Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as "anticipates," "assumes," "believes," "can," "continues," "could," "estimates," "expects," "forecasts," "goal," "intends," "likely," "may," "might," "objective," "plans," "potential," "projects," "remains," "should," "target," "trend," "will," "would," or similar expressions. Forward-looking statements include, but are not limited to:

	•	statements of our goals, intentions and expectations;
	•	statements regarding our business plans, prospects, growth and operating strategies;
	•	statements regarding the quality of our loan and investment portfolios;
	•	statements regarding litigation; and
	•	estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

	•	risks associated with lending and potential adverse changes in the credit quality of our loan portfolio;
	•	legislative, regulatory and policy changes;
	•	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;
	•	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;
	•	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; and
	•	other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q and the Company's 2024 Form 10-K.

Any of the forward-looking statements that we make in this report and in other statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot anticipate or predict. Any forward-looking statements are based upon management's beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. Due to these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.

General

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. 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. We offer a wide range of products and services focused on the lending, deposit and money movement needs of the communities we serve. To diversify our portfolio and increase interest income, we increased our origination of commercial real estate, multi-family real estate, and commercial business loans. We also increased our auto and consumer loans through purchased auto loan programs and purchased manufactured homes. We continue to originate one-to-four family residential mortgage loans, primarily for sale into the secondary market to generate noninterest gain on sale and servicing fee revenue and manage interest rate risk or retain select loans in our portfolio to enhance interest income. 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. Deposits are our primary source of funding for our lending and investing activities. First Fed has a limited partnership investment in the Canapi Ventures SBIC Fund II, LP. First Fed also has a limited partnership investment in the Meriwether Group Capital Hero Fund LP ("Hero Fund") which was previously held by First Northwest. 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; and JAM FINTOP Frontier Fund, LP. These limited partnerships invest in fintech-related businesses with a focus on developing digital solutions applicable to the banking industry. In 2022, First Northwest acquired a 33.3% 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. MWG also holds a 20% general partner interest in MWGC. MWGC holds a 0.01% general partner interest in the Hero Fund.

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. Deposit flows are influenced by various factors, including changes in market rates; sales and marketing efforts; interest rates paid by competitors; available alternative investments such as money market mutual funds, the stock and bond markets; account maturities; government stimulus and unemployment programs; and the overall level of personal income and savings. Lending activities are influenced by prevailing interest rates and property values in our markets, the demand for funds, the number and quality of lenders employed by First Fed, and both regional and national economic cycles.

Our primary source of pre-tax income is net interest income. 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. 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.

Noninterest expenses incurred in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, professional fees, deposit insurance premiums and regulatory assessments, digital delivery and data processing expenses, marketing and other customer acquisition expenses, expenses related to real estate and personal property owned, state and local taxes, federal income tax, and other miscellaneous expenses.

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.

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 September 30, 2025 and December 31, 2024

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

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

September 30, 2025		North Olympic Peninsula (1)				Puget Sound Region (2)				Other Washington				California				Total
		(In thousands)
Construction Commitment
One-to-four family residential		$	7,168			$	23,984			$	356			$	-			$	31,508
Multi-family residential			3,889				21,113				3,166				-				28,168
Commercial real estate			-				30,510				4,940				7,841				43,291
Total commitment		$	11,057			$	75,607			$	8,462			$	7,841			$	102,967
Construction Funds Disbursed
One-to-four family residential		$	4,011			$	19,103			$	1			$	-			$	23,115
Multi-family residential			2,434				11,000				2,396				-				15,830
Commercial real estate			-				19,419				3,505				521				23,445
Total disbursed for construction			6,445				49,522				5,902				521				62,390
Net deferred fees (costs)			11				(255	)			(13	)			(27	)			(284	)
Amortized cost for construction		$	6,456			$	49,267			$	5,889			$	494			$	62,106
Undisbursed Commitment
One-to-four family residential		$	3,157			$	4,881			$	355			$	-			$	8,393
Multi-family residential			1,455				10,113				770				-				12,338
Commercial real estate			-				11,091				1,435				7,320				19,846
Total undisbursed		$	4,612			$	26,085			$	2,560			$	7,320			$	40,577
Land Funds Disbursed
One-to-four family residential		$	1,978			$	1,814			$	122			$	-			$	3,914
Commercial real estate			900				845				-				-				1,745
Total disbursed for land			2,878				2,659				122				-				5,659
Net deferred fees			19				6				3				-				28
Amortized cost for land		$	2,897			$	2,665			$	125			$	-			$	5,687

(1) Includes Clallam and Jefferson counties.

