UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2021~~2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to _____

Commission File Number: 001-36741

FIRST NORTHWEST BANCORP

(Exact name of registrant as specified in its charter)


Washington		46-1259100
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer I.D. Number)

105 West 8th Street, Port Angeles, Washington		98362
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:		(360) 457-0461

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Trading Symbol(s):		Name of each exchange on which registered:
Common Stock, par value $0.01 per share		FNWB		The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At March ~~10, 2022,~~8, 2024, the registrant had ~~10,006,022~~9,443,271 shares of common stock issued and outstanding. The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of such stock as quoted on The Nasdaq Stock Market, LLC as of June 30, ~~2021,~~2023, was ~~$170,874,610.~~$104,963,726.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's Proxy Statement for the ~~2022~~2024 Annual Meeting of Shareholders are incorporated by reference into Part III.

Table of Contents

FIRST NORTHWEST BANCORP

~~2021~~2023 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Forward-Looking Statements	4
Available Information	5
PART I
Item 1. Business	6
General	6
Market Area	67
Lending Activities	8
Asset Quality	2524
Investment Activities	3330
Deposit Activities and Other Sources of Funds	3633
Subsidiary and Other Activities	4137
Competition	4238
Employees and Human Capital Resources	4238
How We Are Regulated	4440
Taxation	5549
Item 1A. Risk Factors	5650
Item 1B. Unresolved Staff Comments	6859
Item 1C. Cybersecurity	60
Item 2. Properties	6861
Item 3. Legal Proceedings	6861
Item 4. Mine Safety Disclosures	6861
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6962
Item 6. [Reserved]	6962
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	7063
General	7063
Our Business and Operating Strategy	7164
Critical Accounting Policies	7365
New Accounting Pronouncements	7466
Comparison of Financial Condition at December 31, ~~2021~~2023 and December 31, ~~2020~~2022	7467
Comparison of Results of Operations for the Years Ended December 31, ~~2021~~2023 and December 31, ~~2020~~2022	7769
Average Balances, Interest and Average Yields/Cost	8173
Rate/Volume Analysis	8274
Asset and Liability Management and Market Risk	8274
Liquidity Management	8476
Off-Balance Sheet Activities	8576
Commitments and Off-Balance Sheet Arrangements	8577
Capital Resources	8577
Effect of Inflation and Changing Prices	8678
Recent Accounting Pronouncements	8678
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	8778
Item 8. Financial Statements and Supplementary Data	8778

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FIRST NORTHWEST BANCORP

~~2021~~2023 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS (Continued)

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~149~~138
Item 9A. Controls and Procedures	~~149~~138
Item 9B. Other Information	~~150~~139
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections	~~150~~139
PART III.
Item 10. Directors, Executive Officers and Corporate Governance	~~150~~139
Item 11. Executive Compensation	~~150~~139
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~151~~139
Item 13. Certain Relationships and Related Transactions, and Director Independence	~~151~~140
Item 14. Principal Accountant Fees and Services	~~151~~140
PART IV.
Item 15. Exhibits and Financial Statement Schedules	~~151~~140
Item 16. Form 10-K Summary	~~152~~141
Signatures	~~153~~142

As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to First Northwest Bancorp ("First Northwest"), and its consolidated subsidiary ~~and~~unless the context indicates otherwise. For periods prior to June 30, 2023, such terms also include its former joint venture controlling interest, unless the context indicates otherwise. When we refer to “First Fed” or the “Bank” in this report, we are referring to First Fed Bank, the wholly owned subsidiary of First Northwest Bancorp. When we refer to "Quin" or "Quin Ventures" in this report, we are referring to Quin Ventures, Inc., a former First Northwest joint venture. First Northwest and the Bank ~~and Quin Ventures~~ are collectively referred to as the "Company." For periods prior to June 30, 2023, Company references also include Quin Ventures.

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Forward-Looking Statements

Certain matters in this Annual Report on Form 10-K ("Form 10-K"), including information included or incorporated by reference, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions that are not historical facts, and other statements often identified by words such as "believes," "expects," "anticipates," "estimates," or similar expressions.

These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

	•	~~the effects of the COVID-19 pandemic, including on our credit quality and operations, as well as its impact on general economic conditions;~~
	•	~~legislative or regulatory changes, including actions taken by governmental authorities in response to inflationary pressures, the COVID-19 pandemic, and climate change;~~
	•	~~the~~ risks associated with lending and potential adverse changes in the credit quality of ~~loans~~our loan portfolio;
	•	legislative or regulatory changes, including increased insurance rates and assessments or expanded consumer protection regulations, responses to recent events in ~~our portfolio, particularly with respect to borrowers affected by~~ the ~~COVID-19 pandemic, natural disasters, or climate change;~~ banking industry, interest rates along the yield curve, and inflation, which could adversely affect the Company's business;
	•	~~a decrease in the~~continued depressed market demand for mortgage and Small Business Administration loans that we originate for sale;
	•	changes in monetary and fiscal policies including interest rate policies of the Federal Reserve and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources;
	•	our ability to control operating costs and expenses;
	•	whether our management team can ~~implement~~succeed in implementing our operational strategy, including but not limited to our efforts to achieve ~~loan~~higher net interest income and noninterest revenue growth;
	•	our ability to successfully execute on acquisition strategies and integrate any newly acquired assets, liabilities, customers, systems, and management personnel into our operations and our ability to realize related cost savings within expected time frames;
	•	our ability to successfully execute on growth strategies related to our entry into new ~~markets;~~markets and delivery channels, including banking as a service;
	•	our ability to develop user-friendly digital applications to serve existing customers and attract new customers;
	•	the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;
	•	~~changes~~pressures on liquidity as a result of withdrawals of customer deposits or declines in the ~~levels~~value of ~~general interest rates, and the relative differences between short and long-term interest rates, deposit interest rates,~~ our ~~net interest margin and funding sources;~~ investment portfolio;
	•	increased competitive pressures among financial services companies, particularly from non-traditional banking entities such as challenger banks, fintech, and mega technology companies;
	•	our ability to attract and retain ~~deposits;~~deposits at a reasonable cost relative to the market;
	•	changes in consumer spending, borrowing and savings habits, resulting in reduced demand for banking products and ~~services;~~services, particularly in the event of a recession that affects our market areas;
	•	results of examinations ~~of us~~ by our primary or other regulatory authorities, as well as the ~~Washington State Department of Financial Institutions, Department of Banks,~~Consent Order we entered into with the Federal Deposit Insurance Corporation, ~~Federal Reserve Bank of San Francisco, or other regulatory authorities, which~~ could ~~result in restrictions that may adversely affect~~have an adverse impact on our ~~liquidity~~business and ~~earnings;~~
	•	~~legislative or regulatory changes that adversely affect our business;~~operations;
	•	disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;
	•	risks related to overall economic conditions, including the impact on the economy of an elevated interest rate environment and geopolitical instability, including the wars in Ukraine and the Middle East;
	•	any failure of key third-party vendors to perform their obligations to us;
	•	risks related to natural disasters, including droughts, fires, floods, earthquakes, pandemics, and other unexpected events;
	•	the effects of any reputational damage to the Company resulting from any of the foregoing; and
	•	other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including risks discussed under "Item 1.A. -- Risk Factors" in this Form 10-K.

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~~Further, statements about the potential effects~~Any of the ~~COVID-19 pandemic on the Bank’s businesses and financial results and condition may constitute~~ forward-looking statements ~~and are subject to the risk~~ that ~~the actual effects may differ, possibly materially, from what is reflected~~we make in ~~those forward-looking statements due to factors and future developments that are uncertain, unpredictable~~this report and in ~~many cases beyond the Bank’s control, including the direct and indirect impact~~other statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the ~~ongoing pandemic on the Bank, its customers and third parties. These developments could have an adverse impact on our financial position and our results~~factors illustrated above or because of ~~operations.~~

other factors that we cannot anticipate or predict. Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. Due to these risks, uncertainties and assumptions, ~~we cannot assure that~~ the forward-looking statements discussed in this report ~~will~~might not occur, and you should not put undue reliance on any forward-looking statements.

Available Information

The Company provides an Investor Relations link on its website (www.ourfirstfed.com) to the Securities and Exchange Commission’s ("SEC") website (www.sec.gov) for purposes of providing copies of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and proxy statements. Other than an investor’s own ~~Internet~~internet access charges, these filings are available free of charge. The information contained on our website is not included as part of, or incorporated by reference into, this Form 10-K.

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PART I

Item 1. Business

General

First Northwest Bancorp, a Washington corporation, is ~~the~~a bank holding company ~~for~~and a financial holding company. First Northwest is engaged in banking activities through its wholly owned subsidiary, First Fed ~~Bank. In addition to the~~ Bank, ~~the Company has~~as well as certain non-banking financial activities. Non-financial investments include several limited partnership investments, including a ~~controlling~~33% interest in ~~Quin Ventures, Inc.~~The Meriwether Group, LLC ("MWG"), ~~which operates~~ a ~~digital financial wellness platform nationwide.~~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, ~~2021,~~2023, the Company had total assets of ~~$1.92~~$2.2 billion, net loans of ~~$1.35~~$1.64 billion, total deposits of ~~$1.58~~$1.68 billion, and total shareholders' equity of ~~$190.5~~$163.3 million. The Company's business activities are generally ~~limited to~~focused on passive investment activities and oversight of ~~its investments in~~the activities of First ~~Fed and Quin Ventures.~~Fed. The Company ~~also~~has entered into numerous partnerships to strategically invest ~~into fintech-related~~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 ~~a bank holding company~~ 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 ~~serving Western Washington with offices~~founded in 1923 in Port Angeles, Washington. The Bank operates in 18 locations including twelve full-service branches, three business centers, and three administration centers located in Clallam, Jefferson, King, Kitsap, and Whatcom counties. ~~We have twelve full-service branches~~First Fed’s business and ~~two business centers.~~

~~We offer~~operating strategy is focused on building sustainable earnings by delivering a ~~wide range~~full array of financial products and services ~~focused on the financial needs of the communities we serve.~~for individuals, small business, and commercial customers. Lending activities include ~~the origination~~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~~one-to-four family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, ~~(including lot loans),~~ commercial business loans, Small Business Administration ("SBA") loans, and consumer loans, consisting primarily of ~~automobile loans as well as~~ home equity loans and lines of credit. Over the last five years, we have significantly increased the origination of commercial real estate, multi-family real estate, construction, and commercial business loans. Loans are purchased from experienced third-party lenders with a current focus on unsecured loans to small businesses and professionals, manufactured home loans and ~~more recently have increased~~high-end auto loans to increase our commercial business and consumer loan ~~portfolio through our manufactured home and auto loan purchase programs.~~portfolios. We offer traditional consumer and business deposit products, including ~~transaction~~transaction accounts, savings and money market accounts and certificates of deposit ("CDs") for individuals and businesses. Deposits are our primary source of funding for our lending and investing activities. Additionally, First Fed developed a strategic partnership with a financial technology ("fintech") company, Splash Financial, to develop and deploy digitally focused financial solutions to meet customers’ needs on a broader scale.

Quin Ventures, Inc. was a fintech joint venture between First Northwest and Peace of Mind, Inc. ("POM") formed in April 2021 to focus on financial wellness and lifestyle protection products for consumers nationwide. In December 2022, in connection with termination of the joint venture agreement, Quin Ventures sold substantially all its assets, including intellectual property, to Quil Ventures, Inc. (“Quil”). Quil was created by the founders of POM, in partnership with a third-party financing source, to pursue a new business model with another sponsor bank. As part of the transaction, First Northwest received a 5% ownership stake in Quil. First Northwest retained a 50% equity interest in Quin Ventures and recorded a commitment receivable under "Other Assets" which was to be repaid from Quil subscription fee income through a revenue share agreement. In June 2023, First Northwest determined that Quin Ventures was no longer a going concern. The Company wrote off its remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods, with no change to total shareholders' equity as a result of the transaction. In December 2023, the Company determined that Quil was no longer a going concern, therefore making the collectability of the receivable from and investment in Quil unlikely. As result, the related investment of $225,000 and commitment receivable of $1.5 million were written off, impacting other noninterest income and other noninterest expense, respectively.

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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% interest in MWG, a boutique investment bank and consulting firm focusing on providing entrepreneurs with resources to help them succeed. Also in 2022, the Company acquired a 25% equity interest as a general partner in Meriwether Group Capital, LLC ("MWGC"), which provides financial advice for borrowers and capital for the Meriwether Group Capital Hero Fund LP ("Hero Fund"). The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest. First Northwest also has a limited partnership investment in the Hero Fund. MWG also holds a 20% general partner interest in MWGC.

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.

Market Area

We operate through twelve full-service branch offices, three business centers and ~~two business~~three administration centers located in Washington State. We have five branches in Clallam County, one in Jefferson County, one in King County, two in Kitsap County, and three in Whatcom County. We have two administration centers located in Clallam County, one administration and two business ~~center located~~centers in King County and one business center in Whatcom County. All population and income data below is derived from the U.S. Census Bureau website.

