What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-06 compared with 2025-08-07 · 177 added, 173 removed, 503 unchanged (41% of the section changed)

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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 an elevated interest rate environment, geopolitical instability, including the wars in Ukraine and the Middle East, and potential recessionary and other unfavorable conditions and trends relating to housing markets, cost of living, unemployment levels, supply chain difficulties and inflationary pressures;

risks related to overall economic conditions, including the impact on the economy of an elevated interest rate environment, geopolitical instability, including the wars in Ukraine and the Middle East, and potential recessionary and other unfavorable conditions and trends relating to housing markets, unemployment levels, interest rates and inflationary pressures;

any failure of key third-party vendors to perform their obligations to us;

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First Northwest is engaged in banking activities through its wholly owned subsidiary, First Fed Bank, as well as certain non-banking financial activities.

Non-banking investments include several limited partnership investments, including a 33.3% interest in The Meriwether Group, LLC ("MWG"), a boutique investment bank and consulting firm focused on providing entrepreneurs with resources to help them succeed, including equity and debt raising services.

Non-banking investments include several limited partnership investments.

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.

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

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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 33.3% interest in MWG.

In 2022, First Northwest acquired a 33.3% interest in The Meriwether Group, LLC ("MWG"), a boutique investment bank and consulting firm focused on providing entrepreneurs with resources to help them succeed, including equity and debt raising services.

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 Hero Fund.

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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.

In July 2025, the FDIC proposed a rule to adjust certain regulatory thresholds to reflect historical inflation and adjust those thresholds in the future based on a proposed indexing methodology.

Among other changes, the proposal would increase the total asset size thresholds from $1 billion to $5 billion for an insured depository institution to be subject to the FDIC's requirements for each audit committee member to be independent of management and for management to prepare reports on the effectiveness of the institution’s internal control structure and procedures.

The Company is evaluating the potential impact of the proposed rule.

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 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.

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

Total assets decreased to $2.11 billion, or 5.4%, at September 30, 2025, from $2.23 billion at December 31, 2024.

Cash and cash equivalents increased by $6.7 million, or 9.3%, to $79.2 million as of September 30, 2025, compared to $72.5 million as of December 31, 2024.

Investment securities decreased $57.7 million, or 17.0%, to $282.6 million at September 30, 2025, from $340.3 million at December 31, 2024.

The decrease was primarily due to maturities and early redemptions totaling $50.9 million and $20.3 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.

These items were partially offset by purchases totaling $5.5 million and a portfolio market value increase of $8.0 million during the nine months ended September 30, 2025.

The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 6.9 years as of both September 30, 2025 and December 31, 2024, and had an estimated average repricing term of 6.6 years as of September 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 4.8 years at September 30, 2025, compared to 3.9 years at December 31, 2024.

The investment portfolio was comprised of 55.6% in amortizing securities at September 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 $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.

Net loans, excluding loans held for sale, decreased $67.4 million, or 4.0%, to $1.61 billion at September 30, 2025, from $1.68 billion at December 31, 2024.

During the nine months ended September 30, 2025, commercial business loans decreased $38.3 million, including a $36.2 million decrease to our Northpointe Bank Mortgage Purchase Program ("Northpointe MPP") participation, charge-offs totaling $4.8 million and other repayment activity, partially offset by $12.4 million of draws on existing line of credit commitments, $10.7 million of organic originations and $1.5 million of new purchased loans.

Multi-family loans decreased $36.3 million during the nine months ended September 30, 2025, as repayments exceeded $5.2 million of construction loans converting into permanent amortizing loans.

One-to-four family loans decreased $12.8 million during the nine months ended September 30, 2025, as repayment activity exceeded $9.5 million in residential construction loans that converted to permanent amortizing loans and new loan originations totaling $5.5 million.

Auto and other consumer loans increased $11.4 million with auto loan purchases of $44.2 million, individual manufactured home loan purchases of $7.2 million and manufactured home loan pool purchases of $4.6 million, partially offset by prepayments and scheduled payments.

Home equity loan outstanding balances increased $7.6 million over the prior year end due to $18.5 million of net draws on new and existing line of credit commitments and $5.2 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.

Commercial real estate loans increased $6.1 million during the nine months ended September 30, 2025, with $42.0 million of new loan originations and $656,000 of construction loan conversions exceeding loan charge-offs totaling $6.2 million and repayment activity.

