What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-13 compared with 2024-03-15 · 538 added, 619 removed, 1886 unchanged (38% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets, December 31, 2024 and 2023

Consolidated Statements of Income For the Years Ended December 31, 2023 and 2022

Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2023 and 2022

Consolidated Statements of Operations For the Years Ended December 31, 2024 and 2023

Consolidated Statements of Comprehensive (Loss) Income For the Years Ended December 31, 2024 and 2023

Consolidated Statements of Changes in Shareholders' Equity For the Years Ended December 31, 2024 and 2023

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors

To the Shareholders and the Board of Directors of

First Northwest Bancorp and Subsidiary

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Northwest Bancorp and Subsidiary (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").

We have audited the accompanying consolidated balance sheets of First Northwest Bancorp and Subsidiary (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive (loss) income, shareholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments - Credit Losses (Topic 326).

The Company adopted the new credit loss standard using the modified retrospective approach such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The new credit loss standard is also communicated a a critical audit matter below.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework ( 2013 ) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2025 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting in accordance with the standards of the PCAOB.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

6 unchanged sentences

Allowance for Credit Losses on Loans

As described in Notes 1 and 4 to the consolidated financial statements, the Company's consolidated allowance for credit losses on loans (ACLL) balance was $17.5 million at December 31, 2023.

As described in Notes 1 and 4 to the consolidated financial statements, the Company's consolidated allowance for credit losses on loans (ACLL) balance was $20.5 million as of December 31, 2024.

The ACLL is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected.

2 unchanged sentences

Baseline loss rates are calculated using peer institution data related to historical losses.

Historical losses are adjusted for management’s consideration of the forecasted direction of the economic and business environment.

Historical losses are adjusted for management’s consideration of the forecasted direction of the economic environment.

The Company also considers other qualitative risk factors to adjust the estimated ACLL.

The primary procedures we performed to address this critical audit matter included:

Tested the completeness and accuracy of the data used in the calculation, application of historical loss rates and forecasted economic conditions, and application of qualitative risk factors, and assessed the appropriateness for the peer groups used in historical loss rates, all of which are determined by management and used in the calculation.

Obtained management's analysis and supporting documentation related to the forecasted economic conditions and qualitative risk factors and tested whether the forecasted economic conditions and qualitative risk factors used in the calculation of the ACLL were supported by the analysis provided by management.

● Performed an independent sensitivity analysis to evaluate the reasonableness of the qualitative risk factors used by management.

● Analytically reviewed the ACLL for directional consistency with historical asset quality trends and the overall characteristics of the loan portfolio.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

Our audit procedures related to the critical audit matter included the following, among others:

Evaluating the design and tested the operating effectiveness of controls related to management’s calculation of the ACLL, including controls over the reasonableness of historical losses and forecasted economic conditions related to national gross domestic product and unemployment figures, as well as the application of qualitative and environmental adjustments.

Testing the completeness and accuracy of the data used in the calculation, application of historical loss rates and forecasted economic conditions, and application of qualitative risk factors, and assessed the appropriateness for the peer groups used to determine historical loss rates.

● Obtaining management’s analysis and supporting documentation related to the forecasted economic conditions and qualitative risk factors and testing whether the forecasted economic conditions and qualitative risk factors used in the calculation of the ACLL were supported by the analysis provided by management.

● Performing an independent sensitivity analysis to evaluate the reasonableness of the qualitative risk factors used by management.

/s/ Moss Adams LLP

2 unchanged sentences

We have served as the Company's auditor since 2002.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

First Northwest Bancorp and Subsidiary

Opinion on Internal Control over Financial Reporting

We have audited First Northwest Bancorp and Subsidiary's (the "Company") internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheets of First Northwest Bancorp and Subsidiary as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive (loss) income, shareholders' equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated March 13, 2025 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting included in Item 9A.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Moss Adams LLP

Everett, Washington

March 13, 2025

We have served as the Company’s auditor since 2002.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

6 unchanged sentences

55,637 103,324

Investment securities available for sale, at fair value

Investment securities available for sale, at fair value (amortized cost of $ 376,265 and $ 333,950 , respectively)

340,344 295,623

15 unchanged sentences

13,738 13,001

Right-of-use ("ROU") asset, net

Prepaid expenses and other assets

3 unchanged sentences

$ 1,688,026 $ 1,676,892

Borrowings, net

336,014 320,936

Accrued interest payable

Lease liability, net

Accrued expenses and other liabilities

17 unchanged sentences

( 6,594 ) ( 7,253 )

Total parent's shareholders' equity

163,340 161,573

Noncontrolling interest in Quin Ventures, Inc.

Total shareholders' equity

4 unchanged sentences

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

2 unchanged sentences

Interest and fees on loans receivable

$ 84,614 $ 68,635

Interest on investment securities

13,279 10,866

Interest-bearing deposits and other

1 unchanged sentence

Total interest income

100,899 80,378

INTEREST EXPENSE

Total interest expense

39,467 10,515

Net interest income

61,432 69,863

PROVISION FOR CREDIT LOSSES

3 unchanged sentences

Net interest income after provision for credit losses

60,109 68,328

NONINTEREST INCOME

2 unchanged sentences

Net gain on sale of loans

Net (loss) gain on sale of investment securities

( 5,397 ) 118

Net loss on sale of investment securities

Net gain on sale of premises and equipment

Increase in cash surrender value of bank-owned life insurance, net

Income from death benefit on bank-owned life insurance, net

Other (loss) income

Total noninterest income

1 unchanged sentence

Compensation and benefits

31,209 35,940

Data processing

6 unchanged sentences

Total noninterest expense

61,454 62,312

Income before provision for income taxes

Provision for income taxes

(Loss) income before (benefit) provision for income taxes

(Benefit) provision for income taxes

Net (loss) income

Net loss attributable to noncontrolling interest in Quin Ventures, Inc.

Net income attributable to parent

$ 2,286 $ 15,645

Basic and diluted earnings per common share

$ 0.26 $ 1.71

Net (loss) income attributable to parent

Basic and diluted (loss) earnings per common share

See accompanying notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

For the Year Ended December 31,

$ 2,126 $ 13,496

Other comprehensive income (loss):

Unrealized holding gains (losses) on investments available for sale arising during the period

4,890 ( 51,204 )

Income tax (provision) benefit related to unrealized holding gains (losses)

( 824 ) 10,753

Net actuarial gains (losses) on defined benefit ("DB") plan assets

Income tax benefit (provision) related to net actuarial gains (losses) on DB plan assets

Net (loss) income

Other comprehensive (loss) income:

Unrealized holding gains on investments available for sale arising during the period

Net actuarial (losses) gains on defined benefit ("DB") plan assets

Amortization of unrecognized DB plan prior service cost

Income tax benefit (provision) related to amortization of DB plan prior service cost

( 32 ) ( 31 )

Unrealized holding losses on derivatives

Income tax benefit related to unrealized holding losses on derivatives

Reclassification adjustment for net losses (gains) on sales of securities realized in income

5,397 ( 118 )

Income tax benefit (provision) related to reclassification adjustment on sales of securities

Other comprehensive income (loss), net of tax

7,907 ( 40,831 )

Comprehensive income (loss)

10,033 ( 27,335 )

Comprehensive (loss) income attributable to noncontrolling interest

( 160 ) ( 2,149 )

Comprehensive income (loss) attributable to parent

$ 10,193 $ ( 25,186 )

Reclassification adjustment for change in fair value of hedged items

Reclassification adjustment for net losses on sales of securities realized in income

Other comprehensive income, net of tax

Comprehensive (loss) income

Comprehensive loss attributable to noncontrolling interest

Comprehensive (loss) income attributable to parent

See accompanying notes to the consolidated financial statements.

10 unchanged sentences

2,286 ( 160 ) 2,126

Common stock issued

115,777 1 1,868 — 1,869

Common stock repurchased

3 unchanged sentences

( 20,666 ) — ( 280 ) ( 280 )

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Reclassification resulting from adoption of Accounting Standards Codification 326, net of tax

( 2,951 ) ( 2,951 )

Reclassification resulting from change in accounting method, net of tax

Quin Ventures asset sale in-substance distribution

Close out investment in Quin Ventures

( 3,451 ) 3,451 —

12 unchanged sentences

Other comprehensive income, net of tax

Reclassification resulting from adoption of Accounting Standards Codification 326, net of tax

( 2,951 ) ( 2,951 )

Close out investment in Quin Ventures

( 3,451 ) 3,451 —

Share-based compensation

ESOP shares committed to be released

( 37 ) 659 622

Cash dividends declared and paid ($ 0.28 per share)

8 unchanged sentences

Cash flows from operating activities:

Net income before noncontrolling interest

$ 2,126 $ 13,496

Adjustments to reconcile net income to net cash from operating activities:

Net (loss) income before noncontrolling interest

Adjustments to reconcile net (loss) income to net cash from operating activities:

Depreciation and amortization

1 unchanged sentence

Amortization and accretion of premiums and discounts on investments, net

(Accretion) amortization of deferred loan fees and purchased premiums, net

Accretion of deferred loan fees and purchased premiums, net

Amortization of debt issuance costs

1 unchanged sentence

Additions to servicing rights on sold loans, net

( 149 ) ( 54 )

Provision for credit losses on loans

1 unchanged sentence

Deferred federal income taxes, net

134 ( 1,529 )

Allocation of ESOP shares

1 unchanged sentence

Gain on sale of loans, net

( 438 ) ( 824 )

Loss (gain) on sale of securities available for sale, net

5,397 ( 118 )

Loss on sale of securities available for sale, net

Increase in cash surrender value of life insurance, net

( 928 ) ( 916 )

Income from death benefit on bank-owned life insurance, net

Origination of loans held for sale

( 25,612 ) ( 25,926 )

Proceeds from loans held for sale

25,894 26,913

Change in assets and liabilities:

Increase in accrued interest receivable

( 1,151 ) ( 1,454 )

Decrease (increase) in prepaid expenses and other assets

1,293 ( 3,938 )

Increase in accrued interest payable

(Increase) decrease in ROU asset

Decrease in prepaid expenses and other assets

(Decrease) increase in accrued interest payable

Increase (decrease) in lease liabilities

Increase in accrued expenses and other liabilities

Net cash provided by operating activities

17,875 15,902

Cash flows from investing activities:

Purchase of securities available for sale

( 20,330 ) ( 78,409 )

Proceeds from maturities, calls, and principal repayments of securities available for sale

14,161 30,497

Proceeds from sales of securities available for sale

40,619 12,685

Purchase of FHLB stock

( 1,983 ) ( 6,485 )

Early surrender of bank-owned life insurance policy

Purchase of bank-owned life insurance

Proceeds from bank-owned life insurance death benefit

Net increase in loans receivable

( 114,997 ) ( 183,691 )

Purchase of premises and equipment, net

( 1,571 ) ( 2,914 )

Capital contributions to equity investments

( 608 ) ( 7,364 )

Capital disbursements from equity and partnership agreements

Sale (purchase) of premises and equipment, net of amortization

Capital contributions to partnership investments

Redemption of partnership investment

Capital disbursements from partnership agreements

Capital contributions to low-income housing tax credit partnerships

( 259 ) ( 137 )

Capital contributions to historic tax credit partnerships

Net cash used by investing activities

( 84,194 ) ( 237,647 )

See accompanying notes to the consolidated financial statements.

