[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's discussion and analysis for First Northwest Bancorp [Item 1 - Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20-%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows, for First Northwest Bancorp and First Fed Bank [Consolidated Balance Sheets](index=3&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity **Key Balance Sheet Items (in thousands):** | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Cash and due from banks | $18,487 | $16,811 | | Interest-earning deposits in banks | $69,376 | $55,637 | | Investment securities available for sale | $303,515 | $340,344 | | Loans receivable (net) | $1,647,217 | $1,675,186 | | Deposits | $1,654,636 | $1,688,026 | | Borrowings | $344,108 | $336,014 | | Total assets | $2,195,363 | $2,232,006 | | Total liabilities | $2,045,630 | $2,078,124 | | Total shareholders' equity | $149,733 | $153,882 | - Total Assets **decreased by 1.6%** from **$2.23 billion** at December 31, 2024, to **$2.20 billion** at June 30, 2025[10](index=10&type=chunk) - Total Shareholders' Equity **decreased** from **$153.9 million** at December 31, 2024, to **$149.7 million** at June 30, 2025[10](index=10&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This section presents the company's financial performance, detailing net income (loss) and key revenue and expense items **Net Income (Loss) (in thousands):** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $3,661 | $(2,219) | | Six Months Ended June 30, | $(5,375) | $(1,823) | **Basic and Diluted Earnings (Loss) per Common Share:** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $0.42 | $(0.25) | | Six Months Ended June 30, | $(0.61) | $(0.21) | **Key Income Statement Items (in thousands):** | Item | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $27,131 | $28,611 | $53,954 | $55,937 | | Total interest expense | $12,938 | $14,376 | $25,914 | $27,774 | | Net interest income | $14,193 | $14,235 | $28,040 | $28,163 | | (Recapture of) provision for credit losses | $(360) | $8,739 | $7,425 | $9,709 | | Total noninterest income | $2,170 | $7,347 | $5,947 | $9,535 | | Total noninterest expense | $12,765 | $15,609 | $32,765 | $29,912 | | Net income (loss) | $3,661 | $(2,219) | $(5,375) | $(1,823) | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) This section outlines the company's comprehensive income (loss), including net income and other comprehensive income components **Comprehensive Income (Loss) (in thousands):** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $3,592 | $(1,351) | | Six Months Ended June 30, | $(3,401) | $(784) | **Other Comprehensive Income (Loss), net of tax (in thousands):** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $(69) | $868 | | Six Months Ended June 30, | $1,974 | $1,039 | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY) This section details changes in shareholders' equity, reflecting net income (loss), other comprehensive income, and dividends **Total Shareholders' Equity (in thousands):** | Period | Balance | | :-------------------------------- | :----- | | June 30, 2025 | $149,733 | | June 30, 2024 | $158,881 | | December 31, 2024 | $153,882 | | December 31, 2023 | $163,340 | - Net loss for the six months ended June 30, 2025, was **$(5.4 million)**, compared to **$(1.8 million)** in 2024[18](index=18&type=chunk) - Other comprehensive income, net of tax, for the six months ended June 30, 2025, was **$2.0 million**, compared to **$1.0 million** in 2024[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This section presents the company's cash flows from operating, investing, and financing activities **Net Cash Flows (Six Months Ended June 30, in thousands):** | Activity | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Operating activities | $(17,771) | $3,242 | | Investing activities | $59,228 | $(51,726) | | Financing activities | $(26,042) | $8,494 | | Net increase (decrease) in cash and cash equivalents | $15,415 | $(39,990) | | Cash and cash equivalents at end of period | $87,863 | $83,179 | - Provision for credit losses on loans was **$7.5 million** in 2025, compared to **$9.9 million** in 2024[20](index=20&type=chunk) - A gain on extinguishment of subordinated debt of **$(0.8 million)** was recorded in 2025, with no comparable amount in 2024[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations and disclosures supporting the consolidated financial statements [Note 1 - Basis of Presentation and Critical Accounting Policies](index=10&type=section&id=Note%201%20-%20Basis%20of%20Presentation%20and%20Critical%20Accounting%20Policies) This note outlines the company's structure, business activities, and critical accounting policies, including estimates for credit losses and fair value - First Northwest Bancorp is the holding company for First Fed Bank, a community-oriented financial institution in western Washington State[24](index=24&type=chunk)[29](index=29&type=chunk) - Unaudited interim consolidated financial statements adhere to SEC rules and GAAP, requiring estimates for credit losses, fair value, and deferred taxes[30](index=30&type=chunk)[32](index=32&type=chunk) - Recently adopted and issued accounting pronouncements are not expected to materially impact the consolidated financial statements[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) [Note 2 - Securities](index=12&type=section&id=Note%202%20-%20Securities) This note details investment securities available-for-sale, including fair value and unrealized gains/losses, primarily driven by interest rate changes **Total Securities Available for Sale (in thousands):** | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Amortized Cost | $336,206 | $376,265 | | Estimated Fair Value | $303,515 | $340,344 | | Gross Unrealized Gains | $434 | $238 | | Gross Unrealized Losses | $(33,125) | $(36,159) | - Unrealized losses on investment securities are primarily due to general interest rate changes and market volatility, not credit quality deterioration, with no credit impairment recorded[42](index=42&type=chunk) **Maturity Profile of Investment Securities (June 30, 2025, in thousands):** | Maturity | Mortgage-backed securities (Amortized Cost) | All other investment securities (Amortized Cost) | | :-------------------------- | :------------------------------------------ | :---------------------------------------------- | | Due within one year | $5,929 | $0 | | Due after one through five years | $10,404 | $26,013 | | Due after five through ten years | $7,962 | $54,904 | | Due after ten years | $127,844 | $103,150 | | **Total** | **$152,139** | **$184,067** | [Note 3 - Loans Receivable](index=15&type=section&id=Note%203%20-%20Loans%20Receivable) This note details the loan portfolio, including segments, nonaccrual loans, credit quality, and modified loans to troubled borrowers **Total Loans Receivable (in thousands):** | Loan Segment | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Real Estate Loans | $1,181,055 | $1,196,400 | | Consumer Loans | $365,804 | $347,930 | | Commercial Business Loans | $117,843 | $151,493 | | **Total Loans Receivable** | **$1,664,702** | **$1,695,823** | - Nonaccrual loans **decreased** from **$30.5 million** at December 31, 2024, to **$20.4 million** at June 30, 2025[50](index=50&type=chunk) - As of June 30, 2025, **$31.0 million** of loans were individually evaluated, with **$79 thousand** of ACLL attributed, primarily based on collateral value[62](index=62&type=chunk) - One new Modified Loan to Troubled Borrower (MLTB) was recorded for a commercial construction loan with a **$5.5 million** investment[66](index=66&type=chunk) - Other Real Estate Owned (OREO) **increased to $1.3 million** at June 30, 2025, from **$0** at December 31, 2024[68](index=68&type=chunk) [Note 4 - Allowance for Credit Losses on Loans](index=21&type=section&id=Note%204%20-%20Allowance%20for%20Credit%20Losses%20on%20Loans) This note details the Allowance for Credit Losses on Loans (ACLL) and unfunded commitments, including a Q2 2025 recapture of provision **Allowance for Credit Losses on Loans (ACLL) (in thousands):** | Period | Balance | | :-------------------- | :------ | | June 30, 2025 | $18,345 | | December 31, 2024 | $20,449 | **Provision for Credit Losses on Loans (in thousands):** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $(296) | $8,640 | | Six Months Ended June 30, | $7,474 | $9,879 | - The ACLL as a percentage of total loans was **1.10%** at June 30, 2025, down from **1.21%** at December 31, 2024[161](index=161&type=chunk) - The ACLL as a percentage of nonaccrual loans **increased to 90%** at June 30, 2025, up from **67%** at December 31, 2024[162](index=162&type=chunk) [Note 5 - Deposits](index=23&type=section&id=Note%205%20-%20Deposits) This note details deposit composition, interest rates, and maturities, showing a decrease in total deposits driven by brokered CDs **Deposit Composition and Weighted Average Interest Rates (in thousands):** | Deposit Type | June 30, 2025 (Amount) | June 30, 2025 (Rate) | Dec 31, 2024 (Amount) | Dec 31, 2024 (Rate) | | :-------------------------------- | :--------------------- | :------------------- | :-------------------- | :-------------------- | | Noninterest-bearing demand deposits | $240,051 | 0.00% | $256,416 | 0.00% | | Interest-bearing demand deposits | $144,409 | 0.11% | $164,891 | 0.44% | | Money market accounts | $484,787 | 2.47% | $413,822 | 2.26% | | Savings accounts | $227,968 | 1.56% | $205,055 | 1.35% | | Certificates of deposit, customer | $450,494 | 3.84% | $464,928 | 4.18% | | Certificates of deposit, brokered | $106,927 | 4.13% | $182,914 | 4.73% | | **Total deposits** | **$1,654,636** | **2.26%** | **$1,688,026** | **2.42%** | - Total deposits **decreased by $33.4 million (2.0%)**, driven by a **$76.0 million decrease** in brokered deposits, partially offset by a **$42.6 million increase** in customer deposits[73](index=73&type=chunk)[170](index=170&type=chunk) **Maturities of Certificates of Deposit (in thousands):** | Maturity | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Within one year or less | $512,244 | $527,486 | | After one year through two years | $29,933 | $66,767 | | After two years through three years | $10,601 | $29,378 | | After three years through four years | $3,879 | $21,967 | | After four years through five years | $764 | $2,244 | | **Total certificates of deposit** | **$557,421** | **$647,842** | [Note 6 - Borrowings](index=24&type=section&id=Note%206%20-%20Borrowings) This note details borrowing arrangements, available capacities, and the Q1 2025 redemption of subordinated debt **Borrowing Balances (in thousands):** | Borrowing Type | June 30, 2025 (Balance) | Dec 31, 2024 (Balance) | | :-------------------- | :---------------------- | :--------------------- | | FHLB Long Term Advances | $170,000 | $160,000 | | FHLB Overnight Variable-Rate