First Northwest Bancorp 10-Q

Item 1. Financial Statements (Unaudited)   FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share information) (Unaudited)       June 30, 2023     December 31, 2022   ASSETS                 Cash and due from banks   $ 19,294     $ 17,104   Interest-earning deposits in banks     59,008       28,492   Investment securities available for sale, at fair value     321,963       326,569   Loans held for sale     2,049       597   Loans receivable (net of allowance for credit losses on loans of $ 17,297 and $ 16,116 )     1,620,863       1,531,435   Federal Home Loan Bank (FHLB) stock, at cost     12,621       11,681   Accrued interest receivable     7,480       6,743   Premises and equipment, net     18,140       18,089   Servicing rights on sold loans, at fair value     3,825       3,887   Bank-owned life insurance, net     40,066       39,665   Equity and partnership investments     14,569       14,289   Goodwill and other intangible assets, net     1,087       1,089   Deferred tax asset, net     15,031       14,091   Prepaid expenses and other assets     26,882       28,339   Total assets   $ 2,162,878     $ 2,042,070                     LIABILITIES AND SHAREHOLDERS' EQUITY                 Deposits   $ 1,653,122     $ 1,564,255   Borrowings     303,397       285,358   Accrued interest payable     1,367       455   Accrued expenses and other liabilities     44,286       32,344   Advances from borrowers for taxes and insurance     1,149       1,376   Total liabilities     2,003,321       1,883,788                     Shareholders' Equity                 Preferred stock, $ 0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding     —       —   Common stock, $ 0.01 par value, authorized 75,000,000 shares; issued and outstanding 9,633,496 shares at June 30, 2023, and 9,703,581 shares at December 31, 2022     96       97   Additional paid-in capital     95,360       95,508   Retained earnings     111,750       114,424   Accumulated other comprehensive loss, net of tax     ( 40,066 )     ( 40,543 ) Unearned employee stock ownership plan (ESOP) shares     ( 7,583 )     ( 7,913 ) Total parent's shareholders' equity     159,557       161,573   Noncontrolling interest in Quin Ventures, Inc.     —       ( 3,291 ) Total shareholders' equity     159,557       158,282   Total liabilities and shareholders' equity   $ 2,162,878     $ 2,042,070     See selected notes to the consolidated financial statements.   3 Table of Contents   FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited)         Three Months Ended     Six Months Ended       June 30,     June 30,       2023     2022     2023     2022   INTEREST INCOME                                 Interest and fees on loans receivable   $ 21,299     $ 16,081     $ 40,803     $ 30,617   Interest on investment securities     3,336       2,715       6,518       4,990   Interest on deposits and other     617       46       1,021       84   FHLB dividends     222       119       414       171   Total interest income     25,474       18,961       48,756       35,862   INTEREST EXPENSE                                 Deposits     6,209       796       10,562       1,513   Borrowings     3,283       922       5,907       1,620   Total interest expense     9,492       1,718       16,469       3,133   Net interest income     15,982       17,243       32,287       32,729   Provision for (recapture of) credit losses     300       500       ( 200 )     500   Net interest income after provision for (recapture of) credit losses     15,682       16,743       32,487       32,229   NONINTEREST INCOME                                 Loan and deposit service fees     1,064       1,091       2,205       2,264   Sold loan servicing fees and servicing rights mark-to-market     ( 191 )     27       302       459   Net gain on sale of loans     58       231       234       484   Net (loss) gain on sale of investment securities     —       ( 8 )     —       118   Increase in cash surrender value of bank-owned life insurance     190       213       416       465   Other income     590       668       888       835   Total noninterest income     1,711       2,222       4,045       4,625   NONINTEREST EXPENSE                                 Compensation and benefits     8,180       9,735       16,017       18,538   Data processing     2,080       1,870       4,118       3,642   Occupancy and equipment     1,214       1,432       2,423       2,599   Supplies, postage, and telephone     435       408       790       721   Regulatory assessments and state taxes     424       441       813       802   Advertising     929       1,405       1,970       2,157   Professional fees     884       629       1,690       1,188   FDIC insurance premium     313       211       570       434   Other expense     758       832       1,697       1,713   Total noninterest expense     15,217       16,963       30,088       31,794   Income before provision for income taxes     2,176       2,002       6,444       5,060   Provision for income taxes     475       467       1,300       1,021   Net income     1,701       1,535       5,144       4,039   Net loss attributable to noncontrolling interest in Quin Ventures, Inc.     75       953       160       1,255   Net income attributable to parent   $ 1,776     $ 2,488     $ 5,304     $ 5,294                                     Basic and diluted earnings per common share   $ 0.20     $ 0.27     $ 0.59     $ 0.58                                       See selected notes to the consolidated financial statements.   4 Table of Contents     FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands) (Unaudited)         Three Months Ended     Six Months Ended       June 30,     June 30,       2023     2022     2023     2022                                     Net income   $ 1,701     $ 1,535     $ 5,144     $ 4,039                                     Other comprehensive (loss) income:                                 Unrealized holding (losses) gains on investments available for sale arising during the period     ( 4,152 )     ( 16,875 )     639       ( 36,329 ) Income tax benefit related to unrealized holding (losses) gains on investments     1,115       3,545       86       7,629   Amortization of unrecognized DB plan prior service cost     38       36       76       73   Income tax provision related to amortization of DB plan prior service cost     ( 8 )     ( 7 )     ( 16 )     ( 15 ) Unrealized holding gains (losses) on derivatives     1,336       —       ( 392 )     —   Income tax (provision) benefit related to unrealized holding gains (losses) on derivatives     ( 287 )     —       84       —   Reclassification adjustment for net (gains) losses on sales of securities realized in income     —       8       —       ( 118 ) Income tax (provision) benefit related to reclassification adjustment on sales of securities     —       ( 1 )     —       25   Other comprehensive (loss) income, net of tax     ( 1,958 )     ( 13,294 )     477       ( 28,735 ) Comprehensive (loss) income     ( 257 )     ( 11,759 )     5,621       ( 24,696 ) Comprehensive loss attributable to noncontrolling interest     ( 75 )     ( 953 )     ( 160 )     ( 1,255 ) Comprehensive (loss) income attributable to parent   $ ( 182 )   $ ( 10,806 )   $ 5,781     $ ( 23,441 )         See selected notes to the consolidated financial statements.   5 Table of Contents   FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three Months Ended June 30, 2023 and 2022 (Dollars in thousands, except share information) (Unaudited)       Common Stock     Additional Paid-in     Retained     Unearned ESOP     Accumulated Other Comprehensive Loss,     Noncontrolling     Total Shareholders'       Shares     Amount     Capital     Earnings     Shares     Net of Tax     Interest     Equity                                                                     Balance at March 31, 2022     10,003,622     $ 100     $ 96,473     $ 105,546     $ ( 8,407 )   $ ( 15,153 )   $ ( 783 )   $ 177,776   Net income                             2,488                       ( 953 )     1,535   Common stock repurchased     ( 52,618 )     ( 1 )     ( 525 )     ( 333 )                             ( 859 ) Restricted stock award grants net of forfeitures     575       1       ( 1 )                                     —   Restricted stock awards canceled     ( 1,407 )     —       ( 27 )                                   ( 27 ) Other comprehensive loss, net of tax                                             ( 13,294 )             ( 13,294 ) Share-based compensation expense                   479                               479   ESOP shares committed to be released                     80               165                       245   Cash dividends declared ($ 0.07 per share)                         ( 701 )                       ( 701 ) Balance at June 30, 2022     9,950,172     $ 100     $ 96,479     $ 107,000     $ ( 8,242 )   $ ( 28,447 )   $ ( 1,736 )   $ 165,154                                                                                                                                       Balance at March 31, 2023     9,674,055     $ 97     $ 95,333     $ 114,139     $ ( 7,749 )   $ ( 38,108 )   $ ( 3,376 )   $ 160,336   Net income                             1,776                       ( 75 )     1,701   Common stock repurchased     ( 30,176 )     ( 1 )     ( 301 )     ( 39 )                       ( 341 ) Restricted stock award forfeitures net of grants     ( 8,911 )     —       —                               —   Restricted stock awards canceled     ( 1,472 )     —       ( 17 )                                   ( 17 ) Other comprehensive loss, net of tax                                     ( 1,958 )           ( 1,958 ) Close out investment in Quin Ventures                         ( 3,451 )                 3,451       —   Share-based compensation expense                   358                               358   ESOP shares committed to be released                     ( 13 )             166                       153   Cash dividends declared ($ 0.07 per share)                         ( 675 )                       ( 675 ) Balance at June 30, 2023     9,633,496     $ 96     $ 95,360     $ 111,750     $ ( 7,583 )   $ ( 40,066 )   $ —     $ 159,557       See selected notes to the consolidated financial statements.   6 Table of Contents   FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Six Months Ended June 30, 2023 and 2022 (Dollars in thousands, except share information) (Unaudited)       Common Stock     Additional Paid-in     Retained     Unearned ESOP     Accumulated Other Comprehensive Loss,     Noncontrolling     Total Shareholders'       Shares     Amount     Capital     Earnings     Shares     Net of Tax     Interest     Equity                                                                     Balance at December 31, 2021     9,972,698     $ 100     $ 96,131     $ 103,014     $ ( 8,572 )   $ 288     $ ( 481 )   $ 190,480   Net income                             5,294                       ( 1,255 )     4,039   Common stock repurchased     ( 52,618 )     ( 1 )     ( 525 )     ( 333 )                             ( 859 ) Restricted stock award grants net of forfeitures     40,418       1       ( 1 )                                     —   Restricted stock awards canceled     ( 10,326 )     —       ( 222 )                                   ( 222 ) Other comprehensive loss, net of tax                                             ( 28,735 )             ( 28,735 ) Reclassification resulting from change in accounting method, net of tax                             424                               424   Share-based compensation expense                   890                               890   ESOP shares committed to be released                     206               330                       536   Cash dividends declared ($ 0.14 per share)                         ( 1,399 )                       ( 1,399 ) Balance at June 30, 2022     9,950,172     $ 100     $ 96,479     $ 107,000     $ ( 8,242 )   $ ( 28,447 )   $ ( 1,736 )   $ 165,154                                                                                                                                       Balance at December 31, 2022     9,703,581     $ 97     $ 95,508     $ 114,424     $ ( 7,913 )   $ ( 40,543 )   $ ( 3,291 )   $ 158,282   Net income                             5,304                       ( 160 )     5,144   Common stock repurchased     ( 74,617 )     ( 1 )     ( 745 )     ( 222 )                       ( 968 ) Restricted stock award grants net of forfeitures     16,338       —       —                                       —   Restricted stock awards canceled     ( 11,806 )     —       ( 162 )                                   ( 162 ) Other comprehensive income, net of tax                                     477             477   Reclassification resulting from adoption of Accounting Standards Codification 326, net of tax                         ( 2,951 )                       ( 2,951 ) Close out investment in Quin Ventures                         ( 3,451 )                 3,451       —   Share-based compensation expense                   749                               749   ESOP shares committed to be released                     10               330                       340   Cash dividends declared ($ 0.14 per share)                         ( 1,354 )                       ( 1,354 ) Balance at June 30, 2023     9,633,496     $ 96     $ 95,360     $ 111,750     $ ( 7,583 )   $ ( 40,066 )   $ —     $ 159,557     See selected notes to the consolidated financial statements.   7 Table of Contents     FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)       Six Months Ended June 30,       2023     2022   Cash flows from operating activities:                 Net income before noncontrolling interest   $ 5,144     $ 4,039   Adjustments to reconcile net income to net cash from operating activities:                 Depreciation and amortization     799       983   Amortization of core deposit intangible     2       7   Amortization and accretion of premiums and discounts on investments, net     711       898   (Accretion) amortization of deferred loan fees and purchased premiums, net     ( 160 )     571   Amortization of debt issuance costs     39       39   Change in fair value of sold loan servicing rights     137       53   Additions to servicing rights on sold loans, net     ( 75 )     ( 98 ) (Recapture of) provision for credit losses     ( 200 )     500   Allocation of ESOP shares     340       404   Share-based compensation expense     749       890   Gain on sale of loans, net     ( 234 )     ( 484 ) Gain on sale of securities available for sale, net     —       ( 118 ) Increase in cash surrender value of life insurance, net     ( 416 )     ( 465 ) Origination of loans held for sale     ( 13,294 )     ( 16,487 ) Proceeds from sale of loans held for sale     12,076       17,035   Change in assets and liabilities:                 Increase in accrued interest receivable     ( 737 )     ( 513 ) Decrease (increase) in prepaid expenses and other assets     1,299       ( 3,854 ) Increase in accrued interest payable     912       68   Increase in accrued expenses and other liabilities     10,699       5,788   Net cash provided by operating activities     17,791       9,256                     Cash flows from investing activities:                 Purchase of securities available for sale     —       ( 78,409 ) Proceeds from maturities, calls, and principal repayments of securities available for sale     4,535       19,565   Proceeds from sales of securities available for sale     —       12,685   Purchase of FHLB stock     ( 940 )     ( 5,206 ) Early surrender of bank-owned life insurance policy     15       —   Net increase in loans receivable     ( 91,792 )     ( 112,363 ) Purchase of premises and equipment, net     ( 850 )     ( 2,442 ) Capital contributions to equity and partnership investments     ( 209 )     ( 6,979 ) Capital disbursements received from equity and partnership investments     347       —   Capital contributions to historic tax credit partnerships     —       ( 1,829 ) Net cash used by investing activities     ( 88,894 )     ( 174,978 )   See selected notes to the consolidated financial statements.   8 Table of Contents   FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)       Six Months Ended June 30,       2023     2022   Cash flows from financing activities:                 Net increase in deposits   $ 88,867     $ 144   Proceeds from long-term FHLB advances     15,000       10,000   Repayment of long-term FHLB advances     ( 10,000 )     —   Net increase in short-term FHLB advances     14,000       112,000   Net (decrease) increase in line of credit     ( 1,000 )     8,000   Net decrease in advances from borrowers for taxes and insurance     ( 227 )     ( 174 ) Payment of dividends     ( 1,354 )     ( 1,388 ) Restricted stock awards canceled     ( 162 )     ( 222 ) Repurchase of common stock     ( 968 )     ( 859 ) Net cash provided by financing activities     104,156       127,501   Net increase (decrease) in cash and cash equivalents     33,053       ( 38,221 ) Cash and cash equivalents at beginning of period     45,596       126,016   Cash and cash equivalents at end of period   $ 78,649     $ 87,795                     Supplemental disclosures of cash flow information:                 Cash paid for interest on deposits and borrowings   $ 15,557     $ 3,065   Cash paid for income taxes   $ 1,811     $ 1,110                     Supplemental disclosures of noncash investing activities:                 Change in unrealized gain (loss) on securities available for sale   $ 639     $ ( 36,447 ) Change in unrealized (loss) gain on cash flow hedges   $ ( 392 )   $ —   Cumulative adjustment to servicing rights asset due to election of fair value option   $ —     $ 538   Cumulative effect of adoption of ASU 2016-13 Financial Instruments - Credit Losses on January 1, 2023   $ ( 3,735 )   $ —     See selected notes to the consolidated financial statements.   9 Table of Contents   FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Note 1 - Basis of Presentation and Critical Accounting Policies   Organization and nature of business - First Northwest Bancorp, a Washington corporation ("First Northwest"), became the holding company of First Fed Bank ("First Fed" or the "Bank") on January 29, 2015, upon completion of the Bank's conversion from a mutual to stock form of organization (the "Conversion").   In connection with the Conversion, the Company issued an aggregate of 12,167,000 shares of common stock at an offering price of $ 10.00 per share for gross proceeds of $ 121.7 million. An additional 933,360 shares of Company common stock and $ 400,000 in cash were contributed to the First Federal Community Foundation ("Foundation"), a charitable foundation that was established in connection with the Conversion, resulting in the issuance of a total of 13,100,360 shares. The Company received $ 117.6 million in net proceeds from the stock offering of which $ 58.4 million was contributed to the Bank upon Conversion.   Pursuant to the Bank's Plan of Conversion (the "Plan") adopted by its Board of Directors, and as approved by its members, the Company established an employee stock ownership plan ("ESOP"). On December 18, 2015, the ESOP completed its open market purchases, with funds borrowed from the Company, of 8 % of the common stock issued in the Conversion for a total of 1,048,029 shares.   In April 2021, First Northwest entered into an Amended and Restated Joint Venture Agreement (the "Joint Venture Agreement") with the Bank, POM Peace of Mind, Inc. ("POM"), and Quin Ventures, Inc. ("Quin Ventures").  First Northwest extended $ 8.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $ 500,000 . Quin Ventures sold substantially all of its assets in December 2022 to Quil Ventures Inc., at which time POM returned the 29,719 shares previously issued and the Joint Venture Agreement was terminated. As part of the sale transaction, the Company received a 5 % ownership stake in Quil Ventures Inc. valued at $ 225,000 and recorded a $ 1.5 million commitment receivable. In June 2023, First Northwest determined that Quin Ventures was no longer a going concern. The Company wrote off the remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods. The noncontrolling interest in Quin Ventures balance was moved to retained earnings, with no change to total shareholders' equity as a result of the transaction.   On October 31, 2021, the Bank converted from a State Savings Bank Charter to a State Commercial Bank Charter and was simultaneously renamed First Fed Bank from First Federal Savings and Loan Association of Port Angeles.   On August 5, 2022, First Northwest's election to be treated as a financial holding company became effective, allowing the Company to engage in activities that are financial in nature or incidental to financial activities.   First Northwest and the Bank are collectively referred to as the "Company." For periods prior to June 30, 2023, Company references also include Quin Ventures.   First Northwest's business activities generally are limited to passive investment activities and oversight of its investment in First Fed and former controlling interest in Quin Ventures. Accordingly, the information set forth in this report, including the consolidated unaudited financial statements and related data, relates primarily to the Bank for balance sheet related disclosures and the Bank and Quin Ventures for income statement related disclosures.   The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses in western Washington State with offices in Clallam, Jefferson, Kitsap, King, and Whatcom counties. These services include deposit and lending transactions that are supplemented with bor rowing and investing activities.   Basis of presentation - The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10 -K for the year ended December 31, 2022 . In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements in accordance with GAAP have been included. Operating results for the three and six months ended June 30, 2023 , are not necessarily indicative of the results that may be expected for future periods.     10 Table of Contents   In preparing the unaudited interim consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for credit losses ("ACL"), fair value of financial instruments and derivatives, and deferred tax assets and liabilities.   