4 unchanged sentences

Cash flows from financing activities:

Net increase (decrease) in deposits

Net increase in deposits

Proceeds from long-term FHLB advances

Repayment of long-term FHLB advances

Net increase in short-term FHLB advances

Net (decrease) increase in line of credit

Net (decrease) increase in advances from borrowers for taxes and insurance

Net (decrease) increase in short-term FHLB advances

Net increase (decrease) in line of credit

Net increase (decrease) in advances from borrowers for taxes and insurance

Payment of dividends

2 unchanged sentences

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

5 unchanged sentences

Change in unrealized loss on securities available for sale

Change in unrealized loss on fair value hedge

Cumulative adjustment to servicing right asset due to election of fair value option

Change in unrealized gain (loss) on fair value hedge

Cumulative effect of adoption of ASU 2016-13 Financial Instruments - Credit Losses on January 1, 2023

Lease liabilities arising from obtaining right-of-use assets

Transfer of bank-owned life insurance proceeds to prepaid expenses and other assets due to death benefit accrued but not paid at year end

Write-down of equity investment

Loss on equity investment in QUIL received through Quin Ventures asset sale

Investment in Meriwether Group, LLC acquired through issuance of shares

See accompanying notes to the consolidated financial statements.

34 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses primarily in western Washington State with offices in Clallam, Jefferson, Kitsap, King, and Whatcom counties.

These services include deposit and lending transactions that are supplemented with borrowing and investing activities.

79 unchanged sentences

Premiums and discounts are capitalized at the time of purchase and amortized as an adjustment to the yield over the contractual life using the effective interest method.

Allowance for credit losses (applicable to 2023 ) - On January 1, 2023, the Company adopted Financial Accounting Standards Board ("FASB") ASU 2016 - 13 Financial Instruments - Credit Losses (Topic 326 ):

Allowance for credit losses - On January 1, 2023, the Company adopted Financial Accounting Standards Board ("FASB") ASU 2016 - 13 Financial Instruments - Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments , as amended, which replaces the incurred loss methodology with a current expected credit loss ("CECL") methodology.

2 unchanged sentences

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.

36 unchanged sentences

The Company believes the ACLL at December 31, 2024 , is appropriate given the above considerations.

Allowance for loan losses (applicable to 2022 and prior years) - Prior to the implementation of CECL, First Fed maintained a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio.

These factors included changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions.

When determining the appropriate historical loss and qualitative factors, management took into consideration the impact of the COVID- 19 pandemic on such factors as the national and state unemployment rates and related trends, the amount of and timing of financial assistance provided by the government, consumer spending levels and trends, industries significantly impacted by the COVID- 19 pandemic, and the Company's COVID- 19 loan modification program.

Qualitative factors such as economic, market, industry, and political changes were also considered for calculation of the allowance.

The appropriateness of the allowance for loan losses was estimated based upon these factors and trends identified by management at the time the consolidated financial statements were prepared.

The ultimate recovery of loans is susceptible to future market factors beyond First Fed’s control, which may result in losses or recoveries differing significantly from those provided in the consolidated financial statements.

In addition, various regulatory agencies, as an integral part of their examination processes, periodically review First Fed’s allowance for loan losses.

Such agencies may require First Fed to recognize additional provisions for loan losses based on their judgment using information available to them at the time of their examination.

Allowances for losses on specific problem loans are charged to income when it is determined that the value of these loans and properties, in the judgment of management, is impaired.

First Fed accounts for impaired loans in accordance with Accounting Standards Codification (ASC) 310 - 10 - 35, Receivables—Overall—Subsequent Measurement .

A loan is considered impaired when, based on current information and events, it is probable that First Fed will be unable to collect all amounts due according to the contractual terms of the loan agreement.

When a loan has been identified as being impaired, the amount of the impairment is measured by using discounted cash flows, except when it is determined that the sole source of repayment for the loan is the operation or liquidation of the underlying collateral.

In such cases, impairment is measured at current fair value generally based on a current appraisal of the collateral, reduced by estimated selling costs.

When the measurement of the impaired loan is less than the recorded investment in the loan (including collected interest that has been applied to principal, net deferred loan fees or costs, and unamortized premiums or discounts), loan impairment is recognized by establishing or adjusting an allocation of the allowance for loan losses.

Uncollected accrued interest is reversed against interest income.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.

The impairment amount for small balance homogeneous loans is calculated using the adjusted historical loss rate for the class and risk category related to each loan, unless the loan is subject to a troubled debt restructuring ("TDR").

A TDR is a loan for which First Fed, for reasons related to the borrower’s financial difficulties, grants a concession to the borrower that First Fed would not otherwise consider.

The loan terms that have been modified or restructured due to the borrower’s financial difficulty include, but are not limited to, a reduction in the stated interest rate;

an extension of the maturity;

an interest rate below market;

a reduction in the face amount of the debt;

a reduction in the accrued interest;

or extension, deferral, renewal, or rewrite of the original loan terms.

The restructured loans may be classified "special mention" or "substandard" depending on the severity of the modification.

Loans that were paid current at the time of modification may be upgraded in their classification after a sustained period of repayment performance, usually six months or longer, and there is reasonable assurance that repayment will continue.

Loans that are past due at the time of modification are classified "substandard" and placed on nonaccrual status.

TDR loans may be upgraded in their classification and placed on accrual status once there is a sustained period of repayment performance, usually six months or longer, and there is a reasonable assurance that repayment will continue.

First Fed allows reclassification of a troubled debt restructuring back into the general loan pool (as a non-troubled debt restructuring) if the borrower is able to refinance the loan at then-current market rates and meet all of the underwriting criteria of First Fed required of other borrowers.

The refinance must be based on the borrower’s ability to repay the debt and no special concessions of rate and/or term are granted to the borrower.

Allowance for credit losses on unfunded commitments (applicable to 2023 ) - The Bank estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

Allowance for credit losses on unfunded commitments - The Bank estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The Bank has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit.

1 unchanged sentence

The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class.

The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (reversal of provision) for credit losses on the Consolidated Statements of Income.

Reserve for unfunded commitments (applicable to 2022 and prior years) - Management maintains a reserve for unfunded commitments to absorb probable losses associated with off-balance sheet commitments to lend funds such as unused lines of credit and the undisbursed portion of construction loans.

Management determines the adequacy of the reserve based on reviews of individual exposures, current economic conditions, and other relevant factors.

The reserve is based on estimates and ultimate losses may vary from the current estimates.

The reserve is evaluated on a regular basis and necessary adjustments are reported in earnings during the period in which they become known.

The reserve for unfunded commitments is included in "Accrued expenses and other liabilities" on the consolidated balance sheets.

Real estate owned and repossessed assets - Real estate owned and repossessed assets include real estate and personal property acquired through foreclosure or repossession and may include in-substance foreclosed properties.

9 unchanged sentences

The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, and default rates and losses.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sold loan servicing income represents fees earned for servicing loans.

1 unchanged sentence

Servicing income is recognized as earned unless collection is doubtful.

The caption in the consolidated statement of income "Sold loan servicing fees and servicing rights mark-to-market" includes sold loan servicing income and changes in fair value.

The caption in the Consolidated Statements of Operations "Sold loan servicing fees and servicing rights mark-to-market" includes sold loan servicing income and changes in fair value.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Premises and equipment - Premises and equipment are stated at cost less accumulated depreciation.

4 unchanged sentences

The change in cash surrender value is included in noninterest income.

Equity and partnership investments - Equity investments include amounts invested in non-publicly traded stock and simple agreements for future equity ("SAFE").

Equity and partnership investments - Equity investments include amounts invested in non-publicly traded stock.

Investments in non-publicly traded stock are measured at cost, less impairment, plus or minus changes resulting from observable price changes in ordinary transactions for the identical or similar investment of the same issuer.

The recorded balance of these equity investments was $ 500,000 and $ 1.6 million at December 31, 2024 and 2023 , respectively.

Partnership investments include limited partnerships in investment funds and other business ventures.

Investments in non-publicly traded stock and SAFE are measured at cost, less impairment, plus or minus changes resulting from observable price changes in ordinary transactions for the identical or similar investment of the same issuer.

The recorded balance of these equity investments was $ 1.6 million and $ 1.7 million at December 31, 2023 and 2022 , respectively.

Partnership investments that do not result in consolidation of the investee are accounted for under the equity method of accounting.

The Company's allocated share of earnings or losses are recorded in other noninterest income.

The recorded balance of these partnership investments was $ 12.7 million and $ 13.2 million at December 31, 2024 and 2023 , respectively.

Throughout the year we assess whether impairment indicators exist to trigger the performance of an impairment analysis.

Changes in the fair value of partnership investments are recorded in other noninterest income.

The SAFE investment converted to non-publicly traded stock in 2023.

We assess whether impairment indicators exist to trigger the performance of an impairment analysis on equity and partnership investments throughout the year.

Goodwill - Goodwill is recorded from a business combination as the difference in the purchase price and fair value of assets acquired and liabilities assumed.

10 unchanged sentences

ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the future lease payments using the Company's incremental borrowing rate.

The discount rate used in determining the present value is the Company's incremental borrowing rate using the FHLB fixed advance rate based on the remaining lease term as of January 1, 2019, or the commencement date for subsequent leases.

The discount rate used in determining the present value was the Company's incremental borrowing rate using the FHLB fixed advance rate based on the remaining lease term as of January 1, 2019, or the commencement date for subsequent leases.

The Company utilized Provident Financial Services, Inc.'s 10 year fixed-to-floating rate on subordinated notes issued in May 2024 for the incremental borrowing rate to calculate the ROU asset for the six leases generated in the May 2024 sale-leaseback transaction as that more closely aligned with the economic environment at that time.

The Company does not capitalize short-term leases, which are leases with terms of twelve months or less.

6 unchanged sentences

The federal income tax credit is earned over a 5 -year period upon the qualified rehabilitated building being placed in service and having met all the requirements.

The Company uses the deferral method to amortize the initial cost of the investment over the life of the related tax credit and other tax benefits received and recognizes the net investment performance on the Consolidated Statements of Income as a component of income tax expense.

The Company reports the carrying value of the equity investment in the unconsolidated HTC in "Prepaid expenses and other assets" on the Company’s Consolidated Balance Sheets.

4 unchanged sentences

The federal income tax credit is earned over a 10 -year period as a result of the investment properties meeting certain criteria and is subject to recapture for noncompliance with such criteria over a 15 -year period.

The Company accounts for the LIHTC under the proportional amortization method and amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance on the Consolidated Statements of Income as a component of income tax expense.

The Company reports the carrying value of the equity investment in the unconsolidated LIHTC in "Prepaid expenses and other assets" on the Company’s Consolidated Balance Sheets.

8 unchanged sentences

Of these loans, no loans were repurchased during the years ended December 31, 2024 or 2023 .

There is an associated allowance of $ 9,000 at December 31, 2022 , included in "accrued expenses and other liabilities" on the consolidated balance sheets related to these loans.

No allowance is recorded for these loans under CECL at December 31, 2023 .

No allowance is recorded for these loans under CECL.

Off-balance-sheet credit-related financial instruments - In the ordinary course of business, First Fed has entered into commitments to extend credit, including commitments under lines of credit, commercial letters of credit, and standby letters of credit.

13 unchanged sentences

The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.

Deposit fees are included in Service Fees on the Consolidated Statements of Income.

Deposit fees are included in Service Fees on the Consolidated Statements of Operations.

Debit card interchange income - Debit and Automated Teller Machine ("ATM") interchange income represent fees earned when a debit card issued by the Company is used.

4 unchanged sentences

Certain expenses directly associated with the credit and debit card are netted against interchange income.

Debit card interchange income is included in Service Fees on the Consolidated Statements of Income.

Debit card interchange income is included in Service Fees on the Consolidated Statements of Operations.

Third-party credit card interchange income - Third-party credit card interchange income represents fees earned when a credit card issued by the Bank through a third -party vendor is used.

2 unchanged sentences

Certain expenses directly related to the third -party credit card interchange contract are netted against interchange income.

Third-party credit card interchange income is included in Service Fees on the Consolidated Statements of Income.