~~Table of Contents~~

Clallam County has a population of approximately ~~77,331~~77,805 and estimated median family income of ~~$57,126.~~$66,108. 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 ~~4.5%~~6.3% at December 31, ~~2021,~~2023, compared to ~~7.8%~~6.1% at December 31, ~~2020.~~2022. By comparison, the unemployment rate for the state of Washington was ~~4.5%~~4.2%, and the national average was ~~3.9%~~3.7% at December 31, ~~2021.~~2023.

Jefferson County has a population of approximately ~~31,729~~33,589 and estimated median family income of ~~$54,471.~~$64,796. The economic base in Jefferson County is dependent on government, healthcare, education, tourism, arts and culture, maritime and boat building, and small-scale manufacturing. The primary employers in Jefferson County include Port Townsend Paper, Jefferson Healthcare, Port Townsend School District, the Port Authority of Port Townsend and related marine trade, Amazon, and the Jefferson County government. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Jefferson County was ~~4.1%~~5.8% at December 31, ~~2021,~~2023, compared to ~~7.4%~~5.4% at December 31, ~~2020.~~2022.

Kitsap County has a population of approximately ~~271,473~~277,673 and estimated median family income of ~~$79,624.~~$93,675. 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, ~~Harrison~~Amazon, Walmart, St. Michael Medical Center, ~~Walmart,~~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 ~~3.3%~~4.7% at December 31, ~~2021,~~2023, compared to ~~6.0%~~4.3% at December 31, ~~2020.~~2022.

Whatcom County has a population of approximately ~~229,247~~230,677 and estimated median family income of ~~$69,372.~~$77,581. 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 ~~4.0%~~5.1% at December 31, ~~2021,~~2023, compared to ~~7.0%~~5.0% at December 31, ~~2020.~~2022.

King County, which includes the City of Seattle, has a population of approximately 2.3 million and estimated median family income of ~~$102,594.~~$116,340. 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 ~~3.2%~~3.5% at December 31, ~~2021,~~2023, compared to ~~4.3%~~2.8% at December 31, ~~2020.~~2022.

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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 ~~section~~quadrant of the state of Washington. The population of this additional region (beyond our current market area) is approximately 2.3 million, or 29.5% of the state's population. The market area is a mix of urban, suburban and rural areas, with the Seattle metropolitan area asrepresenting 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).

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Key employment sectors include aerospace, military, information technology, biotechnology, education, logistics, international trade, and tourism. The region is well known for the long-term presence of The Boeing ~~Corporation~~Company and Microsoft, two major industry leaders, and since the turn of the century, Amazon.com. 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 a deep-water port makes it a center for international trade, which contributes significantly to the regional economy. The local ports make Washington the ninth largest exporting state in the nation. 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. ~~Maritime~~The maritime industry, ~~employment,~~ 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~~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 ~~automobile loans, manufactured home loans, and~~ 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,
	2021						2020						December 31,
	Amount			Percent			Amount			Percent			2023					2022
	(Dollars in thousands)												Amount		Percent			Amount		Percent
													(Dollars in thousands)
Real estate:
One- to four-family	$	294,965			21.7	%	$	309,828			26.8	%
One-to-four family													$	378,432		22.8	%	$	343,559		22.2	%
Multi-family		172,409			12.7			162,467			14.1			333,094		20.1			252,745		16.3
Commercial real estate		363,299			26.8			296,574			25.7			387,983		23.3			388,884		25.2
Construction and land		224,709			16.5			123,627			10.7			129,691		7.8			193,646		12.5
Total real estate loans		1,055,382			77.7			892,496			77.3			1,229,200		74.0			1,178,834		76.2

Consumer:
Home equity		39,172			2.9			33,103			2.9			69,403		4.2			52,877		3.4
Auto and other consumer		182,769			13.5			128,233			11.1			249,130		15.0			238,913		15.4
Total consumer loans		221,941			16.4			161,336			14.0			318,533		19.2			291,790		18.8

Commercial business loans		79,838			5.9			100,201			8.7			112,295		6.8			76,927		5.0

Total loans		1,357,161			100.0	%		1,154,033			100.0	%		1,660,028		100.0	%		1,547,551		100.0	%

Less:
Net deferred loan fees		4,772						4,346
Premium on purchased loans, net		(12,995	)					(6,129	)
Allowance for loan losses		15,124						13,847
Allowance for credit losses on loans														17,510					16,116
Total loans, net	$	1,350,260					$	1,141,969					$	1,642,518				$	1,531,435

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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,												December 31,
	2021						2020						2023					2022
	Amount			Percent			Amount			Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)												(Dollars in thousands)
Fixed-rate loans:
Real estate:
One- to four-family	$	203,746			15.0	%	$	202,399			17.5	%
One-to-four family													$	287,864		17.2	%	$	252,960		16.4	%
Multi-family		65,331			4.8			77,788			6.7			121,809		7.3			99,761		6.4
Commercial real estate		127,522			9.4			118,610			10.3			152,744		9.2			147,886		9.6
Construction and land		73,104			5.4			38,732			3.4			55,687		3.4			102,742		6.6
Total real estate loans		469,703			34.6			437,529			37.9			618,104		37.1			603,349		39.0
Consumer:
Home equity		18,910			1.4			18,479			1.6			26,951		1.6			23,733		1.5
Auto and other consumer		182,412			13.4			127,813			11.1			248,741		15.0			238,573		15.4
Total consumer loans		201,322			14.8			146,292			12.7			275,692		16.6			262,306		16.9
Commercial business loans		52,406			3.9			89,126			7.7			46,576		2.8			23,745		1.5
Total fixed-rate loans		723,431			53.3			672,947			58.3			940,372		56.5			889,400		57.4

Adjustable-rate loans:
Real estate:
One- to four-family		91,219			6.7			107,429			9.3
One-to-four family														90,568		5.5			90,599		5.9
Multi-family		107,078			7.9			84,679			7.3			211,285		12.7			152,984		9.9
Commercial real estate		235,777			17.4			177,964			15.4			235,239		14.2			240,998		15.6
Construction and land		151,605			11.2			84,895			7.4			74,004		4.5			90,904		5.9
Total real estate loans		585,679			43.2			454,967			39.4			611,096		36.9			575,485		37.3
Consumer:
Home equity		20,262			1.5			14,624			1.3			42,452		2.6			29,144		1.9
Auto and other consumer		357			—			420			—			389		—			340		—
Total consumer loans		20,619			1.5			15,044			1.3			42,841		2.6			29,484		1.9
Commercial business loans		27,432			2.0			11,075			1.0			65,719		4.0			53,182		3.4
Total adjustable-rate loans		633,730			46.7			481,086			41.7			719,656		43.5			658,151		42.6

Total loans		1,357,161			100.0	%		1,154,033			100.0	%		1,660,028		100.0	%		1,547,551		100.0	%
Less:
Net deferred loan fees		4,772						4,346
Premium on purchased loans, net		(12,995	)					(6,129	)
Allowance for loan losses		15,124						13,847
Allowance for credit losses on loans														17,510					16,116
Total loans, net	$	1,350,260					$	1,141,969					$	1,642,518				$	1,531,435

Table of Contents

Loan Maturity

The following table illustrates the contractual maturity of our loan portfolio at December 31, ~~2021.~~2023. Mortgages that have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The total amount of loans due after December 31, ~~2022~~2024, that have fixed interest rates is ~~$691.4~~$898.0 million, while the total amount of loans due after such date that have adjustable interest rates is ~~$556.9~~$661.9 million. The table does not reflect the effects of ~~unpredictable~~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					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			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)																														(Dollars in thousands)
Real estate:
One- to four-family	$	15		4.87	%	$	165		4.22	%	$	4,695		3.58	%	$	38,598		3.71	%	$	251,492		3.70	%	$	294,965		3.70	%
One-to-four family																															$	6		5.29	%	$	1,726		3.56	%	$	1,637		3.33	%	$	32,603		4.16	%	$	342,460		3.83	%	$	378,432		3.85	%
Multi-family		—		—			16,832		4.01			20,618		3.82			118,035		3.65			16,924		4.51			172,409		3.79			16,815		3.87			44,693		4.13			72,676		4.04			186,627		5.14			12,283		7.26			333,094		4.78
Commercial real estate		10,866		4.29			19,081		4.21			48,399		3.95			284,583		3.91			370		5.33			363,299		3.94			1,280		5.79			42,866		4.83			71,803		5.60			268,722		6.18			3,312		5.29			387,983		5.92
Construction and land		58,428		5.00			36,851		4.26			24,831		4.42			72,458		4.26			32,141		3.70			224,709		4.40			41,817		9.05			11,944		7.08			12,185		5.06			28,373		5.38			35,372		4.53			129,691		6.46
Consumer:
Home equity		358		4.12			175		5.07			332		5.02			23,568		3.98			14,739		4.28			39,172		4.11			4		5.12			200		8.40			876		7.92			30,228		5.39			38,095		8.05			69,403		6.89
Auto and other consumer		723		9.08			5,715		6.88			12,531		7.35			106,865		7.01			56,935		5.95			182,769		6.71			903		10.43			6,869		10.13			12,955		13.84			125,327		7.05			103,076		6.28			249,130		7.22

Commercial business loans		38,517		4.39			2,044		4.73			24,878		2.10			14,399		5.47			—		—			79,838		3.64			39,338		6.54			13,351		8.86			4,541		6.03			55,065		7.08			—		—			112,295		7.08

Total loans	$	108,907		4.84	%	$	80,863		4.40	%	$	136,284		3.98	%	$	658,506		4.43	%	$	372,601		4.10	%	$	1,357,161		4.32	%
Total loans receivable																															$	100,163		7.19	%	$	121,649		5.52	%	$	176,673		5.52	%	$	726,945		5.98	%	$	534,598		4.70	%	$	1,660,028		5.56	%

_______________

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

Table of Contents

Geographic Distribution of our Loans

The following table shows at December 31, ~~2021~~2023, 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					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			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)																														(Dollars in thousands)
Real estate loans:
One- to four-family	$	100,084		34.0	%	$	157,767		53.5	%	$	5,731		1.9	%	$	263,582		89.4	%	$	31,383		10.6	%	$	294,965		21.7	%
One-to-four family																															$	130,982		34.6	%	$	218,095		57.6	%	$	10,062		2.7	%	$	359,139		94.9	%	$	19,293		5.1	%	$	378,432		22.8	%
Multi-family		4,907		2.8			131,919		76.6			22,463		13.0			159,289		92.4			13,120		7.6			172,409		12.7			7,684		2.3			272,548		81.8			36,354		10.9			316,586		95.0			16,508		5.0			333,094		20.1
Commercial real estate		59,817		16.5			273,700		75.3			20,937		5.8			354,454		97.6			8,845		2.4			363,299		26.8			74,997		19.3			280,236		72.3			24,064		6.2			379,297		97.8			8,686		2.2			387,983		23.3
Construction and land		17,983		8.0			175,872		78.2			21,713		9.7			215,568		95.9			9,141		4.1			224,709		16.5			7,139		5.5			110,542		85.3			11,834		9.1			129,515		99.9			176		0.1			129,691		7.8
Total real estate loans		182,791		17.3			739,258		70.1			70,844		6.7			992,893		94.1			62,489		5.9			1,055,382		77.7			220,802		18.0			881,421		71.7			82,314		6.7			1,184,537		96.4			44,663		3.6			1,229,200		74.0

Consumer loans:
Home equity		29,930		76.4			8,802		22.5			440		1.1			39,172		100.0			—		—			39,172		2.9			42,717		61.5			25,493		36.8			1,193		1.7			69,403		100.0			—		—			69,403		4.2
Auto and other consumer		8,335		4.6			12,631		6.9			2,275		1.2			23,241		12.7			159,528		87.3			182,769		13.5			4,694		1.9			8,245		3.3			2,431		1.0			15,370		6.2			233,760		93.8			249,130		15.0
Total consumer loans		38,265		17.2			21,433		9.7			2,715		1.2			62,413		28.1			159,528		71.9			221,941		16.4			47,411		14.9			33,738		10.6			3,624		1.1			84,773		26.6			233,760		73.4			318,533		19.2

Commercial business loans		20,166		25.3			22,751		28.5			171		0.2			43,088		54.0			36,750		46.0			79,838		5.9			28,549		25.4			30,032		26.8			5,199		4.6			63,780		56.8			48,515		43.2			112,295		6.8

Total loans	$	241,222		17.8	%	$	783,442		57.7	%	$	73,730		5.4	%	$	1,098,394		80.9	%	$	258,767		19.1	%	$	1,357,161		100.0	%
Total loans receivable																															$	296,762		17.9	%	$	945,191		56.9	%	$	91,137		5.5	%	$	1,333,090		80.3	%	$	326,938		19.7	%	$	1,660,028		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, Oregon, and Florida.

Table of Contents

~~One- to Four-Family~~One-to-Four Family Real Estate Lending. At December 31, ~~2021, one- to four-family~~2023, one-to-four family residential mortgage loans (excluding loans held for sale) totaled ~~$295.0~~$378.4 million, or ~~21.7%~~22.8%, of our total loan portfolio, including ~~$31.4~~$19.3 million, or ~~10.6%~~5.1%, 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 ~~retained~~retained 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.

