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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-12 · 295 added, 120 removed, 381 unchanged (52% of the section changed)

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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 are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as "anticipates," "assumes," "believes," "can," "continues," "could," "estimates," "expects," "forecasts," "goal," "intends," "likely," "may," "might," "objective," "plans," "potential," "projects," "remains," "should," "target," "trend," "will," "would," or similar expressions.

Forward-looking statements include, but are not limited to:

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First Fed Bank is a community-oriented commercial bank founded in 1923 in Port Angeles, Washington.

The Bank serves Clallam, Jefferson, King, Kitsap, Snohomish and Whatcom counties in Washington State through its twelve full-service branches and six business centers, including our headquarters.

The Bank serves Clallam, Jefferson, King, Kitsap, Snohomish and Whatcom counties in Washington State through its twelve full-service branches and five business centers, including our headquarters.

We offer a wide range of products and services focused on the lending, deposit and money movement needs of the communities we serve.

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On October 24, 2023, the federal banking agencies issued a final rule amending their regulations implementing the Community Reinvestment Act (the "CRA") to substantially revise how they evaluate an insured depository institution’s record of satisfying the credit needs of its entire communities, including low- and moderate-income individuals and neighborhoods.

On March 28, 2025, the agencies announced their intent to issue a proposal to rescind the October 2023 final rule, and to reinstate the CRA framework that existed prior to the October 2023 final rule.

On July 16, 2025, the agencies issued a notice of proposed rulemaking to rescind the October 2023 final rule and restore the CRA framework that existed previously, which has remained in effect due to a preliminary injunction that stayed implementation of the October 2023 rule.

The Bank received a rating of "satisfactory" in its most recent performance evaluation, which was conducted using the CRA framework that existed prior to the October 2023 final rule.

On September 17, 2024, the FDIC finalized changes to its Statement of Policy on Bank Merger Transactions (the "2024 Policy Statement"), which outlines factors that the FDIC will consider when evaluating a proposed bank merger transaction.

On May 20, 2025, the FDIC rescinded the 2024 Policy Statement and reinstated the Statement of Policy on Bank Merger Transactions that was in effect prior to the 2024 Policy Statement.

The United States Department of Justice has left in place its 2023 Merger Guidelines as a framework to review bank mergers and has not reinstated the 1995 Bank Merger Guidelines that it previously applied to bank mergers and which the Federal Reserve continues to apply.

Compared to the 1995 Bank Merger Guidelines, the 2023 Merger Guidelines set forth more stringent concentration limits and add several largely qualitative bases on which the DOJ may challenge a merger.

On July 18, 2025, President Trump signed the Guiding and Establishing National Innovation for U.S.

Stablecoins Act, or the “GENIUS Act,” into law, establishing a federal licensing and supervisory framework for payment stablecoins and their issuers.

The GENIUS Act may accelerate and increase the competition that non-traditional financial institutions pose to banks’ payment services, but may also create opportunities for banks to hold stablecoin reserve assets, custody stablecoins, or issue stablecoins.

Several key provisions of the GENIUS Act require federal regulatory agencies to adopt implementing regulations, and the Act will take effect the earlier of 18 months after its enactment or 120 days after the agencies issue final implementing regulations.

Critical Accounting Policies

There are no material changes to the critical accounting policies from those disclosed in the Company's 2024 Form 10-K.

Comparison of Financial Condition at March 31, 2025 and December 31, 2024

Total assets decreased to $2.17 billion, or 2.7%, at March 31, 2025, from $2.23 billion at December 31, 2024.

Cash and cash equivalents decreased by $2.1 million, or 2.9%, to $70.3 million as of March 31, 2025, compared to $72.5 million as of December 31, 2024.

Investment securities decreased $24.9 million, or 7.3%, to $315.4 million at March 31, 2025, from $340.3 million at December 31, 2024.

The decrease was primarily due to maturities and early redemptions within the MBS non-agency portfolio totaling $20.2 million along with other payment activity was partially offset by a portfolio market value increase of $3.1 million during the three months ended March 31, 2025.

Included in MBS non-agency portfolio as of March 31, 2025, were $28.7 million of commercial mortgage-backed securities ("CMBS"), of which 93.4% were in "A" tranches with the remaining 6.6% in "B" tranches.

Our largest exposure in the CMBS portfolio balance was to long-term care facilities, which comprised 67.8%, or $19.4 million, of our private label CMBS securities.

All of the CMBS had credit enhancements at the current period end ranging from 30.8% to 93.1%, with a weighted-average credit enhancement of 62.6%, which further reduced the risk of loss on these investments.

The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 6.9 years as of both March 31, 2025 and December 31, 2024, and had an estimated average repricing term of 6.2 years as of March 31, 2025, compared to 5.3 years as of December 31, 2024, based on the interest rate environment at those times.

The effective duration of the investment portfolio was 4.3 years at March 31, 2025, compared to 3.9 years at December 31, 2024.

The investment portfolio was comprised of 55.9% in amortizing securities at March 31, 2025, compared to 60.2% at December 31, 2024.

Comparison of Financial Condition at June 30, 2025 and December 31, 2024

Total assets decreased to $2.20 billion, or 1.6%, at June 30, 2025, from $2.23 billion at December 31, 2024.

Cash and cash equivalents increased by $15.4 million, or 21.3%, to $87.9 million as of June 30, 2025, compared to $72.5 million as of December 31, 2024.

Investment securities decreased $36.8 million, or 10.8%, to $303.5 million at June 30, 2025, from $340.3 million at December 31, 2024.

The decrease was primarily due to maturities and early redemptions totaling $33.3 million and $12.2 of principal payments received.

These items were partially offset by purchases totaling $5.5 million and a portfolio market value increase of $3.2 million during the six months ended June 30, 2025.

The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 7.6 years as of both June 30, 2025 and December 31, 2024, and had an estimated average repricing term of 6.4 years as of June 30, 2025, compared to 5.3 years as of December 31, 2024, based on the interest rate environment at those times.

The effective duration of the investment portfolio was 4.9 years at June 30, 2025, compared to 3.9 years at December 31, 2024.

The investment portfolio was comprised of 54.9% in amortizing securities at June 30, 2025, compared to 60.2% at December 31, 2024.

The projected average life of the securities portfolio may vary due to prepayment activity, particularly in the mortgage-backed securities portfolio, which is impacted by prevailing market interest rates.

