TSBK 10-K & 10-Q changes, risk factors and insider trading

•Higher loan delinquencies, problem assets and foreclosures may increase;

•we mayan increase in our ACL;

•the saleslowing of foreclosed assetsasset may slowsales;

•collateral for loans made maya decline in value,collateral exposingvalues uslinked to increased riskour loans, reducingthereby customers’diminishing borrowing power,capacities and reducingasset thevalues valuetied of assets and collateral associated withto existing loans;

•a decline in the net worth and liquidity of loan guarantorsguarantors, which may decline, impairingimpair their ability to honor commitments to us; and

•a reduction in our low-cost or noninterest-bearingnon-interest-bearing deposits.

ABecause declineour loan portfolio is more geographically concentrated than those of larger financial institutions, adverse changes in localWashington’s economiceconomy, conditionsincluding those tied to immigration policy shifts, may have a greater effectimpact on our earnings and capitalcapital. thanAny on the earnings and capital of larger financial institutions whose real estate loans are geographically diverse. Many of the loansdeterioration in our portfolio are secured by real estate. Deterioration in the real estate markets wherecould significantly affect borrowers’ repayment capabilities and collateral for a mortgage loan is located could negatively affect the borrower's ability to repay the loan and the value of the collateral securing the loan.values. Real estate values are affected by variousa otherrange of factors, including changes in general or regional economic conditions, governmentregulatory ruleschanges, ornatural policiesdisasters, and naturaltrade-related disastersissues suchaffecting asconstruction firescosts and earthquakes.material availability. If we are required tomust liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.

We specialize in real estate construction loanslending forto individuals and builders, mainly focusing on residential property development. OurThese loans are initiatedoften originated regardless of whether the collateral property used as collateral is undersubject to a sales contract. As of September 30, 2024,2025, our construction loans totaled $219.20$223.89 million, comprising 14.5%14.2% of our overall loan portfolio. These loans were allocatedcomprised asof follows: $172.00$186.75 million for residential real estate projects, $29.46$21.82 million for commercial projects, and $17.74$15.32 million for land development.development Notably,projects. approximatelyApproximately $132.10$130.34 million of our residential construction loans are structured to convert into permanent loans upon construction completion.

Construction lending involvesis inherentinherently risksrisky due to the difficulty in accurately estimating project costs in relation to projectand values. UncertaintiesVolatility in construction costs, market value,demand, and regulatory impactsconditions makecan accuratelyresult evaluatingin significant deviations from initial projections, complicating the assessment of total project fundsfunding needs and loan-to-value ratiosratios. challenging. Factors like shifts in housing demand and unexpected building costs can significantly deviate actual results from estimates. Additionally, thisThis type of lending often involves higherlarger principal amounts and mightmay be concentrated among a fewlimited builders.number Aof downturnborrowers, inincreasing housingour orexposure realto estateindividual marketscredit could escalate delinquencies, defaults, foreclosures, and compromise collateral value.relationships.

We also offeroriginate land loans for landacquisition acquisition,purposes, which canmay be usedintended for buildingfuture development or recreational purposes.use. As of September 30, 2024,2025, land loans accountedtotaled for$35.95 $29.37 million,million or 1.9%2.3% of our total loan portfolio. LoansThese for land development or future constructionloans carry additional risks due to longerextended development periods,timelines, vulnerabilitysusceptibility to real estate valuemarket declines,fluctuations, potential delays from economic fluctuations delaying projects,or political changes affecting land use,factors, and the collateral'sgenerally illiquid nature.nature of land as collateral. During this extendedthe financing-to-completion period, the collateral oftentypically generatesdoes nonot generate cash flow.

As of September 30, 2024,2025, all ourone construction andtotaling land$553,000 loanswas wereon performing according to their terms.non-accrual. A significant rise in non-performing construction or land loans could materially and adversely impact our financial condition and results of operations.

Our current business strategy includes ana emphasissignificant focus on commercial real estate lending. ThisWhile this type of lending activity,may whileoffer potentiallyhigher more profitableyields than single-family residential lending, it is generally more sensitive to regional and local economic conditions, makingwhich can make loss levels more difficult to predict. CollateralEvaluating evaluationcollateral and analyzing borrower financial statementinformation analysisfor incommercial thesereal types ofestate loans requires a more detailed analysis at the time of loan underwriting and on an ongoing basis.monitoring compared to residential lending. In addition, many of our commercial borrowers havemaintain moremultiple thancredit one loan outstandingrelationships with us. Consequently, an adverse development with respect toaffecting one loan or oneproject may impair the borrower’s ability to repay other obligations, increasing our exposure to credit relationship can expose us to a significantly greater risk of loss.risk.

At September 30, 2024,2025, $347.04$368.17 million, or 22.9%23.4% of our total loan portfolioportfolio, was securedcomprised byof one- to four-family mortgage loans and home equity loans. This type of lending is highlyparticularly sensitive to regional economic conditions, which canmay affectimpair borrowers'borrowers’ ability to meet their payment obligations and make loss levels difficult to predict. Factors such as higher interest rates, recessionary conditions, lowerdeclining real estate sales volumes and prices, and elevated unemployment may leadcontribute to higher loan delinquencies, problem assets, and reduced demand for our productslending andproducts, services,which could adversely impactingaffect our capital, liquidity, and financial condition.

A decline in residential real estate values, particularly in the Washington housing market, may reduce the value of collateral securing these loans and increase our risk of loss ifin borrowersthe event of borrower default. Some of our residential mortgage loans are secured by properties with little or no borrower equity, either due to high loan-to-value ratios at origination or decliningsubsequent homedeclines in property values. LoansThese with higher loan-to-value ratiosloans are more sensitivevulnerable to decliningdefault propertyand values, resultingloss in a higherdeclining risk of default and loss. Additionally, for home equity lines of credit secured by second mortgages, recovering loan proceeds in the event of default may be difficult unless we repay the first mortgage, which may not be justified by the property’s value. Consequently, we may experience higher rates of delinquency, default, and losses on our residential loans.market.

To address these risks, we maintain an allowance for credit lossesACL on loans, which is a reserve established through a provision for credit losses on loans charged against operating income,income. that weWe believe the ACL is appropriate to provide for expected losses in our loan portfolio. The appropriate level of the allowance of credit lossesACL is determined by management through periodic comprehensive reviews and consideration of several factors, including, but not limited to our collective loss reserve, for loans evaluated on a pool basis with similar risk characteristics based on our life of loan historical default and loss experience, certain macroeconomic factors, reasonable and supportable forecasts, regulatory requirements, management’s expectations of future events and certain qualitative factors.

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 willwe evaluate the loan individually using the present value of the expected future cash flows or the fair value of the underlying collateral.

The determination of the appropriate level of the allowance for credit lossesACL inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergochange material changes.materially. If our estimates are incorrect, the allowance for credit lossesACL for loans may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for increases in ourthe allowance for credit lossesACL through theadditional provision for credit lossesprovisions, which iswould charged againstreduce income. Management also recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans canmay result in portfolios comprised of unseasoned loansportfolios that maydo not perform in aline with historical or projected mannertrends, and will increaseincreasing the risk that our allowanceACL may be insufficient to absorb losses without significant additional provisions.insufficient. Deterioration in economic conditions affecting borrowers,conditions, new information regarding existing loans, identification of additional problem loansloans, and other factors, both within and outside of our control, may also require an increase in the allowance for credit losses.ACL.

