What changed in this filing

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Item 1. Business

2025-03-13 compared with 2024-03-15 · 233 added, 287 removed, 1162 unchanged (31% of the section changed)

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The Company's business activities are generally focused on passive investment activities and oversight of the activities of First Fed.

The Company has entered into numerous partnerships to strategically invest in financial technology-related businesses, which may result in the development of additional investment opportunities.

The Company has entered into several partnerships to strategically invest in financial technology-related businesses, which may result in the development of additional investment opportunities.

Aside from these investments, the information set forth in this report, including consolidated financial statements and related data, relates primarily to First Fed.

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First Fed Bank is a community-oriented financial institution founded in 1923 in Port Angeles, Washington.

The Bank operates in 18 locations including twelve full-service branches, three business centers, and three administration centers located in Clallam, Jefferson, King, Kitsap, and Whatcom counties.

The Bank operates in 18 locations including twelve full-service branches and six business centers, including its headquarters, located in Clallam, Jefferson, King, Kitsap, Snohomish, and Whatcom counties.

First Fed’s business and operating strategy is focused on building sustainable earnings by delivering a full array of financial products and services for individuals, small business, and commercial customers.

Lending activities include loan originations generated through organic production and loan referrals as well as purchasing loans to augment our loan portfolios.

Internal production is focused on originations of first lien one-to-four family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, commercial business loans, Small Business Administration ("SBA") loans, and consumer loans, consisting primarily of home equity loans and lines of credit.

Internal production is focused on originations of first lien one-to-four family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, commercial business loans, SBA loans, and consumer loans, consisting primarily of home equity loans and lines of credit.

Over the last five years, we have significantly increased the origination of commercial real estate, multi-family real estate, construction, and commercial business loans.

Loans are purchased from experienced third-party lenders with a current focus on unsecured loans to small businesses and professionals, manufactured home loans and high-end auto loans to increase our commercial business and consumer loan portfolios.

Loans are also purchased from experienced third-party lenders with a current focus on manufactured home loans and high-end auto loans to increase our commercial business and consumer loan portfolios.

We offer traditional consumer and business deposit products, including transact ion accounts, savings and money market accounts and certificates of deposit ("CDs") for individuals and businesses.

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

Additionally, First Fed developed a strategic partnership with a financial technology ("fintech") company, Splash Financial, to develop and deploy digitally focused financial solutions to meet customers’ needs on a broader scale.

Quin Ventures, Inc.

was a fintech joint venture between First Northwest and Peace of Mind, Inc.

("POM") formed in April 2021 to focus on financial wellness and lifestyle protection products for consumers nationwide.

In December 2022, in connection with termination of the joint venture agreement, Quin Ventures sold substantially all its assets, including intellectual property, to Quil Ventures, Inc.

Quil was created by the founders of POM, in partnership with a third-party financing source, to pursue a new business model with another sponsor bank.

As part of the transaction, First Northwest received a 5% ownership stake in Quil.

First Northwest retained a 50% equity interest in Quin Ventures and recorded a commitment receivable under "Other Assets" which was to be repaid from Quil subscription fee income through a revenue share agreement.

In June 2023, First Northwest determined that Quin Ventures was no longer a going concern.

The Company wrote off its remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods, with no change to total shareholders' equity as a result of the transaction.

In December 2023, the Company determined that Quil was no longer a going concern, therefore making the collectability of the receivable from and investment in Quil unlikely.

As result, the related investment of $225,000 and commitment receivable of $1.5 million were written off, impacting other noninterest income and other noninterest expense, respectively.

First Fed has a limited partnership investment in Canapi Ventures SBIC Fund II, LP.

First Fed also has a limited partnership investment in Meriwether Group Capital Hero Fund LP ("Hero Fund") which was previously held by First Northwest.

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

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

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These limited partnerships invest in fintech-related businesses with a focus on developing digital solutions applicable to the banking industry.

In 2022, First Northwest acquired a 33% interest in MWG, a boutique investment bank and consulting firm focusing on providing entrepreneurs with resources to help them succeed.

Also in 2022, the Company acquired a 25% equity interest as a general partner in Meriwether Group Capital, LLC ("MWGC"), which provides financial advice for borrowers and capital for the Meriwether Group Capital Hero Fund LP ("Hero Fund").

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

First Northwest also has a limited partnership investment in the Hero Fund.

In 2022, First Northwest acquired a 33.3% interest in MWG, a boutique investment bank and consulting firm focused on providing entrepreneurs with resources to help them succeed.

Also in 2022, the Company acquired a 25% equity interest as a general partner in Meriwether Group Capital, LLC ("MWGC"), which provides financial advice for borrowers and capital for the Hero Fund.

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

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

The executive office of the Company is located at 105 West 8th Street, Port Angeles, Washington 98362, and its telephone number is (360) 457-0461.

We operate through twelve full-service branch offices, three business centers and three administration centers located in Washington State.

We operate through twelve full-service branch offices and six business centers located in Washington State.

We have five branches in Clallam County, one in Jefferson County, one in King County, two in Kitsap County, and three in Whatcom County.

We have two administration centers located in Clallam County, one administration and two business centers in King County and one business center in Whatcom County.

We have two business centers located in Clallam County, two in King County, one in Snohomish County, and one in Whatcom County.

All population and income data below is derived from the U.S.

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The economic base in Jefferson County is dependent on government, healthcare, education, tourism, arts and culture, maritime and boat building, and small-scale manufacturing.

The primary employers in Jefferson County include Port Townsend Paper, Jefferson Healthcare, Port Townsend School District, the Port Authority of Port Townsend and related marine trade, Amazon, and the Jefferson County government.

According to the U.S.

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This region dominates the economy of the Pacific Northwest and is broadly defined as the area surrounding the Puget Sound that extends into the northwestern quadrant of the state of Washington.

The population of this additional region (beyond our current market area) is approximately 2.3 million, or 29.5% of the state's population.

Our current market area, described previously, has a population of 2.9 million, or 36.3% of the state's population.

The population of the Puget Sound region beyond our current market area is approximately 2.4 million, or 29.5% of the state's population.

The market area is a mix of urban, suburban and rural areas, with the Seattle metropolitan area representing a well-developed urban center.

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Key employment sectors include aerospace, military, information technology, biotechnology, education, logistics, international trade, and tourism.

The region is well known for the long-term presence of The Boeing Company and Microsoft, two major industry leaders, and since the turn of the century, Amazon.com.

The region is well known for the long-term presence of The Boeing Company and Microsoft, two major industry leaders, and since the turn of the century, Amazon.

The military presence includes a number of large installations serving the U.S.

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Given the employment profile and the presence of the University of Washington and other universities, the region's workforce is highly educated.

Washington's geographic proximity to the Pacific Rim along with a deep-water port makes it a center for international trade, which contributes significantly to the regional economy.

The local ports make Washington the ninth largest exporting state in the nation.

Washington's geographic proximity to the Pacific Rim along with multiple deep-water ports makes it a center for international trade, which contributes significantly to the regional economy.

The local ports make Washington the tenth largest exporting state in the nation.

The top five trading partners with Washington include China, Canada, Japan, Mexico and South Korea.

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Commercial business loans

Derivative basis adjustment

Allowance for credit losses on loans

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Total adjustable-rate loans

Derivative basis adjustment

Allowance for credit losses on loans

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Loan Maturity

The following table illustrates the contractual maturity of our loan portfolio at December 31, 2023.

The following tables illustrate the contractual maturity of our loan portfolio at December 31, 2024.

Mortgages that have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due.

The total amount of loans due after December 31, 2024, that have fixed interest rates is $898.0 million, while the total amount of loans due after such date that have adjustable interest rates is $661.9 million.

The table does not reflect the effects of unscheduled principal prepayments.

These tables do not reflect the effects of unscheduled principal prepayments.

Within One Year (1)

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(1) Includes demand loans, loans having no stated maturity, and overdraft loans.

Predetermined Interest Rate

Floating or Variable Rate

Loans above maturing after one year:

(Dollars in thousands)

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Commercial business loans

Total loans maturing after one year

Geographic Distribution of our Loans

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

(3) Includes loans located primarily in California, Oregon, and Florida.

(3) Includes loans located primarily in California, Florida, Texas, and Oregon.

One-to-Four Family Real Estate Lending.

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We offer both fixed- and adjustable-rate loans on commercial and multi-family real estate, which may include balloon payments.

As of December 31, 2023, we had $235.2 million in adjustable-rate commercial real estate loans and $211.3 million in adjustable-rate multi-family loans.

As of December 31, 2024, we had $254.2 million in adjustable-rate commercial real estate loans, or 65.1% of commercial real estate, and $219.9 million in adjustable-rate multi-family loans, or 66.1% of total multi-family.

Commercial and multi-family real estate loans with adjustable rates generally adjust after an initial period of three to five years and have maturity dates of three to ten years.

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Constant Maturity Treasury Rate, or a similar term FHLB borrowing rate.

Adjustable-rate loans could increase credit risk when interest rates rise.

Adjustable-rate loans could have increased credit risk when interest rates rise.

An increase to the borrower's loan payment may affect the borrower's ability to repay and could increase the probability of default.

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During 2023, the Bank successfully migrated away from the London Interbank Offered Rate ("LIBOR") as an index for all new and existing loans.

Commercial loans previously tied to LIBOR converted to a similar termed Term Secured Overnight Financing Rate ("TSOFR") product with the recommended spread adjustment set by the Alternative Reference Rate Committee.