Third-party credit card interchange income is included in Service Fees on the Consolidated Statements of Operations.

Investment services revenue - Commissions received on the sale of investment related products is determined by a percentage of underlying instruments sold and is recognized when the sale is finalized.

Investment services revenue is included in Other Income on the Consolidated Statements of Income.

Investment services revenue is included in Other Income on the Consolidated Statements of Operations.

Gains/losses on the sale of other real estate owned are included in non-interest expense and are generally recognized when the performance obligation is complete.

This is typically at delivery of control over the property to the buyer at time of each real estate closing.

This is typically at delivery of control over the property to the buyer at the time of each real estate closing.

Fair value measurements - Fair values of financial instruments are estimated using relevant market information and other assumptions (Note 15 ).

16 unchanged sentences

Substantially all income is derived from a diverse base of commercial, mortgage, and consumer lending activities and investments.

The Company’s activities are considered to be a single industry segment for financial reporting purposes.

The Company’s activities are a single industry segment for financial reporting purposes based on our operations.

See Note 19 for additional information.

Employee Stock Ownership Plan - The cost of shares issued to the ESOP but not yet allocated to participants is shown as a reduction of shareholders' equity.

9 unchanged sentences

Recently adopted accounting pronouncements

Summary of Credit Losses Adoption

On January 1, 2023, the Company adopted Financial Accounting Standards Board ("FASB") ASU 2016 - 13 Financial Instruments - Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments , as amended, which replaces the incurred loss methodology with a current expected credit loss ("CECL") methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and held-to-maturity securities.

It also applies to off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments.

In addition, the CECL adoption made changes to the accounting for investment securities available for sale.

The Company adopted ASU 2016 - 13 using the modified retrospective method for all financial assets measured at amortized cost and unfunded commitments.

This method resulted in recording a cumulative-effect adjustment as of the beginning of 2023 with no change to prior periods.

The Company elected not to measure an ACL on accrued interest receivable on loans receivable or accrued interest receivable on investment securities available for sale as Company policy is to reverse interest income for uncollectible accrued interest receivable balances in a timely manner.

Results for the reporting period beginning after January 1, 2023, are presented under ASU 2016 - 13, while prior period amounts were not restated and continue to be reported in accordance with previously applicable GAAP.

The accounting policies for prior periods are included in the Company's Annual Report on Form 10 -K for the year ended December 31, 2022.

The accounting policies for all financial instruments impacted by the CECL adoption are as follows:

Investment Securities

A debt security is placed on nonaccrual status at the time any principal or payments become more than 90 days delinquent.

Interest accrued, but not received for a security placed on nonaccrual, is reversed against interest income during the period that the debt security is placed on nonaccrual status.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Credit Losses on Investment Securities

Management evaluates the need for an ACL on investment securities ("ACLI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For investment securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For investment securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLI is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any decline in fair value that has not been recorded through an ACLI is recognized in other comprehensive income (loss).

Changes in the ACLI are recorded as provision, or recapture of provision, for credit losses expense.

Losses are charged against the allowance when management believes the uncollectibility of an investment security available for sale is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on investment securities available for sale is excluded from the estimate of credit losses as interest accrued, but not received, is reversed timely in accordance with the policy for investment securities above.

Loans Receivable

Loans receivable include loans originated and indirect loans purchased by the Bank as well as loans acquired in business combinations.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the outstanding principal balance, net of purchased premiums and discounts, unearned discounts, and net deferred loan origination fees and costs.

Accrued interest receivable for loans receivable is reported in prepaid expenses and other assets on the Consolidated Balance Sheets.

Allowance for Credit Losses on Loans

The ACL on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected.

Loans are charged against the allowance when management believes the collectability of a loan balance is unlikely.

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.

This accounting policy is discussed in detail previously in Note 1 with additional detail provided in Note 4 of the Notes to Consolidated Financial Statements.

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.

Allowance for Credit Losses on Unfunded Commitments

The Bank estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The Bank has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit.

The allowance methodology is similar to the ACLL, but additionally includes an estimate of the future utilization of the commitment as determined by historical commitment utilization.

The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class.

The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (recapture of provision) for credit losses on the Consolidated Statements of Income.

Provision for Credit Losses

The provision for credit losses as presented in the Company's Consolidated Statements of Income includes the provision for credit losses on loans and the provision for credit losses on unfunded commitments.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of CECL Impact:

Investment Securities - As of December 31, 2022, the Company had no historical charge-off or recovery history and did not have any investment securities available for sale outstanding at the adoption date for which an other-than-temporary impairment was previously recorded.

At the adoption date of ASU 2016 - 13, the unrealized losses present in the portfolio of investment securities available for sale were primarily due to higher market interest rates at that time making our lower coupon investments less attractive.

The fair value of these securities was expected to recover as the securities approach their maturity dates.

The basis of management’s conclusion was that at January 1, 2023, 23.9 % of the investment securities were issued by or guaranteed by the United States government or its agencies, 30.0 % were issued and guaranteed by State and local governments and the remainder of the portfolio was invested in at least investment-grade securities.

As a result of the analysis, no allowance for credit losses on investment securities available for sale was recorded upon adoption.

See Note 2 Investment Securities for more information.

Loan Receivable - ASU 2016 - 13 was applied prospectively and replaced the allowance for loan losses with the ACLL on the Consolidated Balance Sheet and replaced the related provision for loan losses with the provision for credit losses on loans as presented on the Consolidated Statements of Income, net of provision for credit losses on unfunded commitments.

The Bank recorded a pretax increase to the ACLL of $ 2.2 million to increase the reserve to the estimated credit losses at January 1, 2023 based on its CECL methodology as part of the cumulative-effect adjustment to beginning retained earnings.

Upon adoption, the adjusted beginning balance of the ACLL as a percentage of loans receivable was 1.18 % as compared to 1.04 % at December 31, 2022 under the prior incurred loss methodology.

At December 31, 2023, the ACLL as a percentage of loans receivable was 1.05 %.

See Note 4 - Allowance for Credit Loss on Loans for more information.

Unfunded Commitments - ASU 2016 - 13 was applied prospectively and replaced the reserve for unfunded commitments with the ACL on unfunded commitments ("ACLUC") as included in accrued liabilities and other expenses on the Consolidated Balance Sheet and replaced the provision for unfunded commitments with the provision for credit losses on unfunded commitments as presented on the Consolidated Statements of Income, net of provision for credit losses on loans.

Upon adoption, the Bank recorded a pretax increase in the beginning ACLUC of $ 1.5 million.

Overall CECL Impact Upon Adoption - The adoption of ASU 2016 - 13, included an increase to the ACLL of $ 2.2 million and an increase to the ACLUC of $ 1.5 million, which resulted in a pretax cumulative-effect adjustment of $ 3.7 million.

The impact of this adjustment to beginning retained earnings on January 1, 2023 was $ 3.0 million, net of tax.

Other Recently Adopted Accounting Pronouncements

In March 2022, the FASB issued ASU 2022 - 02, Financial Instruments - Credit Losses (Topic 326 ):

Troubled Debt Restructurings and Vintage Disclosures .

This ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancing and restructuring activity by creditors when a borrower is experiencing financial difficulty.

Additionally, the ASU requires public business entities to disclose current-period gross write offs by year of origination for financing receivables and net investments in leases.

This ASU is effective upon adoption of ASU 2016 - 13.

On January 1, 2023, the Company adopted this ASU at the same time ASU 2016 - 13 was adopted.

The Company recorded gross charge-offs of $ 3.3 million during the year ended December 31, 2023, and recoveries for the same period were $ 150,000 .

See table in Note 3 for additional information.

On March 28, 2022, the FASB issued Accounting Standards Update (ASU) 2022 - 01, Derivatives and Hedging (Topic 815 ):

Fair Value Hedging – Portfolio Layer Method .

The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017 - 12, Derivatives and Hedging (Topic 815 ):

Targeted Improvements to Accounting for Hedging Activities .

ASU 2022 - 01 is effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption in the interim period, permitted.

For entities who have already adopted ASU 2017 - 12, immediate adoption is allowed.

ASU 2022 - 01 requires a modified retrospective transition method for basis adjustments in which the entity will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption.

The Company adopted this ASU on January 1, 2023 on a prospective basis; therefore, there was no impact to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2020, the FASB issued ASU 2020 - 04, Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

ASU 2020 - 04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, which reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

This ASU is effective for all entities as of March 12, 2020 through December 31, 2022.

On December 31, 2022, the FASB issued ASU 2022 - 06, which deferred the sunset date for Topic 848 to December 31, 2024.

The Company implemented a transition plan to identify and modify its loans and other financial instruments that were either directly or indirectly influenced by LIBOR.

There was no material impact as a result of implementing these ASUs, transitioning away from LIBOR for its loan and other financial instruments effective July 1, 2023.

Recently issued accounting pronouncements not yet adopted

In June 2022, the FASB issued ASU 2022 - 03, Fair Value Measurement (Topic 820 ):

3 unchanged sentences

ASU 2022 - 03 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

The Company does not believe this ASU will have a material impact on its consolidated financial statements and related disclosures.

The adoption of this ASU did not have a material impact on its consolidated financial statements and related disclosures.

In March 2023, the FASB issued ASU 2023 - 02, Investments - Equity Method and Joint Ventures (Topic 323 ):

8 unchanged sentences

Investments - Equity Method and Joint Ventures - Overall .

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

This ASU also clarifies that for low-income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321:

1 unchanged sentence

The amendments in this ASU also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations.

ASU 2023 - 02 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

The Company is evaluating the effect that ASU 2023 - 02 will have on its consolidated financial statements and related disclosures.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASU 2023 - 02 was effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

The adoption of this ASU did not have a material impact on the consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU No.

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( 1 ) require that a public entity disclose on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, ( 2 ) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition, ( 3 ) require that a public entity provide all annual disclosures about a reportable segment's profit or loss currently required by GAAP in interim periods as well, ( 4 ) clarify that if CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, an entity may report one or more of those additional measures of segment profit, ( 5 ) require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources and ( 6 ) require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures.

This ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

As the Company has one reportable segment, the requirements of this standard for such entities will apply beginning with the Company's annual report for the year ending December 31, 2024.

The Company does not expect adoption of this ASU to have a material effect on the Company's consolidated financial statements.

This ASU was effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company has incorporated the required disclosures;

see Note 19 for additional information.

Recently issued accounting pronouncements not yet adopted

In December 2023, the FASB issued ASU No.

6 unchanged sentences

The Company does not expect adoption of the ASU to have a material effect on the Company's consolidated financial statements.

In March 2024, the FASB issued ASU 2024 - 01, Compensation—Stock Compensation (Topic 718 ):

Scope Application of Profits Interest and Similar Awards .

ASU 2024 - 01 added an illustrative example to demonstrate how an entity should apply the scope guidance in paragraph 718 - 10 - 15 - 3 to determine whether a profits interest award should be accounted for in accordance with Topic 718.

Awards not meeting the criteria should be accounted for in accordance with Topic 710.

The illustrative example provides four fact patterns which are intended to reduce complexity in determining whether a profits interest award is subject to the guidance in Topic 718 and reduce existing diversity in practice.

ASU 2024 - 01 is effective for the Company for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, with early adoption permitted.

The adoption of this ASU is not expected to have a material impact on the consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024 - 03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220 - 40 ):

Disaggregation of Income Statement Expenses .

ASU 2024 - 03 requires additional disclosure of the nature of expenses included in the income statement in response to requests from investors for more information to better understand an entity's performance and potential future cash flows.

The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses.

ASU 2024 - 03 is effective for the Company for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, with early adoption permitted.