Bank regulatory agencies also periodically review our allowance for credit lossesACL and may require anus to increase in the provision for possible credit losses or the recognition ofrecognize further loan charge-offs based on their judgment about information available to them at the time of their examination.judgment. If charge-offs in future periods exceed the allowance for credit losses,ACL, we may need additional provisionsprovisions, towhich increasewould the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease inreduce net income and maycould havematerially aand materialadversely adverse effect onaffect our financial condition, results of operations, liquidityliquidity, and capital.

If delinquencies increase and we are unable to effectively manage our non-performing assets, our losses and troubled assets could increase significantly, which could materially impactingand adversely impact our financial condition and results of operations.

As part of our general growth strategy, on October 1, 2018, we completed the acquisition of South Sound Bank, a Washington-state chartered bank, headquartered in Olympia, Washington. Although our business strategy emphasizes organic expansion, we alsocontinue look for andto evaluate potential acquisition opportunities. There can be no assurance that we will successfully identify suitable acquisition candidates, complete acquisitions or successfully integrate acquired operations into our existing operations or expand into new markets. The consummation of any future acquisitions may dilute shareholder value or may have an adverse effect upon our operating results while the operations of the acquired business are being integrated into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by our existing operations, or otherwise perform as expected. Further, transaction-related expenses may adversely affect our earnings. These adverse effects on our earnings and results of operations may have a negative impact on the value of our common stock. Acquiring banks, bank branches or businesses involves risks commonly associated with acquisitions, including:

•We may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets, and liabilities we acquire. If these issues or liabilities exceed our estimates, our results of operations and financial condition may be materially negativelyand adversely affected;

•We could experience higher than expected deposit attritionattrition, which could reduce funding sources and impact liquidity;

•To the extent that our acquisition costs of an acquisition exceed the fair value of the net assets acquired, the acquisitionwe will generaterecord goodwill. As discussed below, weWe are required to assess our goodwill for impairment at least annually, and any goodwill impairment charge could havematerially aand materialadversely adverse effect onaffect our results of operationoperations and financial condition; and

•WeWhile we expect thatacquisitions ourto contribute to net income will, increasethey following an acquisition; however, wemay also expect ourincrease general and administrative expenses to increase,expenses, which could result to an increase inraise our efficiency ratio. Ultimately,If weintegration would expect our efficiency ratio to improve; however, if weefforts are notunsuccessful, successful in our integration process, this may not occur, and our acquisition or branching activitiesacquisitions may not be accretive to earnings in the short or long-term.long term.

Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory agenciesagencies, and, in particular,particularly the Federal Reserve. SinceFollowing Marcha 2022,period of monetary easing that began in responsethe tosecond inflation,half of 2024, the Federal Open Market Committee ("FOMC") of the Federal Reserve has increasedreduced the target range for the federal funds rate by 475a basiscumulative points, including 50125 basis points reduction during the 2024 fiscal year, to a range of 4.75% to 5.00% as ofthrough September 2025, 30, 2024. The FOMC has reducedbringing the target federalrange fundsto rate4.00% byto an4.25%. additionalOn October 29, 2025, subsequent to quarter-end, the FOMC announced a further 25‑basis‑point basiscut, points in November of 2024 tobringing the target federalrange fundsto 3.75% to 4.00%. These changes have modestly lowered funding costs but have also contributed to narrower loan yields and reinvestment risk within the investment securities portfolio. Further rate and has not ruled out future decreases but hinted that rates will remain higher for longer. If the FOMC further decreases the targeted federal funds rate, overall interest rates will likely decrease, which maycould negatively impact our net interest income, butalthough couldthey positivelymay impact bothbenefit the housing market by increasing refinancing activity and new home purchases and the U.S. economy.purchases.

We principally manage interest rate risk by managing ourthe volume and mix of our earning assets and funding liabilities. Changes in monetary policy, including changes in interest rates,rate couldshifts, influencemay notaffect: only(1) the interest we receiveearn on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect:borrowings; (12) our ability to originate and/or sell loans and obtainattract deposits; (23) the fair value of our financial assets and liabilities, which could negativelymay impact shareholders’ equity,equity and our ability to realize gains from the sale of such assets; (34) our abilitycompetitiveness in attracting and retaining deposits relative to obtain and retain deposits in competition with other available investment alternatives; (45) the ability of our borrowers to repay adjustable or variable rate loans; and (56) the average duration of our investment securities portfolio and other interest-earning assets. If the interest rates paid on deposits and borrowings increase at a faster rate than the interest received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments decline more rapidly than the interest rates paid on deposits and other borrowings. In a changing interest rate environment, we may not be able to manage this risk effectively. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected.

A sustained increase or decrease in market interest rates could adversely affect our earnings. As is the case with many financial institutions, our emphasis on increasing core deposits, those deposits bearing no or a relatively low rate of interest with no stated maturity, has resulted in our having a significant amount of these deposits which have a shorter duration than our assets. At September 30, 2024,2025, we had $313.82$406.99 million in certificates of deposit that mature within one year and $1.28$1.27 billion in non-interest bearing, NOW checking, savings and money market accounts. We would incur a higher cost of funds to retainRetaining these deposits in a rising interest rate environment.environment Ifmay therequire interestus ratesto paidoffer onhigher depositsrates, and other borrowings increase at a faster rate than the interest rates received on loans and other investments,increasing our netcost interestof income, and therefore earnings, could be adversely affected.funds. In addition, a substantial amount of our residential mortgage loans and home equity lines of credit have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment.

Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and non-interest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period. Since March 2022, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve has increased the target range for the federal funds, which stood at 4.75%4.00% to 5.00%4.25% as of September 30, 2024.2025. Subsequent to fiscal year end, the FOMC reduced the target federal funds rate by 25 basis points and has not ruled out future decreases.points.

On October 1, 2023, the Company adopted the CECL standard to determine estimates of lifetime expected credit losses on loans and recognize the expected credit losses at inception of the loan. The adoption of CECL changed the allowance calculation methodology from a historical incurred loss model to an expected future loss model. The adjustment recorded upon our adoption of the CECL standard was not significant to the overall ACL (including the reserve for unfunded commitments) as compared to the allowance for loan losses at September 30, 2023. The provision for (recapture of) credit losses on loans is dependent on changes in the loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The ACL on loans reflects the amount that the Company believes is adequate to cover expected credit losses inherent in its loan portfolio. The Company recorded a provision for credit losses on loans of $853,000 for the year ended September 30, 2025, primarily due to increased loan portfolio growth. The Company recorded a provision for credit losses on loans of $1.25 million for the year ended September 30, 2024, primarily due to increased loan portfolio growth. The Company recorded a provision for loan losses of $2.1 million for the year ended September 30, 2023, primarily due to increased loan portfolio growth.

