FNWB 10-K & 10-Q changes, risk factors and insider trading

AdverseOur business and operations are concentrated in Washington, and adverse economic conditions in marketthat areas we servearea could adversely impact our earnings and could increase the credit risk associated with our loan portfolio.

A decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected. Adverse changes in the regional and general economy could reduce our growth rate, impair our ability to collect loans, and generally have a negative effect on our business, financial condition and results of operations.

Deposit flows are influenced by various factors, including customer relationships, sales and marketing efforts, interest rates paid by competitors, alternative investments such as money market mutual funds, equities and bonds, government stimulus programs, and the overall levels of business and personal income and savings. The current elevated interest rate environment has increasedimpacts competition for deposits across the banking industry, and deposit balances may decrease if customers perceive alternative investments as providing a better risk/return tradeoff.tradeoff or if customers turn to other alternatives to deposits, such as stablecoins.

Public health crises, geopolitical developments, acts of terrorism, natural disasters, climate change and other externalevents factorsout of our control could harm our business.

Public health crises, domestic or geopolitical crises, such as the current wars in Ukraine and the Middle East, political instability or civil unrest, terrorism, human errorterrorism or other events outside of our control, could cause disruptions to our business and those of our customers, counterparties and service providers or the United States'U.S.' economy, resulting in potentially adverse operating results. Natural disasters may disrupt our operations,operations and those of our customers, counterparties and service providers, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate. Climate change may worsen the severity and impact of future natural disasters and other extreme weather-related events that could cause disruption to our business and operations. Chronic results of climate change such as shifting weather patterns could also cause disruption to the business and operations of our customers, with potentially negative effects on our loan portfolio and growth opportunities. A significant natural disaster, such as a tsunami, earthquake, drought, fire or flood, where we or our customers live and do business, could have a material adverse impact on our local market areas and our ability to conduct business, especially if our insurance coverage is insufficient to compensate for losses that may occur. We also could be adversely affected if our key personnel or a significant number of our employees were to become unavailable due to a public health crisis (such as an outbreak of a contagious disease), natural disaster, war, act of terrorism, accident or other reason. The effects of any of the foregoing factors could have a material adverse effect on our business, operations,financial condition and financialresults condition.of operations.

Our increased emphasis on commercial real estate lending subjects us to various risks that could adversely impact our results of operations and financial condition.

We have increased the amount of ourOur commercial real estate and multi-family loans torepresent a significant portion of our portfolio, with balances of $691.2 million, or 42.5%, of our total loan portfolio, at December 31, 2025, and $723.0 million, or 42.6%, of our total loan portfolio, at December 31, 2024, from $721.1 million, or 43.4%, of our total loan portfolio at December 31, 2023.2024. We intend to continue to increase,continue, subject to market demand, our origination and purchase of commercial real estate loans. As an institution’s concentration in commercial real estate lending increases, it becomes subject to more scrutiny under the FDIC's policies for management of its commercial real estate loan portfolio.

Our increased focus on this type of lending has increased our risk profile. Commercial real estate loans are intended to enhance the average yield of our earning assets; however, they do involve a different level of risk compared to one-to-four family loans. The repayment of commercial real estate loans typically depends on the successful operation and income stream of the borrowers’ operating business, or their ability to lease the commercial property at sufficient rates. The value of the commercial real estate securing the loan as collateral is a secondary source of repayment in case of default, which can be significantly affected by economic conditions. The FDIC has issued pronouncements alerting banks of its concerns about banks with a heavy concentration of commercial real estate loans. Moreover, federal bank regulators have highlighted the increased risk associated with commercial real estate loans, including with respect to the higher vulnerability of these credits to pressure as interest rates remain elevated and market conditions in many metropolitan areas continue to show signs of stress. These loans also involve larger balances to a single borrower or groups of related borrowers. Some of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development on a single one-to-four family residential mortgage loan.

Since commercial real estate loans generally have large balances, deterioration in the quality of commercial loans may result in the need to significantly increase our provision for credit losses on loans and charge-offs will likely be larger on a per loan basis compared to consumer loans. As a result, deterioration of this portfolio could have a materially adverse effect on our future earnings. Collateral evaluation and financial statement analysis for commercial loans also requires a more detailed review at origination and on an ongoing basis. Finally, if we foreclose on a commercial real estate loan, our holding period for the collateral is typically longer than for a one-to-four family residence because the market for most types of commercial real estate is not readily liquid, resulting in less opportunity to mitigate credit risk by selling part or all of our interest in these assets. At December 31, 2024,2025, we had $5,598,000$9.8 million of nonperforming commercial real estate loans and $0 of nonperforming multi-family loans in our portfolio.

First Fed has extended significant amounts of credit to certainborrowers borrowers, largely in connectionconnected with high-end residential real estate and commercial and multi-family real estate loans. These types of loans generally are viewed as having more risk of default than residential real estate loans or certain other types of loans or investments. In fact, the FDIC has issued pronouncements alerting banks of its concern about significant loan concentrations. At December 31, 2024,2025, the aggregate amount of loans, including unused commitments, to First Fed's five largest borrowers (including related entities) amounted to approximately $95.9$88.8 million. Outstanding loan balances for the ten largest borrowing relationships at December 31, 2024,2025, totaled $165.7$146.5 million, or 9.8%9.0% of total loans. Although only onenone of the loans to First Fed's 20 largest borrowers waswere nonperforming as of December 31, 2024,2025, concentration of credit to a limited number of borrowers increases the risk in First Fed's loan portfolio. IfThe deterioration of one or morea few of these borrowersloans ismay notcause ablea tosignificant serviceincrease in our non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the contractualprovision repayment,for theloan potentiallosses, lossor toan Firstincrease Fedin isloan morecharge-offs, likelyany toof which would have a materialan adverse impactimpact, which could be material, on our business, financial condition and results of operations.