The adoption of this ASU is not expected to have a material impact on the consolidated financial statements and related disclosures.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2024, the FASB issued ASU 2024 - 04, Debt—Debt with Conversion and Other Options (Subtopic 470 - 20 ):

Induced Conversions of Convertible Debt Instruments .

ASU 202404 clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

The amendments do not change the accounting for conversions that include the issuance of all equity securities upon conversion.

ASU 2024 - 04 is effective for the Company for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years, with early adoption permitted.

The adoption of this ASU is not expected to have a material impact on the consolidated financial statements and related disclosures.

Reclassifications - Certain amounts in prior periods have been reclassified to conform to the current audited financial statement presentation with no effect on net income or shareholders' equity.

6 unchanged sentences

Estimated Fair Value

Allowance for Credit Losses

(In thousands)

8 unchanged sentences

58,106 55 ( 3,670 ) 54,491 —

Small Business Administration securities (SBA)

8,664 18 ( 16 ) 8,666 —

Mortgage-Backed Securities:

5 unchanged sentences

$ 376,265 $ 238 $ ( 36,159 ) $ 340,344 $ —

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at December 31, 2023 , are summarized as follows:

4 unchanged sentences

Estimated Fair Value

Allowance for Credit Losses

(In thousands)

2 unchanged sentences

$ 102,998 $ — $ ( 15,237 ) $ 87,761 $ —

Treasury notes

11,847 — ( 65 ) 11,782 —

International agency issued bonds (Agency bonds)

ABS corporate

5,370 — ( 84 ) 5,286 —

7 unchanged sentences

$ 333,950 $ — $ ( 38,327 ) $ 295,623 $ —

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no securities classified as held-to-maturity at December 31, 2024 and 2023 .

There was no allowance for credit losses on investment securities recorded at December 31, 2024 and 2023 , based on analysis performed by the Company.

Accrued interest receivable on available-for-sale debt securities totaled $ 2.0 million and $ 1.9 million as of December 31, 2024 and 2023 , respectively.

4 unchanged sentences

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

(In thousands)

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— — ( 3,670 ) 46,355 ( 3,670 ) 46,355

( 16 ) 3,093 — — ( 16 ) 3,093

Mortgage-Backed Securities

3 unchanged sentences

$ ( 653 ) $ 41,933 $ ( 35,506 ) $ 241,991 $ ( 36,159 ) $ 283,924

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of December 31, 2023 :

2 unchanged sentences

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

(In thousands)

2 unchanged sentences

$ — $ — $ ( 15,237 ) $ 87,461 $ ( 15,237 ) $ 87,461

Treasury notes

( 65 ) 11,782 — — ( 65 ) 11,782

ABS Corporate

( 84 ) 3,771 — — ( 84 ) 3,771

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$ ( 176 ) $ 19,494 $ ( 38,151 ) $ 274,306 $ ( 38,327 ) $ 293,800

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were 22 available-for-sale securities with unrealized losses of less than one year, and 144 available-for-sale securities with an unrealized loss of more than one year at December 31, 2024 .

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Management believes that the unrealized losses on our investment securities relate principally to the general change in interest rates, market liquidity and demand, and market volatility that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future.

We do not believe the unrealized losses on our securities are related to a deterioration in credit quality.

Management does not believe the unrealized losses on our securities are related to a deterioration in credit quality.

Certain investments in a loss position are guaranteed by government entities or government sponsored entities.

The Company does not intend to sell the securities in an unrealized loss position and believes that it is unlikely that we will be required to sell these investments prior to a market price recovery or maturity.

Based on the Company’s evaluation of these securities, no credit loss was recorded at December 31, 2023 or December 31, 2022 .

Based on the Company’s evaluation of these securities, no credit impairment was recorded at December 31, 2024 or December 31, 2023 .

The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated.

Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties;

Expected maturities of MBS may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties;

therefore, these securities are shown separately.

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$ 376,265 $ 340,344 $ 333,950 $ 295,623

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sales of available-for-sale securities were as follows:

1 unchanged sentence

(In thousands)

Proceeds from sales

$ 21,048 $ 40,619

Gross realized gains

Gross realized losses

( 2,117 ) ( 5,397 )

Note 3 - Loans Receivable

The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality.

The Company has identified three segments of its loan portfolio that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality.

The three loan portfolio segments are:

1 unchanged sentence

These segments are further disaggregated into classes based on similar attributes and risk characteristics.

Loan amounts are net of unearned loan fees in excess of unamortized costs and premiums of $ 14.8 million and $ 13.2 million as of December 31, 2023 and 2022 , respectively.

Net loans do not include accrued interest receivable.

Accrued interest receivable on loans was $ 6.0 million and $ 4.7 million as of December 31, 2023 and 2022 , respectively, and was reported in accrued interest receivable on the consolidated balance sheets.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loan amounts are presented at amortized cost which is comprised of the loan balance net of unearned loan fees in excess of unamortized costs and unamortized purchase premiums of $ 19.1 million and $ 14.8 million as of December 31, 2024 and 2023 , respectively.

The amortized cost reflected in total loans receivable does not include accrued interest receivable.

Accrued interest receivable on loans was $ 6.0 million and $ 6.0 million as of December 31, 2024 and 2023 , respectively, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the calculation of the allowance for credit losses on loans.

The amortized cost of loans receivable, net of ACLL, consisted of the following at the dates indicated:

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1,695,823 1,660,028

Derivative basis adjustment

Allowance for credit losses on loans

2 unchanged sentences

$ 1,675,186 $ 1,642,518

( 1 ) Allowance for credit losses on loans in 2023 reported using the CECL method and in 2022 reported using the incurred loss method.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans, by the earlier of next repricing date or maturity, at the dates indicated:

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Future market factors may affect the correlation of adjustable loan interest rates with the rates First Fed pays on the short-term deposits that have been primarily used to fund such loans.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1 unchanged sentence

December 31, 2023

Collateral Dependent Loans

Non-collateral Dependent Loans

Total Nonaccrual Loans

Nonaccrual Loans with ACLL

Nonaccrual Loans with No ACLL

Total Nonaccrual Loans

(In thousands)

One-to-four family

$ 418 $ 1,844 $ 954

Commercial real estate

Construction and land

Auto and other consumer

Commercial business loans

Nonaccrual Loans with ACLL

Nonaccrual Loans with No ACLL

Total Nonaccrual Loans

$ 17,494 $ 1,150 $ 18,644 $ 1,793

( 1 ) Presentation of December 31, 2022, balances is in accordance with pre-CECL disclosure requirements.

Interest income recognized on a cash basis on nonaccrual loans for the year ended was $ 58,000 .

Prior to the implementation of CECL, the Bank categorized loans as performing or nonperforming based on payment activity.

Loans that were more than 90 days past due and nonaccrual loans were considered nonperforming.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the credit risk profile based on payment activity by class of loans as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:

Nonperforming

(In thousands)

1 unchanged sentence

$ 364 $ 1,113 $ 1,477 $ 418 $ 1,426 $ 1,844

— 252,745 252,745

Commercial real estate

7 unchanged sentences

2,537 604 3,141 225 652 877

Total loans receivable

Total nonaccrual loans

$ 2,970 $ 27,545 $ 30,515 $ 807 $ 17,837 $ 18,644

Interest income recognized on a cash basis on nonaccrual loans for the years ended December 31, 2024 and 2023 , was $ 201,000 and $ 58,000 , respectively.

Past due loans.

1 unchanged sentence

There were no loans past due 90 days or more and still accruing interest at December 31, 2024 and 2023 .

The following table presents the amortized cost of past due loans by segment and class as of December 31, 2023 :

The following table presents the amortized cost of past due loans (including both accruing and nonaccruing loans) by segment and class as of December 31, 2024 :

30-59 Days Past Due

22 unchanged sentences

$ 4,860 $ 8,908 $ 19,121 $ 32,889 $ 1,662,934 $ 1,695,823

The following table presents the amortized cost of past due loans by segment and class as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the amortized cost of past due loans (including both accruing and nonaccruing loans) by segment and class as of December 31, 2023 :

30-59 Days Past Due

22 unchanged sentences

$ 3,846 $ 9,884 $ 1,801 $ 15,531 $ 1,644,497 $ 1,660,028

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit quality indicator.

34 unchanged sentences

8,755 — 1,764 23,051 1,278 976 — 35,824

Special Mention (Grade 5)

— 3,785 — — — — — 3,785

Total multi-family

20 unchanged sentences

213 5,531 — 222 — 30 — 5,996

Special Mention (Grade 5)

7,196 — — — — 14 — 7,210

Substandard (Grade 6)

32 unchanged sentences

— 136 1,064 314 — — 3 1,517

Special Mention (Grade 5)

— — 1,279 1,552 — 2 — 2,833

Substandard (Grade 6)

12 unchanged sentences

8,437 11,879 4,060 13,813 1,639 476 2,239 42,543

Total loans receivable

$ 187,209 $ 207,004 $ 421,327 $ 374,153 $ 211,204 $ 207,100 $ 87,826 $ 1,695,823

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:

Special Mention

The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2023 , as well as gross charge-off activity for the year ended December 31, 2023 .

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

Term Loans by Year of Origination (1)

(In thousands)

One-to-four family

Pass (Grades 1-3)

$ 2,282 $ 102,389 $ 118,028 $ 69,229 $ 13,882 $ 65,701 $ — $ 371,511

Watch (Grade 4)

— 275 1,338 1,569 — 1,295 — 4,477

Special Mention (Grade 5)

— — — 300 — 80 — 380

Substandard (Grade 6)

— — — 327 482 1,255 — 2,064

Total one-to-four family

2,282 102,664 119,366 71,425 14,364 68,331 — 378,432

Gross charge-offs

— — — — — — — —

Pass (Grades 1-3)

52,208 105,902 88,293 57,588 6,922 5,356 — 316,269

Watch (Grade 4)

— — 15,126 708 — 991 — 16,825

Total multi-family

52,208 105,902 103,419 58,296 6,922 6,347 — 333,094

Gross charge-offs

— — — — — — — —

Commercial Real Estate

Pass (Grades 1-3)

52,823 87,712 99,058 76,664 13,096 22,425 — 351,778

Watch (Grade 4)

4,433 1,168 1,340 8,829 3,561 496 — 19,827

Special Mention (Grade 5)

— — 6,528 — — 2 — 6,530

Substandard (Grade 6)

— 28 8,526 1,294 — — — 9,848

Total commercial real estate

57,256 88,908 115,452 86,787 16,657 22,923 — 387,983

Gross charge-offs

— — — — — — — —

Construction and Land

Pass (Grades 1-3)

20,772 49,508 23,988 727 344 464 — 95,803

Total real estate loans

Watch (Grade 4)

6,512 4,935 229 — — 15 — 11,691

Special Mention (Grade 5)

7,196 — — — — 14 — 7,210

Substandard (Grade 6)

14,981 — — — — 6 — 14,987

Total construction and land

49,461 54,443 24,217 727 344 499 — 129,691

Gross charge-offs

— — — — — — — —

Pass (Grades 1-3)

7,179 7,169 4,638 3,063 1,331 4,283 41,105 68,768

Watch (Grade 4)

— — — — — 155 345 500

Substandard (Grade 6)

— — 30 59 — 13 33 135

Total home equity

7,179 7,169 4,668 3,122 1,331 4,451 41,483 69,403

Gross charge-offs

— — — — — 10 — 10

Auto and Other Consumer

Pass (Grades 1-3)

49,649 69,052 64,101 29,113 14,660 18,593 385 245,553

Total consumer loans

Watch (Grade 4)

270 919 579 204 138 59 4 2,173

Commercial business loans

Special Mention (Grade 5)

90 334 33 162 — — — 619

Substandard (Grade 6)

84 393 — — 30 278 — 785

Total auto and other consumer

50,093 70,698 64,713 29,479 14,828 18,930 389 249,130

Gross charge-offs

— 3,018 15 52 11 112 104 3,312

Commercial business

Pass (Grades 1-3)

23,499 19,191 11,032 2,440 455 13,635 29,976 100,228

Watch (Grade 4)

340 62 275 270 — ( 1 ) 3,806 4,752

Substandard (Grade 6)

291 3,653 104 779 — ( 1 ) 2,489 7,315

Total commercial business

24,130 22,906 11,411 3,489 455 13,633 36,271 112,295

Gross charge-offs

— — — — — — — —

Pass (Grades 1-3)

208,412 440,923 409,138 238,824 50,690 130,457 71,466 1,549,910

Watch (Grade 4)

11,555 7,359 18,887 11,580 3,699 3,010 4,155 60,245

Special Mention (Grade 5)

7,286 334 6,561 462 — 96 — 14,739

Substandard (Grade 6)

15,356 4,074 8,660 2,459 512 1,551 2,522 35,134

Total loans receivable

$ 242,609 $ 452,690 $ 443,246 $ 253,325 $ 54,901 $ 135,114 $ 78,143 $ 1,660,028

Total gross charge-offs

$ — $ 3,018 $ 15 $ 52 $ 11 $ 122 $ 104 $ 3,322

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

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Individually Evaluated Loans.