Principles of consolidation - The accompanying consolidated financial statements include the accounts of First Northwest; its wholly owned subsidiary, First Fed, and its former controlling interest in Quin Ventures. All material intercompany accounts and transactions have been eliminated in consolidation. Through June 2023, First Northwest and POM shared equal ownership in Quin Ventures; however, it was previously determined that First Northwest had a controlling interest for financial reporting purposes under Accounting Standards Codification  810. The Quin Ventures net loss allocable to POM is shown on the financial statements where applicable through a noncontrolling interest adjustment.   Subsequent events - The Company has evaluated subsequent events for potential recognition and disclosure and has included additional information where appropriate.   Recently adopted accounting pronouncements   Credit Losses On January 1, 2023, the Company adopted FASB ASU 2016 - 13 Financial Instruments - Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments , as amended, which replaces the incurred loss methodology with a current expected credit loss ("CECL") methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and held-to-maturity securities. It also applies to off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. In addition, the CECL adoption made changes to the accounting for investment securities available for sale.   The Company adopted ASU 2016 - 13 using the modified retrospective method for all financial assets measured at amortized cost and unfunded commitments. This method resulted in recording a cumulative-effect adjustment as of the beginning of 2023 with no change to prior periods. The Company elected not to measure an ACL on accrued interest receivable on loans receivable or accrued interest receivable on investment securities available for sale as Company policy is to reverse interest income for uncollectible accrued interest receivable balances in a timely manner.   Results for the reporting period beginning after January 1, 2023, are presented under ASU 2016 - 13, while prior period amounts were not restated and continue to be reported in accordance with previously applicable GAAP. The accounting policies for prior periods are included in the Company's Annual Report on Form  10 -K for the year ended  December 31, 2022.   The accounting policies for all financial instruments impacted by the CECL adoption are as follows:   Investment Securities A debt security is placed on nonaccrual status at the time any principal or payments become more than 90 days delinquent. Interest accrued, but not received for a security placed on nonaccrual, is reversed against interest income during the period that the debt security is placed on nonaccrual status.   Allowance for Credit Losses on Investment Securities Management evaluates the need for an ACL on investment securities ("ACLI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For investment securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For investment securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLI is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any decline in fair value that has not been recorded through an ACLI is recognized in other comprehensive income (loss).   Changes in the ACLI are recorded as provision, or reversal of provision, for credit losses expense. Losses are charged against the allowance when management believes the uncollectibility of an investment security available for sale is confirmed or when either of the criteria regarding intent or requirement to sell is met.   11 Table of Contents   Accrued interest receivable on investment securities available for sale is excluded from the estimate of credit losses as interest accrued, but not received, is reversed timely in accordance with the policy for investment securities above.   Loans Receivable Loans receivable include loans originated and indirect loans purchased by the Bank as well as loans acquired in business combinations.   Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the outstanding principal balance, net of purchased premiums and discounts, unearned discounts, and net deferred loan origination fees and costs. Accrued interest receivable for loans receivable is reported in prepaid expenses and other assets on the Consolidated Balance Sheets.   Allowance for Credit Losses on Loans The ACL on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected. Loans are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance. The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Income.   Accrued interest receivable on loans receivable is excluded from the estimate of credit losses. Instead, interest accrued, but not received, is reversed timely in accordance with the policy for loans receivable above.   The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies. Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a Remaining Life methodology. The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment. If the present value of cash flows is less than the total recorded investment, a reserve is calculated.   For each loan segment collectively measured, the baseline loss rates are calculated using the Bank's own data and peer institution data from FFIEC Call Report filings. The Bank evaluates the historical period on a quarterly basis. The baseline loss rates are applied to each loan's estimated cash flows over the life of the loan to determine the baseline loss estimate for each loan. Estimated cash flows consider the principal and interest in accordance with the contractual term of the loan and estimated prepayments. Contractual cash flows are based on the amortized cost, as adjusted for balances guaranteed by governmental entities, such as the Small Business Administration ("SBA") or the United States Department of Agriculture ("USDA"), or the unguaranteed amortized cost. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: 1 ) management has a reasonable expectation at the reporting date that a modification agreement will be executed with an individual borrower or 2 ) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Prepayments are established for each segment based on historical averages for the segments, which management believes is an accurate representation of future prepayment activity. Management reviews the adequacy of the prepayment period assumption on a quarterly basis.   The CECL methodology includes consideration of the forecasted direction of the economic and business environment and its likely impact to the estimated allowance as compared to the historical losses over the reasonable and supportable time frame. Economic forecast models for the current period are uploaded to the model, which targets two forecasted macroeconomic factors, which are national gross domestic product ("GDP") and unemployment figures. Each of the forecasted DCF segments is impacted by these macroeconomic factors. Further, each of the macroeconomic factors is utilized differently by segment, including the application of lagged factors and various transformations such as percent change year over year.   The Bank uses the Federal Open Market Committee ("FOMC") forecast via an application programming interface with our CECL software. FOMC provides various forecast scenarios used to determine the loan portfolio’s expected credit loss. Based on known/knowable information at the measurement date, management has determined that the FOMC scenarios and the underlying assumptions most closely align with current and expected conditions. The Bank has elected to forecast the first four  quarters of the credit loss estimate and revert on a straight-line basis as permitted in ASC 326 - 20 - 30 - 9. The Bank also considers other qualitative risk factors to adjust the estimated ACL calculated by the above-mentioned model. While there are many factors available to incorporate into the quantitative model, the Bank has selected to use the most critical factors. Additional metrics will be included only if internal or external factors outside those considered in its historical losses or macroeconomic forecast indicate otherwise. The Bank has established metrics to estimate the qualitative risk factor by segment based on the identified risk.   12 Table of Contents   In general, management's estimate of the ACLL uses relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.   The allowance for loan losses evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management utilizes its best judgment and information available to recognize losses on loans, future additions to the allowance may be necessary based on further declines in local and national economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s ACLL. Such agencies may require the Bank to make adjustments to the allowance based on their judgments about information available to them at the time of their examinations. The Company believes the ACLL is appropriate given the above considerations.   Allowance for Credit Losses on Unfunded Commitments The Bank estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Bank has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit.   The allowance methodology is similar to the ACLL, but additionally includes an estimate of the future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class.   The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (reversal of provision) for credit losses on the Consolidated Statements of Income.   Provision for Credit Losses The provision for credit losses as presented in the Company's Consolidated Statements of Income includes the provision for credit losses on loans and the provision for credit losses on unfunded commitments.   Summary of CECL Impact: Investment Securities -  As of December 31, 2022, the Company had no historical charge-off or recovery history and did not have any investment securities available for sale outstanding at the adoption date for which an other-than-temporary impairment was previously recorded. At the adoption date of ASU 2016 - 13, the unrealized losses present in the portfolio of investment securities available for sale were primarily due to decreases in market interest rates on floating rate investment securities since the purchase of the securities and the fair value of these securities was expected to recover as the securities approach their maturity dates. The basis of management’s conclusion was that at January 1, 2023, 23.9 % of the investment securities were issued by or guaranteed by the United States government or its agencies, 30.0 % were issued and guaranteed by State and local governments and the remainder of the portfolio was invested in at least investment-grade securities. As a result of the analysis, no allowance for credit losses on investment securities available for sale was recorded upon adoption. See Note 2  Investment Securities for more information.   Loan Receivable -  ASU 2016 - 13 was applied prospectively and replaced the allowance for loan losses with the ACLL on the Consolidated Balance Sheet and replaced the related provision for loan losses with the provision for credit losses on loans as presented on the Consolidated Statements of Income, net of provision for credit losses on unfunded commitments.   The Bank recorded a pretax increase to the ACLL of $ 2.2 million to increase the reserve to the estimated credit losses at January 1, 2023 based on its CECL methodology as part of the cumulative-effect adjustment to beginning retained earnings. Upon adoption, the adjusted beginning balance of the ACLL as a percentage of loans receivable was 1.18 % as compared to 1.04 % at December 31, 2022 under the prior incurred loss methodology. At June 30, 2023 , the ACLL as a percentage of loans receivable was 1.06 %.   See Note 4  - Allowance for Credit Loss on Loans for more information.   Unfunded Commitments -   ASU 2016 - 13 was applied prospectively and replaced the reserve for unfunded commitments with the ACL on unfunded commitments ("ACLU") as included in accrued liabilities and other expenses on the Consolidated Balance Sheet and replaced the provision for unfunded commitments with the provision for credit losses on unfunded commitments as presented on the Consolidated Statements of Income, net of provision for credit losses on loans. Upon adoption, the Bank recorded a pretax increase in the beginning ACLU of $ 1.5 million.   Overall CECL Impact -  The adoption of ASU 2016 - 13, included an increase to the ACLL of $ 2.2 million and an increase to the ACLU of $ 1.5 million, which resulted in a pretax cumulative-effect adjustment of $ 3.7 million. The impact of this adjustment to beginning retained earnings on January 1, 2023 was $ 3.0 million, net of tax.   13 Table of Contents   Troubled Debt Restructurings In March 2022, the FASB issued ASU 2022 - 02,   Financial Instruments - Credit Losses (Topic 326 ): Troubled Debt Restructurings and Vintage Disclosures . This ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancing and restructuring activity by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write offs by year of origination for financing receivables and net investments in leases. This ASU is effective upon adoption of ASU 2016 - 13. On January 1, 2023, the Company adopted this ASU at the same time ASU 2016 - 13 was adopted. The Company recorded gross charge-offs of $ 1.9 million in the first half of 2023 and recoveries for the same period were $ 594,000 . See table in Note 3 for additional information.   Derivative Instruments and Hedging Activities On March 28, 2022, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2022 - 01, Derivatives and Hedging (Topic 815 ): Fair Value Hedging – Portfolio Layer Method . The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017 - 12, Derivatives and Hedging (Topic 815 ): Targeted Improvements to Accounting for Hedging Activities. ASU 2022 - 01 is effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption in the interim period, permitted. For entities who have already adopted ASU 2017 - 12, immediate adoption is allowed. ASU 2022 - 01 requires a modified retrospective transition method for basis adjustments in which the entity will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company adopted this ASU on January 1, 2023 on a prospective basis; therefore, there was no impact to the consolidated financial statements.   Accounting Policy for Derivative Instruments and Hedging Activities -  FASB ASC 815, Derivatives and Hedging ("ASC 815" ), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.   As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.   In accordance with the FASB’s fair value measurement guidance in ASU 2011 - 04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.   14 Table of Contents   Recently issued accounting pronouncements not yet adopted   Other Pronouncements In March 2020, the FASB issued ASU No. 2020 - 04,   Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020 - 04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, which reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. On December 31, 2022, FASB issued ASU 2022 - 06, which deferred the sunset date for Topic 848 to December 31, 2024. The Company is implementing a transition plan to identify and modify its loans and other financial instruments that are either directly or indirectly influenced by LIBOR. The Company is in the process of evaluating ASU No. 2020 - 04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments, with no expected material impact on the Company's financial statements. In June 2022, the FASB issued ASU No. 2022 - 03, Fair Value Measurement (Topic 820 ): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . ASU 2022 - 03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring fair value, nor should the contractual restriction be recognized and measured separately. Further, this ASU requires disclosure of the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the restriction(s), and the circumstances that could cause a lapse in the restriction(s). ASU 2022 - 03  is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect that ASU 2022 - 03  will have on its consolidated financial statements and related disclosures.   In March 2023, the FASB issued ASU 2023 - 02, Investments - Equity Method and Joint Ventures (Topic 323 ): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force . ASU 2023 - 02 allows an entity the option to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits if certain conditions are met. Prior to this ASU, the application of the proportional amortization method of accounting was limited to investments in low-income housing tax credit structures. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the statements of income, income tax expense. Under this ASU, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this ASU require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323 - 740 - 25 - 3, requiring a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this ASU, low-income housing tax credit investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this ASU specifies that impairment of low-income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323 - 10:   Investments - Equity Method and Joint Ventures - Overall . This ASU also clarifies that for low-income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321: Investments - Equity Securities . The amendments in this ASU also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations. ASU 2023 - 02  is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect that ASU 2023 - 02  will have on its consolidated financial statements and related disclosures.   Reclassifications - Certain amounts in the unaudited interim consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation with no effect on net income or shareholders' equity.   15 Table of Contents     Note 2 - Securities   The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at June 30, 2023 are summarized as follows:               Gross     Gross     Estimated       Amortized Cost     Unrealized Gains     Unrealized Losses     Fair Value       (In thousands)   Available for Sale                                 Municipal bonds   $ 119,514     $ —     $ ( 19,011 )   $ 100,503   U.S. Treasury notes     2,475       —       ( 111 )     2,364   International agency issued bonds (Agency bonds)     1,960       —       ( 243 )     1,717   Corporate issued debt securities (Corporate debt)     60,595       —       ( 6,921 )     53,674   Mortgage-backed securities:                                 U.S. government agency issued mortgage-backed securities (MBS agency)     85,613       —       ( 14,048 )     71,565   Non-agency issued mortgage-backed securities (MBS non-agency)     99,781       —       ( 7,641 )     92,140   Total securities available for sale   $ 369,938     $ —     $ ( 47,975 )   $ 321,963     The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at December 31, 2022 , are summarized as follows:               Gross     Gross     Estimated       Amortized Cost     Unrealized Gains     Unrealized Losses     Fair Value       (In thousands)   Available for Sale                                 Municipal bonds   $ 119,990     $ —     $ ( 21,940 )   $ 98,050   U.S. Treasury notes     2,469       —       ( 105 )     2,364   Agency bonds     1,955       —       ( 253 )     1,702   Corporate debt     60,700       —       ( 5,201 )     55,499   Mortgage-backed securities:                                 MBS agency     88,930       1       ( 13,283 )     75,648   MBS non-agency     101,139       —       ( 7,833 )     93,306   Total securities available for sale   $ 375,183     $ 1     $ ( 48,615 )   $ 326,569     There were no securities classified as held-to-maturity at  June 30, 2023  and  December 31, 2022 .   Accrued interest receivable on available-for-sale debt securities totaled $ 2.1 million and $ 2.0 million as of June 30, 2023  and  December 31, 2022 , respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Balance Sheets and is excluded from the calculation of the allowance for credit losses on investment securities.   16 Table of Contents   The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of June 30, 2023 :       Less Than Twelve Months     Twelve Months or Longer     Total       Gross Unrealized Losses     Fair Value     Gross Unrealized Losses     Fair Value     Gross Unrealized Losses     Fair Value       (In thousands)   Available for Sale                                                 Municipal bonds   $ ( 10 )   $ 435     $ ( 19,001 )   $ 99,767     $ ( 19,011 )   $ 100,202   U.S. Treasury notes     —       —       ( 111 )     2,364       ( 111 )     2,364   Agency bonds     —       —       ( 243 )     1,717       ( 243 )     1,717   Corporate debt     ( 723 )     7,777       ( 6,198 )     45,897       ( 6,921 )     53,674   Mortgage-backed securities:                                                 MBS agency     ( 1 )     1,793       ( 14,047 )     69,772       ( 14,048 )     71,565   MBS non-agency     —       —       ( 7,641 )     92,140       ( 7,641 )     92,140   Total available for sale   $ ( 734 )   $ 10,005     $ ( 47,241 )   $ 311,657     $ ( 47,975 )   $ 321,662     The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of December 31, 2022 :       Less Than Twelve Months     Twelve Months or Longer     Total       Gross Unrealized Losses     Fair Value     Gross Unrealized Losses     Fair Value     Gross Unrealized Losses     Fair Value       (In thousands)   Available for Sale                                                 Municipal bonds   $ ( 15,749 )   $ 79,129     $ ( 6,191 )   $ 18,621     $ ( 21,940 )   $ 97,750   U.S. Treasury notes     ( 105 )     2,364       —       —       ( 105 )     2,364   Agency bonds     —       —       ( 253 )     1,702       ( 253 )     1,702   Corporate debt     ( 2,570 )     30,555       ( 2,631 )     24,944       ( 5,201 )     55,499   Mortgage-backed securities:                                                 MBS agency     ( 5,079 )     40,099       ( 8,204 )     33,064       ( 13,283 )     73,163   MBS non-agency     ( 3,956 )     51,994       ( 3,877 )     41,311       ( 7,833 )     93,305   Total available for sale   $ ( 27,459 )   $ 204,141     $ ( 21,156 )   $ 119,642     $ ( 48,615 )   $ 323,783     There were 8  available-for-sale securities with unrealized losses of less than one year, and 174 available-for-sale securities with an unrealized loss of more than one year at June 30, 2023 . There were 113 available-for-sale securities with unrealized losses of less than one year, and 69  available-for-sale securities with an unrealized loss of more than one year at December 31, 2022 . Management believes that the unrealized losses on our investment securities relate principally to the general change in interest rates, market liquidity and demand, and market volatility that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. We do not believe the unrealized losses on our securities are related to a deterioration in credit quality. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend to sell the securities in an unrealized loss position and believes that it is unlikely that we will be required to sell these investments prior to a market price recovery or maturity. Based on the Company’s evaluation of these securities, no credit impairment was recorded at June 30, 2023 , or December 31, 2022 .     17 Table of Contents   The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; therefore, these securities are shown separately.       June 30, 2023       Available-for-Sale       Amortized Cost     Estimated Fair Value       (In thousands)   Mortgage-backed securities:                 Due within one year   $ 27,322     $ 26,940   Due after one through five years     17,148       16,315   Due after five through ten years     11,033       10,124   Due after ten years     129,891       110,326   Total mortgage-backed securities     185,394       163,705   All other investment securities:                 Due within one year     —       —   Due after one through five years     20,711       19,151   Due after five through ten years     66,069       57,302   Due after ten years     97,764       81,805   Total all other investment securities     184,544       158,258   Total investment securities   $ 369,938     $ 321,963         December 31, 2022       Available-for-Sale       Amortized Cost     Estimated Fair Value       (In thousands)   Mortgage-backed securities:                 Due within one year   $ 13,762     $ 13,490   Due after one through five years     28,890       27,808   Due after five through ten years     13,436       12,165   Due after ten years     133,981       115,491   Total mortgage-backed securities     190,069       168,954   All other investment securities:                 Due within one year     —       —   Due after one through five years     20,700       18,957   Due after five through ten years     64,211       57,523   Due after ten years     100,203       81,135   Total all other investment securities     185,114       157,615   Total investment securities   $ 375,183     $ 326,569     18 Table of Contents   Sales of securities available-for-sale for the periods shown are summarized as follows:       Three Months Ended June 30,     Six Months Ended June 30,       2023     2022     2023     2022       (In thousands)   Proceeds from sales   $ —     $ 2,233     $ —     $ 12,685   Gross realized gains     —       —       —       128   Gross realized losses     —       ( 8 )     —       ( 10 )     Note 3 - Loans Receivable   The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality. The three loan portfolio segments are: Real Estate Loans, Consumer Loans and Commercial Business Loans. These segments are further disaggregated into classes based on similar attributes and risk characteristics.   Loan amounts are net of unearned loan fees in excess of unamortized costs and premiums of $ 14.2 million as of  June 30, 2023 and $ 13.2 million as of  December 31, 2022 . Net loans do  not include accrued interest receivable. Accrued interest receivable on loans was $ 5.4 million as of  June 30, 2023 and $ 4.7 million as of  December 31, 2022 , and was reported in accrued interest receivable on the consolidated balance sheets.   The amortized cost of loans receivable, net of ACLL, consisted of the following at the dates indicated:       June 30, 2023     December 31, 2022       (In thousands)   Real Estate:                 One-to-four family   $ 365,600     $ 343,559   Multi-family     296,561       252,745   Commercial real estate     375,961       388,884   Construction and land     157,060       193,646   Total real estate loans     1,195,182       1,178,834   Consumer:                 Home equity     58,895       52,877   Auto and other consumer     253,950       238,913   Total consumer loans     312,845       291,790   Commercial business loans     130,133       76,927   Total loans receivable     1,638,160       1,547,551   Less:                 Allowance for credit losses on loans (1)     17,297       16,116   Total loans receivable, net   $ 1,620,863     $ 1,531,435   ( 1 ) Allowance for credit losses on loans in 2023 reported using the CECL method and in 2022 reported using the incurred loss method.   19 Table of Contents   Nonaccrual Loans.  The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. For those loans placed on non-accrual status due to payment delinquency, return to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less than six months.   The following table presents the amortized cost of nonaccrual loans by class of loan at the dates indicated:       June 30, 2023     December 31, 2022       Collateral Dependent Loans     Non-Collateral Dependent Loans     Total Nonaccrual Loans     Total Nonaccrual Loans (1)       (In thousands)   One-to-four family   $ 1,475     $ 305     $ 1,780     $ 954   Commercial real estate     41       —       41       53   Construction and land     —       12       12       15   Home equity     31       214       245       196   Auto and other consumer     —       476       476       575   Total nonaccrual loans   $ 1,547     $ 1,007     $ 2,554     $ 1,793   (1) Presentation of December 31, 2022, balances is in accordance with pre-CECL disclosure requirements.     Interest income recognized on a cash basis on nonaccrual loans for the  three and six months ended June 30, 2023 , was $ 18,000  and $ 26,000 , respectively.   Prior to the implementation of CECL, the Bank categorized loans as performing or nonperforming based on payment activity. Loans that were more than 90 days past due and nonaccrual loans were considered nonperforming.   The following table represents the credit risk profile based on payment activity by class of loans as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:       Nonperforming     Performing     Total       (In thousands)   Real Estate:                         One-to-four family   $ 954     $ 342,605     $ 343,559   Multi-family     —       252,745       252,745   Commercial real estate     53       388,831       388,884   Construction and land     15       193,631       193,646   Consumer:                         Home equity     196       52,681       52,877   Auto and other consumer     575       238,338       238,913   Commercial business     —       76,927       76,927   Total loans   $ 1,793     $ 1,545,758     $ 1,547,551     Past due loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. There were no loans past due 90 days or more and still accruing interest at  June 30, 2023  or  December 31, 2022 .     20 Table of Contents   The following table presents the amortized cost of past due loans by segment and class as of June 30, 2023 :       30-59 Days     60-89 Days     90 Days or More     Total                       Past Due     Past Due     Past Due     Past Due     Current     Total Loans       (In thousands)   Real Estate:                                                 One-to-four family   $ —     $ —     $ 921     $ 921     $ 364,679     $ 365,600   Multi-family     —       —       —       —       296,561       296,561   Commercial real estate     —       —       —       —       375,961       375,961   Construction and land     —       —       18       18       157,042       157,060   Total real estate loans     —       —       939       939       1,194,243       1,195,182   Consumer:                                                 Home equity     —       14       91       105       58,790       58,895   Auto and other consumer     1,359       299       479       2,137       251,813       253,950   Total consumer loans     1,359       313       570       2,242       310,603       312,845   Commercial business loans     106       —       —       106       130,027       130,133   Total loans   $ 1,465     $ 313     $ 1,509     $ 3,287     $ 1,634,873     $ 1,638,160       The following table presents the amortized cost of past due loans by segment and class as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:     30-59 Days     60-89 Days     90 Days or More     Total                       Past Due     Past Due     Past Due     Past Due     Current     Total Loans       (In thousands)   Real Estate:                                                 One-to-four family   $ 1,449     $ 155     $ 652     $ 2,256     $ 341,303     $ 343,559   Multi-family     —       —       —       —       252,745       252,745   Commercial real estate     —       —       —       —       388,884       388,884   Construction and land     —       18       —       18       193,628       193,646   Total real estate loans     1,449       173       652       2,274       1,176,560       1,178,834   Consumer:                                                 Home equity     153       —       11       164       52,713       52,877   Auto and other consumer     1,390       698       557       2,645       236,268       238,913   Total consumer loans     1,543       698       568       2,809       288,981       291,790   Commercial business loans     —       —       —       —       76,927       76,927   Total loans   $ 2,992     $ 871     $ 1,220     $ 5,083     $ 1,542,468     $ 1,547,551     Credit quality indicator. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss; risk ratings 6, 7, and 8 in our 8 -point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.   When the Bank classifies problem assets as either substandard or doubtful, it may establish a specific allowance to address the risk specifically or allow the loss to be addressed in the general allowance. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities but that, unlike specific allowances, have not been specifically allocated to certain problem assets. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose the Bank to enough risk to warrant classification as substandard or doubtful but do possess identified weaknesses are designated as either watch or special mention assets; risk ratings 4 and 5 in our risk rating system, respectively. Loans not otherwise classified are considered pass graded loans and are rated 1 - 3 in our risk rating system.     21 Table of Contents   The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of  June 30, 2023 , as well as gross charge-off activity for the  six months ended June 30, 2023 . Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.       Term Loans by Year of Origination (1)     Revolving     Total       2023     2022     2021     2020     2019     Prior     Loans     Loans       (In thousands)   One-to-four family                                                                 Pass   $ 2,990     $ 83,795     $ 118,693     $ 72,169     $ 14,247     $ 69,979     $ —     $ 361,873   Watch     —       —       —       592       —       723       —       1,315   Special Mention     —       —       —       303       —       106       —       409   Substandard     —       —       —       329       487       1,187       —       2,003   Total one-to-four family     2,990       83,795       118,693       73,393       14,734       71,995       —       365,600   Gross charge-offs during the period     —       —       —       —       —       —       —       —   Multi-family                                                                 Pass     22,960       103,162       81,072       59,041       8,637       5,422       —       280,294   Watch     —       —       15,268       —       —       999       —       16,267   Total multi-family     22,960       103,162       96,340       59,041       8,637       6,421       —       296,561   Gross charge-offs during the period     —       —       —       —       —       —       —       —   Commercial Real Estate                                                                 Pass     21,721       89,951       105,753       83,355       13,604       24,688       —       339,072   Watch     3,908       —       12,434       6,901       3,607       1,026       —       27,876   Special Mention     —       —       6,591       —       —       —       —       6,591   Substandard     —       40       —       2,382       —       —       —       2,422   Total commercial real estate     25,629       89,991       124,778       92,638       17,211       25,714       —       375,961   Gross charge-offs during the period     —       —       —       —       —       —       —       —   Construction and Land                                                                 Pass     24,924       62,714       49,563       772       570       2,740       —       141,283   Watch     889       —       —       —       —       17       —       906   Substandard     14,859       —       —       —       —       12       —       14,871   Total construction and land     40,672       62,714       49,563       772       570       2,769       —       157,060   Gross charge-offs during the period     —       —       —       —       —       —       —       —   Home Equity                                                                 Pass     3,663       7,566       5,014       3,249       1,655       3,928       33,191       58,266   Watch     —       —       —       —       —       —       200       200   Special Mention     —       —       —       —       —       71       113       184   Substandard     —       —       32       61       —       —       152       245   Total home equity     3,663       7,566       5,046       3,310       1,655       3,999       33,656       58,895   Gross charge-offs during the period     —       —       —       —       —       11       —       11   Other Consumer                                                                 Pass     29,846       80,899       70,123       32,924       16,962       20,269       443       251,466   Watch     16       727       630       194       33       85       —       1,685   Special Mention     —       236       20       61       4       —       —       321   Substandard     13       308       —       —       150       7       —       478   Total other consumer     29,875       82,170       70,773       33,179       17,149       20,361       443       253,950   Gross charge-offs during the period     —       1,760       4       1       11       91       59       1,926   Commercial business                                                                 Pass     18,543       24,350       11,783       3,024       523       28,300       33,363       119,886   Watch     —       10       485       1,008       —       —       —       1,503   Special Mention     —       —       —       315       —       1,989       3,741       6,045   Substandard     —       —       —       29       —       185       2,485       2,699   Total commercial business     18,543       24,360       12,268       4,376       523       30,474       39,589       130,133   Gross charge-offs during the period     —       —       —       —       —       —       —       —   Total loans                                                                 Pass     124,647       452,437       442,001       254,534       56,198       155,326       66,997       1,552,140   Watch     4,813       737       28,817       8,695       3,640       2,850       200       49,752   Special Mention     —       236       6,611       679       4       2,166       3,854       13,550   Substandard     14,872       348       32       2,801       637       1,391       2,637       22,718   Total loans   $ 144,332     $ 453,758     $ 477,461     $ 266,709     $ 60,479     $ 161,733     $ 73,688     $ 1,638,160   Total gross charge-offs during the period   $ —     $ 1,760     $ 4     $ 1     $ 11     $ 102     $ 59     $ 1,937   ( 1 ) Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.   22 Table of Contents   The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:     Pass     Watch     Special Mention     Substandard     Total       (In thousands)   Real Estate:                                         One-to-four family   $ 339,812     $ 2,234     $ 27     $ 1,486     $ 343,559   Multi-family     237,077       15,668       —       —       252,745   Commercial real estate     350,001       25,586       12,161       1,136       388,884   Construction and land     179,116       529       —       14,001       193,646   Total real estate loans     1,106,006       44,017       12,188       16,623       1,178,834   Consumer:                                         Home equity     52,295       372       14       196       52,877   Auto and other consumer     238,522       222       75       94       238,913   Total consumer loans     290,817       594       89       290       291,790   Commercial business loans     66,276       2,234       8,417       —       76,927   Total loans   $ 1,463,099     $ 46,845     $ 20,694     $ 16,913     $ 1,547,551       Individually Evaluated Loans.  The Company evaluates loans collectively for purposes of determining the ACLL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified loans made to borrowers experiencing financial difficulty, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio are evaluated individually for purposes of determining an appropriate lifetime ACLL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACLL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. In cases where the loan is well-secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACLL is recorded. Changes in the ACLL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans. As of June 30, 2023 , $ 1.5 million of loans were individually evaluated with no ACLL attributed to such loans. At June 30, 2023 , all individually evaluated loans were evaluated based on the underlying value of the collateral and  none  were evaluated using a discounted cash flow approach. All individually evaluated loans were on nonaccrual status at June 30, 2023 .   Collateral Dependent Loans.  Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. The following table summarizes individually evaluated collateral dependent loans by segment and collateral type as of June 30, 2023 :       Collateral Type             Single Family Residence     Warehouse     Total       (In thousands)   One-to-four family   $ 1,475     $ —     $ 1,475   Commercial real estate     —       41       41   Home equity     31       —       31   Total collateral dependent loans   $ 1,506     $ 41     $ 1,547     Troubled debt restructuring. Prior to the implementation of CECL on January 1, 2023, a loan was identified as a TDR when a loan to a borrower who was experiencing financial difficulty was modified from its original terms and conditions in such a way that the Bank granted the borrower a concession of some kind. First Fed had granted a variety of concessions to borrowers in the form of loan modifications. The modifications were generally related to the loan's interest rate, term and payment amount or a combination thereof.     23 Table of Contents   The following table is a summary of information pertaining to TDR loans included in impaired loans at the date indicated, in accordance with pre-CECL disclosure requirements:     December 31, 2022       (In thousands)   Total TDR loans   $ 1,753   Allowance for credit losses on loans related to TDR loans     21   Total nonaccrual TDR loans     29     There were no newly restructured, renewals, or modifications of existing TDR loans that occurred during the  three and six months ended June 30, 2022 .   There were no TDR loans that incurred a payment default within 12 months of the restructure date during the  three and six months ended June 30, 2022 .   The following table presents TDR loans by class by accrual and nonaccrual status at the date indicated, in accordance with pre-CECL disclosure requirements:       December 31, 2022       Accrual     Nonaccrual     Total       (In thousands)   One-to-four family   $ 1,697     $ 29     $ 1,726   Home equity     27       —       27   Total TDR loans   $ 1,724     $ 29     $ 1,753     Modified Loans to Troubled Borrowers.  On January 1, 2023, the Company adopted ASU 2022 - 02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. The Company refers to these loans as modified loans to troubled borrowers ("MLTB"). A MLTB arises from a modification made to a loan in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or any combination of the foregoing. The ACLL for a MLTB is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACLL for a MLTB is determined through individual evaluation.   During the three and six months ended June 30, 2023 , there were no MLTB.     Note 4 - Allowance for Credit Losses on Loans   The Company maintains an ACLL and an ACLU in accordance with ASC 326:   Financial Instruments - Credit Losses . ASC 326 requires the Company to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses at origination or acquisition represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. Determining the ACLL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The reserve is an estimate based upon factors and trends at the time the financial statements are prepared. The Company adopted ASU 2016 - 13 effective January 1, 2023, which increased the beginning ACLL as discussed in Note 1. The incurred loss methodology presentation is used for periods prior to the adoption of ASU 2016 - 13.   The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies. The Company uses a DCF methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a Remaining Life methodology. The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment. If the present value of cash flows is less than the total recorded investment, a reserve is calculated.     24 Table of Contents   The Company estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Company has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit. The allowance methodology is similar to the ACLL, but additionally includes an estimate of the future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class. The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (reversal of provision) for credit losses on the Consolidated Statements of Income.   