During the year ended December 31, 2024,2025, our construction and land loans decreased $51.6$16.8 million, or 39.8%,21.6%, to $78.1$61.3 million, or 4.6%,3.8%, of the total loan portfolio at December 31, 20242025 and consisted of properties secured by multi-familycommercial real estate of $15.4$23.0 million, one-to-four family residential of $38.9$22.0 million, commercial real estatemulti-family of $17.3$10.1 million, and land of $6.5$6.2 million. Land loans include raw land and land acquisition and development loans.

In addition, during the term of most of our construction loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve. As a result, these loans often involve the disbursement of funds with repayment substantially dependent on the successful outcome of the project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold, which also complicates the process of working out problem construction loans. Under these circumstances we may be required to advance additional funds and/or contract with another builder to complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully recover unpaid loan funds and associated construction and liquidation costs. Any of these results could have a material and adverse effect on our business, financial condition and results of operations.

For home equity lines secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan balances in the event of default unless we repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property. For these reasons we may experience higher rates of delinquencies, default and losses on loans secured by junior liens. Any of these results could have a material and adverse effect on our business, financial condition and results of operations.

At December 31, 2024,2025, our nonperforming assets, which consist of nonaccrual loans, real estate owned and repossessed assets, were $30.5$24.0 million, or 1.4%1.1% of total assets. Our level of nonperforming assets is closely tied to the overall credit quality of our loan portfolio and the creditworthiness of our borrowers. Adverse changes in economic conditions, borrower financial performance, collateral values or other factors affecting credit risk could result in an increase in delinquencies, defaults and nonaccrual loans. Nonperforming assets adversely affect our net income in various ways. If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.

We have and may continue to make minority investments in fintech and specialty finance companies or make investments in funds that do the same. For example, weWe currently have investments in Canapi Venture Fund, LP,Venture, BankTech Ventures, LP and JAM FINTOP Blockchain,Frontier Fund, LP to strategically invest in fintech-related businesses. In addition, we have invested in Meriwether Group Capital Hero Fund LP, Meriwether Group Capital, LLC and The Meriwether Group, LLC, which provide funding and services to lower-middle market businesses and entrepreneurs. We generally are not able to influence the activities of companies or funds in which we invest and may suffer losses due to these activities. For example, in 2021 we entered into a joint venture with Quin Ventures, Inc. and Peace of Mind, Inc., which ultimately resulted in the Company writing off the related investment. In addition, the companies or funds we invest in may have economic or business interests, values, or goals that are inconsistent or conflict with ours, which could damage our reputation or business. Additionally, the companies or funds we invest in may experience financial difficulties, default on their obligations, diminished liquidity or insolvency; or our management team’s distraction relative to the potential financial benefit may be disproportional. If the companies we invest in, directly or indirectly, seek additional financing in the future to fund their growth strategies, these financing transactions may result in dilution to our ownership stakes and these transactions may occur at lower valuations than the investment transaction through which we acquired such ownership interest, which could significantly decrease the fair value of our investment in those entities. We may also be unable to dispose of our minority investments within our contemplated time horizon or at all or withdraw our investment from funds in which we participate. Our inability to dispose of our minority investment in an entity, a downward adjustment to or impairment of an equity investment or our inability to access funds otherwise invested could adversely impact our business, financial condition, results of operations, or cash flows.

We obtainupdate updatedour valuationsvaluation assessments in the form of appraisals and tax assessed values when a loan has been foreclosed and the property taken in as real estate owned and at certain other times during the asset’s holding period. Our net book value of the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s net book value over its fair value. If our valuation process is incorrect, or if property values decline, the fair value of our real estate owned may not be sufficient to recover our carrying value in such assets, resulting in the need for additional charge-offs. In addition, bank regulators periodically review our real estate owned and may require us to recognize further charge-offs. Significant charge-offs to our real estate owned could have a material adverse effect on our financial condition and results of operations.

We are subject to certain risks in connection with our use of networks and technology systemssystems.

Our security measures may not be sufficient to mitigate the risk of a cyber-attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have a security impact. If one or more of these events occur, this could jeopardize our or our customers’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage. Notwithstanding the strength of defensive measures, cybersecurity threats and the tactics, techniques and procedures used in cyberattacks change, develop and evolve rapidly and continuously, including from emerging technologies, such as artificial intelligence, which may be used to enhance the tactics, techniques and procedures described above and facilitate new cyber threats.

Security breaches in our internet banking activities could further expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant legal liability, heightened regulatory scrutiny or fines, violations of consumer protection and privacy laws, and significant damage to our reputation and our business.business, financial condition and results of operations.

Our security measures may not protect us from systems failures or interruptions. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, or they terminate their services our ability to adequately process and account for transactionstransactions, among other things, could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer and consumer information through various third-party vendors and their personnel.

We are subject to interest rate risk.risk, which could adversely affect our earnings.

Our earnings and cash flows are largely dependent on our net interest income. Interest rates are highly sensitive to many factors beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve. The Federal Reserve decreased the federal funds target rate beginning in September 2024, with the most recent decrease occurring in December 2024.2025. When the Federal Reserve Board decreases the Fed Funds rate, overall interest rates willare likely to fall, which may positively impact housing markets by increasing refinancing activity and new home purchases. A falling interest rate environment may also positively affect the U.S. economy and, as a result, our business as a whole. However, there can be no assurance of the timing or amount of any future rate adjustments. Further, there can be no assurance regarding any forecasts or predictions about the effect that any future rate adjustment may have on our results of operations.

Further changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affectaffect, among other things, (i) our ability to originate and/or sell mortgage and SBA loans; (ii) the fair value of our financial assets and liabilities, which could negatively impact shareholders' equity, and our ability to realize gains from sales of such assets; (iii) our ability to obtain and retain deposits in competition with other available investment alternatives; (iv) the ability of our borrowers to repay adjustable or variable rate loans; and (v) the average duration of our MBS portfolio and other interest-earning assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, anyAny substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our business, financial condition and results of operations. Also,Further, our interest rate risk modeling techniques and assumptions likely will not fully predict or capture the impact of actual interest rate changes on our balance sheet. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset and Liability Management and Market Risk," in this Form 10-K for additional information.