Net income is also affected by non-interest income and non-interest expense. For the year ended September 30, 2024,2025, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, an increase in theBOLI cash surrender value ofincreases BOLI,and death benefit, servicing income on loans, escrow fees and other operating income. Non-interest income is also increased by a gain on sale and net recoveries of OTTI on investment securities, if any. Non-interest income isin certain periods can also be decreased by valuation allowances on loan servicing rights and increased by recoveries of valuation allowances on loan servicing rights, if any. Non-interest expense consisted primarily of salaries and employee benefits, premises and equipment, advertising, ATM and debit card interchange transaction fees, postage and courier expenses, amortization of CDI, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure expenses, technology and communications expenses, deposit operation expenses and other non-interest expenses. Non-interest expense in certain periods is reduced by gains on the sale of premises and equipment and by gains on the sale of OREO. Non-interest income and non-interest expense are affected by the growth of the Company's operations and growth in the number and balances of loan and deposit accounts.

Maintaining strong asset quality. We believe maintaining strong asset quality is key to our long-term financial success. Non-performing assets, consisting of nonaccrual loans and investment securities, and OREO, totaled $4.44 million at September 30, 2025, compared to $3.94 million at September 30, 2024, compared to $1.60 million at September 30, 2023.2024. The percentage of non-performing loans to loans receivable, net was 0.27%0.30% and 0.11%0.27% at September 30, 20242025 and 2023,2024, respectively. The percentage of non-performing assets to total assets at September 30, 20242025 was 0.20%0.22% compared to 0.09%0.20% at September 30, 2023.2024. We remain focused on reducing the level of non-performing assets through collections, write-downs and modifications. Our efforts include proactive steps to resolve our non-performing loans such as negotiating payment plans, forbearances, loan modifications and loan extensions, and accepting short payoffs on delinquent loans when appropriate. While the Company continues to emphasize lending in areas such as commercial real estate loans, construction loans, and commercial business loans, we remain committed to managing credit risk through the expertise of seasoned bankers and a conservative lending strategy.

Qualitative Aspects of Market Risk. The Bank's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest rate sensitivity of the Bank's interest-earning assets by retaining in its portfolio,portfolio short-term loans and loans with interest rates subject to periodic adjustments. The Bank relies on retail deposits as its primary source of funds. As part of its interest rate risk management strategy, the Bank promotes transaction accounts and certificates of deposit with terms of up to five years.

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

Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit decay, and should not be relied upon as indicative of actual results. Furthermore, theThe computations do not reflect any actions management may undertake in response to changes in interest rates.

InFor illustrative purposes, in the event of a 100 basis point decrease in interest rates, the Bank would be expected to experience a 2.2% decrease in EVE and a 1.4%2.6% decrease in net interest income. In the event of a 100 basis point increase in interest rates, a 0.3%0.1% decrease in EVE and a 1.5%0.5% decrease in net interest income would be expected. BasedThe upon the modeling described above, the Bank'sBank’s asset and liability structure generally results in modest decreases in net interest income and EVE inunder boththe rising and fallinghypothetical interest rate scenarios.scenarios modeled, with changes more pronounced in larger rate movements.

Total assets increased by $83.57$89.30 million, or 4.5%,4.6%, to $2.01 billion at September 30, 2025 from $1.92 billion at September 30, 2024 from $1.84 billion at September 30, 2023.2024. The increase in total assets was primarily due to increases in total cash and cash equivalents and loans receivable net, partially offset by a decrease in investment securities.

Net loans receivable increased by $119.22$42.07 million, or 9.2%,3.0%, to $1.46 billion at September 30, 2025 from $1.42 billion at September 30, 20242024. fromLoan $1.30growth billionwas at September 30, 2023, primarily due to increasesconcentrated in one-the tomortgage-related four-familyportfolios, loans,with the largest increase occurring in the in multi-family loans,portfolio. commercial real estate loans, home equity loans and smallerThese increases in several other loan categories that were partially offset by decreases in constructioncommercial and land developmentbusiness loans.

Investment securities (including investments in equity securities) decreased by $67.58$29.26 million, or 21.6%,11.9%, to $215.97 million at September 30, 2025 from $245.22 million at September 30, 2024 from $312.80 million at September 30, 2023,2024, primarily due to the maturities of U.S. Treasury investment securities and to a lesser extent, scheduled amortization. PartiallyThese offsettingdecreases thesewere decreases,partially wasoffset by the purchase of additional U.S. government agency mortgage-backed investment securities and U.S. Treasury investment securities, all of which were classified as available for sale.securities.

Total deposits increased by $86.73$68.97 million, or 5.6%,4.2%, to $1.72 billion at September 30, 2025 from $1.65 billion at September 30, 2024 from $1.56 billion at September 30, 2023,2024, primarily due to increases in money market and certificate of depositdeposit, non-interest bearing demand, and NOW checking account balances. These increases were partially offset by decreases in non-interestmoney bearing demand, NOW checking,market and savings account balances.

Investment Securities: Investment securities (including investments in equity securities) decreased by $67.58$29.26 million, or 21.6%,11.9%, to $215.97 million at September 30, 2025 from $245.22 million at September 30, 2024 from $312.80 million at September 30, 2023.2024. The decrease was primarily due $100.87to $41.22 million of maturities, prepaymentsprepayments, and scheduled amortization on held to maturity securitiessecurities, and $14.12$28.32 million in maturities, prepaymentsprepayments, scheduled amortization, and scheduledthe amortizationsale onof $13.51 million in available for sale investment securities. The reduction in the portfolio also reflects management’s continued focus on maintaining liquidity and repositioning the investment portfolio in response to the prevailing interest rate environment. These decreases were partially offset by the purchase of $43.03$47.47 million in available for sale investment securities and $1.90$5.41 million in held to maturity investment securities. For additional details on investment securities, see "Item 1. Business - Investment Activities" and "Note 3 - Investment Securities" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Loans Held for Sale: There were no$1.13 million in loans held for sale at September 30, 20242025 compared to $400,000none at September 30, 2023,2024, primarily due to the timing and volume of mortgage banking loan sales. The Company generally sells longer-term fixed-rate residential loans and the guaranteed portion of SBA commercial business loans for asset-liability management purposes and to generate non-interest income. The Company sold $14.75$22.60 million in loans during the year ended September 30, 20242025 compared to $11.54$14.75 million for the year ended September 30, 2023.2024. SalesLoan ofsales loansincreased over the past year has increased slightly, primarily due to construction loans converting to permanent financing as higher interest rates havecontinued slowedto downslow refinancing and purchase activity.activity and thereby increased the proportion of loans being retained and subsequently sold through normal conversion cycles.

Loans Receivable, Net of Allowance for Credit Losses: Net loans receivable increased by $119.22$42.07 million, or 9.2%,3.0%, to $1.46 billion at September 30, 2025 from $1.42 billion at September 30, 2024 from $1.30 billion at September 30, 2023.2024. The increase was primarily due to a $50.17$30.42 million increase in multi-family loans, a $45.90$18.57 million increase in one- to four-family loans, aan $33.32 million decrease in the undisbursed portion of construction loans, a $30.95$11.47 million increase in commercial real estate loans, a $9.63$6.59 million increase in homeland equityloans, a $4.69 million increase in gross construction loans and smaller changes in other categories. These increases were partially offset by a $54.64$18.41 million increase in the undisbursed portion of construction loans in process, a $12.01 million decrease in gross construction loans, with the largest decreases occurring in commercial and multi-family constructionbusiness loans as they converted to permanent financing and smaller decreases in several other loan categories.

