First Northwest Bancorp 10-K

Item 1. Business General First Northwest Bancorp, a Washington corporation, is a bank holding company and a financial holding company. First Northwest is engaged in banking activities through its wholly owned subsidiary, First Fed Bank, as well as certain non-banking financial activities. Non-financial investments include several limited partnership investments, including a 33% interest in The Meriwether Group, LLC ("MWG"), a boutique investment bank focusing on providing entrepreneurs with resources to help them succeed, including equity and debt raising services along with strategic positioning of business through the United States. At December 31, 2024, the Company had total assets of $2.23 billion, net loans of $1.68 billion, total deposits of $1.69 billion, and total shareholders' equity of $153.9 million. The Company's business activities are generally focused on passive investment activities and oversight of the activities of First Fed. The Company has entered into several partnerships to strategically invest in financial technology-related businesses, which may result in the development of additional investment opportunities. Aside from these investments, the information set forth in this report, including consolidated financial statements and related data, relates primarily to First Fed. First Northwest is subject to regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve"). A financial holding company is a bank holding company that is permitted to engage in specified types of non-banking financial services. First Fed is examined and regulated by the Washington State Department of Financial Institutions, Division of Banks ("DFI") and by the Federal Deposit Insurance Corporation ("FDIC"). First Fed is required to have certain reserves set by the Federal Reserve and is a member of the Federal Home Loan Bank of Des Moines ("FHLB"), which is one of the 11 regional banks in the Federal Home Loan Bank System ("FHLB System"). First Fed Bank is a community-oriented financial institution founded in 1923 in Port Angeles, Washington. The Bank operates in 18 locations including twelve full-service branches and six business centers, including its headquarters, located in Clallam, Jefferson, King, Kitsap, Snohomish, and Whatcom counties. First Fed’s business and operating strategy is focused on building sustainable earnings by delivering a full array of financial products and services for individuals, small business, and commercial customers. Lending activities include loan originations generated through organic production and loan referrals as well as purchasing loans to augment our loan portfolios. Internal production is focused on originations of first lien one-to-four family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, commercial business loans, SBA loans, and consumer loans, consisting primarily of home equity loans and lines of credit. Over the last five years, we have significantly increased the origination of commercial real estate, multi-family real estate, construction, and commercial business loans. Loans are also purchased from experienced third-party lenders with a current focus on manufactured home loans and high-end auto loans to increase our commercial business and consumer loan portfolios. We offer traditional consumer and business deposit products, including transact ion accounts, savings and money market accounts and certificates of deposit ("CDs") for individuals and businesses. Deposits are our primary source of funding for our lending and investing activities. First Fed has a limited partnership investment in Canapi Ventures SBIC Fund II, LP. First Fed also has a limited partnership investment in Meriwether Group Capital Hero Fund LP ("Hero Fund") which was previously held by First Northwest. The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest. First Northwest's limited partnership investments include Canapi Ventures Fund, LP; BankTech Ventures, LP; and JAM FINTOP Blockchain, LP. These limited partnerships invest in fintech-related businesses with a focus on developing digital solutions applicable to the banking industry. In 2022, First Northwest acquired a 33.3% interest in MWG, a boutique investment bank and consulting firm focused on providing entrepreneurs with resources to help them succeed. Also in 2022, the Company acquired a 25% equity interest as a general partner in Meriwether Group Capital, LLC ("MWGC"), which provides financial advice for borrowers and capital for the Hero Fund. MWG also holds a 20% general partner interest in MWGC. MWGC holds a 0.01% general partner interest in the Hero Fund. The executive office of the Company is located at 105 West 8th Street, Port Angeles, Washington 98362, and its telephone number is (360) 457-0461. 6 Table of Contents Market Area We operate through twelve full-service branch offices and six business centers located in Washington State. We have five branches in Clallam County, one in Jefferson County, one in King County, two in Kitsap County, and three in Whatcom County. We have two business centers located in Clallam County, two in King County, one in Snohomish County, and one in Whatcom County. All population and income data below is derived from the U.S. Census Bureau website. Clallam County has a population of approximately 77,616 and estimated median family income of $67,999. The economic base in Clallam County is dependent on government, healthcare, education, tourism, marine services, forest products, agriculture, and technology industries. The primary employers in Clallam County include the Olympic Medical Center, Peninsula College, the Port Angeles School District, Clallam County government, Jamestown S'Klallam Tribe, Clallam Bay Corrections Center, and the Westport Shipyard. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Clallam County was 5.9% at December 31, 2024, compared to 6.3% at December 31, 2023. By comparison, the unemployment rate for the state of Washington was 4.5%, and the national average was 4.1% at December 31, 2024. Jefferson County has a population of approximately 33,714 and estimated median family income of $71,143. The economic base in Jefferson County is dependent on government, healthcare, education, tourism, arts and culture, maritime and boat building, and small-scale manufacturing. The primary employers in Jefferson County include Port Townsend Paper, Jefferson Healthcare, Port Townsend School District, the Port Authority of Port Townsend and related marine trade, and the Jefferson County government. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Jefferson County was 5.5% at December 31, 2024, compared to 5.8% at December 31, 2023. Kitsap County has a population of approximately 277,658 and estimated median family income of $98,546. The economic base of Kitsap County is largely supported by the United States Navy through personnel stationed at Kitsap Naval Base along with other employers supporting the military. Private industries that support the economic base are healthcare, retail and tourism. Other primary employers in Kitsap County include the Department of Defense, Amazon, Walmart, St. Michael Medical Center, Catholic Health Initiatives, and Port Madison Enterprises, which owns and operates the Clearwater Casino and Resort, gas stations and other retail operations. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Kitsap County was 4.3% at December 31, 2024, compared to 4.7% at December 31, 2023. Whatcom County has a population of approximately 231,919 and estimated median family income of $80,989. The economic base of Whatcom County is largely supported by healthcare, education and crude oil refinery industries. There is some niche manufacturing and a large variety of other small businesses that create a well-rounded economy with a close proximity to the Canadian border bringing in shoppers seeking retail products and services. The primary employers in Whatcom County include PeaceHealth Medical Center, Western Washington University, Bellingham School District, Avamere Living, and BP Cherry Point Refinery. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Whatcom County was 4.6% at December 31, 2024, compared to 5.1% at December 31, 2023. King County, which includes the City of Seattle, has a population of approximately 2.3 million and estimated median family income of $122,148. The economic base of King County is largely supported by technology, services, and manufacturing industries. The primary employers in King County include Microsoft, Amazon, Boeing, University of Washington, Starbucks, Salesforce, and the King County government. According to the U.S. Bureau of Labor Statistics, the unemployment rate for King County was 3.8% at December 31, 2024, compared to 3.5% at December 31, 2023. 7 Table of Contents As a part of our business plan, we intend to extend our traditional and digital operations throughout the Puget Sound Region and beyond. This region dominates the economy of the Pacific Northwest and is broadly defined as the area surrounding the Puget Sound that extends into the northwestern quadrant of the state of Washington. Our current market area, described previously, has a population of 2.9 million, or 36.3% of the state's population. The population of the Puget Sound region beyond our current market area is approximately 2.4 million, or 29.5% of the state's population. The market area is a mix of urban, suburban and rural areas, with the Seattle metropolitan area representing a well-developed urban center. The region extends from Whatcom County in the north on the Canadian border to Thurston and Pierce counties to the south. Other key metropolitan areas within the Puget Sound region include Bellingham (Whatcom County), Mount Vernon (Skagit County), Everett (Snohomish County), Tacoma (Pierce County) and Olympia (Thurston County). Key employment sectors include aerospace, military, information technology, biotechnology, education, logistics, international trade, and tourism. The region is well known for the long-term presence of The Boeing Company and Microsoft, two major industry leaders, and since the turn of the century, Amazon. The military presence includes a number of large installations serving the U.S. Air Force, Army and Navy. Given the employment profile and the presence of the University of Washington and other universities, the region's workforce is highly educated. Washington's geographic proximity to the Pacific Rim along with multiple deep-water ports makes it a center for international trade, which contributes significantly to the regional economy. The local ports make Washington the tenth largest exporting state in the nation. The top five trading partners with Washington include China, Canada, Japan, Mexico and South Korea. Tourism has also developed into a major industry, due to the scenic beauty, temperate climate, and incredible food and culture. The maritime industry, supported by the trade and fishing industries, is also an important employment sector. For a discussion regarding the competition in our primary market area, see "Competition." Lending Activities General . First Fed’s principal lending activities are concentrated in real estate secured loans with first lien one-to-four family mortgage, commercial, and multi-family loans. First Fed also makes construction and land loans (including lot loans and multi-family acquisition-renovation loans), commercial business loans, and consumer loans, consisting primarily of home-equity loans and lines of credit. The Bank also purchases automobile and manufactured home loans from known, experienced third-party originators. Loan Portfolio Analysis The following table represents information concerning the composition of our loan portfolio, excluding loans held for sale, by the type of loan at the dates indicated: December 31, 2024 2023 Amount Percent Amount Percent (Dollars in thousands) Real estate: One-to-four family $ 395,315 23.3 % $ 378,432 22.8 % Multi-family 332,596 19.6 333,094 20.1 Commercial real estate 390,379 23.0 387,983 23.3 Construction and land 78,110 4.6 129,691 7.8 Total real estate loans 1,196,400 70.5 1,229,200 74.0 Consumer: Home equity 79,054 4.7 69,403 4.2 Auto and other consumer 268,876 15.9 249,130 15.0 Total consumer loans 347,930 20.6 318,533 19.2 Commercial business loans 151,493 8.9 112,295 6.8 Total loans 1,695,823 100.0 % 1,660,028 100.0 % Less: Derivative basis adjustment 188 — Allowance for credit losses on loans 20,449 17,510 Total loans, net $ 1,675,186 $ 1,642,518 8 Table of Contents Fixed-Rate and Adjustable-Rate Loans The following table shows the composition of our loan portfolio, excluding loans held for sale, in dollar amounts and in percentages by fixed rates and adjustable rates at the dates indicated: December 31, 2024 2023 Amount Percent Amount Percent (Dollars in thousands) Fixed-rate loans: Real estate: One-to-four family $ 291,237 17.2 % $ 287,864 17.2 % Multi-family 112,711 6.6 121,809 7.3 Commercial real estate 136,183 8.0 152,744 9.2 Construction and land 7,337 0.4 55,687 3.4 Total real estate loans 547,468 32.2 618,104 37.1 Consumer: Home equity 28,413 1.7 26,951 1.6 Auto and other consumer 268,358 15.8 248,741 15.0 Total consumer loans 296,771 17.5 275,692 16.6 Commercial business loans 85,852 5.1 46,576 2.8 Total fixed-rate loans 930,091 54.8 940,372 56.5 Adjustable-rate loans: Real estate: One-to-four family 104,078 6.1 90,568 5.5 Multi-family 219,885 13.0 211,285 12.7 Commercial real estate 254,196 15.0 235,239 14.2 Construction and land 70,773 4.2 74,004 4.5 Total real estate loans 648,932 38.3 611,096 36.9 Consumer: Home equity 50,641 3.0 42,452 2.6 Auto and other consumer 518 — 389 — Total consumer loans 51,159 3.0 42,841 2.6 Commercial business loans 65,641 3.9 65,719 4.0 Total adjustable-rate loans 765,732 45.2 719,656 43.5 Total loans 1,695,823 100.0 % 1,660,028 100.0 % Less: Derivative basis adjustment 188 — Allowance for credit losses on loans 20,449 17,510 Total loans, net $ 1,675,186 $ 1,642,518 9 Table of Contents Loan Maturity The following tables illustrate the contractual maturity of our loan portfolio at December 31, 2024. Mortgages that have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. These tables do not reflect the effects of unscheduled principal prepayments. Within One Year (1) After One Year Through Three Years After Three Years Through Five Years After Five Years Through Fifteen Years Beyond Fifteen Years Total Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate (Dollars in thousands) Real estate: One-to-four family $ 33 3.58 % $ 1,505 3.40 % $ 1,563 3.62 % $ 28,622 4.41 % $ 363,592 3.94 % $ 395,315 3.97 % Multi-family 22,092 3.70 64,847 4.49 52,078 4.07 182,148 5.11 11,431 7.20 332,596 4.81 Commercial real estate 7,791 5.65 56,596 4.74 60,626 5.80 262,085 5.85 3,281 5.29 390,379 5.67 Construction and land 52,721 7.81 12,840 6.96 1,271 8.29 10,988 7.87 290 7.02 78,110 7.69 Consumer: Home equity 6 3.99 219 8.57 1,838 7.47 29,433 5.55 47,558 7.79 79,054 6.95 Auto and other consumer 1,326 11.00 6,159 10.48 10,773 7.54 125,861 7.79 124,757 6.92 268,876 7.48 Commercial business loans 65,738 7.69 10,122 6.97 6,517 6.76 69,116 7.31 — — 151,493 7.43 Total loans receivable $ 149,707 7.06 % $ 152,288 5.19 % $ 134,666 5.33 % $ 708,253 6.10 % $ 550,909 4.97 % $ 1,695,823 5.68 % _______________ (1) Includes demand loans, loans having no stated maturity, and overdraft loans. Predetermined Interest Rate Floating or Variable Rate Total Loans above maturing after one year: (Dollars in thousands) Real estate: One-to-four family $ 291,204 $ 104,078 $ 395,282 Multi-family 90,619 219,885 310,504 Commercial real estate 129,877 252,711 382,588 Construction and land 4,232 21,157 25,389 Consumer: Home equity 28,407 50,641 79,048 Auto and other consumer 267,550 — 267,550 Commercial business loans 38,684 47,071 85,755 Total loans maturing after one year $ 850,573 $ 695,543 $ 1,546,116 10 Table of Contents Geographic Distribution of our Loans The following table shows at December 31, 2024, the geographic distribution of our loan portfolio in dollar amounts and percentages. North Olympic Peninsula (1) Puget Sound Region (2) Other Washington Total in Washington State All Other States (3) Total Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category (Dollars in thousands) Real estate loans: One-to-four family $ 125,809 31.8 % $ 237,661 60.2 % $ 15,520 3.9 % $ 378,990 95.9 % $ 16,325 4.1 % $ 395,315 23.3 % Multi-family 7,494 2.3 286,137 86.0 22,676 6.8 316,307 95.1 16,289 4.9 332,596 19.6 Commercial real estate 71,226 18.2 290,098 74.4 22,327 5.7 383,651 98.3 6,728 1.7 390,379 23.0 Construction and land 5,846 7.5 64,939 83.1 7,325 9.4 78,110 100.0 — — 78,110 4.6 Total real estate loans 210,375 17.6 878,835 73.4 67,848 5.7 1,157,058 96.7 39,342 3.3 1,196,400 70.5 Consumer loans: Home equity 45,030 57.0 33,572 42.5 345 0.4 78,947 99.9 107 0.1 79,054 4.7 Auto and other consumer 3,678 1.4 7,595 2.8 3,446 1.3 14,719 5.5 254,157 94.5 268,876 15.9 Total consumer loans 48,708 14.0 41,167 11.8 3,791 1.1 93,666 26.9 254,264 73.1 347,930 20.6 Commercial business loans 31,143 20.6 32,843 21.7 4,726 3.1 68,712 45.4 82,781 54.6 151,493 8.9 Total loans receivable $ 290,226 17.1 % $ 952,845 56.2 % $ 76,365 4.5 % $ 1,319,436 77.8 % $ 376,387 22.2 % $ 1,695,823 100.0 % ____________ (1) Includes Clallam and Jefferson counties. (2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. (3) Includes loans located primarily in California, Florida, Texas, and Oregon. 