First Northwest is a bank holding company and a financial holding companycompany. andFirst Northwest is engaged in banking activities through its wholly owned subsidiary, First Fed Bank,Fed, as well as certain non-banking financial activities. Non-banking investments include several limited partnership investments, including a 33% interest in The Meriwether Group, LLC ("MWG"). The Company's business activities are generally focused on passive investment activities and oversight of the activities of First Fed. The Company has also entered into partnerships to strategically invest in fintech-related businesses.investments.

First Fed is a community-oriented commercial bank serving Clallam, Jefferson, King, Kitsap, Snohomish, and Whatcom counties in Washington State, through its twelve full-service branches and sixfive 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 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. Subsequent to year end, the Bank signed a redemption agreement which sets forth the path to unwind its investment in the Hero Fund through capital distributions beginning in April 2026.

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income earned on our loans and investments less interest expense paid on our deposits and borrowings. Changes in levels of interest rates may impact our net interest income. A secondary source of income 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.

Our objective is to be an independent, high performing bank focused on meeting the needs of individuals, small businesses and community organizations throughout our market areas with exceptional service and competitive products. Below are strategies weWe have implemented,adopted orthree intendstrategic pillars that will be our focus in the upcoming years: process and data improvement to implement,drive toefficiencies, achievebuild oura objectives:resilient core deposit base and grow the organic loan portfolio.

Allowance for Credit Losses on Loans. The allowance for credit losses on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected. The allowance is established through the provision for credit losses on loans, which is charged to income. Determining the amount of the ACLL necessarily involves a high degree of judgment. Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a remaining life methodology. The Company also uses established metrics to estimate qualitative risk factors by segment based on the identified risk. The Company evaluates individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis using either a collateral value or cash flow method. All of the factors used in these methodologies are susceptible to significant change. Management reviews and approves, at least quarterly, the level of the allowance and the provision for credit losses on loans based on anticipated future economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for credit losses on loans, future economic or other conditions may differ substantially from the assumptions used in making the evaluation. The FDIC and the DFI, as an integral part of their examination process, periodically review our ACLL and may require us to recognize adjustments to the allowance based on their judgment about information available at the time of their examination. A large loss could deplete the allowance and require increased provisions for credit losses on loans to replenish the allowance, which would adversely affect earnings. Management considers the ACLL to be a critical accounting estimate. Our accounting policies are discussed in detail in Notes 1 and 4 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Assets. Total assets increaseddecreased $30.2$124.1 million, or 1.4%,5.6%, to $2.11 billion at December 31, 2025, from $2.23 billion at December 31, 2024, from $2.2 billion at December 31, 2023.2024.

Cash and cash equivalents decreasedincreased by $50.7$12.7 million, or 41.2%,17.5%, to $72.5$85.1 million as of December 31, 2024,2025, compared to $123.2$72.5 million at December 31, 2023,2024. asInterest-bearing proceeds from the sale of investment securitiesdeposits in thebanks fourthincreased quarter$14.0 ofmillion, 2023improving wereon-hand deployedliquidity intoat interest-earningyear assets.end.

The estimated average life of the total investment securities portfolio was 6.5 years as of December 31, 2025, compared to 6.9 years as of December 31, 2024, compared to 7.7 years as of December 31, 2023, and the average repricing term was approximately 6.7 years as of December 31, 2025, compared to 5.3 years as of December 31, 2024, compared to 6.3 years as of December 31, 2023, based on the interest rate environments at those times. Expected duration of the portfolio has decreasedincreased to 4.6 years as of December 31, 2025, compared to 3.9 years as of December 31, 2024, compared to 4.8 years as of December 31, 2023.2024. If prevailing market interest rates fall, we expect prepayments will accelerate due to the current coupons of fixed rate bonds. We anticipate the investment portfolio will continue to provide additionalsupplemental interest income and act as a source of liquidity.

MBS represent the largest portion of our investment portfolio and totaled $125.1 million at December 31, 2025, a decrease of $45.3 million, or 26.6%, from $170.3 million at December 31, 2024, an increase of $31.0 million, or 22.2%, from $139.3 million at December 31, 2023.2024. Municipal bonds are the second largest segment, totaling $80.3 million at December 31, 2025, an increase of $2.4 million, or 3.1%, from $77.9 million at December 31, 2024,2024. aOther decreaseinvestment ofsecurities $9.9totaled million, or 11.3%, from $87.8$65.0 million at December 31, 2023.2025, Thea purchasedecrease of investment$27.2 securitiesmillion, duringor 2024 resulted in a shift in the investment mix29.5%, from municipal bonds toward more mortgage-backed, corporate asset-backed and SBA securities. Other investment securities totaled $92.2 million at December 31, 2024, an increase of $23.6 million, or 34.5%, from $68.5 million at December 31, 2023.2024. Included in MBS non-agency were $44.4$13.9 million of commercial mortgage-backed securities ("CMBS"), of which 93.4%87.3% were in "A" tranches with the remaining 6.6%12.7% in "B" tranches. Our largest exposure in the CMBS portfolio was to long-term care facilities, which comprised 76.8%,50.9%, or $34.1$7.1 million, of our private label CMBS securities. All of the CMBS had credit enhancements ranging from 28.8%30.8% to 93.1%, with a weighted-average credit enhancement of 58.9%,66.3%, that further reduced the risk of loss on these investments.

