Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the consolidated financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto included in Item 8 of this Annual Report on Form 10-K.
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 branches (including its main office in Hoquiam). At September 30, 2025, the Company had total assets of $2.01 billion, net loans receivable of $1.46 billion, total deposits of $1.72 billion and total shareholders’ equity of $262.61 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 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 originates adjustable-rate residential mortgage loans, some of which do not qualify for sale in the secondary market. 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, which is 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. Management attempts to maintain a net interest margin and return on average assets ("ROA") placing it within the top quartile of its Washington State peers.
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 4.00% to 4.25% as of September 30, 2025. Subsequent to fiscal year end, the FOMC reduced the target federal funds rate by 25 basis points.
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.
Net income is also affected by non-interest income and non-interest expense. For the year ended September 30, 2025, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI cash surrender value increases 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 in 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.
Results of operations may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Operating Strategy
The Company is a bank holding company which operates primarily through its subsidiary, the Bank. The Company's primary objective is to operate the Bank as a well-capitalized, profitable, independent, community-oriented financial institution, serving customers in its primary market area of Grays Harbor, Pierce, Thurston, Kitsap, King and Lewis counties. The Company's strategy is to provide products and superior service to small businesses and individuals located in its primary market area.
The Company's goal is to deliver returns to shareholders by focusing on the origination of higher-yielding assets (in particular, commercial real estate, construction, and commercial business loans), increasing core deposit balances, managing problem assets, efficiently managing expenses, and seeking expansion opportunities. The Company seeks to achieve these results by focusing on the following objectives:
Expand our presence within our existing market areas by capturing opportunities resulting from changes in the competitive environment. We currently conduct our business primarily in western Washington. We have a community bank strategy that emphasizes responsive and personalized service to our customers. As a result of the consolidation of banks in our market areas, we believe that there is an opportunity for a community and customer focused bank to expand its customer base. By offering timely decision making, delivering appropriate banking products and services, and providing customer access to our senior managers, we believe that community banks, such as Timberland Bank, can distinguish themselves from larger banks operating in our market areas. We believe that we have a significant opportunity to attract additional borrowers and depositors and expand our market presence and market share within our extensive branch footprint.
Portfolio diversification. In recent years, we have limited the origination of speculative construction loans and land development loans in favor of loans that possess credit profiles representing less risk to the Bank. We continue originating owner/builder and custom construction loans, multi-family loans, commercial business loans and commercial real estate loans which offer higher risk adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations than fixed-rate one-to four-family loans. We anticipate capturing more of each customer's banking relationship by cross selling our loan and deposit products and offering additional services to our customers.
Increase core deposits and other retail deposit products. We focus on establishing a total banking relationship with our customers with the intent of internally funding our loan portfolio. We anticipate that the continued focus on customer relationships will increase our level of core deposits. In addition to our retail branches, we maintain technology based products such as business cash management and a business remote deposit product that enable us to compete effectively with banks of all sizes.
Managing exposure to fluctuating interest rates. For many years, the majority of the loans the Bank has retained in its portfolio have generally possessed periodic interest rate adjustment features or have been relatively short-term in nature. Loans originated for portfolio retention have generally included ARM loans, short-term construction loans, and, to a lesser extent, commercial business loans with interest rates tied to a market index such as the Prime Rate. Longer term fixed-rate mortgage loans have generally been originated for sale into the secondary market, although from time to time, the Bank may retain a portion of its fixed-rate mortgage loan originations and extend the initial fixed-rate period of its hybrid ARM commercial real estate loans for asset/liability purposes.
Continue generating revenues through mortgage banking operations. The majority of the fixed-rate residential mortgage loans we originate have historically been sold into the secondary market with servicing retained. This strategy produces gains on the sale of such loans and reduces the interest rate and credit risk associated with fixed-rate residential lending. We continue to originate custom construction and owner/builder construction loans for sale into the secondary market upon the completion of construction.
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. The percentage of non-performing loans to loans receivable, net was 0.30% and 0.27% at September 30, 2025 and 2024, respectively. The percentage of non-performing assets to total assets at September 30, 2025 was 0.22% compared to 0.20% at September 30, 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.
Selected Financial Data
The following table sets forth certain information concerning the consolidated financial position and results of operations of the Company and its subsidiary at and for the dates indicated. The consolidated data is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements of the Company and its subsidiary presented herein.