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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, decreased $37.6 million, or 2.2%, to $1.64 billion at March 31, 2025, from $1.68 billion at December 31, 2024.

During the three months ended March 31, 2025, commercial business loans decreased $31.7 million, including a $36.2 million decrease to our Northpointe Bank Mortgage Purchase Program ("Northpointe MPP") participation and other repayment activity, partially offset by increases from $6.7 million of organic originations, $5.9 million of draws on existing line of credit commitments and $414,000 of new purchased loans.

One-to-four family loans decreased $887,000 during the three months ended March 31, 2025, as repayment activity exceeded $4.5 million in residential construction loans that converted to permanent amortizing loans and new loan originations totaling $1.5 million.

Multi-family loans increased $5.6 million during the three months ended March 31, 2025, as $8.0 million of construction loans converting into permanent amortizing loans exceeded repayments.

Auto and other consumer loans increased $5.0 million with auto loan purchases of $11.1 million, manufactured home loan pool purchases of $4.6 million, and additional manufactured home loan purchases of $3.6 million, partially offset by prepayments and scheduled payments.

Commercial real estate loans decreased $3.1 million during the three months ended March 31, 2025, with loan charge-offs totaling $5.6 million and repayment activity exceeding $12.3 million of new loan originations and $334,000 of construction loan conversions.

Home equity loan outstanding balances increased $97,000 over the prior year end due to $2.5 million of net draws on new and existing line of credit commitments and $1.1 million of home equity loan originations, partially offset by prepayments and scheduled payments.

Construction and land loans decreased $13.2 million, or 16.9%, to $64.9 million at March 31, 2025, from $78.1 million at December 31, 2024, with payment activity totaling $14.0 million and $12.8 million converting into fully amortizing loans, partially offset by draws on new and existing loan commitments.

Net loans, excluding loans held for sale, decreased $28.0 million, or 1.7%, to $1.65 billion at June 30, 2025, from $1.68 billion at December 31, 2024.

During the six months ended June 30, 2025, commercial business loans decreased $33.7 million, including a $36.2 million decrease to our Northpointe Bank Mortgage Purchase Program ("Northpointe MPP") participation, charge-offs totaling $4.3 million and other repayment activity, partially offset by $9.8 million of draws on existing line of credit commitments, $9.4 million of organic originations and $414,000 of new purchased loans.

One-to-four family loans decreased $7.9 million during the six months ended June 30, 2025, as repayment activity exceeded $8.1 million in residential construction loans that converted to permanent amortizing loans and new loan originations totaling $2.4 million.

Multi-family loans decreased $2.9 million during the six months ended June 30, 2025, as repayments exceeded $4.6 million of construction loans converting into permanent amortizing loans.

Auto and other consumer loans increased $12.0 million with auto loan purchases of $28.6 million, individual manufactured home loan purchases of $6.8 million and manufactured home loan pool purchases of $4.6 million, partially offset by prepayments and scheduled payments.

Home equity loan outstanding balances increased $5.9 million over the prior year end due to $14.6 million of net draws on new and existing line of credit commitments and $3.0 million of home equity loan originations, partially offset by prepayments and scheduled payments.

Commercial real estate loans increased $1.0 million during the six months ended June 30, 2025, with $26.2 million of new loan originations and $334,000 of construction loan conversions exceeding loan charge-offs totaling $5.6 million and repayment activity.

Construction and land loans decreased $5.6 million, or 7.1%, to $72.5 million at June 30, 2025, from $78.1 million at December 31, 2024, with payment activity totaling $19.3 million and $13.1 million converting into fully amortizing loans, partially offset by draws on new and existing loan commitments.

Construction projects in the portfolio are geographically dispersed throughout Western Washington as well as one project in California.

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Projects with larger loan commitments have more robust monitoring by firms with more services and expertise.

At March 31, 2025, 39% of construction commitments were secured by one-to-four family residential properties, which are anticipated to convert into amortizing loans upon completion and may be sold at that time.

The following tables show our construction commitments by type and geographic concentrations at the dates indicated:

March 31, 2025

June 30, 2025

North Olympic Peninsula (1)

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Commercial real estate

Total disbursed

Total disbursed for construction

Net deferred fees (costs)

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(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties.

During the three months ended March 31, 2025, the Company added $67.3 million of organic loan originations, of which $31.3 million, or 46.5%, were located in the Puget Sound region, $11.2 million, or 16.7%, on the North Olympic Peninsula, $9.0 million, or 13.3%, in other areas throughout Washington State, and $15.8 million, or 23.5%, in other states.

The Company purchased an additional $11.1 million in auto loans, $8.2 million in manufactured home loans, $550,000 in one-to-four family loans and $418,000 in commercial business loans to borrowers located throughout the United States during the three months ended March 31, 2025.

The total loan portfolio was composed of 79.4% organic originations and 20.6% purchased loans at March 31, 2025.

During the six months ended June 30, 2025, the Company added $109.5 million of organic loan originations, of which $61.2 million, or 55.9%, were located in the Puget Sound region, $20.8 million, or 19.0%, on the North Olympic Peninsula, $10.3 million, or 9.4%, in other areas throughout Washington State, and $17.2 million, or 15.7%, in other states.

The Company purchased an additional $28.6 million in auto loans, $11.4 million in manufactured home loans, $2.0 million in commercial business loans and $550,000 in one-to-four family loans to borrowers located throughout the United States during the six months ended June 30, 2025.

The total loan portfolio was composed of 79.6% organic originations and 20.4% purchased loans at June 30, 2025.

We will continue to assess our lending strategies across all product lines and markets where we do business as well as evaluate opportunities to supplement organic growth through wholesale acquisitions with the goal of improving earnings while also prudently managing credit risk.

The ACLL increased to $20.6 million at March 31, 2025, compared to $20.5 million at December 31, 2024.

The ACLL decreased to $18.4 million at June 30, 2025, compared to $20.5 million at December 31, 2024.

Qualitative factor adjustments related to an increase in nonaccrual commercial business loans and an increase in the average risk rating of multi-family loans resulted in higher loss rates applied to those categories.

Mild deterioration in gross domestic product and unemployment estimates further added to the increase in the allowance related to pooled loan balances.

The ACLL as a percentage of total loans was 1.24% and 1.20% at March 31, 2025 and December 31, 2024, respectively.

Mild deterioration in gross domestic product and unemployment estimates added to a small increase in the allowance related to pooled loan balances.