Total loans, excluding loans held for sale, increaseddecreased $35.8$67.7 million, or 2.2%,4.0%, during the year ended December 31, 2024. Commercial business loans increased $39.2 million primarily due to an increase in the Northpointe MPP of $26.7 million, $15.2 million of equipment loan originations and purchases of $8.5 million of unsecured Bankers Healthcare Group loans in addition to advances on new and existing lines of credit and originations of amortizing commercial loans.2025. Auto and other consumer loans increased $19.8$14.6 million, or 7.9%,5.4%, with the purchasepurchases of aspecialty pool of manufactured homeauto loans as well as purchases ofand individual manufactured home loans and specialty auto loans. Multi-family and commercialCommercial real estate loans increased $1.9 million, or 0.3%, consisting mainly of an increase in commercial real estate loans of $2.4$12.3 million as new loan originations of $34.6$53.4 million and $1.1 million from construction loans converting into permanent amortizing loans exceeded payment activity. Multi-family real estate loans decreased $498,000$44.1 million as a result of payoffs and regular payments exceeding $36.5$11.1 million of construction loans converting into permanent amortizing loans and $13.6$2.7 million of new originations. Commercial business loans decreased $21.2 million as payments, maturities, charge-offs and a decrease in Northpointe MPP exceeded $26.0 million of advances on new and existing lines of credit, $5.2 million of equipment loan originations and $1.6 million of Bankers Healthcare Group loan purchases.

One-to-four family residential loans increaseddecreased $16.9$18.6 million, or 4.5%,4.7%, with $42.5payoffs and regular payments exceeding $10.9 million in construction loans converting to permanent amortizing loans during the year, partially offset by payoffsyear and regular$7.5 payments.million of new originations. We continue to focus on the origination of one-to-four family mortgage loans with the intention of selling the majority of our saleable production to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and other investors, while retaining certain adjustable-rate loans that may not be readily sold in the secondary market.

Construction and land loans decreased $51.6$16.8 million, or 39.8%,21.6%, with $80.1$22.9 million converting into fully amortizing loans partially offset by draws on new and existing commitments. Undisbursed construction commitments totaled $49.5 million at December 31, 2025 compared to $51.7 million at December 31, 2024 compared to $55.4 million at December 31, 2023.2024. Undisbursed construction commitments at December 31, 20242025 included $27.5$14.6 million of commercial real estate construction, $15.4$23.1 million of mainly custom one-to-four family residential construction, and $8.9$11.8 million of multi-family construction. Our construction loans are geographically disbursed throughout the state of Washington.Washington with one project in California. 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.

Our allowanceACLL fordecreased credit losses on loans ("ACLL") increased $2.9$3.5 million, or 16.8%,16.9%, during the year ended December 31, 2024,2025, primarily due to increaseda reduction in the reserves on individually evaluated loans, lower pooled loan reserve balances and a decrease in the loss factors applied to commercial business, one-to-four family and multi-familyother consumer loan pools and additional reserves on individually evaluated commercial business loans.balances. Asset quality declinedimproved with increasesdecreases in past due, nonaccrual and classified assets compared to the total loan portfolio. Management continues to closely monitor economic conditions for potential weaknesses that could expose the loan portfolio to losses. The ACLL as a percentage of total loans was 1.04% at December 31, 2025 and 1.21% at December 31, 2024 and 1.05% at December 31, 2023.2024. We believe our ACLL is adequate to cover current expected credit losses in the loan portfolio.

Nonperforming loans increaseddecreased $11.9$7.9 million, or 63.7%,26.0%, during the year ended December 31, 20242025 to $30.5$22.6 million. This increasedecrease was mainly the result of decreases in commercial construction of $14.4 million, partially offset by increases in nonperforming commercial real estate of $5.6$4.2 million, commercial construction of $4.6 million and commercial business of $2.3$1.2 million, partially offset by decreases in one-to-four family of $367,000,$795,000, auto and other consumer of $86,000$386,000 and home equity loans of $68,000.$2,000. Nonperforming loans to total loans was 1.39% at December 31, 2025, an increase from 1.80% at December 31, 2024, an increase from 1.12% at December 31, 2023.2024.

Liabilities. Total liabilities increaseddecreased $39.7$127.5 million, or 1.9%,6.1%, to $1.95 billion at December 31, 2025, from $2.08 billion at December 31, 2024, from $2.04 billion at December 31, 2023, with increasesdecreases in both deposits and borrowings used mainly to purchase investment securities and fund loan growth.borrowings.

Deposit account balances increaseddecreased $11.1$88.9 million, or 0.7%,5.3%, to $1.6 billion at December 31, 2025 from $1.69 billion at December 31, 2024 from $1.68 billion at December 31, 2023.2024. Money market accounts increased $51.6$37.3 million, while savings accounts decreasedincreased $37.1$34.2 millionmillion, andwhile transaction accounts decreased $194,000.$32.4 million. Customer CDs increaseddecreased $21.5$31.7 million, or 4.9%,6.8%, to $464.9$433.3 million and Brokered CDs decreased $24.7$96.4 million, or 11.9%,52.7%, to $182.9$86.5 million at December 31, 2024.2025. The current rate environment continued to contribute to greater competitionCompetition for deposits across the industry during 2024. As a result, the Bank continues offeringto pose deposit rateretention specials to attract new funds.challenges. Our focus continues to be on increasing core customer deposits, with an emphasis on small-to-medium sized business deposits, digital accounts and maintaining a stable source of funding to reduce interest expense as a percentage of liabilities.

Borrowings increaseddecreased $15.1$27.9 million, or 4.7%,8.3%, to $308.1 million at December 31, 2025, from $336.0 million at December 31, 2024,2024. fromHigher $320.9 million at December 31, 2023. The Bank increased long-term FHLB advances by $80.0 million during 2024 to take advantagelevels of lowercash ratesand comparedcash toequivalents thosereduced offeredreliance on FHLB overnight advances. FHLB overnight advances decreasedresulting $65.0in a $30.0 million decrease compared to the prior year end.

