LOANS AND ACL

3 Months Ended

Jun. 30, 2025

6. LOANS AND ACL

Loans receivable is reported net of deferred loan fees and discounts, and inclusive of premiums. Deferred loan fees totaled $4.2 million and $4.3 million at June 30, 2025 and March 31, 2025, respectively. Discounts and premiums on loans receivable totaled $1.1 million and $1.7 million, respectively, at June 30, 2025, compared to $1.2 million and $1.7 million, respectively, at March 31, 2025. Loans receivable consisted of the following at the dates indicated (in thousands):


	June 30,		March 31,
	2025		2025
Commercial and construction
Commercial business	$	231,826	$	232,935
Commercial real estate		599,617		592,185
Land		3,659		4,610
Multi-family		90,606		91,451
Real estate construction		20,133		29,182
Total commercial and construction		945,841		950,363

Consumer
Real estate one-to-four family		98,147		97,683
Other installment		24,092		14,414
Total consumer		122,239		112,097

Total loans		1,068,080		1,062,460

Less: ACL for loans		15,426		15,374
Loans receivable, net	$	1,052,654	$	1,047,086

The Company considers its loan portfolio to have very little exposure to sub-prime mortgage loans since the Company has not historically engaged in this type of lending. At June 30, 2025, loans carried at $765.8 million were pledged as collateral to the FHLB of Des Moines and FRB pursuant to borrowing agreements.

Substantially all the Company’s business activity is with clients located in the states of Washington and Oregon. Loans and extensions of credit outstanding at one time to one borrower are generally limited by federal regulation to 15% of the Bank’s shareholders’ equity, excluding AOCI. As of June 30, 2025 and March 31, 2025, the Bank had no loans to any one borrower in excess of the regulatory limit.

Troubled Loan Modifications (“TLM”) – Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the ACL for loans. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL for loans is adjusted by the same amount. The ACL on modified loans is measured using the same credit loss estimation methods used to determine the ACL for all other loans held for investment. These methods incorporate the post-modification loan terms, as well as defaults and charge-offs associated with historical modified loans.

There were no loans modified related to borrowers experiencing financial difficulty during the three months ended June 30, 2025. There were no loans past due at June 30, 2025 that had been modified in the previous 12 months.

Credit quality indicators: The Company monitors credit risk in its loan portfolio using a risk rating system (on a scale of one to nine) for all commercial (non-consumer) loans. The risk rating system is a measure of the credit risk of the borrower based on their historical, current and anticipated future financial characteristics. The Company assigns a risk rating to each commercial loan at origination and subsequently updates these ratings, as necessary, so that the risk rating continues to reflect the appropriate risk characteristics of the loan. Application of appropriate risk ratings is key to management of loan portfolio risk. In determining the appropriate risk rating, the Company considers the following factors: delinquency, payment history, quality of management, liquidity, leverage, earnings trends, alternative funding sources, geographic risk, industry risk, cash flow adequacy, account practices, asset protection and extraordinary risks. Consumer loans, including custom construction loans, are not assigned a risk rating but rather are grouped into homogeneous pools with similar risk characteristics. When a consumer loan is delinquent 90 days, it is placed on non-accrual status and assigned a substandard risk rating. Loss factors are assigned to each risk rating and homogeneous pool based on historical loss experience for similar loans. This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience. The Company uses these loss factors to estimate the general component of its ACL.

Pass – These loans have a risk rating between 1 and 4 and are to borrowers that meet normal credit standards. Any deficiencies in satisfactory asset quality, liquidity, debt servicing capacity and coverage are offset by strengths in other areas. The borrower currently has the capacity to perform according to the loan terms. Any concerns about risk factors such as stability of margins, stability of cash flows, liquidity, dependence on a single product/supplier/client, depth of management, etc. are offset by strengths in other areas. Typically, these loans are secured by the operating assets of the borrower and/or real estate. The borrower’s management is considered competent. The borrower has the ability to repay the debt in the normal course of business.

Watch – These loans have a risk rating of 5 and are included in the “pass” rating. However, there would typically be some reason for additional management oversight, such as the borrower’s recent financial setbacks and/or deteriorating financial position, industry concerns and failure to perform on other borrowing obligations. Loans with this rating are monitored closely in an effort to correct deficiencies.