The following tables detail activity in the allowance for credit losses on loans by class for the periods shown:       At or For the Three Months Ended June 30, 2023       Adjusted Beginning Balance     Charge-offs     Recoveries     Provision for (Recapture of) Credit Losses     Ending Balance       (In thousands)   One-to-four family   $ 2,903     $ —     $ 4     $ 105     $ 3,012   Multi-family     1,045       —       —       ( 4 )     1,041   Commercial real estate     2,979       —       —       ( 55 )     2,924   Construction and land     2,782       —       —       ( 247 )     2,535   Home equity     1,084       —       5       36       1,125   Auto and other consumer     4,689       ( 972 )     564       514       4,795   Commercial business     1,914       —       —       ( 49 )     1,865   Total   $ 17,396     $ ( 972 )   $ 573     $ 300     $ 17,297         At or For the Six Months Ended June 30, 2023       Beginning Balance     Impact of Day 1 CECL Adoption     Adjusted Beginning Balance     Charge-offs     Recoveries     Provision for (Recapture of) Credit Losses     Ending Balance       (In thousands)   One-to-four family   $ 3,343     $ ( 429 )   $ 2,914     $ —     $ 4     $ 94     $ 3,012   Multi-family     2,468       ( 1,449 )     1,019       —       —       22       1,041   Commercial real estate     4,217       ( 604 )     3,613       —       —       ( 689 )     2,924   Construction and land     2,344       1,555       3,899       —       —       ( 1,364 )     2,535   Home equity     549       346       895       ( 11 )     5       236       1,125   Auto and other consumer     2,024       2,381       4,405       ( 1,926 )     585       1,731       4,795   Commercial business     786       794       1,580       —       —       285       1,865   Unallocated     385       ( 385 )     —       —       —       —       —   Total   $ 16,116     $ 2,209     $ 18,325     $ ( 1,937 )   $ 594     $ 315     $ 17,297     The increase in the ACLL during the three months ended June 30, 2023 , of $ 300,000 is reflective of $ 399,000  in net charge-offs. Charge-offs during the second quarter of 2023 were mainly concentrated in unsecured consumer loans purchased through the Splash program.   The $ 315,000 provision for ACLL for the  six months ended June 30, 2023 , is reflective of $ 1.3 million of year-to-date net charge-offs, partially offset by the provision for credit losses estimate. The recovery of provision for credit losses during the six months ended June 30, 2023 , can be attributed to an improvement in the U.S. gross domestic product assumption since the implementation of CECL at the beginning of  2023.     25 Table of Contents   The following table details activity in the ALLL by class for the period shown under the incurred loss methodology:       At or For the Three Months Ended June 30, 2022       One-to-four family     Multi-family     Commercial real estate     Construction and land     Home equity     Auto and other consumer     Commercial business     Unallocated     Total       (In thousands)   ALLL:                                                                         Beginning balance   $ 3,039     $ 2,092     $ 4,038     $ 2,481     $ 405     $ 2,229     $ 526     $ 317     $ 15,127   (Recapture of) provision for loan losses     ( 13 )     76       116       69       81       160       12       ( 1 )     500   Charge-offs     —       —       —       —       —       ( 73 )     —       —       ( 73 ) Recoveries     —       —       —       —       —       51       142       —       193   Ending balance   $ 3,026     $ 2,168     $ 4,154     $ 2,550     $ 486     $ 2,367     $ 680     $ 316     $ 15,747         At or For the Six Months Ended June 30, 2022       One-to-four family     Multi-family     Commercial real estate     Construction and land     Home equity     Auto and other consumer     Commercial business     Unallocated     Total       (In thousands)   ALLL:                                                                         Beginning balance   $ 3,184     $ 1,816     $ 3,996     $ 2,672     $ 407     $ 2,221     $ 470     $ 358     $ 15,124   (Recapture of) provision for loan losses     ( 190 )     352       158       ( 124 )     62       216       68       ( 42 )     500   Charge-offs     —       —       —       —       —       ( 210 )     —       —       ( 210 ) Recoveries     32       —       —       2       17       140       142       —       333   Ending balance   $ 3,026     $ 2,168     $ 4,154     $ 2,550     $ 486     $ 2,367     $ 680     $ 316     $ 15,747     The following table details the ALLL and loan portfolio by class and impairment method for the period shown under the incurred loss methodology:     At December 31, 2022       One-to-four family     Multi-family     Commercial real estate     Construction and land     Home equity     Auto and other consumer     Commercial business     Unallocated     Total       (In thousands)   Total ALLL   $ 3,343     $ 2,468     $ 4,217     $ 2,344     $ 549     $ 2,024     $ 786     $ 385     $ 16,116   General reserve     3,321       2,468       4,217       2,343       545       2,019       786       385       16,084   Specific reserve     22       —       —       1       4       5       —       —       32                                                                             Gross loans   $ 343,825     $ 253,551     $ 390,246     $ 194,646     $ 52,322     $ 222,794     $ 76,996     $ —     $ 1,534,380   Loans collectively evaluated (1)     341,171       253,551       390,196       194,630       52,100       222,702       76,996       —       1,531,346   Loans individually evaluated (2)     2,654       —       50       16       222       92       —       —       3,034     ( 1 )  Loans collectively evaluated for general reserves. ( 2 )  Loans individually evaluated for specific reserves.     26 Table of Contents Impaired loans incurred loss model.  Prior to the implementation of CECL on January 1, 2023, a loan was considered impaired when the Bank has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan. Impairment was measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying TDR loans.   The following table provides additional information on loans individually evaluated for impairment by portfolio class at the date indicated under the incurred loss methodology. Recorded investment includes the unpaid principal balance or carrying amount of loans less charge-offs.       December 31, 2022       Recorded Investment     Unpaid Principal Balance     Related Allowance       (In thousands)   With no allowance recorded:                         One-to-four family   $ 666     $ 705     $ —   Commercial real estate     50       149       —   Construction and land     —       14       —   Auto and other consumer     —       2       —   Total     716       870       —   With an allowance recorded:                         One-to-four family     1,988       2,129       22   Construction and land     16       19       1   Home equity     222       224       4   Auto and other consumer     92       95       5   Total     2,318       2,467       32   Total impaired loans:                         One-to-four family     2,654       2,834       22   Commercial real estate     50       149       —   Construction and land     16       33       1   Home equity     222       224       4   Auto and other consumer     92       97       5   Total   $ 3,034     $ 3,337     $ 32       27 Table of Contents   The following table presents the average recorded investment in loans individually evaluated for impairment and the related interest income recognized for the period shown under the incurred loss methodology:       Three Months Ended     Six Months Ended       June 30, 2022     June 30, 2022       Average Recorded Investment     Interest Income Recognized     Average Recorded Investment     Interest Income Recognized       (In thousands)   With no allowance recorded:                                 One-to-four family   $ 356     $ 6     $ 283     $ 8   Commercial real estate     63       —       65       —   Construction and land     —       1       —       1   Home equity     —       —       5       —   Auto and other consumer     247       5       249       9   Total     666       12       602       18   With an allowance recorded:                                 One-to-four family     2,128       39       2,079       72   Commercial real estate     21       —       11       —   Construction and land     22       1       22       1   Home equity     284       4       293       7   Auto and other consumer     61       1       139       2   Total     2,516       45       2,544       82   Total impaired loans:                                 One-to-four family     2,484       45       2,362       80   Commercial real estate     84       —       76       —   Construction and land     22       2       22       2   Home equity     284       4       298       7   Auto and other consumer     308       6       388       11   Total   $ 3,182     $ 57     $ 3,146     $ 100     Interest income recognized on a cash basis on impaired loans for the  three and six months ended June 30, 2022 , was $ 41,000  and $ 100,000 , respectively, under the incurred loss methodology.   Allowance for Credit Losses on Unfunded Loan Commitments. The Company maintains an ACL for off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities on the consolidated balance sheets. The allowance for off-balance sheet commitments was $ 1.3 million at June 30, 2023 , a decrease compared to $ 1.9  million at the adoption of CECL on January 1, 2023. Included in the year-to-date provision for credit loss expense was a provision recapture for off-balance sheet commitments of $ 515,000  for both the three and  six months ended June 30, 2023 , attributable to lower unfunded commitments, primarily due to construction loan disbursements.     28 Table of Contents     Note 5  - Deposits   Deposits and weighted-average interest rates at the dates indicated are as follows:       June 30, 2023     December 31, 2022       Amount     Weighted-Average Interest Rate     Amount     Weighted-Average Interest Rate       (Dollars in thousands)   Noninterest-bearing demand deposits   $ 280,475       — %   $ 315,083       — % Interest-bearing demand deposits     179,029       0.50 %     193,558       0.01 % Money market accounts     374,269       1.10 %     473,009       0.58 % Savings accounts     260,279       1.41 %     200,920       0.26 % Certificates of deposit     559,070       3.55 %     381,685       2.19 % Total deposits   $ 1,653,122       1.73 %   $ 1,564,255       0.74 %   Brokered certificates of deposit of $ 179.6 million and $ 133.9 million are included in the June 30, 2023 and December 31, 2022 certificates of deposit totals above, respectively. The aggregate amount of time deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limit, currently $250,000, at June 30, 2023 and December 31, 2022 , were $ 157.1 million and $ 96.6 million, respectively.   Maturities of certificates at the dates indicated are as follows:     June 30, 2023     December 31, 2022       (In thousands)   Within one year or less   $ 422,485     $ 262,189   After one year through two years     104,285       69,967   After two years through three years     16,339       37,032   After three years through four years     11,195       7,409   After four years through five years     4,766       5,088   Total certificates of deposit   $ 559,070     $ 381,685     At  June 30, 2023 and December 31, 2022 , deposits included $ 112.1 million and $ 93.3 million, respectively, in public fund deposits. The Bank had an outstanding letter of credit from the Federal Home Loan Bank of Des Moines ("FHLB") with a notional amount of $ 60.0  million at  June 30, 2023 , to secure public deposits and pledged investment securities with a carrying value of $ 57.1 million were pledged as collateral for these deposits at  December 31, 2022 . This exceeds the minimum collateral requirements established by the Washington Public Deposit Protection Commission. Also included in deposits at  June 30, 2023 and December 31, 2022 , were funds held by federally recognized tribes totaling $ 18.9 million and $ 10.3 million, respectively. Investment securities with a carrying value of $ 21.9 million and $ 23.6 million were pledged as collateral for these deposits at  June 30, 2023 and December 31, 2022 , respectively. This exceeds the minimum collateral requirements established by the Bureau of Indian Affairs.    Interest on deposits by type for the periods shown was as follows:       Three Months Ended     Six Months Ended       June 30,     June 30,       2023     2022     2023     2022       (In thousands)   Demand deposits   $ 201     $ 25     $ 395     $ 42   Money market accounts     944       323       1,720       621   Savings accounts     762       26       1,138       52   Certificates of deposit     4,302       422       7,309       798   Total interest expense on deposits   $ 6,209     $ 796     $ 10,562     $ 1,513       29 Table of Contents     Note 6  - Borrowings   First Fed is a member of the FHLB. As a member, First Fed has a committed line of credit of up to  45 % of total assets, subject to the amount of FHLB stock ownership and certain collateral requirements.   First Fed maintains borrowing arrangements with the FHLB to borrow funds primarily under long-term, fixed-rate advance agreements. First Fed also has overnight borrowings through FHLB which renew daily until paid. First Fed periodically uses fixed-rate advances maturing in less than one year as an alternative source of funds. All borrowings are secured by collateral consisting of single-family, home equity, commercial real estate, and multi-family loans receivable in the amounts of $ 917.8 million and $ 753.7 million at  June 30, 2023 and December 31, 2022 , respectively.   First Fed also has an established borrowing arrangement with the Federal Reserve Bank of San Francisco ("FRB") to utilize the discount window for short-term borrowing. Available borrowing capacity was $ 8.7 million and $ 8.6 million at  June 30, 2023 and December 31, 2022 , respectively.  No funds have been borrowed to date. Investment securities with a carrying value of $ 9.2 million and $ 9.0 million were pledged to the FRB at  June 30, 2023 and December 31, 2022 , respectively.   On March 25, 2021, the Company completed a private placement of $ 40.0 million of 3.75 % fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and institutional accredited investors. The net proceeds to the Company from the sale of the Notes were approximately $ 39.3 million after deducting placement agent fees and other offering expenses. The Notes have been structured to qualify as Tier 2 capital for the Company for regulatory capital purposes. The Company used the net proceeds of the offering for general corporate purposes.   On May 20, 2022, First Northwest consummated a borrowing arrangement with NexBank for a $ 20.0 million revolving line of credit. Borrowings are secured by a blanket lien on First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The line of credit matures on May 18, 2024 , with the option for one 364 -day extension.   In June 2023, First Fed established a Bank Term Funding ("BTFP") borrowing arrangement with the FRB as an additional source of liquidity. Available borrowing capacity was $ 18.7 million at  June 30, 2023 .  No funds have been borrowed to date. Investment securities with a carrying value of $ 17.0 million were pledged to secure the BTFP at  June 30, 2023 .   The following table sets forth information regarding our borrowings at the end of and during the six months ended June 30, 2023 . The table includes both long- and short-term borrowings.       FHLB Long-Term Advances     FHLB Overnight Variable-Rate Advances     FHLB Short-Term Fixed-Rate Advances     Line of Credit     Subordinated Debt, net       (Dollars in thousands)   Balance outstanding   $ 85,000     $ 163,000     $ 5,000     $ 11,000     $ 39,397   Maximum outstanding at any month-end     85,000       189,000       95,000       11,000       39,397   Average monthly outstanding during the period     82,500       133,500       45,833       10,718       39,374   Weighted-average daily interest rates                                         Annual     1.90 %     4.97 %     5.07 %     8.94 %     4.04 % Period End     2.08 %     5.35 %     5.27 %     8.75 %     4.04 %     30 Table of Contents   The amounts by year of maturity and weighted-average interest rate of FHLB long-term, fixed-rate advances at June 30, 2023  are as follows:       Amount     Weighted- Average Interest Rate       (Dollars in thousands)   Within one year or less   $ 20,000       2.30 % After one year through two years     30,000       2.48   After two years through three years     15,000       1.49   After three years through four years     10,000       1.63   After four years through five years     10,000       1.76   Total FHLB long-term advances   $ 85,000       2.08 %   The following table sets forth information regarding our borrowings at the end of and during the year ended December 31, 2022 . The table includes both long- and short-term borrowings.       FHLB Long-Term Advances     FHLB Overnight Variable-Rate Advances     FHLB Short-Term Fixed-Rate Advances     Line of Credit     Subordinated Debt, net       (Dollars in thousands)   Balance outstanding   $ 80,000     $ 144,000     $ 10,000     $ 12,000     $ 39,358   Maximum outstanding at any month-end     80,000       206,000       42,500       12,000       39,358   Average monthly outstanding during the period     80,000       90,983       15,208       5,770       39,312   Weighted-average daily interest rates                                         Annual     1.52 %     2.83 %     1.82 %     6.76 %     4.01 % Period End     1.52 %     4.30 %     2.12 %     8.00 %     4.01 %     Note 7  - Income Tax   Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.   The effective tax rates were 20.2 % and  20.2 % for the six months ended June 30, 2023 and 2022 , respectively. The effective tax rates differ from the statutory maximum federal tax rate for 2023  and  2022 of 21 %, largely due to the nontaxable earnings on bank-owned life insurance and tax-exempt interest income earned on certain investment securities and loans. In the second quarter of 2022, the Company began accruing a provision for income tax for certain states in which we have employees and collateral for loans, thereby creating a nexus in those states for income tax purposes.     31 Table of Contents     Note 8  - Earnings per Common Share   The two -class method is used for computing basic and diluted earnings per share. Under the two -class method, EPS is determined for each class of common stock and participating security according to dividends declared and participating rights in undistributed earnings. The Company has issued restricted shares under share-based compensation plans which qualify as participating securities.   The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the three and six months ended June 30, 2023 and 2022 .       Three Months Ended     Six Months Ended       June 30,     June 30,       2023     2022     2023     2022       (In thousands, except share data)   Net income:                                 Net income available to common shareholders   $ 1,776     $ 2,488     $ 5,304     $ 5,294   Earnings allocated to participating securities     ( 9 )     ( 25 )     ( 28 )     ( 55 ) Earnings allocated to common shareholders   $ 1,767     $ 2,463     $ 5,276     $ 5,239   Basic:                                 Weighted average common shares outstanding     9,667,380       9,849,265       9,684,673       9,846,086   Weighted average unvested restricted stock awards     ( 139,760 )     ( 92,626 )     ( 152,474 )     ( 95,390 ) Weighted average unallocated ESOP shares     ( 613,265 )     ( 661,745 )     ( 619,841 )     ( 668,323 ) Total basic weighted average common shares outstanding     8,914,355       9,094,894       8,912,358       9,082,373   Diluted:                                 Basic weighted average common shares outstanding     8,914,355       9,094,894       8,912,358       9,082,373   Dilutive restricted stock awards     17,031       71,237       19,759       84,942   Total diluted weighted average common shares outstanding     8,931,386       9,166,131       8,932,117       9,167,315   Basic earnings per common share   $ 0.20     $ 0.27     $ 0.59     $ 0.58   Diluted earnings per common share   $ 0.20     $ 0.27     $ 0.59     $ 0.58     Potentially dilutive shares are excluded from the computation of EPS if their effect is anti-dilutive. At  June 30, 2023  and  2022 , antidilutive shares as calculated under the treasury stock method totaled  14,987 and 1,186 , respectively.     Note 9  - Employee Benefits   Employee Stock Ownership Plan   In connection with the Conversion, the Company established an ESOP for eligible employees of the Company and the Bank. Employees of the Company and the Bank who have been credited with at least 1,000 hours of service during a 12 -month period are eligible to participate in the ESOP.   Pursuant to the Plan, the ESOP purchased shares in the open market with funds borrowed from First Northwest. The Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to First Northwest over a period of 20 years, bearing estimated interest at 2.46 %. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP assets. A $ 835,000  principal and interest payment was made by the ESOP during the six months ended June 30, 2023 .   As shares are committed to be released from collateral, the Company reports compensation expense equal to the average daily market prices of the shares and the shares become outstanding for EPS computations. The compensation expense is accrued monthly throughout the year. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.     32 Table of Contents   Compensation expense related to the ESOP for the three months ended June 30, 2023 and 2022 , was $ 153,000 and $ 245,000 , respectively. Compensation expense related to the ESOP for the six months ended June 30, 2023 and 2022 , was $ 340,000  and $ 536,000 , respectively.   Shares issued to the ESOP as of the dates indicated are as follows:     June 30, 2023     December 31, 2022       (Dollars in thousands)   Allocated shares     439,174       386,285   Committed to be released shares     —       26,442   Unallocated shares     608,855       635,302   Total ESOP shares issued     1,048,029       1,048,029   Fair value of unallocated shares   $ 6,929     $ 9,758         Note 10  - Stock-based Compensation   In May 2020, the Company's shareholders approved the First Northwest Bancorp 2020 Equity Incentive Plan ( "2020  EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock shares or restricted stock units, and performance share awards to eligible participants through May 2030. The cost of awards under the 2020 EIP generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the 2020 EIP is 520,000 . As of  June 30, 2023 , there were  290,029  total shares available for grant under the 2020 EIP, all of which are available to be granted as restricted shares.   