~~Adjustable-rate~~The credit risk on adjustable-rate mortgage loans could increase ~~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 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, ~~2021,~~2023, the average interest rate on our adjustable-rate mortgage loans was approximately 30352 basis points ~~over~~under the fully indexed rate. As of December 31, ~~2021~~,2023, we had ~~$91.2~~$90.6 million, or ~~6.7%~~23.9%, ofof 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, ~~2021, $363.3~~2023, $388.0 million, or ~~26.8%~~23.3%, and ~~$172.4~~$333.1 million, or ~~12.7%~~20.1%, of our total loan portfolio was secured by commercial and multi-family real estate property, respectively. At December 31, ~~2021,~~2023, we have identified ~~$90.4~~$95.6 million, or ~~16.9%~~13.2%, of our commercial and multi-family real estate portfolio as owner-occupied commercial real estate and ~~$445.3~~$625.5 million, ~~83.1%~~or 86.8%, is secured by income producing, or non-owner-occupied, commercial and multi-family real estate. ~~Substantially all~~Over 95% of our commercial real estate and multi-family loans are secured by properties located in the state of Washington.

~~Table of Contents~~

Commercial and multi-family real estate loans are generally priced at a higher rate of interest than ~~one- to four-family~~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.

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, ~~2021,~~2023, we had ~~$235.8~~$235.2 million in adjustable-rate commercial real estate loans and ~~$107.1~~$211.3 million in adjustable-rate multi-family loans. 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 U.S. Constant Maturity Treasury Rate,~~ The Wall Street Journal prime rate, the U.S. Constant Maturity Treasury Rate, or a similar term FHLB borrowing rate. Adjustable-rate loans could increase 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 ~~2019,~~2023, the Bank ~~moved~~successfully migrated away from the London Interbank Offered Rate ("LIBOR") as ~~a market~~an index ~~in anticipation of its complete sunset in 2023~~for all new and ~~in order to mitigate the transition of~~ existing loans. Commercial loans previously tied to LIBOR converted to ~~the~~a similar termed Term Secured Overnight Financing Rate ("~~SOFR"~~TSOFR") ~~index. We currently utilize LIBOR on floating rate adjustable-rate conversion ("ARC") loan and Main Street Lending contracts; however, these contracts stipulate that we can use a different index upon~~product with the ~~sunset of LIBOR. Substantially all~~recommended spread adjustment set by the Alternative Reference Rate Committee. Of the adjustable-rate commercial and multi-family real estate loans, 66.01% are subject to a floor rate and the weighted average floor rate on these loans was ~~2.98%~~3.66% at December 31, ~~2021.~~2023. Of the adjustable-rate commercial loans, ~~74.35%~~72.14% are subject to a ceiling rate and the weighted average ceiling rate on those loans was ~~15.07%~~17.05% at December 31, ~~2021.~~2023.

The maximum loan to value ratio for commercial and multi-family real estate loans is typically limited to 75% of an appraiser opinion of market value. The minimum debt service coverage ratio is 1.25 for non-owner-occupied and owner-occupied properties. We require independent appraisals or evaluations on all loans secured by commercial or multi-family real estate from an approved appraisers list.

Once ~~we make most~~ commercial real estate or multi-family loans are originated, we ~~monitor the relationship~~review most relationships at least annually to assure the borrower continues to meet certain loan requirements as set forth at origination, which may include an annual inspection of the property. The scope of the review is based on relationship size, with those $1.5 million or greater subject to a full credit review at least annually, which includes detailed financial and cash flow analysis, property inspection, covenant compliance and annual risk rating certification. Relationships $750,000 or greater are subject to brief financial and cash flow analysis, covenant compliance and annual risk rating certification. 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.

Table of Contents

The following table provides information on multi-family and commercial real estate loans by type at the dates indicated:

December 31,

2021

2020

2019

Amount

Percent

Amount

Percent

Amount

Percent

(Dollars in thousands)

Non-owner occupied

Multi-family
$ 172,409 32.2 % $ 158,964 34.6 % $ 96,098 27.3 %
Office building
63,209 11.8 58,715 12.8 52,420 14.9
Retail
47,710 8.9 45,645 9.9 48,487 13.8
Hospitality
44,385 8.3 50,243 10.9 51,055 14.5
Mixed use
20,938 3.9 19,920 4.3 16,589 4.7
Condominium
19,781 3.7 3,923 0.9 113 —
Warehouse
15,374 2.8 7,193 1.5 6,263 1.7
Self-storage
13,246 2.5 12,290 2.7 10,269 2.9
Health care
8,374 1.6 16,365 3.6 12,390 3.5
Vehicle dealership
1,152 0.2 1,169 0.2 2,451 0.7
Other non-owner occupied
38,705 7.2 21,198 4.6 12,115 3.5

Total non-owner occupied
445,283 83.1 395,625 86.0 308,250 87.5

Owner occupied

Health care
24,123 4.5 21,595 4.7 14,091 4.0
Office building
20,769 3.9 10,455 2.3 6,873 2.0
Warehouse
16,266 3.0 4,444 1.0 3,351 1.0
Retail
8,777 1.6 7,713 1.7 2,631 0.7
Mixed use
4,458 0.8 4,487 1.0 1,370 0.4
Vehicle dealership
4,289 0.8 6,716 1.5 7,249 2.1
Manufacturing
1,987 0.4 2,103 0.5 2,138 0.6
Hospitality
374 0.1 346 0.1 361 0.1
Condominium
372 0.1 376 0.1 — —
Other owner-occupied
9,010 1.7 5,181 1.1 5,506 1.6

Total owner occupied
90,425 16.9 63,416 14.0 43,570 12.5

Summary by type

Multi-family
172,409 32.2 158,964 34.6 96,098 27.3
Office building
83,978 15.7 69,170 15.1 59,293 16.9
Retail
56,487 10.5 53,358 11.6 51,118 14.5
Hospitality
44,759 8.4 50,589 11.0 51,416 14.6
Health care
32,497 6.1 37,960 8.3 26,481 7.5
Warehouse
31,640 5.8 11,637 2.5 9,614 2.7
Mixed use
25,396 4.7 24,407 5.3 17,959 5.1
Condominium
20,153 3.8 4,299 1.0 113 —
Self-storage
13,246 2.5 12,290 2.7 10,269 2.9
Vehicle dealership
5,441 1.0 7,885 1.7 9,700 2.8
Manufacturing
1,987 0.4 2,103 0.5 2,138 0.6
Other non-owner occupied
38,705 7.2 21,198 4.6 12,115 3.5
Other owner-occupied
9,010 1.7 5,181 1.1 5,506 1.6

Total multi-family and commercial real estate
$ 535,708 100.0 % $ 459,041 100.0 % $ 351,820 100.0 %

	December 31,
	2023					2022					2021
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Non-owner occupied
Multi-family	$	333,094		46.2	%	$	253,551		39.4	%	$	172,409		32.2	%
Hospitality		69,076		9.6			48,387		7.5			44,385		8.3
Office building		54,743		7.6			60,541		9.4			63,209		11.8
Retail		53,368		7.5			56,701		8.8			47,710		8.9
Condominium		20,800		2.9			22,846		3.5			19,781		3.7
Mixed use		18,180		2.5			19,022		3.0			20,938		3.9
Health care		11,972		1.7			12,208		1.9			8,374		1.6
Warehouse		8,262		1.1			8,954		1.4			15,374		2.8
Self-storage		4,671		0.6			5,997		0.9			13,246		2.5
Vehicle dealership		1,033		0.1			1,114		0.2			1,152		0.2
Other non-owner occupied		50,294		7.0			52,434		8.1			38,705		7.2
Total non-owner occupied		625,493		86.8			541,755		84.1			445,283		83.1

Owner occupied
Health care		22,523		3.1			23,547		3.7			24,123		4.5
Office building		17,274		2.4			21,365		3.3			20,769		3.9
Warehouse		13,869		1.9			19,434		3.0			16,266		3.0
Vehicle dealership		11,005		1.5			8,820		1.4			4,289		0.8
Retail		9,792		1.4			11,031		1.7			8,777		1.6
Mixed use		4,013		0.6			4,412		0.7			4,458		0.8
Condominium		870		0.1			938		0.1			372		0.1
Hospitality		853		0.1			1,011		0.2			374		0.1
Other owner-occupied		15,385		2.1			11,484		1.8			10,997		2.1
Total owner occupied		95,584		13.2			102,042		15.9			90,425		16.9

Summary by type
Multi-family		333,094		46.2			253,551		39.4			172,409		32.2
Office building		72,017		10.0			81,906		12.7			83,978		15.7
Hospitality		69,929		9.7			49,398		7.7			44,759		8.4
Retail		63,160		8.9			67,732		10.5			56,487		10.5
Health care		34,495		4.8			35,755		5.6			32,497		6.1
Mixed use		22,193		3.1			23,434		3.7			25,396		4.7
Warehouse		22,131		3.0			28,388		4.4			31,640		5.8
Condominium		21,670		3.0			23,784		3.6			20,153		3.8
Vehicle dealership		12,038		1.6			9,934		1.6			5,441		1.0
Self-storage		4,671		0.6			5,997		0.9			13,246		2.5
Other non-owner occupied		50,294		7.0			52,434		8.1			38,705		7.2
Other owner-occupied		15,385		2.1			11,484		1.8			10,997		2.1
Total multi-family and commercial real estate	$	721,077		100.0	%	$	643,797		100.0	%	$	535,708		100.0	%

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If we foreclose on a commercial or multi-family real estate loan, the marketing and liquidation period can be a lengthy process with substantial holding costs. Vacancies, deferred maintenance, repairs and market factors can result in losses during the time it takes to stabilize a property. Depending on the individual circumstances, initial charge-offs and subsequent losses relating to multi-family and commercial loans can be substantial and unpredictable.

The average outstanding loan in our commercial real estate portfolio, including multi-family loans, was ~~$1.4~~$1.7 million as of December 31, ~~2021.~~2023. We generally target individual commercial and multi-family real estate loans between $1.0 million and $10.0 million to small and mid-size ~~owners~~operators and investors in our market areas as well as other parts of Washington. We will also make commercial and multi-family real estate loans in other states if we have a pre-existing relationship with the borrower.

Our three largest commercial and multi-family borrowing relationships, including current loan balances and unused commitments, at December 31, ~~2021~~2023 consisted of a ~~$31.2~~$21.3 million relationship secured by multi-family and construction in Pierce and Snohomish Counties, Washington; a $20.3 million relationship secured by commercial real estate in Kitsap, King and ~~multi-family construction in Chelan County, Washington~~Thurston Counties; and ~~Kootenai County, Idaho;~~ a ~~$23.7~~$19.7 million relationship secured by multi-family residential ~~and multi-family construction in King, Pierce, and Kitsap Counties; and a $22.2 million relationship secured by multi-family and business construction~~ in Pierce ~~and Kitsap Counties.~~County.

Construction and Land Lending. Our construction and land loans ~~increased $101.1~~totaled $129.7 million, or ~~81.8%, to $224.7 million, or 16.5%~~7.8% of the total loan portfolio at December 31, ~~2021, compared to $123.6 million, or 10.7%, at December 31, 2020. At December 31, 2021,~~2023 and the undisbursed portion of construction loans in process totaled ~~$194.3 million compared to $155.1 million at December 31, 2020.~~$55.4 million.

First Fed offers an "all-in-one" residential custom construction loan product, which upon completion of construction ~~will~~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 ~~1.25~~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 ~~1.00~~1.00x or better, based on in-place rents and amortization of full commitment. These loans begin amortizing once renovations have been completed.

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

Custom and speculative construction valuations ~~are based on the assumption~~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.

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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, ~~2021,~~2023, the average construction commitment for single-family residential construction was ~~$724,000, $6.0~~$1.1 million, $2.7 million for multi-family construction ~~$4.7 million for acquisition-renovation loans,~~ and ~~$3.4~~$4.0 million for commercial real estate construction. The largest construction commitments for ~~multi-family, acquisition-renovation, and~~ commercial real estate and multi-family were ~~$18.6 million, $16.6~~$15.0 million and ~~$14.3~~$10.1 million, respectively, at December 31, ~~2021.~~2023.