At September 30,
(In thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets
Loans receivable, net
Investment securities held to maturity
Investment securities available for sale
FHLB stock
Other investments
Cash and due from financial institutions and interest-bearing deposits in banks
Certificate of deposits held for investments
BOLI
OREO and other repossessed assets
Deposits
FHLB borrowings
Shareholders' equity
Year Ended September 30,
(In thousands, except per share data)
SELECTED OPERATING DATA:
Interest and dividend income
Interest expense
Net interest income
Provision for credit losses - net
Net interest income after provision for credit losses
Non-interest income
Non-interest expense
Income before income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Dividends per common share
Dividend payout ratio (1)
(1) Cash dividends to common shareholders divided by net income to common shareholders.
At September 30,
OTHER DATA:
Number of real estate loans outstanding
Deposit accounts
Full-service offices
At or For the Year Ended September 30,
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average assets (1)
Return on average equity (2)
Interest rate spread (3)
Net interest margin (4)
Average interest-earning assets to average interest-bearing liabilities
Non-interest expense as a percent of average total assets
Efficiency ratio (5)
Asset Quality Ratios:
Non-accrual and 90 days or more past due loans as a percent of total loans receivable, net
Non-performing assets as a percent of total assets (6)
Allowance for credit losses as a percent of total loans receivable, net (7)
Allowance for credit losses as a percent of non-performing loans (8)
Net charge-offs (recoveries) to average outstanding loans
Capital Ratios:
Total equity-to-assets ratio
Average equity to average assets
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.
(4) Net interest income before provision for (recapture of) credit losses as a percentage of average interest-earning assets.
(5) Non-interest expenses divided by the sum of net interest income and non-interest income.
(6) Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing, non-accrual investment securities, OREO and other repossessed assets.
(7) Loans receivable is before the allowance for credit losses.
(8) Non-performing loans include non-accrual loans and loans past due 90 days or more and still accruing. For periods prior to 2024, TDRs that were on accrual status are not included.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.
See "Note 1-Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements contained in Item 8 of this report for a summary of significant accounting policies and the effect on our financial statements and the following:
Allowance for Credit Losses
The ACL is considered a critical accounting policy due to the significant judgment and subjectivity involved in its determination, as well as the potential for economic changes that could impact its adequacy. Adjustments to the ACL are made through the provision (recapture) for credit losses to ensure the ACL remains at an appropriate level, based on management’s assessment of general and specific loss reserves. Establishing the ACL involves material estimates, including economic conditions, collateral value, guarantor strength, loss exposure at default, the timing and amount of future cash flows on impaired loans, applicable loss factors for portfolio segments, and forecasted cash flow collectability over the contractual term of financial assets. These estimates are inherently subject to change and require careful evaluation. To ensure adequacy, we use systematic methodologies outlined in a formal policy that address both general valuation allowances and specific reserves for individual problem loans. Adjustments to the ACL are reflected through provisions for credit losses, which increase the ACL, or recaptures, which reduce it, both of which impact current period earnings.
The ACL is maintained at a level sufficient to provide for expected credit losses based on evaluating known and inherent risks in the loan portfolio and upon our continuing analysis of the factors underlying the quality of the loan portfolio. The ACL is comprised of a general component and a specific component. The general component establishes a reserve rate using historical life-of-loan default rates, current loan portfolio information, economic forecasts, and business cycle data. Statistical analysis determines life-of-loan default and loss rates for the quantitative component, while qualitative factors adjust expected loss rates for current and forecasted conditions. The qualitative factor methodology involves a blend of quantitative analysis and management judgement, reviewed quarterly. The specific component relates to loans that have been individually evaluated because all contractual amounts of principal and interest will not be paid as scheduled. Based on the individual analysis, a specific reserve may be established. The ACL is based upon factors and trends identified by us at the time financial statements are prepared. Although we use the best information available, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions beyond our control. While we believe the estimates and assumptions used in our 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 that may be required will not adversely impact our financial condition and results of operations. In addition, the ACL is subject to review the by Bank's regulators as part of the routine examination process, which may result in adjustments to the ACL based upon their judgment of information available to them at the time of their examination.