11 Table of Contents One-to-Four Family Real Estate Lending. At December 31, 2024, one-to-four family residential mortgage loans (excluding loans held for sale) totaled $395.3 million, or 23.3%, of our total loan portfolio, including $16.3 million, or 4.1%, of loans secured by properties outside the state of Washington, primarily purchased loans in the state of California. We originate both fixed and adjustable-rate residential loans, which can be sold in the secondary market or retai ned in our portfolio, and supplement those originations with loan purchases, from time to time, depending on our balance sheet objectives. Residential loans are underwritten to either secondary market standards for sale or to internal underwriting standards, which may not meet Federal Home Loan Mortgage Corporation ("Freddie Mac") or Federal National Mortgage Association ("Fannie Mae") eligibility requirements. Fixed-rate residential mortgages are offered with repayment terms between 10 and 30 years, priced from Freddie Mac posted daily pricing indications adjusted for economic and competitive considerations. Adjustable-rate residential mortgage products with similar amortization terms are also offered, with an interest rate that is typically fixed for an initial period ranging from one to seven years with annual adjustments thereafter. Future interest rate adjustments include periodic caps of no more than 2% and lifetime caps of 5% to 6% above the initial interest rate, with no borrower prepayment restrictions. The credit risk on adjustable-rate mortgage loans could increase when interest rates rise. An increase to the borrower's loan payment may affect the borrower's ability to repay and could increase the probability of default. To mitigate this risk to both the borrower and First Fed, adjustable-rate loans contain both periodic and lifetime interest rate caps, limiting the amount of payment changes. In addition, depending on market conditions, we may underwrite the borrower at a higher interest rate and payment amount than the initial rate. At December 31, 2024, the average interest rate on our adjustable-rate mortgage loans was approximately 309 basis points under the fully indexed rate. As of December 31, 2024, we had $104.1 million, or 26.3%, o f adjustable-rate residential mortgage loans in our residential loan portfolio. The underwriting process considers a variety of factors including credit history, debt to income ratios, property type, loan to value ratio, and occupancy. For loans with over 80% loan to value ratios, we typically require private mortgage insurance, which reduces our exposure to loss in the event of a loan default. Credit risk is also mitigated by obtaining title insurance, hazard insurance, and flood insurance. Residential mortgage loans which require appraisals are appraised by independent fee-based appraisers. In connection with rules and regulations issued by the Consumer Financial Protection Bureau ("CFPB"), we are required to make a reasonable, good-faith determination before or when we consummate a mortgage loan that the borrower has a reasonable ability to repay the loan, and in some cases involving qualified mortgages, we are presumed to have complied with this requirement. We believe that mortgage loans originated by the bank meet these standards. First Fed does not actively engage in subprime mortgage lending, either through advertising, marketing, underwriting and/or risk selection, and has no established program to originate or purchase subprime mortgage loans. Commercial and Multi-Family Real Estate Lending. At December 31, 2024, $390.4 million, or 23.0%, and $332.6 million, or 19.6%, of our total loan portfolio was secured by commercial and multi-family real estate property, respectively. At December 31, 2024, we have identified $116.1 million, or 16.0%, of our commercial and multi-family real estate portfolio as owner-occupied commercial real estate and $606.9 million, or 84.0%, is secured by income producing, or non-owner-occupied, commercial and multi-family real estate. Over 95% of our commercial real estate and multi-family loans are secured by properties located in the state of Washington. Commercial and multi-family real estate loans are generally priced at a higher rate of interest than one-to-four family residential loans, to compensate for the greater risk associated with higher loan balances and the complexity of underwriting and monitoring these loans. Repayment on loans secured by commercial or multi-family properties is dependent on successful management by the property owner to create sufficient net operating income to meet debt service requirements. Changes in economic and real estate market conditions can affect net operating income, capitalization rates, and ultimately the valuation and marketability of the collateral. As a result, we analyze market data including vacancy rates, absorption percentages, leasing rates, and competing projects under development. Interest rate, occupancy and capitalization rate stress testing are required as part of our underwriting analysis. If the borrower is a corporation, we generally require and obtain personal guarantees from principals, which include underwriting of their personal financial statements, tax returns, cash flows and individual credit reports, to provide us with additional support and a secondary source for repayment of the debt. 12 Table of Contents We offer both fixed- and adjustable-rate loans on commercial and multi-family real estate, which may include balloon payments. As of December 31, 2024, we had $254.2 million in adjustable-rate commercial real estate loans, or 65.1% of commercial real estate, and $219.9 million in adjustable-rate multi-family loans, or 66.1% of total multi-family. Commercial and multi-family real estate loans with adjustable rates generally adjust after an initial period of three to five years and have maturity dates of three to ten years. Amortization terms are generally limited to terms up to 25 years on commercial real estate loans and up to 30 years on multi-family loans. Adjustable-rate multi-family residential and commercial real estate loans are generally priced to market indices with appropriate margins, which may include The Wall Street Journal prime rate, the U.S. Constant Maturity Treasury Rate, or a similar term FHLB borrowing rate. Adjustable-rate loans could have increased credit risk when interest rates rise. An increase to the borrower's loan payment may affect the borrower's ability to repay and could increase the probability of default. To mitigate this risk to both the borrower and First Fed, adjustable-rate loans may contain both periodic and lifetime interest rate caps, limiting the amount of payment changes. During 2023, the Bank successfully migrated away from the London Interbank Offered Rate ("LIBOR") as an index for all new and existing loans. Commercial loans previously tied to LIBOR converted to a similar termed Term Secured Overnight Financing Rate ("TSOFR") product with the recommended spread adjustment set by the Alternative Reference Rate Committee at that time. Of the adjustable-rate commercial and multi-family real estate loans, 66.01% are subject to a floor rate and the weighted average floor rate on these loans was 3.64% at December 31, 2024. Of the adjustable-rate commercial loans, 33.22% are subject to a ceiling rate and the weighted average ceiling rate on those loans was 16.17% at December 31, 2024. The maximum loan to value ratio for commercial and multi-family real estate loans is typically limited to 75% of an appraiser opinion of market value. The minimum debt service coverage ratio is 1.25 for non-owner-occupied and 1.20 for owner-occupied properties. We require independent appraisals or evaluations on all loans secured by commercial or multi-family real estate from our internal list of approved appraisers. We review most commercial real estate and multi-family loan relationships annually to ensure the borrower continues to meet certain loan requirements as set forth in loan covenants, which may include an annual inspection of the property. The scope of the annual review is generally based on relationship size, with those $1.5 million or greater subject to a full credit review, which includes detailed financial and cash flow analysis, property inspection, covenant compliance and annual risk rating certification. All commercial loans risk rated special mention or worse with exposure of $100,000 or more are also subject to the full credit review. Loans with less than three years remaining in term are exempt from the annual requirement. Relationships with an aggregate credit exposure below $1.5 million are monitored for payment performance, changes in guarantor credit scores, and compliance with all other terms and conditions contained in the loan documents. All individuals that guarantee $3.0 million or more in aggregate commercial debt of any type are subject to annual financial reviews. While we cannot prevent loans from becoming delinquent, we believe our monitoring and formal review processes provide us with the opportunity to better identify problem loans in a timely manner and to work with the borrower prior to the loan becoming delinquent. 13 Table of Contents The following table provides information on multi-family and commercial real estate loans by type at the dates indicated: December 31, 2024 2023 2022 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Non-owner occupied Multi-family $ 332,596 46.0 % $ 333,094 46.2 % $ 253,551 39.4 % Hospitality 63,611 8.8 69,076 9.6 48,387 7.5 Retail 51,065 7.1 53,368 7.4 56,701 8.8 Office building 50,819 7.0 54,743 7.6 60,541 9.4 Mixed use 20,772 2.9 18,180 2.5 19,022 3.0 Health care 19,027 2.6 11,972 1.7 12,208 1.9 Condominium 17,725 2.5 20,800 2.9 22,846 3.5 One-to-four family 9,877 1.4 11,699 1.6 13,378 2.1 Warehouse 7,114 1.0 8,262 1.1 8,954 1.4 Vehicle dealership 1,004 0.1 1,033 0.1 1,114 0.2 Other non-owner occupied 33,241 4.6 43,266 6.0 45,053 6.9 Total non-owner occupied 606,851 84.0 625,493 86.7 541,755 84.1 Owner occupied Health care 22,139 3.1 22,523 3.1 23,547 3.7 Office building 16,356 2.3 17,274 2.4 21,365 3.3 Warehouse 14,078 1.9 13,869 1.9 19,434 3.0 Retail 10,578 1.5 9,792 1.4 11,031 1.7 Mixed use 10,460 1.4 4,013 0.6 4,412 0.7 Vehicle dealership 10,229 1.4 11,005 1.5 8,820 1.4 One-to-four family 4,567 0.6 2,622 0.4 2,387 0.4 Hospitality 793 0.1 853 0.1 1,011 0.2 Condominium 789 0.1 870 0.1 938 0.1 Other owner-occupied 26,135 3.6 12,763 1.8 9,097 1.4 Total owner occupied 116,124 16.0 95,584 13.3 102,042 15.9 Summary by type Multi-family 332,596 46.0 333,094 46.2 253,551 39.4 Office building 67,175 9.3 72,017 10.0 81,906 12.7 Hospitality 64,404 8.9 69,929 9.7 49,398 7.7 Retail 61,643 8.6 63,160 8.8 67,732 10.5 Health care 41,166 5.7 34,495 4.8 35,755 5.6 Mixed use 31,232 4.3 22,193 3.1 23,434 3.7 Warehouse 21,192 2.9 22,131 3.0 28,388 4.4 Condominium 18,514 2.6 21,670 3.0 23,784 3.6 One-to-four family 14,444 2.0 14,321 2.0 15,765 2.5 Vehicle dealership 11,233 1.5 12,038 1.6 9,934 1.6 Other non-owner occupied 33,241 4.6 43,266 6.0 45,053 6.9 Other owner-occupied 26,135 3.6 12,763 1.8 9,097 1.4 Total multi-family and commercial real estate $ 722,975 100.0 % $ 721,077 100.0 % $ 643,797 100.0 % 14 Table of Contents If we foreclose on a commercial or multi-family real estate loan, the marketing and liquidation period can be a lengthy process with substantial holding costs. Vacancies, deferred maintenance, repairs and market factors can result in losses during the time it takes to prepare the property for sale. Depending on the individual circumstances, initial charge-offs and subsequent losses relating to multi-family and commercial loans can be substantial and unpredictable. The average outstanding loan amount in our commercial real estate portfolio, including multi-family loans, was $1.7 million as of December 31, 2024. We generally target individual commercial and multi-family real estate loans between $1.0 million and $10.0 million to small and mid-size operators and investors in our market areas as well as other parts of Washington. We may also make commercial and multi-family real estate loans in other states if we have a pre-existing relationship with the borrower. Our three largest commercial and multi-family borrowing relationships, including current loan balances and unused commitments, at December 31, 2024 consisted of a $23.2 million relationship secured by construction and commercial real estate in King County, Washington; a $20.0 million relationship secured by construction and multi-family real estate in Pierce and Snohomish Counties; and a $19.4 million relationship secured by multi-family real estate in Pierce County. The construction loan balances are included in Construction and Land Lending below. Construction and Land Lending. Our construction and land loans totaled $78.1 million, or 4.6% of the total loan portfolio at December 31, 2024 and the undisbursed portion of construction loans in process totaled $51.7 million. First Fed offers an "all-in-one" residential custom construction loan product, which upon completion of construction may be held in our loan portfolio . We also originate construction loans for certain commercial real estate projects. These projects include, but are not limited to, subdivisions, multi-family, retail, office, warehouse, hotel, and office buildings. We also offer commercial acquisition-renovation loans that have a small construction component combined with a traditional real estate loan. Underwriting criteria on construction loans include, but are not limited to, minimum debt service coverage requirements of 1.25x or better, loan to value limitations, pre-leasing requirements, construction cost over-run contingency reserves, interest and absorption period reserves, occupancy, capitalization rates and interest rate stress testing, as well as other underwriting criteria. Underwriting criteria on commercial acquisition-renovation loans during the interest-only period include, but are not limited to, loan to value limitations and debt service coverage requirements of 1.00x or better, based on in-place rents and payment amortization of full commitment. These loans begin amortizing once renovations have been completed. Construction loan applications generally require architectural and working plans, a material specifications list, a detailed cost breakdown and a construction contract. Custom and speculative construction valuations assume that the project will be built in accordance with plans and specifications submitted to us at the time of the loan application. The appraiser takes into consideration the proposed design and market appeal of the improvements, based on current market conditions and demand for homes, although the improvements may not be completed for twelve months or longer, depending on the complexity of the plans and specifications and market conditions. Construction loan advances are based on progress payments for "work in place" based on detailed line-item construction budgets. Independent construction inspectors are used to evaluate the construction draw request relative to the progress. Our construction administrator reviews all construction projects, inspection reports, and construction loan advance requests to ensure they are appropriate and in compliance with all loan conditions. Other risk management tools include title insurance, date down endorsements or periodic lien inspections prior to the payment of construction loan advances. In some cases, general contractors may be required to provide sub-contractor lien releases for any work performed prior to the filing of our deed of trust or prior to each construction loan advance. 15 Table of Contents Land acquisition, development and construction loans are available to local contractors and developers for the purpose of holding and/or developing residential building sites and homes when market conditions warrant such activity. Land acquisition loans are secured by a first lien on the property and are generally limited to 65% of the acquisition price or the appraised value, whichever is less. Development land loans are generally limited to 75% of the discounted appraised value based on the projected lot sale absorption rate and associated carry and liquidation costs of the developed lots and homes. Underwriting criteria for acquisition and development loans include evidence of preliminary plat approval, and a review of compliance with state and Federal environmental protection and disclosure laws, engineering plans, detailed cost breakdowns and marketing plans. Other risk management tools include acquisition of title insurance and review of feasibility and market absorption reports. These loans have been limited to projects within the state of Washington. At December 31, 2024, the average construction commitment was $868,000 for single-family residential construction, $1.8 million for multi-family construction and $3.6 million for commercial real estate construction. The largest construction commitments for single-family residential, multi-family and commercial real estate were $2.3 million, $5.5 million and $10.0 million, respectively, at December 31, 2024. Substantially all of our adjustable-rate land acquisition, development and construction lending have rates of interest based on The Wall Street Journal prime rate. During the term of construction, the accumulated interest on the loan is either billed monthly, as is the case for acquisition and development loans, or added to the principal of the loan through an interest reserve. When original interest reserves set up at origination are exhausted, no additional reserves are permitted unless the loan is re-analyzed and it is determined that the additional reserves are appropriate. The success of land acquisition, development and construction lending is dependent upon completion of the project and the sale or leasing of the property for repayment of the loan. Because of the uncertainties inherent in the estimates related to construction costs, the market value of the completed project, the demand for the property at completion, market conditions, the rates of interest paid, and other factors, actual results are difficult to predict and variations from expectations can have a significant adverse effect on a borrower's ability to repay loans and the value and marketability of the underlying collateral. In addition, because an incomplete construction project is difficult to sell in the event of default, we may be required to advance additional funds and/or contract with another builder in order to complete construction. There is a risk that we may not fully recover unpaid loan funds and associated construction and liquidation costs under these circumstances. Speculative construction loans carry additional risk associated with identifying an end-purchaser for the finished project. Our extension fee policy encourages commercial borrowers to finish projects on time, which we believe mitigates risk and enhances the return on these loans. We also originate individual lot loans, which are secured by a first lien on the property, for borrowers who are planning to build on the lot within the next five years. Generally, these loans have a maximum loan to value ratio of 75% for improved lands (legal access, water and power). The interest rate on these loans is fixed with a 20-year amortization and a five-year term. At the dates indicated, the composition of our construction and land portfolio was as follows: December 31, 2024 2023 2022 (In thousands) One-to-four family residential $ 38,900 $ 43,719 $ 58,596 Multi-family residential 15,401 66,723 76,301 Commercial acquisition-renovation — — 19,247 Commercial real estate 17,282 11,791 27,628 Land 6,527 7,458 11,874 Total construction and land $ 78,110 $ 129,691 $ 193,646 16 Table of Contents Our construction and land loans are geographically disbursed primarily throughout the state of Washington and, as a result, these loans are susceptible to risks that may be different depending on the location of the project. We manage our construction lending by utilizing a licensed third-party vendor to assist us in monitoring our higher-risk construction projects while lower-risk projects are monitored by internal staff. The following tables show our construction commitments by type and geographic concentration at the dates indicated: December 31, 2024 Olympic Peninsula Puget