Loan originations decreasedincreased by $110.35$59.46 million, or 30.5%,23.6%, to $310.90 million for the year ended September 30, 2025 from $251.44 million for the year ended September 30, 2024 from $361.79 million for the year ended September 30, 2023.2024. The decreaseincrease in loan originations was primarily due to decreasesincreases in originations of commercial real estate, construction, one- to four- family loans, commercial real estate, constructionconsumer, and commercialsmaller businessincreases loans.in other categories. These decreasesincreases were partially offset by ana increasedecrease in originations of multi-familycommercial and landbusiness loans. For additional information on loans, see "Item 1. Business - Lending Activities" and "Note 4-Loans4 - Loans Receivable and Allowance for Credit Losses" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Premises and Equipment, Net: Premises and equipment decreasedincreased by $156,000,$198,000, or 0.7%,0.9%, to $21.68 million at September 30, 2025 from $21.49 million at September 30, 2024 from $21.64 million at September 30, 2023.2024. The decreaseincrease was primarily due to increases to furniture and equipment, and building and improvements that was partially offset by normal depreciation. For additional information on premises and equipment, see "Item 2. Properties" and "Note 5 - 5 Premises and Equipment" of the Notes of the Consolidated Financial Statements contained in Item 8 of this report.

Bank Owned Life Insurance ("BOLI"): BOLI increaseddecreased by $645,000,$1.78 million, or 2.8%,7.5%, to $21.83 million at September 30, 2025 from $23.61 million at September 30, 2024 from $22.97 million at September 30, 2023.2024. The increasedecrease was primarily due to neta BOLIdeath earnings,benefit, representingwhich thewas partially offset by an increase in the cash surrender value of the BOLI policies.values.

Loan Servicing Rights, Net: Loan servicing rights decreased by $752,000,$557,000, or 35.4%,40.6%, to $815,000 at September 30, 2025 from $1.37 million at September 30, 2024 from $2.12 million at September 30, 2023,2024, primarily due to the amortization of servicing rightsrights, andwhich was partially offset by additional capitalized Freddie Mac servicing rights for loans being sold with servicing retained.retained during the period. The principal amount of loans serviced for Freddie Mac and the SBA decreased by $15.94$13.55 million to $357.01 million at September 30, 2025 from $370.56 million at September 30, 20242024, fromreflecting $386.50normal millionportfolio atrunoff Septemberand 30, 2023.payoffs. For additional information on loan servicing rights, see "Note 8 - Loan Servicing Rights" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Operating Lease Right-of-Use Assets: Operating lease ROU assets decreasedincreased by $297,000,$1.47 million, or 16.8%,99.9%, to $2.95 million at September 30, 2025 from $1.48 million at September 30, 20242024. fromThe $1.77increase million at September 30, 2023,was primarily due to the addition of an operating lease for the University Place branch (scheduled to open in December 2025), which was partially offset by the amortization of the ROU assets. The operatingOperating lease ROU assets at September 30, 20242025 represented the present value of twothree operating leases on branch facilities and one administrative office. For additional information on leases, see "Note 9 - Leases" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Other Assets: Other assets increaseddecreased by $2.67 million,$129,000, or 74.7%,2.07%, to $6.11 million at September 30, 2025 from $6.24 million at September 30, 2024 from $3.57 million at September 30, 2023.2024. The increasedecrease was primarily due to increasesdecreases in miscellaneous receivables (including income tax receivables) and prepaid expenses.

Deposits: Deposits increased by $86.73$68.97 million, or 5.6%,4.2%, to $1.72 billion at September 30, 2025 from $1.65 billion at September 30, 2024 from $1.56 billion at September 30, 2023.2024. The increase consisted of a $137.05$74.21 million increase certificate of deposit account balances, a $17.57 million increase in non-interest bearing account balances and a $12.27 million increase in NOW account balances. These increases were partially offset by a $30.77 million decrease in money market account balances and a $68.21 million increase in certificate of deposit account balances. The increases were partially offset by a $53.40 million decrease in NOW account balances, a $42.75 million decrease in non-interest bearing account balances and a $22.37$4.32 million decrease in savings account balances. The changes in deposit balances reflect customer preferences in the current interest rate environment, with growth in certificates of deposit and non-interest bearing accounts supporting funding stability, while declines in money market and savings accounts reflect shifts toward higher-yield or short-term investment alternatives. For additional information on deposits, see "Item 1. Business - Deposit Activities and Other Sources of Funds" and "Note 10 - Deposits" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

FHLB Borrowings: The Company hasmaintains short- and long-term borrowing lines with the FHLB with total credit available on the lines equal to 45% of the Bank's total assets, limited by available collateral. At September 30, 2024,2025, the Company had an available borrowing capacity of $606.04$619.92 million. The Company had $20.00 million in FHLB borrowings at September 30, 20242025 comparedand to $35.00 million at September 30, 2023.2024. At September 30, 2024,2025, FHLB borrowings consisted of three long-termshort-term borrowings: two totaling $15.00 million with scheduled maturities in May 2026, botheach bearing interest at 3.95% and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%. The borrowings provide the Company with a flexible source of liquidity and support its asset-liability management strategy, allowing the Bank to manage funding needs, respond to changes in deposit flows, and maintain adequate liquidity levels to support ongoing operations and loan growth. For additional information on FHLB borrowings, see "Note 11 - FHLB Borrowings and Other Borrowings" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Operating Lease Liabilities: Operating lease liabilities decreasedincreased by $292,000$1.50 million or 15.6%,95.4%, to $3.08 million at September 30, 2025 from $1.58 million at September 30, 2024 from $1.87 million at September 30, 2023,2024, primarily due to the addition of an operating lease for the University Place branch, partially offset by required annual lease payments. The operating lease liability at September 30, 20242025 represented the present value of twothree operating leases on branch facilities and one administrative office. For additional information on leases, see "Note 9 - Leases" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Other Liabilities and Accrued Expenses: Other liabilities and accrued expenses decreasedincreased by $211,000,$1.63 million, or 2.3%,18.5%, to $10.45 million at September 30, 2025 from $8.82 million at September 30, 2024 from $9.03 million at September 30, 2023.2024. The decreaseincrease was primarily due to timing differences in the normal course of businessbusiness, andpartially anoffset increaseby a decrease in accrued interest payable.

Shareholders' Equity: Total shareholders' equity increased by $12.34$17.20 million, or 5.3%,7.0%, to $262.61 million at September 30, 2025 from $245.41 million at September 30, 2024 from $233.07 million at September 30, 2023.2024. The increase was primarily due to net income of $24.28$29.16 million for the year ended September 30, 2024, which was, partially offset by the payment of $7.65$8.09 million in dividends to common shareholders and the repurchase of 218,976179,966 shares of the Company's common stock for $5.96$5.76 million during the year ended September 30, 2024. In addition, shareholder’s equity was positively impacted by unrealized gains on available for sale securities reflecting the decrease in market interest rates during the year, resulting in a recovery of $1.10 million of accumulated other comprehensive loss, net of tax at September 30, 2024.million. For additional information on shareholders' equity, see the Consolidated Statements of Shareholders' Equity contained in Item 8 of this report.

