What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2025-11-06 · 153 added, 341 removed, 339 unchanged (59% of the section changed)

15 unchanged sentences

uncertainties relating to litigation;

continued depressed market demand for mortgage and Small Business Administration loans that we originate for sale;

changes in monetary and fiscal policies including interest rate policies of the Federal Reserve and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources;

our ability to control operating costs and expenses;

whether our management team can succeed in implementing our operational strategy, including but not limited to our efforts to achieve higher net interest income and noninterest revenue growth;

our ability to successfully execute on growth strategies related to our entry into new markets and delivery channels, including banking as a service;

our ability to develop user-friendly digital applications to serve existing customers and attract new customers;

the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

pressures on liquidity, including as a result of withdrawals of customer deposits or declines in the value of our investment portfolio;

the effects of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and interest-sensitive assets and liabilities;

changes in monetary and fiscal policies including interest rate policies of the Federal Reserve and the impacts of such changes on our earnings;

our ability to successfully execute on growth strategies and integrate technology into our business;

pressures on liquidity as a result of withdrawals of customer deposits or declines in the value of our investment portfolio;

the soundness of other financial institutions and the impacts related to or resulting from bank failures and other economic and industry volatility, including increased regulatory requirements and costs and potential impact to macroeconomic conditions;

increased competitive pressures among financial services companies, particularly from non-traditional banking entities such as challenger banks, fintech, and mega technology companies;

our ability to attract and retain deposits at a reasonable cost relative to the market;

changes in consumer spending, borrowing and savings habits, resulting in reduced demand for banking products and services, particularly in the event of a recession that affects our market areas;

results of examinations by our primary or other regulatory authorities could have an adverse impact on our business and operations;

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, unemployment levels, interest rates and inflationary pressures;

our ability to comply with various governmental and regulatory requirements applicable to financial institutions, including those resulting from examinations by our primary or other regulatory authorities;

our ability to implement, maintain, and improve an effective risk management framework, disclosure controls and procedures and internal controls over financial reporting;

our ability to attract and retain executive officers and key employees;

the costs and effects of disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, information technology systems;

risks related to overall economic conditions;

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

risks related to natural disasters, including droughts, fires, floods, earthquakes, pandemics, and other unexpected events;

the effects of any reputational damage to the Company resulting from any of the foregoing;

risks related to natural disasters, including droughts, fires, floods, earthquakes, geopolitical events, acts of war or terrorism or other hostilities, public health crises, pandemics or other catastrophic events beyond our control;

fluctuation in our stock price and general volatility in the stock market;

the effects of any reputational damage to the Company, including resulting from any of the foregoing;

other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q and the Company's 2025 Form 10-K.

4 unchanged sentences

First Northwest, a Washington corporation, is a bank holding company and a financial holding company.

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

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

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.

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 five business centers, including our headquarters.

First Northwest is subject to regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve").

A financial holding company is a bank holding company that is permitted to engage in specified types of non-banking financial services.

First Fed is examined and regulated by the Washington State Department of Financial Institutions, Division of Banks ("DFI") and by the Federal Deposit Insurance Corporation ("FDIC").

First Fed is required to have certain reserves set by the Federal Reserve and is a member of the Federal Home Loan Bank of Des Moines ("FHLB"), which is one of the 11 regional banks in the Federal Home Loan Bank System ("FHLB System").

First Fed 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 eleven 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.

3 unchanged sentences

Home equity, residential construction and commercial construction loans are also originated primarily in Western Washington.

We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts and certificates of deposit ("CDs" or "term certificate") for individuals, businesses and nonprofit organizations.

We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts and certificates of deposit ("CDs" or "term certificates") for individuals, businesses and nonprofit organizations.

Deposits are our primary source of funding for our lending and investing activities.

2 unchanged sentences

The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest.

First Northwest's limited partnership investments include Canapi Ventures Fund, LP;

BankTech Ventures, LP;

The Bank signed a redemption agreement in February 2026 which sets forth the path to unwind its investment in the Hero Fund, with capital distributions anticipated to commence in the third quarter of 2026.