Advances | $130,000 | $130,000 | | NexBank Line of Credit | $9,500 | $6,500 | | Subordinated Debt, net | $34,608 | $39,514 | | **Total** | **$344,108** | **$336,014** | - Available borrowing capacity at June 30, 2025, included **$179.9 million** from FHLB, **$17.6 million** from FRB, **$10.5 million** from NexBank, and **$50.0 million** from PCBB[78](index=78&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[209](index=209&type=chunk) - In March 2025, the Company redeemed **$5.0 million** of subordinated notes, resulting in a **$905 thousand** gain on extinguishment of debt[80](index=80&type=chunk) [Note 7 - Income Tax](index=25&type=section&id=Note%207%20-%20Income%20Tax) This note discusses deferred tax assets/liabilities, effective tax rates, and the potential impact of the "One Big Beautiful Bill Act" - The effective tax rate was **13.3%** for the six months ended June 30, 2025, compared to **5.2%** for the same period in 2024[87](index=87&type=chunk) - Factors influencing the effective tax rate include nontaxable earnings on BOLI, tax-exempt interest income, and estimates for early BOLI surrender penalties[87](index=87&type=chunk) - The "One Big Beautiful Bill Act" (July 4, 2025) includes federal tax law changes, such as 100% bonus depreciation, under evaluation for future impact[88](index=88&type=chunk) [Note 8 - Earnings (Loss) per Common Share](index=26&type=section&id=Note%208%20-%20Earnings%20(Loss)%20per%20Common%20Share) This note outlines the computation of basic and diluted earnings per share using the two-class method **Basic and Diluted Earnings (Loss) per Common Share:** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $0.42 | $(0.25) | | Six Months Ended June 30, | $(0.61) | $(0.21) | **Weighted Average Common Shares Outstanding (Basic, in thousands):** | Period | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Three Months Ended June 30, | 8,783,035 | 8,783,086 | | Six Months Ended June 30, | 8,765,335 | 8,829,687 | [Note 9 - Employee Benefits](index=26&type=section&id=Note%209%20-%20Employee%20Benefits) This note describes the Employee Stock Ownership Plan (ESOP), including its funding, share allocation, and compensation expense **ESOP Compensation Expense (in thousands):** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $122 | $148 | | Six Months Ended June 30, | $262 | $345 | - Total ESOP shares issued remained constant at **1,048,029 shares** at both June 30, 2025, and December 31, 2024[94](index=94&type=chunk) - The fair value of unallocated ESOP shares **decreased to $3.9 million** at June 30, 2025, from **$5.4 million** at December 31, 2024[94](index=94&type=chunk) [Note 10 - Stock-based Compensation](index=27&type=section&id=Note%2010%20-%20Stock-based%20Compensation) This note details equity incentive plans, including restricted stock and performance share awards, vesting, and compensation expense **Total Compensation Expense for Equity Incentive Plans (in thousands):** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $211 | $257 | | Six Months Ended June 30, | $405 | $521 | - As of June 30, 2025, **120,377 total shares** were available for grant under the 2020 Equity Incentive Plan (EIP)[95](index=95&type=chunk) - Unrecognized compensation cost for non-vested shares was **$1.4 million** as of June 30, 2025, to be recognized over approximately **2.2 years**[103](index=103&type=chunk) [Note 11 - Fair Value Measurements](index=28&type=section&id=Note%2011%20-%20Fair%20Value%20Measurements) This note explains the fair value measurement hierarchy and applies it to assets and liabilities, including securities and servicing rights - The Company uses a three-level valuation hierarchy for fair value measurements, categorizing inputs as Level 1 (quoted prices), Level 2 (observable), and Level 3 (unobservable)[105](index=105&type=chunk)[106](index=106&type=chunk) **Assets Measured at Fair Value on a Recurring Basis (June 30, 2025, in thousands):** | Asset | Level 1 | Level 2 | Level 3 | Total | | :-------------------------- | :------ | :------ | :------ | :------ | | Securities available-for-sale | $13,109 | $277,208 | $13,198 | $303,515 | | Sold loan servicing rights | $0 | $0 | $3,220 | $3,220 | | **Total** | **$13,109** | **$277,208** | **$16,418** | **$306,735** | **Level 3 Assets (June 30, 2025, in thousands):** | Asset | Fair Value | Valuation Technique | Unobservable Input (Weighted Average) | | :-------------------- | :--------- | :------------------ | :------------------------------------ | | Sold loan servicing rights | $3,220 | Discounted cash flow | Constant prepayment rate (5.89%), Discount rate (11.33%) | | MBS non-agency | $13,198 | Consensus pricing | Offered quotes (98.7 - 100.6) | [Note 12 - Change in Accumulated Other Comprehensive Income ("AOCI")](index=32&type=section&id=Note%2012%20-%20Change%20in%20Accumulated%20Other%20Comprehensive%20Income%20(%22AOCI%22)) This note details the components of Accumulated Other Comprehensive Income (AOCI), including unrealized gains/losses on securities and defined benefit plans **Total Accumulated Other Comprehensive Income (AOCI) (in thousands):** | Period | Balance | | :-------------------- | :-------- | | June 30, 2025 | $(28,198) | | December 31, 2024 | $(30,172) | - Net other comprehensive income for the six months ended June 30, 2025, was **$2.0 million**, compared to **$1.0 million** for the same period in 2024[118](index=118&type=chunk) [Note 13 - Derivatives and Hedging Activities](index=33&type=section&id=Note%2013%20-%20Derivatives%20and%20Hedging%20Activities) This note describes the company's use of interest rate swaps as fair value hedges to manage interest rate risk - The Company uses interest rate swaps as fair value hedges to manage exposure to changes in fixed-rate asset fair value due to benchmark interest rates[119](index=119&type=chunk)[120](index=120&type=chunk) **Cumulative Fair Value Hedging Adjustment (June 30, 2025, in thousands):** | Item | Amount | | :-------------------- | :----- | | Investment securities | $1,011 | | Loans receivable | $861 | | **Total** | **$1,872** | - Net expense recognized on fair value hedges for the six months ended June 30, 2025, was **$(43 thousand)**, compared to **$(380 thousand)** for the same period in 2024[123](index=123&type=chunk) [Note 14 - Segment Reporting](index=35&type=section&id=Note%2014%20-%20Segment%20Reporting) This note clarifies that First Fed operates as a single industry segment, with performance assessed on consolidated net income and assets - First Fed's business activities are considered a **single industry segment** for financial reporting purposes[127](index=127&type=chunk) - The Chief Operating Decision Maker (CODM) assesses performance based on consolidated net income and total consolidated assets[128](index=128&type=chunk)[129](index=129&type=chunk) [Note 15 - Contingencies](index=35&type=section&id=Note%2015%20-%20Contingencies) This note discloses significant legal proceedings, including the Water Station Management Litigation and a new complaint alleging fraud - The Bank settled the Water Station Management Adversary Proceeding, agreeing to cash payments between **$2.87 million and $5.74 million**, with a **$5.8 million reserve** recorded in Q1 2025[132](index=132&type=chunk)[133](index=133&type=chunk) - A new complaint against First Fed alleges fraud and seeks at least **$106.9 million** in compensatory damages, which the Company intends to vigorously defend[134](index=134&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and results, including forward-looking statements, regulatory developments, and liquidity [Forward-Looking Statements](index=36&type=section&id=Forward-Looking%20Statements) This section highlights the nature and inherent uncertainties of forward-looking statements regarding future performance and risks - Forward-looking statements encompass goals, intentions, business plans, growth strategies, portfolio quality, litigation, and future risk estimates[137](index=137&type=chunk) - These statements are subject to significant business, economic, and competitive uncertainties, including lending risks, regulatory changes, and interest rate policies[136](index=136&type=chunk)[137](index=137&type=chunk) - Actual results may differ materially from expectations, and the Company has no obligation to update or revise these statements[138](index=138&type=chunk) [General Business Overview](index=37&type=section&id=General) This section provides an overview of First Northwest Bancorp's structure, banking services, and primary income sources - First Northwest Bancorp is a bank holding company with First Fed Bank as its wholly-owned subsidiary, engaged in banking and non-banking financial activities[139](index=139&type=chunk) - First Fed Bank provides commercial and consumer banking services in Western Washington, offering diverse lending and traditional deposit products[140](index=140&type=chunk) - The Company holds strategic investments in fintech-related businesses through limited partnerships and equity interests[139](index=139&type=chunk)[141](index=141&type=chunk) - Primary income sources include net interest income from loans and investments, and noninterest income from service fees, mortgage banking, and BOLI[143](index=143&type=chunk) [Recent Regulatory Developments](index=38&type=section&id=Recent%20Regulatory%20Developments) This section outlines recent regulatory changes impacting the banking industry, including CRA, bank mergers, and stablecoin legislation - Federal banking agencies proposed rescinding the October 2023 CRA final rule, restoring the previous framework under which the Bank received a 'satisfactory' rating[146](index=146&type=chunk) - The FDIC rescinded its 2024 Bank Merger Policy Statement, reinstating prior policy, while the DOJ maintains more stringent 2023 Merger Guidelines[147](index=147&type=chunk) - The 'GENIUS Act' established a federal framework for payment stablecoins, potentially increasing competition and creating new opportunities for banks[148](index=148&type=chunk) [Critical Accounting Policies](index=38&type=section&id=Critical%20Accounting%20Policies) This section confirms no material changes to the critical accounting policies from the prior year's Form 10-K - There are no material changes to the critical accounting policies from those disclosed in the Company's 2024 Form 10-K[149](index=149&type=chunk) [Comparison of Financial Condition at June 30, 2025 and December 31, 2024](index=38&type=section&id=Comparison%20of%20Financial%20Condition%20at%20June%2030,%202025%20and%20December%2031,%202024) This section compares the company's financial condition, including assets, liabilities, and equity, between June 30, 2025, and December 31, 2024 - Total assets **decreased by 1.6%** to **$2.20 billion** at June 30, 2025, from **$2.23 billion** at December 31, 2024[150](index=150&type=chunk) - Net