Net income for the year ended September 30, 20242025 decreasedincreased by $2.84$4.88 million, or 10.5%,20.1%, to $24.28$29.16 million from $27.12$24.28 million for the year ended September 30, 2023.2024. Net income per diluted common share decreasedincreased by $0.28,$0.66, or 8.5%,21.9%, to $3.67 for the year ended September 30, 2025 from $3.01 for the year ended September 30, 2024 from $3.29 for the year ended September 30, 2023.2024. The decreaseincrease in net income was primarily due to a $4.19$6.03 million decreaseincrease in net interest incomeincome, reflecting growth in average loan balances and a $373,000higher net interest margin, and a $1.22 million increase in non-interest expense,income, primarily due to higher BOLI earnings, including a death benefit received during the period. These increases were partially offset by a $981,000$1.64 decreasemillion increase in non-interest expense. While salaries and employee benefits remained the largest component of non-interest expense, the increase was modest, with the increase in total expense driven mainly by higher state and local taxes, and professional fees. Net income was also partially reduced by a $947,000 increase in the provision for income taxes, while the provision for credit losses anddecreased a$217,000, $753,000reflecting decreasestable incredit quality during the provision for income taxes. Non-interest income remained relatively unchanged at $11.14 million for the years ended September 30, 2024 and 2023.period.

Net Interest Income: Net interest income decreasedincreased by $4.19$6.03 million, or 6.1%,9.4%, to $70.20 million for the year ended September 30, 2025 from $64.17 million for the year ended September 30, 2024 from $68.36 million for the year ended September 30, 2023.2024. The decreaseincrease was primarily due to higher interest expenseand dividend income resulting from increases in both the average yields and balances of interest-bearing liabilities,loans, which outpaced the increase in interest income and dividend incomeexpense resulting from increases in the average yield and balance on loans and, to a lesser extent, the average yields on investment securities and interest-bearing deposit in banks and CDs.liabilities.

Total interest and dividend income increased by $14.87$7.45 million, or 18.6%,7.9%, to $102.28 million for the year ended September 30, 2025 from $94.83 million for the year ended September 30, 2024 from $79.95 million for the year ended September 30, 2023,2024, due to an increase in the average yields on interest-earning assets, specifically loans and investment securities, as well as an increase in the average balance of loans. The average yield on interest-earning assets increased to 5.48% for the year ended September 30, 2025 from 5.24% for the year ended September 30, 20242024. fromAverage 4.63%total interest-earning assets increased by $55.19 million, or 3.05%, to $1.87 billion for the year ended September 30, 2023.2025 Average total interest-earning assets increased by $82.49 million, or 4.77%, tofrom $1.81 billion for the year ended September 30, 2024 from $1.73 billion for the year ended September 30, 2023,2024, due to an increase in the average balance of loans receivable and an increase in the average balance of interest-bearing deposits in banks and CDs, which was partially offset by a decrease in the average balance of investment securities and interest-bearing deposits in banks and CDs.securities. Interest income on loans receivable and loans held for sale increased by $14.28$8.10 million, or 22.61%,10.45%, to $85.53 million for the year ended September 30, 2025 from $77.43 million for the year ended September 30, 2024 from $63.15 million for the year ended September 30, 2023,2024, primarily due to a $149.43$69.27 million increase in the average balance of loans receivable coupled with an increase in the average yield on loans receivable to 5.90% for the year ended September 30, 2025 from 5.61% for the year ended September 30, 2024 from 5.13% for the year ended September 30, 2023.2024.

During the year ended September 30, 2024,2025, the accretion of the purchase accounting fair value discount on loans acquired increased interest income on loans by $37,000$104,000 compared to $75,000$37,000 for the year ended September 30, 2023.2024. The accretion of the net fair value discount on acquired loans had a minortwo basis-point effect on the average yield on loans for the year ended September 30, 20242025 and a oneminor basis point increaseeffect for the year ended September 30, 2023.2024. The incremental accretion and the impact on loan yield will change during any period based on the volume of prepayments, and has decreased over time as the balance of the net discount declines. The remaining net discount on acquired loans was $155,000$51,000 at September 30, 2024.2025. During the year ended September 30, 2024,2025, a total of $376,000$520,000 in non-accrual interest, pre-payment penalties and late fees was collected compared to $398,000$376,000 for the year ended September 30, 2023.2024.

Interest income on investment securities decreased by $255,000,$932,000, or 2.7%,10.2%, to $8.20 million for the year ended September 30, 2025 from $9.13 million for the year ended September 30, 2024 from $9.38 million for the year ended September 30, 2023,2024, due to a $45.91$49.21 million decrease in the average balance of investment securities, partially offset by a 4929 basis point increase in the average yield on investment securities. The decline in average balances reflected portfolio maturities and scheduled amortization, while the increase in yield resulted from reinvesting maturing or liquidated lower-yielding securities into higher-yielding securities, as interest rates remain relatively high compared with recent years.

Interest income on interest-bearing deposits in banks and CDs increased by $762,000,$315,000, or 10.7%,4.0%, to $8.22 million for the year ended September 30, 2025 from $7.91 million for the year ended September 30, 2024 from $7.14 million for the year ended September 30, 2023,2024, due to an 112 basis point increase in the average yield resulting from increased market interest rates, partially offset by a $20.85$35.38 million decreaseincrease in the average balance of interest-bearing deposits in banks and CDs.CDs, and was partially offset by an 87 basis point decrease in the average yield resulting from decreased market interest rates.

As a result of these changes, the net interest margin decreasedincreased 4122 basis points to 3.76% for the year ended September 30, 2025 from 3.54% for the year ended September 30, 2024 from 3.95% for the year ended September 30, 2023.2024.

Provision for Credit Losses: A $934,000 provision for credit losses was recorded for the year ended September 30, 2025 consisting of an $853,000 provision for credit losses on loans, primarily due to an increase in loans receivable, a $24,000 recapture of credit losses on investment securities, primarily due to lower balances resulting from maturities and principal payments and a $105,000 provision for credit losses on unfunded commitments, primarily due to an increase in the balance of unfunded loan commitments. A $1.15 million provision for credit losses was recorded for the year ended September 30, 2024 consisting of a $1.25 million provision for credit losses on loans which wasloan, primarily due to an increase in loans receivable, a $32,000 recapture of credit losses on investment securities which wassecurities, primarily due to lower balances resulting from maturities and principal payments and a $71,000 recapture of credit losses on unfunded commitments which was primarilycommitments,primarily due to a decrease in the balance of unfunded loan commitments. A $2.13 million provision for loan losses, under the prior incurred loan loss method, was recorded for the year ended September 30, 2023.

TheDuring Companythe hadyear netended September 30, 2025, several credit metrics, including delinquent and substandard loans, showed increases compared with the prior year, but overall credit quality remains sound. Net charge-offs ofincreased to $240,000 for the year ended September 30, 2025 compared to $54,000 for the year ended September 30, 20242024, comparedalthough to $18,000 for the year ended September 30, 2023. Netnet charge-offs (recoveries) to average outstanding loans wasremained low at 0.0% for theboth yearsperiods. ended September 30, 2024 and 2023. The level of delinquentDelinquent loans (loans 30 or more days past due) increased by $2.81$1.18 million, or 168.9%,26.3%, to $5.66 million at September 30, 2025 from $4.48 million at September 30, 20242024. from $1.67 million at September 30, 2023. LoanLoans classified as substandard increased by $2.05$24.37 million, or 32.1%,288.9%, to $32.81 million at September 30, 2025 from $8.44 million at September 30, 2024 from $6.39 million at September 30, 2023,2024, while loans classified as doubtful totaled $202,000 at September 30, 2024 compared to none atboth September 30, 2023.2025 and 2024. Loans designated as special mention totaled $4.40$5.57 million at September 30, 20242025 compared to none$4.40 million at September 30, 2023. Non-accrual loans increased by $2.37 million,$522,000, or 156.6%,13.4%, to $4.41 million at September 30, 2025 from $3.89 million at September 30, 2024 from $1.51 million at September 30, 2023.2024.