Sound Region Other Washington Total (In thousands) Construction Commitment One-to-four family residential $ 6,897 $ 45,945 $ 1,424 $ 54,266 Multi-family residential 3,900 14,828 5,695 24,423 Commercial real estate 500 40,259 4,215 44,974 Total commitment $ 11,297 $ 101,032 $ 11,334 $ 123,663 Construction Funds Disbursed One-to-four family residential $ 1,769 $ 35,711 $ 1,424 $ 38,904 Multi-family residential 709 10,245 4,582 15,536 Commercial real estate 99 16,508 900 17,507 Total disbursed for construction 2,577 62,464 6,906 71,947 Net deferred fees (costs) 2 (329 ) (37 ) (364 ) Amortized cost for construction $ 2,579 $ 62,135 $ 6,869 $ 71,583 Undisbursed Commitment One-to-four family residential $ 5,128 $ 10,234 $ — $ 15,362 Multi-family residential 3,191 4,583 1,113 8,887 Commercial real estate 401 23,751 3,315 27,467 Total undisbursed $ 8,720 $ 38,568 $ 4,428 $ 51,716 Land Funds Disbursed One-to-four family residential $ 2,349 $ 2,183 $ 213 $ 4,745 Commercial real estate 900 845 — 1,745 Total disbursed for land 3,249 3,028 213 6,490 Net deferred fees 18 14 5 37 Amortized cost for land $ 3,267 $ 3,042 $ 218 $ 6,527 17 Table of Contents December 31, 2023 Olympic Peninsula Puget Sound Region Other Washington Oregon Total (In thousands) Construction Commitment One-to-four family residential $ 10,260 $ 54,320 $ 6,489 $ 540 $ 71,609 Multi-family residential — 78,196 11,076 — 89,272 Commercial real estate — 17,332 1 — 17,333 Total commitment $ 10,260 $ 149,848 $ 17,566 $ 540 $ 178,214 Construction Funds Disbursed One-to-four family residential $ 3,790 $ 34,725 $ 5,065 $ 175 $ 43,755 Multi-family residential — 61,288 5,879 — 67,167 Commercial real estate — 11,849 — — 11,849 Total disbursed for construction 3,790 107,862 10,944 175 122,771 Net deferred fees (costs) 27 (544 ) (39 ) 1 (555 ) Amortized cost for construction $ 3,817 $ 107,318 $ 10,905 $ 176 $ 122,216 Undisbursed Commitment One-to-four family residential $ 6,470 $ 19,595 $ 1,424 $ 365 $ 27,854 Multi-family residential — 16,908 5,197 — 22,105 Commercial real estate — 5,483 1 — 5,484 Total undisbursed $ 6,470 $ 41,986 $ 6,622 $ 365 $ 55,443 Land Funds Disbursed One-to-four family residential $ 3,310 $ 3,002 $ 272 $ — $ 6,584 Commercial real estate — 845 — — 845 Total disbursed for land 3,310 3,847 272 — 7,429 Net deferred fees 28 16 2 — 46 Amortized cost for land $ 3,338 $ 3,863 $ 274 $ — $ 7,475 Consumer Lending. We offer consumer loans, including home equity loans, home equity lines of credit, auto loans and personal lines of credit. At December 31, 2024, home equity loans and lines of credit totaled $79.1 million, or 4.7%, of the loan portfolio. Our interest rates on home equity loans are priced based on risks including credit score, loan to value and overall payment capacity of the applicant. Home equity loans are made for the improvement of residential properties and other purposes. Some of these loans are secured by first liens; however, the majority of these loans are secured by a second deed of trust on the residential property. Fixed rate, fully amortizing home equity loans in first lien position are available with repayment periods ranging from 5 to 20 years. We also offer a ten-year home equity line of credit to qualifying borrowers, which includes an option for a discounted initial fixed interest rate for the first year with the interest rate adjusting monthly thereafter based on a margin over the prime rate; payments are interest-only during the ten-year draw period. The balance and rate are fixed after that period and the principal amortized over the remaining fifteen-year period of the loan. Options for equity loans on non-owner occupied properties are offered under more conservative requirements. Additionally, terms are available under a bridge loan product consisting of a short-term equity loan used to facilitate the acquisition of a separate residential property. Home equity fixed and line of credit products in second lien positions behind a non-First Fed mortgage have a maximum loan amount of $250,000. Home equity loans and lines of credit have greater risk than one-to-four family residential mortgage loans because they are secured by mortgages subordinated to the existing first mortgage on the property. We may or may not have private mortgage insurance coverage. At December 31, 2024, auto loans totaled $133.9 million, of which $132.3 million were purchased and $453,000 were originated through indirect dealer programs described below; the remaining $1.2 million were originated through our First Fed branches. Auto loans have a maximum term of up to 180 months for purchased classic and collector vehicles, up to 96 months for indirect auto loans, and up to 84 months for all other auto loans, depending on the age and condition of the vehicle and strength of the borrower. Loan rates for auto lending, as well as all other consumer loans, are priced based on the specific loan type and the risks involved. First Fed utilizes indirect lending sources to purchase auto loans. In-house and direct lending sources have been used to originate auto loans in prior years. 18 Table of Contents We purchase auto loans through a relationship with Woodside Credit, LLC, a loan originator that operates in all 50 states, underwriting and funding loans for classic (25 years or older) and collector (premium price with limited production) vehicles. These loans typically range from $10,000 to over $600,000 with terms that range from 84 to 180 months and generally require down payments of 10% to 20% of the cost of the vehicle. We receive loan pools each week with complete packages that we underwrite to determine whether to purchase or pass on the loans submitted. The average loan balance was $94,000 at December 31, 2024. These loans present unique risks with the collateral being located across the country; however, our loan originator mitigates risk of loss by providing an option to facilitate the collection efforts should repossession become necessary, for which we would incur a cost if we did it ourselves. Historically, losses on these types of loans have been less than 2% and First Fed experienced a loss rate of 0.36% and 1.07%, respectively, for each of the years ended December 31, 2024 and 2023. We also purchase auto loans through a partnership with First Help Financial, a loan originator that operates in selected states, underwriting and funding loans to "superior subprime" customers who have a demonstrated capacity to pay and have limited or no blemishes on their credit report, but have limited credit experience. Loans in the First Help Auto Loan Purchase Program typically range from $10,000 to $75,000 with terms that range from 72 to 84 months. We periodically receive loan pools with complete packages that we underwrite to determine whether to purchase or pass on the loans submitted. The seller retains the servicing on these loans which includes the collection activities as well as the rehab and marketing related to the sale of any collateral that was repossessed or foreclosed upon. Indirect auto loans were previously originated with auto dealerships located throughout our market areas through CRIF Lending Solutions, a third-party service provider that also facilitated a portion of the underwriting and origination of these loans based on our underwriting and pricing criteria. We ended our relationship with that service provider in 2020, effectively eliminating new production. We may, however, work directly with local auto dealerships in the future. Indirect auto loan customers receive a fixed rate loan in an amount and at an interest rate that is based on review of their FICO credit score, age of the vehicle, and loan term. Our underwriting and pricing criteria for indirect auto loans focuses primarily on the ability of the borrower to repay the loan rather than the value of the underlying collateral. The loan term on indirect auto loans averages 70 months, which is comparable to national auto industry data. We purchase manufactured home loans through a partnership with Triad Financial Services, a loan originator that underwrites and funds these loans. At December 31, 2024, $128.2 million of manufactured home loans was included in consumer loans. These loans range from $18,000 to $425,000 with terms that range from 84 to 360 months. Loans are submitted on a weekly flow basis or as one-off pools. All loans are considered “full doc” and complete packages are reviewed to determine if the loan will be purchased or not. The seller retains the servicing on these loans which includes the collection activities as well as the rehab and marketing related to the sale of any collateral that was repossessed or foreclosed upon. The collateral may include both real estate and personal property depending on whether or not the title to the subject property has been eliminated. The program has a credit enhancement in the form of a reserve account that can be used to protect the bank from charge offs and prepayments. The reserve represented 5 .2% of related loan balances at year end; however, it will vary depending on the pricing options selected during the acquisition of the loans . First Fed had three loans placed into repossession inventory in 2024 and one in 2023 for a variety of reasons. The Bank was made whole through the credit enhancement reserve for all loans placed into repossession inventory. In 2022, we began purchasing unsecured consumer loans through a partnership with Splash Financial who underwrites and funds these loans. At December 31, 2024, $3.1 million of purchased unsecured loans was included in consumer loans. These loans range from $1,000 to $35,000 with terms that range from 36 to 60 months . We received individual loan packages that we underwrote to determine whether to purchase or pass on. The seller retains the servicing on these loans. Of the $11.1 million in loans purchased between June 2022 and February 2023, First Fed has experienced losses totaling $4.7 million . The originator paid First Fed $950,000 as a partial reimbursement of program losses incurred during 2023. Changes were made to the program participation criteria in April 2023 to reduce future losses, including a decrease in the maximum loan amount from $35,000 to $20,000 and an increase to the minimum FICO score. Splash also agreed to cover first payment defaults over 1.75% and the servicing fee charged to the Bank on new loans was reduced. The Bank purchased $3.7 million of loans after the change in criteria was made and has experienced losses totaling $556,000 related to this group of loans. Purchases of Splash loans were suspended in August 2023. Consumer loans represent additional risks because of the mobility and rapidly depreciating nature of consumer assets in contrast to real estate-based collateral. If a borrower defaults, repossession and liquidation of the collateral may not provide sufficient proceeds to satisfy the outstanding loan balance. Other factors that may account for potential loan losses on consumer loans include deferred maintenance and damages. While subsequent legal actions and judgments against borrowers in default may be appropriate, such collection efforts and costs may not always be warranted and are evaluated on a case-by-case basis. Consumer loan collections are dependent on the borrower’s continuing financial stability and federal and state laws, including federal and state bankruptcy and insolvency laws, which may limit the amount that can be recovered on these loans. 19 Table of Contents Commercial Business Lending. As of December 31, 2024, commercial business loans totaled $151.5 million, or 8.9% of our loan portfolio. Commercial business loans include lines of credit, term loans, and letters of credit used for general business purposes, including seasonal and permanent working capital, equipment financing, and general investments. These loans are typically secured by business assets, and loan terms vary from one to seven years with either adjusting or floating rates indexed to similar FHLB advance rates, The Wall Street Journal prime rate, TSOFR or other indices. These loans typically have shorter maturity terms and higher interest spreads than real estate loans but generally involve more credit risk because of the type and nature of the collateral. Our commercial business lending underwriting includes an analysis of the borrower’s financial condition, past, present and future cash flows, and the collateral pledged as security. We generally obtain personal guarantees on our commercial business loans. We focus our commercial lending activities on small-to-medium sized, privately held companies with local or regional businesses that operate in our market area. Commercial business loans are originated based on the cash flow of the borrowing entity, which may be unpredictable due to normal business cycles, industry changes, and economic and political conditions. Secondary and tertiary sources of repayment are guarantor cash flows and collateral liquidation. Collateral for commercial business loans most often consists of real estate, accounts receivable, inventory, or equipment. Collateral may fluctuate in value, which can reduce liquidation proceeds, and our ability to collect on accounts receivable or other third-party payments can affect the amount of losses we incur in the event of default. All borrowers with aggregate exposure of $750,000 or greater are subject to annual financial reviews and risk rating certification. All commercial loans risk rated special mention or worse with exposure of $100,000 or more are also subject to the full credit review. Relationships with an aggregate credit exposure below $750,000 are monitored for payment performance, changes in guarantor credit scores, and compliance with all other terms and conditions contained in the loan documents. All individuals that guarantee $3.0 million or more in aggregate commercial debt of any type are subject to annual financial reviews. We purchase unsecured commercial loans to small businesses and professionals through a partnership with Bankers Healthcare Group, who underwrites and funds these loans. At December 31, 2024, $21.1 million of purchased loans were included in commercial business loans. These loans range fro m $24,000 to $530,000 with terms ranging from 60 to 144 months. We purchase individual loans on a flow basis that we underwrite to determine whether they fit our credit criteria. Th e seller retains the servicing on these loans. A reserve account equal to approximately 3% of the unpaid balance serves as a credit enhancement to help protect against charge offs and prepaid loans. The loan originator has experienced a loss rate of 2.9% on the total portfolio of loans in this program. First Fed has not experienced any losses on these loans to-date. Indirect commercial business loans were referred to the Bank through Waterstation Management, LLC, a third-party broker that assists borrowers with completing and submitting an electronic commercial loan application to finance equipment. At December 31, 2024, $5.0 million of these brokered loans were included in commercial business loans. Indirect commercial business loan customers received a fixed rate loan up to 75% of the equipment cost based on a review of their FICO credit score, historical cash flows and overall financial strength. Our underwriting and pricing criteria for this program focused primarily on the ability of the borrower to repay the loan rather than the value of the underlying collateral. These loans ranged from $170,000 to $1.5 million with terms ranging from 96 to 132 months. Of the $16.5 million loans originated by First Fed during 2021 and 2022, the Bank has experienced losses totaling $6.3 million. We ceased making these loans in July 2022 and continue to pursue satisfactory repayment of these loans. First Fed periodically provides funding to Northpointe Bank through participation in their Northpointe Bank Mortgage Purchase Program ("Northpointe MPP"). At December 31, 2024, a participation balance of $36.2 million was included in commercial business loans. The Northpointe MPP provides short-term advances to well-qualified mortgage companies throughout the United States. These advances provide gap financing for the period between when a loan funds and when it is purchased by the end investor. This typically ranges from 15 to 25 days. Under the Northpointe MPP, each advance is secured by individual mortgages funded by participating community bank partners, including First Fed. Once the loan is purchased by the end investor, funds are sent directly to Northpointe Bank who, in turn, disburses it out to the partner banks on a pro rata basis. Only prime, first lien residential mortgage products which are agency eligible (such as Fannie Mae, Freddie Mac, or the VA) are included in the program. Northpointe Bank underwrites all the loans entering into the program to ensure conformity with program and investor requirements. The Bank's participation level in this program fluctuates, with a maximum daily limit of $40.0 million at December 31, 2024. The daily limit is periodically evaluated and adjusted to align with strategic goals. Included in total commercial business loans is $4.0 million of loans originated by First Northwest. These loans contain clauses which allow for a portion of the debt to be converted into securities, mezzanine debt or other non-standard terms. 