Of the adjustable-rate commercial and multi-family real estate loans, 66.01% are subject to a floor rate and the weighted average floor rate on these loans was 3.64% at December 31, 2024.

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The maximum loan to value ratio for commercial and multi-family real estate loans is typically limited to 75% of an appraiser opinion of market value.

The minimum debt service coverage ratio is 1.25 for non-owner-occupied and owner-occupied properties.

We require independent appraisals or evaluations on all loans secured by commercial or multi-family real estate from an approved appraisers list.

Once commercial real estate or multi-family loans are originated, we review most relationships at least annually to assure the borrower continues to meet certain loan requirements as set forth at origination, which may include an annual inspection of the property.

The scope of the review is based on relationship size, with those $1.5 million or greater subject to a full credit review at least annually, which includes detailed financial and cash flow analysis, property inspection, covenant compliance and annual risk rating certification.

Relationships $750,000 or greater are subject to brief financial and cash flow analysis, covenant compliance and annual risk rating certification.

The minimum debt service coverage ratio is 1.25 for non-owner-occupied and 1.20 for owner-occupied properties.

We require independent appraisals or evaluations on all loans secured by commercial or multi-family real estate from our internal list of approved appraisers.

We review most commercial real estate and multi-family loan relationships annually to ensure the borrower continues to meet certain loan requirements as set forth in loan covenants, which may include an annual inspection of the property.

The scope of the annual review is generally based on relationship size, with those $1.5 million or greater subject to a full credit review, which includes detailed financial and cash flow analysis, property inspection, covenant compliance and annual risk rating certification.

All commercial loans risk rated special mention or worse with exposure of $100,000 or more are also subject to the full credit review.

Loans with less than three years remaining in term are exempt from the annual requirement.

Relationships with an aggregate credit exposure below $1.5 million are monitored for payment performance, changes in guarantor credit scores, and compliance with all other terms and conditions contained in the loan documents.

All individuals that guarantee $3.0 million or more in aggregate commercial debt of any type are subject to annual financial reviews.

While we cannot prevent loans from becoming delinquent, we believe our monitoring and formal review processes provide us with the opportunity to better identify problem loans in a timely manner and to work with the borrower prior to the loan becoming delinquent.

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Office building

One-to-four family

Vehicle dealership

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Vehicle dealership

One-to-four family

Other owner-occupied

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Office building

One-to-four family

Vehicle dealership

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If we foreclose on a commercial or multi-family real estate loan, the marketing and liquidation period can be a lengthy process with substantial holding costs.

Vacancies, deferred maintenance, repairs and market factors can result in losses during the time it takes to stabilize a property.

Vacancies, deferred maintenance, repairs and market factors can result in losses during the time it takes to prepare the property for sale.

Depending on the individual circumstances, initial charge-offs and subsequent losses relating to multi-family and commercial loans can be substantial and unpredictable.

The average outstanding loan in our commercial real estate portfolio, including multi-family loans, was $1.7 million as of December 31, 2023.

The average outstanding loan amount in our commercial real estate portfolio, including multi-family loans, was $1.7 million as of December 31, 2024.

We generally target individual commercial and multi-family real estate loans between $1.0 million and $10.0 million to small and mid-size operators and investors in our market areas as well as other parts of Washington.

We will also make commercial and multi-family real estate loans in other states if we have a pre-existing relationship with the borrower.

Our three largest commercial and multi-family borrowing relationships, including current loan balances and unused commitments, at December 31, 2023 consisted of a $21.3 million relationship secured by multi-family and construction in Pierce and Snohomish Counties, Washington;

a $20.3 million relationship secured by commercial real estate in Kitsap, King and Thurston Counties;

and a $19.7 million relationship secured by multi-family residential in Pierce County.

We may also make commercial and multi-family real estate loans in other states if we have a pre-existing relationship with the borrower.

Our three largest commercial and multi-family borrowing relationships, including current loan balances and unused commitments, at December 31, 2024 consisted of a $23.2 million relationship secured by construction and commercial real estate in King County, Washington;

a $20.0 million relationship secured by construction and multi-family real estate in Pierce and Snohomish Counties;

and a $19.4 million relationship secured by multi-family real estate in Pierce County.

The construction loan balances are included in Construction and Land Lending below.

Construction and Land Lending.

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Underwriting criteria on construction loans include, but are not limited to, minimum debt service coverage requirements of 1.25x or better, loan to value limitations, pre-leasing requirements, construction cost over-run contingency reserves, interest and absorption period reserves, occupancy, capitalization rates and interest rate stress testing, as well as other underwriting criteria.

Underwriting criteria on commercial acquisition-renovation loans during the interest-only period include, but are not limited to, loan to value limitations and debt service coverage requirements of 1.00x or better, based on in-place rents and amortization of full commitment.

These loans begin amortizing once renovations have been completed.

Construction loan applications generally require architectural and working plans, a material specifications list, a detailed cost breakdown and a construction contract.

Custom and speculative construction valuations assume that the project will be built in accordance with plans and specifications submitted to us at the time of the loan application.

The appraiser takes into consideration the proposed design and market appeal of the improvements, based on current market conditions and demand for homes, although the improvements may not be completed for twelve months or longer, depending on the complexity of the plans and specifications and market conditions.

Construction loan advances are based on progress payments for "work in place" based on detailed line-item construction budgets.

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In some cases, general contractors may be required to provide sub-contractor lien releases for any work performed prior to the filing of our deed of trust or prior to each construction loan advance.

Custom and speculative construction valuations assume that the project will be built in accordance with plans and specifications submitted to us at the time of the loan application.

Land acquisition, development and construction loans are available to local contractors and developers for the purpose of holding and/or developing residential building sites and homes when market conditions warrant such activity.

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These loans have been limited to projects within the state of Washington.

At December 31, 2023, the average construction commitment for single-family residential construction was $1.1 million, $2.7 million for multi-family construction and $4.0 million for commercial real estate construction.

The largest construction commitments for commercial real estate and multi-family were $15.0 million and $10.1 million, respectively, at December 31, 2023.

At December 31, 2024, the average construction commitment was $868,000 for single-family residential construction, $1.8 million for multi-family construction and $3.6 million for commercial real estate construction.

The largest construction commitments for single-family residential, multi-family and commercial real estate were $2.3 million, $5.5 million and $10.0 million, respectively, at December 31, 2024.

Substantially all of our adjustable-rate land acquisition, development and construction lending have rates of interest based on The Wall Street Journal prime rate.

During the term of construction, the accumulated interest on the loan is either added to the principal of the loan through an interest reserve or billed monthly, as is the case for acquisition and development loans.

During the term of construction, the accumulated interest on the loan is either billed monthly, as is the case for acquisition and development loans, or added to the principal of the loan through an interest reserve.

When original interest reserves set up at origination are exhausted, no additional reserves are permitted unless the loan is re-analyzed and it is determined that the additional reserves are appropriate.

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Commercial real estate

Total disbursed

Total disbursed for construction

Net deferred fees (costs)

Amortized cost for construction

Undisbursed Commitment

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Total disbursed for land

Net deferred fees

Amortized cost for land

December 31, 2023

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Multi-family residential

Commercial acquisition-renovation

Commercial real estate

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Multi-family residential

Commercial acquisition-renovation

Commercial real estate

Total disbursed

Total disbursed for construction

Net deferred fees (costs)

Amortized cost for construction

Undisbursed Commitment

1 unchanged sentence

Multi-family residential

Commercial acquisition-renovation

Commercial real estate

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Total disbursed for land

Net deferred fees

Amortized cost for land

Consumer Lending.

We offer consumer loans, including home equity loans, home equity lines of credit and personal lines of credit.

We offer consumer loans, including home equity loans, home equity lines of credit, auto loans and personal lines of credit.

At December 31, 2024, home equity loans and lines of credit totaled $79.1 million, or 4.7%, of the loan portfolio.

Our interest rates on home equity loans are priced for risk based on credit score, loan to value and overall payment capacity of the applicant.

Our interest rates on home equity loans are priced based on risks including credit score, loan to value and overall payment capacity of the applicant.

Home equity loans are made for the improvement of residential properties and other purposes.

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We may or may not have private mortgage insurance coverage.

At December 31, 2023, auto loans totaled $127.7 million, of which $123.6 million were purchased and $2.0 million were originated through indirect dealer programs described below;

the remaining $2.2 million were originated through our branches.

At December 31, 2024, auto loans totaled $133.9 million, of which $132.3 million were purchased and $453,000 were originated through indirect dealer programs described below;

the remaining $1.2 million were originated through our First Fed branches.

Auto loans have a maximum term of up to 180 months for purchased classic and collector vehicles, up to 96 months for indirect auto loans, and up to 84 months for all other auto loans, depending on the age and condition of the vehicle and strength of the borrower.

Loan rates for auto lending, as well as all other consumer loans, are priced based on the specific loan type and the risks involved.

Indirect lending sources are used to purchase auto loans.

First Fed utilizes indirect lending sources to purchase auto loans.

In-house and direct lending sources have been used to originate auto loans in prior years.

We purchase auto loans through a partnership with Woodside Credit, LLC, a loan originator that operates in all 50 states, underwriting and funding loans for classic (25 years or older) and collector (premium price with limited production) vehicles.