Construction and land loans decreased $10.3 million, or 13.2%, to $67.8 million at September 30, 2025, from $78.1 million at December 31, 2024, with payment activity totaling $30.6 million and $15.4 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.

The borrower associated with the California project has a longstanding history with the Bank.

All construction projects are monitored by either a third-party firm or our internal construction administration team.

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

June 30, 2025

September 30, 2025

North Olympic Peninsula (1)

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

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.

During the nine months ended September 30, 2025, the Company added $147.6 million of organic loan originations, of which $79.3 million, or 53.7%, were located in the Puget Sound region, $34.0 million, or 23.0%, on the North Olympic Peninsula, $17.0 million, or 11.5%, in other areas throughout Washington State, and $17.3 million, or 11.7%, in other states.

The Company purchased an additional $44.2 million in auto loans, $11.8 million in manufactured home loans, $2.1 million in commercial business loans and $550,000 in one-to-four family loans to borrowers located throughout the United States during the nine months ended September 30, 2025.

The total loan portfolio was composed of 79.7% organic originations and 20.3% purchased loans at September 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 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 added to a small increase in the allowance related to pooled loan balances.

The ACLL decreased to $16.2 million at September 30, 2025, compared to $20.5 million at December 31, 2024.

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.

A $1.8 million reduction in the pooled loan reserve balance was driven by decreased commercial business loan, one-to-four family, multi-family and other consumer loan balances combined with lower loss factors applied to one-to-four family and other consumer loans.

Decreases to the pooled loan reserve balance were partially offset by increases due to higher loss factors applied to commercial business, multi-family, commercial real estate and construction loan balances at the end of the current quarter.

The pooled loan reserve was impacted by a mild deterioration in gross domestic product and unemployment forecasts.

The ACLL as a percentage of total loans was 1.00% and 1.21% at September 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 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.

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

Nonperforming loans decreased $17.1 million, or 56.2%, to $13.4 million at September 30, 2025, from $30.5 million at December 31, 2024, attributable to loan charge-offs totaling $8.7 million, the sale of a $4.9 million commercial construction loan and $4.5 million in payments received on commercial construction loans.

Decreases in nonaccrual loans were partially offset by a $4.1 million commercial real estate loan, one-to-four family loans totaling $1.1 million 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 $6.2 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.

Nonperforming loans to total loans was 0.82% at September 30, 2025, compared to 1.80% at December 31, 2024.

The ACLL as a percentage of nonaccrual loans increased to 121% at September 30, 2025, up from 67% at December 31, 2024.

Classified loans decreased $18.7 million, or 43.9%, to $23.9 million at September 30, 2025, from $42.5 million at December 31, 2024, primarily due to charge-offs totaling $10.0 million, $7.7 million in payments received on commercial construction loans included in this category and the sale of two loans totaling $6.6 million, 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.

Three collateral dependent loans totaling $16.1 million account for 67.6% of the classified loan balance at September 30, 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 the largest of these collateral-dependent relationships.

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 is also closely monitoring a group of commercial business loans that have similar collateral, twelve loans with recorded balances totaling $149,000 were included in classified loans at September 30, 2025, and one $210,000 loan was included in the special mention risk grading category.

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

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.

In the first nine 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 $4.7 million, commercial construction loan charge-offs totaling $857,000 and commercial real estate loan charge-offs totaling $656,000 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 $396,000 during the six months ended June 30, 2025.

Additional charged-off balances related to purchased unsecured consumer loans totaled $471,000 during the nine months ended September 30, 2025.

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

Increase (Decrease)

June 30, 2025

September 30, 2025

December 31, 2024

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Increase (Decrease)

June 30, 2025

September 30, 2025

December 31, 2024

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Commercial real estate

Construction and land

Commercial business

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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 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.

Also in the first quarter of 2025, a BOLI group life policy with a $9.4 million carrying value was terminated.

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

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.

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 lease for the new Seattle business center.

Total liabilities decreased to $1.96 billion at September 30, 2025, from $2.08 billion at December 31, 2024, due to decreases in borrowings of $76.4 million and deposits of $34.7 million.

Deposit account balances decreased $34.7 million, or 2.1%, to $1.65 billion at September 30, 2025 from $1.69 billion at December 31, 2024.

During the first nine months of 2025, total customer deposit balances increased $43.9 million and brokered deposit balances decreased $78.6 million.