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

December 31, 2024		North Olympic Peninsula (1)				Puget Sound Region (2)				Other Washington				Total
		(In thousands)
Construction Commitment
One-to-four family residential		$	6,897			$	45,945			$	1,424			$	54,266
Multi-family residential			3,900				14,828				5,695				24,423
Commercial real estate			500				40,259				4,215				44,974
Total commitment		$	11,297			$	101,032			$	11,334			$	123,663
Construction Funds Disbursed
One-to-four family residential		$	1,769			$	35,711			$	1,424			$	38,904
Multi-family residential			709				10,245				4,582				15,536
Commercial real estate			99				16,508				900				17,507
Total disbursed for construction			2,577				62,464				6,906				71,947
Net deferred fees (costs)			2				(329	)			(37	)			(364	)
Amortized cost for construction		$	2,579			$	62,135			$	6,869			$	71,583
Undisbursed Commitment
One-to-four family residential		$	5,128			$	10,234			$	-			$	15,362
Multi-family residential			3,191				4,583				1,113				8,887
Commercial real estate			401				23,751				3,315				27,467
Total undisbursed		$	8,720			$	38,568			$	4,428			$	51,716
Land Funds Disbursed
One-to-four family residential		$	2,349			$	2,183			$	213			$	4,745
Commercial real estate			900				845				-				1,745
Total disbursed for land			3,249				3,028				213				6,490
Net deferred fees			18				14				5				37
Amortized cost for land		$	3,267			$	3,042			$	218			$	6,527

(1) Includes Clallam and Jefferson counties.

(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. 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. 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. 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				December 31, 2024				Amount				Percent
		(In thousands)
Real Estate:
One-to-four family		$	382,486			$	395,315			$	(12,829	)			(3.2	)%
Multi-family			296,321				332,596				(36,275	)			(10.9	)
Commercial real estate			396,519				390,379				6,140				1.6
Construction and land			67,793				78,110				(10,317	)			(13.2	)
Total real estate loans			1,143,119				1,196,400				(53,281	)			(4.5	)
Consumer:
Home equity			86,629				79,054				7,575				9.6
Auto and other consumer			280,224				268,876				11,348				4.2
Total consumer loans			366,853				347,930				18,923				5.4
Commercial business loans			113,160				151,493				(38,333	)			(25.3	)
Total loans receivable			1,623,132				1,695,823				(72,691	)			(4.3	)
Less:
Derivative basis adjustment			(896	)			188				(1,084	)			(576.6	)
Allowance for credit losses on loans			16,203				20,449				(4,246	)			(20.8	)
Loans receivable, net		$	1,607,825			$	1,675,186			$	(67,361	)			(4.0	)

The following table summarizes nonperforming assets at the dates indicated:

										Increase (Decrease)
		September 30, 2025				December 31, 2024				Amount				Percent
		(In thousands)
Nonaccrual loans:
Real estate loans:
One-to-four family		$	2,345			$	1,477			$	868				58.8	%
Commercial real estate			3,439				5,598				(2,159	)			(38.6	)
Construction and land			6,037				19,544				(13,507	)			(69.1	)
Total real estate loans			11,821				26,619				(14,798	)			(55.6	)
Consumer loans:
Home equity			9				55				(46	)			(83.6	)
Auto and other consumer			1,072				700				372				53.1
Total consumer loans			1,081				755				326				43.2
Commercial business			470				3,141				(2,671	)			(85.0	)
Total nonaccrual loans			13,372				30,515				(17,143	)			(56.2	)
Real estate owned:
One-to-four family			1,377				-				1,377				100.0
Total nonperforming assets		$	14,749			$	30,515			$	(15,766	)			(51.7	)
MLTB loans:
Commercial real estate		$	10,091			$	6,402			$	3,689				57.6
Construction and land			4,530				-				4,530				100.0
Commercial business			8				111				(103	)			(92.8	)
Total restructured loans		$	14,629			$	6,513			$	8,116				124.6
Nonaccrual loans as a percentage of total loans			0.82	%			1.80	%			(0.98	)%			(54.4	)
Nonperforming MLTB loans included in total nonaccrual loans and total restructured loans above		$	3,443			$	111			$	3,332				3001.8	%

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.