Substantially all of our adjustable-rate land acquisition, development and construction lending have ~~adjustable~~ rates of interest based on The Wall Street Journal prime rate. During the term of construction, the accumulated interest on the loan is either added to the principal of the loan through an interest reserve or billed monthly, as is the case for acquisition and development loans. 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. ~~In 2020, we implemented an~~Our extension fee ~~matrix to entice~~policy encourages commercial borrowers to finish projects on time, which we believe mitigates risk ~~in this area.~~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,						December 31,
	2021		2020		2019		2023		2022		2021
	(In thousands)						(In thousands)

One- to four-family residential	$	39,733	$	24,029	$	16,127
One-to-four family residential							$	43,719	$	58,596	$	39,733
Multi-family residential		89,655		34,513		10,465		66,723		76,301		89,655
Commercial acquisition-renovation		51,099		39,346		—		—		19,247		51,099
Commercial real estate		35,671		16,918		3,325		11,791		27,628		35,671
Land		8,551		8,821		7,270		7,458		11,874		8,551
Total construction and land	$	224,709	$	123,627	$	37,187	$	129,691	$	193,646	$	224,709

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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, 2021	Olympic Peninsula		Puget Sound Region		Other Washington			Oregon		Total
December 31, 2023												Olympic Peninsula		Puget Sound Region		Other Washington		Oregon		Total
	(In thousands)											(In thousands)
Construction Commitment
One- to four-family residential	$	32,785	$	57,050	$	4,430		$	—	$	94,265
One-to-four family residential												$	10,260	$	54,320	$	6,489	$	540	$	71,609
Multi-family residential		—		182,151		4,095			8,435		194,681		—		78,196		11,076		—		89,272
Commercial acquisition-renovation		2,938		36,536		16,638			—		56,112
Commercial real estate		12,489		50,372		2,535			—		65,396		—		17,332		1		—		17,333
Total commitment	$	48,212	$	326,109	$	27,698		$	8,435	$	410,454	$	10,260	$	149,848	$	17,566	$	540	$	178,214

Construction Funds Disbursed
One- to four-family residential	$	10,242	$	28,929	$	562		$	—	$	39,733
One-to-four family residential												$	3,790	$	34,725	$	5,065	$	175	$	43,755
Multi-family residential		—		79,707		2,414			7,534		89,655		—		61,288		5,879		—		67,167
Commercial acquisition-renovation		2,449		32,789		15,861			—		51,099
Commercial real estate		3,486		29,484		2,701			—		35,671		—		11,849		—		—		11,849
Total disbursed	$	16,177	$	170,909	$	21,538		$	7,534	$	216,158	$	3,790	$	107,862	$	10,944	$	175	$	122,771

Undisbursed Commitment
One- to four-family residential	$	22,543	$	28,121	$	3,868		$	—	$	54,532
One-to-four family residential												$	6,470	$	19,595	$	1,424	$	365	$	27,854
Multi-family residential		—		102,444		1,681			901		105,026		—		16,908		5,197		—		22,105
Commercial acquisition-renovation		489		3,747		777			—		5,013
Commercial real estate		9,003		20,888		(166	)		—		29,725		—		5,483		1		—		5,484
Total undisbursed	$	32,035	$	155,200	$	6,160		$	901	$	194,296	$	6,470	$	41,986	$	6,622	$	365	$	55,443

Land Funds Disbursed
One- to four-family residential		3,502		3,556		191			—	$	7,249
One-to-four family residential													3,310		3,002		272		—	$	6,584
Commercial real estate		—		1,302		—			—		1,302		—		845		—		—		845
Total disbursed for land	$	3,502	$	4,858	$	191		$	—	$	8,551	$	3,310	$	3,847	$	272	$	—	$	7,429

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December 31, 2020	Olympic Peninsula		Puget Sound Region		Other Washington		Oregon		Total
December 31, 2022											Olympic Peninsula		Puget Sound Region		Other Washington		Oregon		Idaho		Total
	(In thousands)										(In thousands)
Construction Commitment
One- to four-family residential	$	15,473	$	29,827	$	1,477	$	—	$	46,777
One-to-four family residential											$	39,031	$	75,745	$	12,015	$	—	$	—	$	126,791
Multi-family residential		1,644		145,701		16,637		8,020		172,002		—		102,429		9,296		415		3,592		115,732
Commercial acquisition-renovation												1,636		18,625		—		—		—		20,261
Commercial real estate		2,282		46,103		2,755		—		51,140		349		39,845		—		540		—		40,734
Total commitment	$	19,399	$	221,631	$	20,869	$	8,020	$	269,919	$	41,016	$	236,644	$	21,311	$	955	$	3,592	$	303,518

Construction Funds Disbursed
One- to four-family residential	$	7,208	$	15,976	$	845	$	—	$	24,029
One-to-four family residential											$	17,557	$	36,902	$	4,280	$	—	$	—	$	58,739
Multi-family residential		1,297		57,262		15,300		—		73,859		—		68,936		5,296		42		2,752		77,026
Commercial acquisition-renovation												1,636		17,687		—		—		—		19,323
Commercial real estate		1,677		14,812		429		—		16,918		212		27,492		—		12		—		27,716
Total disbursed	$	10,182	$	88,050	$	16,574	$	—	$	114,806	$	19,405	$	151,017	$	9,576	$	54	$	2,752	$	182,804

Undisbursed Commitment
One- to four-family residential	$	8,265	$	13,851	$	632	$	—	$	22,748
One-to-four family residential											$	21,474	$	38,843	$	7,735	$	—	$	—	$	68,052
Multi-family residential		347		88,439		1,337		8,020		98,143		—		33,493		4,000		373		840		38,706
Commercial acquisition-renovation												—		938		—		—		—		938
Commercial real estate		605		31,291		2,326		—		34,222		137		12,353		—		528		—		13,018
Total undisbursed	$	9,217	$	133,581	$	4,295	$	8,020	$	155,113	$	21,611	$	85,627	$	11,735	$	901	$	840	$	120,714

Land Funds Disbursed
One- to four-family residential	$	4,350	$	2,728	$	347	$	53	$	7,478
One-to-four family residential												3,552		3,370		419		—		—	$	7,341
Commercial real estate		—		1,343		—		—		1,343		372		4,129		—		—		—		4,501
Total disbursed for land	$	4,350	$	4,071	$	347	$	53	$	8,821	$	3,924	$	7,499	$	419	$	—	$	—	$	11,842

Consumer Lending. We offer ~~a variety of~~ consumer loans, including home equity loans, ~~and~~home equity lines of credit ~~new and used automobile loans, loans on other miscellaneous vehicles,~~ and personal lines of credit. At December 31, ~~2021,~~2023, home equity loans and lines of credit totaled ~~$39.2~~$69.4 million, or ~~2.9%~~4.2%, of the loan portfolio. Our interest rates on home equity loans are priced for risk based on credit score, loan to value and overall payment capacity of the applicant. Home equity loans are made for the improvement of residential properties and other ~~consumer needs.~~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 ~~to borrowers who qualify,~~ a ten-year home equity line of credit ~~with~~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~~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.

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~~We originate, refinance, or purchase~~At December 31, 2023, auto loans ~~with~~totaled $127.7 million, of which $123.6 million were purchased and $2.0 million were originated through indirect dealer programs described below; the remaining $2.2 million were originated through our branches. 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. ~~Direct and indirect~~Indirect lending sources are used to purchase auto loans. In-house and direct lending sources have been used to originate ~~and~~auto loans in prior years.

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We purchase auto loans ~~respectively. At~~through a partnership with Woodside Credit, LLC, a loan originator that operates in all 50 states, underwriting and funding loans for classic (25 years or older) and collector (premium price with limited production) vehicles. These loans typically range from $10,000 to over $600,000 with terms that range from 84 to 180 months and generally require down payments of 10% to 20% of the cost of the vehicle. We receive loan pools each week with complete packages that we underwrite to determine whether to purchase or pass on all loans submitted. 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 1.07% and 0.06%, respectively, for each of the years ended December 31, ~~2021, auto loans totaled $120.6 million, of which $106.7 million were purchased~~2023 and ~~$10.6 million were originated through indirect dealer programs described below, the remaining $3.3 million were originated through our branches.~~2022.

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. ~~During 2020, we~~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 ~~auto~~manufactured home loans through a partnership with 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%. We receive loan pools each week with complete packages that we are able to underwrite to determine whether to purchase or pass on all loans submitted. These loans present unique risks with the collateral being located across the country; however, our loan originator helps mitigate 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 are less than 1% and First Fed experienced loss rates of 0.06% and 0.01% for the years ended December 31, 2021 and 2020, respectively.

~~We began purchasing manufactured home loans during 2020 through a partnership with~~Triad Financial Services, a loan originator that underwrites and funds these loans. At December 31, ~~2021, $58.3~~2023, $93.6 million of manufactured home loans was included in consumer loans. These loans range from $18,000 to ~~$335,000~~$425,000 with terms that range from ~~120~~84 to 360 months. ~~We receive loan pools with~~Loans are submitted on a weekly flow basis or as one-off pools. All loans are considered “full doc” and complete packages ~~that we underwrite~~are reviewed to determine ~~whether to purchase~~if the loan will be purchased or ~~pass on some, or all, of the loans submitted.~~not. The seller retains the servicing on these ~~loans.~~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. ~~A reserve account equal to approximately 8% of the unpaid balance serves as~~The program has a credit enhancement in the form of a reserve account that can be used to ~~help~~ protect ~~against~~the bank from charge offs and ~~prepaid~~prepaid. The reserve represented 4.6% of related loan balances at year end; however, it will vary depending on the pricing options selected during the acquisition of the loans. First Fed experienced one foreclosure in 2023 and the Bank was made whole through the enhancement funds.

In 2022, we began purchasing unsecured consumer loans through a partnership with Splash Financial who underwrites and funds these loans. At December 31, 2023, $7.3 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 receive individual loan packages that we underwrite to determine whether to purchase or pass on. The seller retains the servicing on these loans. First Fed experienced losses of $3.4 million on these loans to-date. The originator paid First Fed $950,000 as a partial reimbursement of program losses incurred during 2023. Changes were made to the program participation criteria in 2023 to reduce future losses, including a decrease in the maximum loan ~~originator has had~~amount from $35,000 to $20,000 and an ~~average loss rate~~increase to the minimum FICO score. Splash also now covers first payment defaults over 1.75% and the servicing fee charged to the Bank on new loans was reduced. Included in the total losses above were $69,000 of ~~0.6% since 2007 for this program.~~charge-offs on loans purchased after the change in criteria was made.

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.

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Commercial Business Lending. As of December 31, ~~2021,~~2023, commercial business loans totaled ~~$79.8~~$112.3 million, or ~~5.9%~~6.8% of our loan portfolio. ~~Included in commercial~~

Commercial business loans was $26.3 million in loans through the Northpointe Bank Mortgage Participation Program ("Northpointe MPP"), which provides interim financing to mortgage originators based on the contractual sale agreement of a mortgage loan. The Northpointe MPP interim loan is funded upon receipt of a valid contractual sale agreement and repaid to us when the cash settlement for that loan occurs and the mortgage originator has been paid, generally within 30 days. Management selects which mortgage originators to finance based on a review of their business, loan pricing, and origination volumes. At our discretion, we may add or remove mortgage originators from time to time. We also have limited our balance of loans made through the Northpointe MPP to $75.0 million at December 31, 2021. The actual balance in the Northpointe MPP can fluctuate significantly due to variances in the timing of funding and repayments, as well as Northpointe's ability to maintain mortgage origination volumes, which has resulted in lower average balances in 2021 compared to 2020.

During the years ended December 31, 2021 and 2020, we provided assistance to many small businesses through the Small Business Administration's Paycheck Protection Program ("SBA PPP"). This program provided small businesses with funds to pay up to eight weeks of payroll costs including benefits. A portion of the funds could also be used to pay interest on mortgages, rent, and utilities. On June 5, 2020, the Paycheck Protection Program Flexibility Act ("PPPFA") was enacted. Main provisions of the PPPFA extended the repayment period from two to five years, extended the covered expense period from eight to 24 weeks, and lowered the percent of forgiveness amount required to be used for eligible payroll costs to 60%. The PPPFA also extended the repayment start date until after the SBA finalized the application process for loan forgiveness.

We processed $32.2 million of loans for 515 customers through the SBA PPP program as of December 31, 2020, the average loan amount approved was approximately $63,000. We processed an additional $35.0 million of loans for 427 customers during the second round of SBA PPP funding with an average loan amount of $82,000. Payments by borrowers on these loans begin six months after the note date, and interest, at 1%, continued to accrue during the six-month deferment. Loans can be forgiven in whole or part (up to full principal and any accrued interest). We received $1.8 million and $1.4 million of fee income for loans originated in 2021 and 2020, respectively, which is accreted into income over the life of the loan. The remaining fee balance is taken into income when the loan pays off. We recognized deferred fee income, net of deferred costs, of $1.7 million and $643,000 for the years ended December 31, 2021 and 2020, respectively, through SBA PPP loan accretion and payoff activity. The remaining net deferred fee balance at December 31, 2021, was $390,000. We partnered with a third-party financial technology provider to assist our borrowers with the loan forgiveness application process. SBA PPP loan balances totaling $14.6 million were included in commercial business loans at December 31, 2021.

~~The remaining balance of commercial business loans includes~~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, ~~LIBOR~~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.

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

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, 2023, $21.1 million of purchased loans were included in commercial business loans. These loans range from $24,000 to $530,000 with terms ranging from 60 to 144 months. We purchase individual loans on a flow basis that we underwrite to determine whether it fits our credit criteria. The seller retains the servicing on these loans. A reserve account equal to approximately 3% of the unpaid balance serves as a credit enhancement to help protect against charge offs and prepaid loans. The loan originator has experienced a loss rate of 2.7% on this program. First Fed has not experienced any losses on these loans to-date.

Indirect commercial business loans are referred to the Bank through Waterstation Management, LLC, a third-party broker that assists borrowers with completing and submitting an electronic commercial loan application to finance equipment. At December 31, 2023, $12.1 million of these brokered loans were included in commercial business loans. Indirect commercial business loan customers receive a fixed rate loan up to 75% of the equipment cost based on a review of their FICO credit score, historical cash flows and overall financial strength. Our underwriting and pricing criteria for this program focuses primarily on the ability of the borrower to repay the loan rather than the value of the underlying collateral. These loans range from $170,000 to $1.5 million with terms ranging from 96 to 132 months. First Fed has not experienced any losses on these loans to-date.