8 unchanged sentences

Changes in the ACLL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

As of December 31, 2024 , $ 35.8 million of loans were individually evaluated with $ 2.5 million of ACLL attributed to such loans.

At December 31, 2024 , three individually evaluated loans with recorded investments totaling $ 2.5 million were evaluated using a discounted cash flow approach and the remaining loans totaling $ 33.2 million were evaluated based on the underlying value of the collateral.

One $ 6.4 million commercial real estate loan was accruing at year end, while all other individually evaluated loans were on nonaccrual status at December 31, 2024 .

As of December 31, 2023 , $ 20.0 million of loans were individually evaluated with $ 165,000 of ACLL attributed to such loans.

At December 31, 2023 , one individually evaluated loan with a recorded investment of $ 2.5 million was evaluated using a discounted cash flow approach and the remaining loans totaling $ 17.5 million were evaluated based on the underlying value of the collateral.

The loan evaluated using the discounted cash flow method was accruing at year end, while the collateral dependent loans were all on nonaccrual status at December 31, 2023 .

The loan evaluated using the discounted cash flow method was accruing at year end, while the remaining individually evaluated loans were all on nonaccrual status at December 31, 2023 .

Collateral Dependent Loans.

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

The following table summarizes individually evaluated collateral dependent loans by segment and collateral type as of December 31, 2023 :

The following table summarizes individually evaluated collateral dependent loans by class and collateral type as of December 31, 2024 :

Collateral Type

4 unchanged sentences

$ 1,113 $ — $ — $ — $ — $ 1,113

Construction and land

Commercial real estate

— 11,995 — — — 11,995

Auto and other consumer

Construction and land

8,150 — 11,384 — — 19,534

3 unchanged sentences

$ 9,263 $ 11,995 $ 11,384 $ — $ 604 $ 33,246

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Troubled debt restructuring.

Prior to the implementation of CECL on January 1, 2023, a loan was identified as a TDR when a loan to a borrower who was experiencing financial difficulty was modified from its original terms and conditions in such a way that the Bank granted the borrower a concession of some kind.

First Fed had granted a variety of concessions to borrowers in the form of loan modifications.

The modifications were generally related to the loan's interest rate, term and payment amount or a combination thereof.

The following table is a summary of information pertaining to TDR loans included in impaired loans at the date indicated, in accordance with pre-CECL disclosure requirements:

December 31, 2022

(In thousands)

Total TDR loans

Allowance for loan losses related to TDR loans

Total nonaccrual TDR loans

There were no newly restructured and renewals or modifications of existing TDR loans that occurred during the year ended December 31, 2022 .

There were no TDR loans that incurred a payment default within 12 months of the restructure date during the year ended December 31, 2022 .

The following table presents TDR loans by class by accrual and nonaccrual status at the date indicated, in accordance with pre-CECL disclosure requirements:

December 31, 2022

The following table summarizes individually evaluated collateral dependent loans by class and collateral type as of December 31, 2023 :

Collateral Type

Single Family Residence

Business Assets

(In thousands)

1 unchanged sentence

$ 1,426 $ — $ — $ — $ 1,426

Total TDR loans

Construction and land

— 14,981 — — 14,981

Auto and other consumer

— — 180 — 180

Commercial business

— 119 — 652 771

Total collateral dependent loans

$ 1,456 $ 15,100 $ 180 $ 652 $ 17,388

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Modified Loans to Troubled Borrowers.

6 unchanged sentences

In those instances, the ACLL for a MLTB is determined through individual evaluation.

During the year ended December 31, 2024 , there were two new MLTB.

A commercial business loan with a recorded investment of $ 17,000 at the time of modification for which the Bank agreed to deferred principal payments and the borrower agreed to resume both principal and interest payments at the end of the deferral period.

The commercial business loan was not in compliance with the modified terms at December 31, 2024 , and the balance was charged-off.

The Bank also agreed to defer payments on a commercial real estate loan with a recorded investment of $ 6.4 million.

The commercial real estate loan was in compliance with the modified terms at December 31, 2024 .

During the year ended December 31, 2023 , there was one new MLTB, a commercial business loan with a recorded investment of $ 119,000 for which the Bank agreed to deferred principal payments.

The borrower continues to make interest-only payments and the loan was current at year end based on the modified terms.

Note 4 - Allowance for Credit Losses on Loans

The Company maintains an ACLL and an ACLUC in accordance with ASC 326:

The borrower continues to make interest-only payments and the loan was current at December 31, 2023 , based on the modified terms.

Note 4 - Allowance for Credit Losses on Loans ("ACLL")

The Company maintains an ACLL in accordance with ASC 326:

Financial Instruments - Credit Losses .

1 unchanged sentence

The recognition of credit losses at origination or acquisition represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics.

The ACLL is recognized in loans receivable on the Consolidated Balance Sheets and is adjusted as a provision (recapture of provision) for credit losses on loans on the Consolidated Statements of Operations.

The Company adopted ASU 2016 - 13 effective January 1, 2023, as discussed in Note 1.

The incurred loss methodology presentation is used for periods prior to the adoption of ASU 2016 - 13.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

At or For the Year Ended December 31, 2024

Beginning Balance

Impact of Day 1 CECL Adoption

Adjusted Beginning Balance

Provision for (Recapture of) Credit Losses

14 unchanged sentences

$ 17,510 $ ( 14,179 ) $ 402 $ 16,716 $ 20,449

$ 16,116 $ 2,209 $ 18,325 $ ( 3,322 ) $ 150 $ 2,357 $ 17,510

The following table details activity in the ALLL by class for the period shown under the incurred loss methodology:

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At or For the Year Ended December 31, 2023

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Commercial business

(In thousands)

Beginning Balance

$ 3,184 $ 1,816 $ 3,996 $ 2,672 $ 407 $ 2,221 $ 470 $ 358 $ 15,124

Provision for (recapture of) loan losses

45 652 221 ( 330 ) 112 634 174 27 1,535

— — — — — ( 1,025 ) — — ( 1,025 )

114 — — 2 30 194 142 — 482

Impact of Day 1 CECL Adoption

Adjusted Beginning Balance

Provision for (Recapture of) Credit Losses

Ending Balance

$ 3,343 $ 2,468 $ 4,217 $ 2,344 $ 549 $ 2,024 $ 786 $ 385 $ 16,116

The following table details the ALLL and loan portfolio by class and impairment method for the period shown under the incurred loss methodology:

At December 31, 2022

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Commercial business

(In thousands)

$ 3,343 $ 2,468 $ 4,217 $ 2,344 $ 549 $ 2,024 $ 786 $ 385 $ 16,116

General reserve

3,321 2,468 4,217 2,343 545 2,019 786 385 16,084

Specific reserve

22 — — 1 4 5 — — 32

Total loans receivable

$ 343,825 $ 253,551 $ 390,246 $ 194,646 $ 52,322 $ 222,794 $ 76,996 $ — $ 1,534,380

General reserves (1)

341,171 253,551 390,196 194,630 52,100 222,702 76,996 — 1,531,346

Specific reserves (2)

2,654 — 50 16 222 92 — — 3,034

( 1 ) Loans collectively evaluated for general reserves.

( 2 ) Loans individually evaluated for specific reserves.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impaired loans incurred loss model.

Prior to the implementation of CECL on January 1, 2023, a loan was considered impaired when the Bank has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan.

Impairment was measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying TDR loans.

The following table provides additional information on loans individually evaluated for impairment by portfolio class at the date indicated under the incurred loss methodology.

Recorded investment includes the unpaid principal balance or carrying amount of loans less charge-offs.

December 31, 2022

Recorded Investment

Unpaid Principal Balance

Related Allowance

Average Recorded Investment

Interest Income Recognized

(In thousands)

With no allowance recorded:

One-to-four family

$ 3,343 $ ( 429 ) $ 2,914 $ — $ 9 $ 52 $ 2,975

2,468 ( 1,449 ) 1,019 — — 135 1,154

Commercial real estate

1 unchanged sentence

Construction and land

Auto and other consumer

2,344 1,555 3,899 — — ( 2,010 ) 1,889

With an allowance recorded:

One-to-four family

549 346 895 ( 10 ) 15 177 1,077

Commercial real estate

Construction and land

222 224 4 259 11

Auto and other consumer

2,024 2,381 4,405 ( 3,312 ) 126 3,190 4,409

Total impaired loans:

One-to-four family

2,654 2,834 22 2,521 235

Commercial real estate

50 149 — 65 —

Construction and land

16 33 1 457 3

Commercial business

786 794 1,580 — — 755 2,335

Auto and other consumer

385 ( 385 ) — — — — —

$ 16,116 $ 2,209 $ 18,325 $ ( 3,322 ) $ 150 $ 2,357 $ 17,510

Interest income recognized on a cash basis on impaired loans for the year ended December 31, 2022 , was $ 141,000 under the incurred loss methodology.

Allowance for Credit Losses on Unfunded Loan Commitments.

The Company maintains an ACL for off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities on the consolidated balance sheets.

The allowance for unfunded commitments was $ 817,000 at December 31, 2023 , a decrease compared to $ 1.9 million at the adoption of CECL on January 1, 2023.

Included in the year-to-date provision for credit loss expense was a provision recapture for unfunded commitments of $ 1.0 million for the year ended December 31, 2023 , primarily attributable to construction loan disbursements resulting in lower unfunded commitments.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Credit Losses on Unfunded Loan Commitments ("ACLUC").

The Company estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The Company has determined that no allowance is necessary for its home equity line of credit portfolio as it has the contractual ability to unconditionally cancel the available lines of credit.

The allowance methodology is similar to the ACLL, but includes an additional estimate of the future utilization of the commitment as determined by historical commitment utilization.

The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class.

The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision, or recapture of provision, for credit losses on unfunded commitments on the Consolidated Statements of Operations.

The allowance for unfunded commitments was $ 599,000 and $ 817,000 at December 31, 2024 and 2023 , respectively.

Note 5 - Premises and Equipment

15 unchanged sentences

Depreciation expense was $ 1.4 million and $ 1.6 million for the years ended December 31, 2024 and 2023 , respectively.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Leases

The Bank has lease agreements with unaffiliated parties for nine locations, including five full-service branches, three business centers, and a parking easement.

The Bank has lease agreements with unaffiliated parties for fifteen locations, comprised of eleven full-service branches, three business centers, and a parking easement.