An individually evaluated commercial business loan which was fully reserved at December 31, 2024, was sold in the second quarter of 2025, resulting in a $1.4 million reduction to the ACLL.

The ACLL as a percentage of total loans was 1.10% and 1.21% at June 30, 2025 and December 31, 2024, respectively.

Management continues to monitor economic conditions for potential weaknesses that could expose the loan portfolio to losses.

We believe the ACLL is adequate to cover current expected credit losses in the loan portfolio as of March 31, 2025.

Nonperforming loans decreased $10.2 million, or 33.3%, to $20.4 million at March 31, 2025, from $30.5 million at December 31, 2024, primarily attributable to loan charge-offs totaling $7.7 million and $3.9 million in payments received on commercial construction loans, partially offset by a $633,000 commercial business loan placed on nonaccrual status during the quarter.

The increase in charge-off activity was related to underlying collateral deficiencies for two commercial real estate loans and a related commercial business loan totaling $6.2 million.

Nonperforming loans to total loans was 1.23% at March 31, 2025, compared to 1.80% at December 31, 2024.

The ACLL as a percentage of nonaccrual loans increased to 101% at March 31, 2025, up from 67% at December 31, 2024.

Classified loans decreased $10.9 million, or 25.7%, to $31.6 million at March 31, 2025, from $42.5 million at December 31, 2024, primarily due to charge-offs totaling $7.2 million and $3.9 million in payments received on commercial construction loans included in this category.

An $8.1 million construction loan relationship which became classified in the fourth quarter of 2022 and a $7.1 million commercial construction loan relationship which became classified in the second quarter of 2024, account for 48% of the classified loan balance at March 31, 2025.

The Bank has exercised legal remedies, including the appointment of a third-party receiver and foreclosure actions, to liquidate the underlying collateral to satisfy the real estate loans in these collateral-dependent relationships.

The Bank is also closely monitoring a group of commercial business loans that have similar collateral, with 16 loans totaling $1.6 million included in classified loans at March 31, 2025, and an additional seven loans totaling $2.4 million included in the special mention risk grading category.

We believe the ACLL is adequate to cover current expected credit losses in the loan portfolio as of June 30, 2025.

Nonperforming loans decreased $10.2 million, or 33.3%, to $20.4 million at June 30, 2025, from $30.5 million at December 31, 2024, attributable to loan charge-offs totaling $8.7 million and $6.1 million in payments received on commercial construction loans, partially offset by a $4.1 million commercial real estate loan and commercial business loans totaling $524,000 placed on nonaccrual status during the year.

The increase in charge-off activity was related to underlying collateral deficiencies in a $6.3 million relationship consisting of two commercial real estate loans and a related commercial business loan charged-off in the first quarter of 2025.

A $2.0 million commercial business loan was charged-off in the second quarter of 2025.

Nonperforming loans to total loans was 1.22% at June 30, 2025, compared to 1.80% at December 31, 2024.

The ACLL as a percentage of nonaccrual loans increased to 90% at June 30, 2025, up from 67% at December 31, 2024.

Classified loans decreased $11.6 million, or 27.3%, to $30.9 million at June 30, 2025, from $42.5 million at December 31, 2024, primarily due to charge-offs totaling $9.5 million and $6.1 million in payments received on commercial construction loans included in this category, partially offset by a $4.1 million commercial real estate loan that was adversely impacted by reduced cross-border traffic during the second quarter of 2025.

Four collateral dependent loans totaling $23.8 million account for 77% of the classified loan balance at June 30, 2025.

The Bank is also closely monitoring a group of commercial business loans that have similar collateral, with 11 loans totaling $562,000 included in classified loans at June 30, 2025, and four additional loans totaling $686,000 included in the special mention risk grading category.

The Bank continues to work with these borrowers to facilitate satisfactory repayment.

In the first quarter of 2025, the Bank recorded commercial real estate loan charge-offs totaling $5.6 million and commercial business loan charge-offs totaling $603,000 due to underlying collateral deficiencies.

Additional commercial business loan charge-offs totaling $811,000 and commercial construction loan charge-offs totaling $374,000 were recorded as a result of uncertainty in the collectability of the underlying collateral in specific loan relationships.

In the first six months of 2025, the Bank recorded commercial real estate loan charge-offs totaling $5.6 million and commercial business loan charge-offs totaling $603,000 due to underlying collateral deficiencies.

Additional commercial business loan charge-offs totaling $3.7 million and commercial construction loan charge-offs totaling $374,000 were recorded as a result of uncertainty in the collectability of the underlying collateral in specific loan relationships.

Charge-offs are based on individual loan evaluations and do not represent a universal decline in the collectability of all loans in these categories.

Additional charged-off balances related to purchased unsecured consumer loans totaled $207,000 during the three months ended March 31, 2025.

The Bank's active participation in the program was discontinued in 2023.

Additional charged-off balances related to purchased unsecured consumer loans totaled $396,000 during the six months ended June 30, 2025.

Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated :

Increase (Decrease)

March 31, 2025

June 30, 2025

December 31, 2024

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Increase (Decrease)

March 31, 2025

June 30, 2025

December 31, 2024

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Total nonaccrual loans

Real estate owned:

One-to-four family

Total nonperforming assets

Commercial real estate

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Nonperforming MLTB loans included in total nonaccrual loans and total restructured loans above

In the first quarter of 2025, a commercial business loan receivable held by First Northwest converted into a Series A security valued at $1.3 million.

In the first quarter of 2025, a convertible promissory note held by First Northwest, recorded as a commercial business loan, converted into a Series A security valued at $1.3 million.

The transaction resulted in a $1.0 million reduction to loans receivable, a $260,000 reduction to interest receivable and a $1.3 million increase to equity investments.

Also in the first quarter of 2025, a BOLI group life policy with a $9.4 million carrying value was terminated and the balance reclassified from BOLI to other assets until reimbursement is received from the issuer.

In April, the Bank reinvested the value of the terminated policy into a new BOLI separate life policy.

Total liabilities decreased to $2.02 billion at March 31, 2025, from $2.08 billion at December 31, 2024, due to decreases in brokered deposits of $45.0 million and borrowings of $28.9 million, partially offset by an increase in customer deposit balances of $23.0 million.

Deposit account balances decreased $22.0 million, or 1.3%, to $1.67 billion at March 31, 2025 from $1.69 billion at December 31, 2024.

During the first three months of 2025, total customer deposit balances increased $23.0 million and brokered deposit balances decreased $45.0 million.