As a result of the approval of the 2020 EIP, the First Northwest Bancorp 2015 Equity Incentive Plan (the "2015 EIP") was frozen and no additional awards will be made. As of  June 30, 2023 , there were no shares available for grant under the 2015 EIP. At this date, there are  42,400  shares granted under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.   There were  29,349  and  53,343  shares of restricted stock awarded, respectively, during the six months ended June 30, 2023 and 2022 . Awarded shares of restricted stock vest ratably over periods ranging from one to five years from the date of grant provided the eligible participant remains in service to the Company. The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the grant date amortized over the vesting period.   For the three months ended June 30, 2023 and 2022 , total compensation expense for the equity incentive plans was $ 358,000  and $ 479,000 , respectively. Included in the compensation expense for the three months ended June 30, 2023 and 2022 , was directors' equity compensation of $ 73,000  and $ 84,000 , respectively.   For the six months ended June 30, 2023 and 2022 , total compensation expense for the equity incentive plans was $ 749,000  and $ 890,000 , respectively. Included in the compensation expense for the  six months ended June 30, 2023 and 2022 , was directors' equity compensation of $ 131,000  and $ 139,000 , respectively.   The following tables provide a summary of changes in non-vested restricted stock awards for the period shown:       For the Three Months Ended       June 30, 2023       Shares     Weighted-Average Grant Date Fair Value   Non-vested at April 1, 2023     149,054     $ 16.56   Granted     2,300       10.68   Vested     ( 5,753 )     14.81   Canceled (1)     ( 1,472 )     14.81   Forfeited     ( 11,211 )     17.14   Non-vested at June 30, 2023     132,918     $ 16.50                     (1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the participant's tax obligation on the vested shares. The surrendered shares are canceled and are unavailable for reissue.       33 Table of Contents       For the Six Months Ended       June 30, 2023       Shares     Weighted-Average Grant Date Fair Value   Non-vested at January 1, 2023     166,839     $ 17.78   Granted     29,349       14.09   Vested     ( 38,453 )     19.12   Canceled (1)     ( 11,806 )     19.12   Forfeited     ( 13,011 )     17.29   Non-vested at June 30, 2023     132,918     $ 16.50                     (1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the participant's tax obligation on the vested shares. The surrendered shares are canceled and are unavailable for reissue.     As of June 30, 2023 , there was $ 1.5 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately  1.43  years.     Note 11  - Fair Value Accounting and Measurement   Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third -party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.   Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.   A three -level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:   Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.   Level 2 - Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.   Level 3 - Unobservable inputs.   The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.   The Company used the following methods to measure fair value on a recurring and nonrecurring basis.   Securities available for sale : Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities. If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.   Partnership investments : Management determines fair value using quoted prices of similar investments or discounted cash flows, which are considered Level 2, when available. In certain cases, where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.   Sold loan servicing rights, at fair value : The fair value of sold loan servicing rights is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs. Servicing rights are classified as Level 3 due to reliance on assumptions used in the valuation.   34 Table of Contents   Loans receivable, net : The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans and leases would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.   Interest rate swap derivative : The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2 ). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including market transactions and third -party pricing services. The fair values of all interest rate swaps are determined from third -party pricing services without adjustment.   Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets and liabilities measured at fair value on a recurring basis at the dates indicated:       June 30, 2023       Quoted Prices in Active Markets for Identical Assets or Liabilities     Significant Other Observable Inputs     Significant Unobservable Inputs               (Level 1)     (Level 2)     (Level 3)     Total   Financial Assets     (In thousands)   Securities available-for-sale                                 Municipal bonds   $ 5,014     $ 95,489     $ —     $ 100,503   U.S. Treasury notes     2,364       —       —       2,364   Agency bonds     —       1,717       —       1,717   Corporate debt     5,414       48,260       —       53,674   MBS agency     —       71,565       —       71,565   MBS non-agency     —       62,762       29,378       92,140   Sold loan servicing rights     —       —       3,825       3,825   Partnership investments     —       —       12,733       12,733   Total assets measured at fair value   $ 12,792     $ 279,793     $ 45,936     $ 338,521   Financial Liabilities                                 Interest rate swap derivative   $ —     $ 392     $ —     $ 392         December 31, 2022       Quoted Prices in Active Markets for Identical Assets or Liabilities     Significant Other Observable Inputs     Significant Unobservable Inputs               (Level 1)     (Level 2)     (Level 3)     Total   Financial Assets     (In thousands)   Securities available-for-sale                                 Municipal bonds   $ 4,913     $ 93,137     $ —     $ 98,050   U.S. Treasury notes     2,364       —       —       2,364   Agency bonds     —       1,702       —       1,702   Corporate debt     5,326       50,173       —       55,499   MBS agency     —       75,648       —       75,648   MBS non-agency     —       63,707       29,599       93,306   Sold loan servicing rights     —       —       3,887       3,887   Partnership investments     —       —       12,563       12,563   Total assets measured at fair value   $ 12,603     $ 284,367     $ 46,049     $ 343,019       35 Table of Contents   The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at the date indicated:   June 30, 2023   Fair Value (In thousands)   Valuation Technique   Unobservable Input (1)   Range (Weighted Average)   Sold loan servicing rights   $ 3,825   Discounted cash flow   Constant prepayment rate   4.84% - 40.04% (8.04%)                 Discount rate     11.63% - 14.35% (12.52%)   MBS non-agency   $ 29,378   Consensus pricing   Offered quotes   97.5 - 99.5                 Comparability adjustments (%)     -1.04% - 0.95%   (1) Unobservable inputs were weighted by the relative fair value of the instruments.     The following tables summarize the changes in Level 3 assets measured at fair value on a recurring basis at the dates indicated:       As of or For the Three Months Ended June 30, 2023       Balance at beginning of period     Servicing rights that result from transfers and sale of financial assets     Changes in fair value due to changes in model inputs or assumptions (1)     Balance at end of period       (In thousands)   Sold loan servicing rights   $ 4,224     $ 7     $ ( 406 )   $ 3,825   (1) Represents changes due to collection/realization of expected cash flows and curtailments.         As of or For the Six Months Ended June 30, 2023       Balance at beginning of period     Servicing rights that result from transfers and sale of financial assets     Changes in fair value due to changes in model inputs or assumptions (1)     Balance at end of period       (In thousands)   Sold loan servicing rights   $ 3,887     $ 75     $ ( 137 )   $ 3,825   (1) Represents changes due to collection/realization of expected cash flows and curtailments.         As of or For the Three Months Ended June 30, 2022       Balance at beginning of period     Servicing rights that result from transfers and sale of financial assets     Changes in fair value due to changes in model inputs or assumptions (1)     Balance at end of period       (In thousands)   Sold loan servicing rights   $ 4,046     $ 42     $ ( 223 )   $ 3,865   (1) Represents changes due to collection/realization of expected cash flows and curtailments.         As of or For the Six Months Ended June 30, 2022       Election of Fair Value Option for Servicing Rights at January 1, 2022     Servicing rights that result from transfers and sale of financial assets     Changes in fair value due to changes in model inputs or assumptions (1)     Balance at end of period       (In thousands)   Sold loan servicing rights   $ 3,820     $ 98     $ ( 53 )   $ 3,865   (1) Represents changes due to collection/realization of expected cash flows and curtailments.       36 Table of Contents       As of or For the Six Months Ended June 30, 2023       Balance at beginning of period     Transfers Into Level 3     Purchases     Unrealized (Losses) Gains     Balance at end of period       (In thousands)   Securities available for sale:                                         MBS non-agency   $ 29,599     $ —     $ —     $ ( 221 )   $ 29,378   Partnership investments     12,563       —       —       170       12,733             As of or For the Year Ended December 31, 2022       Balance at beginning of period     Transfers Into Level 3 (1)     Purchases     Unrealized Gains     Balance at end of period       (In thousands)   Securities available for sale:                                         MBS non-agency   $ —     $ 29,599     $ —     $ —     $ 29,599   Sold loan servicing rights     —       12,490       —       73       12,563   (1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the investments.     Assets and liabilities measured at fair value on a nonrecurring basis - Assets are considered to be valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the consolidated balance sheets. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.   The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the date indicated:       December 31, 2022       Level 1     Level 2     Level 3     Total       (In thousands)   Impaired loans   $ —     $ —     $ 3,034     $ 3,034     At  June 30, 2023 and December 31, 2022 , there were no impaired loans with discounts to appraisal disposition value or other unobservable inputs.     37 Table of Contents   The following tables present the carrying value and estimated fair value of financial instruments at the dates indicated:       June 30, 2023                       Fair Value Measurements Using:       Carrying Amount     Estimated Fair Value     Level 1     Level 2     Level 3       (In thousands)   Financial assets                                         Cash and cash equivalents   $ 78,302     $ 78,302     $ 78,302     $ —     $ —   Investment securities available for sale     321,963       321,963       12,792       279,793       29,378   Loans held for sale     2,049       2,049       —       2,049       —   Loans receivable, net     1,620,863       1,509,311       —       —       1,509,311   FHLB stock     12,621       12,621       —       12,621       —   Accrued interest receivable     7,480       7,480       —       7,480       —   Sold loan servicing rights, at fair value     3,825       3,825       —       —       3,825   Partnership investments     12,733       12,733       —       —       12,733   Financial liabilities                                         Demand deposits   $ 1,094,052     $ 1,094,052     $ 1,094,052     $ —     $ —   Time deposits     559,070       551,012       —       —       551,012   FHLB Borrowings     253,000       247,846       —       —       247,846   Line of Credit     11,000       11,047       —       —       11,047   Subordinated debt, net     39,397       40,164       —       —       40,164   Accrued interest payable     1,367       1,367       —       1,367       —   Interest rate swap derivative     392       392       —       392       —         December 31, 2022                       Fair Value Measurements Using:       Carrying Amount     Estimated Fair Value     Level 1     Level 2     Level 3       (In thousands)   Financial assets                                         Cash and cash equivalents   $ 45,596     $ 45,596     $ 45,596     $ —     $ —   Investment securities available for sale     326,569       326,569       12,603       284,367       29,599   Loans held for sale     597       597       —       597       —   Loans receivable, net     1,531,435       1,461,470       —       —       1,461,470   FHLB stock     11,681       11,681       —       11,681       —   Accrued interest receivable     6,743       6,743       —       6,743       —   Sold loan servicing rights, at fair value     3,887       3,887       —       —       3,887   Partnership investments     12,563       12,563       —       —       12,563   Financial liabilities                                         Demand deposits     1,182,570     $ 1,182,570     $ 1,182,570     $ —     $ —   Time deposits     381,685       372,865       —       —       372,865   FHLB Borrowings     234,000       229,103       —       —       229,103   Line of Credit     12,000       12,034       —       —       12,034   Subordinated debt, net     39,358       38,841       —       —       38,841   Accrued interest payable     455       455       —       455       —       38 Table of Contents     Note 12 - Change in Accumulated Other Comprehensive Income ("AOCI")   Our AOCI includes unrealized gain (loss) on available-for-sale securities and an unrecognized defined benefit plan prior service cost. The following table presents changes to accumulated other comprehensive income after-tax for the periods shown:       Unrealized Gains and Losses on Available-for-Sale Securities     Unrecognized Defined Benefit Plan Prior Service Cost, Net of Amortization     Unrealized Gains and Losses on Derivatives     Total       (In thousands)                                     Balance at March 31, 2022   $ ( 13,330 )   $ ( 1,823 )   $ —     $ ( 15,153 ) Other comprehensive loss before reclassification     ( 13,330 )     —       —       ( 13,330 ) Amounts reclassified from accumulated other comprehensive income     7       29       —       36   Net other comprehensive (loss) income     ( 13,323 )     29       —       ( 13,294 ) Balance at June 30, 2022   $ ( 26,653 )   $ ( 1,794 )   $ —     $ ( 28,447 )                                   Balance at March 31, 2023   $ ( 34,642 )   $ ( 2,109 )   $ ( 1,357 )   $ ( 38,108 ) Other comprehensive loss before reclassification     ( 3,037 )     —       1,049       ( 1,988 ) Amounts reclassified from accumulated other comprehensive income     —       30       —       30   Net other comprehensive (loss) income     ( 3,037 )     30       1,049       ( 1,958 ) Balance at June 30, 2023   $ ( 37,679 )   $ ( 2,079 )   $ ( 308 )   $ ( 40,066 )                                                                     Balance at December 31, 2021   $ 2,140     $ ( 1,852 )   $ —     $ 288   Other comprehensive loss before reclassification     ( 28,700 )     —       —       ( 28,700 ) Amounts reclassified from accumulated other comprehensive income     ( 93 )     58       —       ( 35 ) Net other comprehensive (loss) income     ( 28,793 )     58       —       ( 28,735 ) Balance at June 30, 2022   $ ( 26,653 )   $ ( 1,794 )   $ —     $ ( 28,447 )                                   Balance at December 31, 2022   $ ( 38,404 )   $ ( 2,139 )   $ —     $ ( 40,543 ) Other comprehensive income before reclassification     725       —       ( 308 )     417   Amounts reclassified from accumulated other comprehensive income     —       60       —       60   Net other comprehensive income     725       60       ( 308 )     477   Balance at June 30, 2023   $ ( 37,679 )   $ ( 2,079 )   $ ( 308 )   $ ( 40,066 )     39 Table of Contents     Note 13  - Derivatives and Hedging Activities   The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.   Fair Value Hedges of Interest Rate Risk The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.   For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.   At June 30, 2023 , the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges. The Company had no fair value hedges at December 31, 2022 . Line item in the income statement in which the hedged item is included   Carrying Amount of the Hedged Assets (Liabilities)     Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)       (In thousands)   June 30, 2023                 Investment securities (1)   $ 50,392     $ 392   Total   $ 50,392     $ 392   ( 1 ) These amounts include the amortized cost basis of closed portfolios of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At June 30, 2023 , the amortized cost basis of the closed portfolios used in these hedging relationships was $ 50.1 million, the cumulative basis adjustments associated with these hedging relationships was $ 392,000 , and the amounts of the designated hedged items were $ 50.0 million.   The following table summarizes the Company’s derivative instruments at the date indicated. The Company has master netting agreements with derivative dealers with which it does business, but reflects gross assets and liabilities as “Other assets” and “Other liabilities,” respectively, on the Consolidated Balance Sheets, as follows:             Fair Value       Notional Amount     Other Assets     Other Liabilities         (In thousands)   June 30, 2023                         Fair value hedges:                         Interest rate swaps - securities   $ 50,000     $ —     $ 351     The following table summarizes the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Income for the periods shown:     Three Months Ended June 30,     Six Months Ended June 30,       2023     2022     2023     2022       (In thousands)   Total amounts recognized in interest on investment securities   $ 3,336     $ 2,715     $ 6,518     $ 4,990   Net gains (losses) on fair value hedging relationships                                 Interest rate swaps - securities                                 Recognized on hedged items   $ ( 1,336 )   $ —     $ 392     $ —   Recognized on derivatives designated as hedging instruments     1,443       —       ( 254 )     —   Net income recognized on fair value   $ 107     $ —     $ 138     $ —       40 Table of Contents   Credit Risk-related Contingent Features The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted.   The Company’s derivative contracts contain credit risk-related contingent features designed to protect against significant deterioration in counterparties’ creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company’s bilateral credit related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $ 50.0 million should the fair value of outstanding derivatives per counterparty be greater than $ 50.0 million. Additionally, a certain level of decline in credit rating of either the Company or the counterparty could also trigger collateral requirements. As of June 30, 2023 , the Company was in compliance with all credit risk-related contingent features and had derivative instruments with credit risk-related contingent features in a net liability position of $ 351,000 . Accordingly, the Company posted collateral in the form of restricted cash of $ 2.2 million as a result of these contingent features. Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial.     41 Table of Contents     ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements   Certain matters discussed in this Quarterly Report on Form 10-Q constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Forward-looking statements include, but are not limited to:   • statements of our goals, intentions and expectations;   • statements regarding our business plans, prospects, growth and operating strategies;   • statements regarding the quality of our loan and investment portfolios; and   • estimates of our risks and future costs and benefits.   These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:   • the risks associated with lending and potential adverse changes in the credit quality of loans in our portfolio;   • legislative or regulatory changes, including expanded consumer protection regulation, responses to recent events in the banking industry, inflation and climate change issues, which could adversely affect the Company's business;   • a continued decrease in the market demand for loans that we originate for sale;   • our ability to control operating costs and expenses;   • whether our management team can succeed in implementing our operational strategy, including but not limited to our efforts to achieve loan and revenue growth;   • our ability to successfully execute on merger and/or acquisition strategies, integrate any newly acquired assets, liabilities, customers, systems, and management personnel into our operations and realize related cost savings within expected time frames;   • our ability to successfully execute on growth strategies related to our entry into new markets and delivery channels, including banking as a service;   • our ability to develop user-friendly digital applications to serve existing customers and attract new customers;   • the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;   • changes in monetary policy and fiscal policies, including interest rate policies of the Federal Reserve, and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources;   • pressures on liquidity, including as a result of withdrawals of deposits or declines in the value of our investment portfolio;   • increased competitive pressures among financial services companies, particularly from non-traditional banking entities such as challenger banks, fintech, and mega technology companies;   • our ability to attract and retain deposits at a reasonable cost;   • changes in consumer spending, borrowing and savings habits, resulting in reduced demand for banking products and services, particularly in the event of a recession that affects our market areas;   • results of examinations by the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, Federal Reserve Bank of San Francisco, or other regulatory authorities, which could result in restrictions that may adversely affect our liquidity and earnings;   • disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;   • risks related to overall economic conditions, including the impact on the economy of a rising interest rate environment, inflationary pressures, and geopolitical instability, including the war in Ukraine;   • any failure of key third-party vendors to perform their obligations to us;   • the effects of any reputational damage to the Company resulting from any of the foregoing; and   • other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2022, ("2022 Form 10-K").   