Equity. Total shareholders' equity decreasedincreased $9.5$3.4 million, or 5.8%,2.2%, to $157.3 million at December 31, 2025, from $153.9 million at December 31, 2024, from $163.3 million at December 31, 2023.2024. The decreaseincrease during the year resulted from a net loss of $6.6 million, share repurchases of $4.1 million and $2.6 million in dividends paid in 2024. These decreases were partially offset by a $2.5$7.8 million reduction in accumulated other comprehensive loss related to an improved unrealized market value of available for sale securities, net of tax, and an increase of $1.6$1.2 million related to share-based compensation plans. These increases were partially offset by a net loss of $4.2 million and $1.3 million in dividends paid in 2025. During the year ended December 31, 2024,2025, we repurchased 214,132 shares of common stock at an average cost of $14.03 per share, pursuant to the Company's 2020 stock repurchase plan, closing out the 2020 plan. An additional 98,156no shares of common stock were repurchased during 2024 at an average cost of $10.19 per share, pursuant tounder the Company's newApril 2024 stockStock Repurchase Plan (the "Repurchase Plan"). There are 846,123 shares that remain available for repurchase plan,under forthe aRepurchase total of 312,288 shares repurchased during 2024.Plan.

Interest Income. Interest income increaseddecreased $11.4$5.3 million, or 11.3%,4.8%, to $112.3$107.0 million for the year ended December 31, 20242025 from $100.9$112.3 million for the comparable period in 2023,2024, primarily due to ana increasedecrease in the average balance of and higherlower yields on loans receivable. Interest and fees on loans receivable increaseddecreased $9.1$3.5 million during the year, indriven part,largely asby the Bank grew the loan portfolio through participationreductions in the construction loan, multi‑family loan, and Northpointe MPP participation portfolios, partially offset by increased balances in the commercial real estate and purchased auto and manufactured home loans.loan portfolios. Loan yields alsodecreased increasedby due2 tobasis higherpoints rates on new originations.year-over-year. The fair value hedge on loans added $1.1 million$392,000 to interest income for the year ended December 31, 2025, compared to $1.1 million for the year ended December 31, 2024.

Interest income on investment securities increaseddecreased $1.8$1.5 million to $13.5 million for the year ended December 31, 2025, compared to $15.0 million for the year ended December 31, 2024, compared to $13.3 million for the year ended December 31, 2023.2024. The increasedecrease in interest income on investment securities was driven by ana increasedecrease in the average yield during the year of 64-basis38 basis points due to the investment securities portfolio restructure in the first half of 2024. The higher rate environment in the first part of the year also contributed to increased interest income as slowerhigher-yielding prepaymentinvestments activity reduced the amount of premium amortization during the period.matured. The fair value hedge on investments added $621,000$142,000 and $449,000$621,000 to interest income for the years ended December 31, 20242025 and 2023,2024, respectively.

Interest Expense. Total interest expense increaseddecreased $16.6$6.3 million, or 41.9%,11.3%, for the year ended December 31, 2024,2025, compared to the prior year, with increasesdecreases in deposit costs and borrowing costs of $15.4$5.4 million and $1.2 million,$911,000, respectively. Deposit costs increaseddecreased primarily due to higherthe funding costs and an increase of $92.0 million in thelower average balance ofand interest-bearingrate deposits.paid on brokered CDs. The average cost of all interest-bearing deposit products increaseddecreased 94-basis30 basis points to 2.65% for the year ended December 31, 2025 from 2.95% for the year ended December 31, 2024 from 2.01% for the year ended December 31, 2023.2024. The average balances of money marketmarket, customer CD and CDsavings accounts increased year-over-year, while lower cost transaction and savings average account balances declined. Borrowing costs increaseddecreased 16-basis21 basis points, due to higherlower rates paid combined with ana increasedecrease of $15.8$6.4 million in the average balance outstanding.

Provision for Credit Losses. The total provision for credit losses increaseddecreased $15.2$9.2 million to $16.5$7.3 million during the year ended December 31, 2024,2025, compared to $1.3$16.5 million for 2023.2024. The higherlower provision for credit losses on loans compared to 20232024 is mainly the result of higher recoveries on charged-off loan balances, lower pooled loan reserve balances charged-offand duringa the year, an increasedecrease in reserve for individually evaluated loans and an increase inthe loss factors applied to one-to-four family, multi-familyfamily and other consumer loan balances. These decreases were partially offset by higher loss factors applied to commercial businessbusiness, commercial real estate and multi-family pooled loans. The unfunded commitments recapture is due to a decrease in the loss factor applied to this pool.

Noninterest Income. Noninterest income increaseddecreased to $11.6 million for the year ended December 31, 2025, from $12.6 million for the year ended December 31, 2024,2024. from $4.0 million for the year ended December 31, 2023. The increase compared to the prior year was primarily due to one-timeNonrecurring transactions in 2024,2025 includingincluded a $1.7 million insurance reimbursement received to offset the costs associated with ongoing legal matters, a BOLI death benefit payment and an $846,000 gain on extinguishment of subordinated debt. One-time transactions in 2024 included the gain on sale of six branch properties in the sale-leaseback transaction and a $1.1 million BOLI death benefit payment, partially offset by the loss on sale of securities.securities First Northwest also recordedand a $1.8 million write down on an equity investment in an organization that is involved in a lawsuit,write-down included in Otherother income (loss) incomein the table below. Saleable mortgage loan production and related gains continuedbenefitted tofrom be impacted by higher market rates onlower mortgage loans.rates. The BOLI exchange and reinvestment transactions during 2024 resulted in an increase in the cash surrender value recorded for theboth year.years.

Provision for Income Tax. The Company recorded an income tax benefit for the year ended December 31, 2024,2025, of $944,000$1.2 million compared to expensea benefit of $549,000$944,000 for the year ended December 31, 2023,2024, reflecting differences in pre-tax income. The effective tax rate decreased over the prior year as a2024 result of the permanent tax exclusion of BOLI noninterest income, including the BOLI death benefit, in 2024, partially offset byincluded an estimate for the penalty on the early surrender of the BOLI contracts. The provision includes accruals for both federal and state income taxes.

The following table sets 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 resultant spread at December 31, 20242025 and 2023.2024. Income and all average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield.