Within customer deposit balances, increases in savings accounts of $30.1 million and money market accounts of $10.7 million were partially offset by decreases in customer term certificates of $14.3 million and demand deposit accounts of $3.5 million.

Increases in savings and money market accounts were driven by customer behavior as they sought out higher rates offered as term certificate specials matured and specials ended.

We utilize brokered CDs as an additional funding source when it proves beneficial to provide liquidity, manage cost of funds, reduce reliance on FHLB advances, and manage interest rate risk.

Overall, the current rate environment contributed to continued competition for deposits during the first quarter of 2025.

Also in the first quarter of 2025, a BOLI group life policy with a $9.4 million carrying value was terminated and the balance reclassified from BOLI to a receivable included in other assets at June 30, 2025.

In the second quarter of 2025, the Bank invested $9.1 million into a new BOLI separate life policy.

The reimbursement for the terminated policy was received from the issuer in July 2025.

In the second quarter of 2025, the Bank consolidated its Bellevue and Fremont business centers into a new location.

As a result, the ROU asset and lease liability balances decreased $2.0 million for the terminated leases and increased $1.3 million related to the new lease for the Seattle business center.

Total liabilities decreased to $2.05 billion at June 30, 2025, from $2.08 billion at December 31, 2024, due to decreases in brokered deposits of $76.0 million, partially offset by increases in customer deposit balances of $42.6 million and borrowings of $8.1 million.

Deposit account balances decreased $33.4 million, or 2.0%, to $1.65 billion at June 30, 2025 from $1.69 billion at December 31, 2024.

During the first six months of 2025, total customer deposit balances increased $42.6 million and brokered deposit balances decreased $76.0 million.

Within customer deposit balances, increases in money market accounts of $71.0 million and savings accounts of $22.9 million were partially offset by decreases in demand deposit accounts of $36.9 million and customer CDs of $14.4 million.

Increases in money market and savings accounts were driven by customers seeking higher rates.

Brokered CDs are utilized as an additional funding source when it proves beneficial to provide liquidity, manage cost of funds, reduce reliance on FHLB advances, and manage interest rate risk.

Overall, the current rate environment contributed to continued competition for deposits during the first half of 2025.

As a result, the Bank continued offering deposit rate specials to retain existing balances and attract new funds.

FHLB advances decreased $30.0 million, or 10.3% to $260.0 million at March 31, 2025, from $290.0 million at December 31, 2024.

The Bank reduced short-term FHLB advances while long-term advances marginally increased to provide additional balance sheet liquidity.

FHLB advances increased $10.0 million, or 3.4% to $300.0 million at June 30, 2025, from $290.0 million at December 31, 2024.

The Bank increased long-term advances to primarily replace maturing brokered deposits.

The Company also redeemed $5.0 million of subordinated debt during the first quarter of 2025 at a discount, resulting in a one-time gain on extinguishment of debt recorded in other noninterest income.

Total shareholders' equity decreased $7.4 million to $146.5 million for the three months ended March 31, 2025, due to a $9.0 million net loss recorded during that period, $656,000 of dividends declared and a $425,000 decrease in the post-tax fair market value of derivatives.

Total shareholders' equity decreased $4.2 million to $149.7 million for the six months ended June 30, 2025, due to a $5.4 million net loss recorded during that period, $1.3 million of dividends declared and a $621,000 decrease in the post-tax fair market value of derivatives.

These decreases were partially offset by an increase in the after-tax fair market values of the available-for-sale investment securities portfolio of $2.5 million.

During the first quarter of 2025, the Company did not repurchase any common stock under the Company's April 2024 stock repurchase plan, leaving 846,123 shares remaining in the current share repurchase program.

Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024

The Company recorded a net loss of $9.0 million for the three months ended March 31, 2025, compared to net income of $396,000 for the three months ended March 31, 2024.

A $6.8 million increase in provision for credit losses and a $5.7 million increase in noninterest expense were partially offset by a decrease in provision for income tax of $1.6 million and a $1.6 million increase in noninterest income.

During the first six months of 2025, the Company did not repurchase any common stock under the Company's April 2024 stock repurchase plan, leaving 846,123 shares remaining in the current share repurchase program.

Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024

The Company recorded net income of $3.7 million for the three months ended June 30, 2025, compared to a net loss of $2.2 million for the three months ended June 30, 2024.

A $9.1 million decrease in provision for credit losses and a $2.8 million decrease in noninterest expense were partially offset by a $5.2 million decrease in noninterest income and an increase in provision for income taxes of $844,000.

Net Interest Income.

Net interest income decreased $81,000 to $13.9 million for the three months ended March 31, 2025, from $13.9 million for the three months ended March 31, 2024, as declines in loan and interest-earning deposit income outpaced reduced deposit costs.

Average earning assets increased $3.9 million year-over-year.

The yield on average interest-earning assets decreased 7 basis points to 5.35% for the three months ended March 31, 2025, compared to 5.42% for the same period in the prior year, due to decreases in average net loans receivable and interest-earning deposit account balances, along with decreased yields on all interest-earning assets.

The average cost of interest-bearing liabilities decreased to 3.05% for the three months ended March 31, 2025, compared to 3.14% for the same period last year, due primarily to lower rates paid on savings accounts, CDs, and advances along with decreases in the average balances of brokered CDs, savings account balances and subordinated debt.

Total cost of funds decreased 7 basis points to 2.67% for the three months ended March 31, 2025, from 2.74% for the same period in 2024.

The net interest margin remained flat at 2.76% for both the three months ended March 31, 2025 and the same period in 2024.

Net interest income decreased $42,000 to $14.19 million for the three months ended June 30, 2025, from $14.24 million for the three months ended June 30, 2024.

This decrease was mainly the result of lower average yield on interest-earning assets, which decreased 14 basis points to 5.41% for the three months ended June 30, 2025, compared to 5.55% for the same period last year, due primarily to lower yields on variable- and adjustable-rate assets and a decrease in loan volume.

It is important to note that while loan yields dropped period-over-period, the Company's decrease was significantly lower than the 75-basis point Fed Funds decrease.

The decrease in income was partially offset by a decrease in rates paid on interest-bearing liabilities, which decreased 27 basis points to 3.01% for the three months ended June 30, 2025, compared to 3.28% for the same period in the prior year as a result of lower rates paid on savings deposits, CDs and borrowings and a decrease in the average balances of CDs and borrowings.

The cost of total deposits decreased 16 basis points to 2.31% for the three months ended June 30, 2025, compared to 2.47% for the same period in 2024.