Liabilities. 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.

Equity. 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

General. 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 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.

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,
		2025								2024
		Average Balance Outstanding				Yield				Average Balance Outstanding				Yield				(Decrease) Increase in Interest Income
		(Dollars in thousands)
Loans receivable, net		$	1,632,684				5.54	%		$	1,699,302				5.51	%		$	(722	)
Investment securities			293,723				4.38				307,623				4.90				(542	)
FHLB stock			12,810				8.73				12,697				9.46				(20	)
Interest-earning deposits in banks			50,150				4.51				42,348				5.47				(12	)
Total interest-earning assets		$	1,989,367				5.37			$	2,061,970				5.44			$	(1,296	)

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,
		2025								2024
		Average Balance Outstanding				Rate				Average Balance Outstanding				Rate				(Decrease) Increase in Interest Expense
		(Dollars in thousands)
Interest-bearing demand deposits		$	141,469				0.15	%		$	166,846				0.45	%		$	(135	)
Money market accounts			464,265				2.42				431,346				2.65				(43	)
Savings accounts			231,431				1.57				224,159				1.64				(9	)
Certificates of deposit, customer			443,312				3.74				415,450				4.16				(165	)
Certificates of deposit, brokered			103,959				4.24				215,016				4.88				(1,525	)
Advances			265,554				4.35				255,348				4.41				81
Subordinated debt			34,617				3.95				39,484				3.97				(49	)
Total interest-bearing liabilities		$	1,684,607				2.91			$	1,747,649				3.23			$	(1,845	)

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,
		2025				2024
		(Dollars in thousands)
Total loans receivable		$	1,623,132			$	1,734,807
Net charge-offs			(1,522	)			(450	)
(Recapture of) provision for credit losses on loans			(620	)			3,077
Allowance for credit losses on loans			16,203				21,970
Allowance for credit losses on loans as a percentage of total loans receivable at period end			1.00	%			1.27	%
Total nonaccrual loans			13,372				30,376
Allowance for credit losses on loans as a percentage of nonaccrual loans at period end			121	%			72	%
Nonaccrual loans as a percentage of total loans receivable			0.82	%			1.75	%
Unfunded loan commitments		$	158,118			$	166,446
(Recapture of) provision for credit losses on unfunded commitments			(53	)			57
Reserve for unfunded commitments			497				704

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)
		2025				2024				Amount				Percent
		(Dollars in thousands)
Loan and deposit service fees		$	1,114			$	1,059			$	55				5.2	%
Sold loan servicing fees and servicing rights mark-to-market			85				10				75				750.0
Net (loss) gain on sale of loans			(39	)			58				(97	)			(167.2	)
Increase in BOLI cash surrender value			539				315				224				71.1
Other income			303				337				(34	)			(10.1	)
Total noninterest income		$	2,002			$	1,779			$	223				12.5

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)
		2025				2024				Amount				Percent
		(Dollars in thousands)
Compensation and benefits		$	8,353			$	8,582			$	(229	)			(2.7	)%
Data processing			1,941				2,085				(144	)			(6.9	)
Occupancy and equipment			1,505				1,553				(48	)			(3.1	)
Supplies, postage, and telephone			344				360				(16	)			(4.4	)
Regulatory assessments and state taxes			558				548				10				1.8
Advertising			282				409				(127	)			(31.1	)
Professional fees			2,668				698				1,970				282.2
FDIC insurance premium			411				533				(122	)			(22.9	)
Other expense			1,328				1,080				248				23.0
Total noninterest expense		$	17,390			$	15,848			$	1,542				9.7

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

General. 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.

Average earning assets decreased $43.7 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 following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:

		Nine Months Ended September 30,
		2025								2024
		Average Balance Outstanding				Yield				Average Balance Outstanding				Yield				(Decrease) Increase in Interest Income
		(Dollars in thousands)
Loans receivable, net		$	1,637,919				5.54	%		$	1,686,546				5.55	%		$	(2,177	)
Investment securities			312,525				4.50				310,653				4.89				(854	)
FHLB stock			13,241				9.29				13,397				9.39				(22	)
Interest-earning deposits in banks			46,651				4.51				43,456				5.53				(226	)
Total interest-earning assets		$	2,010,336				5.38			$	2,054,052				5.47			$	(3,279	)

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.