Lease expirations range from one to twenty years, with additional renewal options on certain leases ranging from two to ten years.

If the exercise of a renewal option is considered to be reasonably certain, the Company includes the extended term in the calculation of the right-of-use asset and lease liability.

At December 31, 2023 , the Company's ROU assets included in other assets and lease liabilities included in other liabilities were $ 6.05 million and $ 6.43 million, respectively.

At December 31, 2024 , the Company's ROU assets and lease liabilities were $ 17.0 million and $ 17.5 million, respectively.

Total costs incurred by the Company, as a lessee, were $ 2.3 million and $ 1.2 million for the years ended December 31, 2024 and 2023 , respectively, and principally related to contractual lease payments on operating leases.

12 unchanged sentences

Weighted-average discount rate of operating leases

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All lease agreements require the Bank to pay its pro-rata share of building operating expenses.

The minimum annual lease payments under non-cancelable operating leases with initial or remaining terms of one year or more through the initial lease term are as follows:

The minimum annual lease payments under non-cancellable operating leases with initial or remaining terms of one year or more through the initial lease term are as follows:

December 31, 2024

8 unchanged sentences

The unpaid principal balances of serviced loans, primarily mortgage loans, were $ 329.3 million and $ 366.1 million at December 31, 2024 and 2023 , respectively.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loan servicing rights for the periods shown are as follows:

3 unchanged sentences

$ 3,793 $ 3,887

One-time adjustment for fair value reporting election

Change in fair value

( 550 ) ( 243 )

Balance at end of period

12 unchanged sentences

Servicing fees

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the hypothetical effect on the fair value of the Company's loan servicing rights using unfavorable shock analyses of certain key valuation assumptions as of December 31, 2024 and 2023 .

16 unchanged sentences

$ ( 312 ) $ ( 321 )

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Deposits

13 unchanged sentences

205,055 1.35 242,148 1.62

Certificates of deposit, retail

Certificates of deposit, customer

464,928 4.18 443,412 4.04

1 unchanged sentence

182,914 4.73 207,626 4.85

Total deposits

$ 1,688,026 2.42 $ 1,676,892 2.34

8 unchanged sentences

After four years through five years

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total certificates of deposit

At December 31, 2024 and 2023 , deposits included $ 100.8 million and $ 114.2 million, respectively, in public fund deposits.

The Bank had an outstanding letter of credit from the Federal Home Loan Bank of Des Moines ("FHLB") with a notional amount of $ 60.0 million at December 31, 2023 , to secure public deposits.

The Bank had investment securities with a carrying value of $ 57.1 million that were pledged as collateral for these deposits at December 31, 2022 .

These amounts exceed the minimum collateral requirements established by the Washington Public Deposit Protection Commission.

The Bank had an outstanding letter of credit from the Federal Home Loan Bank of Des Moines ("FHLB") with a notional amount of $ 60.0 million at December 31, 2024 and 2023 , to secure public deposits.

The notional amount exceeds the minimum collateral requirements established by the Washington Public Deposit Protection Commission.

Also included in deposits at December 31, 2024 and 2023 , were funds held by federally recognized tribes totaling $ 20.1 million and $ 18.4 million, respectively.

Investment securities with a carrying value of $ 22.8 million and $ 23.8 million were pledged as collateral for these deposits at December 31, 2024 and 2023 , respectively.

This exceeds the minimum collateral requirements established by the Bureau of Indian Affairs.

The pledged carrying value exceeds the minimum collateral requirements established by the Bureau of Indian Affairs.

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

4 unchanged sentences

Savings accounts

Certificates of deposit, retail

Certificates of deposit, customer

17,838 12,520

Certificates of deposit, brokered

Total deposit interest expense

$ 42,427 $ 27,019

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Borrowings

14 unchanged sentences

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 consummated a borrowing arrangement with NexBank for a $ 20.0 million revolving line of credit.

1 unchanged sentence

The Company was in compliance with all covenants at December 31, 2024 , including fixed coverage, Tier 1 leverage, and risk-based capital ratio minimum requirements and classified assets to Tier 1 capital and Texas ratio maximum requirements.

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

The line of credit matures on May 17, 2025 .

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

Available borrowing capacity was $15.2 million at December 31, 2023.

No funds have been borrowed to date.

No funds were borrowed between June 2023 and March 2024, when the BTFP stopped funding new loans, effectively ending the Bank's participation in the program.

Investment securities with a carrying value of $ 12.9 million were pledged to secure the BTFP at December 31, 2023.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FHLB advances, line of credit, and subordinated debt outstanding by type of advance were as follows:

4 unchanged sentences

$ 160,000 $ 80,000

Short-term fixed-rate advances

Overnight variable-rate advances

14 unchanged sentences

Interest expense during the period

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The maximum and average outstanding balances and average interest rates on FHLB short-term, fixed-rate advances were as follows:

2 unchanged sentences

Maximum outstanding at any month-end

$ 95,000 $ 42,500

Monthly average outstanding

25,000 15,208

Weighted-average daily interest rates

5.08 % 1.82 %

5.27 % 2.12 %

Interest expense during the period

10 unchanged sentences

Interest expense during the period

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12 unchanged sentences

25,000 4.50 10,000 1.76

After four years through five years

— — 10,000 1.76

Total FHLB long-term, fixed rate advances

$ 160,000 3.63 $ 80,000 2.09 %

9 unchanged sentences

Interest expense during the period

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The maximum and average outstanding balances and average interest rates on subordinated debt were as follows:

5 unchanged sentences

39,475 39,395

Weighted-average interest rates

Weighted-average interest yields

4.00 % 4.01 %

1 unchanged sentence

Interest expense during the period

Note 10 - Federal Taxes on Income

Note 10 - Income Taxes

Income tax expense is substantially due to Federal income taxes.

The Company accrues a provision for income tax for certain states in which we have both employees and collateral for loans, thereby creating nexus in those states for income tax purposes.

The provision for income taxes for the periods shown is summarized as follows:

2 unchanged sentences

( 1,409 ) 134

134 ( 1,529 )

Total (benefit) provision for income tax

$ ( 944 ) $ 549

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the tax provision (benefit) based on statutory corporate tax rates, estimated to be 21 % for the year ended December 31, 2023 , on pre-tax income and the provision (benefit) shown in the accompanying consolidated statements of income for the periods shown is summarized as follows:

A reconciliation of the tax provision (benefit) based on statutory corporate tax rates, estimated to be 21 % for the year ended December 31, 2024 , on pre-tax income and the provision (benefit) shown in the accompanying Consolidated Statements of Operations for the periods shown is summarized as follows:

For the Year Ended December 31,

3 unchanged sentences

Low-income housing tax credits

Tax-exempt income

( 43 ) ( 25 )

Tax-exempt income, net of amount disallowed

Bank-owned life insurance income

( 568 ) ( 195 )

Bank-owned life insurance early surrender of contract

Bank-owned life insurance penalty for early surrender of contract

Total (benefit) provision for income tax

$ ( 944 ) $ 549

3 unchanged sentences

therefore, no provision has been made.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

3 unchanged sentences

Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

As of December 31, 2023 , the Company has written off its investment in Quin Ventures.

The tax loss as a result of the investment being written off was of $ 8.4 million;

this contributed to an overall net operating loss of $ 6.3 million for the Company.

As of December 31, 2024 , the Company has a cumulative Federal net operating loss of $ 8.0 million.

This net operating loss is not subject to expiration and is able to offset 80% of taxable income in each future year.

We believe there will be sufficient income in future years to utilize the loss and, therefore, a valuation allowance is not necessary.

As of December 31, 2022 , Quin Ventures had a net operating loss carryforward of $ 5.2 million which was included in the Company's consolidated tax provision.

As a result of the Quin Ventures write-off during 2023, the Company wrote off the 2022 Quin Ventures net operating loss carryforward.

In 2023, the Company wrote off its investment in Quin Ventures.

The $ 8.4 million tax loss as a result of the investment being written off contributed to an overall Federal net operating loss of $ 6.3 million which was included in the Company's consolidated tax provision for the year ended December 31, 2023 .

The Company applies the provisions of FASB ASC 740 that require the application of a more-likely-than- not recognition criterion for the reporting of uncertain tax positions on its financial statements.

1 unchanged sentence

Interest and penalties are recognized in income tax expense.

The Company recognized no interest or penalties during the year ended December 31, 2023 , and a small amount of interest and no penalties during the year ended December 31, 2022 .

The Company recognized no interest or penalties during the years ended December 31, 2024 and 2023 .

The Company files consolidated income tax returns in the U.S.

federal jurisdiction and is no longer subject to tax examinations for years ending before December 31, 2021 .

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net deferred tax assets and liabilities at the periods shown are summarized as follows:

12 unchanged sentences

Net operating loss carryforward

Employee retention credit benefit

Tax credits carryforward

Total deferred tax assets

2 unchanged sentences

Deferred loan fees

FHLB stock dividends

Bank-owned life insurance early surrender of contract

Accumulated depreciation

5 unchanged sentences

$ 13,738 $ 13,001

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 - Benefit Plans

3 unchanged sentences

The Bank DB Plan is a defined benefit pension plan covering current and former employees.

Benefits available under the plan are frozen, not allowing any new participants.

Benefits available under the plan are frozen.

As a result, no new participants are allowed.

The plan provides defined benefits based on years of service and final average salary prior to the freeze.

2 unchanged sentences

The prior service cost is expected to be amortized over 15 years.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the changes in benefit obligations and plan assets for the periods shown:

6 unchanged sentences

Actual return on plan assets

777 ( 3,680 )

Company contributions

Benefits paid

( 771 ) ( 667 )

Settlements and curtailments

Fair value at end of period

8 unchanged sentences

( 771 ) ( 667 )

Settlements and curtailments

Projected benefit obligation at end of period

2 unchanged sentences

Amounts recognized on Consolidated Balance Sheet

Accumulated other comprehensive income

Accumulated other comprehensive loss

( 1,788 ) ( 1,708 )

1 unchanged sentence

$ 2,048 $ 2,233

Other changes recognized in other comprehensive income

Net (gain) loss

Other changes recognized in other comprehensive (loss) income

Net loss (gain)

$ 252 $ ( 398 )

1 unchanged sentence

( 150 ) ( 150 )

Amount recognized due to settlement

Net periodic benefit cost (income)

Net periodic benefit (income) cost

$ 102 $ ( 548 )

3 unchanged sentences

Rate of compensation increase

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company does not expect to make a contribution to the Bank DB Plan in 2025 .

It is the policy of the Company to fund no less than the minimum funding amount required by ERISA.

The following table sets forth the components of net periodic benefit cost and other amounts recognized in accumulated other comprehensive income (loss) for the periods shown:

The following table sets forth the components of net periodic benefit cost and other amounts recognized in accumulated other comprehensive loss for the periods shown:

For the Year Ended December 31,

(Dollars in thousands)

Components of net periodic benefit cost (income)

Components of net periodic benefit cost

Interest cost

2 unchanged sentences

Amortization of prior service cost

Settlements and curtailments

Net periodic benefit cost (income)

$ 218 $ ( 64 )

Net periodic benefit cost

Weighted-average assumptions used to determine net cost

1 unchanged sentence

4.90 % 5.10 %

Expected return on plan assets

Expected long-term return on plan assets

5.30 % 5.40 %

Rate of compensation increase

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the Long-Term Capital Market Assumptions for the corresponding fiscal year end.

12 unchanged sentences

Projected benefit obligation

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value measurements, including descriptions of Level 1, 2, and 3 of the fair value hierarchy and the valuation methods employed by the Company are provided in Note 15 - Fair Value Measurements.

6 unchanged sentences

$ 1,516 $ — $ — $ 1,516

Small/Mid U.S.