The net interest margin increased 7 basis points to 2.83% for the three months ended June 30, 2025, from 2.76% for the same period in 2024.

Total cost of funds decreased 23 basis points to 2.64% for the three months ended June 30, 2025, from 2.87% for the same period in 2024.

The Company has taken measures to expand our net interest margin.

Organic loan production was augmented with higher-yielding purchased loans through established third-party relationships.

Current quarter investment securities purchases will replace some of the interest income on securities that matured in 2025.

The Bank's fair value hedging agreements on securities and loans continue to increase interest income.

Interest Income.

Total interest income decreased $503,000, or 1.8%, to $26.8 million for the three months ended March 31, 2025, from $27.3 million for the comparable period in 2024, primarily due to a decrease in yields on all interest-earning assets and a decrease in average net loans receivable balances.

Interest and fees on loans receivable decreased $536,000, to $22.2 million for the three months ended March 31, 2025, from $22.8 million for the three months ended March 31, 2024, primarily due to a decrease in the average balance of net loans receivable of $19.5 million compared to the prior year, coupled with a decrease in average loan yields to 5.49% for the three months ended March 31, 2025, from 5.51% for the same period in 2024.

Total interest income decreased $1.5 million, or 5.2%, to $27.1 million for the three months ended June 30, 2025, from $28.6 million for the comparable period in 2024, due to both lower volumes and average yields on interest-earning assets.

Interest and fees on loans receivable decreased $919,000, to $22.8 million for the three months ended June 30, 2025, from $23.7 million for the three months ended June 30, 2024, primarily due to a decrease in the average balance of net loans receivable of $59.5 million coupled with a decrease in average loan yields to 5.58% for the three months ended June 30, 2025, from 5.62% for the same period in 2024.

The volume of construction, multi-family, commercial business and auto loans decreased compared to the same quarter in 2024, categories that generally earn higher yields.

The yield earned on investment securities decreased 54 basis points to 4.47% compared to the same period in 2024, as variable-rate investments repriced and higher-yielding securities matured in 2025.

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,

Average Balance Outstanding

(Decrease) Increase in Interest Income

(Dollars in thousands)

Loans receivable, net

Investment securities

Interest-earning deposits in banks

Total interest-earning assets

Interest Expense.

Total interest expense decreased $1.4 million, or 10.0%, to $12.9 million for the three months ended June 30, 2025, compared to $14.4 million for the three months ended June 30, 2024.

The decrease from the second quarter of 2024 was the result of lower volumes of brokered CDs along with a decrease in the total cost of deposits to 2.31% from 2.47% in same period one year ago.

The savings realized from the changes in brokered CDs was partially offset by increased costs as a result of higher volumes of customer CDs and money market accounts.

Interest expense on borrowings decreased due to an average balance decrease of $40.2 million and a decrease in the cost of advances to 4.43% from 4.85%, primarily FHLB advances, compared to the same period in 2024.

Average deposit account balances were composed of 85% in interest-bearing deposits and 15% in noninterest-bearing deposits at both June 30, 2025 and June 30, 2024.

During the three months ended June 30, 2025, interest expense decreased for CDs due to a decrease in the average balances of $33.7 million, along with a decrease in the average rates paid of 37 basis points, compared to the three months ended June 30, 2024.

During the same period, the average balances of money market accounts increased $38.7 million with no average rate increase, resulting in an increase to interest expense.

The average cost of all interest-bearing deposit accounts decreased to 2.71% for the three months ended June 30, 2025, from 2.91% for the three months ended June 30, 2024, primarily due to the reduction in brokered CDs.

The mix of customer deposit balances shifted from demand accounts towards higher cost CD and money market products.

Customer CDs represented 29.1% and 26.8% of customer deposits at June 30, 2025 and 2024, 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,

Average Balance Outstanding

(Decrease) Increase in Interest Expense

(Dollars in thousands)

Interest-bearing demand deposits

Money market accounts

Savings accounts

Certificates of deposit, customer

Certificates of deposit, brokered

Subordinated debt

Total interest-bearing liabilities

Provision for Credit Losses.

The Company recorded a $360,000 recapture of provision for credit losses in the three months ended June 30, 2025.

A recapture of provision for credit losses on loans of $296,000 was the result of a reduction in reserves taken on individually evaluated loans, partially offset by net loan charge-offs for the quarter and a small increase in the pooled loan reserve.

The pooled loan reserve increased as estimated CECL loss factors applied at quarter end increased for commercial business, one-to-four family, multi-family and commercial real estate loan balances while loss factors applied to pooled consumer and home equity loans decreased.

A recapture of provision for credit losses on unfunded commitments of $64,000 was also recorded during the quarter ended June 30, 2025, due to reduced loss factors and commitment balances at quarter end.

The total provision for credit losses on loans was $8.6 million for the quarter ended June 30, 2024, and the provision on unfunded commitments was $99,000.

The ACLL as a percentage of nonaccrual loans at period end increased to 90% compared to 82% for the same period in 2024.

The following table details activity and information related to the allowance for credit losses on loans and reserve for unfunded commitments for the periods shown:

Three Months Ended June 30,

(Dollars in thousands)

(Recapture of) provision for credit losses on loans

Net charge-offs

Allowance for credit losses on loans

Allowance for credit losses on loans as a percentage of total loans receivable at period end

Total nonaccrual loans

Allowance for credit losses on loans as a percentage of nonaccrual loans at period end

Nonaccrual loans and accruing loans 90 days or more past due as a percentage of total loans receivable

Total loans receivable

(Recapture of) provision for credit losses on unfunded commitments

Reserve for unfunded commitments

Unfunded loan commitments

Noninterest Income.

Noninterest income decreased $5.2 million, or 70.5%, to $2.2 million for the three months ended June 30, 2025, from $7.4 million for the three months ended June 30, 2024.

The decrease is primarily due to the $7.9 million gain from the sale of six branches in a sale-leaseback transaction, partially offset by a $2.1 million loss on sale of securities recorded in the second quarter of 2024.

Included in other income were period-over-period increases in the recorded value of equity and fintech partnership investments of $287,000, interest related to the ERC of $81,000 and swap fee income of $64,000.

The BOLI cash surrender value increase was a result of the conversion into higher-yielding BOLI policies during 2024 and 2025.