First Northwest's limited partnership investments include BankTech Ventures, LP;

Canapi Ventures Fund, LP;

and JAM FINTOP Frontier Fund, LP.

1 unchanged sentence

In 2022, First Northwest acquired a 33% 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.

MWG also holds a 20% general partner interest in MWGC.

MWG holds a 20% general partner interest in Meriwether Group Capital, LLC ("MWGC").

MWGC holds a 0.01% general partner interest in the Hero Fund.

The Company held a 25% equity interest as a general partner in MWGC prior to the February 2026 redemption of its interest.

The Company is impacted by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal policy, including fiscal stimulus, interest rate policy and open market operations, housing, and consumer protection.

9 unchanged sentences

Net interest income is interest income earned on our loans and investments less interest expense paid on our deposits and borrowings.

Changes in levels of interest rates impact our net interest income.

Changes in levels of interest rates may impact our net interest income.

A secondary source of income for the Company is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, debit card interchange income, mortgage banking income, treasury and other commercial banking related fees, earnings from bank-owned life insurance, loan servicing income, earnings from equity and partnership investments, and gains and losses from the sale of loans and securities.

An offset to net interest income is the provision for credit losses, which represents the periodic charge to operations required to adequately provide for probable losses inherent in our loan, unfunded commitments and investment portfolios through the ACL.

A recapture of previously recognized provision for credit losses may be recorded if forecasted macroeconomic factors improve, underlying balances decrease, or recoveries of amounts previously charged off are received.

1 unchanged sentence

Recent Regulatory Developments

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 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.

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.

On March 19, 2026, the federal banking agencies issued several proposals to revise the U.S.

regulatory capital framework.

The proposals would, among other things, modify aspects of the standardized approach to risk-based capital that applies to the Company, including by making the risk weights for certain residential mortgage exposures more risk sensitive and decreasing the risk weights of corporate exposures, which could affect certain aspects of the Company’s regulatory capital calculations.

The Company is continuing to evaluate these proposals and their potential impact on its regulatory capital position.

Critical Accounting Policies

There are no material changes to the critical accounting policies from those disclosed in the Company's 2025 Form 10-K.

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 $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.

Comparison of Financial Condition at March 31, 2026 and December 31, 2025

Total assets increased to $2.13 billion, or 1.2%, at March 31, 2026, from $2.11 billion at December 31, 2025.

Cash and cash equivalents increased by $19.0 million, or 22.3%, to $104.1 million as of March 31, 2026, compared to $85.1 million as of December 31, 2025.

Investment securities increased $2.7 million, or 1.0%, to $273.0 million at March 31, 2026, from $270.3 million at December 31, 2025.

Purchases totaling $11.1 million were partially offset by maturities totaling $3.3 million, regular principal payments totaling $3.9 million and a $1.2 million increase in net unrealized losses during the three months ended March 31, 2026.

The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 6.8 years as of March 31, 2026 and 6.5 years as of December 31, 2025, and had an estimated average repricing term of 5.7 years as of March 31, 2026, compared to 6.7 years as of December 31, 2025, based on the interest rate environment at those times.

The effective duration of the investment portfolio was 4.7 years at March 31, 2026, compared to 4.6 years at December 31, 2025.

The investment portfolio was comprised of 55.1% in amortizing securities at March 31, 2026, compared to 54.2% at December 31, 2025.

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.

If prevailing market interest rates fall, we expect prepayments to accelerate due to the current coupons of fixed rate bonds.

We utilize our securities portfolio to manage liquidity, improve long-term interest income and manage interest rate risk.

We anticipate the investment portfolio will continue to provide supplemental interest income and act as a source of liquidity.

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 $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.

Net loans, excluding loans held for sale, increased $1.0 million, or 0.1%, to $1.61 billion at March 31, 2026, from $1.61 billion at December 31, 2025.

During the three months ended March 31, 2026, one-to-four family loans decreased $13.8 million during the three months ended March 31, 2026, as repayment activity exceeded $1.2 million in residential construction loans that converted to permanent amortizing loans and new loan originations totaling $450,000.

