under Prompt Corrective Action Provisions | |||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||
| Leverage Capital Ratio: | |||||||||||||||||||||||||||||||||||
| Tier 1 capital | $252,586 | 12.67 | % | $79,735 | 4.00 | % | $99,669 | 5.00 | % | ||||||||||||||||||||||||||
| Risk-based Capital Ratios: | |||||||||||||||||||||||||||||||||||
| Common equity Tier 1 capital | 252,586 | 19.86 | 57,220 | 4.50 | 82,651 | 6.50 | |||||||||||||||||||||||||||||
| Tier 1 capital | 252,586 | 19.86 | 76,293 | 6.00 | 101,724 | 8.00 | |||||||||||||||||||||||||||||
| Total capital | 268,513 | 21.12 | 101,724 | 8.00 | 127,155 | 10.00 | |||||||||||||||||||||||||||||
In addition to the minimum common equity Tier 1 ("CET1"), Tier 1 and total capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum capital levels. Failure to maintain the required buffer could result in limitations on the Bank’s ability to pay dividends, repurchase shares, and pay discretionary bonuses, based on specified percentages of eligible retained income. At December 31, 2025, the Bank’s capital exceeded the conservation buffer.
Timberland Bancorp, Inc. is a bank holding company registered with the Federal Reserve and is subject to capital adequacy requirements under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. For bank holding companies with less than $3.0 billion in consolidated assets (as of June 30th of the preceding year), the Federal Reserve capital guidelines are generally applied on a bank only basis. In such cases, the Federal Reserve expects the subsidiary bank to be well capitalized under the prompt corrective action regulations. If Timberland Bancorp, Inc. were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2025, Timberland Bancorp, Inc. would have exceeded all regulatory requirements. The following table presents for informational purposes the regulatory capital ratios for Timberland Bancorp, Inc. as of December 31, 2025 (dollars in thousands):
| Actual | |||||||||||
| Amount | Ratio | ||||||||||
| Leverage Capital Ratio: | |||||||||||
| Tier 1 capital | $254,518 | 12.61 | % | ||||||||
| Risk-based Capital Ratios: | |||||||||||
| Common equity Tier 1 capital | 254,518 | 20.01 | |||||||||
| Tier 1 capital | 254,518 | 20.01 | |||||||||
| Total capital | 270,451 | 21.26 | |||||||||
50
Key Financial Ratios and Data
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
PERFORMANCE RATIOS: | |||||||||||||||||||||||
| Return on average assets | 1.60 | % | 1.41 | % | |||||||||||||||||||
| Return on average equity | 12.33 | % | 11.03 | % | |||||||||||||||||||
| Net interest margin | 3.85 | % | 3.64 | % | |||||||||||||||||||
| Efficiency ratio | 52.65 | % | 56.27 | % | |||||||||||||||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in information concerning market risk from the information provided in the Company’s 2025 Form 10-K.
Item 4. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer (principal executive officer), Chief Financial Officer (principal financial officer) and several other members of the Company’s senior management as of the end of the period covered by this report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2025, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
(b)Changes in Internal Controls: There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; as over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank is a party to any material legal proceedings at this time. From time to time, the Bank is involved in various claims and legal actions arising in the ordinary course of business.
51
Item 1A. Risk Factors
There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company's 2025 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Stock Repurchases
The following table sets forth the shares repurchased by the Company during the quarter ended December 31, 2025:
| Period | Total No. of Shares Repurchased | Average Price Paid Per Share | Total No. of Shares Purchased as Part of Publicly Announced Plan | Maximum No. of Shares that May Yet Be Purchased Under the Plan (1) | ||||||||||||||||||||||
| 10/01/2025 - 10/31/2025 | — | $ | — | — | 337,280 | |||||||||||||||||||||
| 11/01/2025 - 11/30/2025 | 16,443 | 33.63 | 16,443 | 320,837 | ||||||||||||||||||||||
| 12/01/2025 - 12/31/2025 | 12,860 | 35.49 | 12,860 | 307,977 | ||||||||||||||||||||||
| Total | 29,303 | $ | 34.44 | 29,303 | 307,977 | |||||||||||||||||||||
(1) On July 22, 2025, the Company announced a stock repurchase program to purchase up to 393,842 shares of the Company's common stock, which replaced the Company's then existing repurchase plan which had 31,762 shares available to be repurchased prior to termination. The July 2025 repurchase program does not have a set expiration date and will expire upon repurchase of the full amount of authorized shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions based upon market conditions and available liquidity.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
a.None to be reported.
b.None to be reported.