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)

(Dollars in thousands)

Loan and deposit service fees

Sold loan servicing fees and servicing rights mark-to-market

Net gain on sale of loans

Net loss on sale of investment securities

Net gain on sale of premises and equipment

Increase in BOLI cash surrender value

Other income (loss)

Total noninterest income

Noninterest Expense.

Noninterest expense decreased $2.8 million, or 18.2%, to $12.8 million for the three months ended June 30, 2025, compared to $15.6 million for the three months ended June 30, 2024.

The decrease in expenses compared to the second quarter of 2024 is mainly due to a $2.6 million employee retention credit ("ERC") recorded in compensation during the current quarter.

Additional decreases to compensation expense included $596,000 attributable to a smaller workforce and $356,000 due to lower incentive payments.

Occupancy decreased compared to the same period in 2024 due to a $354,000 reduction in property tax partially offset by a $139,000 increase in rent expense as a result of the 2024 sale-leaseback.

One-time increases recorded in the current quarter also included a $599,000 loss on disposal of leasehold improvements included in other expense and a $528,000 ERC consulting cost included in professional fees.

The Company continues to focus on controlling expenses to improve earnings.

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)

(Dollars in thousands)

Compensation and benefits

Data processing

Occupancy and equipment

Supplies, postage, and telephone

Regulatory assessments and state taxes

Professional fees

FDIC insurance premium

Other expense

Total noninterest expense

Provision for Income Tax.

An income tax provision of $297,000 was recorded for the three months ended June 30, 2025, compared to a benefit of $547,000 for the three months ended June 30, 2024, due to a period-over-period increase in income before taxes of $6.7 million.

The provision includes accruals for both federal and state income taxes.

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, 2025 and 2024

The Company recorded a net loss of $5.4 million for the six months ended June 30, 2025, compared to net income of $1.8 million for the six months ended June 30, 2024.

A $2.3 million increase in provision for credit losses and a $2.9 million increase in noninterest expense were partially offset by a $3.6 million increase in noninterest income and a $728,000 decrease in provision for income tax.

Net Interest Income.

Net interest income decreased $123,000 to $28.0 million for the six months ended June 30, 2025, from $28.1 million for the six months ended June 30, 2024, as declines in loan and interest-earning deposit income outpaced reduced deposit costs.

Average earning assets decreased $29.1 million year-over-year.

The yield on average interest-earning assets decreased 11 basis points to 5.38% for the six months ended June 30, 2025, compared to 5.49% for the same period in the prior year, due to decreases in average net loans receivable, investments and interest-earning deposit account balances, along with decreased yields on all interest-earning assets.

The average cost of interest-bearing liabilities decreased to 3.03% for the six months ended June 30, 2025, compared to 3.21% for the same period last year, due primarily to decreases in the average balances of brokered CDs, savings account balances and advances along with lower rates paid on advances, CDs, and savings accounts.

Total cost of funds decreased 16 basis points to 2.65% for the six months ended June 30, 2025, from 2.81% for the same period in 2024.

The net interest margin increased 4-basis points to 2.80% for the six months ended June 30, 2025, compared to 2.76% for the same period in 2024.

Interest Income.

Total interest income decreased $2.0 million, or 3.5%, to $54.0 million for the six months ended June 30, 2025, from $55.9 million for the comparable period in 2024, primarily due to a decrease in yields on all interest-earning assets and a decrease in average net loans receivable balances.

Interest and fees on loans receivable decreased $1.5 million, to $45.1 million for the six months ended June 30, 2025, from $46.5 million for the six months ended June 30, 2024, primarily due to a decrease in the average balance of net loans receivable of $39.5 million compared to the prior year, coupled with a decrease in average loan yields to 5.54% for the six months ended June 30, 2025, from 5.57% for the same period in 2024.

As a market comparison, the Fed Funds rate decreased 75-basis points over the same period.

Average balances in the loan portfolio decreased primarily due to a lower average volume of construction loans partially offset by higher average volumes of one-to-four family, purchased auto and purchased manufactured home loans.

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The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:

Three Months Ended March 31,

Six Months Ended June 30,

Average Balance Outstanding

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Interest Expense.

Total interest expense decreased $422,000, or 3.1%, to $13.0 million for the three months ended March 31, 2025, compared to $13.4 million for the three months ended March 31, 2024.

The decrease over the first three months of 2024 was the result of a 4-basis point decrease in the cost of total deposits from 2.43% one year prior to 2.39% along with a reduction of brokered CDs.

A shift in the deposit mix from savings accounts and brokered CDs to a higher volume of customer CDs and money market accounts resulted in a lower cost of deposits.

Interest expense on borrowings increased marginally due to a $25.5 million increase in the average balance, partially offset by a 39-basis point decrease in the cost of advances, primarily FHLB advances, compared to the same period in 2024.

During the three months ended March 31, 2025, interest expense on CDs decreased due to lower average balances of $33.2 million, primarily brokered CDs, along with a 17-basis point increase in the average rates paid, compared to the three months ended March 31, 2024.

During the same period, the average balances of money market accounts increased $36.9 million, with a 21-basis point average rate increase, resulting in an increase to interest expense.

The average cost of interest-bearing deposit accounts decreased to 2.80% for the three months ended March 31, 2025, from 2.86% for the three months ended March 31, 2024.

Total interest expense decreased $1.9 million, or 6.7%, to $25.9 million for the six months ended June 30, 2025, compared to $27.8 million for the six months ended June 30, 2024.

Interest expense on deposits decreased $1.0 million due to a $3.5 million decrease in the in the average balance and a 12-basis point decrease in the cost of interest-bearing deposits.

A shift in the deposit mix from brokered CDs and savings accounts to a higher volume of customer CDs and money market accounts resulted in a lower cost of deposits.

Interest expense on borrowings decreased $857,000 due to a $9.8 million increase in the average balance and a 39-basis point decrease in the cost of borrowings, primarily FHLB advances, compared to the same period in 2024.

During the six months ended June 30, 2025, interest expense on CDs decreased due to lower average balances of $33.6 million, primarily brokered CDs, along with a 27-basis point decrease in the average rates paid, compared to the six months ended June 30, 2024.

During the same period, the average balances of money market accounts increased $37.9 million, with an 11-basis point average rate increase, resulting in an increase to interest expense.

The average cost of interest-bearing deposit accounts decreased to 2.76% for the six months ended June 30, 2025, from 2.88% for the six months ended June 30, 2024.

The Bank continues to use promotional products designed to retain existing deposits and generate new deposits.