In accordance with GAAP, acquired loans are recorded at their estimated fair value, resulting in a net discount to the loans' contractual amounts, with a portion of this discount reflecting possible credit losses. Credit discounts are included in the determination of fair value. With the adoption of CECL, purchasedPurchased loans are evaluated for impairment in the same manner as the rest of the loan portfolio. The remaining fair value discount associated with acquired loans was $155,000$51,000 at September 30, 2024.2025. This discount will continue to accrete into income as these loans continue to pay down.

Non-interest Expense: Total non-interest expense increased by $373,000,$1.64 million, or 0.9%,3.8%, to $45.39 million for the year ended September 30, 2025 from $43.75 million for the year ended September 30, 2024 from $43.37 million for the year ended September 30, 2023.2024. The increase was primarily due to a $719,000$360,000 increase in technologystate and communications,local taxes, a $397,000$359,000 increase in ATM and debit card processingprofessional fees, a $172,000 increase in deposit operations, a $168,000$192,000 increase in salaries and employee benefits, a $122,000 increase in FDIC insurance expense, a $103,000 increase in state and local taxes, a $83,000$114,000 increase in premises and equipment, a $105,000 increase in technology and communications and smaller increases in several other expense categories. These increases were partially offset by a $761,000$193,000 decrease in professionaldeposit feesoperations, a $105,000 decrease in ATM and debit card processing and smaller decreases in several other categories. The increase in technologystate and communicationslocal taxes was primarily due to the addition of several new technology products, increased coststaxable and processing volumes.income. The increase in ATM and debit card processingprofessional fees and deposit operations was mainlyprimarily due to fraudan relatedincrease expenses.in audit and consulting fees. The increase in salaries and employee benefits was primarily due to annual salary adjustments. The decrease in deposit operations and ATM and debit card processing was primarily due to reduced customer-related fraud.

The efficiency ratio for the year ended September 30, 20242025 wasimproved 58.09%to 54.98% compared to 54.56%58.09% for the year ended September 30, 2023.2024 The change inreflecting the efficiencycombined ratio was the resultimpact of higher non-interest expenses, coupled with a decrease in overall revenues resulting from the decline in net interest income.income and non-interest income relative to total operating expenses.

Provision for Income Taxes: The provision for income taxes decreasedincreased by $753,000,$947,000, or 11.0%15.5% to $7.07 million for the year ended September 30, 2025 from $6.12 million for the year ended September 30, 2024 from $6.88 million for the year ended September 30, 2023.2024. The decreaseincrease was primarily due to lowerhigher pre-tax income. The Company's effective income tax rate was 19.5% for the year ended September 30, 2025 compared to 20.1% for the year ended September 30, 20242024. comparedThe decrease in the effective tax rate was primarily due to 20.2%a forhigher thepercentage yearof endednon-taxable September 30, 2023.income. For additional information on income taxes, see "Note 13-Income13 - Income Taxes" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

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

The Bank's primary investing activity is the origination of loans and, to a lesser extent, the purchase of investment securities. During the years ended September 30, 2024,2025, 20232024 and 2022,2023, the Bank originated $251.44$310.90 million, $361.79$251.44 million and $572.46$361.79 million of loans, respectively. At September 30, 2024,2025, the Bank had loan commitments, consisting of undisbursed lines of credit and commitmentcommitments to extend credit, totaling $146.15$158.26 million and undisbursed construction loans in process totaling $69.88$88.29 million. Investment securities purchased during the years ended September 30, 2024,2025, 2024 and 2023 and 2022 totaled $44.95$52.89 million, $32.60$44.95 million and $208.78$32.60 million, respectively.

The Bank’s liquidity has been impacted by changes in deposit levels. During the yearyears ended September 30, 2025 and 2024, deposits increased by $68.97 million and $86.73 million.million, respectively. During the yearsyear ended September 30, 2023 and 2022,2023, deposits decreased by $71.24 million and increased $61.60 million, respectively.million. Our liquid assets in the form of cash and cash equivalents, CDs held for investment and investment securities available for sale increased to $328.89 million at September 30, 2025 from $247.19 million at September 30, 2024 from $185.68 million at September 30, 2023.2024. The increase was primarily a result of increased deposits andwhich were offset by a decrease in total investment securities, due to maturities and prepayments outpacing purchases. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

For the fiscal year ending September 30, 2025,2026, the Bank projects that fixed commitments will include $336,000$377,000 of operating lease payments. There are no scheduled payments and maturities of FHLB borrowings of $20.0 million mature during the fiscal year 2025.2026. In addition, at September 30, 2024,2025, there were other future obligations and accrued expenses of $8.82$10.45 million. For additional information, see "Note 1211 - FHLB Borrowings and Other Borrowings" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements contained in Item 1 of this Form 10-Q. The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three and sixnine months ended MarchJune 31,30, 2026.

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

•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”);

Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank. The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 24 offices (including its main office in Hoquiam). At MarchJune 31,30, 2026, the Company had total assets of $2.05$2.06 billion, net loans receivable of $1.45$1.50 billion, total deposits of $1.74$1.76 billion and total shareholders’ equity of $271.09$273.21 million. The Company's business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Accordingly, the information set forth in this report, including the unaudited consolidated financial statements and related data, relates primarily to the Bank's operations.

Our net interest income, net interest margin, ("NIM"), and net interest spread are primarily influenced by changes in market interest rates, the shape of the yield curve, and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities. These components of net interest income are also affected by the volume and composition of our interest-earning assets, interest-bearing and non-interest-bearing liabilities, and shareholders’ equity. During the six months ended March 31, 2026, interest rate trends were influenced by monetary policy actions taken by the Federal Open Market Committee (“FOMC”) of the Federal Reserve. In the second half of calendar year 2025, the FOMC reduced the target range for the federal funds rate three times, most recently to a range of 3.50% to 3.75% in December 2025. Despite the decline in market rates, net interest income improved for both the three and six months ended March 31, 2026 compared to the prior year periods, driven by growth in interest-earning assets and a decline in funding costs that outpaced the reduction in asset yields. Our NIM improved modestly for the three months ended March 31, 2026 and more meaningfully for the six months then ended, reflecting the benefit of lower deposit and borrowing costs and continued growth in the average balance of our loan portfolio.