Fair Value Accounting and Measurement
We use fair value measurements to record fair value adjustments to certain financial assets and liabilities and to determine fair value disclosures. We include in the Notes to the Consolidated Financial Statements information about the extent to which fair value is used to measure financial assets and liabilities, the valuation methodologies used and the impact on our results of operations and financial condition. Additionally, for financial instruments not recorded at fair value we disclose, where required, our estimate of their fair value. For more information regarding fair value accounting, please refer to "Note 21-Fair Value Measurements" in the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
Goodwill
Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment. 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. The qualitative assessment involves judgment by management on determining whether there have been any triggering events that have occurred which
would indicate potential impairment. 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 values, including goodwill, to its carrying amount. If the fair value exceeds the carry 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 the reporting unit. The impairment loss would be recognized as a charge to earnings.
Market Risk and Asset and Liability Management
General. Market risk is the risk of loss from adverse changes in market prices and rates. The Bank's market risk arises primarily from interest rate risk inherent in its lending, investment, deposit and borrowing activities. The Bank, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets reprice differently than its interest-bearing liabilities. Management actively monitors and manages its interest rate risk exposure. Although the Bank manages other risks, such as credit quality and liquidity risk, in the normal course of business, management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the Bank's financial condition and results of operations. The Bank does not maintain a trading account for any class of financial instruments nor does it engage in hedging activities. Furthermore, the Bank is not subject to foreign currency exchange rate risk or commodity price risk.
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 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.
The Bank has adopted a strategy that is designed to substantially match the interest rate sensitivity of assets relative to its liabilities. The primary elements of this strategy involve originating ARM loans for its portfolio, maintaining residential construction loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other one- to four-family residential mortgage loans, matching asset and liability maturities, investing in short-term securities, and originating fixed-rate loans for retention or sale in the secondary market while retaining the related loan servicing rights.
Sharp increases or decreases in interest rates may adversely affect the Bank's earnings. Management of the Bank monitors the Bank's interest rate sensitivity using a model provided by Kinective, a company that specializes in providing interest rate risk and balance sheet management services to the financial services industry. Based on an interest rate shock analysis prepared by Kinective using data at September 30, 2025, an immediate increase in interest rates of 100 basis points would decrease the Bank’s projected net interest income by approximately 0.5%. An immediate decrease in interest rates of 100 basis points would decrease the Bank's projected net interest income by approximately 2.6%. See “Quantitative Aspects of Market Risk” below for additional information. Management has sought to sustain the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Pursuant to this strategy, the Bank actively originates adjustable-rate loans for retention in its loan portfolio. Fixed-rate mortgage loans with maturities greater than seven years generally are originated for the immediate or future resale in the secondary mortgage market. Although the Bank has sought to originate ARM loans, the ability to originate such loans depends to a great extent on market interest rates and borrowers' preferences.
Consumer, commercial business and construction loans typically have shorter terms and higher yields than permanent residential mortgage loans and, accordingly, reduce the Bank’s exposure to fluctuations in interest rates. At September 30, 2025, the consumer, commercial business and construction loan portfolios amounted to $52.51 million, $127.00 million and $223.89 million, respectively, or 3.3%, 8.1% and 14.2%, respectively, of total loans receivable.
Quantitative Aspects of Market Risk. The model provided for the Bank by Kinective estimates the changes in the economic value of equity ("EVE") and net interest income in response to a range of assumed changes in market interest rates. The model first estimates the level of the Bank's EVE (market value of assets, less market value of liabilities, plus or minus the market value of any off-balance sheet items) under the current rate environment. In general, market values are estimated by discounting the estimated cash flows of each instrument by appropriate discount rates. The model then recalculates the Bank's EVE under different interest rate scenarios. The change in EVE under the different interest rate scenarios provides a measure of the Bank's exposure to interest rate risk. The following table is provided by Kinective based on data at September 30, 2025:
Hypothetical
Net Interest Income (1)
Economic Value of Equity
Interest Rate
$ Change
% Change
$ Change
% Change
Scenario (2)
from Base
from Base
from Base
from Base
(Basis Points)
(Dollars in thousands)
BASE
(1) Does not include loan fees. Includes BOLI income, which is included in non-interest income in the consolidated financial statements.
(2) No rates in the model are allowed to go below zero.
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. The computations do not reflect any actions management may undertake in response to changes in interest rates.