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The mix of customer deposit balances shifted from savings accounts towards money market accounts and CDs.

Customer CDs represented 27.0% and 25.1% of total deposits at March 31, 2025 and 2024, respectively.

Brokered CDs represented 8.3% and 11.5% of total deposits at March 31, 2025 and 2024, respectively.

Customer CDs represented 27.2% and 23.3% of total deposits at June 30, 2025 and 2024, respectively.

Brokered CDs represented 6.5% and 13.1% of total deposits at June 30, 2025 and 2024, respectively.

The following table details average balances, cost of funds and the change in interest expense for the periods shown:

Three Months Ended March 31,

Six Months Ended June 30,

Average Balance Outstanding

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Provision for Credit Losses.

The Company recorded a $7.8 million loan loss provision and a $15,000 unfunded commitment provision for the three months ended March 31, 2025.

This compares to a $1.2 million loan loss provision offset by a $269,000 unfunded commitment provision recapture for the three months ended March 31, 2024.

The higher provision for credit losses on loans compared to the same period in 2024 was mainly due to underlying collateral deficiencies for two commercial real estate loans, a commercial business loan, a group of commercial equipment loans and consumer unsecured loans resulting in net charge-offs totaling $7.7 million for the three-month period.

Increases in qualitative factor adjustments and a mild increase in factors related the general economic outlook applied to the remaining loan portfolio balance at March 31, 2025 also contributed to the higher provision.

The increase in unfunded commitment provision compared to the same period in 2024 was due to higher balances.

The Company recorded a $7.5 million loan loss provision offset by a $49,000 unfunded commitment provision recapture for the six months ended June 30, 2025.

This compares to a $9.9 million loan loss provision offset by a $170,000 unfunded commitment provision recapture for the six months ended June 30, 2024.

The current period provision for credit losses on loans reflects changes due to underlying collateral deficiencies for two commercial real estate loans, two commercial business loans, a commercial construction loan, a group of commercial equipment loans and consumer unsecured loans resulting in net charge-offs totaling $9.6 million for the six-month period.

Net charge-offs were partially offset by decreases in qualitative factor adjustments and general economic outlook factors applied to the remaining loan portfolio balance at June 30, 2025.

The lower unfunded commitment provision recapture compared to the same period in 2024 was due to lower qualitative loss factors.

The following table details activity and information related to the allowance for credit losses on loans and reserve for unfunded commitments for the periods shown:

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in thousands)

7 unchanged sentences

Total loans receivable

Provision for (recapture of) credit losses on unfunded commitments

Recapture of provision for credit losses on unfunded commitments

Reserve for unfunded commitments

1 unchanged sentence

Noninterest Income.

Noninterest income increased $1.6 million, or 72.6%, to $3.8 million for the three months ended March 31, 2025, from $2.2 million for the three months ended March 31, 2024.

The increase was primarily due to income from a $1.1 million BOLI death benefit and a $846,000 gain on the extinguishment of debt related to repurchasing $5.0 million of subordinated debt at a discount.

As a result of the conversion of lower-yielding BOLI policies in 2024, there was a period-over-period increase in BOLI cash surrender value.

Noninterest income decreased $3.6 million, or 37.6%, to $6.0 million for the six months ended June 30, 2025, from $9.5 million for the six months ended June 30, 2024.

The prior year included a $7.9 million gain recorded for the sale-leaseback transaction partially offset by a $2.1 million loss on the sale of investment securities.

Additional income recorded in the current year includes a $1.1 million BOLI death benefit and a $846,000 gain on the extinguishment of debt related to repurchasing $5.0 million of subordinated debt at a discount recorded in other income.

The BOLI cash surrender value increased as a result of the conversion into higher-yielding BOLI policies in 2024 and 2025.

The following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:

Three Months Ended March 31,

Six Months Ended June 30,

Increase (Decrease)

3 unchanged sentences

Net gain on sale of loans

Net loss on sale of investment securities

Net gain on sale of premises and equipment

Increase in BOLI cash surrender value

Income from BOLI death benefit, net

Other income (loss)

Total noninterest income

Noninterest Expense.

Noninterest expense increased $5.7 million, or 39.8%, to $20.0 million for the three months ended March 31, 2025, compared to $14.3 million for the three months ended March 31, 2024.

The increase in expenses compared to the same period in 2024 is mainly due to a $5.8 million accrued legal reserve included in other expense and an increase in occupancy and equipment due to additional rent related to a sale-leaseback transaction in the second quarter of 2024.

These increases were partially offset by lower compensation and benefit costs due to a smaller workforce and lower professional fees.

The Company continues to focus on controlling compensation expense and reducing advertising and other discretionary spending to improve earnings.

Noninterest expense increased $2.9 million, or 9.5%, to $32.8 million for the six months ended June 30, 2025, compared to $29.9 million for the six months ended June 30, 2024.

Expenses increased compared to the same period in 2024 due to a $5.8 million accrued legal reserve and a $599,000 loss on disposal of leasehold improvements, both included in other expense, and a $528,000 ERC consulting cost included in professional fees.

These increases were partially offset by the $2.6 million ERC along with lower compensation and benefit costs due to a smaller workforce.

The Company continues to focus on controlling expenses to improve earnings.

The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:

Three Months Ended March 31,

Six Months Ended June 30,

Increase (Decrease)

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Provision for Income Tax.

An income tax benefit of $1.1 million was recorded for the three months ended March 31, 2025, compared to an expense of $447,000 for the three months ended March 31, 2024, due to a period-over-period decrease in income before taxes of $11.0 million.

An income tax benefit of $828,000 was recorded for the six months ended June 30, 2025, compared to a benefit of $100,000 for the six months ended June 30, 2024, due to a period-over-period increase in net loss before taxes of $4.3 million.

Both periods include a tax penalty estimate for the early surrender of BOLI contracts.

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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 March 31, 2025 and 2024.

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, 2025 and 2024.

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 March 31,

Nonaccrual loans have been included within loans receivable in the table as loans carrying a zero yield.

Three Months Ended June 30,

(Dollars in thousands)

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(1) The average loans receivable, net balances include nonaccrual loans.

(2) Interest earned on loans receivable includes net deferred costs of ($338,000) and ($171,000) for the three months ended March 31, 2025 and 2024, respectively.

(2) Interest earned on loans receivable includes net deferred (costs) fees of ($148,000) and $34,000 for the three months ended June 30, 2025 and 2024, respectively.