loans **decreased by 1.7%** to **$1.65 billion** at June 30, 2025, from **$1.68 billion** at December 31, 2024, driven by decreases in commercial and real estate loans, partially offset by consumer loan increases[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) - Nonperforming loans **decreased by 33.3%** to **$20.4 million** at June 30, 2025, from **$30.5 million** at December 31, 2024, due to charge-offs and payments[162](index=162&type=chunk) - Total liabilities **decreased to $2.05 billion** at June 30, 2025, from **$2.08 billion** at December 31, 2024, primarily due to a **$76.0 million decrease** in brokered deposits[169](index=169&type=chunk)[170](index=170&type=chunk) - Total shareholders' equity **decreased by $4.2 million** to **$149.7 million** due to net loss and dividends, partially offset by increased fair value of available-for-sale securities[172](index=172&type=chunk) [Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024](index=43&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202025%20and%202024) This section compares the company's operational results for the three months ended June 30, 2025, and 2024, focusing on net income, interest income, and expenses - The Company recorded **net income of $3.7 million** for Q2 2025, a significant improvement from a **net loss of $2.2 million** in Q2 2024[173](index=173&type=chunk) - Net interest income **decreased slightly by $42 thousand** to **$14.19 million**, while the net interest margin **increased 7 basis points to 2.83%** for Q2 2025[174](index=174&type=chunk)[175](index=175&type=chunk) - Total interest income **decreased by 5.2% to $27.1 million**, and total interest expense **decreased by 10.0% to $12.9 million**, due to lower asset yields and reduced funding costs[176](index=176&type=chunk)[178](index=178&type=chunk) - A **recapture of provision for credit losses of $360 thousand** was recorded in Q2 2025, a significant improvement from the **$8.6 million provision** in Q2 2024[180](index=180&type=chunk) - Noninterest income **decreased by 70.5% to $2.2 million**, primarily due to the absence of a **$7.9 million gain** from a prior year sale-leaseback; noninterest expense **decreased by 18.2% to $12.8 million** due to an employee retention credit[181](index=181&type=chunk)[182](index=182&type=chunk) [Comparison of Results of Operations for the Six Months Ended June 30, 2025 and 2024](index=46&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202025%20and%202024) This section compares the company's operational results for the six months ended June 30, 2025, and 2024, focusing on net income, interest income, and expenses - The Company recorded a **net loss of $5.4 million** for H1 2025, compared to a **net income of $1.8 million** for the same period in 2024[184](index=184&type=chunk) - Net interest income **decreased slightly by $123 thousand** to **$28.0 million**, while the net interest margin **increased 4 basis points to 2.80%** for H1 2025[185](index=185&type=chunk)[188](index=188&type=chunk) - Total interest income **decreased by 3.5% to $54.0 million**, and total interest expense **decreased by 6.7% to $25.9 million**, due to decreased asset yields and reduced funding costs[189](index=189&type=chunk)[190](index=190&type=chunk) - A provision for credit losses of **$7.5 million** was recorded in H1 2025, compared to **$9.9 million** in H1 2024, reflecting collateral deficiencies and net charge-offs[192](index=192&type=chunk) - Noninterest income **decreased by 37.6% to $6.0 million**, primarily due to the absence of a **$7.9 million gain** from a prior year sale-leaseback, partially offset by a **$1.1 million BOLI death benefit** and an **$846 thousand gain** on debt extinguishment; noninterest expense **increased by 9.5% to $32.8 million** due to a **$5.8 million accrued legal reserve**[193](index=193&type=chunk)[194](index=194&type=chunk) [Average Balances, Interest and Average Yields/Cost](index=50&type=section&id=Average%20Balances,%20Interest%20and%20Average%20Yields/Cost) This section presents average balances, interest income/expense, and average yields/costs for interest-earning assets and liabilities **Average Yield on Interest-Earning Assets:** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | 5.41% | 5.55% | | Six Months Ended June 30, | 5.38% | 5.49% | **Average Cost of Interest-Bearing Liabilities:** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | 3.01% | 3.28% | | Six Months Ended June 30, | 3.03% | 3.21% | **Net Interest Margin:** | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | 2.83% | 2.76% | | Six Months Ended June 30, | 2.80% | 2.76% | [Rate/Volume Analysis](index=52&type=section&id=Rate/Volume%20Analysis) This section analyzes changes in net interest income attributable to fluctuations in interest rates and asset/liability volumes **Change in Net Interest Income (in thousands):** | Period | Change Due to Volume | Change Due to Rate | Total Change | | :-------------------------------- | :------------------- | :----------------- | :----------- | | Three Months Ended June 30, 2025 Compared to June 30, 2024 | $(1) | $(41) | $(42) | | Six Months Ended June 30, 2025 Compared to June 30, 2024 | $(54) | $(69) | $(123) | - For the six months ended June 30, 2025, the decrease in interest income from loans receivable was primarily due to **volume ($1.2 million)** and **rate ($304 thousand)**[203](index=203&type=chunk) - For the six months ended June 30, 2025, the decrease in interest expense from brokered certificates of deposit was due to both **volume ($1.6 million)** and **rate ($267 thousand)**[203](index=203&type=chunk) [Off-Balance Sheet Activities](index=52&type=section&id=Off-Balance%20Sheet%20Activities) This section confirms no material off-balance sheet transactions impacting financial condition or results of operations - The Company engaged in no off-balance sheet transactions with a material effect on financial condition, results of operations, or cash flows[204](index=204&type=chunk) [Contractual Obligations](index=53&type=section&id=Contractual%20Obligations) This section details the company's contractual obligations, including certificates of deposit, FHLB advances, and operating leases **Total Contractual Obligations (June 30, 2025, in thousands):** | Obligation | Within 1 Year | After 1 Year Through 3 Years | After 3 Years Through 5 Years | Beyond 5 Years | Total Balance | | :-------------------------- | :------------ | :--------------------------- | :---------------------------- | :------------- | :------------ | | Certificates of deposit | $512,244 | $40,534 | $4,643 | $0 | $557,421 | | FHLB advances | $195,000 | $105,000 | $0 | $0 | $300,000 | | Line of credit | $9,500 | $0 | $0 | $0 | $9,500 | | Subordinated debt obligation | $0 | $0 | $0 | $34,608 | $34,608 | | Operating leases | $2,018 | $4,333 | $3,970 | $17,145 | $27,466 | | Borrower taxes and insurance | $1,325 | $0 | $0 | $0 | $1,325 | | Deferred compensation | $157 | $233 | $261 | $785 | $1,436 | | **Total contractual obligations** | **$720,244** | **$150,100** | **$8,874** | **$52,538** | **$931,756** | [Commitments and Off-Balance Sheet Arrangements](index=53&type=section&id=Commitments%20and%20Off-Balance%20Sheet%20Arrangements) This section outlines the company's commitments and off-balance sheet arrangements, including loan originations and unfunded commitments **Total Commitments (June 30, 2025, in thousands):** | Commitment Type | Within 1 Year | After 1 Year Through 3 Years | After 3 Years Through 5 Years | Beyond 5 Years | Total Amounts Committed | | :-------------------------------- | :------------ | :--------------------------- | :---------------------------- | :------------- | :---------------------- | | Commitments to originate loans: Fixed-rate | $175 | $0 | $0 | $0 | $175 | | Commitments to originate loans: Variable-rate | $500 | $0 | $0 | $0 | $500 | | Unfunded commitments under lines of credit | $14,464 | $16,647 | $7,189 | $74,040 | $112,340 | | Unfunded commitments under existing construction loans | $32,418 | $21,831 | $0 | $0 | $54,249 | | Standby letters of credit | $150 | $0 | $0 | $200 | $350 | | Unfunded commitments under partnership agreements | $2,875 | $0 | $0 | $0 | $2,875 | | **Total commitments** | **$50,582** | **$38,478** | **$7,189** | **$74,240** | **$170,489** | [Liquidity Management](index=53&type=section&id=Liquidity%20Management) This section discusses the company's liquidity sources, liquid assets, borrowing capacity, and deposit maturities - Primary sources of funds include investment security payments, deposit inflows, loan repayments, security sales, and borrowings from FHLB and NexBank[207](index=207&type=chunk) - At June 30, 2025, liquid assets included **$87.9 million** in cash and cash equivalents and **$246.2 million** in unpledged available-for-sale securities[209](index=209&type=chunk) - The Bank had available borrowing capacity of **$179.9 million** from FHLB, **$17.6 million** from FRB, **$50.0 million** from PCBB, and **$10.5 million** from NexBank[209](index=209&type=chunk) - CDs due within one year totaled **$512.2 million (91.9% of total CDs)** with a weighted-average rate of **3.96%** at June 30, 2025[211](index=211&type=chunk) - The Company had unconsolidated liquid assets of **$359 thousand** at June 30, 2025, responsible for dividends, stock repurchases, and debt payments[213](index=213&type=chunk) [Capital Resources](index=54&type=section&id=Capital%20Resources) This section details the company's capital resources, including shareholders' equity and regulatory capital ratios - Shareholders' equity totaled **$149.7 million**, or **6.8% of total assets**, at June 30, 2025, with a book value per share of **$15.85**[214](index=214&type=chunk) - First Fed exceeded all regulatory capital requirements and was considered **'well capitalized'** under FDIC guidelines at June 30, 2025[214](index=214&type=chunk) **First Fed Capital Ratios (June 30, 2025, in thousands):** | Capital Ratio | Actual Amount | Actual Ratio | Minimum Requirements Ratio | Minimum Required to be Well-Capitalized Ratio | | :-------------------------------- | :------------ | :----------- | :------------------------- | :-------------------------------------------- | | Tier 1 leverage capital | $199,317 | 9.1% | 4.0% | 5.0% | | Common equity tier 1 (CET1) | $199,317 | 12.0% | 4.5% | 6.5% | | Tier 1 risk-based capital | $199,317 | 12.0% | 6.0% | 8.0% | | Total risk-based capital | $217,474 | 13.1% | 8.0% | 10.0% | - The Bank's capital conservation buffer was **5.1%** at June 30, 2025, exceeding the **2.5%** requirement[217](index=217&type=chunk) [Effect of Inflation and Changing Prices](index=55&type=section&id=Effect%20of%20Inflation%20and%20Changing%20Prices) This section discusses the impact of inflation and changing interest rates on the company's financial statements and operations - Financial