Multi-family loans decreased $17.6 million during the three months ended March 31, 2026, as prepayments and scheduled payments exceeded $1.8 million of new loan originations and $199,000 of construction loans converting into permanent amortizing loans.

Commercial real estate loans increased $560,000 during the three months ended March 31, 2026, with $4.5 million of new loan originations and $616,000 of construction loan conversions exceeding repayment activity.

Construction and land loans increased $1.1 million, or 1.8%, to $62.4 million at March 31, 2026, from $61.3 million at December 31, 2025, with draws on new and existing loan commitments totaling $11.4 million, partially offset by payment activity totaling $7.1 million and $2.0 million converting into fully amortizing loans.

Home equity loan outstanding balances increased $1.2 million over the prior year end due to $6.8 million of net draws on new and existing line of credit commitments and $1.5 million of home equity loan originations, partially offset by prepayments and scheduled payments.

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.

Auto and other consumer loans increased $7.5 million with auto loan purchases of $21.5 million and individual manufactured home loan purchases of $1.6 million, partially offset by prepayments and scheduled payments.

Commercial business loans increased $22.3 million, including a $23.0 million increase to our Northpointe Bank Mortgage Purchase Program ("Northpointe MPP") participation, $2.8 million of draws on existing line of credit commitments and $5.0 million of organic originations, partially offset by charge-offs totaling $1.2 million and other repayment activity.

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

3 unchanged sentences

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

September 30, 2025

(dollars in thousands)

North Olympic Peninsula (1)

1 unchanged sentence

Other Washington

(In thousands)

March 31, 2026

Construction Commitment

23 unchanged sentences

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

December 31, 2024

(dollars in thousands)

North Olympic Peninsula (1)

1 unchanged sentence

Other Washington

(In thousands)

December 31, 2025

Construction Commitment

23 unchanged sentences

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

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.

During the three months ended March 31, 2026, the Company added $29.9 million of organic loan originations, of which $14.4 million, or 48.1%, were located in the Puget Sound region, $13.4 million, or 44.9%, on the North Olympic Peninsula, and $2.1 million, or 7.0%, in other areas throughout Washington State.

The Company purchased an additional $21.5 million in auto loans and $1.6 million in manufactured home loans to borrowers located throughout the United States during the three months ended March 31, 2026.

The total loan portfolio was composed of 77.4% organic originations and 22.6% purchased loans at March 31, 2026.

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 $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.

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.

The ACLL decreased to $16.8 million at March 31, 2026, compared to $17.0 million at December 31, 2025.

A $256,000 reduction in the pooled loan reserve balance was driven by decreased loan balances in most categories 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 higher purchased auto and Northpointe MPP balances and higher loss factors applied to commercial real estate, multi-family and construction loan balances at the end of the current quarter.

The pooled loan reserve was impacted by a mild increase in gross domestic product, lower unemployment forecasts and a reduction in nonaccrual loans.

The reserve on individually analyzed loans increased $92,000 due to a commercial business loan new to the category with a reserve at period end.

The ACLL as a percentage of total loans was 1.03% and 1.04% at March 31, 2026 and December 31, 2025, 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 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 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, 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 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.

We believe the ACLL is adequate to cover current expected credit losses in the loan portfolio as of March 31, 2026.

Nonperforming loans decreased $896,000, or 4.0%, to $21.7 million at March 31, 2026, from $22.6 million at December 31, 2025.

Current quarter activity included principal payments totaling $806,000, payoffs totaling $776,000 and net recoveries on nonperforming loans totaling $505,000.

The decreases were partially offset by the transition into nonaccrual status of a residential mortgage, two auto loans, a commercial business loan and five other consumer loans totaling $1.2 million.

Nonperforming loans to total loans was 1.3% at March 31, 2026, compared to 1.4% at December 31, 2025.

The ACLL as a percentage of nonaccrual loans increased to 77.5% at March 31, 2026, up from 75.2% at December 31, 2025.

Classified loans decreased $685,000, or 1.9%, to $34.6 million at March 31, 2026, from $35.3 million at December 31, 2025, primarily due to payoffs totaling $653,000, principal payments totaling $567,000, net recoveries on previously charged-off loans totaling $501,000 and upgrades totaling $156,000.