First Fed periodically provides funding to Northpointe Bank through participation in their Northpointe Bank Mortgage Purchase Program ("Northpointe MPP"). At December 31, 2023, a participation balance of $12.1 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 $20.0 million at December 31, 2023. 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 may contain clauses which allow for a portion of the debt to be converted into securities, mezzanine debt or other non-standard terms.

Loan Origination and Underwriting. Our loans are obtained from a variety of sources, including existing or walk-in customers, business development, referrals, and advertising, among others. All of 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").

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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, on a quarterly basis, policy exceptions, and related risk concerns. Additionally, all loan approval policies are reviewed no less than annually.

Washington law ~~provides for~~imposes loans to one borrower restrictions ~~which restricts~~limiting total loans and extensions of credit by a bank to 20% of its unimpaired capital and surplus, ~~which was $42.4~~resulting in a legal limit of $46.0 million at December 31, ~~2021.~~2023. First Fed, however, restricts its loans to one borrower to no more than 60% of the Bank's lending limit, ~~which is adjusted quarterly and was $31.8 million at December 31, 2021,~~ unless specifically approved by the SLC as an exception to policy. The Bank's lending limit is adjusted quarterly and was $34.5 million at December 31, 2023. The following table provides a summary of our five largest relationships at December 31, ~~2021.~~2023.

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Total Commitment
Number of Loans in Relationship
Primary Collateral Type
(In thousands)

$31,170 5
Multi-family Construction
23,667 4
Multi-family Construction
22,210 3
Multi-family Construction
20,052 11
Multi-family Real Estate
19,417 4
Multi-family Construction

Total Commitment	Number of Loans in Relationship	Primary Collateral Type
(In thousands)
$21,289	11	Multi-family Real Estate
20,301	3	Commercial Real Estate
19,744	2	Multi-family Real Estate
17,544	4	Multi-family Real Estate
16,917	6	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. We also purchase whole and participation loans on a servicing retained or released basis. During the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, our total loan originations were ~~$780.5~~$221.9 million, ~~$871.3~~$548.3 million, and ~~$199.8~~$780.5 million, respectively.

During the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, we purchased ~~$115.5~~$83.1 million, ~~$88.3~~$96.1 million, and ~~$68.0~~$115.5 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, ~~and~~ manufactured home loans purchased through our partnership with an originator specializing in that type of ~~lending.~~lending, and unsecured commercial business loans to borrowers primarily in the healthcare industry. A secondary source of purchased loans ~~were~~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 ~~$13.0~~$16.7 million, ~~$6.1~~$16.0 million, and ~~$4.5~~$13.0 million of net premiums paid on purchased loans at December 31, ~~2021, 2020,~~2023, 2022, and ~~2019.~~2021.

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The Olympic Peninsula region, which includes a substantial concentration of our depositors, ~~and borrowers,~~ 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 ~~organically.~~directly.

We sell residential first mortgage loans in the secondary market. The ~~majority of~~Bank has historically focused on originating fixed-rate residential mortgages, ~~we originate are fixed rate,~~ which we may sell to the secondary market to manage our interest rate risk and improve noninterest income. During the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, we sold ~~$113.0~~$25.5 million, ~~$184.4~~$26.1 million, and ~~$58.0~~$113.0 million of residential mortgage loans, respectively. Our secondary market relationship for residential loans is with Freddie Mac and other select third-party ~~purchasers,~~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, ~~2021,~~2023, we were servicing ~~$454.5~~$366.2 million of loans for others. We earned ~~sold loan~~ servicing income on these loans of ~~$1,013,000, $452,000,~~$916,000, $972,000, and ~~$424,000~~$1.0 million for the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, respectively. Servicing rights for these loans had a fair value of $3.8 million at December 31, ~~2021.~~2023. See Note 67 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

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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 ~~$2.0~~$1.8 million at December 31, ~~2021.~~2023. There were no loans repurchased during the years ended December 31, ~~2021, 2020, and 2019.~~2023, 2022, or 2021.

We may solicit one or more financial institutions to take a portion of a commercial real estate loan ~~in order~~ 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 ~~with regard to~~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 ~~in order~~ to maintain our direct relationship with the borrower and better manage our credit risk. During the year ~~ended~~ ended December 31, ~~2021~~,2023, we sold ~~$43.5~~$14.6 million in multi-family ~~real estate loans, retaining only the servicing, and $4.3 million in commercial construction loans,~~loan participations, retaining both the servicing and a portion of the loan balances. During the year ended December 31, ~~2020~~2022, we sold ~~$13.4~~$6.0 million in commercial business loans, $3.1 million in commercial construction loans, and $750,000 in commercial real estate loan participations, retaining both the servicing and a portion of the loan ~~balances.~~balances.

In 2021, we expanded our relationship with the ~~Small Business Administration~~SBA to include additional products. The SBA loans generally carry a ~~90%~~ government ~~guarantee.~~guarantee ranging from 75%-90% of the loan balance. The ~~Bank holds~~Bank's intent is to sell the guaranteed portion and hold the remaining unguaranteed portion of the ~~note and sells the guaranteed portion.~~note. The Bank retains the servicing on these loans. We sold $852,000, $5.7 million and $4.1 million of SBA participations during the ~~year~~years ended December 31, 2023, 2022, and 2021., respectively.

Gains, losses and transfer fees on sales of ~~one- to four-family~~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 ~~$5.3 million, $6.4 million,~~$438,000, $824,000, and ~~$1.1~~$5.3 million for the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, respectively.

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

	Year Ended December 31,						Year Ended December 31,
	2021		2020		2019		2023		2022		2021
	(In thousands)						(In thousands)
Originations by type:
Fixed-rate:
One- to four-family		167,712	$	247,802	$	59,834
One-to-four family							$	25,815	$	68,799	$	167,712
Multi-family		62,044		42,663		—		—		29,638		62,044
Commercial real estate		66,182		55,641		2,900		660		38,988		66,182
Construction and land		127,440		59,623		26,981		2,326		76,736		127,440
Home equity		6,613		5,994		5,594		7,442		8,768		6,613
Auto and other consumer		10,525		2,970		17,327		722		3,606		10,525
Commercial business		39,331		43,964		6,519		5,614		9,957		39,331
Total fixed-rate		479,847		458,657		119,155		42,579		236,492		479,847
Adjustable-rate:
One- to four-family		19,600		25,606		15,419
One-to-four family								3,741		24,645		19,600
Multi-family		48,492		50,749		8,104		52,848		67,637		48,492
Commercial real estate		69,776		34,472		25,128		35,510		65,469		69,776
Construction and land		111,554		185,686		22,252		36,067		61,953		111,554
Home equity		30,012		13,183		8,118		34,598		32,956		30,012
Auto and other consumer		12		—		3		122		62		12
Commercial business		21,172		102,988		1,670		16,436		59,043		21,172
Total adjustable-rate		300,618		412,684		80,694		179,322		311,765		300,618
Total loans originated		780,465		871,341		199,849		221,901		548,257		780,465

Purchases by type:
One- to four-family		1,440		28,652		167
One-to-four family								—		779		1,440
Multi-family		1,014		2,000		19,679		13		—		1,014
Commercial real estate		—		—		6,000
Commercial business								17,027		6,364		—
Construction and land		4,134		—		—		—		—		4,134
Auto		64,644		37,626		42,188		43,760		61,930		64,644
Manufactured homes		44,230		20,003		—		22,302		26,989		44,230
Total loans purchased		115,462		88,281		68,034		83,102		96,062		115,462
Sales and Repayments:
One- to four-family sold		113,031		184,356		58,039
One-to-four family sold								25,456		26,088		113,031
Multi-family sold		43,491		—		—		14,613		—		43,491
Commercial real estate sold		1,837		—		—		—		750		1,837
Construction sold		4,340		—		—		—		3,144		4,340
Commercial business sold		2,267		—		—		852		11,670		2,267
Total loans sold		164,966		184,356		58,039		40,921		41,652		164,966
Total principal repayments, charge-offs and transfers to real estate owned and repossessed assets		527,833		504,990		195,817		123,664		425,448		527,833
Total reductions		692,799		689,346		253,856		164,585		467,100		692,799
Net loan activity	$	203,128	$	270,276	$	14,027	$	140,418	$	177,219	$	203,128

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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. We had ~~$4.8~~$1.9 million, ~~$4.3~~$2.8 million, and ~~$206,000~~$4.8 million of net deferred loan fees at December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, respectively. In addition, we receive fees for 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 ~~in order~~ 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, ~~2021.~~2023.

	Loans Delinquent For:																					Loans Delinquent For:
	60-89 Days							90 Days and Over							Total Loans Delinquent 60 Days or More							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			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category
	(Dollars in thousands)																					(Dollars in thousands)
Real estate loans:
One-to-four family																							—	$	—		—	%		4	$	1,010		0.3	%		4	$	1,010		0.3	%
Commercial real estate																							3		8,526		2.2			—		—		—			3		8,526		2.2
Consumer loans:
Auto and other consumer		4	$	368		20.0	%		9	$	99		10.0	%		13	$	467		30.0	%		21		601		0.2			35		791		0.3			56		1,392		0.6
Commercial business loans																							2		757		0.7			—		—		—			2		757		0.7
Total delinquent loans																							26	$	9,884		0.6	%		39	$	1,801		0.1	%		65	$	11,685		0.7	%

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Nonperforming Assets. Nonperforming assets include nonperforming loans, real estate owned, and other repossessed assets. ~~Troubled~~Also presented below are totals, regardless of accrual status, for modified loans to troubled borrowers ("MLTB") restructured during 2023 and, for prior fiscal years, total troubled debt restructurings ("TDR") ~~include nonperforming and performing loans that have been restructured.~~. Nonperforming assets as a percent of total assets ~~was 0.1%~~were 0.8% at December 31, ~~2021, 2020,~~2023 and ~~2019.~~0.1% at each of December 31, 2022 and 2021. At each of the dates indicated in the following table, there were no loans delinquent more than 90 days that were accruing interest.

December 31,

2021

2020

2019

(Dollars in thousands)

Nonaccrual loans:

One- to four-family
$ 494 $ 912 $ 698
Multi-family
— 284 —
Commercial real estate
71 157 109
Construction and land
22 26 29
Total real estate loans
587 1,379 836

Home equity
282 73 112
Auto and other consumer
512 821 848
Total consumer loans
794 894 960

Total nonaccrual loans
1,381 2,273 1,796

Real estate owned:

Construction and land
— — 62

Repossessed personal property
— 2 92

Total nonperforming assets
$ 1,381 $ 2,275 $ 1,950

TDR loans:

One- to four-family
$ 1,792 $ 2,162 $ 2,371
Multi-family
— — 107
Commercial real estate
— — 643
Total real estate loans
1,792 2,162 3,121

Home equity
51 62 160
Commercial business
— — 263
Total restructured loans
$ 1,843 $ 2,224 $ 3,544

Nonaccrual and 90 days or more past due loans as a percentage of total loans
0.1 % 0.2 % 0.2 %
Nonperforming TDR loans included in total nonaccrual loans and total restructured loans above
$ 29 $ 108 $ 81

The increase in nonperforming loans during 2023 primarily resulted from one $15.0 million commercial construction project which the Bank, based on a recent third-party appraisal, believes does not represent significant exposure to loss. The loan was placed on nonaccrual status and downgraded to a classified loan status, in line with applicable Bank policy. Also during the fourth quarter of 2023, the Bank downgraded a commercial loan relationship which totaled $9.3 million involving several commercial real estate and business loans, a $3.6 million SBA loan, and a $104,000 commercial business loan. The $15.0 million construction loan and the $9.3 million commercial loan relationship account for 69% of the classified loan balance at December 31, 2023. The Bank continues to work with its borrowers to facilitate satisfactory repayment.

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	December 31,
	2023			2022			2021
	(Dollars in thousands)
Nonaccrual loans:
One-to-four family	$	1,844		$	954		$	494
Commercial real estate		28			53			71
Construction and land		14,986			15			22
Total real estate loans		16,858			1,022			587
Home equity		123			196			282
Auto and other consumer		786			575			512
Total consumer loans		909			771			794
Commercial business loans		877			—			—
Total nonaccrual loans	$	18,644		$	1,793		$	1,381

MLTB (2023) and TDR (2022 and 2021) loans:
One-to-four family	$	—		$	1,726		$	1,792
Home equity		—			27			51
Commercial business		119			—			—
Total restructured loans	$	119		$	1,753		$	1,843

Nonaccrual and 90 days or more past due loans as a percentage of total loans		1.1	%		0.1	%		0.1	%
Nonperforming MLTB or TDR loans included in total nonaccrual loans and total restructured loans above	$	119		$	29		$	29

For the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, gross interest income which would have been recorded had the nonaccrual loans been current in accordance with their original terms amounted to ~~$679,000, $686,000,~~$710,000, $699,000, and ~~$301,000,~~$679,000, respectively. The amount that was included in interest income on a cash basis on nonaccrual loans was ~~$48,000, $85,000,~~$58,000, $28,000, and ~~$50,000~~$48,000 for the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, respectively.