statements are prepared using historical dollars, without considering changes in purchasing power due to inflation[218](index=218&type=chunk) - The primary impact of inflation on operations is reflected in increased operating costs and its effect on interest rates[218](index=218&type=chunk) - Interest rates generally have a more significant impact on a financial institution's performance than general inflation levels[218](index=218&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section confirms no material changes to the market risk disclosures from the Company's 2024 Form 10-K - There have been no material changes to the market risk disclosures contained in the Company's 2024 Form 10-K[219](index=219&type=chunk) [Item 4 - Controls and Procedures](index=55&type=section&id=Item%204%20-%20Controls%20and%20Procedures) This section details the evaluation of disclosure controls and procedures, confirming their effectiveness and no material changes to internal controls - The Company's Interim CEO and CFO concluded that disclosure controls and procedures were **effective** as of June 30, 2025[221](index=221&type=chunk) - There have been no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025[222](index=222&type=chunk) - The Company acknowledges the inherent limitations of control procedures, which provide reasonable assurance but may be circumvented[223](index=223&type=chunk) [PART II - OTHER INFORMATION](index=56&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits [Item 1 - Legal Proceedings](index=56&type=section&id=Item%201%20-%20Legal%20Proceedings) This section refers to Note 15 for details on legal proceedings, with no other matters having a material impact - Material legal proceedings are discussed in **Note 15** of the Notes to Consolidated Financial Statements[225](index=225&type=chunk) [Item 1A - Risk Factors](index=56&type=section&id=Item%201A%20-%20Risk%20Factors) This section updates risk factors, highlighting potential impacts from litigation, regulatory actions, and dependence on key personnel - The Company's business may be adversely impacted by litigation and regulatory enforcement actions, including the Water Station Management complaint, potentially leading to significant liabilities[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - The risk factor regarding dependence on key personnel is restated, highlighting the material adverse effect from recent departures of the President/CEO and Chief Banking Officer[230](index=230&type=chunk) - No other material changes to the risk factors set forth in the Company's 2024 Form 10-K have occurred[226](index=226&type=chunk) [Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=57&type=section&id=Item%202%20-%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section reports on common stock repurchases for withholding taxes from restricted stock awards, with no repurchases under the April 2024 plan - During Q2 2025, **2,316 shares** of common stock were repurchased from restricted stock award participants to cover withholding taxes upon vesting[232](index=232&type=chunk) - No shares were repurchased under the Company's April 2024 stock repurchase plan, leaving **846,123 shares** available for future purchases[233](index=233&type=chunk) [Item 3 - Defaults Upon Senior Securities](index=57&type=section&id=Item%203%20-%20Defaults%20Upon%20Senior%20Securities) This section confirms no applicable defaults upon senior securities - This item is not applicable, indicating no defaults upon senior securities[234](index=234&type=chunk) [Item 4 - Mine Safety Disclosures](index=57&type=section&id=Item%204%20-%20Mine%20Safety%20Disclosures) This section confirms that mine safety disclosures are not applicable to the company - This item is not applicable, indicating no mine safety disclosures[235](index=235&type=chunk) [Item 5 - Other Information](index=57&type=section&id=Item%205%20-%20Other%20Information) This section confirms no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the fiscal quarter ended June 30, 2025[236](index=236&type=chunk) [Item 6 - Exhibits](index=57&type=section&id=Item%206%20-%20Exhibits) This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and iXBRL financial statements - Exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[237](index=237&type=chunk) - The Company's Quarterly Report on Form 10-Q, including financial statements, is filed in Inline Extensible Business Reporting Language (iXBRL) format[237](index=237&type=chunk) [SIGNATURES](index=58&type=section&id=SIGNATURES) This section contains the signatures of the Interim CEO, COO, and CFO, certifying the report on behalf of First Northwest Bancorp - The report is signed by Geraldine Bullard, Interim CEO, COO, and EVP, and Phyllis R. Nomura, CFO and EVP, on August 7, 2025[241](index=241&type=chunk)

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) [Second Quarter 2025 Financial Performance Overview](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Performance%20Overview) First Northwest Bancorp reported a significant improvement in profitability for Q2 2025, moving from a net loss in previous quarters to a net income of $3.7 million. This was accompanied by positive growth in Adjusted Pre-Tax, Pre-Provision Net Revenue (PPNR) and a decision to not declare a dividend to support capital management | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------------- | :------ | :------ | :------ | | Net Income (Loss) | $3.7M | ($9.0M) | ($2.2M) | | Basic & Diluted EPS (Loss per share) | $0.42 | ($1.03) | ($0.25) | | Adjusted PPNR | $2.1M | $1.5M | $0.53M | - The Board of Directors elected not to declare a dividend for Q2 2025 as part of a prudent capital management approach, focusing on maintaining a strong balance sheet[3](index=3&type=chunk) - Interim CEO Geraldine Bullard noted continued modest improvement in performance measures, including net interest margin expansion and the fifth consecutive quarter of growing **Adjusted PPNR**[5](index=5&type=chunk) [Key Operational and Financial Trends](index=1&type=section&id=Key%20Operational%20and%20Financial%20Trends) The second quarter saw several positive operational and financial trends, including improved asset returns, net interest margin expansion, and enhanced efficiency. The company also recorded a significant payroll tax credit and consolidated business centers, while actively managing legal proceedings | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------------------- | :------ | :------ | :----------- | | Return on average assets | 0.68% | -1.69% | +2.37 pp | | Net interest margin | 2.83% | 2.76% | +0.07 pp | | Efficiency ratio | 78.0% | 113.5% | -35.5 pp | | Customer deposits | $1.55B | $1.53B | +$19.6M | | Recapture of provision for credit losses | $296K | $7.8M | -$7.5M | - The efficiency ratio improved significantly due to a **$2.6 million payroll tax credit** (Employee Retention Credit, ERC) recognized in Q2 2025, partially offset by a **$528,000 consulting expense**[9](index=9&type=chunk) - The Bank consolidated its Bellevue and Fremont business centers into a new Seattle location, incurring a one-time **$599,000 expense** for early lease termination but expecting **$130,000 annual rent savings**[9](index=9&type=chunk) - A settlement agreement was reached in one previously disclosed legal matter, while the Bank continues to vigorously defend against separate legal proceedings[9](index=9&type=chunk) [Financial Performance Analysis](index=2&type=section&id=Financial%20Performance%20Analysis) [Net Income and Earnings Per Share](index=1&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share) First Northwest Bancorp achieved a net income of $3.7 million in Q2 2025, a substantial turnaround from net losses in the preceding and prior year quarters, resulting in positive basic and diluted income per share | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------------- | :------ | :------ | :------ | | Net Income (Loss) | $3.7M | ($9.0M) | ($2.2M) | | Basic & Diluted EPS (Loss per share) | $0.42 | ($1.03) | ($0.25) | [Adjusted Pre-Tax, Pre-Provision Net Revenue (PPNR)](index=1&type=section&id=Adjusted%20Pre-Tax%2C%20Pre-Provision%20Net%20Revenue%20%28PPNR%29) Adjusted PPNR continued its upward trend, increasing for the fifth consecutive quarter to $2.1 million in Q2 2025, reflecting improved core profitability before credit losses and taxes, and after adjusting for nonrecurring items | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :---------------- | :------ | :------ | :------ | | Adjusted PPNR | $2.1M | $1.5M | $0.53M | | Change (QoQ) | +$0.6M | | | | Change (YoY) | +$1.6M | | | | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--------------------- | :------------ | :------------- | :------------ | | Net interest income (GAAP) | $14,193 | $13,847 | $14,235 | | Total noninterest income (GAAP) | $2,170 | $3,777 | $7,347 | | Total noninterest expense (GAAP) | $12,765 | $20,000 | $15,609 | | PPNR (Non-GAAP) | $3,598 | ($2,376) | $5,973 | | Adjusted PPNR (Non-GAAP) | $2,085 | $1,469 | $530 | [Net Interest Income and Margin](index=3&type=section&id=Net%20Interest%20Income%20and%20Margin) Net interest income saw a modest increase quarter-over-quarter, driven by higher yields on loans and reduced interest expense from brokered CDs and customer deposits. This led to an expansion of the net interest margin | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------- | :------ | :------ | :------ | | Total interest income | $27.1M | $26.8M | $28.6M | | Total interest expense | $12.9M | $13.0M | $14.4M | | Net interest margin | 2.83% | 2.76% | 2.76% | - Interest income increased primarily due to **higher yields on loans receivable**, despite decreases in investment securities yield and volume[17](index=17&type=chunk) - Interest expense decreased due to a **reduction in brokered CDs** and lower rates paid on customer CDs and demand deposits, partially offset by increases in money market and savings accounts[17](index=17&type=chunk) [Noninterest Income and Expense](index=3&type=section&id=Noninterest%20Income%20and%20Expense) Noninterest income decreased quarter-over-quarter due to nonrecurring items in the prior quarter, while noninterest expense significantly decreased, primarily driven by the Employee Retention Credit and the absence of a large legal reserve | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------- | :------ | :------ | :----------- | | Noninterest income | $2.2M | $3.8M | -$1.6M | | Noninterest expense | $12.8M | $20.0M | -$7.2M | - The decrease in noninterest income was mainly due to the first quarter of 2025 including a **$1.1 million BOLI death benefit** and an **$846,000 gain on extinguishment of debt**[17](index=17&type=chunk) - The reduction in noninterest expense was primarily attributable to the **Employee Retention Credit (ERC)** recorded in compensation