Within customer deposit balances, increases in money market accounts of $61.8 million and savings accounts of $27.8 million were partially offset by decreases in demand deposit accounts of $19.6 million and customer CDs of $26.2 million.

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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.

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

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

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.

FHLB advances decreased $80.0 million, or 27.6% to $210.0 million at September 30, 2025, from $290.0 million at December 31, 2024.

The Bank utilized cash received from matured securities and loan payments to pay down short-term advances in order to reduce interest expense.

Short-term borrowing fluctuates based on liquidity needs.

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 $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 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.

Total shareholders' equity increased $646,000 to $154.5 million for the nine months ended September 30, 2025, due to an increase in the after-tax fair market values of the available-for-sale investment securities portfolio of $6.3 million and a $783,000 increase related to share-based compensation plans.

These increases were partially offset by a $4.6 million net loss recorded during that period, $1.3 million of dividends declared and a $615,000 decrease in the post-tax fair market value of derivatives.

During the first nine 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 September 30, 2025 and 2024

The Company recorded net income of $802,000 for the three months ended September 30, 2025, compared to a net loss of $2.0 million for the three months ended September 30, 2024.

A $3.8 million decrease in provision for credit losses, a $549,000 increase in net interest income and a $223,000 increase in noninterest income were partially offset by a $1.5 million increase in noninterest expense and an increase in provision for income taxes of $255,000.

Net Interest Income.

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.

Net interest income increased $549,000 to $14.57 million for the three months ended September 30, 2025, from $14.02 million for the three months ended September 30, 2024.

This increase was mainly the result of decreased rates paid on interest-bearing liabilities, which decreased 32 basis points to 2.91% for the three months ended September 30, 2025, compared to 3.23% for the same period in the prior year as a result of lower rates paid on all deposit account types and borrowings and a decrease in the average balances of brokered CDs.

The cost of total deposits decreased 36 basis points to 2.20% for the three months ended September 30, 2025, compared to 2.56% for the same period in 2024.The decrease in expense was partially offset by a decrease lower average yield on interest-earning assets, which decreased 7 basis points to 5.37% for the three months ended September 30, 2025, compared to 5.44% for the same period last year, due primarily to a decrease in average loan balances and lower yields on investments other interest-earning assets.

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

The net interest margin increased 21 basis points to 2.91% for the three months ended September 30, 2025, from 2.70% for the same period in 2024.

Total cost of funds decreased 29 basis points to 2.53% for the three months ended September 30, 2025, from 2.82% 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.

While the effectiveness of Bank's fair value hedging agreements on securities and loans has diminished with the Federal Reserve rate cuts, they continue to provide additional interest income.

Interest Income.

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.

Total interest income decreased $1.3 million, or 4.6%, to $26.9 million for the three months ended September 30, 2025, from $28.2 million for the comparable period in 2024, due to both lower average balances and yields on interest-earning assets.

Interest and fees on loans receivable decreased $722,000, to $22.8 million for the three months ended September 30, 2025, from $23.5 million for the three months ended September 30, 2024, primarily due to a decrease in the average balance of net loans receivable of $66.6 million partially offset by an increase in average loan yields to 5.54% for the three months ended September 30, 2025, from 5.51% for the same period in 2024.

The average balances of multi-family, construction, 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 52 basis points to 4.38% 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,

Three Months Ended September 30,

Average Balance Outstanding

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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.

Total interest expense decreased $1.9 million, or 13.0%, to $12.3 million for the three months ended September 30, 2025, compared to $14.2 million for the three months ended September 30, 2024.

The decrease from the third quarter of 2024 was the result of lower average brokered CDs balances along with a decrease in the total cost of deposits to 2.20% from 2.56% in same period one year ago.

The lower rates on customer deposit accounts further contributed to the period-over-period savings.

Interest expense on borrowings increased marginally due to an average balance increase in advances, primarily FHLB advances, of $10.2 million offset by a decrease in the cost of advances to 4.35% from 4.41% 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 September 30, 2025 and September 30, 2024.

During the three months ended September 30, 2025, interest expense decreased for CDs due to a decrease in the average rates paid of 57 basis points, compared to the three months ended September 30, 2024, partially offset by a decrease in the average balances of $83.2 million.