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 probableexpected expectedcredit losses inherent in the loan portfolio, the ACL may increase, resulting in an increase in the provision for credit losses and a decrease to net interest income after the provision.income. Improvement in loan risk ratings, increaseincreases in propertycollateral values, or receipts of recoveries of amounts previously charged off may partially or fully offset any required increases to the ACL on loans due to loan growth or an increase in the probable expected credit losses. The Company recorded a provision for credit losses on loans of $523,000$600,000 and $539,000$1.14 million for the three and sixnine months ended MarchJune 31,30, 2026 compared to a provision for credit losses on loans of $237,000$351,000 and $289,000$640,000 for the three and sixnine months ended MarchJune 31,30, 2025.

Net income is also impacted by levels of non-interest income and non-interest expense. For the three and sixnine months ended MarchJune 31,30, 2026, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income. Non-interest income may also be affected by net recoveries on investment securities and the reversal of previously recognized OTTI losses, if applicable. Additionally, it is reduced by valuation allowances on loan servicing rights and increased by recoveries of such allowances, when recognized. Non-interest expense for the same periods primarily included salaries and employee benefits, premises and equipment costs, advertising, ATM and debit card interchange transaction fees,expense, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure-related expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other general operating expenses. In certain periods, non-interest expense may be offset by gains on the sale of premises and equipment or OREO. Both non-interest income and non-interest expense are influenced by the Company’s overall growthgrowth, business activities, and theoperating expansion of its loan and deposit account base.environment.

Comparison of Financial Condition at MarchJune 31,30, 2026 and September 30, 2025

General: Total assets increased by $33.61$48.05 million, or 1.7%,2.4%, to $2.05$2.06 billion at MarchJune 31,30, 2026 from $2.01 billion at September 30, 2025. The increase was primarily due to increases in cashnet loans receivable and cash equivalents,BOLI, funded mainly by increased deposits. This increase was partially offset by decreases in net loans receivable and investment securities.

TotalNet depositsloans receivable increased by $26.58$32.06 million, or 1.5%,2.2%, to $1.74$1.50 billion at MarchJune 31,30, 2026 from $1.72$1.46 billion at September 30, 2025, primarily due to increases in NOWthe checkingmulti-family construction, commercial real estate and moneyspeculative marketone- accountto balances.four-family construction loan categories. These increases were partially offset by decreases in non-interestthe bearingone- depositto four-family, owner/builder and savingscustom accountconstruction, balances.land development, commercial construction and commercial business loan categories.

LoanTotal originationsdeposits increased by $15.52$46.91 million, or 12.1%,2.7%, to $144.18$1.76 millionbillion forat theJune six months ended March 31,30, 2026 from $128.66$1.72 millionbillion forat theSeptember six30, months ended March 31, 2025. The increase was2025, primarily due to increases in originationsmoney of construction, multi-family, commercial businessmarket and one-NOW tochecking four-familyaccount loans.balances. These increases were partially offset by decreases in commercialnon-interest realbearing estatedeposit and landsavings loanaccount originations.balances.

The Company generally sells longer-term fixed-rate one- to four-family mortgage loans for asset liability management purposes and to generate non-interest income. Sales of fixed-rate one- to four-family loans increased by $7.54$9.25 million, or 100.7%,68.0%, to $15.02$22.85 million for the sixnine months ended MarchJune 31,30, 2026 from $7.48$13.60 million for the sixnine months ended MarchJune 31,30, 2025, primarily due to an increase in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

Premises and Equipment: Premises and equipment increased by $241,000,$465,000, or 1.1%,2.1%, to $21.93$22.15 million at MarchJune 31,30, 2026 from $21.68 million at September 30, 2025. The increase reflects capitalized additions related to the University Place branch which opened in January 2026 and facility improvements and equipment purchases for other locations during the period, which were offset by scheduled depreciation expense.

OREO (Other Real Estate Owned): At MarchJune 31,30, 2026 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 $313,000,$15.56 million, or 1.4%,71.3%, to $22.14$37.39 million at MarchJune 31,30, 2026 from $21.83 million at September 30, 2025. The increase was primarily due to $15.00 million in additional BOLI policies purchased and to a lesser extent net BOLI earnings, representing the increase in the cash surrender value of the BOLI policies.

Goodwill and CDI: The recorded amount of goodwill remained unchanged at $15.13 million at both MarchJune 31,30, 2026 and September 30, 2025. CDI decreased by $68,000,$102,000, or 25.1%,37.6%, to $203,000$169,000 at MarchJune 31,30, 2026 from $271,000 at September 30, 2025 due to scheduled amortization. For additional information on goodwill and CDI, see Note 3 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Loan Servicing Rights, Net: Loan servicing rights, net decreased by $174,000,$207,000, or 21.4%,25.4%, to $641,000$608,000 at MarchJune 31,30, 2026 from $815,000 at September 30, 2025 primarily due to the amortization of servicing rights, which exceeded additions from new loan sale activity during the period. The principal amount of loans serviced for Freddie Mac and the U.S. Small Business Administration decreased by $3.87$8.40 million to $352.29$348.61 million at MarchJune 31,30, 2026 from $356.16$357.01 million at September 30, 2025.

Other Assets: Other assets increased $1.52$1.55 million, or 24.9%25.4% to $7.64$7.66 million at MarchJune 31,30, 2026 from $6.11 million at September 30, 2025. This was mainly due to ana $877,000$788,000 increase in total prepaid expenses and a $221,000$297,000 increase in the debit card processing prefund amount, as well as increases in other miscellaneous asset balances.

Deposits: Deposits increased by $26.58$46.91 million, or 1.5%,2.7%, to $1.74$1.76 billion at MarchJune 31,30, 2026 from $1.72 billion at September 30, 2025. The increase was primarily due to a $29.66$35.22 million increase in money market account balances and a $24.79$28.88 million increase in NOW checking account balances.balances, and a $7.07 million increase in certificate of deposits under $250,000. These increases were partially offset by a $22.71$19.72 million decrease in non-interest bearing demand account balances, a $3.87 million decrease in savings account balances and a $1.29 million decrease in certificate of deposit account balances. The change in deposit balances and mix reflects continued competitive pricing pressures in the current interest rate environment.

At MarchJune 31,30, 2026, the loan-to-deposit ratio was approximately 83.30%,84.81%, compared to 85.26% at September 30, 2025, reflecting continued disciplined loan growth largely funded by core deposit activity. Management continues to monitor deposit pricing and mix in the context of liquidity management and efforts to support net interest income and profitability.

Deposits consisted of the following at MarchJune 31,30, 2026 and September 30, 2025 (dollars in thousands):

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 remainedwere unchanged$10.00 million at June 30, 2026 and $20.00 million at both March 31, 2026 and September 30, 2025. The borrowings at June 30, 2026 consist of one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03% and one $5.00 million borrowing maturing in November 2026 with an interest rate of 3.87%. The borrowings at September 30, 2025 consisted of three borrowings: two totaling $15.00 million with scheduled maturities in May 2026, both bearing interest at 3.95%, and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%.

Shareholders’ Equity: Total shareholders’ equity increased by $8.48$10.59 million, or 3.2%,4.0%, to $271.09$273.21 million at MarchJune 31,30, 2026 from $262.61 million at September 30, 2025. The increase was primarily due to net income of $15.35$23.07 million.million and $2.13 million related to stock-based compensation and equity award activity. This increase was partially offset by dividend payments to common shareholders of $4.50$6.77 million and the repurchase of 109,303179,303 shares of the Company's common stock for $4.11$6.97 million, net of tax.tax and an increase in accumulated other comprehensive loss of $869,000.