We purchase auto loans through a relationship with Woodside Credit, LLC, a loan originator that operates in all 50 states, underwriting and funding loans for classic (25 years or older) and collector (premium price with limited production) vehicles.

These loans typically range from $10,000 to over $600,000 with terms that range from 84 to 180 months and generally require down payments of 10% to 20% of the cost of the vehicle.

We receive loan pools each week with complete packages that we underwrite to determine whether to purchase or pass on all loans submitted.

We receive loan pools each week with complete packages that we underwrite to determine whether to purchase or pass on the loans submitted.

The average loan balance was $94,000 at December 31, 2024.

These loans present unique risks with the collateral being located across the country;

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Historically, losses on these types of loans have been less than 2% and First Fed experienced a loss rate of 0.36% and 1.07%, respectively, for each of the years ended December 31, 2024 and 2023.

We also purchase auto loans through a partnership with First Help Financial, a loan originator that operates in selected states, underwriting and funding loans to "superior subprime" customers who have a demonstrated capacity to pay and have limited or no blemishes on their credit report, but have limited credit experience.

Loans in the First Help Auto Loan Purchase Program typically range from $10,000 to $75,000 with terms that range from 72 to 84 months.

We periodically receive loan pools with complete packages that we underwrite to determine whether to purchase or pass on the loans submitted.

The seller retains the servicing on these loans which includes the collection activities as well as the rehab and marketing related to the sale of any collateral that was repossessed or foreclosed upon.

Indirect auto loans were previously originated with auto dealerships located throughout our market areas through CRIF Lending Solutions, a third-party service provider that also facilitated a portion of the underwriting and origination of these loans based on our underwriting and pricing criteria.

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The collateral may include both real estate and personal property depending on whether or not the title to the subject property has been eliminated.

The program has a credit enhancement in the form of a reserve account that can be used to protect the bank from charge offs and prepaid.

The program has a credit enhancement in the form of a reserve account that can be used to protect the bank from charge offs and prepayments.

The reserve represented 5 .2% of related loan balances at year end;

however, it will vary depending on the pricing options selected during the acquisition of the loans .

First Fed experienced one foreclosure in 2023 and the Bank was made whole through the enhancement funds.

First Fed had three loans placed into repossession inventory in 2024 and one in 2023 for a variety of reasons.

The Bank was made whole through the credit enhancement reserve for all loans placed into repossession inventory.

In 2022, we began purchasing unsecured consumer loans through a partnership with Splash Financial who underwrites and funds these loans.

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These loans range from $1,000 to $35,000 with terms that range from 36 to 60 months .

We receive individual loan packages that we underwrite to determine whether to purchase or pass on.

We received individual loan packages that we underwrote to determine whether to purchase or pass on.

The seller retains the servicing on these loans.

First Fed experienced losses of $3.4 million on these loans to-date.

Of the $11.1 million in loans purchased between June 2022 and February 2023, First Fed has experienced losses totaling $4.7 million .

The originator paid First Fed $950,000 as a partial reimbursement of program losses incurred during 2023.

Changes were made to the program participation criteria in 2023 to reduce future losses, including a decrease in the maximum loan amount from $35,000 to $20,000 and an increase to the minimum FICO score.

Splash also now covers first payment defaults over 1.75% and the servicing fee charged to the Bank on new loans was reduced.

Included in the total losses above were $69,000 of charge-offs on loans purchased after the change in criteria was made.

Changes were made to the program participation criteria in April 2023 to reduce future losses, including a decrease in the maximum loan amount from $35,000 to $20,000 and an increase to the minimum FICO score.

Splash also agreed to cover first payment defaults over 1.75% and the servicing fee charged to the Bank on new loans was reduced.

The Bank purchased $3.7 million of loans after the change in criteria was made and has experienced losses totaling $556,000 related to this group of loans.

Purchases of Splash loans were suspended in August 2023.

Consumer loans represent additional risks because of the mobility and rapidly depreciating nature of consumer assets in contrast to real estate-based collateral.

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Collateral may fluctuate in value, which can reduce liquidation proceeds, and our ability to collect on accounts receivable or other third-party payments can affect the amount of losses we incur in the event of default.

Similar to commercial and multi-family real estate loans, commercial business relationships of $1.5 million or greater are subject to a formal review of the entire lending relationship at least annually.

All borrowers with aggregate exposure of $750,000 or greater are subject to annual financial reviews and risk rating certification.

All commercial loans risk rated special mention or worse with exposure of $100,000 or more are also subject to the full credit review.

Relationships with an aggregate credit exposure below $750,000 are monitored for payment performance, changes in guarantor credit scores, and compliance with all other terms and conditions contained in the loan documents.

All individuals that guarantee $3.0 million or more in aggregate commercial debt of any type are subject to annual financial reviews.

We purchase unsecured commercial loans to small businesses and professionals through a partnership with Bankers Healthcare Group, who underwrites and funds these loans.

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These loans range fro m $24,000 to $530,000 with terms ranging from 60 to 144 months.

We purchase individual loans on a flow basis that we underwrite to determine whether it fits our credit criteria.

We purchase individual loans on a flow basis that we underwrite to determine whether they fit our credit criteria.

Th e seller retains the servicing on these loans.

A reserve account equal to approximately 3% of the unpaid balance serves as a credit enhancement to help protect against charge offs and prepaid loans.

The loan originator has experienced a loss rate of 2.7% on this program.

The loan originator has experienced a loss rate of 2.9% on the total portfolio of loans in this program.

First Fed has not experienced any losses on these loans to-date.

Indirect commercial business loans are referred to the Bank through Waterstation Management, LLC, a third-party broker that assists borrowers with completing and submitting an electronic commercial loan application to finance equipment.

Indirect commercial business loans were referred to the Bank through Waterstation Management, LLC, a third-party broker that assists borrowers with completing and submitting an electronic commercial loan application to finance equipment.

At December 31, 2024, $5.0 million of these brokered loans were included in commercial business loans.

Indirect commercial business loan customers receive a fixed rate loan up to 75% of the equipment cost based on a review of their FICO credit score, historical cash flows and overall financial strength.

Our underwriting and pricing criteria for this program focuses primarily on the ability of the borrower to repay the loan rather than the value of the underlying collateral.

These loans range from $170,000 to $1.5 million with terms ranging from 96 to 132 months.

First Fed has not experienced any losses on these loans to-date.

Indirect commercial business loan customers received a fixed rate loan up to 75% of the equipment cost based on a review of their FICO credit score, historical cash flows and overall financial strength.

Our underwriting and pricing criteria for this program focused primarily on the ability of the borrower to repay the loan rather than the value of the underlying collateral.

These loans ranged from $170,000 to $1.5 million with terms ranging from 96 to 132 months.

Of the $16.5 million loans originated by First Fed during 2021 and 2022, the Bank has experienced losses totaling $6.3 million.

We ceased making these loans in July 2022 and continue to pursue satisfactory repayment of these loans.

First Fed periodically provides funding to Northpointe Bank through participation in their Northpointe Bank Mortgage Purchase Program ("Northpointe MPP").

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Included in total commercial business loans is $4.0 million of loans originated by First Northwest.

These loans may contain clauses which allow for a portion of the debt to be converted into securities, mezzanine debt or other non-standard terms.

These loans contain clauses which allow for a portion of the debt to be converted into securities, mezzanine debt or other non-standard terms.

Loan Origination and Underwriting.

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The SLC (on a monthly basis) and the Board Loan Committee ("BLC") (on a quarterly basis) review loan portfolio quality, credit concentrations, production, and industry trends and provide directional oversight over our lending policies.

The BLC also reviews, on a quarterly basis, policy exceptions, and related risk concerns.

The BLC also reviews policy exceptions and related risk concerns on a quarterly basis.

Additionally, all loan approval policies are reviewed no less than annually.

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(In thousands)

Commercial Construction

Multi-family Real Estate

Commercial Real Estate

Multi-family Real Estate

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We originate mortgage, consumer, multi-family and commercial real estate, and commercial business loans for our portfolio utilizing fixed- and adjustable-rate loan terms.

We also purchase whole and participation loans on a servicing retained or released basis.

During the years ended December 31, 2024, 2023, and 2022, our total loan originations were $232.4 million, $221.9 million, and $548.3 million, respectively.

We also purchase whole and participation loans on a servicing retained or released basis.

During the years ended December 31, 2024, 2023, and 2022, we purchased $88.9 million, $83.1 million, and $96.1 million of loans, respectively.

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At December 31, 2024, we were servicing $329.3 million of loans for others.

We earned servicing income on these loans of $916,000, $972,000, and $1.0 million for the years ended December 31, 2023, 2022, and 2021, respectively.

We earned servicing income on these loans of $736,000, $916,000, and $972,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

Servicing rights for these loans had a fair value of $3.3 million at December 31, 2024.

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We typically retain an ownership interest in the loan as well as the loan servicing rights to maintain our dire ct relationship with the borrower and better manage our credit risk.

During the year en ded December 31, 2023, we sold $14.6 million in multi-family loan participations, retaining both the servicing and a portion of the loan balances.

During the year ended December 31, 2022 , we sold $6.0 million in commercial business loans, $3.1 million in commercial construction loans, and $750,000 in commercial real estate loan participations, retaining both the servicing and a portion of the loan balances .

No commercial real estate loans were sold or participated during the year en ded December 31, 2024.

During the year ended December 31, 2023 , we sold $14.6 million in multi-family loan participations, retaining both the servicing and a portion of the loan balances .