For 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 2.6% decrease in net interest income. In the event of a 100 basis point increase in interest rates, a 0.1% decrease in EVE and a 0.5% decrease in net interest income would be expected. The Bank’s asset and liability structure generally results in decreases in net interest income and EVE under the hypothetical interest rate scenarios modeled, with changes more pronounced in larger rate movements.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag changes in market rates. Additionally, certain assets have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates of deposit could possibly deviate significantly from those assumed in calculating the table.
Comparison of Financial Condition at September 30, 2025 and September 30, 2024
Total assets increased by $89.30 million, or 4.6%, to $2.01 billion at September 30, 2025 from $1.92 billion at September 30, 2024. The increase 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 $42.07 million, or 3.0%, to $1.46 billion at September 30, 2025 from $1.42 billion at September 30, 2024. Loan growth was concentrated in the mortgage-related portfolios, with the largest increase occurring in the in multi-family portfolio. These increases were partially offset by decreases in commercial business loans.
Investment securities (including investments in equity securities) decreased by $29.26 million, or 11.9%, to $215.97 million at September 30, 2025 from $245.22 million at September 30, 2024, primarily due to the maturities of U.S. Treasury investment securities and to a lesser extent, scheduled amortization. These decreases were partially offset by the purchase of additional U.S. government agency mortgage-backed investment securities and U.S. Treasury investment securities.
Total deposits increased by $68.97 million, or 4.2%, to $1.72 billion at September 30, 2025 from $1.65 billion at September 30, 2024, primarily due to increases in certificate of deposit, non-interest bearing demand, and NOW checking account balances. These increases were partially offset by decreases in money market and savings account balances.
Shareholders' equity increased by $17.20 million, or 7.0%, to $262.61 million at September 30, 2025 from $245.41 million at September 30, 2024. The increase was primarily due to net income for the year ended September 30, 2025 of $29.16 million,
partially offset by $8.09 million in dividends paid to shareholders and the repurchase of 179,966 shares of common stock for $5.76 million.
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 $75.71 million, or 43.3%, to $250.65 million at September 30, 2025 from $174.94 million at September 30, 2024. The increase was primarily a result of increased deposits.
Investment Securities: Investment securities (including investments in equity securities) decreased by $29.26 million, or 11.9%, to $215.97 million at September 30, 2025 from $245.22 million at September 30, 2024. The decrease was primarily due to $41.22 million of maturities, prepayments, and scheduled amortization on held to maturity securities, and $28.32 million in maturities, prepayments, scheduled amortization, and the sale of $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 $47.47 million in available for sale investment securities and $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.
FHLB Stock : FHLB stock increased by $8,000, or 0.4%, to $2.05 million at September 30, 2025 from $2.04 million at September 30, 2024, as a result of the increase in total assets which increased the Bank's required investment in FHLB stock under the Federal Home Loan Bank's membership and borrowing requirements.
Other Investments: Other investments consist solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, which was unchanged at both September 30, 2025 and 2024. This investment is utilized to help satisfy compliance with the Company's Community Reinvestment Act ("CRA") investment test requirements.
Loans Held for Sale: There were $1.13 million in loans held for sale at September 30, 2025 compared to none at September 30, 2024, primarily due to the timing and volume of mortgage banking loan sales. The Company generally sells longer-term fixed-rate residential loans for asset-liability management purposes and to generate non-interest income. The Company sold $22.60 million in loans during the year ended September 30, 2025 compared to $14.75 million for the year ended September 30, 2024. Loan sales increased over the past year primarily due to construction loans converting to permanent financing as higher interest rates continued to slow refinancing and purchase 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 $42.07 million, or 3.0%, to $1.46 billion at September 30, 2025 from $1.42 billion at September 30, 2024. The increase was primarily due to a $30.42 million increase in multi-family loans, a $18.57 million increase in one- to four-family loans, an $11.47 million increase in commercial real estate loans, a $6.59 million increase in land loans, a $4.69 million increase in gross construction loans and smaller changes in other categories. These increases were partially offset by a $18.41 million increase in the undisbursed portion of construction loans in process, a $12.01 million decrease in commercial business loans and smaller decreases in several other loan categories.
Loan originations increased by $59.46 million, or 23.6%, to $310.90 million for the year ended September 30, 2025 from $251.44 million for the year ended September 30, 2024. The increase in loan originations was primarily due to increases in originations of commercial real estate, construction, one- to four- family loans, consumer, and smaller increases in other categories. These increases were partially offset by a decrease in originations of commercial business loans. For additional information on loans, see "Item 1. Business - Lending Activities" and "Note 4 - 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 increased by $198,000, or 0.9%, to $21.68 million at September 30, 2025 from $21.49 million at September 30, 2024. The increase 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 - Premises and Equipment" of the Notes of the Consolidated Financial Statements contained in Item 8 of this report.
Bank Owned Life Insurance ("BOLI"): BOLI decreased by $1.78 million, or 7.5%, to $21.83 million at September 30, 2025 from $23.61 million at September 30, 2024. The decrease was primarily due to a death benefit, which was partially offset by an increase in cash surrender values.
Goodwill: The recorded amount of goodwill remained unchanged at $15.13 million at both September 30, 2025 and September 30, 2024. The Company performed its annual review of goodwill during the quarter ended June 30, 2025 and determined that there was no impairment. As of September 30, 2025, management believes that there had been no subsequent events or changes in circumstances that would indicate a potential impairment of goodwill. For additional information on goodwill, see "Note 7 - Goodwill and CDI" of the Notes to Consolidated Financial Statements contained in Item 8 of this report.
CDI: CDI decreased by $180,000 or 39.9%, to $271,000 at September 30, 2025 from $451,000 at September 30, 2024 due to scheduled amortization. For additional information on CDI, see "Note 7 - Goodwill and CDI" of the Consolidated Financial Statements contained in Item 8 of this report.
Loan Servicing Rights, Net: Loan servicing rights decreased by $557,000, or 40.6%, to $815,000 at September 30, 2025 from $1.37 million at September 30, 2024, primarily due to the amortization of servicing rights, which was partially offset by additional capitalized Freddie Mac servicing rights for loans sold with servicing retained during the period. The principal amount of loans serviced for Freddie Mac and the SBA decreased by $13.55 million to $357.01 million at September 30, 2025 from $370.56 million at September 30, 2024, reflecting normal portfolio runoff and 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 increased by $1.47 million, or 99.9%, to $2.95 million at September 30, 2025 from $1.48 million at September 30, 2024. The increase 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. Operating lease ROU assets at September 30, 2025 represented the present value of three 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 decreased by $129,000, or 2.07%, to $6.11 million at September 30, 2025 from $6.24 million at September 30, 2024. The decrease was primarily due to decreases in miscellaneous receivables (including income tax receivables) and prepaid expenses.
Deposits: Deposits increased by $68.97 million, or 4.2%, to $1.72 billion at September 30, 2025 from $1.65 billion at September 30, 2024. The increase consisted of a $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 $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 maintains 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, 2025, the Company had an available borrowing capacity of $619.92 million. The Company had $20.00 million in FHLB borrowings at September 30, 2025 and 2024. At September 30, 2025, FHLB borrowings consisted of three short-term borrowings: two totaling $15.00 million with scheduled maturities in May 2026, each 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 increased by $1.50 million or 95.4%, to $3.08 million at September 30, 2025 from $1.58 million at September 30, 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, 2025 represented the present value of three 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 increased by $1.63 million, or 18.5%, to $10.45 million at September 30, 2025 from $8.82 million at September 30, 2024. The increase was primarily due to timing differences in the normal course of business, partially offset by a decrease in accrued interest payable.
Shareholders' Equity: Total shareholders' equity increased by $17.20 million, or 7.0%, to $262.61 million at September 30, 2025 from $245.41 million at September 30, 2024. The increase was primarily due to net income of $29.16 million , partially offset by the payment of $8.09 million in dividends to common shareholders and the repurchase of 179,966 shares of the Company's common stock for $5.76 million. For additional information on shareholders' equity, see the Consolidated Statements of Shareholders' Equity contained in Item 8 of this report.
Comparison of Operating Results for the Years Ended September 30, 2025 and 2024
Net income for the year ended September 30, 2025 increased by $4.88 million, or 20.1%, to $29.16 million from $24.28 million for the year ended September 30, 2024. Net income per diluted common share increased by $0.66, or 21.9%, to $3.67 for the year ended September 30, 2025 from $3.01 for the year ended September 30, 2024. The increase in net income was primarily due to a $6.03 million increase in net interest income, reflecting growth in average loan balances and a higher net interest margin, and a $1.22 million increase in non-interest income, primarily due to higher BOLI earnings, including a death benefit received during the period. These increases were partially offset by a $1.64 million 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 decreased $217,000, reflecting stable credit quality during the period.