International Equity

8,161 — — 8,161

Total DB plan investments

$ 10,217 $ — $ — $ 10,217

7 unchanged sentences

9,850 — — 9,850

Total DB plan investments

$ 10,923 $ — $ — $ 10,923

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nonqualified Deferred Compensation Plan

14 unchanged sentences

Employees of the Company who have been credited with at least 1,000 hours of service during a 12 -month period are eligible to participate in the ESOP.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the Plan, the ESOP purchased in the open market 8 % of the common stock originally issued in the mutual to stock conversion.

3 unchanged sentences

The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP assets.

Annual principal and interest payments of $ 835,000 were made by the ESOP during the years ended December 31, 2023 and 2022 .

Annual principal and interest payments of $ 837,000 and $ 835,000 were made by the ESOP during the years ended December 31, 2024 and 2023 , respectively.

As shares are committed to be released from collateral, the Company reports compensation expense equal to the average daily market prices of the shares and the shares become outstanding for EPS computations.

5 unchanged sentences

December 31, 2023

(Dollars in thousands)

(In thousands, except share data)

Allocated shares

8 unchanged sentences

$ 5,400 $ 9,283

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based Compensation

8 unchanged sentences

Following adoption of the 2020 EIP, no additional awards may be made under the 2015 EIP.

At December 31, 2023 , 21,620 restricted shares are outstanding under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.

At December 31, 2024 , there were 6,920 restricted shares outstanding under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.

During the years ended December 31, 2024 and 2023 , restricted awards of 81,181 and 32,449 shares were awarded, respectively, and no stock options were granted.

1 unchanged sentence

The Company recognizes compensation expense for the restricted awards based on the fair value of the shares at the grant date amortized over the stated period.

For the years ended December 31, 2023 and 2022 , total compensation expense for the 2015 and 2020 EIPs was $ 1.4 million and $ 1.6 million, respectively.

Included in the above compensation expense for the years ended December 31, 2023 and 2022 , was directors' compensation of $ 246,000 and $ 239,000 , respectively.

For the years ended December 31, 2024 and 2023 , total stock compensation expense for the 2015 and 2020 EIPs was $ 957,000 and $ 1.4 million, respectively.

Included in the above stock compensation expense for the years ended December 31, 2024 and 2023 , was directors' stock compensation of $ 242,000 and $ 246,000 , respectively.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables provide a summary of changes in non-vested restricted awards for the periods shown:

12 unchanged sentences

As of December 31, 2024 , there was $ 762,000 of total unrecognized compensation cost related to non-vested restricted shares.

The cost is expected to be recognized over the remaining weighted-average vesting period of approximately 1.25 years.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The cost is expected to be recognized over the remaining weighted-average vesting period which is approximately 1.87 years.

Note 12 - Regulatory Capital Requirements

19 unchanged sentences

There are no conditions or events since that notification that management believes have changed First Fed’s category.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Actual and required capital amounts and ratios are presented for First Fed in the following table:

20 unchanged sentences

214,049 9.90 86,508 4.00 108,135 5.00

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 - Related Party Transactions

6 unchanged sentences

Loan advances

Loan repayments

Reclassifications (1)

Ending balance

$ 9,808 $ 236

(1) Represents loans that were once considered related party but are no longer considered related party or loans that were not related party that subsequently became related party loans.

4 unchanged sentences

The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

First Fed’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, is represented by the contractual notional amount of those instruments.

16 unchanged sentences

During the years ended December 31, 2024 and 2023 , the Company re cognized tax benefits of $ 292,000 and $ 194,000 and proportional amortization of $ 251,000 and $ 165,000 , respectively.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total unfunded contingent commitments related to the Company’s LIHTC investment totaled $ 2.4 million and $ 4.4 million, at December 31, 2024 and 2023 , respectively.

The Company expects to fund LIHTC commitments of $ 3.4 million during the year ending December 31, 2024 and $ 748,000 during the year ending December 31, 2025 , with the remaining commitments of $ 291,000 funded by December 31, 2037 .

The Company expects to fund LIHTC commitments of $ 1.9 million during the year ending December 31, 2025 , with the remaining commitment of $ 522,000 funded prior to December 31, 2037 .

There were no impairment losses on the Company’s LIHTC investment during the years ended December 31, 2024 and 2023 .

1 unchanged sentence

Significant group concentrations of credit risk - Concentration of credit risk is the risk associated with a lack of diversification, such as having substantial loan concentrations in a specific type of loan within First Fed’s loan portfolio, thereby exposing First Fed to greater risks resulting from adverse economic, political, regulatory, geographic, industrial, or credit developments.

Loans to one borrower are subject to the state banking regulations general limitation of 20 percent of First Fed’s equity, excluding accumulated other comprehensive income.

Loans to one borrower are subject to the state banking regulations general limitation of 20 percent of First Fed’s equity, excluding accumulated other comprehensive income (loss).

At December 31, 2024 and 2023 , First Fed’s most significant concentration of credit risk was in loans secured by real estate.

1 unchanged sentence

Real estate construction, including land acquisition and land development, commercial real estate, multi-family, home equity, and one -to- four family residential loans, are included in the total loans secured by real estate for purposes of this calculation.

At December 31, 2023 and 2022 , First Fed’s most significant investment portfolio exposure was from municipal bonds totaling $ 87.8 million and $ 98.1 million, or 28.4 % and 29.0 %, of the total investment portfolio.

At December 31, 2023 and 2022 , First Fed's second most significant investment concentration of credit risk was with the U.S.

At December 31, 2024 and 2023 , First Fed’s most significant investment portfolio exposure was with U.S.

Government, its agencies, and Government-Sponsored Enterprises ("GSEs").

1 unchanged sentence

Government, its agencies, and securities guaranteed by GSEs, was $ 134.7 million and $ 88.7 million, or 38.0 % and 28.7 % of First Fed’s total investment portfolio (including FHLB stock), at December 31, 2024 and 2023 , respectively.

At December 31, 2024 and 2023 , First Fed's second most significant investment concentration of credit risk was from municipal bonds totaling $ 77.9 million and $ 87.8 million, or 22.0 % and 28.4 % of the total investment portfolio, respectively.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - Fair Value Measurements

16 unchanged sentences

The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

Such instruments are classified as Level 3.

Partnership investments :

Management determines fair value using quoted prices of similar investments or discounted cash flows, which are considered Level 2, when available.

Where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value.

The Company believes that the net asset value obtained through financial statements provided by each partnership approximates fair value.

Such instruments are classified as Level 3.

Sold loan servicing rights, at fair value :

11 unchanged sentences

The fair values of all interest rate swaps are determined from third -party pricing services without adjustment.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly).

12 unchanged sentences

— 16,122 — 16,122

— 8,666 — 8,666

Corporate debt

5 unchanged sentences

— — 3,281 3,281

Partnership investments

— — 13,183 13,183

Interest rate swap derivative

Total assets measured at fair value

3 unchanged sentences

$ — $ 123 $ — $ 123

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023

7 unchanged sentences

$ 5,118 $ 82,643 $ — $ 87,761

Treasury notes

— 11,782 — 11,782

ABS corporate

— 5,286 — 5,286

6 unchanged sentences

— — 3,793 3,793

Partnership investments

— — 12,563 12,563

Total assets measured at fair value

$ 7,001 $ 261,153 $ 31,262 $ 299,416

Financial Liabilities

Interest rate swap derivative

$ — $ 1,002 $ — $ 1,002

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

13 unchanged sentences

Offered quotes

Partnership investments

$ 13,183 Net asset value per share

Net asset value

(a) Unobservable inputs were weighted by the relative fair value of the instruments.

7 unchanged sentences

Changes in fair value due to changes in model inputs or assumptions (1)

( 550 ) ( 243 )

Balance at end of period

1 unchanged sentence

(1) Represents changes due to collection/realization of expected cash flows and curtailments.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of or For the Year Ended December 31,

3 unchanged sentences

Balance at beginning of period

Transfers Into Level 3 (1)

Unrealized Losses

Balance at end of period

$ 27,469 $ 29,599

(1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the investments.

As of or For the Year Ended December 31,

(In thousands)

Partnership investments:

Balance at beginning of period

Transfers Into Level 3 (1)

Purchases, net of Distributions

Unrealized Gains

Principal payments and maturities

( 18,410 ) ( 1,912 )

Unrealized Gains (Losses)

Balance at end of period

$ 31,881 $ 27,469

(1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the investments.

Assets measured at fair value on a nonrecurring basis - Assets are considered to be fair valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the consolidated balance sheets.

3 unchanged sentences

(In thousands)

Collateral dependent loan

Collateral dependent loans

$ — $ — $ 33,246 $ 33,246

At December 31, 2023 , there were no collateral dependent loans with discounts to appraisal disposition value or other unobservable inputs.

December 31, 2023

(In thousands)

Impaired loans

Collateral dependent loans

$ — $ — $ 17,388 $ 17,388

At December 31, 2022 , there were no impaired loans with discounts to appraisal disposition value or other unobservable inputs.

At December 31, 2024 and 2023 , there were no collateral dependent loans with discounts to appraisal disposition value or other unobservable inputs.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

19 unchanged sentences

3,281 3,281 — — 3,281

Partnership investments

Interest rate swap derivative

267 267 — 267 —

30 unchanged sentences

7,894 7,894 — 7,894 —

Servicing rights on sold loans, net

3,887 3,887 — — 3,887

Partnership investments

Servicing rights on sold loans, at fair value

3,793 3,793 — — 3,793

12 unchanged sentences

3,396 3,396 — 3,396 —

Interest rate swap derivative

1,002 1,002 — 1,002 —

FIRST NORTHWEST BANCORP AND SUBSIDIARY

7 unchanged sentences

(In thousands, except share data)

Net income attributable to parent:

Net income available to common shareholders

$ 2,286 $ 15,645

Earnings allocated to participating securities

Net (loss) income attributable to parent:

Net (loss) income available to common shareholders

$ ( 6,613 ) $ 2,286

Earnings allocated to common shareholders

Dividends and undistributed earnings allocated to participating securities

(Loss) earnings allocated to common shareholders

$ ( 6,617 ) $ 2,275

10 unchanged sentences

Dilutive restricted stock awards

22,896 61,583

Total diluted weighted average common shares outstanding

8,784,849 8,941,180

Basic earnings per common share

Basic (loss) earnings per common share

$ ( 0.75 ) $ 0.26

Diluted earnings per common share

Diluted (loss) earnings per common share

$ ( 0.75 ) $ 0.26

1 unchanged sentence

For the years ended December 31, 2024 and 2023 , anti-dilutive shares as calculated under the treasury stock method totaled 20,468 and 10,965 , respectively.

All potentially dilutive shares are anti-dilutive when a loss per share is recorded and, as a result, are excluded from the diluted earnings per share calculation.

Note 17 - Derivatives and Hedging Activities

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2023 , the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges.

The Company had no fair value hedges at December 31, 2022.

At December 31, 2024 and 2023 , the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges.

Carrying Amount of the Hedged Assets

1 unchanged sentence

(In thousands)

Line item in the Statement of Income where the hedged item is included:

Line item in the Consolidated Balance Sheets where the hedged item is included:

December 31, 2024

Interest on investment securities (1)

Investment securities (1)

$ 50,220 $ 220

Loans receivable (2)

99,812 ( 188 )

$ 150,032 $ 32

December 31, 2023

Investment securities (1)

$ 51,054 $ 1,054

( 1 ) These amounts include the amortized cost basis of a closed portfolio of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period.

At December 31, 2023 , the amortized cost basis of the closed portfolio used in this hedging relationship was $ 57.4 million, the cumulative basis adjustments associated with this hedging relationship was $ 1.1 million, and the amount of the designated hedged items was $ 50.0 million.