In 2021, we expanded our relationship with the SBA to include additional products.

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Gains, losses and transfer fees on sales of one-to-four family and commercial real estate loans are recognized at the time of the sale.

Our net gain on sale of residential real estate, commercial real estate, and SBA loans was $438,000, $824,000, and $5.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Our net gain on sale of residential real estate, commercial real estate, and SBA loans was $312,000, $438,000, and $824,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

The following table shows our loan origination, sale and repayment activities for the periods indicated:

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Commercial business

Construction and land

Manufactured homes

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Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income or expense at the time of prepayment or sale.

We had $1.9 million, $2.8 million, and $4.8 million of net deferred loan fees at December 31, 2023, 2022, and 2021, respectively.

In addition, we receive fees for loan commitments, late payments and miscellaneous services.

Net deferred loan fees included in net loans receivable on the balance sheet totaled $1.3 million, $1.9 million, and $2.8 million at December 31, 2024, 2023, and 2022, respectively.

In addition to deferred loan fees, we receive other fee income on loan commitments, late payments and miscellaneous services.

Asset Quality

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Commercial real estate

Construction and land

Total real estate loans

Consumer loans:

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Nonperforming assets include nonperforming loans, real estate owned, and other repossessed assets.

Also presented below are totals, regardless of accrual status, for modified loans to troubled borrowers ("MLTB") restructured during 2023 and, for prior fiscal years, total troubled debt restructurings ("TDR").

Nonperforming assets as a percent of total assets were 0.8% at December 31, 2023 and 0.1% at each of December 31, 2022 and 2021.

Also presented below are totals, regardless of accrual status, for modified loans to troubled borrowers ("MLTB") restructured during 2024 and 2023 and, for prior fiscal years, total troubled debt restructurings ("TDR").

Nonperforming assets as a percentage of total assets were 1.4%, 0.8% and 0.1% at December 31, 2024, 2023, and 2022, respectively.

At each of the dates indicated in the following table, there were no loans delinquent more than 90 days that were accruing interest.

The increase in nonperforming loans during 2023 primarily resulted from one $15.0 million commercial construction project which the Bank, based on a recent third-party appraisal, believes does not represent significant exposure to loss.

The increase in nonperforming loans during 2024 primarily resulted from an $8.1 million commercial construction project which the Bank believes does not represent significant exposure to loss based on a recent third-party appraisal.

The loan was placed on nonaccrual status and downgraded to a classified loan status, in line with applicable Bank policy.

Also during the fourth quarter of 2023, the Bank downgraded a commercial loan relationship which totaled $9.3 million involving several commercial real estate and business loans, a $3.6 million SBA loan, and a $104,000 commercial business loan.

The $15.0 million construction loan and the $9.3 million commercial loan relationship account for 69% of the classified loan balance at December 31, 2023.

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

During the fourth quarter of 2023, the Bank downgraded a commercial loan relationship which totaled $9.3 million involving several commercial real estate and business loans, a $3.6 million SBA loan which has a 75% program guarantee, and a $104,000 commercial business loan.

The following table summarizes our nonperforming assets at the dates indicated:

(Dollars in thousands)

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Total nonaccrual loans

MLTB (2023) and TDR (2022 and 2021) loans:

MLTB (2024 and 2023) and TDR (2022) loans:

One-to-four family

Commercial real estate

Commercial business

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

For the years ended December 31, 2023, 2022, and 2021, gross interest income which would have been recorded had the nonaccrual loans been current in accordance with their original terms amounted to $710,000, $699,000, and $679,000, respectively.

For the years ended December 31, 2024, 2023, and 2022, gross interest income which would have been recorded had the nonaccrual loans been current in accordance with their original terms amounted to $3.0 million, $710,000, and $699,000, respectively.

The amount that was included in interest income on a cash basis on nonaccrual loans was $201,000, $58,000, and $28,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

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Adversely classified loans that are subsequently modified and placed in nonaccrual status are generally not returned to accrual status until a period of at least six months with consecutive satisfactory payment performance has occurred, and a return to accrual status is further supported by current financial information and analysis which demonstrates a particular borrower has the financial capacity to meet future debt service requirements.

At December 31, 2023, we had one loan with an aggregate amortized cost of $119,000 that was identified as an MLTB loan restructured during the year ended December 31, 2023, which was not performing in accordance with its revised payment terms and was on nonaccrual status.

Included in the allowance for credit losses on loans at December 31, 2023, was a reserve of $59,000 related to the individually evaluated MLTB loan.

At December 31, 2024, we had one loan with an aggregate amortized cost of $6.4 million that was identified as an MLTB loan restructured during the year ended December 31, 2024, which was performing in accordance with its revised payment terms and was accruing.

There was no reserve included in the allowance for credit losses on loans at December 31, 2024, for this individually evaluated MLTB loan.

Nonaccrual MLTB loans are classified as substandard while accruing MLTB loans may be classified at any level in our loan grading system depending upon verified repayment sources, collateral values and repayment history.

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We had no other classified assets at these dates.

In addition, we had $14.7 million, $20.7 million and $12.3 million of special mention loans at December 31, 2023, 2022, and 2021, respectively.

In addition to the classified loans, we had $11.1 million, $14.7 million and $20.7 million of special mention loans at December 31, 2024, 2023, and 2022, respectively.

Over 61% of the classified loan balance at December 31, 2024, is comprised of the following relationships:

an $11.4 million construction loan relationship, which became a classified loan in the fourth quarter of 2022;

an $8.1 million commercial construction loan relationship, which became classified in the second quarter of 2024;

and a $6.2 million commercial loan relationship, which became classified in the fourth quarter of 2023.

The Bank has exercised legal remedies, including the appointment of a third-party receiver and foreclosure actions, to liquidate the underlying collateral to satisfy the real estate loans in two of these three collateral-dependent relationships.

The Bank is also closely monitoring a group of commercial business loans that have similar collateral, with 15 loans totaling $2.2 million included in classified loans at December 31, 2024, and an additional eight loans totaling $2.8 million included in the special mention risk grading category.

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

Classified loans, consisting solely of substandard loans, were as follows at the dates indicated:

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Subsequent recoveries, if any, are credited to the allowance.

The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Income.

The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Operations.

Accrued interest receivable on loans receivable is excluded from the estimate of credit losses.

Instead, interest accrued, but not received, is reversed timely in accordance with the policy for loans receivable above.

Instead, interest accrued, but not received, is reversed timely in accordance with our loan policy.

Our accounting policies are discussed in detail in Notes 1 and 4 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

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Allowance at beginning of period

Construction and land

Auto and other consumer

Commercial business

Total charge-offs

One-to-four family

Commercial real estate

Construction and land

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One-to-four family

Commercial real estate

Construction and land

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The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of deposit inflows, and the anticipated demand for funds from deposit withdrawals and loan originations and purchases.

The general objective of our investment portfolio is to provide liquidity, generate earnings, and manage risk, including credit, reinvestment, liquidity and interest rate risk.

Total investment securities decreased $31.0 million, or 9.5%, to $295.6 million at December 31, 2023, from $326.6 million at December 31, 2022, mainly as a result of sales and principal payments partially offset by changes in market value and purchases.

The general objective of our investment portfolio is to provide liquidity, generate earnings, and manage risk, including credit, reinvestment, liquidity and interest rate risks.

Total investment securities increased $44.7 million, or 15.1%, to $340.3 million at December 31, 2024, from $295.6 million at December 31, 2023, as a result of purchases and an improvement in the portfolio market value, partially offset by sales and principal payments.

The issuers of mortgage-backed agency securities ("MBS") held in our portfolio, which include Fannie Mae, Freddie Mac, and Government National Mortgage Association ("Ginnie Mae"), and certain issuers of agency bonds held in our portfolio, which include FHLB and Fannie Mae, guarantee the timely principal and interest payments in the event of default.

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As a member of the FHLB, we had an average balance of $13.0 million in stock of the FHLB for the twelve months ended December 31, 2024.

We received $880,000, $502,000, and $190,000 in dividends from the FHLB during the years ended December 31, 2023, 2022, and 2021, respectively.

We received $1.2 million, $880,000, and $502,000 in dividends from the FHLB during the years ended December 31, 2024, 2023, and 2022, respectively.

The table below sets forth information regarding the composition of our securities portfolio and other investments at the dates indicated.

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Municipal bonds

Treasury notes

ABS corporate

Corporate debt

Mortgage-backed:

MBS non-agency

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Depositors may qualify for coverage over the limit if they have funds in multiple ownership categories and all FDIC requirements are met.

The Company estimated that $363.7 million and $334.0 million of total deposit balances were uninsured at December 31, 2023 and 2022, respectively.

The Company estimated that $390.5 million and $363.7 million, or 23.1% and 21.7%, of total deposit balances were uninsured at December 31, 2024 and 2023, respectively.

The following table indicates the amount of our certificates of deposit by time remaining until maturity as of December 31, 2024.

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The Company used the net proceeds of the offering for general corporate purposes.

Beginning in April 2026, the interest rate will reset quarterly to the three-month SOFR plus 300-basis points.

On May 20, 2022, First Northwest began a borrowing arrangement with NexBank for a $20.0 million revolving line of credit.

Borrowings under the arrangement with NexBank are secured by a blanket lien on First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments.

The line of credit matures on May 18, 2024, with the option for one 364-day extension.