and benefits, and the absence of the **$5.8 million legal reserve** from the preceding quarter[17](index=17&type=chunk) [Selected Quarterly Financial Ratios](index=2&type=section&id=Selected%20Quarterly%20Financial%20Ratios) Key performance ratios showed significant improvement in Q2 2025, with a positive return on average assets and equity, and an improved efficiency ratio, reflecting enhanced profitability and operational effectiveness | Performance Ratio | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Return on average assets | 0.68% | -1.69% | -0.51% | -0.36% | -0.40% | | Adjusted PPNR return on average assets | 0.39% | 0.27% | 0.26% | 0.17% | 0.10% | | Return on average equity | 10.00% | -23.42% | -6.92% | -4.91% | -5.47% | | Net interest margin | 2.83% | 2.76% | 2.73% | 2.70% | 2.76% | | Efficiency ratio | 78.0% | 113.5% | 92.2% | 100.3% | 72.3% | | Equity to total assets | 6.82% | 6.75% | 6.89% | 7.13% | 7.17% | | Book value per common share | $15.85 | $15.52 | $16.45 | $17.17 | $16.81 | [Asset Quality and Credit Losses](index=3&type=section&id=Asset%20Quality%20and%20Credit%20Losses) [Allowance for Credit Losses on Loans (ACLL)](index=3&type=section&id=Allowance%20for%20Credit%20Losses%20on%20Loans%20%28ACLL%29) The Allowance for Credit Losses on Loans (ACLL) decreased in Q2 2025, primarily due to a release of reserves on individually evaluated loans, despite net loan charge-offs. This resulted in a recapture of provision expense for the quarter | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :------------ | | ACLL Balance | $18.4M | $20.6M | $19.3M | | ACLL as % of total loans | 1.10% | 1.24% | 1.14% | | Recapture of provision for credit losses | $296K | $7.8M | $8.7M | | Net loan charge-offs | $1.9M | $7.7M | $7.3M | - A **$2.6 million release of reserves** on individually evaluated loans contributed to the decrease in ACLL, partially offset by **$1.9 million in net loan charge-offs**[14](index=14&type=chunk) [Nonperforming Loans and Classified Loans](index=3&type=section&id=Nonperforming%20Loans%20and%20Classified%20Loans) Nonperforming loans remained stable quarter-over-quarter, with new additions offset by principal payments and charge-offs. Classified loans decreased, although a significant portion remains concentrated in four collateral-dependent relationships, for which the Bank is pursuing legal remedies | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :------------ | | Nonperforming loans | $20.4M | $20.4M | $23.6M | | Classified loans | $30.9M | $31.6M | $30.4M | | ACLL to nonperforming loans | 90% | 101% | 82% | | Nonaccrual loans as % of total loans | 1.22% | 1.23% | 1.39% | | Nonperforming assets as % of total assets | 0.99% | 0.94% | 1.07% | - Nonperforming loans saw a **$4.1 million commercial real estate loan** transition to nonperforming status, balanced by **$3.6 million in principal payments** and **$1.3 million in charge-offs**[15](index=15&type=chunk) - Four collateral-dependent loans, totaling **$23.8 million**, represent **77% of the classified loan balance**, with the Bank actively pursuing legal remedies including foreclosure[16](index=16&type=chunk) [Financial Condition and Capital Management](index=5&type=section&id=Financial%20Condition%20and%20Capital%20Management) [Investment Securities](index=5&type=section&id=Investment%20Securities) Investment securities decreased slightly in Q2 2025 due to maturities and principal payments, partially offset by new purchases. Net unrealized losses remained flat, and the portfolio's effective duration increased | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (%) | YoY Change (%) | | :-------------------------------- | :------------ | :------------- | :------------ | :------------- | :------------- | | Total securities available for sale | $303.5M | $315.4M | $306.7M | -3.8% | -1.0% | | Estimated average life | 7.6 years | 6.9 years | 7.8 years | +0.7 years | -0.2 years | | Effective duration | 4.9 years | 4.3 years | 4.3 years | +0.6 years | +0.6 years | - Maturities (**$11.8 million**) and principal payments (**$5.7 million**) outpaced purchases (**$5.5 million**) during the quarter[21](index=21&type=chunk) [Loans Receivable](index=5&type=section&id=Loans%20Receivable) Net loans increased modestly quarter-over-quarter, driven by new funding and draws, which exceeded payoffs, regular payments, and charge-offs. Construction loans showed significant growth, while multi-family and one-to-four family loans decreased | Loan Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (%) | YoY Change (%) | | :---------------------- | :------------ | :------------- | :------------ | :------------- | :------------- | | Total loans receivable, net | $1.647B | $1.638B | $1.678B | +0.6% | -1.8% | | Construction and land | $72.5M | $64.9M | $107.3M | +11.8% | -32.4% | | Home equity | $84.9M | $79.2M | $72.6M | +7.3% | +17.0% | | Multi-family | $329.7M | $338.1M | $350.1M | -2.5% | -5.8% | - New loan funding (**$47.2 million**) and draws (**$23.9 million**) exceeded loan payoffs (**$34.1 million**), regular payments (**$28.4 million**), and charge-offs (**$2.4 million**)[22](index=22&type=chunk) [Deposits](index=6&type=section&id=Deposits) Total deposits decreased slightly, primarily due to a significant reduction in brokered time deposits, which offset an increase in customer deposits. The deposit mix shifted towards money market and customer CD accounts, reflecting the competitive rate environment | Deposit Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (%) | YoY Change (%) | | :-------------------------- | :------------ | :------------- | :------------ | :------------- | :------------- | | Total deposits | $1.65B | $1.67B | $1.71B | -0.7% | -3.1% | | Customer deposits | +$19.6M | | | | | | Brokered time deposits | -$31.0M | | | | | | Money market accounts | $484.8M | $424.5M | $423.0M | +14.2% | +14.6% | | Certificates of deposit, brokered | $106.9M | $137.9M | $223.7M | -22.5% | -52.2% | - The current rate environment continues to drive competition for deposits, leading to increased volumes and higher rates paid on money market and savings accounts[25](index=25&type=chunk) [Shareholders' Equity and Capital Ratios](index=6&type=section&id=Shareholders%27%20Equity%20and%20Capital%20Ratios) Shareholders' equity increased due to net income and an increase in the fair market value of available-for-sale securities. The Company and Bank maintain capital levels well above regulatory requirements, with the Bank categorized as 'well-capitalized' | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Total shareholders' equity | $149.7M | $146.5M | | Common Equity Tier 1 Ratio (Bank) | 12.1% | 12.1% | | Total Risk-Based Capital Ratio (Bank) | 13.1% | 13.4% | - The increase in shareholders' equity was primarily driven by **net income of $3.7 million** and a **$128,000 increase** in the after-tax fair market values of available-for-sale investment securities[26](index=26&type=chunk) - The Bank was categorized as **'well-capitalized'** at June 30, 2025, with preliminary Common Equity Tier 1 and Total Risk-Based Capital Ratios of **12.1%** and **13.1%**, respectively[27](index=27&type=chunk) [Dividend Policy](index=1&type=section&id=Dividend%20Policy) The Board of Directors decided not to declare a dividend for Q2 2025 as a prudent capital management measure, despite having paid cash dividends in the quarter. The company remains committed to evaluating future dividend decisions based on long-term strategic objectives - The Board of Directors elected not to declare a dividend for Q2 2025 to maintain a strong balance sheet and support long-term strategic objectives[3](index=3&type=chunk) - The Company paid cash dividends totaling **$650,000** in Q2 2025, but no shares were repurchased under the April 2024 Stock Repurchase Plan[28](index=28&type=chunk) [Company Overview and Other Information](index=6&type=section&id=Company%20Overview%20and%20Other%20Information) [About First Northwest Bancorp](index=7&type=section&id=About%20First%20Northwest%20Bancorp) First Northwest Bancorp is a financial holding company operating First Fed Bank, a Pacific Northwest institution established in 1923. The company focuses on building sustainable earnings through a full range of financial products and services, strategic partnerships, and modern financial services - First Northwest Bancorp (Nasdaq: FNWB) is the holding company for First Fed Bank, a Pacific Northwest financial institution serving customers since 1923[30](index=30&type=chunk) - First Fed operates **17 locations** in Washington state, including **12 full-service branches**, and focuses on building sustainable earnings by offering diverse financial products and services[30](index=30&type=chunk) - The company also engages in strategic partnerships to provide modern financial services like digital payments and marketplace lending, and made an investment in The Meriwether Group, LLC in 2022[30](index=30&type=chunk) [Awards and Recognition](index=6&type=section&id=Awards%20and%20Recognition) First Northwest Bancorp received several awards and recognitions in 2024 and 2025, highlighting its standing as a leading bank and corporate philanthropist in the region - Recognized as **'Forbes Best-in-State Banks' in 2025**[29](index=29&type=chunk) - Received multiple awards in 2024, including **'Puget Sound Business Journal Top Corporate Philanthropists'**, **'Bellingham Best of the Northwest - Silver'**, **'The Leader Readers Choice Award - Best Bank'**, and **'Best Lender/Bank in Clallam and Jefferson County'** by Sound Publishing[29](index=29&type=chunk) [Forward-Looking Statements](index=7&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements regarding future expectations, performance, and market opportunities, which are subject to various risks and uncertainties. Readers are cautioned against undue reliance on these statements, as actual results may differ materially - The press release includes forward-looking statements concerning business environment expectations, future performance, market opportunities, and potential credit experience[31](index=31&type=chunk) - These statements are based on current management beliefs and involve risks and uncertainties, such as competitive pressures, interest rate changes, credit risks, liquidity pressures, and regulatory changes[31](index=31&type=chunk) - The Company disclaims any obligation to revise forward-looking statements to reflect future events or circumstances, and actual results may differ materially from those expressed or implied[32](index=32&type=chunk) [Consolidated Financial Statements](index=8&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets provide a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity across multiple quarters, showing trends in key accounts like loans, deposits, and investment securities | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | **ASSETS** | | | | | | | Total assets | $2,195,363 | $2,171,430 | $2,232,006 | $2,255,486 | $2,215,962 | | Loans receivable (net) | $1,647,217 | $1,637,573 | $1,675,186 | $1,714,416 | $1,677,764 | | Investment securities available for sale | $303,515 | $315,433 | $340,344 | $310,860 | $306,714 | | **LIABILITIES** | | | | | | | Total liabilities | $2,045,630 | $2,024,938 | $2,078,124 | $2,094,697 | $2,057,081 | | Deposits | $1,654,636 | $1,666,068 | $1,688,026 | $1,711,641 | $1,708,288 | | Borrowings | $344,108 | $307,091 | $336,014 | $334,994 | $302,575 | | **SHAREHOLDERS' EQUITY** | | | | | | | Total shareholders' equity | $149,733 | $146,492 | $153,882 | $160,789 | $158,881 | [Consolidated Statements of Operations](index=9&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations detail the company's revenues, expenses, and net income (loss) over various periods, illustrating the drivers of profitability, including interest income, interest expense, provision for credit losses, and noninterest items | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total interest income | $27,131 | $26,823 | $28,197 | $28,206 | $28,611 | | Total interest expense | $12,938 | $12,976 | $14,060 | $14,186 | $14,376 | | Net interest income | $14,193 | $13,847 | $14,137 | $14,020 | $14,235 | | (Recapture of) provision for credit losses | ($360) | $7,785 | $3,655 | $3,134 | $8,739 | | Total noninterest income | $2,170 | $3,777 | $1,300 | $1,779 | $7,347 | | Total noninterest expense | $12,765 | $20,000 | $14,233 | $15,848 | $15,609 | | Net income (loss) | $3,661 | ($9,036) | ($2,810) | ($1,980) | ($2,219) | | Basic and diluted earnings (loss) per common share | $0.42 | ($1.03) | ($0.32) | ($0.23) | ($0.25) | [Net Interest Margin Analysis](index=11&type=section&id=Net%20Interest%20Margin%20Analysis) The net interest margin analysis provides a detailed breakdown of average balances, interest earned/paid, and yields/rates for interest-earning assets and interest-bearing liabilities, highlighting the factors contributing to the net interest margin | (Dollars in thousands) | Average Balance (Q2 2025) | Interest Earned/Paid (Q2 2025) | Yield/Rate (Q2 2025) | Average Balance (Q2 2024) | Interest Earned/Paid (Q2 2024) | Yield/Rate (Q2 2024) | | :-------------------------------- | :------------------------ | :----------------------------- | :------------------- | :------------------------ | :----------------------------- | :------------------- | | **Interest-earning assets:** | | | | | | | | Loans receivable, net | $1,639,236 | $22,814 | 5.58% | $1,698,777 | $23,733 | 5.62% | | Total interest-earning assets | $2,010,434 | $27,131 | 5.41% | $2,072,280 | $28,611 | 5.55% | | **Interest-bearing liabilities:** | | | | | | | | Total interest-bearing deposits | $1,413,606 | $9,552 | 2.71% | $1,408,018 | $10,180 | 2.91% | | Total interest-bearing liabilities | $1,723,382 | $12,938 | 3.01% | $1,762,858 | $14,376 | 3.28% | | Net interest income | | $14,193 | | | $14,235 | | | Net interest margin | | | 2.83% | | | 2.76% | [Non-GAAP Financial Measures Reconciliation](index=12&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) This section provides reconciliations of non-GAAP financial measures, such as PPNR and Adjusted PPNR, to their most directly comparable GAAP measures. These non-GAAP metrics are used by management to assess core operating performance by removing volatile estimates and nonrecurring transactions - Non-GAAP measures like PPNR and Adjusted PPNR are presented to help investors understand the Company's results and assess trends by removing volatile estimates and nonrecurring transactions[43](index=43&type=chunk)[44](index=44&type=chunk) | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Net income (loss) (GAAP) | $3,661 | ($9,036) | ($2,810) | ($1,980) | ($2,219) | | PPNR (Non-GAAP) | $3,598 | ($2,376) | $1,204 | ($49) | $5,973 | | Adjusted PPNR (Non-GAAP) | $2,085 | $1,469 | $1,430 | $947 | $530 | | Return on average assets (GAAP) | 0.68% | -1.69% | -0.51% | -0.36% | -0.40% | | Adjusted PPNR return on average assets (Non-GAAP) | 0.39% | 0.27% | 0.26% | 0.17% | 0.10% | [Tangible Common Equity Reconciliation](index=13&type=section&id=Tangible%20Common%20Equity%20Reconciliation) This section reconciles GAAP equity measures to tangible common equity, which is used to improve comparability with other institutions by excluding goodwill and other intangible assets. It provides insights into the tangible book value and return on tangible common equity - The use of tangible equity and tangible assets improves comparability to other institutions that have not engaged in acquisitions resulting in goodwill and other intangibles[46](index=46&type=chunk) | (Dollars in thousands, except per share data) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total shareholders' equity | $149,733 | $146,492 | $153,882 | $160,789 | $158,881 | | Total tangible common equity | $148,280 | $144,995 | $152,377 | $159,217 | $157,280 | | Total assets | $2,195,363 | $2,171,430 | $2,232,006 | $2,255,486 | $2,215,962 | | Total tangible assets | $2,193,910 | $2,169,933 | $2,230,501 | $2,253,914 | $2,214,361 | | Tangible common equity to tangible assets (Non-GAAP) | 6.76% | 6.68% | 6.83% | 7.06% | 7.10% | | Return on average tangible common equity (Non-GAAP) | 10.10% | -23.65% | -6.99% | -4.96% | -5.53% | | Tangible book value per common share (Non-GAAP) | $15.70 | $15.36 | $16.29 | $17.00 | $16.64 |

Group 1: Earnings Performance - First Northwest Bancorp reported quarterly earnings of $0.42 per share, significantly exceeding the Zacks Consensus Estimate of $0.09 per share, representing an earnings surprise of +366.67% [1] - The company’s earnings for the same quarter last year were $0.16 per share, indicating a year-over-year increase [1] - Over the last four quarters, the company has surpassed consensus EPS estimates two times [2] Group 2: Revenue Analysis - First Northwest Bancorp posted revenues of $16.36 million for the quarter ended June 2025, which missed the Zacks Consensus Estimate by 0.83% and decreased from $21.6 million year-over-year [2] - The company has topped consensus revenue estimates only once over the last four quarters [2] Group 3: Stock Performance and Outlook - First Northwest Bancorp shares have declined approximately 24.7% since the beginning of the year, contrasting with the S&P 500's gain of 8.1% [3] - The current consensus EPS estimate for the upcoming quarter is $0.14 on revenues of $17.5 million, while for the current fiscal year, it is -$0.26 on revenues of $67.8 million [7] Group 4: Industry Context - The Zacks Industry Rank for Banks - West is currently in the top 29% of over 250 Zacks industries, indicating a favorable industry outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact stock performance [5]

Core Points - First Northwest Bancorp reported a net income of $3.7 million for Q2 2025, a significant recovery from a net loss of $9.0 million in Q1 2025 and a net loss of $2.2 million in Q2 2024 [1] - The Company recorded Adjusted Pre-Tax, Pre-Provision Net Revenue (PPNR) of $2.1 million in Q2 2025, up from $1.5 million in Q1 2025 and $530,000 in Q2 2024 [2][13] - The Board of Directors decided not to declare a dividend for this quarter, focusing on capital management and long-term strategic objectives [3] - The interim CEO highlighted modest improvements in performance measures, including a net interest margin expansion of seven basis points and a 3% annualized growth in loans compared to the previous quarter [5] Financial Performance - Return on average assets increased to 0.68% in Q2 2025 from -1.69% in Q1 2025 [10] - Net interest margin rose to 2.83% in Q2 2025, compared to 2.76% in Q1 2025 [10] - Efficiency ratio improved to 78.0% in Q2 2025 from 113.5% in Q1 2025, aided by a payroll tax credit [10] - Customer deposits increased by $19.6 million to $1.55 billion at June 30, 2025, from $1.53 billion at March 31, 2025 [10] Credit Quality - The allowance for credit losses on loans decreased to $18.4 million at June 30, 2025, from $20.6 million at March 31, 2025 [16] - Nonperforming loans remained stable at $20.4 million, with a decrease in the ACLL to nonperforming loans ratio to 90% from 101% in the previous quarter [17] - Total interest income increased to $27.1 million in Q2 2025, while total interest expense decreased to $12.9 million [18] Capital and Deposits - Total deposits decreased by $11.4 million to $1.65 billion at June 30, 2025, compared to $1.67 billion at March 31, 2025 [26] - Total shareholders' equity rose to $149.7 million at June 30, 2025, due to net income and changes in the fair market values of investment securities [27] - Capital ratios remain strong, with Common Equity Tier 1 and Total Risk-Based Capital Ratios at 12.1% and 13.1%, respectively [28]

Core Viewpoint - First Northwest Bancorp has appointed Diane C. Davis to its Board of Directors, which is expected to enhance the company's governance and strategic direction as it continues to grow and serve its communities [1][3][6]. Company Overview - First Northwest Bancorp (NASDAQ: FNWB) is a financial holding company that operates First Fed Bank, a financial institution based in the Pacific Northwest, serving customers since 1923 [7]. - First Fed Bank has 18 locations in Washington State, including 12 full-service branches, and focuses on sustainable earnings through a variety of financial products and services [7]. - The company has made strategic investments, including a 2022 investment in The Meriwether Group, LLC, and emphasizes partnerships for modern financial services [7]. Appointment of Diane C. Davis - Diane C. Davis brings over 25 years of leadership experience in the insurance industry, with a strong background in executive management, strategy, risk management, and corporate governance [2][4]. - Her previous roles include Chief Risk Officer and President at Farmers New World Life Insurance Company, and Regional Chief Risk Officer at Zurich Insurance Company Ltd., providing her with extensive risk oversight experience [4]. - Davis holds a Bachelor of Science in Actuarial Science and an MBA, and is a Fellow of the Society of Actuaries, indicating a strong educational background relevant to her board role [5]. Strategic Importance - The appointment of Davis is seen as a significant asset for First Fed Bank, aligning with the company's long-term goals of strong governance and sustainable growth [3][6]. - Davis expressed her commitment to supporting community banks, which play a crucial role in local economies, highlighting her alignment with the company's mission [3]. Recognition and Awards - First Fed Bank has been recognized as a Best Workplace and top Corporate Philanthropist by Puget Sound Business Journal in 2023 and 2024, indicating its strong community presence and employee satisfaction [8].