Other Loans of Concern. In addition to nonperforming assets set forth in the table above, as of December 31, ~~2021,~~2023, there were 2120 loans totaling ~~$23.5~~$31.8 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 ~~have been considered in management's determination of our allowance for loan losses.~~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, ~~2021,~~2023, 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 ~~TDR.~~MLTB. In general, the modification or restructuring of a debt is considered a ~~TDR~~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 ~~TDR~~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.

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At December 31, ~~2021,~~2023, we had ~~loans~~one loan with an aggregate ~~principal balance~~amortized cost of ~~$1.8 million~~$119,000 that ~~were~~was identified as ~~TDR loans,~~an MLTB loan restructured during the year ended December 31, 2023, of which ~~all but $29,000 were~~was not performing in accordance with ~~their~~its revised payment terms and was on ~~accrual~~nonaccrual status. Included in the allowance for ~~loan~~credit losses on loans at December 31, ~~2021~~2023, was a reserve of ~~$21,000~~$59,000 related to ~~TDR loans.~~the individually evaluated MLTB loan. Nonaccrual ~~TDR~~MLTB loans are classified as substandard while accruing ~~TDR~~MLTB loans may be classified at any level in our loan grading system depending upon verified repayment sources, collateral values and repayment history.

In March 2020, the Bank announced COVID-19 loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. The Company followed the CARES Act and interagency guidance from the federal banking agencies when determining if a borrower's modification is subject to TDR classification. See "COVID-19 Loan Modifications" below.

~~COVID-19 Loan Modifications.~~ The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This included short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that were insignificant. Borrowers were considered current under the CARES

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Act and related regulatory guidance if they were less than 30 days past due on their contractual payments at the time a modification program is implemented. During the year ended December 31, 2020, the Company made COVID-19 pandemic related modifications on 357 loans totaling $177.6 million. No loans remained on COVID-19 deferral as of December 31, 2021. Loan modifications in accordance with the CARES Act and related regulatory guidance were still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired. See Note 1 and Note 3 of the Notes to the Consolidated Financial Statements included in Item 8,"Financial Statements and Supplementary Data," of this Form 10-K for additional information.

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.

~~General reserve loan loss allowances represent loss allowances~~The allowance for credit losses on loans represents an estimate which ~~have~~has been established to recognize the inherent risk associated with lending ~~activities, but which, unlike specific allowances on impaired loans, have not been specifically allocated to particular problem assets.~~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, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, we had classified loans of ~~$12.6~~$35.1 million, ~~$7.5~~$16.9 million, and ~~$5.0~~$12.6 million, respectively. We had no other classified assets at these dates. In addition, ~~at December 31, 2021~~ we had $14.7 million, $20.7 million and $12.3 million of special mention ~~loans.~~loans at December 31, 2023, 2022, and 2021, respectively.

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

	December 31,						December 31,
	2021		2020		2019		2023		2022		2021
	(In thousands)						(In thousands)
Real estate loans:
One- to four-family	$	764	$	1,771	$	869
Multi-family		—		284		297
One-to-four family							$	2,064	$	1,486	$	764
Commercial real estate		10,948		4,155		1,294		9,848		1,136		10,948
Construction and land		22		64		29		14,987		14,001		22
Total real estate loans		11,734		6,274		2,489		26,899		16,623		11,734

Consumer loans:
Home equity		350		154		227		135		196		350
Auto and other consumer		513		868		955		785		94		513
Total consumer loans		863		1,022		1,182		920		290		863

Commercial business loans		—		232		1,279		7,315		—		—

Total loans	$	12,597	$	7,528	$	4,950
Total classified loans							$	35,134	$	16,913	$	12,597

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The following table shows at December 31, ~~2021,~~2023, the geographic distribution of our classified loans in dollar amounts and percentages.

	North Olympic Peninsula (1)					Puget Sound Region (2)					Total in Washington State					All Other States					Total					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			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)																									(Dollars in thousands)
Real estate loans:
One- to four-family	$	764		0.8	%	$	—		—	%	$	764		0.3	%	$	—		—	%	$	764		0.3	%
Multi-family		—		—			—		—			—		—			—		—			—		—
One-to-four family																										$	664		0.5	%	$	1,073		0.5	%	$	—		—	%	$	1,737		0.5	%	$	327		1.7	%	$	2,064		0.5	%
Commercial real estate		71		0.1			10,877		4.0			10,948		3.1			—		—			10,948		3.0			1,322		1.8			7,101		2.5			—		—			8,423		2.2			1,425		16.4			9,848		2.5
Construction and land		22		0.1			—		—			22		—			—		—			22		—			6		0.1			14,981		13.6			—		—			14,987		11.6			—		—			14,987		11.6
Total real estate loans		857		0.5			10,877		1.5			11,734		1.2			—		—			11,734		1.1			1,992		0.9			23,155		2.6			—		—			25,147		2.1			1,752		3.9			26,899		2.2

Consumer loans:
Home equity		350		1.2			—		—			350		0.9			—		—			350		0.9			104		0.2			31		0.1			—		—			135		0.2			—		—			135		0.2
Auto and other consumer		24		0.3			232		1.8			256		1.1			257		0.2			513		0.3			—		—			1		—			—		—			1		—			784		0.3			785		0.3
Total consumer loans		374		1.0			232		1.1			606		1.0			257		0.2			863		0.4			104		0.2			32		0.1			—		—			136		0.2			784		0.3			920		0.3

Commercial business loans		—		—			—		—			—		—			—		—			—		—			51		0.2			1,070		3.6			3,601		69.3			4,722		7.4			2,593		5.3			7,315		6.5

Total loans	$	1,231		0.5	%	$	11,109		1.4	%	$	12,340		1.1	%	$	257		0.1	%	$	12,597		0.9	%
Total classified loans																										$	2,147		0.7	%	$	24,257		2.6	%	$	3,601		4.0	%	$	30,005		2.3	%	$	5,129		1.6	%	$	35,134		2.1	%

(1) Includes Clallam and Jefferson counties.

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

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Allowance for ~~Loan~~Credit Losses on Loans. The allowance for ~~loan~~credit losses on loans was ~~$15.1~~$17.5 million, or ~~1.1%~~1.05% of total loans, at December 31, ~~2021,~~2023, compared to ~~$13.9~~$16.1 million, or ~~1.2%~~1.04%, at December 31, ~~2020.~~2022. On ~~a quarterly basis, management prepares a report of~~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 ~~losses and establishes~~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 ~~based~~ on ~~its analysis~~the Consolidated Statements of Income. Accrued interest receivable on loans receivable is excluded from the estimate of credit losses. Instead, interest accrued, but not received, is reversed timely in accordance with the policy for loans receivable above. Our accounting policies are discussed in detail in Notes 1 and 4 of the ~~risk composition~~Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of our loan portfolio, delinquency levels, loss experience, economic conditions, seasoning of the loan portfolios, and other factors related to the collectability of the loan portfolio. When determining the appropriate loss factors in fiscal 2020, management took into consideration the impact of the COVID-19 pandemic on such factors as the national and state unemployment rates and related trends, the amount of and timing of financial assistance provided by the government, consumer spending levels and trends, industries significantly impacted by the COVID-19 pandemic, and the Bank's COVID-19 loan modification program. In fiscal 2021, management continued to monitor these same measures and trends as the economy recovered from the considerable impact of the COVID-19 pandemic.

Quantitative analysis is necessary to calculate accounting estimates for loan loss reserves, and we also recognize that qualitative factors such as economic, market, industry and political changes can adversely affect loan quality. These qualitative factors are updated and approved by management on a quarterly basis. Each quarter, a report on the allowance for loan losses, including the application and discussion of quantitative and qualitative factors established during the quarter, is reviewed by the Board's loan committee and presented for approval to the full Board. The allowance is increased or decreased by the provision for or recapture of loan losses, which is charged or credited against current period operating results, and decreased by the amount of actual loan charge-offs, net of recoveries, and improvements in asset quality.

Our methodology for analyzing the allowance for loan losses consists of two components: general and specific allowances. The formula for the general loan loss reserve allowance is determined by applying an estimated quantified loss percentage, as well as qualitative factors, to various groups of loans. We use a three-year loss history including loss percentages based on various historical measures such as the amount and type of classified loans, past due ratios, loss experience, and economic conditions, which could affect the collectability of the respective loan types. Qualitative factors and adjustments to the loan loss reserve calculations are largely subjective but also include objective variables such as unemployment rates, falling or rising real estate values, real estate and retail sales, demographics and other known significant economic indicators. A general allowance is then established, based upon the analysis of the above conditions, to recognize the inherent risk associated with the entire loan portfolio. A specific allowance is established when management believes a borrower’s financial and/or collateral condition has materially deteriorated to a point of impairment, and loss is highly probable for that specific loan.

We define a loan as being impaired when, based on current information and events, it is probable we will be unable to collect amounts due under the contractual terms of the loan agreement. Large groups of smaller balance homogeneous loans, such as residential mortgage loans and consumer loans, are grouped together for impairment analysis and reserve calculation. All other loans are evaluated for impairment on an individual basis. In the process of identifying loans as impaired, management takes into consideration factors which include payment history, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case-by-case basis, after taking into consideration the totality of circumstances surrounding the loans and borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. As of December 31, 2021, we had impaired loans of $3.2 million, compared to $5.5 million at December 31, 2020.

In determining specific reserves for those loans evaluated for impairment on an individual basis, management utilizes the valuation shown in the most recent appraisal of the collateral and may adjust that valuation as additional information becomes available. Generally, appraisals or evaluations are updated subsequent to the time of origination, whenever management identifies a loan as impaired or potentially being impaired. Events which may trigger an updated appraisal or evaluation include, but are not limited to, borrower delinquency, material technical defaults, annual review of borrower’s financial condition, property tax and/or assessment delinquency, deferred maintenance or other information known or discovered by us.

~~Table of Contents~~

Impaired collateral dependent loans require a current valuation and analysis to determine the net value of the collateral for loan loss reserve purposes. Our policy is to update these values every 12 months if the loan and collateral remains impaired, except for smaller balance, homogeneous loans, which are applied a reserve according to their risk weighting and loan class. Certain types of collateral, depending on market conditions, may require more frequent appraisals, updates or evaluations. When the results of the impairment analysis indicate a potential loss, the loan is classified as substandard and is analyzed to determine if a specific reserve amount is to be established or adjusted to reflect any further deterioration in the value of the collateral that may occur prior to liquidation or reinstatement. The impairment analysis takes into consideration the primary, secondary, and tertiary sources of repayment and whether impairment is likely to be temporary in nature or liquidation is anticipated.

Management believes that our allowance for loan losses as of December 31, 2021, is adequate to absorb the known and inherent risks of loss in the loan portfolio at that date. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provision that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in the establishment of additional reserves based upon their evaluation of information available to them at the time of their examination.this Form 10-K.

The following table summarizes the distribution of our allowance for ~~loan~~credit losses on loans at the dates indicated.

	December 31,																December 31,
	2021					2020					2019						2023					2022 ⁽¹⁾					2021 ⁽¹⁾
	Amount		Percent of loans in each category to total			Amount		Percent of loans in each category to total			Amount		Percent of loans in each category to total				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)																(Dollars in thousands)
Allocated at end of period to:
One- to four-family	$	3,184		21.7	%	$	3,469		26.8	%	$	3,024		34.6	%
Balance at End of Period Applicable to:
One-to-four family																	$	2,975		22.8	%	$	3,343		22.2	%	$	3,184		21.7	%
Multi-family		1,816		12.7			1,764		14.1			888		10.9				1,154		20.1			2,468		16.3			1,816		12.7
Commercial real estate		3,996		26.8			3,420		25.7			2,243		28.9				3,671		23.3			4,217		25.2			3,996		26.8
Construction and land		2,672		16.5			1,461		10.7			399		4.2				1,889		7.8			2,344		12.5			2,672		16.5
Home equity		407		2.9			368		2.9			454		4.0				1,077		4.2			549		3.4			407		2.9
Auto and other consumer		2,221		13.5			2,642		11.1			2,261		12.7				4,409		15.0			2,024		15.4			2,221		13.5
Commercial business		470		5.9			429		8.7			208		4.7				2,335		6.8			786		5.0			470		5.9
Unallocated		358		—			294		—			151		—				—		—			385		—			358		—
Total	$	15,124		100.0	%	$	13,847		100.0	%	$	9,628		100.0	%
Total allowance																	$	17,510		100.0	%	$	16,116		100.0	%	$	15,124		100.0	%
(1) Represents the allowance for loan losses by class under the incurred loss methodology.																(1) Represents the allowance for loan losses by class under the incurred loss methodology.