(2) Interest earned on loans receivable includes net deferred costs of $12,000$1.7 million and $561,000$1.1 million for the years ended December 31, 20242025 and 2023,2024, respectively and loan derivative interest of $392,000 and $1.1 million for the years ended December 31, 2025 and 2024, respectively.

(1) Includes net deferred fee income.income and loan derivative interest.

Risk Management Overview. Managing risk is an essential part of successfully managing a financial institution. Our Enterprise Risk Management Committee reports key risk indicators to the Board of Directors through the Audit Committee. The most prominent risk exposures management monitors are strategic, credit, interest rate, liquidity, operational, compliance, reputational, cybersecurity, and legal risk. The Asset Liability Committee ("ALCO") establishes and guides the Bank's strategic direction and risk tolerances related to Asset Liability Management ("ALM"), including interest rate risk. ALCO meets quarterly to monitor the Bank's performance against established standards as well a monitor the overall price, credit, interest rate and liquidity risk profile. The ALM policy is approved by the Board.

Management of Interest Rate Risk Management. Managing interest rate risk is an integral part of our overall risk management framework. Management’s objective is to control exposure to interest rate fluctuations while maintaining acceptable levels of profitability and capital adequacy. The Bank employs the services of outside firms to assist us in our asset and liability management and our analysis of market and interest rate risk.

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 eleventen 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 certificates") 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. 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.

Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025

Assets. Total assets increased to $2.13$2.12 billion, or 1.2%,0.8%, at MarchJune 31,30, 2026, from $2.11 billion at December 31, 2025.

Cash and cash equivalents increased by $19.0$13.2 million, or 22.3%,15.6%, to $104.1$98.4 million as of MarchJune 31,30, 2026, compared to $85.1 million as of December 31, 2025.

Investment securities increased $2.7$16.7 million, or 1.0%,6.2%, to $273.0$287.0 million at MarchJune 31,30, 2026, from $270.3 million at December 31, 2025. Purchases totaling $11.1$38.9 million were partially offset by maturities totaling $3.3$13.1 million, regular principal payments totaling $3.9$8.4 million and a $1.2 million$649,000 increase in net unrealized losses during the threesix months ended MarchJune 31,30, 2026.

The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 6.86.4 years as of MarchJune 31,30, 2026 and 6.5 years as of December 31, 2025, and had an estimated average repricing term of 5.76.0 years as of MarchJune 31,30, 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 4.74.6 years at MarchJune 31,30, 2026, compared to 4.6 years at December 31, 2025. The investment portfolio was comprised of 55.1%51.0% in amortizing securities at MarchJune 31,30, 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 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, increaseddecreased $1.0$15.0 million, or 0.1%,0.9%, to $1.61$1.60 billion at MarchJune 31,30, 2026, from $1.61 billion at December 31, 2025. During the threesix months ended MarchJune 31,30, 2026, one-to-four family loans decreased $13.8$19.7 million during the threesix months ended MarchJune 31,30, 2026, as repayment activity exceeded $1.2$1.8 million in residential construction loans that converted to permanent amortizing loans and new loan originations totaling $450,000.$3.2 million. Multi-family loans decreased $17.6$32.7 million during the threesix months ended MarchJune 31,30, 2026, as prepayments and scheduled payments exceeded $1.8$3.7 million of new loan originations and $199,000 of construction loans converting into permanent amortizing loans. Commercial real estate loans increaseddecreased $560,000$115,000 during the threesix months ended MarchJune 31,30, 2026, with $4.5repayment activity exceeding $13.2 million of new loan originations and $616,000$8.6 million of construction loan conversions exceeding repayment activity.conversions. Construction and land loans increased $1.1 million,$429,000, or 1.8%,0.7%, to $62.4$61.7 million at MarchJune 31,30, 2026, from $61.3 million at December 31, 2025, with draws on new and existing loan commitments totaling $11.4$25.5 million, partially offset by payment activity totaling $7.1$15.0 millionmillion, and $2.0$10.4 million converting into fully amortizing loans.loans and charge-offs totaling $371,000.

Commercial business loans increased $22.3$20.7 million, including a $23.0$25.7 million increase to our Northpointe Bank Mortgage Purchase Program ("Northpointe MPP") participation, $2.8$12.4 million of organic originations and $3.5 million of draws on existing line of credit commitments and $5.0 million of organic originations,commitments, partially offset by charge-offs totaling $1.2 million$719,000 and other repayment activity.

During the threesix months ended MarchJune 31,30, 2026, the Company added $29.9$79.8 million of organic loan originations, of which $14.4$41.9 million, or 48.1%,52.6%, were located in the Puget Sound region, $13.4$31.7 million, or 44.9%,39.7%, on the North Olympic Peninsula, and $2.1$4.1 million, or 7.0%,5.2%, in other areas throughout Washington State. The Company purchased an additional $21.5$41.0 million in auto loans and $1.6$4.4 million in manufactured home loans to borrowers located throughout the United States during the threesix months ended MarchJune 31,30, 2026. The total loan portfolio was composed of 77.4%76.9% organic originations and 22.6%23.1% purchased loans at MarchJune 31,30, 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 $16.8$16.3 million at MarchJune 31,30, 2026, compared to $17.0 million at December 31, 2025. A $256,000$703,000 reduction in the pooled loan reserve balance was driven by decreasedlower one-to-four family, multi-family and commercial business loan balances in most categories combined with lower loss factors applied to one-to-four familyfamily, andcommercial real estate, other consumer and commercial business loans. DecreasesThe decrease to the pooled loan reserve balance werewas partially offset by higher purchased auto and Northpointe MPP balances and higher loss factors applied to commercial real estate, multi-familyconstruction and constructionhome equity loan balances at the end of the current quarter. The pooled loan reserve was impacted by a mild increase in gross domestic product, lowerhigher unemployment forecastsforecasts, net loan charge-offs and a reduction in nonaccrual loans. The reserve on individually analyzed loans increased $92,000$22,000 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%1.01% and 1.04% at MarchJune 31,30, 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 MarchJune 31,30, 2026.