Core Viewpoint - First Northwest Bancorp has appointed Diane C. Davis to its Board of Directors, enhancing its governance and strategic capabilities as it aims for sustainable growth and community service [1][6]. Company Overview - First Northwest Bancorp (NASDAQ: FNWB) is a financial holding company that operates First Fed Bank, which has been serving the Pacific Northwest since 1923 [7]. - First Fed Bank currently has 18 locations in Washington State, including 12 full-service branches, and focuses on delivering a wide range of financial products and services [7]. - The company emphasizes building sustainable earnings and has made strategic investments, including a 2022 investment in The Meriwether Group, LLC [7]. Appointment of Diane C. Davis - Diane C. Davis brings over 25 years of leadership experience in the insurance industry, with a strong background in executive management, strategy, risk management, and corporate governance [2][4]. - Her previous roles include Chief Risk Officer and President at Farmers New World Life Insurance Company, and Regional Chief Risk Officer at Zurich Insurance Company Ltd. [4]. - Davis holds a Bachelor of Science in Actuarial Science and an MBA, and is a Fellow of the Society of Actuaries [5]. Strategic Importance - The appointment of Davis is seen as a significant asset for First Fed Bank, aligning with its long-term goals of risk oversight and governance [3][6]. - The company aims to strengthen its governance and ensure long-term financial security for its customers and communities through this appointment [6]. Recognition and Awards - First Fed Bank has been recognized as a Best Workplace and top Corporate Philanthropist by Puget Sound Business Journal in 2023 and 2024 [8]. - The bank also received awards for Best Bank and Best Lender in Clallam County in 2024 [8].

Company Leadership Transition - First Northwest Bancorp announced the resignation of Matthew P. Deines as President and CEO, effective July 12, 2025, with Geraldine L. Bullard appointed as Interim CEO starting July 13, 2025 [1][2] - The boards of directors expressed gratitude for Deines' six years of service and confidence in Bullard's ability to lead during the transition [2] - An executive search firm has been engaged to assist in finding a permanent replacement for the CEO position [2] Background of Geraldine Bullard - Geraldine Bullard has been with First Northwest since January 2020, serving as Executive Vice President and COO since October 2023, and previously as CFO from March 2020 to March 2025 [3] - Bullard has extensive experience in the banking sector, having held various financial leadership roles prior to joining First Fed [3] Company Overview - First Northwest Bancorp is a financial holding company with its subsidiary, First Fed Bank, which has been operational since 1923 and currently has 18 locations in Washington state [4] - The company focuses on sustainable earnings through a comprehensive range of financial products and services for individuals, small businesses, and non-profit organizations [4] - First Northwest made an investment in The Meriwether Group, LLC in 2022 and emphasizes strategic partnerships for modern financial services [4]

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20-%20Financial%20Statements%20%28Unaudited%29) Presents unaudited consolidated financial statements and notes, detailing financial position, operations, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) [Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Consolidated Balance Sheet Highlights (March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----- | :---------------------------- | :------------------------------- | :-------------------- | :------- | | Total Assets | $2,171,430 | $2,232,006 | $(60,576) | (2.71)% | | Total Liabilities | $2,024,938 | $2,078,124 | $(53,186) | (2.56)% | | Total Shareholders' Equity | $146,492 | $153,882 | $(7,390) | (4.80)% | Consolidated Statements of Operations Highlights (Three Months Ended March 31, 2025 vs. 2024) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Total Interest Income | $26,823 | $27,326 | $(503) | (1.84)% | | Total Interest Expense | $12,976 | $13,398 | $(422) | (3.15)% | | Net Interest Income | $13,847 | $13,928 | $(81) | (0.58)% | | Provision for Credit Losses | $7,785 | $970 | $6,815 | 702.58% | | Total Noninterest Income | $3,777 | $2,188 | $1,589 | 72.62% | | Total Noninterest Expense | $20,000 | $14,303 | $5,697 | 39.83% | | Net (Loss) Income | $(9,036) | $396 | $(9,432) | (2381.82)% | | Basic and Diluted (Loss) Earnings per Common Share | $(1.03) | $0.04 | $(1.07) | (2675.00)% | Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, 2025 vs. 2024) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | | :----- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Net cash used by operating activities | $(21,743) | $(4,865) | $(16,878) | | Net cash provided (used) by investing activities | $69,297 | $(78,466) | $147,763 | | Net cash (used) provided by financing activities | $(49,679) | $37,508 | $(87,187) | | Net decrease in cash and cash equivalents | $(2,125) | $(45,823) | $43,698 | | Cash and cash equivalents at end of period | $70,323 | $77,346 | $(7,023) | [Note 1 - Basis of Presentation and Critical Accounting Policies](index=9&type=section&id=Note%201%20-%20Basis%20of%20Presentation%20and%20Critical%20Accounting%20Policies) [Note 2 - Securities](index=11&type=section&id=Note%202%20-%20Securities) [Note 3 - Loans Receivable](index=14&type=section&id=Note%203%20-%20Loans%20Receivable) [Note 4 - Allowance for Credit Losses on Loans](index=20&type=section&id=Note%204%20-%20Allowance%20for%20Credit%20Losses%20on%20Loans) [Note 5 - Deposits](index=21&type=section&id=Note%205%20-%20Deposits) [Note 6 - Borrowings](index=22&type=section&id=Note%206%20-%20Borrowings) [Note 7 - Income Tax](index=23&type=section&id=Note%207%20-%20Income%20Tax) [Note 8 - Earnings (Loss) per Common Share](index=25&type=section&id=Note%208%20-%20Earnings%20%28Loss%29%20per%20Common%20Share) [Note 9 - Employee Benefits](index=25&type=section&id=Note%209%20-%20Employee%20Benefits) [Note 10 - Stock-based Compensation](index=26&type=section&id=Note%2010%20-%20Stock-based%20Compensation) [Note 11 - Fair Value Measurements](index=27&type=section&id=Note%2011%20-%20Fair%20Value%20Measurements) [Note 12 - Change in Accumulated Other Comprehensive Income ("AOCI")](index=31&type=section&id=Note%2012%20-%20Change%20in%20Accumulated%20Other%20Comprehensive%20Income%20%28%22AOCI%22%29) [Note 13 - Derivatives and Hedging Activities](index=32&type=section&id=Note%2013%20-%20Derivatives%20and%20Hedging%20Activities) [Note 14 - Segment Reporting](index=34&type=section&id=Note%2014%20-%20Segment%20Reporting) [Note 15 - Contingencies](index=34&type=section&id=Note%2015%20-%20Contingencies) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, condition, and critical accounting policies, comparing results for recent periods - Total assets decreased by **$60.6 million** (**2.7%**) to **$2.17 billion** at **March 31, 2025**, from **$2.23 billion** at **December 31, 2024**[143](index=143&type=chunk) - Net loans decreased by **$37.6 million** (**2.2%**) to **$1.64 billion**, with commercial business loans decreasing **$31.7 million** and construction and land loans decreasing **$13.2 million**[147](index=147&type=chunk)[149](index=149&type=chunk) - Total liabilities decreased by **$53.2 million** to **$2.02 billion**, driven by a **$45.0 million** decrease in brokered deposits and a **$28.9 million** decrease in borrowings, partially offset by a **$23.0 million** increase in customer deposits[162](index=162&type=chunk)[163](index=163&type=chunk) - Total shareholders' equity decreased by **$7.4 million** to **$146.5 million**, mainly due to a **$9.0 million** net loss and a **$425,000** decrease in post-tax fair market value of derivatives[165](index=165&type=chunk) - The Company reported a net loss of **$(9.0) million** for **Q1 2025**, a significant decline from net income of **$396,000** in **Q1 2024**[166](index=166&type=chunk) - Net interest income decreased by **$81,000** (**0.6%**) to **$13.9 million**, as declines in loan and interest-earning deposit income slightly outpaced reduced deposit costs[167](index=167&type=chunk) - Provision for credit losses increased significantly to **$7.8 million** in **Q1 2025** from **$970,000** in **Q1 2024**, primarily due to net charge-offs totaling **$7.7 million**[174](index=174&type=chunk) - Noninterest income increased by **$1.6 million** (**72.6%**) to **$3.8 million**, driven by a **$1.1 million** BOLI death benefit and an **$846,000** gain on extinguishment of debt[175](index=175&type=chunk) - Noninterest expense increased by **$5.7 million** (**39.8%**) to **$20.0 million**, mainly due to a **$5.8 million** accrued legal reserve included in other expense[176](index=176&type=chunk) - An income tax benefit of **$1.1 million** was recorded in **Q1 2025**, compared to an expense of **$447,000** in **Q1 2024**[177](index=177&type=chunk) Regulatory Capital Ratios (March 31, 2025) | Capital Ratio | Actual Ratio | Minimum Requirement | Well-Capitalized Requirement | | :------------ | :----------- | :------------------ | :--------------------------- | | Tier 1 leverage capital | **9.0%** | **4.0%** | **5.0%** | | Common equity tier 1 | **12.1%** | **4.5%** | **6.5%** | | Tier 1 risk-based capital | **12.1%** | **6.0%** | **8.0%** | | Total risk-based capital | **13.4%** | **8.0%** | **10.0%** | [Forward-Looking Statements](index=35&type=section&id=Forward-Looking%20Statements) [General](index=36&type=section&id=General) [Recent Regulatory Developments](index=37&type=section&id=Recent%20Regulatory%20Developments) [Critical Accounting Policies](index=37&type=section&id=Critical%20Accounting%20Policies) [Comparison of Financial Condition at March 31, 2025 and December 31, 2024](index=37&type=section&id=Comparison%20of%20Financial%20Condition%20at%20March%2031%2C%202025%20and%20December%2031%2C%202024) [Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024](index=42&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202025%20and%202024) [Average Balances, Interest and