Any of the forward-looking statements that we make in this report and in other statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot anticipate or predict. Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. Due to these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.   42 Table of Contents   General   First Northwest is a bank holding company and a financial holding company and is engaged in banking activities through its wholly owned subsidiary, First Fed Bank, as well as certain non-banking financial activities. Non-financial investments include several limited partnership investments, including a 33% interest in The Meriwether Group, LLC ("MWG"). The Company's business activities are generally focused on passive investment activities and oversight of the activities of First Fed. The Company has also entered into partnerships to strategically invest in fintech-related businesses, which may result in the development of additional investment opportunities.   First Fed Bank is a community-oriented financial institution founded in 1923 in Port Angeles, Washington. We have 16 locations including 12 full-service branches and four business centers in Clallam, Jefferson, King, Kitsap, and Whatcom counties. First Fed’s business and operating strategy is focused on building sustainable earnings by delivering a fully array of financial products and services for individuals, small business, and commercial customers. Lending activities include the origination of first lien one-to-four family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, commercial business loans, SBA loans, and consumer loans, consisting primarily of home equity loans and lines of credit. Over the last five years, we have significantly increased the origination of commercial real estate, multi-family real estate, construction, and commercial business loans, and have increased our consumer loan portfolio through our manufactured home and auto loan purchase programs. We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts and certificates of deposit ("CDs") for individuals and businesses. Deposits are our primary source of funding for our lending and investing activities.   First Northwest's limited partnership investments include Canapi Ventures Fund, LP; BankTech Ventures, LP; and JAM FINTOP Blockchain, LP. These limited partnerships invest in fintech-related businesses with a focus on developing digital solutions applicable to the banking industry. In 2022, First Northwest acquired a 33% interest in MWG, a boutique investment bank and consulting firm focused on providing entrepreneurs with resources to help them succeed. Also in 2022, the Company acquired a 25% equity interest as a general partner in Meriwether Group Capital, LLC ("MWGC"), which provides financial advice for borrowers and capital for the Meriwether Group Capital Hero Fund LP ("Hero Fund"). The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest. MWG also holds a 20% interest in MWGC. In addition, First Northwest has a limited partnership investment in the Hero Fund.   First Northwest is impacted by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by several factors, including interest rates paid on competing deposits, alternative investment options available to our customers, account maturities, the number and quality of our deposit originators, digital delivery systems, branding and customer acquisition, and the overall level of personal income and savings in the markets where we do business. Lending activities are influenced by the demand and pricing for loan funds, our credit policies, the number and quality of our lenders and credit underwriters, digital delivery systems, branding and customer acquisition, and regional economic cycles.   Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income earned on our loans and investments and interest expense paid on our deposits and borrowings. Changes in our asset and liability mix, market and portfolio interest rates and cash flows from existing assets and liabilities affect our net interest income. A secondary source of income for the Company is noninterest income, which includes revenue earned from providing products and services, including service charges on deposit accounts, late and other charges on loans, mortgage banking income, loan sales and servicing income, interest rate swap fee income, earnings from bank-owned life insurance, investment services income, gains and losses from sales of securities, and changes in the market value of our equity and partnership investments.   An offset to net interest income is the provision for credit losses, which represents the periodic charge to operations that is required to adequately provide for losses inherent in our loan portfolio through the ACL. A recapture of previously recognized provision for credit losses may be added to net income as the underlying assumptions driving anticipated loss rates within the CECL model improve, such as the United States unemployment and gross domestic product metrics, or receipt of recoveries for amounts previously charged off.   Noninterest expenses we incur in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, federal deposit insurance premiums and regulatory assessments, data processing expenses, marketing and other customer acquisition expenses, legal and other professional fees, expenses related to real estate and personal property owned, and other expenses.     43 Table of Contents   Critical Accounting Policies   On January 1, 2023, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments , referred to as the Current Expected Credit Loss or CECL model. In conjunction with the adoption of CECL, the Company also adopted ASU 2022-02,  Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . For additional information on these ASUs, see "Note 1 - Basis of Presentation and Critical Accounting Policies - Recently adopted accounting pronouncements" of the Notes to the Consolidated Financial Statements included in Part I. Item 1 of this report.   Effective with the execution of a hedging agreement in the first quarter of 2023, the Company implemented an accounting policy on derivatives and hedging. For additional information on the hedging policy, see "Note 1 - Basis of Presentation and Critical Accounting Policies - Recently adopted accounting pronouncements" of the Notes to the Consolidated Financial Statements included in Part I. Item 1 of this report.   There were no other material changes to the critical accounting policies from those disclosed in the Company's 2022 Form 10-K.     Comparison of Financial Condition at June 30, 2023 and December 31, 2022   Assets . Total assets increased to $2.16 billion, or 5.9%, at June 30, 2023, from $2.04 billion at December 31, 2022.   Cash and cash equivalents increased by $32.7 million, or 71.7%, to $78.3 million as of June 30, 2023, compared to $45.6 million as of December 31, 2022. Cash increased during the current year as the Bank increased balance sheet liquidity in response to stresses within the banking industry and related concerns with respect to liquidity and uncertainty around deposit retention.   Investment securities decreased $4.6 million, or 1.4%, to $322.0 million at June 30, 2023, from $326.6 million at December 31, 2022. Normal payments and prepayment activity were partially offset by a mark-to-market valuation increase of $639,000 primarily related to an improved outlook on the municipal bond portfolio. The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 7.8 years as of June 30, 2023, compared to 8.2 years as of December 31, 2022, and had an estimated average repricing term of 7.0 years as of June 30, 2023, compared to 7.1 years as of December 31, 2022, based on the interest rate environment at those times. The effective duration of the investment portfolio was 5.2 years at June 30, 2023, compared to 5.1 years at December 31, 2022. We believe prepayment activity may continue to slow if interest rates continue to rise, extending the projected duration and causing additional deterioration to the market value of our securities portfolio.   The investment portfolio was composed of 49.9% in amortizing securities at June 30, 2023, compared to 50.8% at December 31, 2022. The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is impacted by prevailing mortgage interest rates. The Company maintains a focus on enhancing the mix of earning assets by increasing loans as a percentage of earning assets; however, we may continue to purchase investment securities as a source of additional interest income. Securities are sold to provide liquidity, improve long-term portfolio yields and manage interest rate risk in the portfolio. For additional information, see Note 2 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.   Net loans, excluding loans held for sale, increased $89.4 million to $1.62 billion at June 30, 2023, from $1.53 billion at December 31, 2022. During the six months ended June 30, 2023, commercial business loans increased $53.2 million, as a result of a $23.9 million funding to the Northpointe Mortgage Purchase Program ("Northpointe MPP"), $15.2 million of Bankers Healthcare Group loan purchases and $14.1 million of organic originations and draws on existing commitments in excess of payoffs and scheduled payments. Multi-family loans increased $43.8 million through new originations totaling $19.1 million, and $32.7 million of construction loans converting into permanent amortizing loans, including $12.4 million of acquisition-renovation loans. One-to-four family residential loans increased $22.0 million during the first six months of 2023 as a result of $3.3 million in new amortizing loan originations and $38.9 million of residential construction loans that converted to permanent amortizing loans, partially offset by loan payoffs totaling $13.7 million and $7.7 million of scheduled payments received. Auto and other consumer loans increased $15.0 million, due to a $14.3 million purchase of a pool of manufactured home loans, $1.6 million in individual manufactured home loan purchases and a net increase in auto loans of $1.5 million, offset by payment activity. Home equity loans increased $6.0 million as a result of $3.7 million in new fixed-rate originations and $3.8 million in new home equity lines of credit, offset by payment activity. Commercial real estate loans decreased $12.9 million, with early payoffs and scheduled payments in excess of the $4.3 million from construction loans that converted into permanent amortizing loans.     44 Table of Contents   Construction and land loans decreased $36.6 million, or 18.9%, to $157.1 million at June 30, 2023, from $193.7 million at December 31, 2022, with $76.0 million converting into fully amortizing loans and additional decreases from loans being paid in full, partially offset by draws on new and existing loans. Construction loans in the portfolio are geographically dispersed throughout western Washington with two loans in Oregon and two loans in Idaho. We manage construction lending by utilizing a licensed third-party vendor to assist us in monitoring the progress toward completion of our construction projects. We continue to monitor the impact of supply chain challenges, inflation and consumer demand in a rising interest rate environment on completion of the projects currently in the portfolio. As of the date of this report, we have no reason to believe that any of the projects in process will not be completed. At June 30, 2023, acquisition-renovation loans of $7.3 million were included in the construction loan total compared to $19.3 million at December 31, 2022. These commercial acquisition-renovation loans represent financing primarily for the acquisition of multi-family properties with a construction component used for the renovation of common areas and specific units of the building. Given the construction component of these loans, we are required to report them as construction under regulatory guidelines; however, we consider these loans to be lower risk than typical ground-up construction projects. At June 30, 2023, 40% of construction commitments were for one-to-four family residential properties, which are anticipated to convert into amortizing loans upon completion.   We monitor real estate values and general economic conditions in our market areas, in addition to assessing the strength of our borrowers, including their equity contributions to a project, to prudently underwrite construction loans. We continually assess our lending strategies across all product lines and markets where we do business to improve earnings while also prudently managing credit risk.   45 Table of Contents   The following tables show our construction commitments by type and geographic concentrations at the dates indicated:   June 30, 2023   North Olympic Peninsula (1)     Puget Sound Region (2)     Other Washington     Oregon     Idaho     Total       (In thousands)   Construction Commitment                                                 One-to-four family residential   $ 21,899     $ 60,701     $ 7,774     $ 540     $ —     $ 90,914   Multi-family residential     —       85,563       9,130       415       3,592       98,700   Commercial acquisition-renovation     —       7,861       —       —       —       7,861   Commercial real estate     503       31,341       —       —       —       31,844   Total commitment   $ 22,402     $ 185,466     $ 16,904     $ 955     $ 3,592     $ 229,319                                                     Construction Funds Disbursed                                                 One-to-four family residential   $ 11,788     $ 31,639     $ 3,480     $ 170     $ —     $ 47,077   Multi-family residential     —       64,795       5,436       85       3,071       73,387   Commercial acquisition-renovation     —       7,285       —       —       —       7,285   Commercial real estate     454       21,707       —       —       —       22,161   Total disbursed   $ 12,242     $ 125,426     $ 8,916     $ 255     $ 3,071     $ 149,910                                                     Undisbursed Commitment                                                 One-to-four family residential   $ 10,111     $ 29,062     $ 4,294     $ 370     $ —     $ 43,837   Multi-family residential     —       20,768       3,694       330       521       25,313   Commercial acquisition-renovation     —       576       —       —       —       576   Commercial real estate     49       9,634       —       —       —       9,683   Total undisbursed   $ 10,160     $ 60,040     $ 7,988     $ 700     $ 521     $ 79,409                                                     Land Funds Disbursed                                                 One-to-four family residential   $ 3,650     $ 3,201     $ 412     $ —     $ —     $ 7,263   Commercial real estate     —       355       —       —       —       355   Total disbursed for land   $ 3,650     $ 3,556     $ 412     $ —     $ —     $ 7,618   (1) Includes Clallam and Jefferson counties. (2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties.   December 31, 2022   North Olympic Peninsula (1)     Puget Sound Region (2)     Other Washington     Oregon     Idaho     Total       (In thousands)   Construction Commitment                                                 One-to-four family residential   $ 39,031     $ 75,745     $ 12,015     $ —     $ —     $ 126,791   Multi-family residential     —       102,429       9,296       415       3,592       115,732   Commercial acquisition-renovation     1,636       18,625       —       —       —       20,261   Commercial real estate     349       39,845       —       540       —       40,734   Total commitment   $ 41,016     $ 236,644     $ 21,311     $ 955     $ 3,592     $ 303,518                                                     Construction Funds Disbursed                                                 One-to-four family residential   $ 17,557     $ 36,902     $ 4,280     $ —     $ —     $ 58,739   Multi-family residential     —       68,936       5,296       42       2,752       77,026   Commercial acquisition-renovation     1,636       17,687       —       —       —       19,323   Commercial real estate     212       27,492       —       12       —       27,716   Total disbursed   $ 19,405     $ 151,017     $ 9,576     $ 54     $ 2,752     $ 182,804                                                     Undisbursed Commitment                                                 One-to-four family residential   $ 21,474     $ 38,843     $ 7,735     $ —     $ —     $ 68,052   Multi-family residential     —       33,493       4,000       373       840       38,706   Commercial acquisition-renovation     —       938       —       —       —       938   Commercial real estate     137       12,353       —       528       —       13,018   Total undisbursed   $ 21,611     $ 85,627     $ 11,735     $ 901     $ 840     $ 120,714                                                     Land Funds Disbursed                                                 One-to-four family residential   $ 3,552     $ 3,370     $ 419     $ —     $ —     $ 7,341   Commercial real estate     372       4,129       —       —       —       4,501   Total disbursed for land   $ 3,924     $ 7,499     $ 419     $ —     $ —     $ 11,842   (1) Includes Clallam and Jefferson counties. (2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties.   46 Table of Contents   During the six months ended June 30, 2023, the Company originated $106.0 million of organic loans, of which $74.4 million, or 70.2%, were originated in the Puget Sound region, $26.4 million, or 24.9%, in the North Olympic Peninsula, $1.8 million, or 1.7%, in other areas throughout Washington State, and $3.4 million, or 3.2%, in other states. The Company purchased an additional $22.7 million in auto loans, $15.9 million in manufactured home loans, and $15.2 million in commercial business loans with collateral located throughout the United States during the six months ended June 30, 2023. We will continue to strategically evaluate opportunities to acquire assets through wholesale channels in order to supplement organic originations and increase net interest income. Northpointe MPP also provides a temporary source of additional interest income but is dependent on demand for funding, with repayment of advances to this program typically occurring within 30 days or less. The total loan portfolio was composed of 79.1% organic originations and 20.9% purchased loans at June 30, 2023.   The ACLL increased to $17.3 million at June 30, 2023, as the Company adopted CECL on January 1, 2023, recording a day-one adjusting entry of $2.2 million that was increased by a $315,000 provision for credit loss on loans for the six-month period. Net charge-offs were $1.3 million for the six-month period. The ACLL as a percentage of total loans was 1.1% at both June 30, 2023 and December 31, 2022.   Nonperforming loans increased $761,000, or 42.4%, to $2.6 million at June 30, 2023, from $1.8 million at December 31, 2022, reflecting the deterioration of three mortgage loans totaling $826,000, partially offset by payments received on other nonperforming loans. Nonperforming loans to total loans was 0.2% at June 30, 2023, up from 0.1% at December 31, 2022. The ACLL as a percentage of nonperforming loans decreased to 677% at June 30, 2023, down from 900% at December 31, 2022.   Classified loans increased $5.8 million to $22.7 million at June 30, 2023, from $16.9 million at December 31, 2022, due to downgrades of a $2.5 million commercial business loan, a $1.3 million commercial real estate loan, $873,000 of additional funds disbursed on a substandard commercial construction loan, $816,000 for two single-family residential loans, along with delinquent unsecured consumer loans totaling $321,000 and purchased manufactured home loans totaling $149,000.   Loan charge-offs are concentrated mainly in purchased unsecured consumer and indirect auto loans. Efforts to minimize future losses include adjusting the underwriting criteria for future loans purchased from the Splash unsecured consumer loan program, which had loan balances of $10.0 million and $9.2 million at June 30, 2023 and December 31, 2022, respectively. The indirect auto loan program was discontinued in 2020, and the remaining loan balances under that program decreased to $3.2 million at June 30, 2023 from $4.8 million at December 31, 2022. We believe the ACLL is adequate to absorb the known and inherent risks of loss in the overall loan portfolio as of June 30, 2023.   Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated :                       Increase (Decrease)       June 30, 2023     December 31, 2022     Amount     Percent       (In thousands)                   Real Estate:                                 One-to-four family   $ 365,600     $ 343,559     $ 22,041       6.4 % Multi-family     296,561       252,745       43,816       17.3   Commercial real estate     375,961       388,884       (12,923 )     (3.3 ) Construction and land     157,060       193,646       (36,586 )     (18.9 ) Total real estate loans     1,195,182       1,178,834       16,348       1.4   Consumer:                                 Home equity     58,895       52,877       6,018       11.4   Auto and other consumer     253,950       238,913       15,037       6.3   Total consumer loans     312,845       291,790       21,055       7.2   Commercial business loans     130,133       76,927       53,206       69.2   Total loans     1,638,160       1,547,551       90,609       5.9   Less:                                 Allowance for credit losses on loans     17,297       16,116       1,181       7.3   Loans receivable, net   $ 1,620,863     $ 1,531,435     $ 89,428       5.8     47 Table of Contents   The following table represents nonperforming assets at the dates indicated.                     