20 Table of Contents Loan Origination and Underwriting. Our loans are obtained from a variety of sources, including existing or walk-in customers, business development, referrals, and advertising, among others. All our consumer loan products, including residential mortgage loans and secured and unsecured consumer loans, are processed through our centralized processing and underwriting center. Commercial business loans, including commercial and multi-family real estate loans, are originated by our relationship managers ("RMs") and underwritten centrally with credit presentations submitted for approval to the appropriate individuals and committee(s) with lending authority designated by the Board of Directors (the "Board"). Lending Authority. Through its current policy, the Board delegates lending authority to the Bank’s management and staff and to the Senior Loan Committee ("SLC"). Overdrafts and small business express loans require one signature. The Chief Banking Officer ("CBO") and the Chief Operating Officer ("COO") have the authority to approve overdrafts up to $100,000; the Chief Credit Officer ("CCO"), Chief Financial Officer ("CFO"), and Chief Executive Officer ("CEO") have the authority to approve overdrafts up to $250,000; and certain other staff and management have authority to approve overdrafts ranging from $5,000 to $50,000. Our small business express loans, which are commercial business loans of $100,000 or less, are approved by the CCO or designated personnel and management. In addition, the CCO may approve Automated Clearing House and Remote Deposit Capture transactions in any amount and has the authority to approve most modifications and extensions of credit in any amount for terms of less than one year. Mortgage loan underwriters have approval authority up to $667,000. The Director of Mortgage and Consumer Credit has approval authority of $1.0 million, and the CCO has approval authority of $2.0 million. Mortgage loans over $2.0 million are approved by the SLC. For commercial loans, the CCO has approval authority of $10.0 million based on aggregate credit exposure, and other personnel have approval authority ranging from $500,000 to $4.0 million. Commercial loan relationships over $10.0 million are approved by the SLC. The Director of Mortgage and Consumer Credit has approval authority for consumer loans up to $1.0 million and certain named individuals have authority ranging from $150,000 to $500,000. Additionally, we have assigned authority to approve indirect auto loans and wholesale partnerships meeting our underwriting and pricing criteria to our third-party service providers. The SLC (on a monthly basis) and the Board Loan Committee ("BLC") (on a quarterly basis) review loan portfolio quality, credit concentrations, production, and industry trends and provide directional oversight over our lending policies. The BLC also reviews policy exceptions and related risk concerns on a quarterly basis. Additionally, all loan approval policies are reviewed no less than annually. Washington law imposes loans to one borrower restrictions limiting total loans and extensions of credit by a bank to 20% of its unimpaired capital and surplus, resulting in a legal limit of $45.7 million at December 31, 2024. First Fed, however, restricts its loans to one borrower to no more than 60% of the Bank's lending limit, unless specifically approved by the SLC as an exception to policy. The Bank's lending limit is adjusted quarterly and was $34.3 million at December 31, 2024. The following table provides a summary of our five largest relationships at December 31, 2024. Total Commitment Number of Loans in Relationship Primary Collateral Type (In thousands) $23,249 3 Commercial Construction 20,043 10 Multi-family Real Estate 19,412 2 Multi-family Real Estate 16,632 2 Multi-family Real Estate 16,536 3 Multi-family Real Estate Loan Originations, Servicing, Purchases and Sales . We originate mortgage, consumer, multi-family and commercial real estate, and commercial business loans for our portfolio utilizing fixed- and adjustable-rate loan terms. During the years ended December 31, 2024, 2023, and 2022, our total loan originations were $232.4 million, $221.9 million, and $548.3 million, respectively. 21 Table of Contents We also purchase whole and participation loans on a servicing retained or released basis. During the years ended December 31, 2024, 2023, and 2022, we purchased $88.9 million, $83.1 million, and $96.1 million of loans, respectively. During the last year, the majority of purchases consisted of auto loans purchased through our partnership with an originator specializing in classic and collector vehicles, manufactured home loans purchased through our partnership with an originator specializing in that type of lending, and unsecured commercial business loans to borrowers primarily in the healthcare industry. A secondary source of purchased loans has been commercial real estate loans and participations, whereby we receive a portion of a loan originated by another lender who retains the servicing and customer relationship and may, depending on the terms of the agreement, retain a portion of the interest as a servicing fee. Loan pools purchased prior to 2018 consisted mainly of loans exceeding conforming loan limits, or "jumbo loans," secured by single family residential properties located in the states of Washington and California. Purchased loans, loan pools, and participations are underwritten by our credit administration department and approved by the appropriate loan committee(s) prior to purchase, according to our lending authority guidelines. We may pay a purchase premium or receive a purchase discount on fully originated loans that we purchase. Premiums and discounts are capitalized at the time of purchase and amortized over the remaining contractual life of the loan. We had $20.4 million, $16.7 million, and $16.0 million of net premiums paid on purchased loans at December 31, 2024, 2023, and 2022. The Olympic Peninsula region, which includes a substantial concentration of our depositors, has experienced limited population growth, and the region's unemployment rate is higher than both the state and national unemployment rates. As a result, it has been part of our strategy to originate and purchase loans outside of these areas in the counties surrounding the Puget Sound and elsewhere. As part of that strategy, we may purchase loans with different credit and underwriting criteria than those we originate directly. We sell residential first mortgage loans in the secondary market. The Bank has historically focused on originating fixed-rate residential mortgages, which we may sell to the secondary market to manage our interest rate risk and improve noninterest income. During the years ended December 31, 2024, 2023, and 2022, we sold $22.5 million, $25.5 million, and $26.1 million of residential mortgage loans, respectively. Our secondary market relationship for residential loans is with Freddie Mac and other select third-party investors, which provides us greater flexibility in choosing the best pricing, whether we are selling on a servicing retained or released basis. At December 31, 2024, we were servicing $329.3 million of loans for others. We earned servicing income on these loans of $736,000, $916,000, and $972,000 for the years ended December 31, 2024, 2023, and 2022, respectively. Servicing rights for these loans had a fair value of $3.3 million at December 31, 2024. See Note 7 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. In general, loans are sold on a non-recourse basis to third-party purchasers, subject to a provision for repurchase in the event of a breach of representation, warranty or covenant made at the time of sale. During fiscal 2008, we sold loans with "life of the loan" recourse provisions to Freddie Mac, and beginning in May 2013, Freddie Mac has required loans guaranteed by the United States Department of Agriculture to be sold with "life of the loan" recourse provisions as well. These recourse provisions require us to repurchase the loan upon default. The balance of loans serviced for others with life of the loan recourse provisions was $1.5 million at December 31, 2024. There were no loans repurchased during the years ended December 31, 2024, 2023, or 2022. We may solicit one or more financial institutions to take a portion of a commercial real estate loan to manage risk, concentrations, or to generate income through gain on sale or servicing fees. In that case, a participation agreement outlines the indirect relationship between the Bank and the participant regarding borrower access, loan servicing, loan documentation, and other matters. The participant's involvement is typically limited, and the participation interest is generally sold without recourse. We typically retain an ownership interest in the loan as well as the loan servicing rights to maintain our dire ct relationship with the borrower and better manage our credit risk. No commercial real estate loans were sold or participated during the year en ded December 31, 2024. During the year ended December 31, 2023 , we sold $14.6 million in multi-family loan participations, retaining both the servicing and a portion of the loan balances . In 2021, we expanded our relationship with the SBA to include additional products. The SBA loans g enerally carry a government guarantee ranging from 75%-90% of the loan balance. The Bank's intent is to sell the guaranteed portion and hold the remaining unguaranteed portion of the note. The Bank retains the servicing on these loans. We sold $3.0 million, $852,000 and $5.7 million of SBA participations during the years ended December 31, 2024, 2023, and 2022 , respectively. Gains, losses and transfer fees on sales of one-to-four family and commercial real estate loans are recognized at the time of the sale. Our net gain on sale of residential real estate, commercial real estate, and SBA loans was $312,000, $438,000, and $824,000 for the years ended December 31, 2024, 2023, and 2022, respectively. 22 Table of Contents The following table shows our loan origination, sale and repayment activities for the periods indicated: Year Ended December 31, 2024 2023 2022 (In thousands) Originations by type: Fixed-rate: One-to-four family $ 21,873 $ 25,815 $ 68,799 Multi-family — — 29,638 Commercial real estate 3,257 660 38,988 Construction and land 657 2,326 76,736 Home equity 6,670 7,442 8,768 Auto and other consumer 491 722 3,606 Commercial business 8,275 5,614 9,957 Total fixed-rate 41,223 42,579 236,492 Adjustable-rate: One-to-four family 2,097 3,741 24,645 Multi-family 13,598 52,848 67,637 Commercial real estate 31,386 35,510 65,469 Construction and land 64,253 36,067 61,953 Home equity 30,964 34,598 32,956 Auto and other consumer 567 122 62 Commercial business 48,258 16,436 59,043 Total adjustable-rate 191,123 179,322 311,765 Total loans originated 232,346 221,901 548,257 Purchases by type: One-to-four family — — 779 Multi-family 107 13 — Commercial business 9,623 17,027 6,364 Auto 49,826 43,760 61,930 Manufactured homes 29,294 22,302 26,989 Total loans purchased 88,850 83,102 96,062 Sales and Repayments: One-to-four family sold 22,478 25,456 26,088 Multi-family sold — 14,613 — Commercial real estate sold — — 750 Construction sold — — 3,144 Commercial business sold — 852 11,670 Total loans sold 22,478 40,921 41,652 Total principal repayments, charge-offs and transfers to real estate owned and repossessed assets 267,290 123,664 425,448 Total reductions 289,768 164,585 467,100 Net loan activity $ 31,428 $ 140,418 $ 177,219 23 Table of Contents Loan Origination and Other Fees . Loan origination fees paid by borrowers generally are based on a percentage of the principal amount of the loan. Accounting standards require that certain fees received, net of certain origination costs, be deferred and amortized over the contractual life of the loan. Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income or expense at the time of prepayment or sale. Net deferred loan fees included in net loans receivable on the balance sheet totaled $1.3 million, $1.9 million, and $2.8 million at December 31, 2024, 2023, and 2022, respectively. In addition to deferred loan fees, we receive other fee income on loan commitments, late payments and miscellaneous services. Asset Quality Management of asset quality includes loan performance monitoring and reporting as well as utilization of both internal and independent third-party loan reviews. The primary objective of our loan review process is to measure borrower performance and assess risk for the purpose of identifying loan weakness to minimize loan loss exposure. From the time of origination through final repayment, all loans are assigned a risk rating based on pre-determined criteria. The risk rating is monitored annually for most loans and may change during the life of the loan as appropriate. Loan reviews vary by loan type and complexity. Some loans may warrant detailed individual review, while other loans may have less risk based upon size, or be of a homogeneous nature, such as consumer loans and loans secured by residential real estate. Homogeneous loans may be reviewed based on indicators such as delinquency or credit rating. In cases of significant concern, re-evaluation of the loan and associated risks are documented by completing a loan risk assessment and action plan. The following table shows our delinquent loans by type of loan and number of days delinquent as of December 31, 2024. Loans Delinquent For: 60-89 Days 90 Days and Over Total Loans Delinquent 60 Days or More Number Amount Percent of Loan Category Number Amount Percent of Loan Category Number Amount Percent of Loan Category (Dollars in thousands) Real estate loans: One-to-four family 1 $ 321 0.1 % 4 $ 839 0.2 % 5 $ 1,160 0.3 % Commercial real estate — — — 2 5,594 1.4 2 5,594 1.4 Construction and land 1 8,150 10.4 3 11,384 14.6 4 19,534 25.0 Total real estate loans 2 8,471 0.7 9 17,817 1.5 11 26,288 2.2 Consumer loans: Auto and other consumer 14 437 0.2 20 700 0.3 34 1,137 0.4 Commercial business loans 4 — — 11 604 0.4 15 604 0.4 Total delinquent loans 20 $ 8,908 0.5 % 41 $ 19,121 1.1 % 61 $ 28,029 1.7 % Nonperforming Assets. Nonperforming assets include nonperforming loans, real estate owned, and other repossessed assets. Also presented below are totals, regardless of accrual status, for modified loans to troubled borrowers ("MLTB") restructured during 2024 and 2023 and, for prior fiscal years, total troubled debt restructurings ("TDR"). Nonperforming assets as a percentage of total assets were 1.4%, 0.8% and 0.1% at December 31, 2024, 2023, and 2022, respectively. At each of the dates indicated in the following table, there were no loans delinquent more than 90 days that were accruing interest. The increase in nonperforming loans during 2024 primarily resulted from an $8.1 million commercial construction project which the Bank believes does not represent significant exposure to loss based on a recent third-party appraisal. The loan was placed on nonaccrual status and downgraded to a classified loan status, in line with applicable Bank policy. During the fourth quarter of 2023, the Bank downgraded a commercial loan relationship which totaled $9.3 million involving several commercial real estate and business loans, a $3.6 million SBA loan which has a 75% program guarantee, and a $104,000 commercial business loan. 24 Table of Contents The following table summarizes our nonperforming assets at the dates indicated: December 31, 2024 2023 2022 (Dollars in thousands) Nonaccrual loans: One-to-four family $ 1,477 $ 1,844 $ 954 Commercial real estate 5,598 28 53 Construction and land 19,544 14,986 15 Total real estate loans 26,619 16,858 1,022 Home equity 55 123 196 Auto and other consumer 700 786 575 Total consumer loans 755 909 771 Commercial business loans 3,141 877 — Total nonaccrual loans $ 30,515 $ 18,644 $ 1,793 MLTB (2024 and 2023) and TDR (2022) loans: One-to-four family $ — $ — $ 1,726 Commercial real estate 6,402 — — Home equity — — 27 Commercial business 111 119 — Total restructured loans $ 6,513 $ 119 $ 1,753 Nonaccrual and 90 days or more past due loans as a percentage of total loans 1.8 % 1.1 % 0.1 % Nonperforming MLTB or TDR loans included in total nonaccrual loans and total restructured loans above $ 111 $ 119 $ 29 For the years ended December 31, 2024, 2023, and 2022, gross interest income which would have been recorded had the nonaccrual loans been current in accordance with their original terms amounted to $3.0 million, $710,000, and $699,000, respectively. The amount that was included in interest income on a cash basis on nonaccrual loans was $201,000, $58,000, and $28,000 for the years ended December 31, 2024, 2023, and 2022, respectively. Other Loans of Concern. In addition to nonperforming assets set forth in the table above, as of December 31, 2024, there were 40 loans totaling $16.7 million that continue to accrue interest but for which management has concerns about the ability of these borrowers to comply with loan repayment terms. These loans are classified as special mention or substandard. Real Estate Owned and Repossessed Property . Real property we acquire through collection and foreclosure efforts is classified as real estate owned. These properties are recorded at the lower of cost, which is the unpaid principal balance of the related loan, or the fair market value of the property less selling costs. Real estate owned properties are generally listed with a real estate broker, included in the multiple listing service, and actively marketed. Other repossessed property, including automobiles, is also recorded at the lower of cost or fair market value less selling costs. As of December 31, 2024, we had no repossessed real or personal property owned. Restructured Loans. According to United States Generally Accepted Accounting Principles ("GAAP"), we are required to account for certain loan modifications or restructurings as a MLTB. In general, the modification or restructuring of a debt is considered a MLTB if we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower under more favorable terms and conditions than we would grant to an ordinary bank customer under the normal course of business. We engage in other general loan restructures and modifications not considered as MLTB loans, which may include lowering interest rates, extending the maturity date, deferring or re-amortizing monthly payments or other concessions, provided that such concessions are not below market rates or considered material and outside of the terms and conditions granted to other borrowers in the ordinary course of business. These general loan restructures and modifications are made on a case-by-case basis. Adversely classified loans that are subsequently modified and placed in nonaccrual status are generally not returned to accrual status until a period of at least six months with consecutive satisfactory payment performance has occurred, and a return to accrual status is further supported by current financial information and analysis which demonstrates a particular borrower has the financial capacity to meet future debt service requirements. 25 Table of Contents At December 31, 2024, we had one loan with an aggregate amortized cost of $6.4 million that was identified as an MLTB loan restructured during the year ended December 31, 2024, which was performing in accordance with its revised payment terms and was accruing. There was no reserve included in the allowance for credit losses on loans at December 31, 2024, for this individually evaluated MLTB loan. Nonaccrual MLTB loans are classified as substandard while accruing MLTB loans may be classified at any level in our loan grading system depending upon verified repayment sources, collateral values and repayment history. Classified Assets. Federal regulations provide for the classification of lower quality loans and other assets as substandard, doubtful or loss. An asset is considered substandard when material conditions are identified which raise issues about the financial capacity, collateral or other conditions which may compromise the borrower’s ability to satisfactorily perform under the terms of the loan. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses present make near term collection or liquidation highly questionable and improbable. Assets classified as loss are those considered uncollectible or of no material value. Assets that do not currently expose us to sufficient risk to warrant classification as substandard or doubtful but possess identified weaknesses are classified by us as either watch or special mention assets. Our credit administration department, management, and the Board review the analysis and approve the specific loan loss allowance for these loans. The allowance for credit losses on loans represents an estimate which has been established to recognize the inherent risk associated with lending activities. When an institution identifies a problem asset as an unavoidable and imminent loss, it is required to partially or fully charge-off such assets in the period in which they are deemed uncollectible. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the DFI and the FDIC, who can order specific charge-offs or the establishment of additional loan loss allowances. We review, at least quarterly, the problem assets in our portfolio to determine whether any assets require reclassification. Based on our review, as of December 31, 2024, 2023, and 2022, we had classified loans of $42.5 million, $35.1 million, and $16.9 million, respectively. We had no other classified assets at these dates. In addition to the classified loans, we had $11.1 million, $14.7 million and $20.7 million of special mention loans at December 31, 2024, 2023, and 2022, respectively. Over 61% of the classified loan balance at December 31, 2024, is comprised of the following relationships: an $11.4 million construction loan relationship, which became a classified loan in the fourth quarter of 2022; an $8.1 million commercial construction loan relationship, which became classified in the second quarter of 2024; and a $6.2 million commercial loan relationship, which became classified in the fourth quarter of 2023. The Bank has exercised legal remedies, including the appointment of a third-party receiver and foreclosure actions, to liquidate the underlying collateral to satisfy the real estate loans in two of these three collateral-dependent relationships. The Bank is also closely monitoring a group of commercial business loans that have similar collateral, with 15 loans totaling $2.2 million included in classified loans at December 31, 2024, and an additional eight loans totaling $2.8 million included in the special mention risk grading category. The Bank continues to work with these borrowers to facilitate satisfactory repayment. Classified loans, consisting solely of substandard loans, were as follows at the dates indicated: December 31, 2024 2023 2022 (In thousands) Real estate loans: One-to-four family $ 1,515 $ 2,064 $ 1,486 Commercial real estate 11,999 9,848 1,136 Construction and land 19,544 14,987 14,001 Total real estate loans 33,058 26,899 16,623 Consumer loans: Home equity 99 135 196 Auto and other consumer 700 785 94 Total consumer loans 799 920 290 Commercial business loans 8,686 7,315 — Total classified loans $ 42,543 $ 35,134 $ 16,913 26 Table of Contents The following table shows at December 31, 2024, the geographic distribution of our classified loans in dollar amounts and percentages. North Olympic Peninsula (1) Puget Sound Region (2) Other Washington Total in Washington State All Other States Total Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category Amount % of Total in Category (Dollars in thousands) Real estate loans: One-to-four family $ 674 0.5 % $ — — % $ — — % $ 674 0.2 % $ 841 5.2 % $ 1,515 0.4 % Commercial real estate 4 — 10,581 3.6 — — 10,585 2.8 1,414 21.0 11,999 3.1 Construction and land 10 0.2 19,534 30.1 — — 19,544 25.0 — — 19,544 25.0 Total real estate loans 688 0.3 30,115 3.4 — — 30,803 2.7 2,255 5.7 33,058 2.8 Consumer loans: Home equity 99 0.2 — — — — 99 0.1 — — 99 0.1 Auto and other consumer — — 11 0.1 — — 11 0.1 689 0.3 700 0.3 Total consumer loans 99 0.2 11 — — — 110 0.1 689 0.3 799 0.2 Commercial business loans 47 0.2 863 2.6 3,307 70.0 4,217 6.1 4,469 5.4 8,686 5.7 Total classified loans $ 834 0.3 % $ 30,989 3.3 % $ 3,307 4.3 % $ 35,130 2.7 % $ 7,413 2.0 % $ 42,543 2.5 % (1) Includes Clallam and Jefferson counties. (2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. 27 Table of Contents Allowance for Credit Losses on Loans . The allowance for credit losses on loans was $20.5 million, or 1.21% of total loans, at December 31, 2024, compared to $17.5 million, or 1.05%, at December 31, 2023. On January 1, 2023, the Company adopted ASU 2016-13 and recorded an increase to the allowance for credit losses on loans ("ACLL") of $2.2 million, an increase to the allowance for credit losses on unfunded commitments ("ACLUC") of $1.5 million, and a $3.0 million after-tax decrease to beginning retained earnings. 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. 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 Operations. Accrued interest receivable on loans receivable is excluded from the estimate of credit losses. Instead, interest accrued, but not received, is reversed timely in accordance with our loan policy. Our accounting policies are discussed in detail in Notes 1 and 4 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. The following table summarizes the distribution of our allowance for credit losses on loans at the dates indicated. December 31, 2024 2023 2022 (1) Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans (Dollars in thousands) Balance at End of Period Applicable to: One-to-four family $ 4,757 23.3 % $ 2,975 22.8 % $ 3,343 22.2 % Multi-family 2,493 19.6 1,154 20.1 2,468 16.3 Commercial real estate 2,410 23.0 3,671 23.3 4,217 25.2 Construction and land 576 4.6 1,889 7.8 2,344 12.5 Home equity 1,322 4.7 1,077 4.2 549 3.4 Auto and other consumer 2,687 15.9 4,409 15.0 2,024 15.4 Commercial business 6,204 8.9 2,335 6.8 786 5.0 Unallocated — — — — 385 — Total allowance $ 20,449 100.0 % $ 17,510 100.0 % $ 16,116 100.0 % (1) Represents the allowance for loan losses by class under the incurred loss methodology. 28 Table of Contents The following table sets forth an analysis of our allowance for credit losses on loans: Year Ended December 31, 2024 2023 2022 (Dollars in thousands) Allowance at beginning of period $ 17,510 $ 16,116 $ 15,124 Charge-offs: Construction and land (4,389 ) — — Home equity — (10 ) — Auto and other consumer (2,494 ) (3,312 ) (1,025 ) Commercial business (7,296 ) — — Total charge-offs (14,179 ) (3,322 ) (1,025 ) Recoveries: One-to-four family 44 9 114 Commercial real estate 2 — — Construction and land — — 2 Home equity — 15 30 Auto and other consumer 320 126 194 Commercial business 36 — 142 Total recoveries 402 150 482 Net (charge-offs) recoveries (13,777 ) (3,172 ) (543 ) Impact of Day 1 CECL adoption — 2,209 — Provision for credit losses on loans 16,716 2,357 1,535 Balance at end of period $ 20,449 $ 17,510 $ 16,116 Summary of key ratios regarding allowance activity and coverage Net (charge-offs) recoveries as a percentage of average loans: Total loans (0.8 )% (0.2 )% — % One-to-four family — — — Commercial real estate — — — Construction and land (4.1 ) — — Home equity — — 0.1 Auto and other consumer (1.6 ) (1.3 ) (0.4 ) Commercial business (2.6 ) — 0.2 Net (charge-offs) recoveries as a percentage of average nonperforming assets (56.1 ) (31.0 ) (34.2 ) Allowance as a percentage of nonperforming loans 67.0 93.9 900.3 Allowance as a percentage of total loans 1.21 1.05 1.05 Average loans receivable, net of ACLL $ 1,686,972 $ 1,594,268 $ 1,448,777 Average total loans receivable $ 1,705,878 $ 1,611,352 $ 1,464,448 29 Table of Contents Investment Activities General . Under Washington law, commercial banks are permitted, subject to certain limitations, to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, banker’s acceptances, repurchase agreements, federal funds, commercial paper, investment grade corporate debt, investment grade commercial and residential mortgage-related securities, and obligations of states and their political subdivisions. Our Treasurer, under the direction of the CFO, has the responsibility for the management of our investment portfolio. Various factors are considered when making investment decisions, including the marketability, maturity, duration, and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of deposit inflows, and the anticipated demand for funds from deposit withdrawals and loan originations and purchases. The general objective of our investment portfolio is to provide liquidity, generate earnings, and manage risk, including credit, reinvestment, liquidity and interest rate risks. Securities. Total investment securities increased $44.7 million, or 15.1%, to $340.3 million at December 31, 2024, from $295.6 million at December 31, 2023, as a result of purchases and an improvement in the portfolio market value, partially offset by sales and principal payments. The issuers of mortgage-backed agency securities ("MBS") held in our portfolio, which include Fannie Mae, Freddie Mac, and Government National Mortgage Association ("Ginnie Mae"), and certain issuers of agency bonds held in our portfolio, which include FHLB and Fannie Mae, guarantee the timely principal and interest payments in the event of default. Municipal bonds consist of a mix of taxable and non-taxable revenue and general obligation bonds issued by various local and state government entities that use their revenue-generating and taxing authority as a source of repayment of their debt. Our municipal bonds are considered investment grade, and we monitor their credit quality on an ongoing basis. Non-agency MBS securities have no guarantees in the event of default and therefore warrant continued monitoring for credit quality. Our non-agency MBS securities consist of fixed and variable rate mortgages issued by various corporations, which we believe have sufficient credit enhancements to mitigate the risk of loss on these investments, and certain corporate debt securities. Monitoring of these securities may include, but is not limited to, reviewing credit quality standards such as delinquency, subordination, and credit ratings. Our rated non-agency and corporate debt securities are considered investment grade and non-rated securities are subject to regular internal review to ensure they meet the Company's investment criteria. As a member of the FHLB, we had an average balance of $13.0 million in stock of the FHLB for the twelve months ended December 31, 2024. We received $1.2 million, $880,000, and $502,000 in dividends from the FHLB during the years ended December 31, 2024, 2023, and 2022, respectively. 30 Table of Contents The table below sets forth information regarding the composition of our securities portfolio and other investments at the dates indicated. At December 31, 2024, our securities portfolio contained securities issued by the United States Government and its agencies as well as securities issued by Capital Funding Mortgage Trust ("CFGMS") which had an aggregate book value in excess of 10% of our equity capital. The book value and fair market value of CFGMS securities were $34.9 million and $34.8 million, respectively, at December 31, 2024, and are included in non-agency issued mortgage-backed securities below. December 31, 2024 2023 2022 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Securities available for sale: Municipal bonds $ 93,212 $ 77,876 $ 102,998 $ 87,761 $ 119,990 $ 98,050 U.S. Treasury notes — — — — 2,469 2,364 International agency issued bonds (Agency bonds) — — — — 1,955 1,702 U.S. government agency issued asset-backed securities (ABS agency) 12,944 12,876 11,847 11,782 — — Corporate issued asset-backed securities (ABS corporate) 16,065 16,122 5,370 5,286 — — Corporate issued debt securities (Corporate debt) 58,106 54,491 56,515 51,454 60,700 55,499 U.S. Small Business Administration securities (SBA) 8,664 8,666 — — — — Mortgage-backed: U.S. government agency issued mortgage-backed securities (MBS agency) 111,372 98,697 75,665 63,247 88,930 75,648 Non-agency issued mortgage-backed securities (MBS non-agency) 75,902 71,616 81,555 76,093 101,139 93,306 Total available for sale 376,265 340,344 333,950 295,623 375,183 326,569 FHLB stock 14,435 14,435 13,664 13,664 11,681 11,681 Total securities $ 390,700 $ 354,779 $ 347,614 $ 309,287 $ 386,864 $ 338,250 31 Table of Contents Maturity of Securities. The composition and contractual maturities of our investment portfolio at December 31, 2024 and December 31, 2023, excluding FHLB stock, are indicated in the following table. The yields on municipal bonds have not been computed on a tax equivalent basis. December 31, 2024 1 year or less Over 1 year to 5 years Over 5 to 10 years Over 10 years Total Securities Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Fair Value (Dollars in thousands) Securities available for sale: Municipal bonds $ — — % $ 103 1.73 % $ 17,961 2.57 % $ 75,148 2.42 % $ 93,212 2.44 % $ 77,876 ABS agency — — — — — — 12,944 6.03 12,944 6.03 12,876 ABS corporate — — — — 1,750 6.61 14,315 6.80 16,065 6.78 16,122 Corporate debt — — 21,456 5.76 35,650 5.00 1,000 4.13 58,106 5.27 54,491 SBA — — — — 3,174 5.34 5,490 5.85 8,664 5.66 8,666 Mortgage-backed: MBS agency — — — — 8,080 3.85 103,292 3.67 111,372 3.68 98,697 MBS non-agency 26,690 8.54 11,564 5.69 — — 37,648 3.77 75,902 5.74 71,616 Total securities available for sale $ 26,690 8.54 % $ 33,123 5.72 % $ 66,615 4.26 % $ 249,837 3.66 % $ 376,265 4.29 % $ 340,344 December 31, 2023 1 year or less Over 1 year to 5 years Over 5 to 10 years Over 10 years Total Securities Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Fair Value (Dollars in thousands) Securities available for sale: Municipal bonds $ 300 4.25 % $ — — % $ 20,000 2.74 % $ 82,698 2.45 % $ 102,998 2.51 % $ 87,761 ABS agency — — — — — — 11,847 7.69 11,847 7.69 11,782 ABS corporate — — — — — — 5,370 9.15 5,370 9.15 5,286 Corporate debt — — 18,081 6.07 37,434 5.02 1,000 4.13 56,515 5.34 51,454 Mortgage-backed: MBS agency — — 2,176 1.60 5,362 2.37 68,127 2.48 75,665 2.45 63,247 MBS non-agency 25,279 8.74 14,446 5.59 3,512 3.52 38,318 3.70 81,555 5.59 76,093 Total securities available for sale $ 25,579 8.69 % $ 34,703 5.59 % $ 66,308 4.04 % $ 207,360 3.17 % $ 333,950 4.02 % $ 295,623 32 Table of Contents At December 31, 2024, of the 191 investment securities held, there were 166 investment securities with $36.2 million of unrealized losses and a fair value of approximately $283.9 million. At December 31, 2023, of the 164 investment securities held, there were 162 investment securities with $38.3 million of unrealized losses and a fair value of approximately $293.8 million. Management believes that the unrealized losses on our investment securities relate principally to the general changes in interest rates, market liquidity and demand, and market volatility that have occurred since the initial purchase, and that such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. We do not believe the unrealized losses on our securities are related to a deterioration in credit quality. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend to sell the securities in an unrealized loss position and believes it is not likely it 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 impairment was recorded at either December 31, 2024 or December 31, 2023. Deposit Activities and Other Sources of Funds General . Customer deposits, brokered deposits, borrowings and loan and investment cash flows are the major sources of our funds for lending, investment, and general business purposes. Scheduled loan and investment repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and other market conditions. Borrowings from the FHLB and subordinated debt are used to supplement the availability of funds from other sources and as a source of term funds to assist in the management of interest rate risk. Our deposit composition consists of interest and noninterest-bearing checking, savings, money market accounts, and certificates of deposit. We rely on marketing activities, digital channels, branch facilities, mail and contact center services, relationship management, word of mouth referrals, and a broad range of deposit products and payment services to attract and retain customer deposits. Deposits . Deposits are attracted from within our market area through the offering of a broad selection of deposit instruments, including checking accounts, money market deposit accounts, savings accounts and certificates of deposit with a variety of rates. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit, and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the development of long-term profitable customer relationships, current market interest rates, current maturity structure and deposit mix, our customer preferences, and the profitability of acquiring customer deposits compared to alternative sources. We also utilize wholesale deposits, including brokered deposits and listing service deposits, to augment customer deposit balances. At December 31, 2024, all of our brokered deposits were certificates. Balances at each of the periods presented reflect direct offerings issued by the Bank through contracts with third-party brokers. The Bank utilizes services provided to the Depository Trust and Clearing Corporation to disburse interest and principal payments on direct offerings. We also maintain a relationship with IntraFi that allows the Bank to participate in their certificate of deposit account registry service ("CDARS"), which pools large deposits placed with CDARS by financial institution customers and distributes the balances across the network of participants. Deposit Activity. The following table sets forth activity in our total deposit balance for the periods indicated. Year Ended December 31, 2024 2023 2022 (Dollars in thousands) Beginning balance $ 1,676,892 $ 1,564,255 $ 1,580,580 Net deposits (31,293 ) 85,618 (21,523 ) Interest credited 42,427 27,019 5,198 Ending balance $ 1,688,026 $ 1,676,892 $ 1,564,255 Net increase (decrease) $ 11,134 $ 112,637 $ (16,325 ) Percent increase (decrease) 0.7 % 7.2 % (1.0 )% 33 Table of Contents Types of Deposits. The following table sets forth the dollar amount of deposits in the various types of deposits programs we offered at the dates indicated. December 31, 2024 2023 2022 Amount Percent of Total Amount Percent of Total Amount Percent of Total (Dollars in thousands) Transactions and Savings Deposits: Noninterest-bearing transaction $ 256,416 15.2 % $ 252,083 15.0 % $ 315,083 20.1 % Interest-bearing transaction 164,891 9.8 169,418 10.1 193,558 12.4 Money market accounts 413,822 24.5 362,205 21.7 473,009 30.3 Savings accounts 205,055 12.1 242,148 14.4 200,920 12.8 Total transaction and savings deposits 1,040,184 61.6 1,025,854 61.2 1,182,570 75.6 Certificates: (1) 0.00 – 0.99% 13,720 0.8 29,097 1.7 113,662 7.3 1.00 – 1.99% 9,607 0.6 25,396 1.5 44,200 2.8 2.00 – 2.99% 6,950 0.4 10,937 0.7 86,191 5.5 3.00 – 3.99% 108,921 6.5 100,577 6.0 99,009 6.3 4.00 – 4.99% 403,891 23.9 275,807 16.4 38,623 2.5 5.00 – 5.99% 104,753 6.2 209,224 12.5 — — Total certificates 647,842 38.4 651,038 38.8 381,685 24.4 Total deposits $ 1,688,026 100.0 % $ 1,676,892 100.0 % $ 1,564,255 100.0 % (1) Brokered certificates of deposit included in certificates $ 182,914 $ 207,626 $ 133,861 Deposit Flow . The following table sets forth the balances of deposits in the various types of deposit programs offered by First Fed at the dates indicated. December 31, 2024 2023 2022 Amount Percent of Total Increase/ (Decrease) Amount Percent of Total Increase/ (Decrease) Amount Percent of Total Increase/ (Decrease) (Dollars in thousands) Savings accounts $ 205,055 12.1 % $ (37,093 ) $ 242,148 14.4 % $ 41,228 $ 200,920 12.8 % $ 6,300 Transaction accounts 421,307 25.0 (194 ) 421,501 25.1 (87,140 ) 508,641 32.5 (32,261 ) Money market accounts 413,822 24.5 51,617 362,205 21.7 (110,804 ) 473,009 30.3 (124,806 ) Fixed-rate certificates which mature in the year ending: Within 1 year 527,486 31.3 31,881 495,605 29.5 233,416 262,189 16.8 108,717 After 1 year but within 3 years 96,145 5.7 (12,273 ) 108,418 6.5 1,419 106,999 6.8 34,409 After 3 years but within 5 years 24,211 1.4 (22,804 ) 47,015 2.8 34,518 12,497 0.8 (8,684 ) Total $ 1,688,026 100.0 % $ 11,134 $ 1,676,892 100.0 % $ 112,637 $ 1,564,255 100.0 % $ (16,325 ) 34 Table of Contents Deposit Maturities. The following table sets forth the rate and maturity information of our time deposit certificates at December 31, 2024. 