In June 2023, First Fed established a Bank Term Funding Program ("BTFP") borrowing arrangement with the FRB as an additional source of liquidity.

At December 31, 2023, we had pledged securities with a carrying value of $12.9 million as collateral to support a borrowing capacity of $15.2 million.

No funds have been borrowed to date.

The line of credit matures on May 17, 2025.

At December 31, 2024, the outstanding advance totaled $6.5 million, leaving a remaining borrowing capacity of $13.5 million.

The following tables set forth information regarding our borrowings at the end of and during the periods indicated.

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Subordinated debt, net

Total borrowings

Subsidiary and Other Activities

First Fed has one active subsidiary to participate in historic tax credit transactions.

Makers Square Master Tenant, LLC was formed in February 2021 in partnership with the Fort Worden Foundation.

A former subsidiary, 202 Master Tenant, LLC, was formed in August 2016 in partnership with the Peninsula College Foundation and ended in April 2022.

These entities meet the criteria for reporting under the equity method of accounting.

In December 2019, the Company joined Canapi Ventures Fund, LP ("Canapi Ventures") as a limited partner to strategically invest in fintech-related businesses.

In December 2019, the Company invested in Canapi Ventures Fund, LP ("Canapi Ventures") as a limited partner to strategically invest in fintech-related businesses.

The Company is dedicated to the discovery of, and investment in, those fintech-related companies that we expect may also contribute to the evolution of digital solutions applicable to the banking industry.

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The recorded investment was $2.6 million at December 31, 2024.

In April 2021, First Northwest, the Bank, POM, and Quin Ventures became parties to a joint venture agreement.

First Northwest extended $8.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $500,000.

Quin Ventures was in a research and development phase during 2021.

In early 2022, an initial product was rolled out that attracted significant initial customer interest but had lower than expected customer retention as well as higher than anticipated expenses.

In the second half of 2022, another investor showed interest in the joint venture.

In December 2022, Quin Ventures sold substantially all of its assets to Quil, at which time POM returned the 29,719 shares previously issued and the joint venture agreement was terminated.

In February 2021, First Fed invested in Makers Square Master Tenant, LLC as a limited partner in order to participate in an historic tax credit transaction.

This entity meets the criteria for reporting under the equity method of accounting.

In April 2021, First Northwest extended $8.0 million to Quin Ventures, Inc.

("Quin Ventures") under a capital financing agreement and related promissory note.

In December 2022, Quin Ventures sold substantially all of its assets to Quil Ventures, Inc.

As part of the sale transaction, the Company received a 5% ownership stake in Quil valued at $225,000 and recorded a $1.5 million commitment receivable.

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The recorded investment was $617,000 at December 31, 2024.

In December 2021, the Company joined JAM FINTOP Blockchain, LP as a limited partner to strategically invest in fintech-related businesses.

In December 2021, the Company invested in JAM FINTOP Blockchain, LP as a limited partner to strategically invest in fintech-related businesses.

This commitment will be for up to ten years, with cash installments totaling up to $1.0 million to be paid into the partnership over a period not to exceed the first five years, beginning in 2022.

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In February 2022, the Bank invested in a Small Business Investment Company through Canapi Ventures.

This commitment will be for up to ten years with two possible one-year extensions, with cash installments totaling up to $2.0 million to be paid into the company over the commitment period, beginning in 2022.

As of December 31, 2023 , $307,000 has been contributed to this fund.

The recorded investment was $173,000 at December 31, 2023.

This commitment will be for up to ten years with two possible one-year extensions, with cash installments totaling up to

$2.0 million to be paid into the company over the commitment period, beginning in 2022.

December 31, 2024

, $410,000 has been contributed to this fund.

The recorded investment was

December 31, 2024.

In April 2022, First Northwest invested $3.0 million in Meriwether Group Capital Hero Fund LP, a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest.

A second $3.0 million investment was made in May 2022, bringing the Company's total investment in the Hero Fund to $6.0 million.

In June 2024, First Northwest redeemed its investment in the Hero Fund and First Fed made a subsequent $6.0 million limited partnership investment in the same entity.

The recorded investment was $6.0 million at December 31, 2024.

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Based on the most recent branch data provided by the FDIC, as of June 30, 2024, First Fed’s share of bank, savings bank and savings and loan association deposits in Clallam and Jefferson counties was 42.0% and 21.2%, respectively, and was less than 4% in Whatcom, Kitsap and King counties.

Employees and Human Capital Resources

Human Capital Resources

At December 31, 2024, we had 227 full-time equivalent employees.

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We believe our employee relations to be excellent.

Our Board of Directors guides the implementation of our corporate mission, vision, and values as an important element of risk oversight because our people are integral to the success of our corporate strategy.

Our Board guides the implementation of our corporate mission, vision, and values as an important element of risk oversight because our people are integral to the success of our corporate strategy.

Our Board holds senior management accountable for embodying, maintaining, and communicating our culture to employees.

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We dedicate resources to promote a safe and inclusive workplace;

attract, develop, and retain talented, diverse employees;

attract, develop, and retain a diverse group of talented employees;

promote a culture of integrity, caring, and excellence;

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We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training, and development programs.

This devotion to our people has earned us recognition on Puget Sound Business Journal magazine's Washington's Best Workplaces list in 2023.

Our employees are the cornerstone of our success as an organization as they serve our customer base.

We are committed to attracting, retaining, and promoting highly qualified individuals from a diverse array of backgrounds.

We believe employing a diverse workforce enhances our ability to serve our customers and our communities.

We have established a voluntary, employee-led and -staffed Empathy and Inclusion team that is committed to promoting a diverse, equitable, and inclusive work environment for all employees.

We are committed to attracting, retaining, and promoting highly qualified individuals from a wide array of backgrounds.

We believe employing a talented and inclusive workforce enhances our ability to serve our customers and our communities.

In late 2024, the Bank embarked on an endeavor to further evolve our culture to meet the needs of our changing workforce.

We seek to better understand the financial needs of our prospective and current customers by promoting and fostering a workforce that reflects the communities we serve, along with providing relevant financial service products.

As we move forward, we will continue to grow our diversity, equity, and inclusion efforts in a manner consistent with our company vision:

As we move forward, we will continue to grow our inclusion efforts in a manner consistent with our company vision:

to create well-being and prosperity for our employees, customers, and communities.

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Deines , age 51, became President and Chief Executive Officer ("CEO") and Director of First Fed on August 1, 2019, and was elected President, CEO, and director of the Company on December 5, 2019.

In over 20 years of banking, he has experience in a variety of areas, including strategic planning and acquisitions, investor relations, financial reporting, and fintech, as well as operations, information technology, payments, internal controls and board governance.

With over 20 years of banking, he has experience in a variety of areas, including strategic planning and acquisitions, investor relations, financial reporting, and fintech, as well as operations, information technology, payments, internal controls and board governance.

Deines served as Executive Vice President and Chief Financial Officer ("CFO") of Liberty Bay Bank from November 2018 until May 2019.

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Deines serves as a Director for the Washington Bankers Association ("WBA") and has been a conference speaker and instructor for the WBA.

He is a member of the Port Angeles Waterfront Center Board of Directors and actively involved with several other non-profit organizations.

He is actively involved with several non-profit organizations, including the Field Hall Arts and Events Center.

Geri Bullard , age 59, is Executive Vice President, Chief Financial Officer ("CFO") and Chief Operating Officer ("COO") of the Company and First Fed.

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Bullard holds a Bachelor of Science degree from Humboldt State University, is a graduate of the Pacific Coast Banking School at the University of Washington, and is a licensed CPA.

Edelstein , age 55, is Executive Vice President and Chief Innovation Officer ("CIO"), a position he has held since March 2024.

Prior to becoming CIO, Mr.

Edelstein was the CEO of Level Technology, a financial technology company which provided financial services designed to empower very small businesses to thrive.

This built on his career at the intersection of financial services and technology, as the Director of the Grameen Technology Center, a product leader at Microsoft and an engagement manager at McKinsey & Company.

Edelstein holds a Master’s degree in Economics and Public Policy from Princeton University and a Bachelor’s degree from Colby College.

Henderson , age 40, is Executive Vice President and Chief Credit Officer ("CCO") of First Fed, a position he has held since July 2024.

Prior to becoming CCO, he served as Deputy Chief Credit Officer beginning in August 2023.

Prior to joining First Fed, Mr.

Henderson served as Executive Vice President for FirstBank where he held positions in credit administration, commercial and consumer lending, and retail banking.

He served in this capacity from December 2007 to July 2023.

He holds a Bachelor's degree from the University of Oregon and is a graduate of the American Bankers Association’s Stonier School of Banking at the University of Pennsylvania.

Christopher W.

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Prior to joining First Fed, he served as a lender, commercial banking leader and Executive at Peoples Bank from May 2006 to April 2022;

and as a lender and branch manager at First National Bank Alaska from August 1995 to March 2006.

He holds a Bachelor of Business Administration in Marketing from the University of Alaska Anchorage, a Master of Business Administration from Regis University, and is a graduate of the Pacific Coast Banking School at the University of Washington.

Christopher J.

Riffle , age 48, is Executive Vice President, Chief Digital Officer ("CDO") and General Counsel of the Company and First Fed.

Riffle has held the CDO position since January 2022 and has served as General Counsel since September 2017.

He also served as COO from October 2018 through October 2023.

Riffle , age 49, is Executive Vice President and Chief Strategy Officer ("CSO") of First Fed, an Officer of First Northwest, and General Counsel for the Company.