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

		Nine Months Ended September 30,
		2025								2024
		Average Balance Outstanding				Rate				Average Balance Outstanding				Rate				(Decrease) Increase in Interest Expense
		(Dollars in thousands)
Interest-bearing demand deposits		$	158,020				0.47	%		$	165,816				0.46	%		$	(15	)
Money market accounts			441,125				2.38				404,845				2.39				593
Savings accounts			225,665				1.53				229,180				1.63				(210	)
Certificates of deposit, customer			448,955				3.90				417,716				4.13				180
Certificates of deposit, brokered			128,672				4.48				210,186				4.92				(3,428	)
Advances			273,359				4.31				274,475				4.64				(716	)
Subordinated debt			35,849				4.01				39,465				4.00				(109	)
Total interest-bearing liabilities		$	1,711,645				2.99			$	1,741,683				3.22			$	(3,705	)

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 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,
		2025				2024
		(Dollars in thousands)
Total loans receivable		$	1,623,132			$	1,734,807
Net charge-offs			(11,100	)			(8,496	)
Provision for credit losses on loans			6,854				12,956
Allowance for credit losses on loans			16,203				21,970
Allowance for credit losses on loans as a percentage of total loans receivable at period end			1.00	%			1.27	%
Total nonaccrual loans			13,372				30,376
Allowance for credit losses on loans as a percentage of nonaccrual loans at period end			121	%			72	%
Nonaccrual loans as a percentage of total loans receivable			0.82	%			1.75	%
Unfunded loan commitments		$	158,118			$	166,446
Recapture of provision for credit losses on unfunded commitments			(102	)			(113	)
Reserve for unfunded commitments			497				704

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.

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,								Increase (Decrease)
		2025				2024				Amount				Percent
		(Dollars in thousands)
Loan and deposit service fees		$	3,315			$	3,237			$	78				2.4	%
Sold loan servicing fees and servicing rights mark-to-market			372				303				69				22.8
Net (loss) gain on sale of loans			16				260				(244	)			(93.8	)
Net loss on sale of investment securities			-				(2,117	)			2,117				(100.0	)
Net gain on sale of premises and equipment			-				7,919				(7,919	)			(100.0	)
Increase in BOLI cash surrender value			1,396				851				545				64.0
Income from BOLI death benefit, net			1,059				-				1,059				100.0
Other income			1,791				861				930				108.0
Total noninterest income		$	7,949			$	11,314			$	(3,365	)			(29.7	)

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.

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

		Nine Months Ended September 30,								Increase (Decrease)
		2025				2024				Amount				Percent
		(Dollars in thousands)
Compensation and benefits		$	20,766			$	25,298			$	(4,532	)			(17.9	)%
Data processing			5,878				6,037				(159	)			(2.6	)
Occupancy and equipment			4,604				4,592				12				0.3
Supplies, postage, and telephone			988				970				18				1.9
Regulatory assessments and state taxes			1,538				1,518				20				1.3
Advertising			846				1,095				(249	)			(22.7	)
Professional fees			4,894				2,292				2,602				113.5
FDIC insurance premium			1,308				1,392				(84	)			(6.0	)
Other expense			9,333				2,566				6,767				263.7
Total noninterest expense		$	50,155			$	45,760			$	4,395				9.6

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. For additional information, see Note 7 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Average Balances, Interest and Average Yields/Cost