0.00 - 0.99% 1.00 - 1.99% 2.00 - 2.99% 3.00 - 3.99% 4.00 - 4.99% 5.00 - 5.99% Total Percent of Total (Dollars in thousands) Certificate accounts maturing in quarter ending: March 31, 2025 $ 1,344 $ 1,579 $ 2,742 $ 35,486 $ 169,828 $ 19,753 $ 230,732 35.6 % June 30, 2025 703 371 1,740 20,438 97,090 32,500 152,842 23.6 September 30, 2025 5,352 243 — 13,741 85,896 — 105,232 16.2 December 31, 2025 3,385 347 916 23,621 10,411 — 38,680 6.0 March 31, 2026 1,067 99 9 1,969 7,000 — 10,144 1.6 June 30, 2026 245 337 5 2,961 20,007 — 23,555 3.6 September 30, 2026 673 314 — 632 5,000 — 6,619 1.0 December 31, 2026 55 2,546 828 4,418 1,102 17,500 26,449 4.1 March 31, 2027 807 81 — 598 — — 1,486 0.2 June 30, 2027 89 546 270 361 2,196 — 3,462 0.5 September 30, 2027 — 462 — 629 — — 1,091 0.2 December 31, 2027 — 166 239 73 5,361 17,500 23,339 3.6 Thereafter — 2,516 201 3,994 — 17,500 24,211 3.8 Total $ 13,720 $ 9,607 $ 6,950 $ 108,921 $ 403,891 $ 104,753 $ 647,842 100.0 % Percent of total 2.1 % 1.5 % 1.1 % 16.8 % 62.3 % 16.2 % 100.0 % Deposit Balances in Excess of the FDIC Insured Limit. The FDIC insures up to $250,000 per depositor for each account ownership category for which the depositor qualifies. Depositors may qualify for coverage over the limit if they have funds in multiple ownership categories and all FDIC requirements are met. The Company estimated that $390.5 million and $363.7 million, or 23.1% and 21.7%, of total deposit balances were uninsured at December 31, 2024 and 2023, respectively. The following table indicates the amount of our certificates of deposit by time remaining until maturity as of December 31, 2024. Maturity 3 Months or Less Over 3 to 6 Months Over 6 to 12 Months Over 12 Months Total (In thousands) Certificates of deposit less than $250,000 $ 166,069 $ 107,586 $ 101,440 $ 98,335 $ 473,430 Certificates of deposit of $250,000 or more 64,663 45,256 42,472 22,021 174,412 Total certificates $ 230,732 $ 152,842 $ 143,912 $ 120,356 $ 647,842 The Federal Reserve may require First Fed to maintain reserves on transaction accounts or non-personal time deposits. These reserves may be in the form of cash or noninterest-bearing deposits with the Federal Reserve Bank of San Francisco. Negotiable order of withdrawal accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to the reserve requirements, as are any non-personal time deposits at a commercial bank. As of December 31, 2024, our deposit with the Federal Reserve Bank of San Francisco and vault cash exceeded our reserve requirements. 35 Table of Contents Borrowings. We use advances from the FHLB, including short-term overnight, short-term advances with initial maturities of less than one year, and longer-term advances maturing in one year or more, to meet ongoing liquidity needs and to mitigate interest rate risk. As a member of the FHLB, we are required to own capital stock in the FHLB and are authorized to apply for advances on the security of that stock and certain pledged assets including mortgage loans and investment securities. Advances are made under various terms pursuant to several different credit programs, each with its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based on the financial condition of the member institution and the adequacy of collateral pledged to secure the credit. We maintain a committed credit facility with the FHLB, and at December 31, 2024, had pledged loan and security collateral to support a borrowing capacity of $558.0 million. In addition, the Bank had outstanding letters of credit from the FHLB to secure public deposits and the Bellevue, Washington branch lease liability. At December 31, 2024, outstanding advances from the FHLB totaled $290.0 million and the combined balance for the two letters of credit was $60.8 million, leaving a remaining borrowing capacity of $207.3 million. First Fed maintains an established borrowing arrangement to use the Federal Reserve Board of San Francisco's ("FRB") discount window. At December 31, 2024, we had pledged securities with a carrying value of $18.6 million as collateral to support a borrowing capacity of $17.9 million. No funds have been borrowed on this arrangement to date. On March 25, 2021, the Company completed a private placement of $40.0 million of 3.75% fixed-to-floating rate subordinated notes due 2031 (the “Notes”) to certain qualified institutional buyers and institutional accredited investors. The net proceeds to the Company from the sale of the Notes were approximately $39.3 million after deducting placement agent fees and other offering expenses. The Notes have been structured to qualify as Tier 2 capital for the Company for regulatory capital purposes. The Company used the net proceeds of the offering for general corporate purposes. Beginning in April 2026, the interest rate will reset quarterly to the three-month SOFR plus 300-basis points. On May 20, 2022, First Northwest began a borrowing arrangement with NexBank for a $20.0 million revolving line of credit. Borrowings under the arrangement with NexBank are secured by a blanket lien on First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The line of credit matures on May 17, 2025. At December 31, 2024, the outstanding advance totaled $6.5 million, leaving a remaining borrowing capacity of $13.5 million. The following tables set forth information regarding our borrowings at the end of and during the periods indicated. The tables include both long- and short-term borrowings. Year Ended December 31, 2024 2023 2022 (Dollars in thousands) Maximum balance: FHLB long-term advances $ 170,000 $ 85,000 $ 80,000 FHLB short-term advances — 95,000 42,500 FHLB overnight borrowings 270,000 195,000 206,000 Line of credit 10,000 11,000 12,000 Subordinated debt, net 39,514 39,436 39,358 Average balances: FHLB long-term advances $ 136,250 $ 81,667 $ 80,000 FHLB short-term advances — 25,000 15,208 FHLB overnight borrowings 137,750 149,500 90,983 Line of credit 6,635 9,327 5,770 Subordinated debt, net 39,475 39,395 39,312 Weighted average interest rate: FHLB long-term advances 3.35 % 2.00 % 1.52 % FHLB short-term advances — 5.08 1.82 FHLB overnight borrowings 5.38 5.26 2.83 Line of credit 9.41 9.15 6.76 Subordinated debt, net 4.00 4.01 4.01 36 Table of Contents Year Ended December 31, 2024 2023 2022 (Dollars in thousands) Balance outstanding at end of period: FHLB long-term advances $ 160,000 $ 80,000 $ 80,000 FHLB short-term advances — — 10,000 FHLB overnight borrowings 130,000 195,000 144,000 Line of credit 6,500 6,500 12,000 Subordinated debt, net 39,514 39,436 39,358 Total borrowings $ 336,014 $ 320,936 $ 285,358 Weighted average interest rate at end of period: FHLB long-term advances 3.63 % 2.09 % 1.52 % FHLB short-term advances — — 2.12 FHLB overnight borrowings 4.64 5.52 4.30 Line of credit 8.00 9.00 8.00 Subordinated debt, net 3.99 4.00 4.01 Total borrowings 4.15 4.55 3.56 Subsidiary and Other Activities In December 2019, the Company invested in Canapi Ventures Fund, LP ("Canapi Ventures") as a limited partner to strategically invest in fintech-related businesses. The Company is dedicated to the discovery of, and investment in, those fintech-related companies that we expect may also contribute to the evolution of digital solutions applicable to the banking industry. This commitment to Canapi Ventures will be for up to ten years, with cash installments totaling up to $3.0 million to be paid into the partnership over a period not to exceed the first five years, beginning in 2020. As of December 31, 2024, $2.5 million had been contributed to this partnership. The recorded investment was $2.6 million at December 31, 2024. In February 2021, First Fed invested in Makers Square Master Tenant, LLC as a limited partner in order to participate in an historic tax credit transaction. This entity meets the criteria for reporting under the equity method of accounting. In April 2021, First Northwest extended $8.0 million to Quin Ventures, Inc. ("Quin Ventures") under a capital financing agreement and related promissory note. In December 2022, Quin Ventures sold substantially all of its assets to Quil Ventures, Inc. ("QUIL"). As part of the sale transaction, the Company received a 5% ownership stake in Quil valued at $225,000 and recorded a $1.5 million commitment receivable. In June 2023, First Northwest determined that Quin Ventures was no longer a going concern. The Company wrote off the remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods. The balance of the noncontrolling interest in Quin Ventures balance was moved to retained earnings, with no change to total shareholders' equity as a result of the transaction. In December 2023, the Company determined that QUIL was no longer a going concern and wrote off the related investment and commitment receivable. In September 2021, the Company invested in BankTech Ventures, LP ("BankTech") as a limited partner to strategically invest in fintech-related businesses. The commitment to BankTech will be for up to ten years, with cash installments totaling up to $1.0 million to be paid into the partnership over a period not to exceed the first five years, beginning in 2021. As of December 31, 2024 , $620,000 had been contributed to this partnership. The recorded investment was $617,000 at December 31, 2024. In December 2021, the Company invested in JAM FINTOP Blockchain, LP as a limited partner to strategically invest in fintech-related businesses. This commitment will be for up to ten years, with cash installments totaling up to $1.0 million to be paid into the partnership over a period not to exceed the first five years, beginning in 2022. As of December 31, 2024 , $330,000 had been contributed to this partnership. The recorded investment was $221,000 at December 31, 2024. In February 2022, the Bank invested in a Small Business Investment Company through Canapi Ventures. This commitment will be for up to ten years with two possible one-year extensions, with cash installments totaling up to $2.0 million to be paid into the company over the commitment period, beginning in 2022. As of December 31, 2024 , $410,000 has been contributed to this fund. The recorded investment was $305,000 at December 31, 2024. 37 Table of Contents In April 2022, First Northwest invested $3.0 million in Meriwether Group Capital Hero Fund LP, a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest. A second $3.0 million investment was made in May 2022, bringing the Company's total investment in the Hero Fund to $6.0 million. In June 2024, First Northwest redeemed its investment in the Hero Fund and First Fed made a subsequent $6.0 million limited partnership investment in the same entity. The recorded investment was $6.0 million at December 31, 2024. Also in April 2022, First Northwest made an initial investment for a 5% interest in Meriwether Group Capital, LLC, which provides financial advice for borrowers and capital for the Hero Fund. In October 2022, the Company completed an additional purchase and holds a 25% equity interest in MWGC valued at $150,000 at December 31, 2024. The recorded investment in MWGC was $165,000 at December 31, 2024. In June 2022, First Northwest made an initial investment for a 5% interest in The Meriwether Group, LLC, a boutique investment bank focusing on providing entrepreneurs with resources to help them succeed, including equity and debt raising services along with strategic positioning of business throughout the United States. In September 2022, the Company completed an additional purchase and holds a 33% interest in MWG valued at $2.8 million at December 31, 2024. First Northwest issued 115,777 shares of stock with a value of $1.9 million to the existing partners in MWG as consideration in the acquisition transaction. MWG also holds a 20% interest in MWGC. The recorded investment in MWG was $2.8 million at December 31, 2024. Competition We face competition in originating loans from other banks, credit unions, life insurance companies, mortgage bankers, public and private capital markets, and digital lenders. In general, the primary factors in competing for loans are interest rates and rate adjustment provisions, loan maturities, loan fees, and the quality of service. We offer competitive terms and conditions and compete by delivering high-quality, personal service to our customers. Competition for loans is also strong due to the number and variety of institutions competing in our market areas. For instance, competition for loans is particularly intense in the larger markets in the Puget Sound area, such as Seattle, Washington. Competition for deposits is primarily from other banks, credit unions, mutual funds, and other alternative investment vehicles such as securities firms, insurance companies, etc., which may be offered locally or via the internet. We expect continued competition from such financial institutions and investment vehicles in the foreseeable future, including competition from digital banking competitors, challenger banks, and "Fintech" companies that rely on technology to provide financial services. We compete for these deposits by offering excellent service and a variety of deposit accounts at competitive rates and through our branch network. We also compete for deposits by offering a variety of financial services, including online and mobile banking capabilities. Based on the most recent branch data provided by the FDIC, as of June 30, 2024, First Fed’s share of bank, savings bank and savings and loan association deposits in Clallam and Jefferson counties was 42.0% and 21.2%, respectively, and was less than 4% in Whatcom, Kitsap and King counties. Human Capital Resources At December 31, 2024, we had 227 full-time equivalent employees. A t that date, the average tenure of all our full-time employees was approximately 5.6 years while the average tenure of our executive officers was approximately 5.5 years . None of our employees are represented by collective bargaining agreements. We believe our employee relations to be excellent. Our Board guides the implementation of our corporate mission, vision, and values as an important element of risk oversight because our people are integral to the success of our corporate strategy. Our Board holds senior management accountable for embodying, maintaining, and communicating our culture to employees. In that regard, our corporate mission, vision, and values are designed to promote commitment to making the lives of all those around us better and to uphold that principle in everything we do. That commitment has been a pillar in our approach to our employees and the communities we have proudly served for over 100 years. Our culture is designed to adhere to the timeless values of optimism, respect, initiative, growth, and ownership. In keeping with that culture, we strive to be a force for good in everyday life and expect our employees to treat each other and our customers with the highest level of care and respect, going out of their way to do the right thing. We dedicate resources to promote a safe and inclusive workplace; attract, develop, and retain a diverse group of talented employees; promote a culture of integrity, caring, and excellence; and reward and recognize employees for both the results they deliver and, just as importantly, how they deliver them. We also seek to design fulfilling careers, with competitive compensation and benefits combined with a positive work-life balance. We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training, and development programs. 