The decreases were partially offset by downgrades of consumer loans totaling $566,000, a $524,000 residential mortgage loan and a $112,000 commercial business loan.

Four collateral-dependent loans totaling $26.5 million account for 77% of the classified loan balance at March 31, 2026.

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

In the first quarter of 2026, the Bank recorded net recoveries of $249,000 in commercial business loans.

Charge-offs of $226,000 to auto and other consumer loans, $171,000 to a commercial construction loan and $3,000 to commercial real estate loans partially offset the recoveries.

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 $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)

September 30, 2025

(dollars in thousands)

March 31, 2026

December 31, 2025

(In thousands)

One-to-four family

11 unchanged sentences

Increase (Decrease)

September 30, 2025

(dollars in thousands)

March 31, 2026

December 31, 2025

(In thousands)

Nonaccrual loans:

13 unchanged sentences

Commercial real estate

Construction and land

Commercial business

2 unchanged sentences

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

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.

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 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.

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 nine months of 2025.

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

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 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.

Total liabilities increased to $1.98 billion at March 31, 2026, from $1.95 billion at December 31, 2025, due to increases in borrowings of $20.0 million and deposits of $2.5 million.

Deposit account balances increased $2.5 million, or 0.2%, to $1.60 billion at March 31, 2026 from $1.60 billion at December 31, 2025.

During the first three months of 2026, total customer deposit balances increased $24.9 million and brokered deposit balances decreased $22.4 million.

Within customer deposit balances, increases in customer CDs of $11.9 million, demand deposit accounts of $7.5 million and savings accounts of $7.3 million were partially offset by decreases in money market accounts of $1.8 million.

The Bank utilizes 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.

Competition for deposits across the industry continues to pose deposit retention challenges.

Our focus continues to be on increasing core customer deposits, with an emphasis on small-to-medium sized business deposits, and maintaining a stable source of funding to reduce interest expense as a percentage of liabilities.

FHLB advances increased $20.0 million, or 7.7% to $280.0 million at March 31, 2026, from $260.0 million at December 31, 2025.

The short-term FHLB advances supported increased on balance sheet liquidity.

Total shareholders' equity decreased $298,000 to $157.0 million for the three months ended March 31, 2026, due to a decrease in the after-tax fair market values of the available-for-sale investment securities portfolio of $847,000, partially offset by a $295,000 increase in the investment portfolio hedge post-tax fair market value and net income of $6,000.

During the first three months of 2026, 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, 2026 and 2025

The Company recorded net income of $6,000 for the three months ended March 31, 2026, compared to a net loss of $9.0 million for the three months ended March 31, 2025.

A $7.7 million decrease in provision for credit losses, a $3.3 million decrease in noninterest expense and a $593,000 increase in net interest income were partially offset by a $1.8 million decrease in noninterest income and an $805,000 decrease in income tax benefit.

Net Interest Income.

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.

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.

Net interest income increased $593,000 to $14.4 million for the three months ended March 31, 2026, from $13.9 million for the three months ended March 31, 2025, as reduced deposit and borrowing costs outpaced declines in loan, investment and interest-earning deposit income.

The net interest margin increased 27 basis points to 3.03% for the three months ended March 31, 2026, compared to 2.76% for the same period in 2025.

Interest Income.

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 September 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 $1.9 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 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 September 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 $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 September 30,

(Dollars in thousands)

Total loans receivable

Net charge-offs

(Recapture of) provision for credit losses on loans

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 as a percentage of total loans receivable

Unfunded loan commitments

(Recapture of) provision for credit losses on unfunded commitments

Reserve for unfunded commitments

Noninterest Income.

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 September 30,

Increase (Decrease)

(Dollars in thousands)

Loan and deposit service fees

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

Net (loss) gain on sale of loans

Increase in BOLI cash surrender value

Total noninterest income

Noninterest Expense.

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 September 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 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 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 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.

Total interest income decreased $1.5 million, or 5.6%, to $25.3 million for the three months ended March 31, 2026, from $26.8 million for the comparable period in 2025.