Riffle has held the CSO position since March 2024 and has served as General Counsel since September 2017.

He also served as Chief Digital Officer from January 2022 through March 2024 and COO from October 2018 through October 2023.

Prior to joining First Fed, Mr.

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Riffle was at Platt Irwin Law Firm from 2008 to 2017 and served as outside general counsel for First Fed starting in 2009.

Terry Anderson , age 55, is Executive Vice President and Chief Credit Officer of First Fed, a position he has held since 2018.

Anderson has more than two decades of management experience in credit administration, sales, commercial banking and strategic planning.

He most recently served as Executive Vice President and Chief Credit Officer for South Sound Bank for more than six years and has previously worked in a variety of positions with West Coast Bank, US Bank, and Bank of America.

Brown , age 53, is Executive Vice President and Chief Human Resources and Marketing Officer of First Fed, a position he has held since March 2020.

Brown served as a Senior Vice President and Chief Human Resources and Marketing Officer for First Fed from January 2018 to March 2020, and Senior Vice President and Director of Human Resources from October 2015 to January 2018.

Prior to joining First Fed, he served as a Human Resources and business leader at Citibank and held Human Resources leadership roles within the financial, professional services, and healthcare industries.

He holds a Bachelor of Science degree in Management and Human Resources from Utah State University, a Master of Business Administration from Weber State University, and is a graduate of the Pacific Coast Banking School at the University of Washington.

How We Are Regulated

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As part of its supervisory authority over Washington-chartered commercial banks, the DFI may initiate enforcement proceedings to obtain a cease-and-desist order against an institution believed to have engaged in unsafe and unsound practices or to have violated a law, regulation, or other regulatory limit, including a written agreement.

The FDIC also has the authority to initiate enforcement actions against insured institutions for similar reasons and may terminate the deposit insurance of such an institution if the FDIC determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The FDIC also has the authority to initiate enforcement actions against insured institutions for similar reasons and may terminate the deposit insurance of such an institution if, among other things, the FDIC determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

Both agencies may utilize less formal supervisory tools to address their concerns about the condition, operations, or compliance status of a commercial bank.

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Washington law generally provides the same powers for Washington commercial banks as federally and other-state chartered banks and savings institutions with branches in Washington, subject to the approval of the DFI.

Washington commercial banks are permitted to charge the maximum interest rates on loans and other extensions of credit to Washington residents which are allowable for a national bank in another state if higher than Washington limits.

In addition, the DFI may approve applications by Washington commercial banks to engage in an otherwise unauthorized activity if the DFI determines that the activity is closely related to banking and First Fed is otherwise qualified under the statute.

This additional authority, however, is subject to review and approval by the FDIC if the activity is not permissible for national banks.

Regulation of Management.

Federal law (1) sets forth circumstances under which officers or directors of a bank may be removed by the bank's federal supervisory agency;

(2) as discussed below, places restraints on lending by a bank to its executive officers, directors, principal shareholders, and their related interests;

and (3) generally prohibits management personnel of a bank from serving as directors or in other management positions of another financial institution whose assets exceed a specified amount or which has an office within a specified geographic area.

Insider Credit Transactions.

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The FDIC determines the amount of insurance premiums based on each financial institution's deposit base and the applicable assessment rate.

The assessment rate for small institutions (those with less than $10 billion in assets) is based on an institution’s weighted average CAMELS component ratings and certain financial ratios.

Currently, assessment rates range from 3 to 16 basis points for institutions with CAMELS composite ratings of 1 or 2, 6 to 30 basis points for those with a CAMELS composite score of 3, and 16 to 30 basis points for those with CAMELS composite scores of 4 or 5, subject to certain adjustments.

The assessment rate for small institutions, which are generally those with less than $10 billion in assets, is based on an institution’s weighted average CAMELS component ratings and certain financial ratios.

Assessment rates currently range from 2.5 to 32 basis points for small institutions.

The FDIC has authority to increase assessment rates and in October 2022 adopted a Final Rule, applicable to all insured depository institutions, increasing assessment rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023.

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Under these regulations, an institution is treated as well capitalized if it has a ratio of total capital to risk-weighted assets of 10.0% or more (the total risk-based capital ratio);

a ratio of common equity Tier 1 capital to risk-weighted assets (the Tier 1 risk-based capital ratio) of 8.0% or more;

a ratio of Tier 1 common equity capital to risk-weighted assets of 6.5% or more (the common equity Tier 1 capital ratio);

a ratio of Tier 1 capital to risk-weighted assets (the Tier 1 risk-based capital ratio) of 8.0% or more;

a ratio of Tier 1 common equity capital to risk-weighted assets (the common equity Tier 1 capital ratio) of 6.5% or more;

a ratio of Tier 1 capital to average consolidated assets (the leverage ratio) of 5.0% or more;

and the institution is not subject to a federal order, agreement, or directive to meet a specific capital level.

An institution is considered adequately capitalized if it is not well capitalized but it has a total risk-based capital ratio of 8.0% or more;

a Tier 1 risk-based capital ratio of 6.0% or more;

a common equity Tier 1 capital ratio of 4.5% or more;

and a leverage ratio of 4.0% or more.

The classifications for "undercapitalized," "significantly undercapitalized" and "critically undercapitalized" institutions are also set forth in the regulations.

An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits generally.

An institution that is not well capitalized is subject to certain restrictions on brokered deposits and restrictions on the rates it can offer on its deposits generally.

Any institution which is neither well capitalized nor adequately capitalized is considered undercapitalized.

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Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls, and restrictions which become more extensive as an institution becomes more severely undercapitalized.

Failure by First Fed to comply with applicable capital requirements would, if not remedied, result in restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator.

Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements.

Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements.

At December 31, 2023, First Fed was categorized as "well capitalized" under the regulatory capital requirements described below.

For additional information, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

At December 31, 2024, First Fed was categorized as "well capitalized." For additional information, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

Capital Requirements .

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(iii) a total capital to risk-based assets ratio of 8%;

and (iv) a Tier 1 capital to total assets leverage ratio of 4%.

In addition to the minimum risk-based capital ratios, the capital regulations require a capital conservation buffer, designed to absorb losses during periods of economic stress, consisting of additional CET1 capital of more than 2.5% of risk-weighted assets above the required minimum risk-based ratios in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.

As of December 31, 2023, First Northwest Bancorp and First Fed each met the requirements to be "well capitalized" and met the capital conservation buffer requirement.

Management monitors the capital levels of First Northwest Bancorp and First Fed to provide for current and future business opportunities and to meet regulatory guidelines for "well capitalized" institutions.

and (iv) a leverage ratio of Tier 1 capital to total assets of 4%.

In addition to the minimum capital ratios, the capital regulations require a banking organization to maintain a capital conservation buffer, designed to absorb losses during periods of economic stress, consisting of additional CET1 capital of more than 2.5% of risk-weighted assets above the required minimum risk-based capital ratios in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.

As of December 31, 2024, First Northwest Bancorp and First Fed each met the minimum capital ratio requirements and exceeded the capital conservation buffer requirement.

For additional information regarding First Northwest Bancorp’s and First Fed’s required and actual capital levels at December 31, 2024, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

The Federal Reserve and the FDIC have authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate considering particular risks or circumstances.

Management believes that, under the current regulations, First Northwest Bancorp and First Fed will continue to meet their minimum capital requirements in the foreseeable future.

Standards for Safety and Soundness .

The federal banking regulatory agencies have prescribed, by regulation, guidelines for all insured depository institutions relating to internal controls, information systems and internal audit systems;

loan documentation;

credit underwriting;

interest rate risk exposure;

asset growth;

asset quality;

and compensation, fees, and benefits.

The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.

Each insured depository institution must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution’s size and complexity and the nature and scope of its activities.

The information security program must be designed to ensure the security and confidentiality of customer information, protect against any unanticipated threats or hazards to the security or integrity of such information, protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer, and ensure the proper disposal of customer and consumer information.

Each insured depository institution must also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems.

If the FDIC determines that an institution fails to meet any of these guidelines, it may require an institution to submit to the FDIC an acceptable plan to achieve compliance.

First Fed has established comprehensive policies and risk management procedures to ensure the safety and soundness of First Fed.

Federal Home Loan Bank System.

First Fed is a member of the FHLB of Des Moines.

As a member, First Fed is required to purchase and maintain stock in the FHLB.

At December 31, 2023, First Fed held $13.7 million in FHLB stock, which was in compliance with this requirement.

Each FHLB serves as a reserve or central bank for its members within its assigned region, and it is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System.

Each FHLB makes loans or advances to members in accordance with policies and procedures, established by its Board of Directors, subject to the oversight of the Federal Housing Finance Agency.

All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB, and all long-term advances are required to provide funds for residential home financing.

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See Item 1, "Business – Deposit Activities and Other Sources of Funds – Borrowings."

The FHLBs continue to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects.

These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future.

These contributions could also have an adverse effect on the value of FHLB stock in the future.

A reduction in value of First Fed's FHLB of Des Moines stock may result in a corresponding reduction in its capital.

Activities and Investments of Insured State-Chartered Financial Institutions .

Federal law generally limits the activities and equity investments of FDIC insured, state-chartered banks to those that are permissible for national banks.

An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in a subsidiary, (2) investing as a limited partner in a partnership, the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation, or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets, (3) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions, and (4) acquiring or retaining the voting shares of a depository institution if certain requirements are met.