Increase (Decrease)       June 30, 2023     December 31, 2022     Amount     Percent       (In thousands)                   Nonperforming loans:                                 Real estate loans:                                 One-to-four family   $ 1,780     $ 954     $ 826       86.6 % Commercial real estate     41       53       (12 )     (22.6 ) Construction and land     12       15       (3 )     (20.0 ) Total real estate loans     1,833       1,022       811       79.4   Consumer loans:                                 Home equity     245       196       49       25.0   Auto and other consumer     476       575       (99 )     (17.2 ) Total consumer loans     721       771       (50 )     (6.5 ) Total nonperforming assets   $ 2,554     $ 1,793     $ 761       42.4                                     Nonaccrual and 90 days or more past due loans as a percentage of total loans     0.2 %     0.1 %     0.1 %     100.0       Liabilities. Total liabilities increased to $2.0 billion at June 30, 2023, from $1.88 billion at December 31, 2022, due to an increase in deposits of $88.9 million and borrowings of $18.0 million.   Deposit balances increased $88.9 million to $1.65 billion at June 30, 2023 from $1.56 billion at December 31, 2022. During the six-month period ended June 30, 2023, CDs increased $177.4 million and savings accounts increased $59.4 million, offset by money market account decreases of $98.7 million and demand deposit account decreases of $49.1 million. We believe the shift between categories was driven by customers seeking higher rates and diversification of their deposit balances. We utilize brokered CDs as an additional funding source to provide liquidity, manage cost of funds, reduce reliance on FHLB advances, and manage interest rate risk. Brokered CDs totaling $179.6 million were included in the $559.0 million balance of CDs at June 30, 2023. Brokered CD balances increased $45.7 million, business and public fund account balances increased $35.1 million, and consumer account balances increased $8.0 million during the six-month period ended June 30, 2023.   FHLB advances increased $29.0 million, or 12.9% to $253.0 million at June 30, 2023, from $224.0 million at December 31, 2022. We increased short-term advances to provide additional balance sheet liquidity and to keep the duration of liabilities shorter relative to taking on longer term advances.   Equity . Total shareholders' equity increased $1.3 million to $159.6 million for the six months ended June 30, 2023. The Company recorded year-to-date net income of $5.3 million and a decrease in the after-tax unrealized loss on available-for-sale investments of $725,000. Increases were partially offset by a $3.0 million decrease for the cumulative CECL adjustment, $1.4 million of dividends paid, a $308,000 decrease in the fair market value of derivatives, net of taxes and the cost of repurchased shares. Year-to-date, we repurchased 74,617 shares of common stock under the October 2020 stock repurchase plan at an average price of $12.94 per share for a total of $968,000, leaving 227,410 shares remaining in the current share repurchase program. Bond values increased modestly from the end of 2022 as the economic outlook for rising long-term rates subsided.   48 Table of Contents   Comparison of Results of Operations for the Three Months Ended June 30, 2023 and 2022   General. Net income attributable to the Company was $1.8 million for the three months ended June 30, 2023, compared to $2.5 million for the three months ended June 30, 2022. A $1.1 million decrease in net interest income after provision for credit losses and a $511,000 decrease in noninterest income was offset by a $1.8 million decrease in noninterest expense.   Net Interest Income. Net interest income decreased $1.3 million to $16.0 million for the three months ended June 30, 2023, from $17.2 million for the three months ended June 30, 2022. This decrease was mainly the result of higher rates paid on interest-bearing liabilities, which increased 184 basis points to 2.33% for the three months ended June 30, 2023, compared to 0.49% for the same period in the prior year. The decrease in net interest income was also due to an increase in the average balances of CDs and advances and higher rates paid on all deposits and advances. The average yield on interest-earning assets increased 103 basis points to 5.17% for the three months ended June 30, 2023, compared to 4.14% for the same period last year, due primarily to higher yields on variable-rate assets and new loan fundings and an increase of net loans as a percentage of earning assets.   Total cost of funds increased 159 basis points to 1.98% for the three months ended June 30, 2023, from 0.39% for the same period in 2022. The net interest margin decreased 52 basis points to 3.25% for the three months ended June 30, 2023, from 3.77% for the same period in 2022. While increases in the cost of funding are currently outpacing the growth of the yield on interest-earning assets, the Company has taken measures to combat interest rate compression. The Bank augments organic loan production with higher yielding purchased loans through relationships with loan originators. We have also increased our focus on variable-rate lending and the Bank has entered into a fair value hedging agreement.   Interest Income. Total interest income increased $6.5 million, or 34.3%, to $25.5 million for the three months ended June 30, 2023, from $19.0 million for the comparable period in 2022, primarily due to an increase in the average balances on interest-earning assets. Interest and fees on loans receivable increased $5.2 million, to $21.3 million for the three months ended June 30, 2023, from $16.1 million for the three months ended June 30, 2022, primarily due to an increase in the average balance of net loans receivable of $148.2 million compared to the second quarter of 2022, coupled with an increase in average loan yields to 5.38% for the three months ended June 30, 2023, from 4.48% for the same period in 2022. The loan portfolio has grown through our renewed short-term participation in the Northpointe MPP, draws on new and existing business lines of credit, originations of multi-family real estate loans, and purchases of auto, manufactured home, and purchased Bankers Healthcare Group commercial loans. Loan yields have increased over the prior year due to higher rates on new originations as well as the repricing of variable rate loans tied to the Prime Rate or other indices. The yield earned on investment securities also increased 124 basis points to 4.09% compared to the same period in 2022, as increases in floating bond rates and a slowdown in prepayment speeds, which reduces amortization of premium costs, have positively impacted investment securities income. The yield on interest-earning deposits in banks also increased to 5.18% from 0.89% for the comparable period in 2022, given the FRB rate increases.     49 Table of Contents   The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:     Three Months Ended June 30,               2023     2022               Average Balance Outstanding     Yield     Average Balance Outstanding     Yield     Increase (Decrease) in Interest Income       (Dollars in thousands)   Loans receivable, net   $ 1,587,948       5.38 %   $ 1,439,714       4.48 %   $ 5,218   Investment securities     327,129       4.09       367,662       2.96       621   FHLB stock     12,515       7.11       8,190       5.83       103   Interest-earning deposits in banks     47,792       5.18       20,636       0.89       571   Total interest-earning assets   $ 1,975,384       5.17 %   $ 1,836,202       4.14 %   $ 6,513     Interest Expense. Total interest expense increased $7.8 million, or 452.5%, to $9.5 million for the three months ended June 30, 2023, compared to $1.7 million for the three months ended June 30, 2022. The increase over the second quarter of 2022 was the result of an increase in the cost of deposits to 1.54% from 0.20% in same period one year ago along with higher volumes of CDs. A shift in the deposit mix from low-cost transaction and money market accounts to a higher volume of CDs and savings accounts resulted in higher costs of deposits. Borrowing expense increased due to an average balance increase of $113.7 million and an increase in the cost of advances, primarily FHLB advances, compared to the same period in 2022.   Average deposit account balances were composed of 83% in interest-bearing deposits and 17% in noninterest-bearing deposits at June 30, 2023, compared to 78% and 22%, respectively, at June 30, 2022. During the three months ended June 30, 2023, interest expense increased on CDs due to an increase in the average balances of $274.0 million, along with an increase in the average rates paid of 77 basis points, compared to the three months ended June 30, 2022. During the same period, the average balances of money market accounts decreased $199.9 million, offset by a 64 basis point average rate increase, resulting in an increase to interest expense. The average cost of interest-bearing deposit accounts increased to 1.87% for the three months ended June 30, 2023, from 0.26% for the three months ended June 30, 2022, due to changes to the deposit mix, driven by customer preferences and the use of higher rate promotional products designed to retain existing deposits and generate new deposits. The mix of customer deposit balances shifted from non-maturity accounts towards higher cost term certificate and savings products. Customer CDs represented 25.8% and 12.3% of customer deposits at June 30, 2023 and 2022, respectively.   The following table details average balances, cost of funds and the change in interest expense for the periods shown:       Three Months Ended June 30,               2023     2022               Average Balance Outstanding     Rate     Average Balance Outstanding     Rate     Increase (Decrease) in Interest Expense       (Dollars in thousands)   Transaction accounts   $ 178,696       0.45 %   $ 197,071       0.05 %   $ 176   Money market accounts     384,269       0.99       584,162       0.22       621   Savings accounts     249,681       1.22       195,345       0.05       736   Certificates of deposit     521,297       3.31       247,310       0.68       3,880   Advances     262,861       4.41       149,145       1.42       2,362   Subordinated debt     39,384       4.01       39,294       4.03       (1 ) Total interest-bearing liabilities   $ 1,636,188       2.33 %   $ 1,412,327       0.49 %   $ 7,774     Provision for Credit Losses.  The Company recorded a $300,000 provision for credit losses in the three months ended June 30, 2023, reflecting growth in the loan portfolio and additional charge-offs from the Splash unsecured consumer loan program. This compares to a $500,000 loan loss provision for the three months ended June 30, 2022, which was estimated using the incurred loss method based on historical loss trends combined with qualitative adjustments.     50 Table of Contents   The following table details activity and information related to the ACLL for the periods shown:       Three Months Ended June 30,       2023     2022       (Dollars in thousands)   Provision for credit losses on loans   $ 300     $ 500   Net (charge-offs) recoveries     (399 )     120   Allowance for credit losses on loans     17,297       15,747   Allowance for losses as a percentage of gross loans receivable at period end     1.1 %     1.1 % Total nonaccrual loans     2,554       1,241   Allowance for credit losses on loans as a percentage of nonaccrual loans at period end     677.3 %     1268.9 % Nonaccrual and 90 days or more past due loans as a percentage of total loans     0.2 %     0.1 % Total loans   $ 1,638,160     $ 1,477,299     Noninterest Income. Noninterest income decreased $511,000, or 23.0%, to $1.7 million for the three months ended June 30, 2023, from $2.2 million for the three months ended June 30, 2022. The decrease was primarily due to a decline in the valuation of servicing rights of $183,000 related to the impact of paid-off loans. Saleable mortgage loan production continues to be hindered by the rise in market rates on mortgage loans and a lack of single-family home inventory compared to the same period in the prior year, resulting in a quarter-over-quarter decrease in the net gain on sale of loans of $173,000. An increase of $260,000 in the recorded value of our equity and partnership fintech investments recorded in other income was offset by a $334,000 reduction in swap fee income.   The following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:       Three Months Ended June 30,     Increase (Decrease)       2023     2022     Amount     Percent       (Dollars in thousands)   Loan and deposit service fees   $ 1,064     $ 1,091     $ (27 )     (2.5 )% Sold loan servicing fees and servicing rights mark-to-market     (191 )     27       (218 )     (807.4 ) Net gain on sale of loans     58       231       (173 )     (74.9 ) Net (loss) gain on sale of investment securities     —       (8 )     8       (100.0 ) Increase in cash surrender value of bank-owned life insurance     190       213       (23 )     (10.8 ) Other income     590       668       (78 )     (11.7 ) Total noninterest income   $ 1,711     $ 2,222     $ (511 )     (23.0 )%   Noninterest Expense. Noninterest expense decreased $1.8 million, or 10.3%, to $15.2 million for the three months ended June 30, 2023, compared to $17.0 million for the three months ended June 30, 2022. The reduced expenses compared to the second quarter of 2022 reflects a $2.0 million decrease related to Quin Ventures compensation, advertising and customer acquisition costs, and occupancy expenses. Additional decreases in Bank commissions paid and compensation expense were partially offset by higher Bank professional fees and FDIC insurance premiums. The Company continues to manage expenses, with a focus on further reducing compensation, occupancy, advertising, travel and other discretionary spending.   The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:       Three Months Ended June 30,     Increase (Decrease)       2023     2022     Amount     Percent       (Dollars in thousands)   Compensation and benefits   $ 8,180     $ 9,735     $ (1,555 )     (16.0 )% Data processing     2,080       1,870       210       11.2   Occupancy and equipment     1,214       1,432       (218 )     (15.2 ) Supplies, postage, and telephone     435       408       27       6.6   Regulatory assessments and state taxes     424       441       (17 )     (3.9 ) Advertising     929       1,405       (476 )     (33.9 ) Professional fees     884       629       255       40.5   FDIC insurance premium     313       211       102       48.3   Other expense     758       832       (74 )     (8.9 ) Total noninterest expense   $ 15,217     $ 16,963     $ (1,746 )     (10.3 )%     51 Table of Contents   Provision for Income Tax. An income tax expense of $475,000 was recorded for the three months ended June 30, 2023, compared to $467,000 for the three months ended June 30, 2022, due to a year-over-year increase in income before taxes of $174,000. The provision includes accruals for both federal and state income taxes. The provision for state income tax began in the second quarter of 2022 with respect to certain states in which we have employees and collateral for loans, thereby creating nexus in those states for income tax purposes. For additional information, see Note 7 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.       Comparison of Results of Operations for the Six Months Ended June 30, 2023 and 2022   General. Net income attributable to the Company was $5.3 million for the six months ended June 30, 2023, compared to $5.29 million for the six months ended June 30, 2022. A $258,000 increase in net interest income after provision for credit losses and a $1.7 million decrease in noninterest expense were offset by a $580,000 decrease in noninterest income and a $1.1 million decrease in the net loss attributable to the noncontrolling interest in Quin Ventures.   Net Interest Income. Net interest income decreased $442,000 to $32.3 million for the six months ended June 30, 2023, from $32.7 million for the six months ended June 30, 2022, as higher weighted-average funding costs outpaced increased loan and investment income.   Average earning assets increased $135.4 million year-over-year. The yield on average interest-earning assets increased 106 basis points to 5.06% for the six months ended June 30, 2023, compared to 4.00% for the same period in the prior year, due to an increase in the average net loans receivable balance, higher loan yields, and an increase in yields earned on investment securities.   The average cost of interest-bearing liabilities increased to 2.08% for the six months ended June 30, 2023, compared to 0.46% for the same period last year, due primarily to higher rates paid on all interest-bearing deposits and advances along with increases in the average balances of CDs and FHLB advances. Total cost of funds increased 139 basis points to 1.76% for the six months ended June 30, 2023, from 0.37% for the same period in 2022. The net interest margin decreased 30 basis points to 3.35% for the six months ended June 30, 2023, from 3.65% for the same period in 2022.   Interest Income. Total interest income increased $12.9 million, or 36.0%, to $48.8 million for the six months ended June 30, 2023, from $35.9 million for the comparable period in 2022, primarily due to an increase in yields on interest-earning assets and an increase in average net loans receivable balances. Interest and fees on loans receivable increased $10.2 million, to $40.8 million for the six months ended June 30, 2023, from $30.6 million for the six months ended June 30, 2022, primarily due to an increase in the average balance of net loans receivable of $176.0 million compared to the prior year, coupled with an increase in average loan yields to 5.27% for the six months ended June 30, 2023, from 4.46% for the same period in 2022. The loan portfolio saw increases in multi-family and commercial real estate lending, renewed short-term participation in Northpointe MPP, as well as additional purchased auto, manufactured home, and Bankers Healthcare Group commercial loans. Loan yields increased over the prior year due to higher rates on new originations as well as the repricing of variable rate loans tied to the Prime Rate or other variable-rate indices. The yield earned on investment securities also increased to 4.01% compared to the same period in 2022, as the purchase of higher-yielding investments occurred late in the first quarter of 2022 with the related increase only impacting income for the second quarter of 2022. An increase in rates on floating bonds and a slowdown in prepayment speeds, which reduces amortization of premium costs, also positively impacted investment securities income.     52 Table of Contents   The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:     Six Months Ended June 30,               2023     2022               Average Balance Outstanding     Yield     Average Balance Outstanding     Yield     Increase (Decrease) in Interest Income       (Dollars in thousands)   Loans receivable, net   $ 1,561,278       5.27 %   $ 1,385,248       4.46 %   $ 10,186   Investment securities     327,743       4.01       363,572       2.77       1,528   FHLB stock     11,849       7.05       6,758       5.10       243   Interest-earning deposits in banks     41,640       4.94       51,537       0.33       937   Total interest-earning assets   $ 1,942,510       5.06 %   $ 1,807,115       4.00 %   $ 12,894     Interest Expense. Total interest expense increased $13.3 million, or 425.7%, to $16.5 million for the six months ended June 30, 2023, compared to $3.1 million for the six months ended June 30, 2022. The increase over the first six months of 2022 was the result of a 113 basis point increase in the cost of deposits from 0.20% one year prior along with a higher volume of CD balances. A shift in the deposit mix from low-cost transaction and money market accounts to a higher volume of CDs and savings accounts resulted in higher costs of funds on deposits. Interest expense on borrowings increased due to a $113.7 million increase in the average balance and a 299 basis point increase in the cost of advances, primarily FHLB advances, compared to the same period in 2022.   During the six months ended June 30, 2023, interest expense on CDs increased due to higher average balances of $239.7 million, along with a 238 basis point increase in the average rates paid, compared to the six months ended June 30, 2022. During the same period, the average balances of money market accounts decreased $176.9 million, with a 64 basis point average rate increase, resulting in an overall increase to interest expense. The average cost of interest-bearing deposit accounts increased to 1.62% for the six months ended June 30, 2023, from 0.25% for the six months ended June 30, 2022, due to the use of promotional products designed to retain existing deposits and generate new deposits. The mix of customer deposit balances shifted from non-maturity accounts towards higher cost CD and savings products. Brokered CDs represented 10.9% and 5.4% of total deposits at June 30, 2023 and 2022, respectively.   The following table details average balances, cost of funds and the change in interest expense for the periods shown:       Six Months Ended June 30,               2023     2022               Average Balance Outstanding     Rate     Average Balance Outstanding     Rate     Increase (Decrease) in Interest Expense       (Dollars in thousands)   Transaction accounts   $ 182,968       0.44 %   $ 196,615       0.04 %   $ 353   Money market accounts     409,025       0.85       585,974       0.21       1,099   Savings accounts     234,607       0.98       195,034       0.05       1,086   Certificates of deposit     484,711       3.04       244,989       0.66       6,511   Advances     247,610       4.17       116,062       1.44       4,287   Subordinated debt     39,374       4.04       39,288       4.05       —   Total interest-bearing liabilities   $ 1,598,295       2.08 %   $ 1,377,962       0.46 %   $ 13,336     Provision for Credit Losses.  The Company recorded a $200,000 recapture of provision for credit losses for the six months ended June 30, 2023, reflecting a year-to-date decrease in unfunded commitments primarily due to construction loan disbursements, as well as improvements in the underlying assumptions driving anticipated loss rates within the CECL model adopted January 1, 2023. Specifically, the gross domestic product assumption metric improved since implementation at the beginning of 2023. The recapture attributable to the decrease in unfunded commitments was partially offset by a provision expense related to higher outstanding loan balances from new funding and disbursements on prior commitments. Charged-off loan balances also contributed to the loan-related provision. This compares to a $500,000 loan loss provision for the six months ended June 30, 2022, which was estimated using the incurred loss method based on historical loss trends combined with qualitative adjustments.     