Average earning assets decreased $101.5 million year-over-year.

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 $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 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 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 yield on average interest-earning assets decreased 3 basis points to 5.32% for the three months ended March 31, 2026, compared to 5.35% for the same period in the prior year.

Interest from investment securities decreased $1.2 million primarily due to the maturity of some higher-yielding investment securities during 2025.

Interest and fees on loans receivable decreased $231,000, to $22.0 million for the three months ended March 31, 2026, from $22.2 million for the three months ended March 31, 2025, primarily due to a decrease in the average balance of net loans receivable of $44.7 million and a change in the mix of loans compared to the prior year, partially offset by an increase in average loan yields to 5.59% for the three months ended March 31, 2026, from 5.49% for the same period in 2025.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

Average Balance Outstanding

1 unchanged sentence

(Decrease) Increase in Interest Income

(Dollars in thousands)

Loans receivable, net

3 unchanged sentences

Interest Expense.

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 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.

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.

Total interest expense decreased $2.1 million, or 16.0%, to $10.9 million for the three months ended March 31, 2026, compared to $13.0 million for the three months ended March 31, 2025.

The average cost of interest-bearing liabilities decreased 33 basis points to 2.72% for the three months ended March 31, 2026, compared to 3.05% for the same period last year.

Interest expense on deposits decreased $1.8 million due to a $70.9 million decrease in the average balance and a 40 basis point decrease in the cost of interest-bearing deposits.

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

Interest expense on borrowings decreased $275,000 due to a $30.4 million decrease in the average balance offset by a 5 basis point increase in the cost of borrowings, primarily FHLB advances, compared to the same period in 2025.

During the three months ended March 31, 2026, interest expense on brokered CDs decreased due to lower average balances of $88.2 million along with a 33 basis point decrease in the average rate paid, compared to the three months ended March 31, 2025.

Customer CDs represented 27.8% and 27.0% of total deposits at March 31, 2026 and 2025, respectively.

Brokered CDs represented 4.0% and 8.3% of total deposits at March 31, 2026 and 2025, respectively.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

Average Balance Outstanding

1 unchanged sentence

(Decrease) Increase in Interest Expense

(Dollars in thousands)

Interest-bearing demand deposits

6 unchanged sentences

Provision for Credit Losses.

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 Company recorded a $13,000 loan loss provision recapture offset by a $91,000 unfunded commitment provision for the three months ended March 31, 2026.

This compares to a $7.8 million loan loss provision and a $15,000 unfunded commitment provision for the three months ended March 31, 2025.

The current period recapture of provision for credit losses on loans reflects lower pooled reserve loan balances, changes in the loan portfolio composition and reduced nonperforming loans at March 31, 2026, partially offset by net charge-offs totaling $151,000 for the three-month period and an increase in the reserve on individually evaluated loans.

The higher unfunded commitment provision compared to the same period in 2025 was due to higher 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:

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

1 unchanged sentence

Net charge-offs

Provision for credit losses on loans

(Recapture of) provision for credit losses on loans

Allowance for credit losses on loans

4 unchanged sentences

Unfunded loan commitments

Recapture of provision for credit losses on unfunded commitments

Provision for credit losses on unfunded commitments

Reserve for unfunded commitments

Noninterest Income.

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.

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.

Noninterest income decreased $1.8 million, or 46.8%, to $2.0 million for the three months ended March 31, 2026, from $3.8 million for the three months ended March 31, 2025.

The prior year included a $1.1 million BOLI death benefit and an $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 following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:

Nine Months Ended September 30,

Three Months Ended March 31,

Increase (Decrease)

2 unchanged sentences

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

Net (loss) gain on sale of loans

Net loss on sale of investment securities

Net gain on sale of premises and equipment

Net gain on sale of loans

Increase in BOLI cash surrender value

2 unchanged sentences

Noninterest Expense.

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.

Noninterest expense decreased $3.3 million, or 16.6%, to $16.7 million for the three months ended March 31, 2026, compared to $20.0 million for the three months ended March 31, 2025.