The following tables set forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the net spread as of 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 September 30,
		2025												2024
		Average				Interest								Average				Interest
		Balance				Earned/				Yield/				Balance				Earned/				Yield/
		Outstanding				Paid				Rate				Outstanding				Paid				Rate
		(Dollars in thousands)
Interest-earning assets:
Loans receivable, net (1) (2)		$	1,632,684			$	22,814				5.54	%		$	1,699,302			$	23,536				5.51	%
Total investment securities			293,723				3,244				4.38				307,623				3,786				4.90
FHLB dividends			12,810				282				8.73				12,697				302				9.46
Interest-earning deposits in banks			50,150				570				4.51				42,348				582				5.47
Total interest-earning assets (3)			1,989,367				26,910				5.37				2,061,970				28,206				5.44
Noninterest-earning assets			146,042												147,363
Total average assets		$	2,135,409											$	2,209,333
Interest-bearing liabilities:
Interest-bearing demand deposits		$	141,469			$	52				0.15			$	166,846			$	187				0.45
Money market accounts			464,265				2,832				2.42				431,346				2,875				2.65
Savings accounts			231,431				914				1.57				224,159				923				1.64
Certificates of deposit, customer			443,312				4,175				3.74				415,450				4,340				4.16
Certificates of deposit, brokered			103,959				1,110				4.24				215,016				2,635				4.88
Total interest-bearing deposits (4)			1,384,436				9,083				2.60				1,452,817				10,960				3.00
Advances			265,554				2,913				4.35				255,348				2,832				4.41
Subordinated debt			34,617				345				3.95				39,484				394				3.97
Total interest-bearing liabilities			1,684,607				12,341				2.91				1,747,649				14,186				3.23
Noninterest-bearing deposits (4)			251,448												252,911
Other noninterest-bearing liabilities			47,978												48,294
Total average liabilities			1,984,033												2,048,854
Average equity			151,376												160,479
Total average liabilities and equity		$	2,135,409											$	2,209,333
Net interest income						$	14,569											$	14,020
Net interest rate spread											2.46												2.21
Net earning assets		$	304,760											$	314,321
Net interest margin (5)											2.91												2.70
Average interest-earning assets to average interest-bearing liabilities			118.1	%											118.0	%

(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,
		2025												2024
		Average				Interest								Average				Interest
		Balance				Earned/				Yield/				Balance				Earned/				Yield/
		Outstanding				Paid				Rate				Outstanding				Paid				Rate
		(Dollars in thousands)
Interest-earning assets:
Loans receivable, net (1) (2)		$	1,637,919			$	67,859				5.54	%		$	1,686,546			$	70,036				5.55	%
Total investment securities			312,525				10,513				4.50				310,653				11,367				4.89
FHLB dividends			13,241				920				9.29				13,397				942				9.39
Interest-earning deposits in banks			46,651				1,572				4.51				43,456				1,798				5.53
Total interest-earning assets (3)			2,010,336				80,864				5.38				2,054,052				84,143				5.47
Noninterest-earning assets			147,755												144,285
Total average assets		$	2,158,091											$	2,198,337
Interest-bearing liabilities:
Interest-bearing demand deposits		$	158,020			$	552				0.47			$	165,816			$	567				0.46
Money market accounts			441,125				7,837				2.38				404,845				7,244				2.39
Savings accounts			225,665				2,581				1.53				229,180				2,791				1.63
Certificates of deposit, customer			448,955				13,093				3.90				417,716				12,913				4.13
Certificates of deposit, brokered			128,672				4,309				4.48				210,186				7,737				4.92
Total interest-bearing deposits (4)			1,402,437				28,372				2.70				1,427,743				31,252				2.92
Advances			273,359				8,809				4.31				274,475				9,525				4.64
Subordinated debt			35,849				1,074				4.01				39,465				1,183				4.00
Total interest-bearing liabilities			1,711,645				38,255				2.99				1,741,683				41,960				3.22
Noninterest-bearing deposits (4)			246,252												251,218
Other noninterest-bearing liabilities			48,656												43,633
Total average liabilities			2,006,553												2,036,534
Average equity			151,538												161,803
Total average liabilities and equity		$	2,158,091											$	2,198,337
Net interest income						$	42,609											$	42,183
Net interest rate spread											2.39												2.25
Net earning assets		$	298,691											$	312,369
Net interest margin (5)											2.83												2.74
Average interest-earning assets to average interest-bearing liabilities			117.5	%											117.9	%