Average Yields/Cost](index=46&type=section&id=Average%20Balances%2C%20Interest%20and%20Average%20Yields%2FCost) [Rate/Volume Analysis](index=47&type=section&id=Rate%2FVolume%20Analysis) [Off-Balance Sheet Activities](index=47&type=section&id=Off-Balance%20Sheet%20Activities) [Contractual Obligations](index=48&type=section&id=Contractual%20Obligations) [Commitments and Off-Balance Sheet Arrangements](index=48&type=section&id=Commitments%20and%20Off-Balance%20Sheet%20Arrangements) [Liquidity Management](index=48&type=section&id=Liquidity%20Management) [Capital Resources](index=49&type=section&id=Capital%20Resources) [Effect of Inflation and Changing Prices](index=50&type=section&id=Effect%20of%20Inflation%20and%20Changing%20Prices) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Reports no material changes to market risk disclosures from the 2024 Form 10-K, indicating consistent risk management - No material changes in market risk disclosures from the **2024 Form 10-K**[199](index=199&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204%20-%20Controls%20and%20Procedures) Confirms effectiveness of disclosure controls and procedures, with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were effective as of **March 31, 2025**[201](index=201&type=chunk) - There have been no material changes in the Company's internal control over financial reporting during the quarter ended **March 31, 2025**[202](index=202&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=51&type=section&id=Item%201%20-%20Legal%20Proceedings) Discloses ongoing legal proceedings, including a **$5.8 million** legal reserve for an adversary proceeding related to borrower bankruptcies - A **$5.8 million** legal reserve was established for an adversary proceeding related to borrower bankruptcies and newly raised claims of financial misconduct, included in other noninterest expense for **Q1 2025**[208](index=208&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A%20-%20Risk%20Factors) Reports no material changes to risk factors from the Company's 2024 Form 10-K - No material changes to risk factors from the Company's **2024 Form 10-K**[209](index=209&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=51&type=section&id=Item%202%20-%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Reports common stock repurchases for tax obligations and confirms no repurchases under the April 2024 plan, with shares remaining - Common stock repurchases for tax obligations related to restricted stock awards totaled **7,279 shares** during the three months ended **March 31, 2025**[210](index=210&type=chunk) - As of **March 31, 2025**, **846,123 shares** remain available for future purchases under the **April 2024** stock repurchase plan, with no shares repurchased under this plan during the reported period[211](index=211&type=chunk) [Item 3. Defaults Upon Senior Securities](index=52&type=section&id=Item%203%20-%20Defaults%20Upon%20Senior%20Securities) States this item is not applicable, indicating no defaults upon senior securities - Not applicable[213](index=213&type=chunk) [Item 4. Mine Safety Disclosures](index=52&type=section&id=Item%204%20-%20Mine%20Safety%20Disclosures) States this item is not applicable, indicating no mine safety disclosures - Not applicable[214](index=214&type=chunk) [Item 5. Other Information](index=52&type=section&id=Item%205%20-%20Other%20Information) Reports no director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a **Rule 10b5-1** or **non-Rule 10b5-1** trading arrangement during the fiscal quarter ended **March 31, 2025**[215](index=215&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206%20-%20Exhibits) Lists exhibits filed with Form 10-Q, including incentive plans, stock agreements, certifications, and XBRL data - Exhibits include **First Fed 2025 Executive Officer Incentive Plan**, **Amended Executive Change in Control Plan**, **Restricted Stock Unit Award Agreement**, **Section 302** and **906** certifications, and **iXBRL** financial data[216](index=216&type=chunk) SIGNATURES [Signatures](index=53&type=section&id=Signatures) Contains official signatures of the President, CEO, Director, and EVP & CFO, certifying the report - The report was signed by **Matthew P. Deines** (President, Chief Executive Officer and Director) and **Phyllis R. Nomura** (Executive Vice President and Chief Financial Officer) on **May 12, 2025**[220](index=220&type=chunk)

Financial Performance - First Northwest Bancorp reported net income of $1.5 million for Q1 2025, a significant improvement from a net loss of $2.8 million in Q4 2024 and net income of $396,000 in Q1 2024[1]. - Adjusted pre-tax, pre-provision net revenue (PPNR) for Q1 2025 was $1.5 million, up from $1.4 million in the previous quarter and $1.2 million in Q1 2024[2]. - Total revenue for Q1 2025 was $17.9 million, an increase from $15.4 million in the previous quarter[11]. - Net interest income after provision for credit losses increased to $12,279 thousand, compared to $10,482 thousand in the previous quarter, reflecting a 17.2% improvement[34]. - Net income for the quarter was $1,514 thousand, a recovery from a net loss of $2,810 thousand in the previous quarter[34]. - Basic and diluted earnings per share improved to $0.17, compared to a loss of $0.32 per share in the previous quarter[34]. - The return on average assets (GAAP) improved to 0.28% from -0.51% year-over-year[41]. Loan and Deposit Trends - Nonperforming loans decreased by $4.1 million, or 13.5%, to $26.4 million at March 31, 2025, compared to December 31, 2024[13]. - Total net loans decreased by $31.4 million, or 1.9%, to $1.64 billion at March 31, 2025, compared to $1.68 billion at December 31, 2024[19]. - Total deposits decreased by $22.0 million to $1.67 billion at March 31, 2025, compared to $1.69 billion at December 31, 2024[21]. - Commercial business loans decreased by $31.0 million, or 20.5%, compared to the previous quarter[20]. - Total loans outstanding as of March 31, 2025, were $1,663,849 thousand, a decrease from $1,695,823 thousand in the previous quarter[36]. Credit Quality and Allowance - The allowance for credit losses on loans increased to $20.6 million, representing 1.24% of total loans, up from 1.21% at the end of 2024[12]. - Provision for credit losses was $1.55 million for the quarter ended March 31, 2025, compared to $3.76 million for the previous quarter[19]. - Provision for credit losses on loans was $1,553 thousand, significantly lower than $3,760 thousand in the previous quarter, indicating improved credit quality[34]. - The provision for credit losses was $1,568 for the quarter, down from $3,655 in the previous quarter[41]. Expenses and Dividends - Total noninterest expense was relatively unchanged at $14.3 million for Q1 2025, consistent with the previous quarter and Q1 2024[15]. - Total noninterest expense remained stable at $14,249 thousand, slightly up from $14,233 thousand in the previous quarter[34]. - The company declared a quarterly cash dividend of $0.07 per common share, payable on May 23, 2025[2]. - First Northwest Bancorp paid cash dividends totaling $649,000 in Q1 2025, with no shares repurchased under the Stock Repurchase Plan[24]. Asset Management - Total assets as of March 31, 2025, were $2,176,430,000, a decrease from $2,232,006,000 as of December 31, 2024[32]. - Total liabilities were $2,019,388,000 as of March 31, 2025, compared to $2,078,124,000 as of December 31, 2024[32]. - Total shareholders' equity increased to $157.0 million at March 31, 2025, from $153.9 million three months earlier[21]. - Shareholders' equity increased to $157,042,000 as of March 31, 2025, from $153,882,000 as of December 31, 2024[32]. - The company maintained a book value per common share of $16.63, up from $16.45 in the previous quarter[42]. Strategic Initiatives - The company is evaluating the potential for future stock buybacks due to improved profitability[3]. - First Northwest Bancorp focuses on strategic partnerships to enhance modern financial services, including digital payments and marketplace lending[27]. - The company made an investment in The Meriwether Group, LLC, a boutique investment banking and accelerator firm in 2022[27]. - The company has 18 locations in Washington state, including 12 full-service branches[27]. - The company has 846,123 shares remaining available for repurchase under the Repurchase Plan[24]. Market and Economic Conditions - Forward-looking statements indicate potential risks including competitive pressures and changes in the interest rate environment[28]. - The effective duration of the investment securities portfolio was approximately 4.3 years at March 31, 2025[18]. - The market value of the investment securities portfolio increased by $3.1 million during the first quarter of 2025[18]. - Total interest income for the quarter ended March 31, 2025, was $26,823 thousand, a decrease of 4.2% from $28,197 thousand in the previous quarter[34]. - Total interest-earning assets increased to $2,031,741, with a yield of 5.35%, compared to $2,027,821 and a yield of 5.42% in 2024[38]. - The net interest margin remained stable at 2.76% for both periods[38].

Financial Performance - First Northwest Bancorp (FNWB) reported quarterly earnings of $0.17 per share, exceeding the Zacks Consensus Estimate of $0.12 per share, and up from $0.04 per share a year ago, representing an earnings surprise of 41.67% [1] - The company posted revenues of $17.94 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 12.82%, compared to year-ago revenues of $16.12 million [2] - Over the last four quarters, FNWB has surpassed consensus EPS estimates two times and topped consensus revenue estimates two times [2] Stock Performance and Outlook - FNWB shares have remained flat since the beginning of the year, contrasting with the S&P 500's decline of -8.6% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.11 on revenues of $16.9 million, and $0.59 on revenues of $68.8 million for the current fiscal year [7] Industry Context - The Zacks Industry Rank indicates that the Banks - West industry is currently in the bottom 42% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors or through tools like the Zacks Rank [5][6]