Dividends from First Fed, which are subject to regulation and limitation, constitute a major source of funds for dividends paid by First Northwest Bancorp to shareholders.

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According to Washington law, First Fed may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (1) the amount required for liquidation accounts or (2) the net worth requirements, if any, imposed by the Director of the DFI.

Dividends on First Fed’s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of First Fed without the approval of the Director of the DFI.

Additionally, dividends on First Fed’s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of First Fed without the approval of the Director of the DFI.

Affiliate Transactions .

Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates, including their financial holding companies.

The Dodd-Frank Act further extended the definition of an "affiliate" and treats credit exposure arising from derivative transactions, securities lending, and borrowing transactions as covered transactions under the regulations.

Transactions deemed to be a "covered transaction" under Section 23A of the Federal Reserve Act and between a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10% of the bank subsidiary’s capital and surplus and, with respect to the parent company and all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiary’s capital and surplus.

Transactions deemed to be a "covered transaction" under Section 23A of the Federal Reserve Act and between a bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10% of the bank’s capital and surplus to a single affiliate and, with respect to all affiliates, to an aggregate of 20% of the bank’s capital and surplus.

Further, covered transactions that are loans and extensions of credit generally are required to be secured by eligible collateral in specified amounts.

Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.

Federal law also requires that most transactions between a bank and its affiliates be on terms at least as favorable to the bank as transactions with non-affiliates.

Community Reinvestment Act .

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or to merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution.

In some cases, a bank's failure to comply with the CRA, or CRA protests filed by interested parties during applicable comment periods, can result in the denial or delay of such transactions.

In some cases, a bank's failure to perform satisfactorily under the CRA, or CRA-related protests filed by interested parties during applicable comment periods, can result in the denial or delay of such transactions.

First Fed received a "satisfactory" rating during its most recent CRA examination.

In May 2022, federal bank regulators released a notice of proposed rulemaking to “strengthen and modernize” CRA regulations and related regulatory framework.

Future changes in the evaluation process or requirements under CRA could impact the Bank’s rating.

In October 2023, federal bank regulators released a final rule to revise their CRA regulations, which could impact the Bank’s rating if and when it becomes effective.

However, industry groups have challenged the final rule, and in March 2024, the District Court for the Northern District of Texas issued a preliminary injunction against enforcement of the final rule.

Commercial Real Estate Ratios.

The federal banking regulators issued guidance reminding financial institutions to reexamine the existing regulations regarding concentrations in commercial real estate lending, including acquisition, development and construction lending.

The federal banking regulators have issued guidance regarding concentrations in commercial real estate lending, including acquisition, development and construction lending.

The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.

The banking regulators are directed to examine each bank’s exposure to commercial real estate loans that are dependent on cash flow from the real estate held as collateral and to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk.

The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be considered in evaluating capital adequacy and provides supervisory criteria that identifies institutions that are potentially exposed to significant commercial real estate concentration risk, but does not specifically limit a bank’s commercial real estate lending to a specified concentration level.

Privacy Standards .

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 ("GLBA") modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers.

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 ("GLBA") modernized the financial services industry by, among other things, establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers.

First Fed is subject to FDIC regulations implementing the privacy protection provisions of the GLBA.

These regulations require First Fed to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.

Environmental Issues Associated with Real Estate Lending.

The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") is a federal statute that generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste.

However, the term "owner and operator" excludes a person whose ownership is limited to protecting its security interest in the site.

Since the enactment of the CERCLA, this "secured creditor exemption" has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan.

To the extent that legal uncertainty exists in this area, all creditors, including First Fed, who have made loans secured by properties with potentially hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs that often substantially exceed the value of the collateral property.

Federal Reserve System.

The Federal Reserve Board requires that all depository institutions maintain reserves on transaction accounts or non-personal time deposits.

The Federal Reserve Board has historically required that all depository institutions maintain reserves on transaction accounts or non-personal time deposits.

These reserves may be in the form of cash or noninterest-bearing deposits with the regional Federal Reserve Bank.

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In response to the COVID-19 pandemic, the Federal Reserve reduced the reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses.

As of December 31, 2023, First Fed was in compliance with the reserve requirements in place at that time.

Anti-Money Laundering and Anti-Terrorism.

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First Northwest Bancorp and First Fed have established comprehensive compliance programs designed to comply with the requirements of the BSA and Patriot Act.

Other Consumer Protection Laws and Regulations.

Consumer Protection Laws and Regulations.

The Dodd-Frank Act, among other things, established the CFPB as an independent bureau of the Federal Reserve Board.

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Positions taken by the CFPB regarding the Electronic Fund Transfer Act and Federal Reserve Regulation E, which require companies to obtain consumer authorizations before automatically debiting a consumer’s account for pre-authorized electronic funds transfers;

Efforts focused on enforcing certain compliance obligations the CFPB deems a priority, such as automobile and student loan servicing, debt collection, collateral repossession, mortgage origination and servicing, remittances, and fair lending, among others;

Efforts focused on enforcing certain compliance obligations the CFPB has deemed a priority, such as automobile and student loan servicing, debt collection, collateral repossession, mortgage origination and servicing, remittances, and fair lending, among others;

Positions and focused efforts on enforcing compliance obligations related to deposit account fees, including overdraft, non-sufficient funds, and returned deposit fees.

There is continued uncertainty about the CFPB's priorities and how they will change under the current administration.

For example, in February 2025, the Acting Director of the CFPB instructed agency staff to pause most activity, including supervision and enforcement.

While it is presently unclear when and to what extent the CFPB will resume its activities, other governmental authorities, including state attorneys general or banking regulators, may seek to increase their regulation, supervision, and enforcement of providers of consumer financial products and services in response to changes at the CFPB.

Moreover, changes at the CFPB may lead to federal legislative efforts to alter the framework for consumer financial services regulation.

First Fed is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers.

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Regulation and Supervision of First Northwest Bancorp

First Northwest Bancorp is a financial holding company (a type of bank holding company) registered with the Federal Reserve and the sole shareholder of First Fed.

Bank holding companies and financial holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA"), and the regulations promulgated thereunder.

First Northwest Bancorp is a bank holding company registered with the Federal Reserve and the sole shareholder of First Fed.

Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA"), and the regulations promulgated thereunder.

This regulation and oversight is generally intended to ensure that First Northwest Bancorp limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of First Fed.

During 2022, First Northwest elected to be treated as a financial holding company, allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities.

During 2022, First Northwest elected to be treated as a financial holding company (a type of bank holding company), allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities.

Under the BHCA, First Northwest Bancorp is supervised by the Federal Reserve.

As a bank holding company, First Northwest Bancorp is required to file semi-annual and annual reports with the Federal Reserve and any additional information required by the Federal Reserve and is subject to regular examinations by the Federal Reserve.

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In general, enforcement actions may be initiated for violations of law and regulations and/or for unsafe or unsound practices.

The Bank Holding Company Act.

Under the BHCA, First Northwest Bancorp is supervised by the Federal Reserve.

The Federal Reserve's policy requires bank holding companies to serve as a source of financial and managerial strength to their subsidiary banks and prohibits unsafe or unsound operations.

Additionally, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank holding company should serve as a source of strength to its subsidiary banks by being prepared to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity (including at times when a bank holding company may not be in a financial position to provide such resources or when it may not be in the bank holding company’s or its shareholders' best interests to do so), and should maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks.

Any capital loans a bank holding company makes to its bank subsidiaries are subordinate to deposits and to certain other indebtedness of the bank subsidiaries.

A bank holding company's failure to meet its obligation to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve's regulations, or both.

Under the BHCA, the Federal Reserve may approve a bank holding company's ownership of another company which engages in activities closely related to the business of banking, as determined by the Federal Reserve.

These activities generally include, among others, operating a savings institution, mortgage company, finance company, credit card company, or factoring company;

performing certain data processing operations;

providing certain investment and financial advice;

underwriting and acting as an insurance agent for certain types of credit-related insurance;

leasing property on a full-payout, non-operating basis;

selling money orders, travelers' checks, and U.S.

Savings Bonds;

real estate and personal property appraising;

providing tax planning and preparation services;

and, subject to certain limitations, providing securities brokerage services for customers.

Source of Strength Doctrine.

Under the Dodd-Frank Act and Federal Reserve policy, a bank holding company should serve as a source of financial and managerial strength to its subsidiary banks, and the Federal Reserve may expect a bank holding company to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity (including at times when a bank holding company may not be in a financial position to provide such resources or when it may not be in the bank holding company’s or its shareholders' best interests to do so) and to maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks.

Acquisitions.

With certain exceptions, the BHCA prohibits a bank holding company from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries.

The Federal Reserve may approve a bank holding company's ownership of another company which engages in activities closely related to the business of banking, as determined by the Federal Reserve.

A bank holding company that meets certain supervisory and financial standards and elects to be designated as a financial holding company may also engage in certain securities, insurance and merchant banking activities, and other activities determined to be financial in nature or incidental to financial activities.

Regulatory Capital Requirements.

As part of the review of applications under the BHCA and the supervision of bank holding companies, the Federal Reserve assesses the adequacy of a bank holding company's capital pursuant to the capital rules it has adopted.

These rules apply to bank holding companies with $3.0 billion or more in assets on a consolidated basis, or to bank holding companies with fewer assets but certain risky activities, or to bank-only companies.