53 Table of Contents   The following table details activity and information related to the ACLL for the periods shown:     Six Months Ended June 30,       2023     2022       (Dollars in thousands)   Provision for credit losses on loans   $ 315     $ 500   Net (charge-offs) recoveries     (1,343 )     123   Allowance for credit losses on loans     17,297       15,747   Allowance for losses as a percentage of total gross loans receivable at period end     1.1 %     1.1 % Total nonaccrual loans     2,554       1,241   Allowance for credit losses on loans as a percentage of nonaccrual loans at period end     677.3 %     1268.9 % Nonaccrual and 90 days or more past due loans as a percentage of total loans     0.2 %     0.1 % Total loans   $ 1,638,160     $ 1,477,299     Noninterest Income. Noninterest income decreased $580,000, or 12.5%, to $4.1 million for the six months ended June 30, 2023, from $4.6 million for the six months ended June 30, 2022. Other income increased due to a year-over-year increase of $366,000 in the recorded value of our equity and partnership fintech investments. Saleable mortgage loan production continues to be hindered by the rise in market rates on mortgage loans and a lack of single-family home inventory compared to the prior year, resulting in a $250,000 year-over-year decrease in net gain on sale of loans. No investment securities sales were recorded during the current year compared to the same period in 2022.   The following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:     Six Months Ended June 30,     Increase (Decrease)       2023     2022     Amount     Percent       (Dollars in thousands)   Loan and deposit service fees   $ 2,205     $ 2,264     $ (59 )     (2.6 )% Sold loan servicing fees and servicing rights mark-to-market     302       459       (157 )     (34.2 ) Net gain on sale of loans     234       484       (250 )     (51.7 ) Net (loss) gain on sale of investment securities     —       118       (118 )     (100.0 ) Increase in cash surrender value of bank-owned life insurance     416       465       (49 )     (10.5 ) Other income     888       835       53       6.3   Total noninterest income   $ 4,045     $ 4,625     $ (580 )     (12.5 )%   Noninterest Expense. Noninterest expense decreased $1.7 million, or 5.4%, to $30.1 million for the six months ended June 30, 2023, compared to $31.8 million for the six months ended June 30, 2022. Compensation and benefits was lower due to lower commissions and incentives paid as well as a decrease in medical insurance and payroll tax expense and a reduction in workforce in the fourth quarter of 2022. The Bank received a medical insurance premium refund of $436,000 in the first quarter of 2023 and transitioned to a self-insured medical plan in 2023. Payroll tax expense was reduced in 2023 by the recognition of a portion of the Employee Retention Credit received in March 2023. These decreases were partially offset by an increase in legal and consulting fees and FDIC insurance premiums. The increase over the six months ended June 30, 2022, also reflects increases in data processing expenses associated with building enhanced technological infrastructure. Quin Ventures expenses decreased $2.4 million compared to the same period in 2022, as a result of no Quin Ventures expense recorded for compensation, marketing, or professional fees during the first six months of 2023.   The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:     Six Months Ended June 30,     Increase (Decrease)       2023     2022     Amount     Percent       (Dollars in thousands)   Compensation and benefits   $ 16,017     $ 18,538     $ (2,521 )     (13.6 )% Data processing     4,118       3,642       476       13.1   Occupancy and equipment     2,423       2,599       (176 )     (6.8 ) Supplies, postage, and telephone     790       721       69       9.6   Regulatory assessments and state taxes     813       802       11       1.4   Advertising     1,970       2,157       (187 )     (8.7 ) Professional fees     1,690       1,188       502       42.3   FDIC insurance premium     570       434       136       31.3   Other expense     1,697       1,713       (16 )     (0.9 ) Total noninterest expense   $ 30,088     $ 31,794     $ (1,706 )     (5.4 )%   54 Table of Contents   Provision for Income Tax. An income tax expense of $1.3 million was recorded for the six months ended June 30, 2023, compared to $1.0 million for the six months ended June 30, 2022, due to a year-over-year increase in income before taxes of $1.4 million. The provision includes accruals for both federal and state income taxes. The provision for state income tax began in the second quarter of 2022 with respect to certain states in which we have employees and collateral for loans, thereby creating nexus in those states for income tax purposes. For additional information, see Note 7 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.     Average Balances, Interest and Average Yields/Cost   The following tables set forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the net spread as of June 30, 2023 and 2022. Income and all average balances are monthly average balances, which management deems to be not materially different than daily averages. Nonaccrual loans have been included in the table as loans carrying a zero yield.     Three Months Ended June 30,       2023     2022       Average     Interest             Average     Interest               Balance     Earned/     Yield/     Balance     Earned/     Yield/       Outstanding     Paid     Rate     Outstanding     Paid     Rate       (Dollars in thousands)   Interest-earning assets:                                                 Loans receivable, net (1)   $ 1,587,948     $ 21,299       5.38 %   $ 1,439,714     $ 16,081       4.48 % Investment securities     327,129       3,336       4.09       367,662       2,715       2.96   FHLB dividends     12,515       222       7.11       8,190       119       5.83   Interest-earning deposits in banks     47,792       617       5.18       20,636       46       0.89   Total interest-earning assets (2)     1,975,384       25,474       5.17       1,836,202       18,961       4.14   Noninterest-earning assets     142,630                       127,463                   Total average assets   $ 2,118,014                     $ 1,963,665                                                                     Interest-bearing liabilities:                                                 Interest-bearing demand deposits   $ 178,696     $ 201       0.45     $ 197,071     $ 25       0.05   Money market accounts     384,269       944       0.99       584,162       323       0.22   Savings accounts     249,681       762       1.22       195,345       26       0.05   Certificates of deposit     521,297       4,302       3.31       247,310       422       0.68   Total interest-bearing deposits (3)     1,333,943       6,209       1.87       1,223,888       796       0.26   Advances     262,861       2,889       4.41       149,145       527       1.42   Subordinated debt     39,384       394       4.01       39,294       395       4.03   Total interest-bearing liabilities     1,636,188       9,492       2.33       1,412,327       1,718       0.49   Noninterest-bearing deposits (3)     282,514                       344,827                   Other noninterest-bearing liabilities     37,925                       32,927                   Total average liabilities     1,956,627                       1,790,081                   Average equity     161,387                       173,584                   Total average liabilities and equity   $ 2,118,014                     $ 1,963,665                                                                     Net interest income           $ 15,982                     $ 17,243           Net interest rate spread                     2.84                       3.65   Net earning assets   $ 339,196                     $ 423,875                   Net interest margin (4)                     3.25                       3.77   Average interest-earning assets to average interest-bearing liabilities     120.7 %                     130.0 %                   (1) The average loans receivable, net balances include nonaccrual loans. (2) Includes interest-earning deposits (cash) at other financial institutions. (3) Cost of all deposits, including noninterest-bearing demand deposits, was 1.54% and 0.20% for the three months ended June 30, 2023 and 2022, respectively. (4) Net interest income divided by average interest-earning assets.     55 Table of Contents       Six Months Ended June 30,       2023     2022       Average     Interest             Average     Interest               Balance     Earned/     Yield/     Balance     Earned/     Yield/       Outstanding     Paid     Rate     Outstanding     Paid     Rate       (Dollars in thousands)   Interest-earning assets:                                                 Loans receivable, net (1)   $ 1,561,278     $ 40,803       5.27 %   $ 1,385,248     $ 30,617       4.46 % Total investment securities     327,743       6,518       4.01       363,572       4,990       2.77   FHLB dividends     11,849       414       7.05       6,758       171       5.10   Interest-earning deposits in banks     41,640       1,021       4.94       51,537       84       0.33   Total interest-earning assets (2)     1,942,510       48,756       5.06       1,807,115       35,862       4.00   Noninterest-earning assets     141,789                       124,753                   Total average assets   $ 2,084,299                     $ 1,931,868                                                                     Interest-bearing liabilities:                                                 Interest-bearing demand deposits (3)   $ 182,968     $ 395       0.44     $ 196,615     $ 42       0.04   Money market accounts     409,025       1,720       0.85       585,974       621       0.21   Savings accounts     234,607       1,138       0.98       195,034       52       0.05   Certificates of deposit     484,711       7,309       3.04       244,989       798       0.66   Total interest-bearing deposits     1,311,311       10,562       1.62       1,222,612       1,513       0.25   Advances     247,610       5,118       4.17       116,062       831       1.44   Subordinated debt     39,374       789       4.04       39,288       789       4.05   Total interest-bearing liabilities     1,598,295       16,469       2.08       1,377,962       3,133       0.46   Noninterest-bearing deposits (3)     288,343                       336,611                   Other noninterest-bearing liabilities     37,302                       35,820                   Total average liabilities     1,923,940                       1,750,393                   Average equity     160,359                       181,475                   Total average liabilities and equity   $ 2,084,299                     $ 1,931,868                                                                     Net interest income           $ 32,287                     $ 32,729           Net interest rate spread                     2.98                       3.54   Net earning assets   $ 344,215                     $ 429,153                   Net interest margin (4)                     3.35                       3.65   Average interest-earning assets to average interest-bearing liabilities     121.5 %                     131.1 %                   (1) The average loans receivable, net balances include nonaccrual loans. (2) Includes interest-earning deposits (cash) at other financial institutions. (3) Cost of all deposits, including noninterest-bearing demand deposits, was 1.33% and 0.20% for the six months ended June 30, 2023 and 2022, respectively. (4) Net interest income divided by average interest-earning assets.     56 Table of Contents   Rate/Volume Analysis   The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.       Three Months Ended             Six Months Ended               June 30, 2023 vs. 2022             June 30, 2023 vs. 2022               Increase (Decrease) Due to             Increase (Decrease) Due to               Volume     Rate     Total Increase (Decrease)     Volume     Rate     Total Increase (Decrease)       (In thousands)     (In thousands)   Interest-earning assets:                                                 Loans receivable, net   $ 1,656     $ 3,562     $ 5,218     $ 3,904     $ 6,282     $ 10,186   Investments     (300 )     921       621       (490 )     2,018       1,528   FHLB stock     63       40       103       129       114       243   Other (1)     60       511       571       (16 )     953       937   Total interest-earning assets   $ 1,479     $ 5,034     $ 6,513     $ 3,527     $ 9,367     $ 12,894                                                     Interest-bearing liabilities:                                                 Interest-bearing demand deposits   $ (2 )   $ 178     $ 176     $ (6 )   $ 359     $ 353   Money market accounts     (113 )     734       621       (191 )     1,290       1,099   Savings accounts     7       729       736       7       1,079       1,086   Certificates of deposit     464       3,416       3,880       787       5,724       6,511   Advances     403       1,959       2,362       937       3,350       4,287   Subordinated debt     1       (2 )     (1 )     2       (2 )     —   Total interest-bearing liabilities   $ 760     $ 7,014     $ 7,774     $ 1,536     $ 11,800     $ 13,336                                                     Net change in interest income   $ 719     $ (1,980 )   $ (1,261 )   $ 1,991     $ (2,433 )   $ (442 )   (1) Includes interest-earning deposits (cash) at other financial institutions.         Off-Balance Sheet Activities   In the normal course of operations, First Fed engages in a variety of financial transactions that are not recorded in the financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For the six months ended June 30, 2023 and the year ended December 31, 2022, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.   57 Table of Contents   Contractual Obligations   At June 30, 2023, our scheduled maturities of contractual obligations were as follows:       Within     After 1 Year Through     After 3 Years Through     Beyond     Total       1 Year     3 Years     5 Years     5 Years     Balance       (In thousands)   Certificates of deposit   $ 422,485     $ 120,624     $ 15,961     $ —     $ 559,070   FHLB advances     188,000       45,000       20,000       —       253,000   Line of credit     11,000       —       —       —       11,000   Subordinated debt obligation     —       —       —       39,397       39,397   Operating leases     834       1,761       1,708       3,561       7,864   Borrower taxes and insurance     1,149       —       —       —       1,149   Deferred compensation     119       264       194       677       1,254   Total contractual obligations   $ 623,587     $ 167,649     $ 37,863     $ 43,635     $ 872,734     Commitments and Off-Balance Sheet Arrangements   The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of June 30, 2023:       Amount of Commitment by Expiration       Within     After 1 Year Through     After 3 Years Through     Beyond     Total Amounts       1 Year     3 Years     5 Years     5 Years     Committed       (In thousands)   Commitments to originate loans:                                         Variable-rate     16,450       —       —       —       16,450   Unfunded commitments under lines of credit or existing loans     67,663       8,442       3,719       88,844       168,668   Standby letters of credit     558       —       —       200       758   Total commitments   $ 84,671     $ 8,442     $ 3,719     $ 89,044     $ 185,876     Liquidity Management   Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are usually predictable sources of funds, deposit flows, calls of investment securities and borrowed funds, and prepayments on loans and investment securities are greatly influenced by general interest rates, economic conditions and competition, which can cause those sources of funds to fluctuate.   Management regularly adjusts our investments in liquid assets based upon an assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our interest-rate risk and investment policies. In the first quarter, we increased liquid assets in response to the recent stresses within the banking industry and related concerns regarding liquidity.   Our most liquid assets are cash and cash equivalents followed by available-for-sale securities. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At June 30, 2023, cash and cash equivalents totaled $78.3 million and unpledged securities classified as available-for-sale had a market value of $290.9 million. The Bank pledged collateral of $625.0 million to support borrowings from the FHLB, with a remaining borrowing capacity of $311.3 million at June 30, 2023. The Bank also has an established discount window borrowing arrangement with the FRB, for which available-for-sale securities with a market value of $9.1 million were pledged as of June 30, 2023, with a remaining borrowing capacity of $8.7 million. The Bank has established an additional arrangement with the FRB through the BTFP, for which available-for-sale securities with a market value of $17.1 million were pledged as of June 30, 2023, with a remaining borrowing capacity of $18.7 million. First Northwest has a $20.0 million borrowing arrangement with NexBank which is secured by First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The remaining borrowing capacity of the NexBank line of credit was $9.0 million at June 30, 2023.   At June 30, 2023, we had $16.5 million in loan commitments outstanding and $169.4 million in undisbursed loans and standby letters of credit, including $79.4 million in undisbursed construction loan commitments.   58 Table of Contents   CDs due within one year as of June 30, 2023, totaled $422.5 million, or 75.6% of CDs with a weighted-average rate of 3.75%. If these maturing deposits are not renewed, we will seek other sources of funds, including other CDs, non-maturity deposits, and borrowings. We have the ability to attract and retain deposits by adjusting the interest rates offered as well as through sales and marketing efforts in the markets we serve. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on CDs. In addition, we believe that our branch network, and the general cash flows from our existing lending and investment activities, will provide adequate long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.   First Fed has a diversified deposit base with approximately 60% of deposit account balances held by consumers, 29% held by business and public fund depositors, and 11% in brokered deposits. The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at June 30, 2023. We estimate that 80-85% of our customer deposit balances are below the $250,000 FDIC insurance limit or fully collateralized. The remaining uninsured deposits represent less than 5% of depositors. Management believes that maintaining a diversified deposit base is an important factor in managing and maintaining adequate levels of liquidity.   The Company is a separate legal entity from the Bank and provides for its own liquidity. At June 30, 2023, the Company, on an unconsolidated basis, had liquid assets of $2.5 million. In addition to its operating expenses, the Company is responsible for paying dividends declared, if any, to its shareholders, funds paid for Company stock repurchases, payments on subordinated notes held at the Company level, payments on the NexBank revolving credit facility, and commitments to limited partnership investments. The Company may receive dividends or capital distributions from the Bank, although there may be regulatory limitations on the ability of the Bank to pay dividends.   First Northwest previously contributed $8.0 million to Quin Ventures pursuant to the terms of a capital financing agreement and related promissory note. Quil Ventures Inc. agreed to repay the amount owed by Quin Ventures under the terms and conditions specified in a repayment and security agreement with First Northwest dated December 20, 2022.   Capital Resources   At June 30, 2023, shareholders' equity totaled $159.6 million, or 7.4% of total assets. Our book value per share of common stock was $16.56 at June 30, 2023, compared to $16.31 at December 31, 2022.   At June 30, 2023, the Bank exceeded all regulatory capital requirements and was considered "well capitalized" under FDIC regulatory capital guidelines.   The following table provides the capital requirements and actual results for First Fed at June 30, 2023.       Actual     Minimum Capital Requirements     Minimum Required to be Well-Capitalized       Amount     Ratio     Amount     Ratio     Amount     Ratio                       (Dollars in thousands)                   Tier 1 leverage capital (to average assets)   $ 217,444       10.2 %   $ 85,578       4.0 %   $ 106,972       5.0 % Common equity tier 1 (to risk-weighted assets)   $ 217,444       13.1       74,694       4.5       107,891       6.5   Tier 1 risk-based capital (to risk-weighted assets)   $ 217,444       13.1       99,592       6.0       132,789       8.0   Total risk-based capital (to risk-weighted assets)   $ 233,751       14.1       132,789       8.0       165,986       10.0     In order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses, the Bank must maintain common equity tier 1 capital ("CET1") at an amount greater than the required minimum levels plus a capital conservation buffer of 2.5%.   Effect of Inflation and Changing Prices   The consolidated financial statements and related financial data presented in this report have been prepared according to GAAP, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that general inflation may have on both short-term and long-term interest rates. Unlike companies in many other industries, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.   59 Table of Contents     Item 3. Quantitative and Qualitative Disclosures about Market Risk   There has not been any material change in the market risk disclosures contained in the 2022 Form 10-K.