Interest-bearing demand accounts further contributed the decreased expense with a 30 basis point reduction in the rate paid and a $25.4 million decline in average balances.

During the same period, the average balances of money market accounts increased $32.9 million offset by a 23 basis point average rate decrease, resulting in a decrease to interest expense.

The average cost of all interest-bearing deposit accounts decreased to 2.60% for the three months ended September 30, 2025, from 3.00% for the three months ended September 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.

Customer CDs represented 28.3% and 29.3% of customer deposits at September 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,

Three Months Ended September 30,

Average Balance Outstanding

10 unchanged sentences

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 Company recorded a $673,000 recapture of provision for credit losses in the three months ended September 30, 2025.

A recapture of provision for credit losses on loans of $620,000 was the result of a reduction in the pooled loan reserve and a small decrease in the reserve on individually evaluated loans, partially offset by net loan charge-offs for the quarter.

Decreases in commercial business and multi-family loan balances were the primary contributors to the reduction in the pooled loan reserve.

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

A recapture of provision for credit losses on unfunded commitments of $53,000 was also recorded during the quarter ended September 30, 2025, due to reduced loss factors and commitment balances at quarter end.

The total provision for credit losses on loans was $3.1 million for the quarter ended September 30, 2024, and the provision on unfunded commitments was $57,000.

The ACLL as a percentage of nonaccrual loans at period end increased to 121% compared to 72% 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,

Three Months Ended September 30,

(Dollars in thousands)

(Recapture of) provision for credit losses on loans

Total loans receivable

Net charge-offs

(Recapture of) provision for credit losses on loans

Allowance for credit losses on loans

2 unchanged sentences

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

Nonaccrual loans as a percentage of total loans receivable

Unfunded loan commitments

(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.

Noninterest income increased $223,000, or 12.5%, to $2.0 million for the three months ended September 30, 2025, from $1.8 million for the three months ended September 30, 2024.

The increase is primarily due to the BOLI cash surrender value increase as a result of the conversion into higher-yielding BOLI policies during 2024 and 2025.

Loan and deposit service fees also received a small boost from higher interchange and ATM network fee income.

Other income for the current quarter included swap fee income of $113,000 and period-over-period decrease in the recorded value of equity and fintech partnership investments of $140,000.

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,

Three Months Ended September 30,

Increase (Decrease)

2 unchanged sentences

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

Net (loss) gain on sale of loans

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.

Noninterest expense increased $1.5 million, or 9.7%, to $17.4 million for the three months ended September 30, 2025, compared to $15.9 million for the three months ended September 30, 2024.

The increase in expenses compared to the third quarter of 2024 is mainly due to a period-over-period increase of $1.8 million in legal services as the Company continues to defend against the claims detailed in Note 15 contained in Item 1 of this Form 10-Q.

Compensation and benefits, while lower than the same period one year ago, included nonrecurring expenses totaling $1.2 million for executive transition costs.

Other expense includes commercial credit related costs totaling $516,000.

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,

Three Months Ended September 30,

Increase (Decrease)

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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.

An income tax benefit of $948,000 was recorded for the three months ended September 30, 2025, compared to a benefit of $1.2 million for the three months ended September 30, 2024.

The lower benefit is due to a period-over-period increase in income before taxes of $3.0 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.

Comparison of Results of Operations for the Nine Months Ended September 30, 2025 and 2024

The Company recorded a net loss of $4.6 million for the nine months ended September 30, 2025, compared to a net loss of $3.8 million for the nine months ended September 30, 2024.

A $4.4 million increase in noninterest expense and a $3.4 million decrease in noninterest income were partially offset by a $6.1 million decrease in provision for credit losses, a $426,000 increase in net interest income and a $473,000 increase in income tax benefit.

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.

Net interest income increased $426,000 to $42.6 million for the nine months ended September 30, 2025, from $42.2 million for the nine months ended September 30, 2024, as reduced deposit and borrowing costs outpaced declines in loan, investment and interest-earning deposit income.

Average earning assets decreased $43.7 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.

The yield on average interest-earning assets decreased 9 basis points to 5.38% for the nine months ended September 30, 2025, compared to 5.47% for the same period in the prior year, due to decreases in average net loans receivable and FHLB stock balances, along with decreased yields on all interest-earning assets.