Special mention – These loans have a risk rating of 6 and are rated in accordance with regulatory guidelines. These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the credit position at some future date. These loans pose elevated risk but their weakness does not yet justify a “substandard” classification.

Substandard – These loans have a risk rating of 7 and are rated in accordance with regulatory guidelines, for which the accrual of interest may or may not be discontinued. Under regulatory guidelines, a “substandard” loan has defined weaknesses which make payment default or principal exposure likely but not yet certain. Repayment of such loans is likely to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.

Doubtful – These loans have a risk rating of 8 and are rated in accordance with regulatory guidelines. Such loans are placed on non-accrual status and repayment may be dependent upon collateral which has value that is difficult to determine or upon some near-term event which lacks certainty.

Loss – These loans have a risk rating of 9 and are rated in accordance with regulatory guidelines. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

The following table sets forth the Company’s loan portfolio at June 30, 2025 and March 31, 2025 by risk attribute and year of origination as well as current period gross charge-offs (in thousands). Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.


	June 30, 2025
	Term Loans Amortized Cost Basis by Origination Fiscal Year
															Total
													Revolving		Loans
	2026		2025		2024		2023		2022		Prior		Loans		Receivable

Commercial business
Risk rating
Pass	$	2,208	$	12,437	$	18,010	$	53,711	$	84,230	$	42,903	$	10,843	$	224,342
Special Mention		—		1,791		—		—		530		394		4,094		6,809
Substandard		—		—		—		—		—		675		—		675
Total commercial business	$	2,208	$	14,228	$	18,010	$	53,711	$	84,760	$	43,972	$	14,937	$	231,826
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate
Risk rating
Pass	$	10,001	$	47,954	$	48,040	$	57,820	$	136,253	$	251,052	$	—	$	551,120
Special Mention		—		—		3,162		6,352		5,207		23,805		—		38,526
Substandard		—		—		30		—		—		9,941		—		9,971
Total commercial real estate	$	10,001	$	47,954	$	51,232	$	64,172	$	141,460	$	284,798	$	—	$	599,617
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Land
Risk rating
Pass	$	—	$	611	$	—	$	2,545	$	81	$	435	$	(13)	$	3,659
Total land	$	—	$	611	$	—	$	2,545	$	81	$	435	$	(13)	$	3,659
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family
Risk rating
Pass	$	158	$	1,127	$	941	$	39,016	$	35,606	$	13,341	$	—	$	90,189
Special Mention		—		—		—		181		—		134		—		315
Substandard		—		—		—		—		18		84		—		102
Total multi-family	$	158	$	1,127	$	941	$	39,197	$	35,624	$	13,559	$	—	$	90,606
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	June 30, 2025
	Term Loans Amortized Cost Basis by Origination Fiscal Year
															Total
													Revolving		Loans
	2026		2025		2024		2023		2022		Prior		Loans		Receivable

Real estate construction
Risk rating
Pass	$	237	$	10,092	$	6,454	$	3,350	$	—	$	—	$	—	$	20,133
Total real estate construction	$	237	$	10,092	$	6,454	$	3,350	$	—	$	—	$	—	$	20,133
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Real estate one-to-four family
Risk rating
Pass	$	—	$	5	$	—	$	—	$	56,841	$	20,688	$	20,584	$	98,118
Substandard		—		—		—		—		—		29		—		29
Total real estate one-to-four family	$	—	$	5	$	—	$	—	$	56,841	$	20,717	$	20,584	$	98,147
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Other installment
Risk rating
Pass	$	7,600	$	15,236	$	343	$	291	$	77	$	48	$	497	$	24,092
Total other installment	$	7,600	$	15,236	$	343	$	291	$	77	$	48	$	497	$	24,092
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total loans receivable, gross
Risk rating
Pass	$	20,204	$	87,462	$	73,788	$	156,733	$	313,088	$	328,467	$	31,911	$	1,011,653
Special Mention		—		1,791		3,162		6,533		5,737		24,333		4,094		45,650
Substandard		—		—		30		—		18		10,729		—		10,777
Total loans receivable, gross	$	20,204	$	89,253	$	76,980	$	163,266	$	318,843	$	363,529	$	36,005	$	1,068,080
Total current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	March 31, 2025
	Term Loans Amortized Cost Basis by Origination Fiscal Year
															Total
													Revolving		Loans
	2025		2024		2023		2022		2021		Prior		Loans		Receivable