A more detailed explanation of the income statement categories is presented below.
Net Interest Income: Net interest income increased by $6.03 million, or 9.4%, to $70.20 million for the year ended September 30, 2025 from $64.17 million for the year ended September 30, 2024. The increase was primarily due to higher interest and dividend income resulting from increases in both the average yields and balances of loans, which outpaced the increase in interest expense resulting from increases in the average balance on interest-bearing liabilities.
Total interest and dividend income increased by $7.45 million, or 7.9%, to $102.28 million for the year ended September 30, 2025 from $94.83 million for the year ended September 30, 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, 2024. Average total interest-earning assets increased by $55.19 million, or 3.05%, to $1.87 billion for the year ended September 30, 2025 from $1.81 billion for the year ended September 30, 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. Interest income on loans receivable and loans held for sale increased by $8.10 million, or 10.45%, to $85.53 million for the year ended September 30, 2025 from $77.43 million for the year ended September 30, 2024, primarily due to a $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.
During the year ended September 30, 2025, the accretion of the purchase accounting fair value discount on loans acquired increased interest income on loans by $104,000 compared to $37,000 for the year ended September 30, 2024. The accretion of the net fair value discount on acquired loans had a two basis-point effect on the average yield on loans for the year ended September 30, 2025 and a minor effect for the year ended September 30, 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 $51,000 at September 30, 2025. During the year ended September 30, 2025, a total of $520,000 in non-accrual interest, pre-payment penalties and late fees was collected compared to $376,000 for the year ended September 30, 2024.
Interest income on investment securities decreased by $932,000, or 10.2%, to $8.20 million for the year ended September 30, 2025 from $9.13 million for the year ended September 30, 2024, due to a $49.21 million decrease in the average balance of investment securities, partially offset by a 29 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 $315,000, or 4.0%, to $8.22 million for the year ended September 30, 2025 from $7.91 million for the year ended September 30, 2024, due to a $35.38 million increase in the average balance of interest-bearing deposits in banks and CDs, and was partially offset by an 87 basis point decrease in the average yield resulting from decreased market interest rates.
Total interest expense increased by $1.42 million, or 4.6%, to $32.08 million for the year ended September 30, 2025 from $30.66 million for the year ended September 30, 2024. The increase was primarily due to higher average balances of certificates of deposit and money market accounts, which increased $59.41 million and $22.70 million, respectively. These increases more than offset declines in NOW and savings account balances, which decreased $20.61 million and $7.07 million, respectively. Interest expense on borrowings decreased, $194,000 due to lower average borrowings. The average cost of interest-bearing liabilities rose by one basis point, to 2.53%, reflecting the combined effect of higher-cost certificates of deposit and lower-cost borrowings.
As a result of these changes, the net interest margin increased 22 basis points to 3.76% for the year ended September 30, 2025 from 3.54% for the year ended September 30, 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 loan, primarily due to an increase in loans receivable, a $32,000 recapture of credit losses on investment securities, primarily due to lower balances resulting from maturities and principal payments and a $71,000 recapture of credit losses on unfunded commitments,primarily due to a decrease in the balance of unfunded loan commitments.
During the year ended 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 increased to $240,000 for the year ended September 30, 2025 compared to $54,000 for the year ended September 30, 2024, although net charge-offs (recoveries) to average outstanding loans remained low at 0.0% for both periods. Delinquent loans (loans 30 or more days past due) increased by $1.18 million, or 26.3%, to $5.66 million at September 30, 2025 from $4.48 million at September 30, 2024. Loans classified as substandard increased by $24.37 million, or 288.9%, to $32.81 million at September 30, 2025 from $8.44 million at September 30, 2024, while loans classified as doubtful totaled $202,000 at both September 30, 2025 and 2024. Loans designated as special mention totaled $5.57 million at September 30, 2025 compared to $4.40 million at September 30, 2023. Non-accrual loans increased by $522,000, or 13.4%, to $4.41 million at September 30, 2025 from $3.89 million at September 30, 2024.
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 recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on the financial condition and results of operations. In addition, the determination of the amount of the ACL is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination and have a material adverse impact on the financial condition and results of operations.