The average cost of interest-bearing liabilities decreased to 2.99% for the nine months ended September 30, 2025, compared to 3.22% for the same period last year, due primarily to decreases in the average balances of brokered CDs and advances along with lower rates paid on advances, CDs, and savings accounts.

Total cost of funds decreased 20 basis points to 2.61% for the nine months ended September 30, 2025, from 2.81% for the same period in 2024.

The net interest margin increased 9 basis points to 2.83% for the nine months ended September 30, 2025, compared to 2.74% 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.

Total interest income decreased $3.3 million, or 3.9%, to $80.9 million for the nine months ended September 30, 2025, from $84.1 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 and FHLB stock balances.

Interest and fees on loans receivable decreased $2.2 million, to $67.9 million for the nine months ended September 30, 2025, from $70.0 million for the nine months ended September 30, 2024, primarily due to a decrease in the average balance of net loans receivable of $48.6 million compared to the prior year, coupled with a slight decrease in average loan yields to 5.54% for the nine months ended September 30, 2025, from 5.55% 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.

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

Loan yields decreased over the prior year due to the repricing of variable- and adjustable-rate loans tied to the Prime Rate or other variable-rate indices.

The yield earned on investment securities also decreased 33 basis points to 4.55% compared to the same period in 2024, due to floating bond yields and maturities of higher yielding fixed-rate investments.

The yield earned on investment securities also decreased 39 basis points to 4.50% compared to the same period in 2024, due to variable-rate bond yields and maturities of higher yielding investments.

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,

Nine Months Ended September 30,

Average Balance Outstanding

7 unchanged sentences

Interest Expense.

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.

Total interest expense decreased $3.7 million, or 8.8%, to $38.3 million for the nine months ended September 30, 2025, compared to $42.0 million for the nine months ended September 30, 2024.

Interest expense on deposits decreased $2.9 million due to a $25.3 million decrease in the in the average balance and a 22 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.

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

Interest expense on borrowings decreased $825,000 due to a $4.7 million decrease in the average balance and a 29 basis point decrease in the cost of borrowings, primarily FHLB advances, compared to the same period in 2024.

During the nine months ended September 30, 2025, interest expense on brokered CDs decreased due to lower average balances of $81.5 million along with a 44 basis point decrease in the average rate paid, compared to the nine months ended September 30, 2024.

During the same period, the average balances of money market accounts increased $36.3 million, resulting in an increase which partially offset the reduced brokered CDs expense.

The average cost of all interest-bearing deposit accounts decreased to 2.70% for the nine months ended September 30, 2025, from 2.92% for the nine months ended September 30, 2024.

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

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

Promotional rates are regularly reviewed and adjusted.

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

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.

Customer CDs represented 26.5% and 25.8% of total deposits at September 30, 2025 and 2024, respectively.

Brokered CDs represented 6.3% and 11.9% of total deposits at September 30, 2025 and 2024, 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,

Nine Months Ended September 30,

Average Balance Outstanding

10 unchanged sentences

Provision for Credit Losses.

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 Company recorded a $6.9 million loan loss provision offset by a $102,000 unfunded commitment provision recapture for the nine months ended September 30, 2025.

This compares to a $13.0 million loan loss provision offset by a $113,000 unfunded commitment provision recapture for the nine months ended September 30, 2024.

The current period provision for credit losses on loans reflects changes due to underlying collateral deficiencies or uncertain collectability of three commercial real estate loans, six commercial business loans, a commercial construction loan, a group of commercial equipment loans and consumer unsecured loans resulting in net charge-offs totaling $11.1 million for the nine-month period.

Net charge-offs were partially offset by a decrease in the reserve on individually evaluated loans, as the loans with reserves were sold or paid off, and lower pooled reserve loan balances at September 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:

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands)

Provision for credit losses on loans

Total loans receivable

Net charge-offs

Provision for credit losses on loans

Allowance for credit losses on loans

2 unchanged sentences

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

Nonaccrual loans as a percentage of total loans receivable

Unfunded loan commitments

Recapture of provision for credit losses on unfunded commitments

Reserve for unfunded commitments

Unfunded loan commitments

Noninterest Income.

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.

Noninterest income decreased $3.4 million, or 29.7%, to $8.0 million for the nine months ended September 30, 2025, from $11.3 million for the nine months ended September 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.