Commercial business
Risk rating
Pass	$	10,840	$	17,592	$	56,013	$	85,632	$	20,918	$	24,198	$	12,822	$	228,015
Special Mention		1,964		—		—		571		—		456		1,166		4,157
Substandard		—		—		—		—		472		291		—		763
Total commercial business	$	12,804	$	17,592	$	56,013	$	86,203	$	21,390	$	24,945	$	13,988	$	232,935
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate
Risk rating
Pass	$	44,477	$	42,181	$	61,005	$	138,354	$	86,768	$	173,364	$	—	$	546,149
Special Mention		—		3,164		3,638		5,246		—		31,920		—		43,968
Substandard		—		30		—		—		—		2,038		—		2,068
Total commercial real estate	$	44,477	$	45,375	$	64,643	$	143,600	$	86,768	$	207,322	$	—	$	592,185
Current YTD gross write-offs	$	—	$	80	$	—	$	—	$	—	$	—	$	—	$	80

Land
Risk rating
Pass	$	615	$	—	$	2,570	$	84	$	—	$	457	$	884	$	4,610
Total land	$	615	$	—	$	2,570	$	84	$	—	$	457	$	884	$	4,610
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family
Risk rating
Pass	$	1,132	$	947	$	39,279	$	35,831	$	4,257	$	9,583	$	—	$	91,029
Special Mention		—		—		183		—		18		155		—		356
Substandard		—		—		—		—		—		66		—		66
Total multi-family	$	1,132	$	947	$	39,462	$	35,831	$	4,275	$	9,804	$	—	$	91,451
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	March 31, 2025
	Term Loans Amortized Cost Basis by Origination Fiscal Year
															Total
													Revolving		Loans
	2025		2024		2023		2022		2021		Prior		Loans		Receivable

Real estate construction
Risk rating
Pass	$	14,092	$	11,784	$	3,306	$	—	$	—	$	—	$	—	$	29,182
Total real estate construction	$	14,092	$	11,784	$	3,306	$	—	$	—	$	—	$	—	$	29,182
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Real estate one-to-four family
Risk rating
Pass	$	133	$	—	$	—	$	58,107	$	4,041	$	17,115	$	18,257	$	97,653
Substandard		—		—		—		—		—		30		—		30
Total real estate one-to-four family	$	133	$	—	$	—	$	58,107	$	4,041	$	17,145	$	18,257	$	97,683
Current YTD gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	11	$	11

Other installment
Risk rating
Pass	$	13,185	$	337	$	336	$	96	$	48	$	6	$	406	$	14,414
Total other installment	$	13,185	$	337	$	336	$	96	$	48	$	6	$	406	$	14,414
Current YTD gross write-offs	$	—	$	6	$	—	$	25	$	—	$	—	$	1	$	32

Total loans receivable, gross
Risk rating
Pass	$	84,474	$	72,841	$	162,509	$	318,104	$	116,032	$	224,723	$	32,369	$	1,011,052
Special Mention		1,964		3,164		3,821		5,817		18		32,531		1,166		48,481
Substandard		—		30		—		—		472		2,425		—		2,927
Total loans receivable, gross	$	86,438	$	76,035	$	166,330	$	323,921	$	116,522	$	259,679	$	33,535	$	1,062,460
Total current YTD gross write-offs	$	—	$	86	$	—	$	25	$	—	$	—	$	12	$	123

ACL on Loans - The ACL for loans is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL for loans is evaluated based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period that historical experience was based for each loan type. Finally, the Company considers forecasts about future economic conditions or changes in collateral values that are reasonable and supportable. The Company estimates the expected credit losses over the loans’ contractual terms, adjusted for expected prepayments. The ACL for loans is calculated for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions.

The methodology for estimating the amount of expected credit losses has two basic components: (i) a general component for pools of loans that share similar risk characteristics; and (ii) an individual component for loans that do not share risk characteristics with other loans and are evaluated individually. The Company's ACL model methodology is to build a reserve rate using historical life of loan default rates combined with assessments of current loan portfolio information and current and forecasted economic environment and business cycle information. The model uses statistical analysis to determine the life of loan default rates for the quantitative component and analyzes qualitative factors (Q-Factors) that assess the current loan portfolio conditions and forecasted economic environment and collateral values. For loans that are individually evaluated, an allowance is established when the discounted cash flows or collateral value (less estimated selling costs, if applicable) is lower than the carrying value of the loan.