Nonperforming loans decreased $896,000,$1.9 million, or 4.0%,8.3%, to $21.7$20.7 million at MarchJune 31,30, 2026, from $22.6 million at December 31, 2025. Current quarteryear activity included principal payments totaling $806,000,$2.3 million and payoffs totaling $776,000 and net recoveries on nonperforming loans totaling $505,000.$289,000. The decreases were partially offset by the transition into nonaccrual status of atwo residential mortgage,mortgages, two auto loans, a commercial business loan, a home equity loan and fivesix other consumer loans totaling $1.2$1.5 million. Nonperforming loans to total loans was 1.3% at MarchJune 31,30, 2026, compared to 1.4% at December 31, 2025. The ACLL as a percentage of nonaccrual loans increased to 77.5%78.7% at MarchJune 31,30, 2026, up from 75.2% at December 31, 2025.

Classified loans decreased $685,000,$9.8 million, or 1.9%,27.7%, to $34.6$25.5 million at MarchJune 31,30, 2026, from $35.3 million at December 31, 2025, primarily due to payoffs totaling $653,000,$14.9 million, principal payments totaling $567,000,$1.5 million, net recoveries on previously charged-off loans totaling $501,000$285,000 and upgrades totaling $156,000. The decreases were partially offset by downgrades ofacross consumermultiple loansloan categories totaling $566,000,$6.9 a $524,000 residential mortgage loan and a $112,000 commercial business loan.million. Four collateral-dependent loans totaling $26.5$18.3 million account for 77%72% of the classified loan balance at MarchJune 31,30, 2026. The Bank continues to work with all borrowers to facilitate satisfactory repayment.

In the first quarterhalf of 2026, the Bank recorded net recoveries of $249,000$288,000 in commercial business loans. Charge-offsNet charge-offs of $226,000$242,000 to auto and other consumer loans, $171,000$371,000 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.

Liabilities. Total liabilities increased to $1.98$1.97 billion at MarchJune 31,30, 2026, from $1.95 billion at December 31, 2025, due to increases in borrowingsdeposits of $20.0$8.3 million and depositsborrowings of $2.5$5.0 million.

Deposit account balances increased $2.5$8.3 million, or 0.2%,0.5%, to $1.60$1.61 billion at MarchJune 31,30, 2026 from $1.60 billion at December 31, 2025. During the first threesix months of 2026, total customer deposit balances increased $24.9$36.2 million and brokered deposit balances decreased $22.4$27.9 million. WithinAll categories of customer depositdeposits balances,reflect increasesincreases, inincluding customer CDs of $11.9$19.9 million, money market accounts of $11.1 million, demand deposit accounts of $7.5$2.8 million and savings accounts of $7.3 million were partially offset by decreases in money market accounts of $1.8$2.5 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$5.0 million, or 7.7%1.9% to $280.0$265.0 million at MarchJune 31,30, 2026, from $260.0 million at December 31, 2025. The short-term FHLB advances supported increased on balance sheet liquidity.

Equity. Total shareholders' equity decreasedincreased $298,000$1.1 million to $157.0$158.3 million for the threesix months ended MarchJune 31,30, 2026, due to aan decreaseincrease in the after-tax fair market values of the available-for-sale investment securities portfolio of $847,000,$590,000, the allocation of compensation-related shares valued at $512,00 and net income of $314,000, partially offset by a $295,000$428,000 increase in the investment portfolio hedge post-tax fair market value and net income of $6,000.value. During the first threesix 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 MarchJune 31,30, 2026 and 2025

General. The Company recorded net income of $6,000$308,000 for the three months ended MarchJune 31,30, 2026, compared to a net lossincome of $9.0$3.7 million for the three months ended MarchJune 31,30, 2025. A $7.7$3.6 million decreaseincrease in provisionnoninterest for credit losses,expense, a $3.3 million$165,000 decrease in noninterest expenseincome and a $593,000$20,000 increasedecrease in net interest income were partially offset by a $1.8$180,000 million decreaseincrease in noninterestrecapture incomeof provision for credit losses and ana $805,000$280,000 decrease in income tax benefit.provision.

Net Interest Income. Net interest income increasedwas $593,000flat toat $14.4$14.2 million for the three months ended MarchJune 31,30, 2026, fromcompared $13.9 million forto the three months ended MarchJune 31,30, 2025, as reduced deposit and borrowing costs outpacedwith declines in loan, investment and interest-earning deposit income.income offset by reduced deposit and borrowing costs. The net interest margin increased 2712 basis points to 3.03%2.95% for the three months ended MarchJune 31,30, 2026, compared to 2.76%2.83% for the same period in 2025.

Interest Income. Total interest income decreased $1.5$1.7 million, or 5.6%,6.2%, to $25.3$25.5 million for the three months ended MarchJune 31,30, 2026, from $26.8$27.1 million for the comparable period in 2025. Average earning assets decreased $101.5$85.2 million year-over-year. The yield on average interest-earning assets decreased 311 basis points to 5.32%5.30% for the three months ended MarchJune 31,30, 2026, compared to 5.35%5.41% 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,$817,000 primarily due to a decrease in the average balance of net loans receivable of $44.7$50.9 million andmillion, a change in the mix of loans compared to the prior year,year partiallyand offseta by3 anbasis increasepoint decrease in average loan yieldsyields. Interest from investment securities decreased $743,000 primarily due to 5.59%the formaturity of some higher-yielding investment securities during 2025 resulting in a 51 basis point decrease in average investment yields. While the threeCompany's monthsyields endeddropped Marchperiod-over-period, 31,the 2026,decrease fromwas 5.49%significantly forlower than the 75 basis point Fed Funds decrease over the same period in 2025.period.

Interest Expense. Total interest expense decreased $2.1$1.7 million, or 16.0%,12.8%, to $10.9$11.3 million for the three months ended MarchJune 31,30, 2026, compared to $13.0$12.9 million for the three months ended MarchJune 31,30, 2025. The average cost of interest-bearing liabilities decreased 3323 basis points to 2.72%2.78% for the three months ended MarchJune 31,30, 2026, compared to 3.05%3.01% for the same period last year. Interest expense on deposits decreased $1.8$1.5 million due to a $70.9$77.3 million decrease in the average balance and a 4031 basis point decrease in the cost of interest-bearing deposits.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 inreflecting a lowerdecreased costreliance ofon brokered deposits. Interest expense on borrowings decreased $275,000$137,000 due to a $30.4$22.9 million decrease in the average balance of FHLB advances offset by a 516 basis point increase in the cost of borrowings,borrowings primarilydue FHLBto advances,the subordinated debt transition from a fixed to floating rate compared to the same period in 2025.

During the three months ended MarchJune 31,30, 2026, interest expense on brokered CDs decreased due to lower average balances of $88.2$72.6 million along with a 3313 basis point decrease in the average rate paid, compared to the three months ended MarchJune 31,30, 2025. Customer CDs represented 27.8%28.20% and 27.0%27.20% of total deposits at MarchJune 31,30, 2026 and 2025, respectively. Brokered CDs represented 4.0%3.60% and 8.3%6.50% of total deposits at MarchJune 31,30, 2026 and 2025, respectively.

Provision for Credit Losses. The Company recorded a $13,000$337,000 loan loss provision recapture offset byand a $91,000$203,000 unfunded commitment provision recapture for the three months ended MarchJune 31,30, 2026. This compares to a $7.8 million$296,000 loan loss provision recapture and a $15,000$64,000 unfunded commitment provision recapture for the three months ended MarchJune 31,30, 2025. The current period recapture of provision for credit losses on loans reflects lower pooled reserve loan balances, a decrease in the reserve on individually evaluated loans, changes in the loan portfolio composition and reducedlower nonperformingloss loansfactors at MarchJune 31,30, 2026, partially offset by net charge-offs totaling $151,000$177,000 for the three-month period and an increase in the reserve on individually evaluated loans.period. The higher unfunded commitment provision recapture compared to the same period in 2025 was primarily due to higherlower qualitative loss factors.

Noninterest Income. Noninterest income decreased $1.8 million,$165,000, or 46.8%,7.6%, to $2.0 million for the three months ended MarchJune 31,30, 2026, from $3.8$2.2 million for the three months ended MarchJune 31,30, 2025. TheOther priorincome yearreflects period-over-period decreases in the recorded value of equity and fintech partnership investments of $63,000 and swap fee income of $48,000. Nonrecurring income for the second quarter of 2025 included a $1.1 million BOLI death benefit and an $846,000 gain on the extinguishment$81,000 of debtinterest related to repurchasingthe $5.0 million of subordinated debt at a discountERC recorded in other income.

Noninterest Expense. Noninterest expense decreasedincreased $3.3$3.6 million, or 16.6%,28.4%, to $16.7$16.4 million for the three months ended MarchJune 31,30, 2026, compared to $20.0$12.8 million for the three months ended MarchJune 31,30, 2025. The priorincrease yearin expenses compared to the same period in 2025 is mainly due to a $2.6 million employee retention credit recorded in compensation during the second quarter of 2025. Other increases to compensation and benefits included aperiod-over-period $5.8increases millionto legalincentive settlementpayments paid.of $344,000 and medical insurance of $361,000. Data processing expenses decreased in 2026 compared to the same period in 2025 as the Bank advanced its operating efficiency initiative and implemented more integrated systems. Legal expense included in professional fees increased $846,000$639,000 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$219,000 compared to the same period in 2025 as the Bank utilizedinitiated outsidea resourcesprocess toimprovement assistproject within keythe dutiessecond quarter of certain open positions.2026.

Provision for Income Tax. An income tax benefitprovision of $320,000$17,000 was recorded for the three months ended MarchJune 31,30, 2026, compared to a benefitprovision of $1.1 million$297,000 for the three months ended MarchJune 31,30, 2025, due to a period-over-period increasedecrease in net lossincome before taxes of $9.9$3.6 million and adjustments related to the tax penalty estimate for the early surrender of BOLI contracts.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.

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 MarchJune 31,30, 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.

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 threesix months ended MarchJune 31,30, 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.

At MarchJune 31,30, 2026, our scheduled maturities of contractual obligations were as follows:

The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of MarchJune 31,30, 2026:

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 MarchJune 31,30, 2026, cash and cash equivalents totaled $104.1$98.4 million and unpledged securities classified as available-for-sale had a market value of $223.0$236.8 million. The Bank pledged collateral of $553.3$512.7 million to support borrowings from the FHLB, with a remaining borrowing capacity of $181.6$157.7 million at MarchJune 31,30, 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$17.3 million were pledged as of MarchJune 31,30, 2026, providing a borrowing capacity of $16.9$16.7 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 $1.5 million at MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, we had commitments to fund $408,000 in standby letters of credit and $166.9$164.6 million in undisbursed loans, including $44.1$40.7 million in undisbursed construction loan commitments.

CDs due within one year as of MarchJune 31,30, 2026, totaled $462.8$450.2 million, or 90.9%88.0% of CDs with a weighted-average rate of 3.69%.3.60%. 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 65%64% of deposit account balances held by consumers, 22%23% 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 $28,000$29,000 at MarchJune 31,30, 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. 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 MarchJune 31,30, 2026, the Company, on an unconsolidated basis, had liquid assets of $6.6$7.3 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 related 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.

At MarchJune 31,30, 2026, shareholders' equity totaled $157.0$158.3 million, or 7.4%7.5% of total assets. Our book value per share of common stock was $16.52$16.66 at MarchJune 31,30, 2026, compared to $16.61 at December 31, 2025.

At MarchJune 31,30, 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 MarchJune 31,30, 2026.

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 5.5%5.4% at MarchJune 31,30, 2026, exceeding this requirement.