2 unchanged sentences

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,

Nine Months Ended September 30,

Increase (Decrease)

2 unchanged sentences

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

Net gain on sale of loans

Net (loss) gain on sale of loans

Net loss on sale of investment securities

2 unchanged sentences

Income from BOLI death benefit, net

Other income (loss)

Total noninterest income

Noninterest Expense.

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.

Noninterest expense increased $4.4 million, or 9.6%, to $50.2 million for the nine months ended September 30, 2025, compared to $45.8 million for the nine months ended September 30, 2024.

Expenses increased compared to the same period in 2024 due to a $5.8 million legal settlement and a $599,000 loss on disposal of leasehold improvements, both included in other expense, and a $528,000 employee retention credit ("ERC") consulting cost included in professional fees recorded in the second quarter of 2025.

Other increases include $1.2 million of nonrecurring executive transition costs recorded during the third quarter of 2025.

Legal expense included in professional fees increased $1.8 million period-over-period as the Company continues to defend against the claims detailed in Note 15 contained in Item 1 of this Form 10-Q.

These increases were partially offset by a $2.6 million ERC recorded in compensation during the second quarter of 2025 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:

Six Months Ended June 30,

Nine Months Ended September 30,

Increase (Decrease)

10 unchanged sentences

Provision for Income Tax.

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.

An income tax benefit of $1.8 million was recorded for the nine months ended September 30, 2025, compared to a benefit of $1.3 million for the nine months ended September 30, 2024, due to a period-over-period increase in net loss before taxes of $1.2 million.

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

3 unchanged sentences

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, 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 September 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 within loans receivable in the table as loans carrying a zero yield.

Three Months Ended June 30,

Three Months Ended September 30,

(Dollars in thousands)

27 unchanged sentences

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

(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.

(2) Interest earned on loans receivable includes net deferred (costs) fees of ($410,000) and $22,000 for the three months ended September 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 2.31% and 2.47% for the three months ended June 30, 2025 and 2024, respectively.

(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.20% and 2.56% for the three months ended September 30, 2025 and 2024, respectively.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands)

27 unchanged sentences

(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.

(2) Interest earned on loans receivable includes net deferred costs of ($896,000) and ($115,000) for the nine months ended September 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.

(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.30% and 2.49% for the nine months ended September 30, 2025 and 2024, respectively.

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

5 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2025 Compared to June 30, 2024

Nine Months Ended

September 30, 2025 Compared to September 30, 2024

Increase (Decrease) Due to

20 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 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.

For the nine months ended September 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 June 30, 2025, our scheduled maturities of contractual obligations were as follows:

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

After 1 Year Through

10 unchanged sentences

Commitments and Off-Balance Sheet Arrangements

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

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

Amount of Commitment by Expiration

14 unchanged sentences

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 liquidity management, interest-rate risk and investment policies.

Our most liquid assets are cash and cash equivalents followed by available-for-sale securities.

Management regularly adjusts 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 liquidity management, interest-rate risk and investment policies.

The Company's 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, 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.

At September 30, 2025, cash and cash equivalents totaled $79.2 million and unpledged securities classified as available-for-sale had a market value of $225.2 million.

The Bank pledged collateral of $542.8 million to support borrowings from the FHLB, with a remaining borrowing capacity of $272.0 million at September 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 $18.3 million were pledged as of September 30, 2025, providing a borrowing capacity of $17.5 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 $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%.

The remaining borrowing capacity of the NexBank line of credit was $5.0 million at September 30, 2025.

At September 30, 2025, we had commitments to fund $408,000 in standby letters of credit and $158.1 million in undisbursed loans, including $40.6 million in undisbursed construction loan commitments.

CDs due within one year as of September 30, 2025, totaled $448.1 million, or 82.5% of CDs with a weighted-average rate of 3.84%.

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, 23% held by business and 9% by public fund depositors, and 6% in brokered deposits.

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

The average deposit account balance, excluding brokered and public fund accounts, was $29,000 at September 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 June 30, 2025, the Company, on an unconsolidated basis, had liquid assets of $359,000.

At September 30, 2025, the Company, on an unconsolidated basis, had liquid assets of $7.7 million.

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 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.

At September 30, 2025, shareholders' equity totaled $154.5 million, or 7.3% of total assets.

Our book value per share of common stock was $16.33 at September 30, 2025, compared to $16.45 at December 31, 2024.

At September 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 September 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.

The Bank's capital conservation buffer was 5.7% at September 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