In accordance with GAAP, acquired loans are recorded at their estimated fair value, resulting in a net discount to the loans' contractual amounts, with a portion of this discount reflecting possible credit losses. Credit discounts are included in the determination of fair value. Purchased loans are evaluated for impairment in the same manner as the rest of the loan portfolio. The remaining fair value discount associated with acquired loans was $51,000 at September 30, 2025. This discount will continue to accrete into income as these loans continue to pay down.
For additional information, see "Item 1. Business - Lending Activities -- Allowance for Credit Losses" and "Note 4 - Loans Receivable and Allowance for Credit Losses" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
Non-interest Income: Total non-interest income increased $1.22 million, or 10.9%, to $12.35 million for the year ended September 30, 2025 from $11.14 million for the year ended September 30, 2024. The increase was primarily due to a $1.06 million increase in BOLI net earnings (largely the result of death benefits received in excess of cash surrender value), and by a $189,000 increase in gain on sales of loans, net and smaller increases in other categories. These increases were partially offset by a $147,000 decrease in service charges on deposits, a $91,000 decrease in ATM and debit card interchange transaction fees and smaller decreases in other categories.
Non-interest Expense: Total non-interest expense increased by $1.64 million, or 3.8%, to $45.39 million for the year ended September 30, 2025 from $43.75 million for the year ended September 30, 2024. The increase was primarily due to a $360,000 increase in state and local taxes, a $359,000 increase in professional fees, a $192,000 increase in salaries and employee benefits, a $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 $193,000 decrease in deposit operations, a $105,000 decrease in ATM and debit card processing and smaller decreases in several other categories. The increase in state and local taxes was primarily due to increased taxable income. The increase in professional fees was primarily due to an increase 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, 2025 improved to 54.98% compared to 58.09% for the year ended September 30, 2024 reflecting the combined impact of higher net interest income and non-interest income relative to total operating expenses.
Provision for Income Taxes: The provision for income taxes increased by $947,000, or 15.5% to $7.07 million for the year ended September 30, 2025 from $6.12 million for the year ended September 30, 2024. The increase was primarily due to higher 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, 2024. The decrease in the effective tax rate was primarily due to a higher percentage of non-taxable income. For additional information on income taxes, see "Note 13 - Income Taxes" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
Comparison of Results of Operations for the Years Ended September 30, 2024 and 2023
See Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2024 previously filed with the SEC.
Average Balances, Interest and Average Yields/Cost
The earnings of the Company depend largely on the spread between the yield on interest-earning assets and the cost of interest-bearing liabilities, as well as the relative amount of the Company's interest-earning assets and interest- bearing liability portfolios.
The following table sets 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. 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.
Year Ended September 30,
Average
Balance
Interest
and
Dividends
Yield/
Cost
Average
Balance
Interest
and
Dividends
Yield/
Cost
Average
Balance
Interest
and
Dividends
Yield/
Cost
(Dollars in thousands)
Interest-earning assets:
Loans receivable (1)(2)
Investment securities (2)
Dividends from mutual funds, FHLB stock and other investments
Interest-bearing deposits in banks and CDs
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
NOW checking accounts
Money market accounts
Savings accounts
Certificates of deposit accounts
Brokered deposits
Short-term borrowings
Long-term borrowings (3)
Total interest-bearing liabilities
Non-interest-bearing deposits
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest income
Interest rate spread
Net interest margin (4)
Ratio of average interest-earning assets to average interest-bearing liabilities
(1) Does not include interest on loans on non-accrual status. Includes loans held for sale and interest earned on loans held for sale. Amortized net deferred loan fees, late fees, extension fees and prepayment penalties (year ended September 30, 2025 - $1,640; year ended September 30, 2024 - $1,430 and year ended September 30, 2023 - $1,370) are included with interest and dividends. Accretion of the fair value discount on loans for the years ended September 30, 2025, 2024 and 2023 of $104, $37 and $75 respectively, is included with interest and dividends.
(2) Average balances include loans and investment securities on non-accrual status.
(3) Includes FHLB borrowings with original maturities of one year or more.
(4) Net interest income divided by total average interest-earning assets.
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on net interest income on 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 both rate and volume have been allocated to rate and volume variances based on the absolute values of each.