Non-performing assets to total assets waswere 0.47%0.43% and 0.23% at MarchJune 31,30, 2026 and September 30, 2025, respectively. Non-performing assets increased by $4.99$4.14 million, or 107.1%,88.8%, to $9.66$8.81 million at MarchJune 31,30, 2026 from $4.66 million at September 30, 2025. The increase was primarily due to a $5.00$4.15 million increase in non-accrual loans. The increase in non-accrual loans was primarily driven by a $4.70$4.37 million increase in the commercial real estate portfolio, reflecting the addition of a $4.31 million hotel/motel relationship,relationship placed on non-accrual status during the period, along with a $397,000$330,000 increase in commercial business and a $153,000$149,000 increase in one- to four- family loans. These increases were partially offset by a $250,000$553,000 decrease in custom and owner/builder construction and a $150,000 decrease in the home equity and second mortgage portfolio.

Substandard loans decreased $23.27$24.14 million to $9.54$8.66 million at MarchJune 31,30, 2026 from $32.81 million at September 30, 2025. As of MarchJune 31,30, 2026, substandard loans arerepresented 0.66%0.58% of totalnet loans receivable. The decrease is primarily athe result of the largest substandard loan that was secured by a land development project paying off during the period and the second largest substandard loan that was secured by an apartment property being upgraded.

The following table sets forth information with respect to the Company’s non-performing assets at MarchJune 31,30, 2026 and September 30, 2025 (dollars in thousands):

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

The following tables provide a breakdown of commercial real estate ("CRE") loans by collateral types as of MarchJune 31,30, 2026 and September 30, 2025:

Comparison of Operating Results for the Three and SixNine Months Ended MarchJune 31,30, 2026 and 2025

Net income increased by $376,000,$620,000, or 5.6%,8.7%, to $7.13$7.72 million for the quarter ended MarchJune 31,30, 2026 from $6.76$7.10 million for the quarter ended MarchJune 31,30, 2025. Net income per diluted common share increased by $0.05,$0.08, or 5.9%,8.9%, to $0.98 for the quarter ended June 30, 2026 from $0.90 for the quarter ended MarchJune 31, 2026 from $0.85 for the quarter ended March 31,30, 2025. The increases in net income and diluted earnings per share for the three months ended MarchJune 31,30, 2026, were primarily due to a $1.03$1.18 million increase in net interest income and a $120,000$113,000 increase in non-interest income. These increases were partially offset by a $465,000$471,000 increase in non-interest expenseexpense, a $138,000 increase in provision for income taxes and a $277,000$68,000 increase in provision for credit losses.

Net income increased by $1.73$2.35 million, or 12.7%,11.4%, to $15.35$23.07 million for the sixnine months ended MarchJune 31,30, 2026 from $13.62$20.72 million for the sixnine months ended MarchJune 31,30, 2025. Net earnings per diluted common share increased by $0.23,$0.32, or 13.5%,12.3%, to $1.94$2.92 for the sixnine months ended MarchJune 31,30, 2026 from $1.71$2.60 for the sixnine months ended MarchJune 31,30, 2025. The increases in net income and net earnings per diluted common share were due to a $3.01$4.19 million increase in net interest income and a $187,000$301,000 increase in non-interest income. These increases were partially offset by a $830,000$1.30 million increase in non-interest expenseexpense, a $559,000 increase in provision for income taxes and a $216,000$284,000 increase in provision for credit losses.

Net Interest Income: Net interest income increased by $1.03$1.18 million, or 6.0%,6.7%, to $18.24$18.81 million for the quarter ended MarchJune 31,30, 2026 from $17.21$17.62 million for the quarter ended MarchJune 31,30, 2025. This increase was primarily due to a $101.78$95.60 million increase in average interest-earning assets and a 1216 basis point decrease in the average cost of interest bearing liabilities to 2.35%2.33% for the quarter ended MarchJune 31,30, 2026 from 2.47%2.49% for the quarter ended MarchJune 31,30, 2025. These benefits were partially offset by a sixthree basis point decrease in the weighted average yield on interest-earning assets to 5.42%5.47% for the quarter ended MarchJune 31,30, 2026 from 5.48%5.50% for the quarter ended MarchJune 31,30, 2025, and a $78.04$79.69 million increase in average interest-bearing liabilities.

Total interest and dividend income increased by $1.09$1.13 million, or 4.4%, to $25.96$26.67 million for the quarter ended MarchJune 31,30, 2026 from $24.87$25.54 million for the quarter ended MarchJune 31,30, 2025. The increase was primarily due to a $38.10$39.56 million increase in average loan balances and a nine12 basis point improvement in loan yields, which together increased loan interset income by $897,000.yields. The improvement on loan yields reflects continued asset repricing, partially offset by a $19.44$19.11 million decrease in the average balance of investment securities. Prepayment penalties, non-accrual interest and late fees totaled $38,000$84,000 for the quarter ended MarchJune 31,30, 2026 compared to $201,000$102,000 in the prior year quarter which reduced the loan portfolio yield by one basis point.quarter. Interest income on deposits in banks and CD'sCDs increased $450,000$357,000 due to an $83.13$75.15 million increase in average balances, partially offset by a 7375 basis point decline in yields reflecting lower short-term interest rates. These increases were partially offset by a $252,000$276,000 decrease in investment securities income driven by both a $19.48$19.11 million decrease in average balance and a 1518 basis point decline in yields.

Total interest expense increaseddecreased by $59,000,$57,000, or 0.8%,0.7%, to $7.71$7.87 million for the quarter ended MarchJune 31,30, 2026 from $7.65$7.92 million for the quarter ended MarchJune 31,30, 2025. The increasedecrease was minimalprimarily despitedue to a $78.0416 millionbasis increasepoint decrease in average interest-bearing liabilities, as the average cost of thoseinterest-bearing liabilities declined 12 basis points to 2.35%2.33% for the quarter ended MarchJune 31,30, 2026 from 2.47%2.49% for the quarter ended MarchJune 31,30, 2025. This was partially offset by a $7.69 million increase in the average balance of interest-bearing liabilities. The lower funding costs reflect repricing of money market accounts and retail certificates of deposit in response to changes in market interest rates, partially offset by higher rates on NOW checking accounts. Average balances of retail CDs, NOW checking accounts and money market accounts increased, while brokered CD and savings account balances declined, reducing higher-cost wholesale funding and reflecting a continued shift toward core deposit funding.

NetAs interesta marginresult expandedof 12changes above, NIM increased five basis points to 3.83%3.85% for the six monthsquarter ended MarchJune 31,30, 2026 from 3.71%3.80% for the six monthsquarter ended MarchJune 31,30, 2025. The improvement reflects the impact of Federal Reserve rate reductions, which drove a 1516 basis point decline in funding costscosts, drivenmore bythan reductions in money market, certificate of deposit and brokered CD rates following three reductions in the target federal funds rate by the FOMC in the second half of calendar year 2025, tooffsetting a range of 3.50% to 3.75% in December 2025. These benefits exceeded the three basis point increasedecrease in asset yields,yields whichas wasthe supportedeffect byof anlower market rates outpaced the benefit from the increase in average loan balances and the upward repricing of adjustable-rate loans.