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

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

		Three Months Ended												Nine Months Ended
		September 30, 2025 Compared to September 30, 2024												September 30, 2025 Compared to September 30, 2024
		Increase (Decrease) Due to												Increase (Decrease) Due to
		Volume				Rate				Total Increase (Decrease)				Volume				Rate				Total Increase (Decrease)
		(In thousands)
Interest-earning assets:
Loans receivable, net		$	(885	)		$	163			$	(722	)		$	(2,037	)		$	(140	)		$	(2,177	)
Investments			(165	)			(377	)			(542	)			63				(917	)			(854	)
FHLB stock			3				(23	)			(20	)			(12	)			(10	)			(22	)
Other (1)			108				(120	)			(12	)			131				(357	)			(226	)
Total interest-earning assets		$	(939	)		$	(357	)		$	(1,296	)		$	(1,855	)		$	(1,424	)		$	(3,279	)
Interest-bearing liabilities:
Interest-bearing demand deposits		$	(29	)		$	(106	)		$	(135	)		$	(27	)		$	12			$	(15	)
Money market accounts			223				(266	)			(43	)			637				(44	)			593
Savings accounts			31				(40	)			(9	)			(42	)			(168	)			(210	)
Certificates of deposit, customer			298				(463	)			(165	)			958				(778	)			180
Certificates of deposit, brokered			(1,361	)			(164	)			(1,525	)			(3,003	)			(425	)			(3,428	)
Advances			117				(36	)			81				(40	)			(676	)			(716	)
Subordinated debt			(48	)			(1	)			(49	)			(110	)			1				(109	)
Total interest-bearing liabilities		$	(769	)		$	(1,076	)		$	(1,845	)		$	(1,627	)		$	(2,078	)		$	(3,705	)
Change in net interest income		$	(170	)		$	719			$	549			$	(228	)		$	654			$	426

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

Off-Balance Sheet Activities

In the normal course of operations, First Fed engages in a variety of financial transactions that are not recorded in the financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. For the 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 September 30, 2025, our scheduled maturities of contractual obligations were as follows:

		Within				After 1 Year Through				After 3 Years Through				Beyond				Total
		1 Year				3 Years				5 Years				5 Years				Balance
		(In thousands)
Certificates of deposit		$	448,082			$	91,009			$	4,052			$	-			$	543,143
FHLB advances			115,000				95,000				-				-				210,000
Line of credit			15,000				-				-				-				15,000
Subordinated debt obligation			-				-				-				34,625				34,625
Operating leases			2,078				4,276				3,974				16,641				26,969
Borrower taxes and insurance			2,356				-				-				-				2,356
Deferred compensation			290				279				278				682				1,529
Total contractual obligations		$	582,806			$	190,564			$	8,304			$	51,948			$	833,622

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:

		Amount of Commitment by Expiration
		Within				After 1 Year Through				After 3 Years Through				Beyond				Total Amounts
		1 Year				3 Years				5 Years				5 Years				Committed
		(In thousands)
Commitments to originate loans:
Variable-rate		$	6,847			$	-			$	-			$	-			$	6,847
Unfunded commitments under lines of credit			21,222				12,424				6,377				77,518				117,541
Unfunded commitments under existing construction loans			30,462				10,115				-				-				40,577
Standby letters of credit			208				-				-				200				408
Unfunded commitments under partnership agreements			2,540				-				-				-				2,540
Total commitments		$	61,279			$	22,539			$	6,377			$	77,718			$	167,913

Liquidity Management

Liquidity is the ability to meet current and future short-term and long-term financial obligations. Our primary sources of funds consist of investment security principal and interest payments, customer and brokered deposit inflows, loan repayments and maturities, sales of securities, borrowings from the FHLB and utilization of the NexBank line of credit. 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 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 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 $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. We can attract and retain deposits by adjusting the interest rates offered and through sales and marketing efforts in the markets we serve. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on CDs. We believe that our branch network, and the general cash flows from our existing lending and investment activities, will provide adequate short-term and long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.

First Fed has a diversified deposit base with approximately 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 $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. Management believes that maintaining a diversified deposit base is an important factor in managing and maintaining adequate levels of liquidity.

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

		Actual								Minimum Capital Requirements								Minimum Required to be Well-Capitalized
		Amount				Ratio				Amount				Ratio				Amount				Ratio
										(Dollars in thousands)
Tier 1 leverage capital (to average assets)		$	200,624				9.3	%		$	86,091				4.0	%		$	107,613				5.0	%
Common equity tier 1 (to risk-weighted assets)			200,624				12.7				71,393				4.5				103,123				6.5
Tier 1 risk-based capital (to risk-weighted assets)			200,624				12.7				95,190				6.0				126,920				8.0
Total risk-based capital (to risk-weighted assets)			216,586				13.7				126,920				8.0				158,650				10.0

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.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented in this report have been prepared according to GAAP, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that general inflation may have on both short-term and long-term interest rates. Unlike companies in many other industries, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.