When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the ACL. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement.

Management’s evaluation of the ACL for loans is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL for loans and may require the Company to make additions to the ACL for loans based on their judgment about information available to them at the time of their examinations.

The following tables detail activity in the ACL for loans at or for the three months ended June 30, 2025 and 2024, by loan category (in thousands):


Three months ended	Commercial		Commercial				Multi-		Real Estate
June 30, 2025	Business		Real Estate		Land		Family		Construction		Consumer		Total

Beginning balance	$	5,033	$	7,492	$	83	$	444	$	480	$	1,842	$	15,374
(Recapture of) provision for credit losses		(174)		158		(11)		(4)		(147)		178		—
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		52		52
Ending balance	$	4,859	$	7,650	$	72	$	440	$	333	$	2,072	$	15,426

Three months ended
June 30, 2024

Beginning balance	$	5,280	$	7,391	$	106	$	367	$	636	$	1,584	$	15,364
(Recapture of) provision for credit losses		(139)		(88)		14		35		87		91		—
Charge-offs		—		—		—		—		—		(1)		(1)
Recoveries		—		—		—		—		—		1		1
Ending balance	$	5,141	$	7,303	$	120	$	402	$	723	$	1,675	$	15,364

Non-accrual loans: Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 to 89 days delinquent. In general, when a loan is 90 days or more delinquent or when collection of principal or interest

appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations. As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method. Also, as a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note. A history of repayment performance generally would be a minimum of six months. Interest income foregone on non-accrual loans was $4,000 and $2,000 for the three months ended June 30, 2025 and 2024, respectively.

The following tables present an analysis of loans by aging category at the dates indicated (in thousands):


							Total
			90 Days				Past
			and				Due and				Total
	30-89 Days		Greater				Non-				Loans
June 30, 2025	Past Due		Past Due		Non-accrual		accrual		Current		Receivable

Commercial business	$	3,662	$	—	$	32	$	3,694	$	228,132	$	231,826
Commercial real estate		—		—		82		82		599,535		599,617
Land		—		—		—		—		3,659		3,659
Multi-family		—		—		—		—		90,606		90,606
Real estate construction		—		—		—		—		20,133		20,133
Consumer		—		—		29		29		122,210		122,239
Total	$	3,662	$	—	$	143	$	3,805	$	1,064,275	$	1,068,080

March 31, 2025

Commercial business	$	3,793	$	—	$	37	$	3,830	$	229,105	$	232,935
Commercial real estate		242		—		88		330		591,855		592,185
Land		—		—		—		—		4,610		4,610
Multi-family		—		—		—		—		91,451		91,451
Real estate construction		—		—		—		—		29,182		29,182
Consumer		47		—		30		77		112,020		112,097
Total	$	4,082	$	—	$	155	$	4,237	$	1,058,223	$	1,062,460

Included in the 30-89 days past due loans at June 30, 2025 and March 31, 2025 are $2.1 million and $3.1 million, respectively, of fully guaranteed SBA or United States Department of Agriculture (“USDA”) loans. These government guaranteed loans are classified as pass rated loans and are not considered to be either nonaccrual or classified loans because based on the guarantee, the Company expects to receive all principal and interest according to the contractual terms of the loan agreement and there are no well-defined weaknesses or risk of loss. As a result, these loans were omitted from the required calculation of the ACL for loans. Interest income foregone on non-accrual loans was $4,000 and $16,000 for the three months ended June 30, 2025 and the year ended March 31, 2025, respectively.

At June 30, 2025, the Company had $84,000 of non-accrual loans with no ACL and $59,000 of non-accrual loans with an ACL of $1,000. At March 31, 2025, the Company had $94,000 of non-accrual loans with no ACL and $61,000 of non-accrual loans with an ACL of $1,000. The amortized cost of collateral dependent loans as of June 30, 2025, were $32,000 and $52,000 for commercial business and commercial real estate, respectively, compared to $37,000 and $57,000 for March 31, 2025, respectively.