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The following table sets forth an analysis of our allowance for ~~loan losses:~~credit losses on loans:

	Year Ended December 31,									Year Ended December 31,
	2021			2020			2019			2023			2022			2021
	(Dollars in thousands)									(Dollars in thousands)
Allowance at beginning of period	$	13,847		$	9,628		$	9,533		$	16,116		$	15,124		$	13,847
Charge-offs:
One- to four-family		—			—			—
Commercial real estate		—			—			—
Construction and land		—			(5	)		—
Home equity		(12	)		—			—			(10	)		—			(12	)
Auto and other consumer		(865	)		(992	)		(884	)		(3,312	)		(1,025	)		(865	)
Commercial business		—			—			(3	)
Total charge-offs		(877	)		(997	)		(887	)		(3,322	)		(1,025	)		(877	)

Recoveries:
One- to four-family		6			58			5
One-to-four family											9			114			6
Construction and land		8			5			2			—			2			8
Home equity		76			13			45			15			30			76
Auto and other consumer		714			94			259			126			194			714
Commercial business		—			—			2			—			142			—
Total recoveries		804			170			313			150			482			804

Net (charge-offs) recoveries		(73	)		(827	)		(574	)		(3,172	)		(543	)		(73	)
Provision for loan losses		1,350			5,046			669
Impact of Day 1 CECL adoption											2,209			—			—
Provision for credit losses on loans											2,357			1,535			1,350
Balance at end of period	$	15,124		$	13,847		$	9,628		$	17,510		$	16,116		$	15,124

Net (charge-offs) recoveries as a percentage of average loans outstanding		—	%		(0.1	)%		(0.1	)%

Summary of key ratios regarding allowance activity and coverage
Net (charge-offs) recoveries as a percentage of average loans:
Total loans											(0.2	)%		—	%		—	%
One-to-four family											—			—			—
Construction and land											—			—			—
Home equity											—			0.1			0.2
Auto and other consumer											(1.3	)		(0.4	)		(0.1	)
Commercial business											—			0.2			—
Net (charge-offs) recoveries as a percentage of average nonperforming assets		(4.0	)%		(39.1	)%		(30.4	)%		(31.0	)		(34.2	)		(4.0	)

Allowance as a percentage of nonperforming loans		1095.1	%		609.2	%		536.1	%		93.9			900.3			1,095.1

Allowance as a percentage of total loans		1.1	%		1.2	%		1.1	%		1.05			1.05			1.11

Average loans receivable, net	$	1,239,919		$	970,039		$	865,372

Average total loans	$	1,249,605		$	978,799		$	870,696
Average loans receivable, net of ACLL										$	1,594,268		$	1,448,777		$	1,239,919
Average total loans receivable										$	1,611,352		$	1,464,448		$	1,249,605

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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, ~~maintain~~generate earnings, and manage risk, including credit, reinvestment, liquidity and interest rate risk.

Securities. Total investment securities decreased ~~$20.1~~$31.0 million, or ~~5.5%~~9.5%, to ~~$344.2~~$295.6 million at December 31, ~~2021,~~2023, from ~~$364.3~~$326.6 million at December 31, ~~2020,~~2022, mainly as a result of sales and principal payments partially offset by changes in market value and purchases.

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, ~~and the U.S. Small Business Administration,~~ guarantee the timely principal and interest payments in the event of default. Asset-backed security ("ABS") agency bonds held in our portfolio include securities which are backed by student loans where payment is not guaranteed by the issuer. The underlying student loans are reinsured by the U.S. Department of Education, which mitigates a significant portion of their risk of loss. 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.

~~ABS and~~Non-agency MBS ~~corporate~~ securities have no guarantees in the event of default and therefore warrant continued monitoring for credit quality. Our non-agency MBS ~~corporate~~ securities consist of fixed and variable rate mortgages issued by various corporations, ~~and our ABS corporate securities consist of a mix of variable rate collateralized loan obligations in managed funds,~~ which we believe have sufficient ~~subordination~~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 ~~corporate~~ securities are subject to regular internal review to ensure they meet the Company's investment criteria.

During the fourth quarter of 2019, the Bank marked its held to maturity investments as available for sale in order to provide greater flexibility to manage changes in the investment portfolio. Management does not intend to place securities into a held-to-maturity portfolio in the foreseeable future.

As a member of the FHLB, we had an average balance of ~~$4.1~~$12.0 million in stock of the FHLB for the twelve months ended December 31, ~~2021.~~2023. We received ~~$190,000, $255,000,~~$880,000, $502,000, and ~~$332,000~~$190,000 in dividends from the FHLB during the years ended December 31, ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, respectively.

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The table below sets forth information regarding the composition of our securities portfolio and other investments at the dates indicated. At December 31, ~~2021,~~2023, 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 ~~both $32.2~~$30.9 million and $30.5 million, respectively, at December 31, ~~2021.~~2023, and are included in non-agency issued mortgage-backed securities below.

	December 31,												December 31,
	2021				2020				2019				2023				2022				2021
	Book Value		Fair Value		Book Value		Fair Value		Book Value		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)												(In thousands)
Securities available for sale:
Municipal bonds	$	110,497	$	113,364	$	122,667	$	127,862	$	39,524	$	39,282	$	102,998	$	87,761	$	119,990	$	98,050	$	110,497	$	113,364
U.S. Treasury notes														—		—		2,469		2,364		—		—
International agency issued bonds (Agency bonds)		1,947		1,920		—		—		—		—		—		—		1,955		1,702		1,947		1,920
U.S. government agency issued asset-backed securities (ABS agency)		—		—		62,934		63,820		29,796		28,858		11,847		11,782		—		—		—		—
Corporate issued asset-backed securities (ABS corporate)		14,556		14,489		29,661		29,280		41,728		40,855		5,370		5,286		—		—		14,556		14,489
Corporate issued debt securities (Corporate debt)		58,906		59,789		35,408		35,510		9,986		9,643		56,515		51,454		60,700		55,499		58,906		59,789
U.S. Small Business Administration securities (SBA)		14,404		14,680		18,420		18,564		28,423		28,459		—		—		—		—		14,404		14,680
Mortgage-backed:
U.S. government agency issued mortgage-backed securities (MBS agency)		80,877		79,962		61,859		62,683		159,697		160,167		75,665		63,247		88,930		75,648		80,877		79,962
Corporate issued mortgage-backed securities (MBS corporate)		60,317		60,008		26,458		26,577		8,374		8,316
Non-agency issued mortgage-backed securities (MBS non-agency)														81,555		76,093		101,139		93,306		60,317		60,008
Total available for sale		341,504		344,212		357,407		364,296		317,528		315,580		333,950		295,623		375,183		326,569		341,504		344,212

FHLB stock		5,196		5,196		5,977		5,977		6,034		6,034		13,664		13,664		11,681		11,681		5,196		5,196

Total securities	$	346,700	$	349,408	$	363,384	$	370,273	$	323,562	$	321,614	$	347,614	$	309,287	$	386,864	$	338,250	$	346,700	$	349,408

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Maturity of Securities. The composition and contractual maturities of our investment portfolio at December 31, ~~2021~~2023 and December 31, ~~2020,~~2022, 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, 2021																											December 31, 2023
	1 year or less					Over 1 year to 5 years					Over 5 to 10 years					Over 10 years					Total Securities							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		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)																											(Dollars in thousands)
Securities available for sale:
Municipal bonds	$	—		—	%	$	300		4.25	%	$	10,658		2.39	%	$	99,539		2.46	%	$	110,497		2.46	%	$	113,364	$	300		4.25	%	$	—		—	%	$	20,000		2.74	%	$	82,698		2.45	%	$	102,998		2.51	%	$	87,761
Agency bonds		—		—			—		—			1,947		1.22			—		—			1,947		1.22			1,920
ABS agency																													—		—			—		—			—		—			11,847		7.69			11,847		7.69			11,782
ABS corporate		—		—			4,022		1.78			2,014		2.35			8,520		1.81			14,556		1.87			14,489		—		—			—		—			—		—			5,370		9.15			5,370		9.15			5,286
Corporate debt		—		—			2,000		5.50			55,906		3.91			1,000		4.13			58,906		3.97			59,789		—		—			18,081		6.07			37,434		5.02			1,000		4.13			56,515		5.34			51,454
SBA		—		—			69		0.78			9,154		2.53			5,181		2.26			14,404		2.42			14,680
Mortgage-backed:
MBS agency		1		1.12			1		0.71			6,460		1.50			74,415		1.70			80,877		1.68			79,962		—		—			2,176		1.60			5,362		2.37			68,127		2.48			75,665		2.45			63,247
MBS corporate		7,826		3.95			24,346		4.00			2,006		1.32			26,139		2.29			60,317		3.16			60,008
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	$	7,827		3.95	%	$	30,738		3.80	%	$	88,145		3.25	%	$	214,794		2.15	%	$	341,504		2.63	%	$	344,212	$	25,579		8.69	%	$	34,703		5.59	%	$	66,308		4.04	%	$	207,360		3.17	%	$	333,950		4.02	%	$	295,623

	December 31, 2020																											December 31, 2022
	1 year or less					Over 1 year to 5 years					Over 5 to 10 years					Over 10 years					Total Securities							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		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)																											(Dollars in thousands)
Securities available for sale:
Municipal bonds	$	—		—	%	$	301		4.25	%	$	1,461		2.70	%	$	120,905		2.49	%	$	122,667		2.50	%	$	127,862	$	—		—	%	$	300		4.25	%	$	20,487		2.73	%	$	99,203		2.47	%	$	119,990		2.51	%	$	98,050
ABS agency		—		—			—		—			—		—			62,934		2.01			62,934		2.01			63,820
ABS corporate		—		—			—		—			27,701		2.77			1,960		1.25			29,661		2.67			29,280
U.S. Treasury notes																													—		—			2,469		2.34			—		—			—		—			2,469		2.34			2,364
Agency bonds																													—		—			1,955		1.22			—		—			—		—			1,955		1.22			1,702
Corporate debt		—		—			1,863		6.78			33,545		4.33			—		—			35,408		4.46			35,510		—		—			15,976		3.67			43,724		4.78			1,000		4.13			60,700		4.48			55,499
SBA		—		—			47		0.68			11,861		2.22			6,512		2.09			18,420		2.17			18,564
Mortgage-backed:
MBS agency		80		1.59			76		1.36			—		—			61,703		1.44			61,859		1.44			62,683		—		—			—		—			7,913		2.12			81,017		2.32			88,930		2.30			75,648
MBS corporate		—		—			12,369		4.09			—		—			14,089		2.72			26,458		3.36			26,577
MBS non-agency																													13,762		6.61			28,890		4.08			5,523		4.40			52,964		3.54			101,139		4.16			93,306
Total securities available for sale	$	80		1.59	%	$	14,656		4.41	%	$	74,568		3.39	%	$	268,103		2.13	%	$	357,407		2.49	%	$	364,296	$	13,762		6.61	%	$	49,590		3.75	%	$	77,647		3.94	%	$	234,184		2.66	%	$	375,183		3.22	%	$	326,569

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~~The Company may hold certain investment securities in an unrealized loss position that are not considered other than temporarily impaired ("OTTI").~~ At December 31, ~~2021,~~2023, of the 164 investment securities held, there were 76162 investment securities with ~~$2.5~~$38.3 million of unrealized losses and a fair value of approximately ~~$156.4~~$293.8 million. At December 31, ~~2020,~~2022, of the ~~144~~185 investment securities held, there were 36182 investment securities with ~~$1.5~~$48.6 million of unrealized losses and a fair value of approximately ~~$99.4~~$323.8 million. ~~We had no OTTI~~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, ~~2021~~2023 or December 31, ~~2020.~~2022.