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Interstate Banking .

The Dodd-Frank Act eliminated interstate branching restrictions that were implemented as part of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Act") and removed many restrictions on de novo interstate branching by state and federally chartered banks.

The Dodd-Frank Act eliminated certain interstate branching restrictions that were implemented as part of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Act").

The Federal Reserve may approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than the bank holding company's home state, without regard to whether the transaction is prohibited by the laws of any state.

The Federal Reserve may not approve the acquisition of a bank that has not been in existence for a minimum of five years, or longer if specified by the law of the host state.

In addition, the Federal Reserve generally may not approve an application for an interstate merger transaction if the applicant controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch.

Federal law does not affect the authority of states to limit the percentage of total insured deposits in the state that may be held or controlled by a bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies.

Individual states may also waive the 30% state-wide concentration limit contained in the federal law.

Banks may establish de novo branches in any state, subject to regulatory approval.

The federal banking agencies are authorized to approve interstate merger transactions without regard to whether the transaction is prohibited by the law of any state, unless the home state of one of the banks adopted a law prior to June 1, 1997, which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks.

Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions.

Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described above.

Federal bank regulations prohibit banks from using their interstate branches primarily for deposit production, and federal bank regulatory agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.

Interchange Fees.

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As of December 31, 2024, First Northwest Bancorp and First Fed qualified for the small issuer exemption from the Federal Reserve’s interchange fee cap, which applies to any debit card issuer that has total consolidated assets of less than $10 billion as of the end of the previous calendar year.

In October 2023, the Federal Reserve requested comments on a proposed rule that would lower the interchange fee cap and establish a regular process for updating the cap every other year going forward.

In October 2023, the Federal Reserve requested comments on a proposed rule that would lower the interchange fee cap that applies to debit card issuers with $10 billion or more in assets and establish a regular process for updating the cap every other year going forward.

Future changes to the interchange fee cap could have a negative effect on the Bank’s fee revenue.

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The Federal Reserve also has indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.

The capital conservation buffer requirements may limit First Northwest Bancorp's ability to pay dividends.

Except for a company that meets the well-capitalized standard for bank holding companies, is well managed, and is not subject to any unresolved supervisory issues, a bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10.0% or more of the company's consolidated net worth.

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These various laws and regulatory policies may affect First Northwest Bancorp’s ability to pay dividends or otherwise engage in capital distributions.

Tying Arrangements.

First Northwest Bancorp and First Fed are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services.

For example, with certain exceptions, neither First Northwest Bancorp nor First Fed may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by First Northwest Bancorp or First Fed;

or (2) an agreement by the customer to refrain from obtaining other services from a competitor.

The Dodd-Frank Act.

The Dodd-Frank Act was signed into law in July 2010 and imposed restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions, and implemented new capital regulations that are discussed above under "- Regulation of First Fed - Capital Regulations." The Dodd-Frank Act also requires public companies, like First Northwest Bancorp, to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a "say on pay" vote every one, two, or three years;

(ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions, or other transactions that would trigger the parachute payments;

and (iii) provide disclosure in annual proxy materials concerning the relationship between the executive compensation paid and the financial performance of the issuer.

In August 2015, the Securities and Exchange Commission ("SEC") adopted a rule mandated by the Dodd-Frank Act that requires a public company to disclose the ratio of the Chief Executive Officer's annual total compensation to the median annual total compensation of all other employees.

The rule is intended to provide shareholders with information that they can use to evaluate a Chief Executive Officer’s compensation.

Federal Securities Law.

The stock of First Northwest Bancorp is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

As a result, First Northwest Bancorp is subject to the information, proxy solicitation, insider trading restrictions, and other requirements under the Exchange Act.

First Northwest Bancorp stock held by persons who are affiliates of First Northwest Bancorp may not be resold without registration unless sold in accordance with certain resale restrictions.

Executive officers, directors and principal shareholders of the company are generally considered to be affiliates.

If First Northwest Bancorp meets specified current public information requirements, each affiliate of First Northwest Bancorp will be able to sell in the public market, without registration, a limited number of shares in any three-month period.

The SEC has adopted regulations and policies under the Sarbanes-Oxley Act of 2002 that apply to First Northwest Bancorp as a company with securities registered under the Exchange Act.

The stated goals of these Sarbanes-Oxley requirements are to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

The SEC and Sarbanes-Oxley-related regulations and policies include very specific additional disclosure requirements and corporate governance rules.

The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

During 2023, First Northwest became subject to Nasdaq listing rules that require the adoption of a policy providing for the recovery of compensation that had been erroneously paid to its executive officers in the event that its financial statements are restated.

A copy of the policy is included as exhibit 97.1 to this Form 10-K.

Recent and Proposed Legislation.

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First Northwest Bancorp and First Fed cannot predict whether these or any other proposals will be enacted or the ultimate impact of any such initiatives on its operations, competitive situation, financial conditions, or results of operations.

Recent history has demonstrated that new legislation or changes to existing laws or regulations typically result in a greater compliance burden (and therefore increase the general costs of doing business), and the current administration under President Biden has indicated a general intent to regulate the financial services industry more strictly than the administration of his predecessor.

Recent executive orders have the potential to alter the supervisory, regulatory, and enforcement frameworks and priorities of federal financial regulatory agencies such as the OCC, Federal Reserve, and FDIC, as well as decrease the stability of regulatory policy over time.

For example, a February 2025 executive order directs independent agencies, including the federal financial regulatory agencies (but excluding the monetary policy function of the Federal Reserve), to submit significant regulatory actions to the White House Office of Management and Budget (“OMB”) for its review.

Additionally, OMB is directed to provide "performance standards and management objectives" to the heads of independent agencies, and review and adjust their budgets.

These changes to the operation of independent agencies, if carried through, may cause financial regulatory policy to change more significantly across different presidential administrations than it has historically.

Additionally, as a result of these changes, it may take longer for the federal financial regulatory agencies to establish their supervisory and enforcement priorities and develop and adopt new rules and regulations.

Effects of Federal Government Monetary Policy.

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government securities, control of the discount rate applicable to borrowings, establishment of reserve requirements against certain deposits, and control of the interest rate applicable to excess reserve balances and reverse repurchase agreements, the Federal Reserve influences the availability and cost of money and credit and, ultimately, a range of economic variables including employment, output, and the prices of goods and services.

Recently, the Federal Reserve has reaffirmed that its strategy for monetary policy is focused on long-term goals and addressing continued concerns with inflation.

The Federal Reserve has reaffirmed that its strategy for monetary policy is focused on long-term goals and addressing continued concerns with inflation.

After increasing the federal funds rate by 425 basis points in 2022, the Federal Reserve continued the trend, albeit at a slower pace, for a total increase in 2023 of 100 basis points.

The last rate increase was in July 2023, and the Federal Reserve has communicated that the economic outlook continues to be uncertain and inflation risks remain present.

Changes in monetary policy, including increases in the federal funds rate, can affect net interest income and margin, overall profitability, and shareholders' equity.

In September 2024, the Federal Reserve reversed the upward trend and began lowering the federal funds rate for a total decrease in 2024 of 100 basis points.

Changes in monetary policy, including changes in the federal funds rate, can affect net interest income and margin, overall profitability, and shareholders' equity.

The nature and impact of future changes in monetary policies and their impact on First Northwest Bancorp and First Fed cannot be predicted with certainty.

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If First Fed fails to observe such regulatory guidance or standards, it could be subject to various regulatory sanctions, including financial penalties.

In November 2021, the federal banking agencies adopted a Final Rule, with compliance required by May 1, 2022, establishing new notification requirements for banking organizations.

The new rule requires banks to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” rising to the level of a "notification incident" has occurred.

Interagency rules require banks to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” rising to the level of a "notification incident" has occurred.

Among other types of computer-security incidents, a "notification incident" includes one that has materially disrupted or degraded the banking organization’s ability to carry out banking operations to a material portion of its customer base in the ordinary course of business.

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In addition to guidance and standards implemented by banking regulators, in July 2023, the SEC adopted final rules requiring an annual disclosure of registrants’ cybersecurity risk management strategy and governance.

Additionally, registrants are required to disclose material cybersecurity incidents, including the nature, scope, timing, and impact of the incident, within four business days of the incident.

The disclosure requirements went into effect in December 2023.

Environmental, Social and Governance .

Bank regulatory agencies and the SEC have shown increasing interest in environmental, social and internal governance matters (often referred to as “ESG”) and have stated their intent to heighten regulatory oversight of companies’ efforts to address the effect of ESG issues on their businesses.

First Northwest Bancorp and First Fed are committed to considering ESG factors, which we recognize are key drivers of long-term business growth, in the development of our business strategies.

We believe our commitment to good corporate citizenship and the achievement of ESG policy goals enhances our ability to pursue business opportunities, manage risk across our business, and uphold our values by addressing the environmental and social challenges faced by the communities we serve.

Our Board oversees our ESG activities, including our ESG strategies, compliance, and goals.

Additionally, our Nominating and Corporate Governance Committee oversees our policies and operational controls for environmental, health, safety and social risks.

The Nominating and Corporate Governance Committee meets regularly to set ESG goals for the Company, as well as to monitor progress and results.

Additionally, registrants are required to disclose cybersecurity incidents, including the nature, scope, timing, and impact of the incident, within four business days of determining them to be material.

Federal Taxation

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business