At December 31, 2024 and 2023 , the amortized cost basis of the closed portfolio used in this hedging relationship was $ 56.7 million, and $ 57.4 million, respectively;

the cumulative basis adjustments associated with this hedging relationship was $ 220,000 and $ 1.1 million, respectively;

and the amount of the designated hedged items was $ 50.0 million for both periods.

( 2 ) These amounts include the amortized cost basis of a closed portfolio of loans receivable used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period.

At December 31, 2024 , the amortized cost basis of the closed portfolio used in this hedging relationship was $ 258.1 million, the cumulative basis adjustments associated with this hedging relationship was ($ 188,000 ), and the amount of the designated hedged items was $ 100.0 million.

No prior year end information is provided as this hedging relationship was initiated in 2024.

The following table summarizes the Company’s derivative instruments at the date indicated.

7 unchanged sentences

$ 50,000 $ — $ 123

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

Interest rate swaps - loans

100,000 267 —

December 31, 2023

Fair value hedges:

Interest rate swaps - securities

$ 50,000 $ — $ 1,002

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Year Ended December 31,

(In thousands)

Total amount recognized in interest on investment securities

Total amounts recognized in interest on investment securities

$ 15,025 $ 13,279

Net gains (losses) on fair value hedging relationships included in the preceding total

Total amounts recognized in interest and fees on loans receivable (1)

Net gains (losses) on fair value hedging relationships

Interest rate swaps - securities

Recognized on hedged items

$ 220 $ 1,054

Recognized on derivatives designated as hedging instruments

( 142 ) ( 605 )

Interest rate swaps - loans

Recognized on hedged items (1)

Recognized on derivatives designated as hedging instruments (1)

Net income recognized on fair value

(1) Fair value hedge on loans initiated in 2024.

Amounts presented for 2023 are limited to the fair value hedge on securities.

Credit Risk-related Contingent Features

3 unchanged sentences

This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted.

The Company has an interest rate swap agreement with its derivative counterparty that contains a provision where if the Company either defaults or fails to maintain its status as a well or adequately capitalized institution, then the Company could be required to terminate the contract or post additional collateral.

At December 31, 2023 , the Company had $ 1.0 million derivatives in a net liability position related to this agreement.

The Company has minimum collateral posting thresholds with its derivative counterparty and has posted cash of $ 1.1 million to secure the interest rate swap agreement at December 31, 2023 .

The Company has interest rate swap agreements with its derivative counterparty that contain provisions where if the Company either defaults or fails to maintain its status as a well or adequately capitalized institution, then the Company could be required to terminate the contract or post additional collateral.

At December 31, 2024 , the Company had derivatives in a net liability position related to this agreement.

The Company has minimum collateral posting thresholds with its derivative counterparty and has posted cash of $ 3.5 million at December 31, 2024 , to secure the interest rate swap agreements as needed.

In certain cases, the Company will have posted excess collateral compared to total exposure due to initial margin requirements or day-to-day rate volatility.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2024 , the Company was in compliance with all credit risk-related contingent features.

Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial.

Note 18 - Change in Accumulated Other Comprehensive Income ("AOCI")

AOCI includes unrealized gain (loss) on available-for-sale securities and an unrecognized defined benefit plan prior service cost.

The following table presents changes to accumulated other comprehensive income after-tax for the periods shown:

Note 18 - Change in Accumulated Other Comprehensive Loss ("AOCI")

AOCI includes unrealized gain (loss) on available-for-sale securities, defined benefit plan assets and derivatives as well as an unrecognized defined benefit plan prior service cost.

The following table presents changes to accumulated other comprehensive loss after-tax for the periods shown:

Unrealized Gains (Losses) on Available-for-Sale Securities

1 unchanged sentence

Unrecognized Defined Benefit Plan Prior Service Cost, Net of Amortization

Unrealized Gains (Losses) on Derivatives

Unrealized Gains (Losses) on Fair Value of Hedged Items

(In thousands)

1 unchanged sentence

$ ( 38,404 ) $ ( 600 ) $ ( 1,539 ) $ — $ ( 40,543 )

Other comprehensive loss before reclassification

Other comprehensive income before reclassification

4,066 312 — — 4,378

Amounts reclassified from accumulated other comprehensive income

Amounts reclassified from accumulated other comprehensive loss

4,239 — 118 ( 828 ) 3,529

Net other comprehensive (loss) income

Net other comprehensive income (loss)

8,305 312 118 ( 828 ) 7,907

3 unchanged sentences

$ ( 30,099 ) $ ( 288 ) $ ( 1,421 ) $ ( 828 ) $ ( 32,636 )

Other comprehensive income before reclassification

Other comprehensive income (loss) before reclassification

226 ( 198 ) — — 28

Amounts reclassified from accumulated other comprehensive income

Amounts reclassified from accumulated other comprehensive loss

1,663 — 118 655 2,436

Net other comprehensive income

Net other comprehensive income (loss)

1,889 ( 198 ) 118 655 2,464

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 - Segment Reporting

First Fed is engaged in the business of attracting deposits and providing lending services.

Substantially all income is derived from a diverse base of commercial, mortgage, and consumer lending activities and investments.

The Company’s activities are considered to be a single industry segment for financial reporting purposes.

The chief operating decision maker ("CODM") is comprised of the chief financial officer, chief operating officer and the chief executive officer.

The accounting policies of the Bank are the same as those described in the summary of significant accounting policies in Note 1.

The CODM assesses performance for the Bank and decides how to allocate resources based on net income that is reported on the income statement as consolidated net income.

The measurement of segment assets is reported on the balance sheet as total consolidated assets.

The CODM uses net income to evaluate income generated from the segment assets (return on assets) in deciding whether to reinvest profits into the Bank or into other parts of the entity, such as to pay dividends or a share repurchase plan.

Net income is used to monitor budget versus actual results and assess the performance of the Bank.

The Company generates revenue from interest income, fee income and other noninterest income from investments and services.

All operations are based in Washington State.

No single customer accounts for more than 10% of total revenue.

Note 20 - Sale and Leaseback of Premises

On January 30, 2024, the Bank entered into an agreement for the purchase and sale of real property (the "Sale Agreement") with Mountainseed Real Estate Services, LLC, a Georgia limited liability company ("Mountainseed"), providing for the Bank’s sale to Mountainseed of up to six properties (the "Properties").

All of the Properties are currently operated as branches and located in Clallam County, Washington or Jefferson County, Washington.

Upon signing the agreement, the Company classified the related properties as held for sale and presented them separately on the Consolidated Balance Sheets at cost, net of accumulated amortization.

The sale of all six properties was completed on May 7, 2024, for an aggregate cash sales price of $ 14.7 million.

A pre-tax gain on sale of $ 7.9 million was recorded in noninterest income for the second quarter of 2024.

Premises and equipment, net of depreciation, decreased by $ 6.8 million in the second quarter of 2024.

Concurrent with the closing of the sale of the Properties, the Bank entered into triple net lease agreements (the "Lease Agreements") to leaseback each of the Properties sold.

Each Lease Agreement has an initial term of 15 years with one 15 -year renewal option.

Going forward, a monthly rent expense of $ 130,000 in the aggregate for all Properties will be recorded in Occupancy and Equipment.

The total rent expense for the leaseback of these properties for 2024 was $ 1.0 million.

The annual increase in rent was partially offset by the elimination of annualized depreciation expense on the buildings of $ 204,000 .

The executed Lease Agreements also generated ROU assets totaling $ 12.2 million and lease liabilities of $ 12.2 million resulting in respective increases on the Consolidated Balance Sheets which were recorded during the second quarter of 2024.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 - Parent Company Only Financial Statements

Presented below are the condensed balance sheets, statements of income, and statements of cash flows for First Northwest Bancorp.

Presented below are the condensed balance sheets, statements of operations, and statements of cash flows for First Northwest Bancorp.

FIRST NORTHWEST BANCORP

4 unchanged sentences

Cash and due from banks

$ 500 $ 1,028

Investment in bank

1 unchanged sentence

Equity and partnership investments

14,122 10,371

ESOP loan receivable

17 unchanged sentences

FIRST NORTHWEST BANCORP

Condensed Statements of Income

Condensed Statements of Operations

(In thousands)

2 unchanged sentences

Interest and fees on loans receivable

Unrealized gain (loss) on equity and partnership investments

Unrealized (loss) gain on equity and partnership investments

( 1,201 ) 444

Dividends from Bank

6 unchanged sentences

Total operating expenses

Income before (benefit) provision for income taxes and equity in undistributed earnings of subsidiary

(Benefit) provision for income taxes

Income before equity in undistributed earnings of subsidiary

(Loss) income before benefit for income taxes and equity in undistributed earnings of subsidiary

( 1,427 ) 4,004

Benefit for income taxes

( 930 ) ( 873 )

(Loss) income before equity in undistributed earnings of subsidiary

( 497 ) 4,877

Equity in undistributed earnings of subsidiary

( 6,116 ) ( 2,591 )

Net (loss) income

$ ( 6,613 ) $ 2,286

6 unchanged sentences

Cash flows from operating activities:

Net (loss) income

$ ( 6,613 ) $ 2,286

Adjustments to reconcile net income to net cash from operating activities:

Adjustments to reconcile net (loss) income to net cash from operating activities:

Equity in undistributed earnings of subsidiary

2,591 ( 15,490 )

Amortization of deferred loan fees

5 unchanged sentences

Net cash from operating activities

Cash flows from investing activities:

Net decrease (increase) loans receivable

( 235 ) 5,276

Cash flows from investing activities:

Net decrease loans receivable

ESOP loan repayment

Capital contributions to equity investments

Capital contributions to partnership investments

( 398 ) ( 438 )

Capital disbursements from equity and partnership agreements

Redemption of partnership investment

Capital disbursements from partnership agreements

Net cash from investing activities

3,825 ( 16,760 )

Cash flows from financing activities:

Net (decrease) increase in line of credit

( 5,500 ) 12,000

Net decrease in line of credit

Repurchase of common stock

1 unchanged sentence

Restricted stock awards canceled

( 187 ) ( 280 )

Payment of dividends

6 unchanged sentences

Cash and cash equivalents at end of period

$ 500 $ 1,028

Supplemental disclosures of cash flow information:

5 unchanged sentences

$ — $ ( 225 )

Investment in Meriwether Group, LLC acquired through issuance of shares

Write-down of equity investment

Note 22 - Subsequent Event

All of the properties are currently operated as branches and located in Clallam County or Jefferson County, Washington.

Under the Sale Agreement, Mountainseed has the right to terminate the Sale Agreement prior to closing, in its entirety or with respect to any of the Properties.

The Bank may terminate the Sale Agreement if Mountainseed determines to purchase fewer than four of the Properties.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The parties have agreed, concurrently with the closing of the sale of the Properties, to enter into triple net lease agreements (the "Lease Agreements") pursuant to which the Bank will lease each of the Properties sold.

Each Lease Agreement will have an initial term of ﬁfteen years with one 15 -year renewal option.

The Lease Agreements will provide for annual rent of approximately $ 1.35 million in the aggregate for all Properties.

Assuming all of the Properties are sold, the increase in rent will be partially oﬀset by the elimination of the depreciation expense on the buildings and investment of the proceeds.

The Company anticipates the transaction will close, if at all, no later than the second quarter of 2024.

The closing is subject to Mountainseed performing satisfactory due diligence on the Properties and other customary closing conditions.

The sale-leaseback transaction is expected to result in a pre-tax gain, assuming all of the Properties are sold.

On March 10, 2025, the Company repurchased $ 5.0 million of its outstanding subordinated debt in the open market.

The repurchased debt was retired and canceled, reducing the total outstanding debt of the Company.

The Company repurchased the debt at an 18.1 % discount to par value or $ 4.1 million.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data