(3) Includes interest-earning deposits (cash) at other financial institutions.

(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.39% and 2.43% for the three months ended March 31, 2025 and 2024, respectively.

(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.31% and 2.47% for the three months ended June 30, 2025 and 2024, respectively.

(5) Net interest income divided by average interest-earning assets.

Six Months Ended June 30,

(Dollars in thousands)

Interest-earning assets:

Loans receivable, net (1) (2)

Total investment securities

FHLB dividends

Interest-earning deposits in banks

Total interest-earning assets (3)

Noninterest-earning assets

Total average assets

Interest-bearing liabilities:

Interest-bearing demand deposits

Money market accounts

Savings accounts

Certificates of deposit, customer

Certificates of deposit, brokered

Total interest-bearing deposits (4)

Subordinated debt

Total interest-bearing liabilities

Noninterest-bearing deposits (4)

Other noninterest-bearing liabilities

Total average liabilities

Average equity

Total average liabilities and equity

Net interest income

Net interest rate spread

Net earning assets

Net interest margin (5)

Average interest-earning assets to average interest-bearing liabilities

(1) The average loans receivable, net balances include nonaccrual loans.

(2) Interest earned on loans receivable includes net deferred costs of ($486,000) and ($137,000) for the six months ended June 30, 2025 and 2024, respectively.

(3) Includes interest-earning deposits (cash) at other financial institutions.

(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.35% and 2.45% for the six months ended June 30, 2025 and 2024, respectively.

(5) Net interest income divided by average interest-earning assets.

Rate/Volume Analysis

4 unchanged sentences

Three Months Ended

March 31, 2025 Compared to March 31, 2024

Six Months Ended

June 30, 2025 Compared to June 30, 2024

Increase (Decrease) Due to

Total Increase (Decrease)

(In thousands)

16 unchanged sentences

These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the three months ended March 31, 2025 and the year ended December 31, 2024, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.

For the six months ended June 30, 2025 and the year ended December 31, 2024, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.

Contractual Obligations

At March 31, 2025, our scheduled maturities of contractual obligations were as follows:

At June 30, 2025, our scheduled maturities of contractual obligations were as follows:

After 1 Year Through

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Commitments and Off-Balance Sheet Arrangements

The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of March 31, 2025:

The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of June 30, 2025:

Amount of Commitment by Expiration

3 unchanged sentences

(In thousands)

Commitments to originate loans:

Variable-rate

Unfunded commitments under lines of credit

10 unchanged sentences

The levels of these assets depend on our operating, financing, lending and investing activities during any given period.

At March 31, 2025, cash and cash equivalents totaled $70.3 million and unpledged securities classified as available-for-sale had a market value of $273.4 million.

The Bank pledged collateral of $538.3 million to support borrowings from the FHLB, with a remaining borrowing capacity of $217.6 million at March 31, 2025.

The Bank also has an established discount window borrowing arrangement with the FRB, for which available-for-sale securities with a market value of $18.5 million were pledged as of March 31, 2025, providing a borrowing capacity of $17.9 million.

At June 30, 2025, cash and cash equivalents totaled $87.9 million and unpledged securities classified as available-for-sale had a market value of $246.2 million.

The Bank pledged collateral of $550.0 million to support borrowings from the FHLB, with a remaining borrowing capacity of $179.9 million at June 30, 2025.

The Bank also has an established discount window borrowing arrangement with the FRB, for which available-for-sale securities with a market value of $18.4 million were pledged as of June 30, 2025, providing a borrowing capacity of $17.6 million.

Another source of short-term funding for the Bank is through PCBB's Fed Funds Borrowing Facility, which provides up to $50.0 million of unsecured borrowing for up to ten consecutive days.

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 $7.5 million at March 31, 2025.

At March 31, 2025, we had commitments to fund $408,000 in standby letters of credit and $175.1 million in undisbursed loans, including $57.1 million in undisbursed construction loan commitments.

CDs due within one year as of March 31, 2025, totaled $500.8 million, or 85.1% of CDs with a weighted-average rate of 4.11%.

The remaining borrowing capacity of the NexBank line of credit was $10.5 million at June 30, 2025.

At June 30, 2025, we had commitments to fund $350,000 in standby letters of credit and $166.6 million in undisbursed loans, including $55.2 million in undisbursed construction loan commitments.

CDs due within one year as of June 30, 2025, totaled $512.2 million, or 91.9% of CDs with a weighted-average rate of 3.96%.

If these maturing deposits are not renewed, we will seek other sources of funds, including other CDs, non-maturity deposits, and borrowings.

4 unchanged sentences

First Fed has a diversified deposit base with approximately 62% of deposit account balances held by consumers, 22% held by business and 10% by public fund depositors, and 6% in brokered deposits.

The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at March 31, 2025.

The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at June 30, 2025.

We estimate that 20-25% of our customer deposit balances are over the $250,000 FDIC insurance limit, representing less than 5% of deposit customers.

1 unchanged sentence

The Company is a separate legal entity from the Bank and provides for its own liquidity.

At March 31, 2025, the Company, on an unconsolidated basis, had liquid assets of $865,000.

At June 30, 2025, the Company, on an unconsolidated basis, had liquid assets of $359,000.

In addition to its operating expenses, the Company is responsible for paying dividends declared, if any, to its shareholders, and for Company stock repurchases, interest payments on subordinated notes held at the Company level, payments on the NexBank revolving credit facility, and commitments to limited partnership investments.

1 unchanged sentence

Capital Resources

At March 31, 2025, shareholders' equity totaled $146.5 million, or 6.7% of total assets.

Our book value per share of common stock was $15.52 at March 31, 2025, compared to $16.45 at December 31, 2024.

At March 31, 2025, 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 March 31, 2025.

At June 30, 2025, shareholders' equity totaled $149.7 million, or 6.8% of total assets.

Our book value per share of common stock was $15.85 at June 30, 2025, compared to $16.45 at December 31, 2024.

At June 30, 2025, 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, 2025.

Minimum Capital Requirements

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In order to avoid limitations, based on percentages of eligible retained income, on paying dividends, engaging in share repurchases, and paying discretionary bonuses, the Bank must maintain risk-based capital in an amount greater than the required minimum levels plus a capital conservation buffer, comprised of common equity tier 1 capital ("CET1"), of 2.5% of risk-weighted assets.

The Bank's capital conservation buffer was 5.1% at June 30, 2025, exceeding this requirement.

Effect of Inflation and Changing Prices

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis