First Northwest Bancorp FNWB Form 10-Q filing Q2 FY2026

PART 1 - FINANCIAL INFORMATION

Page

Item 1 - Financial Statements (Unaudited) 3

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 35

Item 3 - Quantitative and Qualitative Disclosures About Market Risk 53

Item 4 - Controls and Procedures 53

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings 54

Item 1A - Risk Factors 54

Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 54

Item 3 - Defaults Upon Senior Securities 54

Item 4 - Mine Safety Disclosures 54

Item 5 - Other Information 54

Item 6 - Exhibits 55

SIGNATURES 56

As used in this report, "First Northwest" refers to First Northwest Bancorp and "First Fed" or "Bank" refers to First Fed Bank, the wholly owned subsidiary of First Northwest. The terms "we," "our," "us," and "Company" refer to First Northwest together with First Fed, unless the context indicates otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share information) (Unaudited)

See selected notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data) (Unaudited)

See selected notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands) (Unaudited)

See selected notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Months Ended June 30, 2026 and 2025

(Dollars in thousands, except share information) (Unaudited)

See selected notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Six Months Ended June 30, 2026 and 2025

(Dollars in thousands, except share information) (Unaudited)

See selected notes to the consolidated financial statements.

• FIRST NORTHWEST BANCORP AND SUBSIDIARY
• CONSOLIDATED STATEMENTS OF CASH FLOWS
• (Dollars in thousands) (Unaudited)

See selected notes to the consolidated financial statements.

• FIRST NORTHWEST BANCORP AND SUBSIDIARY
• CONSOLIDATED STATEMENTS OF CASH FLOWS
• (Dollars in thousands) (Unaudited)

See selected notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation and Critical Accounting Policies

Organization and nature of business - First Northwest Bancorp, a Washington corporation ("First Northwest"), became the holding company of First Fed Bank ("First Fed" or the "Bank") on January 29, 2015, upon completion of the Bank's conversion from a mutual to stock form of organization (the "Conversion"). First Northwest and the Bank are collectively referred to as the "Company." On August 5, 2022, First Northwest's election to be treated as a financial holding company became effective, allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities. First Northwest's business activities generally are limited to passive investment activities and oversight of its investment in First Fed. Accordingly, the information set forth in this report, including the consolidated financial statements and related data, relates primarily to the Bank.

The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses primarily in western Washington State with offices in Clallam, Jefferson, Kitsap, King, Snohomish and Whatcom counties. These services include deposit and lending transactions that are supplemented with borrowing and investing activities. On October 31, 2021, the Bank converted from a State Savings Bank Charter to a State Commercial Bank Charter and was simultaneously renamed First Fed Bank from First Federal Savings and Loan Association of Port Angeles.

Basis of presentation - The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements in accordance with GAAP have been included. Operating results for the three and six months ended June 30, 2026, are not necessarily indicative of the results that may be expected for future periods.

In preparing the unaudited interim consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for credit losses ("ACL"), fair value of financial instruments and derivatives, and deferred tax assets and liabilities.

Principles of consolidation - The accompanying consolidated financial statements include the accounts of First Northwest and its wholly owned subsidiary, First Fed. All material intercompany accounts and transactions have been eliminated in consolidation.

Subsequent events - The Company has evaluated subsequent events for potential recognition and disclosure.

Recently adopted accounting pronouncements

In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. The amendments do not change the accounting for conversions that include the issuance of all equity securities upon conversion. ASU 2024-04 is effective for the Company for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years, with early adoption permitted. The adoption of this ASU did not have a material impact on the consolidated financial statements and related disclosures.

Recently issued accounting pronouncements not yet adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement in response to requests from investors for more information to better understand an entity's performance and potential future cash flows. The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2024-03 is effective for the Company for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the consolidated financial statements and related disclosures.

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In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software which clarifies the accounting for costs related to internal-use software. The new guidance clarifies the threshold entities apply to begin capitalizing costs and removes all references to project stages in ASC Subtopic 350-40. ASU 2025-06 is effective for the Company for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years. The Company does not anticipate this ASU will have a material impact on its financial statements.

In November 2025, the FASB issued ASU 2025-08, Financial instruments – Credit Losses (Topic 326): Purchased Loans, which amends the guidance in ASC 326 on the accounting for certain purchased loans. Under the ASU, entities must account for acquired loans (excluding credit cards) that meet certain criteria at acquisition ("purchased seasoned loans") by recognizing them at their purchase price plus an allowance for expected credit losses (the "gross-up approach"). ASU 2025-08 also introduces an accounting policy election related to the subsequent measurement of expected credit losses for entities that use a method other than a discounted cash flow analysis to estimate credit losses on purchased seasoned loans. If this accounting policy is elected, entities can use the amortized cost basis of the asset to subsequently measure their credit loss allowance. ASU 2025-08 is effective for annual reporting periods beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. The Company is currently evaluating the impact of ASU 2025-08 on its consolidated financial statements.

Note 2 - Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at June 30, 2026 are summarized as follows:

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at December 31, 2025, are summarized as follows:

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There were no securities classified as held-to-maturity at June 30, 2026 and December 31, 2025. There was no allowance for credit losses on investment securities recorded at June 30, 2026 and December 31, 2025, based on analysis performed by the Company.

Accrued interest receivable on available-for-sale debt securities totaled $1.6 million and $1.5 million as of June 30, 2026 and December 31, 2025, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Balance Sheets and is excluded from the calculation of the allowance for credit losses on investment securities.

The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of June 30, 2026:

The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of December 31, 2025:

Management believes that the unrealized losses on our investment securities relate principally to the general change in interest rates, market liquidity and demand, and market volatility that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. We do not believe the unrealized losses on our securities are related to a deterioration in credit quality. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend, and it is unlikely that we would be required, to sell these investments prior to a market price recovery or maturity. Based on the Company’s evaluation of these securities, no credit impairment was recorded at June 30, 2026, or December 31, 2025.

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The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; therefore, these securities are shown separately.

Note 3 - Loans Receivable

The Company has identified three segments of its loan portfolio that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality. The three loan portfolio segments are: Real Estate Loans, Consumer Loans and Commercial Business Loans. These segments are further disaggregated into classes based on similar attributes and risk characteristics.

Loan amounts are presented at amortized cost which is comprised of the loan balance net of unearned loan fees in excess of unamortized costs and unamortized purchase premiums of $22.7 million as of June 30, 2026 and $21.5 million as of December 31, 2025. The amortized cost reflected in total loans receivable does not include accrued interest receivable. Accrued interest receivable on loans was $5.6 million as of June 30, 2026 and $5.0 million as of December 31, 2025, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the calculation of the allowance for credit losses on loans.

The amortized cost of loans receivable, net of the allowance for credit losses on loans ("ACLL"), consisted of the following at the dates indicated:

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Nonaccrual Loans. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on either the cash basis or cost recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. For those loans placed on nonaccrual status due to payment delinquency, return to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less than six months.

The following table presents the amortized cost of nonaccrual loans by class of loan at the dates indicated:

Interest income recognized on a cash basis on nonaccrual loans for the three months ended June 30, 2026 and 2025, was $33,000 and $24,000, respectively. Interest income recognized on a cash basis on nonaccrual loans for the six months ended June 30, 2026 and 2025, was $166,000 and $32,000, respectively.

Past due loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. There were no loans past due 90 days or more and still accruing interest at June 30, 2026 and December 31, 2025.

The following tables present the amortized cost of past due loans (including both accruing and nonaccruing loans) by segment and class as of June 30, 2026.

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The following tables present the amortized cost of past due loans (including both accruing and nonaccruing loans) by segment and class as of December 31, 2025.

Credit quality indicator. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss; risk ratings 6, 7, and 8 in our 8-point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When First Fed classifies problem assets as either substandard or doubtful, it may choose to individually evaluate the expected credit loss or may determine that the characteristics are not significantly different from those in pooled loan analysis. 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. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose First Fed to sufficient risk to warrant classification as substandard or doubtful but possess identified weaknesses are designated as either watch or special mention assets; risk ratings 4 and 5 in our risk rating system, respectively. Loans not otherwise classified are considered pass graded loans and are rated 1-3 in our risk rating system.

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The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of June 30, 2026, as well as gross charge-off activity for the six months ended June 30, 2026. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

(1) Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

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The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2025, as well as gross charge-off activity for the year then ended. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

(1) Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

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Individually Evaluated Loans. The Company evaluates loans collectively for purposes of determining the ACLL in accordance with ASC 326 by aggregating loans deemed to possess similar risk characteristics and individually evaluates loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified loans made to borrowers experiencing financial difficulty, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral.

Loans that are deemed by management to possess unique risk characteristics are evaluated individually for purposes of determining an appropriate lifetime ACLL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent. Collateral dependent loans are evaluated based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACLL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. In cases where the loan is well-secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACLL is recorded. Changes in the ACLL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

As of June 30, 2026, $23.9 million of loans were individually evaluated with $173,000 of ACLL attributed to such loans. At June 30, 2026, two individually evaluated loans with recorded investments totaling $379,000 were evaluated using a discounted cash flow approach and the remaining loans totaling $23.5 million were evaluated based on the underlying value of the collateral. One $4.5 million multi-family loan was accruing interest at quarter end, while all other individually evaluated loans were on nonaccrual status at June 30, 2026.

As of December 31, 2025, $25.9 million of loans were individually evaluated with $151,000 of ACLL attributed to such loans. At December 31, 2025, two individually evaluated loans with recorded investments totaling $303,000 were evaluated using a discounted cash flow approach and the remaining loans totaling $25.6 million were evaluated based on the underlying value of the collateral. One $4.5 million multi-family loan was accruing interest at year end, while all other individually evaluated loans were on nonaccrual status at December 31, 2025.

Collateral Dependent Loans. Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral.

The following table summarizes individually evaluated collateral dependent loans by segment and collateral type as of June 30, 2026.

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The following table summarizes individually evaluated collateral dependent loans by segment and collateral type as of December 31, 2025.

Modified Loans to Troubled Borrowers. Modified loans to troubled borrowers ("MLTB") refer to modifications of loans to borrowers experiencing financial difficulty. A MLTB arises from a modification made to a loan in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following: principal forgiveness, interest rate reduction, other-than-insignificant payment delay, term extension, or any combination of the foregoing. The ACLL for MLTBs is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACLL for a MLTB is determined through individual evaluation.

There were no new MLTB during the six months ended June 30, 2026. There was one new MLTB during the six months ended June 30, 2025. The Bank agreed to modify the rate, extend the interest-only payment period and extend the term for a commercial construction loan which had a recorded investment of $5.5 million at the time of modification. This commercial construction loan subsequently converted to an amortizing multi-family loan and was in compliance with the modified terms at June 30, 2026.

Other Real Estate Owned ("OREO"). The Company held $1.6 million and $1.4 million at June 30, 2026, and December 31, 2025, respectively, of OREO secured by residential real estate properties included in "prepaid expenses and other assets" on the Consolidated Balance Sheets.

Note 4 - Allowance for Credit Losses on Loans

The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies. The Company uses 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 will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment. If the present value of cash flows is less than the total recorded investment, a reserve is calculated.

Determining the ACLL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the Bank's Current Expected Credit Loss model. The reserve is an estimate based upon factors and trends at the time the financial statements are prepared.

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The following tables detail activity in the allowance for credit losses on loans by class for the periods shown:

At or For the Three Months Ended June 30, 2026

At or For the Six Months Ended June 30, 2026

At or For the Three Months Ended June 30, 2025

At or For the Six Months Ended June 30, 2025

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Allowance for Credit Losses on Unfunded Loan Commitments. The Company estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Company has determined that no allowance is necessary for its home equity line of credit portfolio as it has the contractual ability to unconditionally cancel the available lines of credit. The allowance methodology is similar to the ACLL, but includes an additional estimate of the future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class. This allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision, or recapture of provision, for credit losses on unfunded commitments on the Consolidated Statements of Operations. The allowance for unfunded commitments was $483,000 and $594,000 at June 30, 2026, and December 31, 2025, respectively. The related provision recapture was $112,000 and $49,000 for the six months ended June 30, 2026 and June 30, 2025, respectively.

Note 5 - Deposits

Deposits and weighted-average interest rates at the dates indicated are as follows:

The aggregate amount of time deposits issued in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limit, currently $250,000, at June 30, 2026 and December 31, 2025, was $175.5 million and $164.2 million, respectively.

Maturities of certificates at the dates indicated are as follows:

At June 30, 2026 and December 31, 2025, deposits included $121.3 million and $113.6 million, respectively, in public fund deposits. The Bank had an outstanding letter of credit from the Federal Home Loan Bank of Des Moines ("FHLB") with a notional amount of $72.0 million at June 30, 2026 and December 31, 2025, to collateralize public deposits. This letter of credit exceeds the minimum collateral requirements established by the Washington Public Deposit Protection Commission. Also included in deposits at June 30, 2026 and December 31, 2025, were funds held by federally recognized tribes totaling $29.0 million and $31.3 million, respectively. Investment securities with a carrying value of $32.9 million and $40.7 million were pledged as collateral for these deposits at June 30, 2026 and December 31, 2025, respectively. These investment securities exceed the minimum collateral requirements established by the Bureau of Indian Affairs.

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Interest on deposits by type for the periods shown was as follows:

Note 6 - Borrowings

First Fed is a member of the FHLB. As a member, First Fed has a committed line of credit of up to 25% of total assets, subject to the amount of FHLB stock ownership and certain collateral requirements.

First Fed maintains borrowing arrangements with the FHLB to borrow funds primarily under long-term, fixed-rate advance agreements. First Fed also has overnight borrowings through FHLB which renew daily until paid. First Fed periodically uses fixed-rate advances maturing in less than one year as an alternative source of funds. Available borrowing capacity was $157.7 million and $204.4 million at June 30, 2026 and December 31, 2025, respectively. All borrowings are secured by collateral consisting of single-family, home equity, commercial real estate, and multi-family loans receivable in the amounts of $832.2 million and $871.3 million at June 30, 2026 and December 31, 2025, respectively. The Bank had outstanding letters of credit from the FHLB with notional amounts of $72.0 million to collateralize public deposits, $17.3 million to collateralize assumable rate conversion (ARC) loans and $772,000 to secure the Bellevue, Washington branch lease at both June 30, 2026 and December 31, 2025.

First Fed also has an established borrowing arrangement with the Federal Reserve Bank of San Francisco ("FRB") to utilize the discount window for short-term borrowing. Available borrowing capacity was $16.7 million and $17.3 million at June 30, 2026 and December 31, 2025, respectively. Investment securities with a carrying value of $17.3 million and $18.0 million were pledged to the FRB at June 30, 2026 and December 31, 2025, respectively.

On March 25, 2021, the Company completed a private placement of $40.0 million of 3.75% fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and institutional accredited investors. The net proceeds to the Company from the sale of the Notes were approximately $39.3 million after deducting placement agent fees and other offering expenses. The Notes have been structured to qualify as Tier 2 capital for the Company for regulatory capital purposes. The Company used the net proceeds of the offering for general corporate purposes. In March 2025, the Company redeemed $5.0 million of the Notes at a discount, resulting in a reduction to the outstanding balance and a $905,000 gain on extinguishment of debt recorded in noninterest income. Beginning in March 2026, the Notes bear interest at a variable rate that resets quarterly on the 30th day of March, June, September and December based on the three-month Secured Overnight Financing Rate in effect on the applicable reset date, plus 300 basis points. Accordingly, the interest rate on the Notes increased from 3.75% to 6.69% on March 30, 2026, and increased to 6.73% on June 30, 2026.

On May 20, 2022, First Northwest began a borrowing arrangement with NexBank for a revolving line of credit. The agreement was modified in 2025 and the new terms allow a maximum extension of credit of $15.0 million. Borrowings are secured by a blanket lien on 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 Company was in compliance with all covenants at June 30, 2026, including fixed coverage, Tier 1 leverage, and risk-based capital ratio minimum requirements and classified assets to Tier 1 capital and Texas ratio maximum requirements. Available borrowing capacity was $1.5 million at both June 30, 2026 and December 31, 2025. The line of credit matures on November 16, 2026.

In October 2023, Pacific Coast Bankers Bank ("PCBB") extended a $50.0 million unsecured Fed Funds Borrowing Facility to the Bank. The Bank must maintain a minimum demand deposit account average balance of $250,000 with PCBB. Availability of funds are not guaranteed and facility usage is generally limited to ten consecutive days. Available borrowing capacity was $50.0 million at both June 30, 2026 and December 31, 2025. This credit facility is authorized for use through December 31, 2027.

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The following table presents information regarding our borrowings as of June 30, 2026. The table includes both long- and short-term borrowings.

The amounts by year of maturity and weighted-average interest rate of FHLB long-term, fixed-rate advances at June 30, 2026 are as follows:

Note 7 - Income Tax

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

Effective tax rates differ from the statutory maximum federal tax rate for 2026 and 2025 of 21%, largely due to the nontaxable earnings on BOLI and tax-exempt interest income earned on certain investment securities and loans. Included in the benefit from income tax for the first half of 2026 were additional adjustments related to unrealized gains and penalties. Included in the benefit from income tax for the first half of 2025 was an estimate for taxes and penalties on the early surrender of a BOLI contract.

The effective tax rate does not include a valuation allowance against the net deferred tax asset. Based on its evaluation of cumulative earnings, including other comprehensive income, available tax planning strategies, projected future earnings and other relevant evidence regarding realizability, management concluded that it is more likely than not that the net deferred tax asset will be realized.

Note 8 - Earnings (Loss) per Common Share

The two-class method is used for computing basic and diluted earnings per share. Under the two-class method, EPS is determined for each class of common stock and participating security according to dividends declared and participating rights in undistributed earnings. The Company has issued restricted shares under share-based compensation plans which qualify as participating securities.

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The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the periods shown:

Potentially dilutive shares are excluded from the computation of EPS if their effect is anti-dilutive. At June 30, 2026 and 2025, antidilutive shares as calculated under the treasury stock method totaled 3,774 and 23,270, respectively.

Note 9 - Employee Benefits

Employee Stock Ownership Plan

In connection with the Conversion, the Company established an ESOP for eligible employees of the Company and the Bank. Employees of the Company and the Bank who have been credited with at least 1,000 hours of service during a 12-month period are eligible to participate in the ESOP.

Pursuant to the Plan, the ESOP purchased shares in the open market with funds borrowed from First Northwest. The Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to First Northwest over a period of 20 years, bearing estimated interest at 2.46%. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP assets. Principal and interest payments of $835,000 were made by the ESOP during the second quarter of both 2026 and 2025.

As shares are committed to be released from collateral, the Company reports compensation expense equal to the average daily market prices of the shares and the shares become outstanding for EPS computations. The compensation expense is accrued monthly throughout the year. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.

Compensation expense related to the ESOP for the three months ended June 30, 2026 and 2025, was $132,000 and $122,000, respectively. Compensation expense related to the ESOP for the six months ended June 30, 2026 and 2025, was $259,000 and $262,000, respectively.

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Shares issued to the ESOP as of the dates indicated are as follows:

Note 10 - Stock-based Compensation

In May 2020, the Company's shareholders approved the First Northwest Bancorp 2020 Equity Incentive Plan ("2020 EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock shares or restricted stock units, and performance share awards to eligible participants through May 2030. The cost of awards under the 2020 EIP generally is based on the fair value of the awards on their grant date. In May 2026, shareholders approved the First Northwest Bancorp Amended and Restated 2020 Equity Incentive Plan ("Amended 2020 EIP"), which increased the maximum number of shares that may be utilized for awards from 520,000 to 820,000 shares. As of June 30, 2026, there were 355,552 total shares available for grant under the Amended 2020 EIP, all of which are available to be granted as restricted shares, performance shares, options or stock appreciation rights. The Amended 2020 EIP will terminate in May 2036.

There were 40,101 and 73,337 shares of restricted stock awarded, respectively, during the six months ended June 30, 2026 and 2025. Restricted share awards vest ratably over periods ranging from one to five years from the date of grant provided the eligible participant remains in service to the Company. The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the grant date amortized over the vesting period.

In addition, there were 16,045 and 33,251 performance shares awarded, respectively, during the six months ended June 30, 2026 and 2025. Performance share awards vest in accordance with the terms outlined in each award agreement. The Company recognizes compensation expense for the performance share awards based on the fair value of the shares at the grant date amortized over the performance period.

For the three months ended June 30, 2026 and 2025, total compensation expense for the equity incentive plans was $183,000 and $211,000, respectively. Included in the compensation expense for the three months ended June 30, 2026 and 2025, was directors' equity compensation of $59,000 and $65,000, respectively.

For the six months ended June 30, 2026 and 2025, total compensation expense for the equity incentive plans was $289,000 and $405,000, respectively. Included in the compensation expense for the six months ended June 30, 2026 and 2025, was directors' equity compensation of $116,000 and $121,000, respectively.

The following tables provide a summary of changes in non-vested restricted stock and performance share awards for the period shown:

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As of June 30, 2026, there was $1.1 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock and performance share awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately 2.0 years.

Note 11 - Fair Value Measurements

Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.

Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.

A three-level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.

Level 3 - Unobservable inputs.

The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.

The Company used the following methods to measure fair value on a recurring and nonrecurring basis.

Securities available for sale: Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities. If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.

Servicing rights on sold loan, at fair value: The fair value of servicing rights on sold loans is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs. Servicing rights are classified as Level 3 due to reliance on assumptions used in the valuation.

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Interest rate swap derivative: The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s securities derivatives are traded in an over-the-counter market where quoted market prices are not always available. The Company also entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans. The fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third-party pricing services without adjustment.

Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets and liabilities measured at fair value on a recurring basis at the dates indicated:

June 30, 2026

December 31, 2025

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The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at the dates indicated:

The following tables summarize the changes in Level 3 assets measured at fair value on a recurring basis, at the dates indicated:

Assets and liabilities measured at fair value on a nonrecurring basis - Assets are considered to be valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the consolidated balance sheets. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.

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The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:

June 30, 2026

December 31, 2025

At June 30, 2026 and December 31, 2025, there were no individually evaluated loans with discounts to appraisal disposition value or other unobservable inputs. The following tables present the techniques used to value assets measured at fair value on a nonrecurring basis at the dates indicated:

The following tables present the carrying value and estimated fair value of financial instruments at the dates indicated:

June 30, 2026

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December 31, 2025

Note 12- Change in Accumulated Other Comprehensive Income ("AOCI")

Our AOCI includes unrealized gains (losses) on available-for-sale securities, defined benefit plan assets and derivatives as well as an unrecognized defined benefit plan prior service cost. The following table presents changes to accumulated other comprehensive income after-tax for the periods shown:

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Note 13 - Derivatives and Hedging Activities

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreement without the exchange of the underlying notional amount.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

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The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustment for fair value hedges for the periods shown.

(1) These amounts include the amortized cost basis of a closed portfolio of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At June 30, 2026 and December 31, 2025, the amortized cost basis of the closed portfolio used in this hedging relationship was $55.8 million and $56.1 million, respectively; the cumulative basis adjustments associated with this hedging relationship was $228,000 and $980,000, respectively; and the amount of the designated hedged items was $50.0 million for both periods.

(2) These amounts include the amortized cost basis of a closed portfolio of loans receivable used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At June 30, 2026 and December 31, 2025, the amortized cost basis of the closed portfolio used in this hedging relationship was $195.1 million and $213.3 million, respectively; the cumulative basis adjustments associated with this hedging relationship was $10,000 and $903,000, respectively; and the amount of the designated hedged items was $86.2 million and $100.0 million, respectively.

The following table summarizes the Company’s derivative instruments at the date indicated. The Company has master netting agreements with derivative dealers with which it does business, but reflects gross assets and liabilities as “Other assets” and “Other liabilities,” respectively, on the Consolidated Balance Sheets, as follows:

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The following table summarizes the effect of fair value accounting on the Consolidated Statements of Operations for the periods shown:

Credit Risk-related Contingent Features

The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted.

The Company has interest rate swap agreements with its derivative counterparties that contain provisions where if the Company either defaults or fails to maintain its status as a well or adequately capitalized institution, then the Company could be required to terminate the contract or post additional collateral. At June 30, 2026, the Company had derivatives on securities in a net liability position related to these agreements. The Company has minimum collateral posting thresholds with its derivative counterparties and has posted cash of $3.5 million at June 30, 2026, to secure the related interest rate swap agreements as needed. In certain cases, the Company will have posted excess collateral compared to total exposure due to initial margin requirements or day-to-day rate volatility.

As of June 30, 2026, the Company was in compliance with all credit risk-related contingent features. Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial.

Note 14 - Segment Reporting

First Fed is engaged in the business of attracting deposits and providing lending services. Substantially all income is derived from a diverse base of commercial, mortgage, and consumer lending activities and investments. The Company’s activities are considered to be a single industry segment for financial reporting purposes. The chief operating decision maker ("CODM") is comprised of the chief executive officer and the chief financial officer.

The accounting policies of the Bank are the same as those described in the summary of significant accounting policies in Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2025 ("2025 Form 10-K"). The CODM assesses performance for the Bank and decides how to allocate resources based on net income that is reported on the income statement as consolidated net income. The measurement of segment assets is reported on the balance sheet as total consolidated assets.

The CODM uses net income to evaluate income generated from the segment assets (return on assets) in deciding whether to reinvest profits into the Bank or into other parts of the entity, such as to pay dividends or a share repurchase plan. Net income is used to monitor budget versus actual results and assess the performance of the Bank.

The Company generates revenue from interest income, fee income and other noninterest income from investments and services. All operations are based in Washington State. No single customer accounts for more than 10% of total revenue.

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Note 15 - Legal contingencies

In the normal course of business, the Company may have various legal claims and other similar contingent matters outstanding for which a loss may be realized. For these claims, the Company establishes a liability for contingent losses when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. For claims determined to be reasonably possible but not probable of resulting in a loss, a liability will not be reserved but the amount of loss or a range of possible losses may be disclosed if the amount can be reasonably estimated.

3|5|2 Capital Litigation

As the Company previously disclosed, on June 10, 2025, 3|5|2 Capital GP LLC, on behalf of 3|5|2 Capital ABS Master Fund LP (collectively, "3|5|2 Capital"), filed a complaint (the "3|5|2 Complaint") against First Fed, in the Superior Court of the State of Washington for King County, arising from 3|5|2 Capital’s alleged investment in bonds of Water Station Management. The 3|5|2 Complaint alleges that Water Station Management and certain affiliated individuals and entities misappropriated over $100 million by using the proceeds from a bond offering to repay earlier investors and creditors, including the Bank, rather than for the disclosed purpose of expanding Water Station Management’s business. The 3|5|2 Complaint asserts claims against the Bank for aiding and abetting the alleged fraud, conspiracy to commit fraud, unjust enrichment, and constructive trust, and seeks various forms of relief, including not less than $106.9 million in compensatory damages plus interest, unspecified punitive damages, and attorneys' fees and costs. The Company strongly disputes the allegations contained in the 3|5|2 Complaint and is vigorously defending against the claims, most recently filing its Second Amendment Answer, Affirmative Defenses, and Counterclaims on July 22, 2026.

Socotra REIT I Litigation

On October 17, 2025, Socotra REIT I, LLC ("Socotra") filed a complaint (the "Socotra Complaint") against First Fed, in the Superior Court of the State of Washington for King County. The Socotra Complaint alleges that First Fed made misrepresentations, committed fraudulent acts, converted funds, and violated Washington’s Consumer Protection Act in connection with a $7.7 million commercial loan from Socotra to Ideal Property Investments LLC that paid down $4.0 million in First Fed secured obligations, and seeks unspecified damages including restitution, statutory penalties, and attorneys' fees and costs. The Company strongly disputes the allegations contained in the Socotra Complaint and is vigorously defending against the claims made therein. On December 8, 2025, First Fed filed its Answer and Affirmative Defenses. The Bank and Socotra are currently engaged in discovery.

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FILINGSOURCEITEMBOUNDARYBEGIN Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations FILINGSOURCEITEMBOUNDARYENDITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 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 Northwest is subject to regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve"). A financial holding company is a bank holding company that is permitted to engage in specified types of non-banking financial services. First Fed is examined and regulated by the Washington State Department of Financial Institutions, Division of Banks ("DFI") and by the Federal Deposit Insurance Corporation ("FDIC"). First Fed is required to have certain reserves set by the Federal Reserve and is a member of the Federal Home Loan Bank of Des Moines ("FHLB"), which is one of the 11 regional banks in the Federal Home Loan Bank System ("FHLB System").

First Fed is a community-oriented commercial bank founded in 1923 in Port Angeles, Washington. The Bank serves Clallam, Jefferson, King, Kitsap, Snohomish and Whatcom counties in Washington State through its ten 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.

First Northwest's limited partnership investments include BankTech Ventures, LP; Canapi Ventures Fund, 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% 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. MWG holds a 20% general partner interest in Meriwether Group Capital, LLC ("MWGC"). MWGC holds a 0.01% general partner interest in the Hero Fund. The Company held a 25% equity interest as a general partner in MWGC prior to the February 2026 redemption of its interest.

The Company is impacted by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal policy, including fiscal stimulus, interest rate policy and open market operations, housing, and consumer protection. 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 may impact our net interest income. A secondary source of income for the Company is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, debit card interchange income, mortgage banking income, treasury and other commercial banking related fees, earnings from bank-owned life insurance, loan servicing income, earnings from equity and partnership investments, and gains and losses from the sale of loans and securities.

An offset to net interest income is the provision for credit losses, which represents the periodic charge to operations required to adequately provide for probable losses inherent in our loan, unfunded commitments and investment portfolios through the allowance for credit loss for each respective portfolio. 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 March 19, 2026, the federal banking agencies issued several proposals to revise the U.S. regulatory capital framework. The proposals would, among other things, modify aspects of the standardized approach to risk-based capital that applies to the Company, including by making the risk weights for certain residential mortgage exposures more risk sensitive and decreasing the risk weights of corporate exposures, which could affect certain aspects of the Company’s regulatory capital calculations. The Company is continuing to evaluate these proposals and their potential impact on its regulatory capital position.

Critical Accounting Policies

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

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

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

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

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

The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 6.4 years as of June 30, 2026 and 6.5 years as of December 31, 2025, and had an estimated average repricing term of 6.0 years as of June 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 4.6 years at June 30, 2026, compared to 4.6 years at December 31, 2025. The investment portfolio was comprised of 51.0% in amortizing securities at June 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, decreased $15.0 million, or 0.9%, to $1.60 billion at June 30, 2026, from $1.61 billion at December 31, 2025. During the six months ended June 30, 2026, one-to-four family loans decreased $19.7 million during the six months ended June 30, 2026, as repayment activity exceeded $1.8 million in residential construction loans that converted to permanent amortizing loans and new loan originations totaling $3.2 million. Multi-family loans decreased $32.7 million during the six months ended June 30, 2026, as prepayments and scheduled payments exceeded $3.7 million of new loan originations and $199,000 of construction loans converting into permanent amortizing loans. Commercial real estate loans decreased $115,000 during the six months ended June 30, 2026, with repayment activity exceeding $13.2 million of new loan originations and $8.6 million of construction loan conversions. Construction and land loans increased $429,000, or 0.7%, to $61.7 million at June 30, 2026, from $61.3 million at December 31, 2025, with draws on new and existing loan commitments totaling $25.5 million, partially offset by payment activity totaling $15.0 million, $10.4 million converting into fully amortizing loans and charge-offs totaling $371,000.

Home equity loan outstanding balances increased $4.9 million over the prior year end due to $16.4 million of net draws on new and existing line of credit commitments and $1.9 million of home equity loan originations, partially offset by prepayments and scheduled payments. Auto and other consumer loans increased $11.5 million with auto loan purchases of $41.0 million and individual manufactured home loan purchases of $4.3 million, partially offset by prepayments and scheduled payments.

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

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:

(1) Includes Clallam and Jefferson counties.

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

(1) Includes Clallam and Jefferson counties.

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

During the six months ended June 30, 2026, the Company added $79.8 million of organic loan originations, of which $41.9 million, or 52.6%, were located in the Puget Sound region, $31.7 million, or 39.7%, on the North Olympic Peninsula, and $4.1 million, or 5.2%, in other areas throughout Washington State. The Company purchased $41.0 million in auto loans and $4.4 million in manufactured home loans to borrowers located throughout the United States during the six months ended June 30, 2026. The total loan portfolio was composed of 76.9% organic originations and 23.1% purchased loans at June 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 $16.3 million at June 30, 2026, compared to $17.0 million at December 31, 2025. A $703,000 reduction in the pooled loan reserve balance was driven by lower one-to-four family, multi-family and commercial business loan balances combined with lower loss factors applied to one-to-four family, commercial real estate, other consumer and commercial business loans. The decrease to the pooled loan reserve balance was partially offset by higher purchased auto balances and higher loss factors applied to construction and home equity loan balances at the end of the current quarter. The pooled loan reserve was impacted by a mild increase in gross domestic product, higher unemployment forecasts, net loan charge-offs and a reduction in nonaccrual loans. The reserve on individually analyzed loans increased $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 1.01% and 1.04% at June 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 June 30, 2026.

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

Classified loans decreased $9.8 million, or 27.7%, to $25.5 million at June 30, 2026, from $35.3 million at December 31, 2025, primarily due to payoffs totaling $14.9 million, principal payments totaling $1.5 million, net recoveries on previously charged-off loans totaling $285,000 and upgrades totaling $156,000. The decreases were partially offset by downgrades across multiple loan categories totaling $6.9 million. Four collateral-dependent loans totaling $18.3 million account for 72% of the classified loan balance at June 30, 2026. The Bank continues to work with all borrowers to facilitate satisfactory repayment.

In the first half of 2026, the Bank recorded net recoveries of $288,000 in commercial business loans. Net charge-offs of $242,000 to auto and other consumer loans, $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.

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

The following table summarizes nonperforming assets at the dates indicated:

Liabilities. Total liabilities increased to $1.97 billion at June 30, 2026, from $1.95 billion at December 31, 2025, due to increases in deposits of $8.3 million and borrowings of $5.0 million.

Deposit account balances increased $8.3 million, or 0.5%, to $1.61 billion at June 30, 2026 from $1.60 billion at December 31, 2025. During the first six months of 2026, total customer deposit balances increased $36.2 million and brokered deposit balances decreased $27.9 million. All categories of customer deposits reflect increases, including customer CDs of $19.9 million, money market accounts of $11.1 million, demand deposit accounts of $2.8 million and savings accounts of $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 $5.0 million, or 1.9% to $265.0 million at June 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 increased $1.1 million to $158.3 million for the six months ended June 30, 2026, due to an increase in the after-tax fair market values of the available-for-sale investment securities portfolio of $590,000, the allocation of compensation-related shares valued at $512,00 and net income of $314,000, partially offset by a $428,000 increase in the investment portfolio hedge post-tax fair market value. During the first six 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 June 30, 2026 and 2025

General. The Company recorded net income of $308,000 for the three months ended June 30, 2026, compared to net income of $3.7 million for the three months ended June 30, 2025. A $3.6 million increase in noninterest expense, a $165,000 decrease in noninterest income and a $20,000 decrease in net interest income were partially offset by a $180,000 increase in recapture of provision for credit losses and a $280,000 decrease in income tax provision.

Net Interest Income. Net interest income was flat at $14.2 million for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, with declines in loan, investment and interest-earning deposit income offset by reduced deposit and borrowing costs. The net interest margin increased 12 basis points to 2.95% for the three months ended June 30, 2026, compared to 2.83% for the same period in 2025.

Interest Income. Total interest income decreased $1.7 million, or 6.2%, to $25.5 million for the three months ended June 30, 2026, from $27.1 million for the comparable period in 2025. Average earning assets decreased $85.2 million year-over-year. The yield on average interest-earning assets decreased 11 basis points to 5.30% for the three months ended June 30, 2026, compared to 5.41% for the same period in the prior year. Interest and fees on loans receivable decreased $817,000 primarily due to a decrease in the average balance of net loans receivable of $50.9 million, a change in the mix of loans compared to the prior year and a 3 basis point decrease in average loan yields. Interest from investment securities decreased $743,000 primarily due to the maturity of some higher-yielding investment securities during 2025 resulting in a 51 basis point decrease in average investment yields. While the Company's yields dropped period-over-period, the decrease was significantly lower than the 75 basis point Fed Funds decrease over the same period.

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

Interest Expense. Total interest expense decreased $1.7 million, or 12.8%, to $11.3 million for the three months ended June 30, 2026, compared to $12.9 million for the three months ended June 30, 2025. The average cost of interest-bearing liabilities decreased 23 basis points to 2.78% for the three months ended June 30, 2026, compared to 3.01% for the same period last year. Interest expense on deposits decreased $1.5 million due to a $77.3 million decrease in the average balance and a 31 basis point decrease in the cost of interest-bearing deposits reflecting a decreased reliance on brokered deposits. Interest expense on borrowings decreased $137,000 due to a $22.9 million decrease in the average balance of FHLB advances offset by a 16 basis point increase in the cost of borrowings due to the subordinated debt transition from a fixed to floating rate compared to the same period in 2025.

During the three months ended June 30, 2026, interest expense on brokered CDs decreased due to lower average balances of $72.6 million along with a 13 basis point decrease in the average rate paid, compared to the three months ended June 30, 2025. Customer CDs represented 28.20% and 27.20% of total deposits at June 30, 2026 and 2025, respectively. Brokered CDs represented 3.60% and 6.50% of total deposits at June 30, 2026 and 2025, respectively.

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

Provision for Credit Losses. The Company recorded a $337,000 loan loss provision recapture and a $203,000 unfunded commitment provision recapture for the three months ended June 30, 2026. This compares to a $296,000 loan loss provision recapture and a $64,000 unfunded commitment provision recapture for the three months ended June 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 lower loss factors at June 30, 2026, partially offset by net charge-offs totaling $177,000 for the three-month period. The higher unfunded commitment provision recapture compared to the same period in 2025 was primarily 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:

Noninterest Income. Noninterest income decreased $165,000, or 7.6%, to $2.0 million for the three months ended June 30, 2026, from $2.2 million for the three months ended June 30, 2025. Other income reflects 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 $81,000 of interest related to the ERC recorded in other income.

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

Noninterest Expense. Noninterest expense increased $3.6 million, or 28.4%, to $16.4 million for the three months ended June 30, 2026, compared to $12.8 million for the three months ended June 30, 2025. The increase in 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 period-over-period increases to incentive payments 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 $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 $219,000 compared to the same period in 2025 as the Bank initiated a process improvement project in the second quarter of 2026.

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

Provision for Income Tax. An income tax provision of $17,000 was recorded for the three months ended June 30, 2026, compared to a provision of $297,000 for the three months ended June 30, 2025, due to a period-over-period decrease in net income before taxes of $3.6 million. The provision includes accruals for both federal and state income taxes. For additional information, see Note 7 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Comparison of Results of Operations for the Six Months Ended June 30, 2026 and 2025

General. The Company recorded net income of $314,000 for the six months ended June 30, 2026, compared to a net loss of $5.4 million for the six months ended June 30, 2025. A $7.9 million decrease in provision for credit losses, and a $573,000 increase in net interest income were partially offset by a $1.9 million decrease in noninterest income, a $525,000 decrease in income tax benefit and a $312,000 increase in noninterest expense.

Net Interest Income. Net interest income increased $573,000 to $28.6 million for the six months ended June 30, 2026, from $28.0 million for the six months ended June 30, 2025, as reduced deposit and borrowing costs outpaced declines in loan, investment and interest-earning deposit income. The net interest margin increased by 19 basis points to 2.99% for the six months ended June 30, 2026, compared to 2.80% for the same period in 2025.

Interest Income. Total interest income decreased $3.2 million, or 5.9%, to $50.8 million for the six months ended June 30, 2026, from $54.0 million for the comparable period in 2025. Average earning assets decreased $93.3 million year-over-year. The yield on average interest-earning assets decreased 7 basis points to 5.31% for the six months ended June 30, 2026, compared to 5.38% for the same period in the prior year. Interest from investment securities decreased $2.0 million primarily due to the maturity of some higher-yielding investment securities during 2025. Interest and fees on loans receivable decreased $1.1 million, to $44.0 million for the six months ended June 30, 2026, from $45.1 million for the six months ended June 30, 2025, primarily due to a decrease in the average balance of net loans receivable of $47.8 million and a change in the mix of loans compared to the prior year, partially offset by an increase in average loan yields to 5.57% for the six months ended June 30, 2026, from 5.54% for the same period in 2025. For context, the Fed Funds rate decreased 75 basis points over the same period.

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

Interest Expense. Total interest expense decreased $3.7 million, or 14.4%, to $22.2 million for the six months ended June 30, 2026, compared to $25.9 million for the six months ended June 30, 2025. The average cost of interest-bearing liabilities decreased 28 basis points to 2.75% for the six months ended June 30, 2026, compared to 3.03% for the same period last year. Interest expense on deposits decreased $3.3 million due to a $71.2 million decrease in the average balance and a 36 basis point decrease in the cost of interest-bearing deposits. A reduced reliance on brokered CDs and a shift in the deposit mix from interest-bearing demand and customer CDs to higher average balances of money market and savings accounts resulted in a lower cost of deposits. Interest expense on borrowings decreased $412,000 due to a $24.8 million decrease in the average balance of FHLB advances offset by a 10 basis point increase in the cost of borrowings due to the subordinated debt transition from a fixed to floating rate compared to the same period in 2025.

During the six months ended June 30, 2026, interest expense on brokered CDs decreased due to lower average balances of $80.3 million along with a 25 basis point decrease in the average rate paid, compared to the six months ended June 30, 2025. Average deposit account balances were composed of 84.9% in interest-bearing deposits and 15.1% in noninterest-bearing deposits at June 30, 2026, compared to 85.3% and 14.7%, respectively, at June 30, 2025. Customer CDs represented 29.3% and 29.1% of customer deposits at June 30, 2026 and 2025, respectively.

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

Provision for Credit Losses. The Company recorded a $350,000 loan loss provision recapture and a $112,000 unfunded commitment provision recapture for the six months ended June 30, 2026. This compares to a $7.5 million loan loss provision and a $49,000 unfunded commitment provision recapture for the six months ended June 30, 2025. The current period recapture of provision for credit losses on loans reflects lower pooled reserve loan balances and reduced loss factors, partially offset by an increase in the reserve on individually evaluated loans. Net charge-offs recorded during the first half of 2026 totaled $328,000, compared to $9.6 million recorded during the first half of 2025. The higher provision recapture on unfunded commitments compared to the same period in 2025 was primarily 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:

Noninterest Income. Noninterest income decreased $1.9 million, or 32.5%, to $4.0 million for the six months ended June 30, 2026, from $6.0 million for the six months ended June 30, 2025. Nonrecurring income for the first half of 2025 included a $1.1 million BOLI death benefit, an $846,000 gain on the extinguishment of debt related to repurchasing $5.0 million of subordinated debt at a discount recorded in other income and $81,000 of interest related to an Employee Retention Credit recorded in other income. Also included in other income was a period-over-period decrease in swap fee income of $113,000.

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

Noninterest Expense. Noninterest expense increased $312,000, or 1.0%, to $33.1 million for the six months ended June 30, 2026, compared to $32.8 million for the six months ended June 30, 2025. Nonrecurring expenses for the first half of 2025 included a $5.8 million legal settlement paid and a $2.6 million Employee Retention Credit reduction to compensation expense. Other increases to compensation and benefits included period-over-period increases to incentive payments of $616,000 and medical insurance of $354,000. Legal expense included in professional fees increased $1.5 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. Consulting costs included in professional fees increased $651,000 compared to the same period in 2025 as the Bank utilized outside resources to assist with key duties of certain open positions during the first quarter of 2026 and initiated a process improvement project in the second quarter of 2026.

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

Provision for Income Tax. An income tax benefit of $303,000 was recorded for the six months ended June 30, 2026, compared to a benefit of $828,000 for the six months ended June 30, 2025, due to a period-over-period decrease in net income before taxes of $6.2 million, partially offset by a tax penalty estimate for the early surrender of BOLI contracts recorded in 2025. 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.

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 June 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.

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

(2) Interest earned on loans receivable includes net deferred costs of $775,000 and $148,000 for the three months ended June 30, 2026 and 2025, respectively.

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

(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.04% and 2.31% for the three months ended June 30, 2026 and 2025, respectively.

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

(1) The average loans receivable, net balances include nonaccrual loans. (2) Interest earned on loans receivable includes net deferred costs of $1.4 million and $486,000 for the six months ended June 30, 2026 and 2025, respectively. (3) Includes interest-earning deposits (cash) at other financial institutions. (4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.04% and 2.35% for the six months ended June 30, 2026 and 2025, 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.

(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 six months ended June 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.

Contractual Obligations

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

Commitments and Off-Balance Sheet Arrangements

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

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

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

CDs due within one year as of June 30, 2026, totaled $450.2 million, or 88.0% of CDs with a weighted-average rate of 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 64% of deposit account balances held by consumers, 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 $29,000 at June 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 June 30, 2026, the Company, on an unconsolidated basis, had liquid assets of $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.

Capital Resources

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

At June 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 June 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 5.4% at June 30, 2026, 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has not been any material change in the market risk disclosures contained in the 2025 Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) was carried out under the supervision and with the participation of the Company's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial and Accounting Officer), and other members of the Company's management team as of the end of the period covered by this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures in effect as of June 30, 2026, were effective.

(b) Changes in Internal Controls.

There have been no changes in the Company's internal control over financial reporting (as defined in 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is engaged in legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on the Company’s financial position or results of operations other than the matters discussed in Note 15 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I. Item 1A of the Company's 2025 Form 10-K.

FILINGSOURCEITEMBOUNDARYBEGIN Item 2. - Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities FILINGSOURCEITEMBOUNDARYENDItem 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

(a) Not applicable.

(b) Not applicable.

(c) The following table summarizes common stock repurchases during the three months ended June 30, 2026:

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the fiscal quarter ended June 30, 2026, no director or officer of First Northwest adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits

SIGNATURES

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