The prior year included a $5.8 million legal settlement paid.

Legal expense included in professional fees increased $846,000 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.

Consulting costs included in professional fees increased $432,000 compared to the same period in 2025 as the Bank utilized outside resources to assist with key duties of certain open positions.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Increase (Decrease)

7 unchanged sentences

FDIC insurance premium

Legal settlement

Other expense

1 unchanged sentence

Provision for Income Tax.

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.

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

An income tax benefit of $320,000 was recorded for the three months ended March 31, 2026, compared to a benefit of $1.1 million for the three months ended March 31, 2025, due to a period-over-period increase in net loss before taxes of $9.9 million and adjustments related to the tax penalty estimate for the early surrender of BOLI contracts.

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.

1 unchanged sentence

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 September 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 March 31, 2026 and 2025.

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 September 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) 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 2.20% and 2.56% for the three months ended September 30, 2025 and 2024, respectively.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(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 ($896,000) and ($115,000) for the nine months ended September 30, 2025 and 2024, respectively.

(2) Interest earned on loans receivable includes net deferred costs of $633,000 and $338,000 for the three months ended March 31, 2026 and 2025, respectively.

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

(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.

(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.04% and 2.39% for the three months ended March 31, 2026 and 2025, respectively.

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

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2025 Compared to September 30, 2024

Increase (Decrease) Due to

March 31, 2026 Compared to March 31, 2025

Increase (Decrease) Due to

Total Increase (Decrease)

(dollars in thousands)

Total Increase (Decrease)

(In thousands)

Interest-earning assets:

15 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 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.

For the three months ended March 31, 2026 and the year ended December 31, 2025, 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 September 30, 2025, our scheduled maturities of contractual obligations were as follows:

At March 31, 2026, our scheduled maturities of contractual obligations were as follows:

After 1 Year Through

After 3 Years Through

(In thousands)

(dollars in thousands)

Certificates of deposit

7 unchanged sentences

Commitments and Off-Balance Sheet Arrangements

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

The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of March 31, 2026:

Amount of Commitment by Expiration

2 unchanged sentences

Total Amounts

(In thousands)

(dollars in thousands)

Commitments to originate loans:

12 unchanged sentences

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

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.

At March 31, 2026, cash and cash equivalents totaled $104.1 million and unpledged securities classified as available-for-sale had a market value of $223.0 million.

The Bank pledged collateral of $553.3 million to support borrowings from the FHLB, with a remaining borrowing capacity of $181.6 million at March 31, 2026.

The Bank also has an established discount window borrowing arrangement with the FRB, for which available-for-sale securities with a market value of $17.6 million were pledged as of March 31, 2026, providing a borrowing capacity of $16.9 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 $15.0 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 $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%.

The remaining borrowing capacity of the NexBank line of credit was $1.5 million at March 31, 2026.

At March 31, 2026, we had commitments to fund $408,000 in standby letters of credit and $166.9 million in undisbursed loans, including $44.1 million in undisbursed construction loan commitments.

CDs due within one year as of March 31, 2026, totaled $462.8 million, or 90.9% of CDs with a weighted-average rate of 3.69%.

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 65% of deposit account balances held by consumers, 22% held by business and 9% by public fund depositors, and 4% in brokered deposits.

The average deposit account balance, excluding brokered and public fund accounts, was $29,000 at September 30, 2025.

The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at March 31, 2026.

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 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.

At March 31, 2026, the Company, on an unconsolidated basis, had liquid assets of $6.6 million.

The Company may receive dividends or capital distributions from the Bank, although there may be regulatory limitations on the ability of the Bank to pay dividends.

Capital Resources

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.

At March 31, 2026, shareholders' equity totaled $157.0 million, or 7.4% of total assets.

Our book value per share of common stock was $16.52 at March 31, 2026, compared to $16.61 at December 31, 2025.

At March 31, 2026, 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, 2026.

Minimum Capital Requirements

6 unchanged sentences

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 5.7% at September 30, 2025, exceeding this requirement.

The Bank's capital conservation buffer was 5.5% at March 31, 2026, 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