c.During the quarter ended December 31, 2025, no director or officer (as defined in Rule 16a-1(f) under the Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement
52
Item 6. Exhibits
(a) Exhibits
| 3.1 | Articles of Incorporation of the Registrant (1) | |||||||
| 3.2 | Amended and Restated Bylaws of the Registrant (2) | |||||||
| 4.1 | Form of Certificate of Timberland Bancorp, Inc. Common Stock (1) | |||||||
| 10.1 | Employee Severance Compensation Plan, as revised (3) | |||||||
| 10.2 | Employee Stock Ownership Plan (4) | |||||||
| 10.3 | Form of Incentive Stock Option Agreement (5) | |||||||
| 10.4 | Form of Non-qualified Stock Option Agreement (5) | |||||||
| 10.5 | Employment Agreement with Dean J. Brydon, as amended (6) | |||||||
| 10.6 | Employment Agreement with Jonathan A. Fischer, as amended (6) | |||||||
| 10.7 | Employment Agreement with Marci A. Basich (6) | |||||||
| 10.8 | Employment Agreement with Matthew J. DeBord (6) | |||||||
| 10.9 | Employment Agreement with Breanne Antich (7) | |||||||
| 10.10 | Timberland Bancorp, Inc. 2019 Equity Incentive Plan (9) | |||||||
| 10.11 | Form of Restricted Stock Grant Agreement (10) | |||||||
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act | |||||||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act | |||||||
| 32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act | |||||||
| 101 | The following materials from Timberland Bancorp Inc's Quarterly Report 10-Q for the quarter ended December 31, 2025 formatted on Extensible Business Reporting Language (XBRL) (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Shareholders' Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Unaudited Consolidated Financial Statements | |||||||
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101 | |||||||
_________________
(1)Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (333-35817).
(2)Incorporated by reference to the Registrant's Current Report on Form 8-K filed on August 23, 2023.
(3)Incorporated by reference to the Registrant's Current Report on Form 8-K filed on April 16, 2007.
(4)Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997.
(5)Incorporated by reference to the Exhibits included in the Registrant's Registration Statement on Form S-8 (333-240040).
(6)Incorporated by reference to Registrant's Current Report on Form 8-K filed on December 22, 2023.
(7)Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended September 30, 2023 and incorporated herein by reference.
(8)Attached as Appendix A to the Registrant's Annual Meeting Proxy Statement filed on December 19, 2014.
(9)Attached as Appendix A to the Registrant's Annual Meeting Proxy Statement filed on December 18, 2019.
(10)Filed as exhibits to the Registrant's Registration Statement on Form S-8 (333-240040) and incorporated herein by reference.
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Timberland Bancorp, Inc. | |||||
| Date: February 6, 2026 | By: /s/ Dean J. Brydon | ||||
| Dean J. Brydon | |||||
| Chief Executive Officer | |||||
| (Duly Authorized Officer) | |||||
| | |||||
| Date: February 6, 2026 | By: /s/Marci A. Basich | ||||
| Marci A. Basich | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
54
FAQ
How did Timberland Bancorp (TSBK) perform financially in the quarter ended December 31, 2025?
Timberland Bancorp posted net income of $8.2 million for the quarter ended December 31, 2025, up from $6.9 million a year earlier. Diluted earnings per share increased to $1.04 from $0.86 as net interest income and fee-based revenue both grew modestly.
What were Timberland Bancorp (TSBK)’s key balance sheet totals this quarter?
At December 31, 2025, Timberland Bancorp reported $2.01 billion in total assets, loans receivable net of allowances of $1.46 billion, and total deposits of $1.70 billion. Shareholders’ equity rose to $268.4 million, reflecting retained earnings growth and modest changes in other comprehensive income.
How strong is Timberland Bancorp (TSBK)’s asset quality and allowance for credit losses?
Timberland Bancorp reported non-accrual loans of $4.3 million at December 31, 2025, on total loans of about $1.57 billion. The allowance for credit losses on loans was $18.1 million, with a small net provision of $16,000 during the quarter plus modest recoveries, indicating stable credit metrics.
What did Timberland Bancorp (TSBK) report for net interest income and funding costs?
Net interest income reached $18.9 million for the quarter, compared with $17.0 million a year earlier. Total interest and dividend income was $27.2 million, while interest expense was $8.2 million, mainly from deposit costs and Federal Home Loan Bank borrowings, which remained steady year over year.
Did Timberland Bancorp (TSBK) change its dividend or share count this quarter?
Timberland Bancorp paid a quarterly dividend of $0.28 per common share, up from $0.25 a year earlier, totaling $2.2 million. The company also repurchased 29,303 shares for $1.0 million, ending the period with 7,879,828 common shares issued and outstanding.
What were Timberland Bancorp (TSBK)’s key cash flow trends for the latest quarter?
Net cash provided by operating activities was $6.1 million, compared with a use of $3.1 million in the prior-year quarter. Investing activities provided $12.1 million, mainly from loan runoff and securities cash flows, while financing activities used $14.8 million due to deposit runoff, dividends, and share repurchases.
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Feb 5, 2026
[144] TIMBERLAND BANCORP INC SEC Filing
TSBK Stock Data
312.20M
7.31M
7.2%
67.05%
0.38%
Banks - Regional
Savings Institutions, Not Federally Chartered
United States
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