38 Table of Contents Our employees are the cornerstone of our success as an organization as they serve our customer base. We are committed to attracting, retaining, and promoting highly qualified individuals from a wide array of backgrounds. We believe employing a talented and inclusive workforce enhances our ability to serve our customers and our communities. In late 2024, the Bank embarked on an endeavor to further evolve our culture to meet the needs of our changing workforce. We seek to better understand the financial needs of our prospective and current customers by promoting and fostering a workforce that reflects the communities we serve, along with providing relevant financial service products. As we move forward, we will continue to grow our inclusion efforts in a manner consistent with our company vision: to create well-being and prosperity for our employees, customers, and communities. Information About Our Executive Officers The following is a description of the principal occupation and employment of the executive officers of the Company and the Bank as of December 31, 2024: Matthew P. Deines , age 51, became President and Chief Executive Officer ("CEO") and Director of First Fed on August 1, 2019, and was elected President, CEO, and director of the Company on December 5, 2019. With over 20 years of banking, he has experience in a variety of areas, including strategic planning and acquisitions, investor relations, financial reporting, and fintech, as well as operations, information technology, payments, internal controls and board governance. Mr. Deines served as Executive Vice President and Chief Financial Officer ("CFO") of Liberty Bay Bank from November 2018 until May 2019. Prior to that, he began work at Sound Community Bank as its CFO in February 2002 and was promoted to Executive Vice President in January 2005. In 2008, Mr. Deines also became Executive Vice President, CFO, and Corporate Secretary of Sound Financial Bancorp, Inc. ("SFBC"). He held these roles at Sound Community Bank and SFBC until March 2018. In 2000, he received his Washington Certified Public Accountant certificate, currently inactive, while working for O'Rourke, Sacher & Moulton, LLP. Mr. Deines serves as a Director for the Washington Bankers Association ("WBA") and has been a conference speaker and instructor for the WBA. He is actively involved with several non-profit organizations, including the Field Hall Arts and Events Center. Geri Bullard , age 59, is Executive Vice President, Chief Financial Officer ("CFO") and Chief Operating Officer ("COO") of the Company and First Fed. She has held the CFO position since March 2020 and the COO position since October 2023. Ms. Bullard joined First Fed as Senior Vice President and Treasurer in January 2020. Prior to joining First Fed, Ms. Bullard served as Controller at Salal Credit Union, located in Seattle, from August 2018 to January 2020; CFO of First Sound Bank, also in Seattle, from February 2017 to August 2018; and Controller at Sound Community Bank from October 2015 to February 2017. Ms. Bullard also served as a bank examiner for the State of Idaho. Ms. Bullard holds a Bachelor of Science degree from Humboldt State University, is a graduate of the Pacific Coast Banking School at the University of Washington, and is a licensed CPA. David B. Edelstein , age 55, is Executive Vice President and Chief Innovation Officer ("CIO"), a position he has held since March 2024. Prior to becoming CIO, Mr. Edelstein was the CEO of Level Technology, a financial technology company which provided financial services designed to empower very small businesses to thrive. This built on his career at the intersection of financial services and technology, as the Director of the Grameen Technology Center, a product leader at Microsoft and an engagement manager at McKinsey & Company. Mr. Edelstein holds a Master’s degree in Economics and Public Policy from Princeton University and a Bachelor’s degree from Colby College. Kyle D. Henderson , age 40, is Executive Vice President and Chief Credit Officer ("CCO") of First Fed, a position he has held since July 2024. Prior to becoming CCO, he served as Deputy Chief Credit Officer beginning in August 2023. Prior to joining First Fed, Mr. Henderson served as Executive Vice President for FirstBank where he held positions in credit administration, commercial and consumer lending, and retail banking. He served in this capacity from December 2007 to July 2023. He holds a Bachelor's degree from the University of Oregon and is a graduate of the American Bankers Association’s Stonier School of Banking at the University of Pennsylvania. Christopher W. Neros , age 55, is Executive Vice President and Chief Banking Officer ("CBO") of First Fed, a position he has held since June 2023. Prior to becoming CBO, he served as Chief Lending Officer beginning in April 2022. Mr. Neros has over 29 years of banking experience with experience in lending, commercial banking, and retail banking. Prior to joining First Fed, he served as a lender, commercial banking leader and Executive at Peoples Bank from May 2006 to April 2022; and as a lender and branch manager at First National Bank Alaska from August 1995 to March 2006. He holds a Bachelor of Business Administration in Marketing from the University of Alaska Anchorage, a Master of Business Administration from Regis University, and is a graduate of the Pacific Coast Banking School at the University of Washington. Christopher J. Riffle , age 49, is Executive Vice President and Chief Strategy Officer ("CSO") of First Fed, an Officer of First Northwest, and General Counsel for the Company. Mr. Riffle has held the CSO position since March 2024 and has served as General Counsel since September 2017. He also served as Chief Digital Officer from January 2022 through March 2024 and COO from October 2018 through October 2023. Prior to joining First Fed, Mr. Riffle was a partner at the Platt Irwin Law Firm in Port Angeles, Washington, where he managed a civil legal practice representing clients in a variety of contexts. Mr. Riffle was at Platt Irwin Law Firm from 2008 to 2017 and served as outside general counsel for First Fed starting in 2009. 39 Table of Contents How We Are Regulated First Northwest Bancorp and First Fed are subject to federal, state, and local laws that may change from time to time. This section provides a general overview of the federal and state regulatory framework applicable to First Northwest Bancorp and First Fed. The descriptions of laws and regulations included herein do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations. These statutes and regulations, as well as related policies, continue to be subject to change by Congress, state legislatures, and federal and state regulators. Changes in statutes, regulations, or regulatory policies applicable to First Northwest Bancorp and First Fed (including their interpretation or implementation) cannot be predicted and could have a material effect on First Northwest Bancorp’s and First Fed’s business and operations. Numerous changes to the statutes, regulations, and regulatory policies applicable to First Northwest Bancorp and First Fed have been made or proposed in recent years. Any such legislation or regulatory changes in the future by the FDIC, DFI, Federal Reserve or the CFPB could adversely affect our operations and financial condition. Regulation of First Fed Bank General . First Fed, as a state-chartered commercial bank, is subject to applicable provisions of Washington law and to regulations and examinations of the DFI. It also is subject to examination and regulation by the FDIC, which insures the deposits of First Fed to the maximum extent permitted by law. During these state or federal regulatory examinations, the examiners may, among other things, require First Fed to provide for higher general or specific loan loss reserves, which can impact our capital and earnings. This regulation of First Fed is intended for the protection of depositors and the deposit insurance fund ("DIF") of the FDIC and not for the purpose of protecting the shareholder(s) of First Fed or First Northwest Bancorp. First Fed is required to maintain minimum levels of regulatory capital and is subject to some limitations on the payment of dividends to First Northwest Bancorp. See "– Capital Requirements" and "– Dividends." Federal and State Enforcement Authority and Actions . As part of its supervisory authority over Washington-chartered commercial banks, the DFI may initiate enforcement proceedings to obtain a cease-and-desist order against an institution believed to have engaged in unsafe and unsound practices or to have violated a law, regulation, or other regulatory limit, including a written agreement. The FDIC also has the authority to initiate enforcement actions against insured institutions for similar reasons and may terminate the deposit insurance of such an institution if, among other things, the FDIC determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition. Both agencies may utilize less formal supervisory tools to address their concerns about the condition, operations, or compliance status of a commercial bank. Regulation by the Washington Department of Financial Institutions . State laws and regulations govern First Fed's ability to take deposits and pay interest, to make loans on or invest in residential and other real estate, to make consumer loans, to invest in securities, to offer various banking services to its customers, and to establish branch offices. As a state-chartered commercial bank, First Fed must pay semi-annual assessments, examination costs and certain other charges to the DFI. Washington law generally provides the same powers for Washington commercial banks as federally and other-state chartered banks and savings institutions with branches in Washington, subject to the approval of the DFI. Insider Credit Transactions. Banks are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders, and their related interests. These extensions of credit (1) must be made on substantially the same terms (including interest rates and collateral) and follow credit underwriting procedures that are at least as stringent as those prevailing at the time for comparable transactions with persons not related to the lending bank; and (2) must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to insiders. A violation of these restrictions may result in the assessment of substantial civil monetary penalties, regulatory enforcement actions, and other regulatory sanctions. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to senior officers other than for certain specified purposes. Insurance of Accounts and Regulation by the FDIC . The DIF of the FDIC insures deposit accounts in First Fed up to $250,000 per separately insured depositor. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. Our deposit insurance premiums for the year ended December 31, 2024, were $1.9 million. No institution may pay a dividend to its parent holding company if it is in default on its federal deposit insurance assessment. 40 Table of Contents The FDIC determines the amount of insurance premiums based on each financial institution's deposit base and the applicable assessment rate. The assessment rate for small institutions, which are generally those with less than $10 billion in assets, is based on an institution’s weighted average CAMELS component ratings and certain financial ratios. Assessment rates currently range from 2.5 to 32 basis points for small institutions. The FDIC has authority to increase assessment rates and in October 2022 adopted a Final Rule, applicable to all insured depository institutions, increasing assessment rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023. Increases to insurance assessments have an adverse effect on the operating expenses and results of operations of First Fed. The FDIC communicated that the new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds two percent. Progressively lower assessment rates can be expected when the reserve ratio reaches two percent. Management cannot predict what assessment rates will be in the future. Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The FDIC may also prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious risk to the DIF. We do not currently know of any practice, condition, or violation that may lead to termination of our deposit insurance. Prompt Corrective Action . Federal statutes establish a supervisory framework, designed to place restrictions on an insured depository institution if its capital levels begin to show signs of weakness, based on five capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." An institution’s category depends upon where its capital levels are in relation to relevant capital measures, which include risk-based capital measures, Tier 1 and common equity Tier 1 capital measures, a leverage ratio capital measure, and certain other factors. The federal banking agencies have adopted regulations that implement this statutory framework. Under these regulations, an institution is treated as well capitalized if it has a ratio of total capital to risk-weighted assets of 10.0% or more (the total risk-based capital ratio); a ratio of Tier 1 capital to risk-weighted assets (the Tier 1 risk-based capital ratio) of 8.0% or more; a ratio of Tier 1 common equity capital to risk-weighted assets (the common equity Tier 1 capital ratio) of 6.5% or more; a ratio of Tier 1 capital to average consolidated assets (the leverage ratio) of 5.0% or more; and the institution is not subject to a federal order, agreement, or directive to meet a specific capital level. The classifications for "undercapitalized," "significantly undercapitalized" and "critically undercapitalized" institutions are also set forth in the regulations. An institution that is not well capitalized is subject to certain restrictions on brokered deposits and restrictions on the rates it can offer on its deposits generally. Any institution which is neither well capitalized nor adequately capitalized is considered undercapitalized. Further, an institution may be downgraded to a category lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition, or if the institution receives an unsatisfactory examination rating. Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls, and restrictions which become more extensive as an institution becomes more severely undercapitalized. At December 31, 2024, First Fed was categorized as "well capitalized." For additional information, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. Capital Requirements . Federal regulations require insured depository institutions and bank holding companies (including financial holding companies) to meet several minimum capital standards. The minimum capital level requirements applicable to First Northwest Bancorp and First Fed are: (i) a common equity Tier 1 ("CET1") capital to risk-based assets ratio of 4.5%; (ii) a Tier 1 capital to risk-based assets ratio of 6%; (iii) a total capital to risk-based assets ratio of 8%; and (iv) a leverage ratio of Tier 1 capital to total assets of 4%. In addition to the minimum capital ratios, the capital regulations require a banking organization to maintain a capital conservation buffer, designed to absorb losses during periods of economic stress, consisting of additional CET1 capital of more than 2.5% of risk-weighted assets above the required minimum risk-based capital ratios in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. As of December 31, 2024, First Northwest Bancorp and First Fed each met the minimum capital ratio requirements and exceeded the capital conservation buffer requirement. For additional information regarding First Northwest Bancorp’s and First Fed’s required and actual capital levels at December 31, 2024, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. 41 Table of Contents Federal Home Loan Bank System. First Fed is a member of the FHLB of Des Moines. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB, and all long-term advances are required to provide funds for residential home financing. At December 31, 2024, First Fed had $290.0 million of outstanding advances from the FHLB of Des Moines. See Item 1, "Business – Deposit Activities and Other Sources of Funds – Borrowings." Activities and Investments of Insured State-Chartered Financial Institutions . Federal law generally limits the activities and equity investments of FDIC insured, state-chartered banks to those that are permissible for national banks. Dividends . Dividends from First Fed, which are subject to regulation and limitation, constitute a major source of funds for dividends paid by First Northwest Bancorp to shareholders. As a general rule, regulatory authorities may prohibit banks and financial holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice. For example, regulators have stated that paying dividends that deplete an institution's capital base to an inadequate level would be an unsafe and unsound banking practice and that an institution should generally pay dividends only out of current operating earnings. In addition, a bank may not pay cash dividends if that payment could reduce the amount of its capital below the minimum applicable regulatory capital requirements. According to Washington law, First Fed may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (1) the amount required for liquidation accounts or (2) the net worth requirements, if any, imposed by the Director of the DFI. Additionally, dividends on First Fed’s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of First Fed without the approval of the Director of the DFI. Affiliate Transactions . Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates, including their financial holding companies. Transactions deemed to be a "covered transaction" under Section 23A of the Federal Reserve Act and between a bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10% of the bank’s capital and surplus to a single affiliate and, with respect to all affiliates, to an aggregate of 20% of the bank’s capital and surplus. Further, covered transactions that are loans and extensions of credit generally are required to be secured by eligible collateral in specified amounts. Federal law also requires that most transactions between a bank and its affiliates be on terms at least as favorable to the bank as transactions with non-affiliates. Community Reinvestment Act . First Fed is subject to the provisions of the Community Reinvestment Act of 1977 (the "CRA"). Under the CRA, federal bank regulators assess a bank’s performance under the CRA in meeting the credit needs of the communities serviced by the bank, including low-and moderate -income neighborhoods. The regulatory agency’s assessment of a bank’s record is made available to the public. Further, a bank’s CRA performance rating must be considered in connection with a bank’s application, among other things, to establish a new branch office that will accept deposits; to relocate an existing office; or to merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. In some cases, a bank's failure to perform satisfactorily under the CRA, or CRA-related protests filed by interested parties during applicable comment periods, can result in the denial or delay of such transactions. First Fed received a "satisfactory" rating during its most recent CRA examination. In October 2023, federal bank regulators released a final rule to revise their CRA regulations, which could impact the Bank’s rating if and when it becomes effective. However, industry groups have challenged the final rule, and in March 2024, the District Court for the Northern District of Texas issued a preliminary injunction against enforcement of the final rule. Commercial Real Estate Ratios. The federal banking regulators have issued guidance regarding concentrations in commercial real estate lending, including acquisition, development and construction lending. The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be considered in evaluating capital adequacy and provides supervisory criteria that identifies institutions that are potentially exposed to significant commercial real estate concentration risk, but does not specifically limit a bank’s commercial real estate lending to a specified concentration level. Privacy Standards . The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 ("GLBA") modernized the financial services industry by, among other things, establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. First Fed is subject to FDIC regulations implementing the privacy protection provisions of the GLBA. These regulations require First Fed to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices. 42 Table of Contents Federal Reserve System. The Federal Reserve Board has historically required that all depository institutions maintain reserves on transaction accounts or non-personal time deposits. These reserves may be in the form of cash or noninterest-bearing deposits with the regional Federal Reserve Bank. Negotiable order of withdrawal (NOW) accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to the reserve requirements, as are any non-personal time deposits at a commercial bank. In response to the COVID-19 pandemic, the Federal Reserve reduced the reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses. Anti-Money Laundering and Anti-Terrorism. The Bank Secrecy Act ("BSA") requires all financial institutions to establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. The BSA also sets forth various recordkeeping and reporting requirements (such as reporting suspicious activities that might signal criminal activity) and certain due diligence and "know your customer" documentation requirements. The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards for testing technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations; and expands BSA whistleblower incentives and protections. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA. The priorities include corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking and proliferation financing. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("Patriot Act"), intended to combat terrorism, was renewed with certain amendments in 2006. In relevant part, the Patriot Act (1) prohibits banks from providing correspondent accounts directly to foreign shell banks; (2) imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals; (3) requires financial institutions to establish an anti-money laundering compliance program; and (4) eliminates civil liability for persons who file suspicious activity reports. The Patriot Act also includes provisions providing the government with power to investigate terrorism, including expanded government access to bank account records. Regulators are directed to consider a bank holding company’s and a bank’s effectiveness in combating money laundering when reviewing and ruling on applications under the BHCA and the Bank Merger Act. First Northwest Bancorp and First Fed have established comprehensive compliance programs designed to comply with the requirements of the BSA and Patriot Act. Consumer Protection Laws and Regulations. The Dodd-Frank Act, among other things, established the CFPB as an independent bureau of the Federal Reserve Board. The CFPB assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements. First Fed is subject to consumer protection regulations issued by the CFPB, but as a smaller financial institution, it is generally subject to supervision and enforcement by the FDIC and the DFI with respect to our compliance with consumer financial protection laws and CFPB regulations. The CFPB has issued and continues to issue numerous regulations under which we may incur additional expense in connection with our ongoing compliance obligations. Significant recent CFPB developments that may affect operations and compliance costs include: • Positions taken by the CFPB on fair lending, most recently expanding its supervisory approach to prevent discrimination by using the unfairness standard under the unfair, deceptive, or abuse acts or practices framework in the Dodd-Frank Act in addition to the historical reliance on regulatory requirements under the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act (“FHA”); • The CFPB's Final Rule amending Regulation C, which implements the Home Mortgage Disclosure Act, requiring most lenders to report expanded information in order for the CFPB to more effectively monitor fair lending concerns and other information shortcomings identified by the CFPB; • Positions taken by the CFPB regarding the Electronic Fund Transfer Act and Federal Reserve Regulation E, which require companies to obtain consumer authorizations before automatically debiting a consumer’s account for pre-authorized electronic funds transfers; • Efforts focused on enforcing certain compliance obligations the CFPB has deemed a priority, such as automobile and student loan servicing, debt collection, collateral repossession, mortgage origination and servicing, remittances, and fair lending, among others; and • Positions and focused efforts on enforcing compliance obligations related to deposit account fees, including overdraft, non-sufficient funds, and returned deposit fees. 43 Table of Contents There is continued uncertainty about the CFPB's priorities and how they will change under the current administration. For example, in February 2025, the Acting Director of the CFPB instructed agency staff to pause most activity, including supervision and enforcement. While it is presently unclear when and to what extent the CFPB will resume its activities, other governmental authorities, including state attorneys general or banking regulators, may seek to increase their regulation, supervision, and enforcement of providers of consumer financial products and services in response to changes at the CFPB. Moreover, changes at the CFPB may lead to federal legislative efforts to alter the framework for consumer financial services regulation. First Fed is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While the list set forth below is not exhaustive, some of these laws and regulations include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the way financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services. In recent years, examination and enforcement by federal and state banking agencies for compliance with consumer protection laws and regulations have increased and become more intense. Failure to comply with these laws and regulations can subject First Fed to various penalties including, but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of certain contractual rights. First Fed has established a comprehensive compliance system to ensure consumer protection. Regulation and Supervision of First Northwest Bancorp General. First Northwest Bancorp is a bank holding company registered with the Federal Reserve and the sole shareholder of First Fed. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA"), and the regulations promulgated thereunder. This regulation and oversight is generally intended to ensure that First Northwest Bancorp limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of First Fed. During 2022, First Northwest elected to be treated as a financial holding company (a type of bank holding company), allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities. Under the BHCA, First Northwest Bancorp is supervised by the Federal Reserve. As a bank holding company, First Northwest Bancorp is required to file semi-annual and annual reports with the Federal Reserve and any additional information required by the Federal Reserve and is subject to regular examinations by the Federal Reserve. The Federal Reserve also has extensive enforcement authority over bank holding companies, including the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a bank holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and/or for unsafe or unsound practices. Source of Strength Doctrine. Under the Dodd-Frank Act and Federal Reserve policy, a bank holding company should serve as a source of financial and managerial strength to its subsidiary banks, and the Federal Reserve may expect a bank holding company to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity (including at times when a bank holding company may not be in a financial position to provide such resources or when it may not be in the bank holding company’s or its shareholders' best interests to do so) and to maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks. Acquisitions. With certain exceptions, the BHCA prohibits a bank holding company from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The Federal Reserve may approve a bank holding company's ownership of another company which engages in activities closely related to the business of banking, as determined by the Federal Reserve. A bank holding company that meets certain supervisory and financial standards and elects to be designated as a financial holding company may also engage in certain securities, insurance and merchant banking activities, and other activities determined to be financial in nature or incidental to financial activities. 44 Table of Contents Regulatory Capital Requirements. As part of the review of applications under the BHCA and the supervision of bank holding companies, the Federal Reserve assesses the adequacy of a bank holding company's capital pursuant to the capital rules the Federal Reserve has adopted. These rules apply to bank holding companies with $3.0 billion or more in assets on a consolidated basis, or to bank holding companies with fewer assets but certain risky activities, or to bank-only companies. When applicable, the bank holding company capital adequacy and conservation buffer rules are the same as those imposed by the FDIC. For additional information, see the section above entitled "- Regulation of First Fed Bank - Capital Regulation" and Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. Interstate Banking . The Dodd-Frank Act eliminated certain interstate branching restrictions that were implemented as part of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Act"). The Federal Reserve may approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than the bank holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. Interchange Fees. Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic transactions are "reasonable and proportional" to the costs incurred by issuers for processing such transactions. Notably, the Federal Reserve's rules set a maximum permissible interchange fee, among other requirements. As of December 31, 2024, First Northwest Bancorp and First Fed qualified for the small issuer exemption from the Federal Reserve’s interchange fee cap, which applies to any debit card issuer that has total consolidated assets of less than $10 billion as of the end of the previous calendar year. In October 2023, the Federal Reserve requested comments on a proposed rule that would lower the interchange fee cap that applies to debit card issuers with $10 billion or more in assets and establish a regular process for updating the cap every other year going forward. Future changes to the interchange fee cap could have a negative effect on the Bank’s fee revenue. Restrictions on Dividends . First Northwest Bancorp's ability to declare and pay dividends is subject to the Federal Reserve limits and Washington law, and may also depend on its ability to receive dividends from First Fed, as discussed above. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies. In particular, the policy limits the payment of a cash dividend by a bank holding company if the holding company's net income for the past year is not sufficient to cover both the cash dividend and a rate of earnings retention that is consistent with capital needs, asset quality, and overall financial condition. A bank holding company that does not meet any applicable capital standard would not be able to pay any cash dividends under this policy. A bank holding company not subject to consolidated capital requirements is expected not to pay dividends unless its debt-to-equity ratio is less than 1:1, and it meets certain additional criteria. The Federal Reserve also has indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Except for a company that meets the well-capitalized standard for bank holding companies, is well managed, and is not subject to any unresolved supervisory issues, a bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10.0% or more of the company's consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation or regulatory order, condition, or written agreement. Under Washington corporate law, First Northwest Bancorp generally may not pay dividends if after that payment it would not be able to pay its liabilities as they become due in the usual course of business, or its total assets would be less than the sum of its total liabilities . These various laws and regulatory policies may affect First Northwest Bancorp’s ability to pay dividends or otherwise engage in capital distributions. Recent and Proposed Legislation. The economic and political environment of the past several years has led to a number of proposed legislative, governmental, and regulatory initiatives that may significantly impact the banking industry. Other regulatory initiatives by federal and state agencies may also significantly impact First Northwest Bancorp's and First Fed’s business. First Northwest Bancorp and First Fed cannot predict whether these or any other proposals will be enacted or the ultimate impact of any such initiatives on its operations, competitive situation, financial conditions, or results of operations. 45 Table of Contents Recent executive orders have the potential to alter the supervisory, regulatory, and enforcement frameworks and priorities of federal financial regulatory agencies such as the OCC, Federal Reserve, and FDIC, as well as decrease the stability of regulatory policy over time. For example, a February 2025 executive order directs independent agencies, including the federal financial regulatory agencies (but excluding the monetary policy function of the Federal Reserve), to submit significant regulatory actions to the White House Office of Management and Budget (“OMB”) for its review. Additionally, OMB is directed to provide "performance standards and management objectives" to the heads of independent agencies, and review and adjust their budgets. These changes to the operation of independent agencies, if carried through, may cause financial regulatory policy to change more significantly across different presidential administrations than it has historically. Additionally, as a result of these changes, it may take longer for the federal financial regulatory agencies to establish their supervisory and enforcement priorities and develop and adopt new rules and regulations. Effects of Federal Government Monetary Policy. First Northwest Bancorp’s earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve implements national monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates. Through its open market operations in U.S. government securities, control of the discount rate applicable to borrowings, establishment of reserve requirements against certain deposits, and control of the interest rate applicable to excess reserve balances and reverse repurchase agreements, the Federal Reserve influences the availability and cost of money and credit and, ultimately, a range of economic variables including employment, output, and the prices of goods and services. The Federal Reserve has reaffirmed that its strategy for monetary policy is focused on long-term goals and addressing continued concerns with inflation. After increasing the federal funds rate by 425 basis points in 2022, the Federal Reserve continued the trend, albeit at a slower pace, for a total increase in 2023 of 100 basis points. In September 2024, the Federal Reserve reversed the upward trend and began lowering the federal funds rate for a total decrease in 2024 of 100 basis points. Changes in monetary policy, including changes in the federal funds rate, can affect net interest income and margin, overall profitability, and shareholders' equity. The nature and impact of future changes in monetary policies and their impact on First Northwest Bancorp and First Fed cannot be predicted with certainty. Cybersecurity . Federal banking regulators issue new guidance and standards, and update existing guidance and standards, intended to enhance cyber risk management among financial institutions from time to time. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes. If First Fed fails to observe such regulatory guidance or standards, it could be subject to various regulatory sanctions, including financial penalties. Interagency rules require banks to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” rising to the level of a "notification incident" has occurred. Among other types of computer-security incidents, a "notification incident" includes one that has materially disrupted or degraded the banking organization’s ability to carry out banking operations to a material portion of its customer base in the ordinary course of business. State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and many states, including Washington, have also recently implemented or modified their data breach notification, information security and data privacy requirements. We expect this trend of state-level activity in those areas to continue, and are continually monitoring developments in the states in which our customers are located. Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as the expanding use of internet banking, mobile banking and other technology-based products and services by us and our customers. Cybersecurity concerns are further heightened by Russia's current invasion of Ukraine. In addition to guidance and standards implemented by banking regulators, in July 2023, the SEC adopted final rules requiring an annual disclosure of registrants’ cybersecurity risk management strategy and governance. Additionally, registrants are required to disclose cybersecurity incidents, including the nature, scope, timing, and impact of the incident, within four business days of determining them to be material. 46 Table of Contents Taxation Federal Taxation General . First Northwest Bancorp and First Fed are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to First Northwest Bancorp or First Fed. First Fed is no longer subject to U.S. federal income tax examinations by tax authorities for years ended before December 31, 2021. See Note 10 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. First Northwest Bancorp will file a consolidated federal income tax return with First Fed. Accordingly, any cash distributions made by First Northwest Bancorp to its shareholders would be considered taxable dividends and not as a non-taxable return of capital to shareholders for federal and state tax purposes. Method of Accounting . For federal income tax purposes, First Fed currently reports its income and expenses on the accrual method of accounting. Federal income tax returns are filed using a December 31 year end. Corporate Dividends-Received Deduction . First Northwest Bancorp may eliminate from its income dividends received from First Fed as a wholly owned subsidiary of First Northwest Bancorp if it elects to file a consolidated return with First Fed. The corporate dividends-received deduction is 100%, or 65%, in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payor of the dividend. Corporations that own less than 20% of the stock of a corporation distributing a dividend may deduct 50% of dividends received or accrued on their behalf. Washington Taxation The Company and First Fed are subject to a business and occupation tax imposed under Washington law at the rate of 1.75% of gross receipts. Interest received on loans secured by mortgages or deeds of trust on residential properties and certain investment securities are exempt from this tax.