Year Ended September 30,
2025 Compared to Year
Ended September 30, 2024
Increase (Decrease)
Due to
Year Ended September 30,
2024 Compared to Year
Ended September 30, 2023
Increase (Decrease)
Due to
Rate
Volume
Net
Change
Rate
Volume
Net
Change
(Dollars in thousands)
Interest-earning assets:
Loans receivable (1)
Investment securities
Dividends from mutual funds, FHLB stock and other investments
Interest-bearing deposits in banks and CDs
Total net change in income on interest-earning assets
Interest-bearing liabilities:
Savings accounts
Money market accounts
NOW checking accounts
Certificates of deposit accounts
Short-term borrowings
Long-term borrowings
Total net change in expense on interest-bearing liabilities
Net change in net interest income
(1) Excludes interest on loans on non-accrual status. Includes loans held for sale and interest earned on loans held for sale.
Liquidity and Capital Resources
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 FHLB borrowings (if needed). While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
The Bank must maintain an adequate level of liquidity to help ensure the availability of sufficient funds to fund its operations. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At September 30, 2025, the Bank's regulatory liquidity ratio (net cash, and short-term and marketable assets, as a percentage of net deposits and short-term liabilities) was 16.6%. At September 30, 2025, the Bank maintained an unused credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral, under which $20.00 million of the $639.92 million available for borrowings with the FHLB was outstanding at September 30, 2025. The Bank maintains a short-term borrowing line with the FRB with total credit based on eligible collateral. At September 30, 2025, the Bank had no outstanding balance on the FRB borrowing line, under which $70.57 million was available for future borrowings. The Bank also maintains a $50.00 million overnight borrowing line with Pacific Coast Bankers' Bank ("PCBB"). At September 30, 2025, the Bank did not have an outstanding balance on this
borrowing line. Subject to market conditions, the Bank expects to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.
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.
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, 2025, 2024 and 2023, the Bank originated $310.90 million, $251.44 million and $361.79 million of loans, respectively. At September 30, 2025, the Bank had loan commitments, consisting of undisbursed lines of credit and commitments to extend credit, totaling $158.26 million and undisbursed construction loans in process totaling $88.29 million. Investment securities purchased during the years ended September 30, 2025, 2024 and 2023 totaled $52.89 million, $44.95 million and $32.60 million, respectively.
The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments. During the years ended September 30, 2025, 2024 and 2023, the Bank sold $22.60 million, $14.75 million and $11.54 million, respectively, in loans and loan participation interests. During the years ended September 30, 2025, 2024 and 2023, the Bank received $227.11 million, $142.78 million and $177.31 million, respectively, in loan principal repayments.
The Bank’s liquidity has been impacted by changes in deposit levels. During the years ended September 30, 2025 and 2024, deposits increased by $68.97 million and $86.73 million, respectively. During the year ended September 30, 2023, deposits decreased by $71.24 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. The increase was primarily a result of increased deposits which 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.
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. Based on current objectives, there are no projects scheduled for capital investments in premises and equipment during the fiscal year ending September 30, 2026 that would materially impact liquidity.
For the fiscal year ending September 30, 2026, the Bank projects that fixed commitments will include $377,000 of operating lease payments. FHLB borrowings of $20.0 million mature during the fiscal year 2026. In addition, at September 30, 2025, there were other future obligations and accrued expenses of $10.45 million. For additional information, see "Note 11 - FHLB Borrowings and Other Borrowings" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
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 its operating expenses, Timberland Bancorp is responsible for paying 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. At September 30, 2025, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.16 million.
The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. The current quarterly common stock dividend rate is $0.28 per share, as approved by the Board of Directors, which is a dividend rate per share that enables the Company to balance multiple objectives of managing and investing in the Bank and returning a substantial portion of cash to shareholders. Assuming continued payment during fiscal year 2026 at the rate of $0.28 per share, the average total dividend paid each quarter would be approximately $2.21 million based on the number of current outstanding shares at September 30, 2025.
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 stock repurchase program authorizing the repurchase of up to 393,842 shares of Company common stock, of which 337,280 shares remained available for future purchases as of September 30, 2025. 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. For additional information on the Company’s stock repurchases, see “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” contained in Part II of this report.
Bank holding companies and federally-insured state-chartered banks are required to maintain minimum levels of regulatory capital. At September 30, 2025, Timberland Bancorp and the Bank were in compliance with all applicable capital requirements. For additional details, see "Note 17 - Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report and “Item 1. Business - Regulation of the Bank - Capital Requirements".
New Accounting Pronouncements
For a discussion of new accounting pronouncements and their impact on the Company, see "Note 1-Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.