Deposit Activities and Other Sources of Funds

General. ~~Deposits,~~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, 2023, 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,									Year Ended December 31,
	2021			2020			2019			2023			2022			2021
	(Dollars in thousands)									(Dollars in thousands)
Beginning balance	$	1,333,517		$	1,001,645		$	940,260		$	1,564,255		$	1,580,580		$	1,333,517
Net deposits		243,667			325,209			53,081			85,618			(21,523	)		243,667
Interest credited		3,396			6,663			8,304			27,019			5,198			3,396
Ending balance	$	1,580,580		$	1,333,517		$	1,001,645		$	1,676,892		$	1,564,255		$	1,580,580

Net increase	$	247,063		$	331,872		$	61,385
Net increase (decrease)										$	112,637		$	(16,325	)	$	247,063

Percent increase		18.5	%		33.1	%		6.5	%
Percent increase (decrease)											7.2	%		(1.0	)%		18.5	%

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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,

2021

2020

2019

Amount

Percent of Total

Amount

Percent of Total

Amount

Percent of Total

(Dollars in thousands)

Transactions and Savings Deposits:

Interest-bearing transaction
$ 196,970 12.5 % $ 156,241 11.7 % $ 116,076 11.6 %
Noninterest-bearing transaction
343,932 21.8 274,930 20.6 160,420 16.0
Savings accounts
194,620 12.3 164,434 12.3 168,983 16.9
Money market accounts
597,815 37.8 429,143 32.2 248,086 24.8

Total transaction and savings deposits
1,333,337 84.4 1,024,748 76.8 693,565 69.3

Certificates: (1)

0.00 – 0.99%
191,536 12.1 194,565 14.6 12,057 1.2
1.00 – 1.99%
40,228 2.5 63,503 4.8 172,680 17.2
2.00 – 2.99%
15,479 1.0 49,405 3.7 122,120 12.2
3.00 – 3.99%
— — 1,296 0.1 1,223 0.1

Total certificates
247,243 15.6 308,769 23.2 308,080 30.7

Total deposits
$ 1,580,580 100.0 % $ 1,333,517 100.0 % $ 1,001,645 100.0 %

(1) Brokered certificates of deposit included in certificates $ 65,734 $ 89,560 $ —

~~Table of Contents~~

	December 31,
	2023					2022					2021
	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Transactions and Savings Deposits:
Noninterest-bearing transaction	$	252,083		15.0	%	$	315,083		20.1	%	$	343,932		21.8	%
Interest-bearing transaction		169,418		10.1			193,558		12.4			196,970		12.5
Money market accounts		362,205		21.7			473,009		30.3			597,815		37.8
Savings accounts		242,148		14.4			200,920		12.8			194,620		12.3
Total transaction and savings deposits		1,025,854		61.2			1,182,570		75.6			1,333,337		84.4

Certificates: ⁽¹⁾
0.00 – 0.99%		29,097		1.7			113,662		7.3			191,536		12.1
1.00 – 1.99%		25,396		1.5			44,200		2.8			40,228		2.5
2.00 – 2.99%		10,937		0.7			86,191		5.5			15,479		1.0
3.00 – 3.99%		100,577		6.0			99,009		6.3			—		—
4.00 – 4.99%		275,807		16.4			38,623		2.5			—		—
5.00 – 5.99%		209,224		12.5			—		—			—		—
Total certificates		651,038		38.8			381,685		24.4			247,243		15.6

Total deposits	$	1,676,892		100.0	%	$	1,564,255		100.0	%	$	1,580,580		100.0	%

(1) Brokered certificates of deposit included in certificates	$	207,626				$	133,861				$	65,734

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,																								December 31,
	2021								2020								2019								2023								2022								2021
	Amount		Percent of Total			Increase/ (Decrease)			Amount		Percent of Total			Increase/ (Decrease)			Amount		Percent of Total			Increase/ (Decrease)			Amount		Percent of Total			Increase/ (Decrease)			Amount		Percent of Total			Increase/ (Decrease)			Amount		Percent of Total			Increase/ (Decrease)
	(Dollars in thousands)																								(Dollars in thousands)
Savings accounts	$	194,620		12.3	%	$	30,186		$	164,434		12.3	%	$	(4,549	)	$	168,983		16.9	%	$	25,571		$	242,148		14.4	%	$	41,228		$	200,920		12.8	%	$	6,300		$	194,620		12.3	%	$	30,186
Transaction accounts		540,902		34.2			109,731			431,171		32.3			154,675			276,496		27.6			14,344			421,501		25.1			(87,140	)		508,641		32.5			(32,261	)		540,902		34.3			109,731
Money-market accounts		597,815		37.8			168,672			429,143		32.2			181,057			248,086		24.8			(25,258	)
Money market accounts																										362,205		21.7			(110,804	)		473,009		30.3			(124,806	)		597,815		37.8			168,672
Fixed-rate certificates which mature in the year ending:
Within 1 year		153,472		9.7			(32,332	)		185,804		13.9			(55,323	)		241,127		24.1			93,008			495,605		29.5			233,416			262,189		16.8			108,717			153,472		9.7			(32,332	)
After 1 year but within 2 years		72,590		4.6			(35,532	)		108,122		8.1			65,848			42,274		4.2			(36,692	)
After 2 years but within 5 years		21,181		1.3			6,338			14,843		1.1			(9,836	)		24,679		2.5			(9,588	)
After 1 year but within 3 years																										108,418		6.5			1,419			106,999		6.8			34,409			72,590		4.6			(35,532	)
After 3 years but within 5 years																										47,015		2.8			34,518			12,497		0.8			(8,684	)		21,181		1.3			6,338
Total	$	1,580,580		100.0	%	$	247,063		$	1,333,517		100.0	%	$	331,872		$	1,001,645		100.0	%	$	61,385		$	1,676,892		100.0	%	$	112,637		$	1,564,255		100.0	%	$	(16,325	)	$	1,580,580		100.0	%	$	247,063

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Deposit Maturities. The following table sets forth the rate and maturity information of our time deposit certificates at December 31, ~~2021.~~2023.

	0.00- 0.99		%	1.00- 1.99		%	2.00- 2.99		%	Total			Percent of Total			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)															(Dollars in thousands)
Certificate accounts maturing in quarter ending:
March 31, 2022	$	41,127		$	13,689		$	1,886		$	56,702			22.8	%
June 30, 2022		25,737			8,466			218			34,421			13.9
September 30, 2022		37,092			3,234			2,729			43,055			17.4
December 31, 2022		17,661			497			1,136			19,294			7.8
March 31, 2023		4,830			2,711			279			7,820			3.2
June 30, 2023		3,909			1,695			550			6,154			2.5
September 30, 2023		19,509			2,617			1,185			23,311			9.4
December 31, 2023		15,561			211			1,913			17,685			7.2
March 31, 2024		1,831			228			2,059			4,118			1.7		$	2,667		$	1,757		$	1,608		$	60,300		$	59,248		$	52,385		$	177,965			27.3	%
June 30, 2024		2,551			—			2,070			4,621			1.9			5,284			2,205			2,132			241			119,021			57,416			186,299			28.6
September 30, 2024		775			—			801			1,576			0.6			1,330			2,779			2,488			189			33,334			40,360			80,480			12.4
December 31, 2024		6,089			563			653			7,305			3.0			5,831			2,743			2,175			18,426			19,976			1,710			50,861			7.8
March 31, 2025																	1,057			3,311			2,411			12,800			28,415			4,853			52,847			8.1
June 30, 2025																	458			1,338			—			592			9,212			—			11,600			1.8
September 30, 2025																	5,313			303			—			651			2,079			—			8,346			1.3
December 31, 2025																	3,664			381			—			2,261			438			—			6,744			1.0
March 31, 2026																	1,158			280			—			25			—			—			1,463			0.2
June 30, 2026																	300			447			—			151			—			—			898			0.1
September 30, 2026																	847			382			—			18			—			—			1,247			0.2
December 31, 2026																	59			2,546			—			4,116			1,052			17,500			25,273			4.0
Thereafter		14,864			6,317			—			21,181			8.6			1,129			6,924			123			807			3,032			35,000			47,015			7.2

Total	$	191,536		$	40,228		$	15,479		$	247,243			100.0	%	$	29,097		$	25,396		$	10,937		$	100,577		$	275,807		$	209,224		$	651,038			100.0	%

Percent of total		77.4	%		16.3	%		6.3	%		100.0	%					4.5	%		3.9	%		1.7	%		15.4	%		42.4	%		32.1	%		100.0	%

~~Jumbo Certificates.~~ 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 $363.7 million and $334.0 million of total deposit balances were uninsured at December 31, 2023 and 2022, respectively.

The following table indicates the amount of our ~~jumbo~~ certificates of deposit by time remaining until maturity as of December 31, ~~2021. Jumbo certificates of deposit are certificates in amounts of $100,000 or more.~~2023.

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 $100,000
$ 10,203 $ 17,428 $ 22,900 $ 63,223 $ 113,754
Certificates of deposit of $100,000 or more
46,499 16,993 39,449 30,548 133,489

Total certificates
$ 56,702 $ 34,421 $ 62,349 $ 93,771 $ 247,243

	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	$	123,250	$	136,510	$	101,331	$	116,186	$	477,277
Certificates of deposit of $250,000 or more		54,715		49,789		30,010		39,247		173,761
Total certificates	$	177,965	$	186,299	$	131,341	$	155,433	$	651,038

The Federal Reserve ~~requires~~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, ~~2021,~~2023, our deposit with the Federal Reserve Bank of San Francisco and vault cash exceeded our reserve requirements.

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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 supplement our supply of lendable funds,~~ 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, ~~2021,~~2023, had pledged loan and security collateral to support a borrowing capacity of ~~$481.2~~$589.5 million. In addition, ~~we have a letter~~the Bank had outstanding letters of credit ~~established in conjunction with assuming~~from the FHLB to secure public deposits and the Bellevue, Washington branch lease liability. At December 31, ~~2021,~~2023, outstanding advances from the FHLB totaled ~~$80.0~~$275.0 million and the ~~letter~~combined balance for the two letters of credit ~~balance~~ was ~~$772,000,~~$60.8 million, leaving a remaining borrowing capacity of ~~$400.4~~$253.8 million.

First Fed ~~also~~maintains an established a borrowing arrangement to use the Federal Reserve Board of San Francisco's ("FRB") discount window. At December 31, ~~2021,~~2023, we had pledged securities with a carrying value of $6.9 million as collateral to support a borrowing capacity of ~~$17.2~~$6.6 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 ~~intends to use~~used the net proceeds of the offering for general corporate ~~purposes and provided~~purposes.

On May 20, 2022, First Northwest began a borrowing arrangement with NexBank for a $20.0 million revolving line of credit. Borrowings under the arrangement with NexBank are secured by a blanket lien on First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The line of credit matures on May 18, 2024, with the option for one 364-day extension.

In June 2023, First Fed established a Bank Term Funding Program ("BTFP") borrowing arrangement with the FRB as an additional source of liquidity. At December 31, 2023, we had pledged securities with a carrying value of $12.9 million as collateral to ~~the Bank as Tier 1 capital.~~support a borrowing capacity of $15.2 million. No funds have been borrowed to date.

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,									Year Ended December 31,
	2021			2020			2019			2023			2022			2021
	(Dollars in thousands)									(Dollars in thousands)
Maximum balance:
FHLB long-term advances	$	80,000		$	55,000		$	65,000		$	85,000		$	80,000		$	80,000
FHLB short-term advances		—			—			45,000			95,000			42,500			—
FHLB overnight borrowings		40,000			100,021			90,889			195,000			206,000			40,000
Subordinated debt		40,000			—			—
Line of credit											11,000			12,000			—
Subordinated debt, net											39,436			39,358			39,310

Average balances:
FHLB long-term advances	$	52,500		$	50,000		$	56,250		$	81,667		$	80,000		$	52,500
FHLB short-term advances		—			—			3,750			25,000			15,208			—
FHLB overnight borrowings		5,207			54,548			53,156			149,500			90,983			5,207
Subordinated debt		30,370			—			—
Line of credit											9,327			5,770			—
Subordinated debt, net											39,395			39,312			30,370

Weighted average interest rate:
FHLB long-term advances		1.46	%		1.75	%		3.34	%		2.00	%		1.52	%		1.46	%
FHLB short-term advances		—			—			2.33			5.08			1.82			—
FHLB overnight borrowings		0.30			0.60			2.33			5.26			2.83			0.30
Line of credit											9.15			6.76			—
Subordinated debt, net		3.96			—			—			4.01			4.01			3.96

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	Year Ended December 31,									Year Ended December 31,
	2021			2020			2019			2023			2022			2021
	(Dollars in thousands)									(Dollars in thousands)
Balance outstanding at end of period:
FHLB long-term advances	$	80,000		$	50,000		$	50,000		$	80,000		$	80,000		$	80,000
FHLB short-term advances		—			—			45,000			—			10,000			—
FHLB overnight borrowings		—			59,977			17,930			195,000			144,000			—
Subordinated debt		40,000			—			—
Line of credit											6,500			12,000			—
Subordinated debt, net											39,436			39,358			39,280
Total borrowings	$	120,000		$	109,977		$	112,930		$	320,936		$	285,358		$	119,280

Weighted average interest rate at end of period:
FHLB long-term advances		1.52	%		1.53	%		2.98	%		2.09	%		1.52	%		1.52	%
FHLB short-term advances		—			—			1.79			5.27			2.12			—
FHLB overnight borrowings		0.31			0.32			1.80			5.52			4.30			0.31
Line of credit											9.00			8.00			—
Subordinated debt, net		3.01			—			—			4.00			4.01			3.06

Subsidiary and Other Activities

First Fed has ~~two~~one active ~~subsidiaries in order~~subsidiary to participate in historic tax credit transactions. ~~The first~~Makers Square Master Tenant, LLC was formed in February 2021 in partnership with the Fort Worden Foundation. A former subsidiary, 202 Master Tenant, LLC, was formed in August 2016 in partnership with the Peninsula College ~~Foundation. Makers Square Master Tenant, LLC was formed~~Foundation and ended in ~~February 2021 in partnership with the Fort Worden Foundation.~~April 2022. These entities meet the criteria for reporting under the equity method of accounting.

In December 2019, the Company ~~entered into a limited partnership with~~joined Canapi Ventures Fund, ~~LP.~~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, ~~2021, $1.7~~2023, $2.4 million had been contributed to this partnership. The recorded investment was ~~$3.0~~$3.1 million at December 31, 2023.

In April 2021, First Northwest, the Bank, POM, and Quin Ventures became parties to a joint venture agreement. First Northwest extended $8.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $500,000. Quin Ventures was in a research and development phase during 2021. In early 2022, an initial product was rolled out that attracted significant initial customer interest but had lower than expected customer retention as well as higher than anticipated expenses. In the second half of 2022, another investor showed interest in the joint venture. In December 2022, Quin Ventures sold substantially all of its assets to Quil, at which time POM returned the 29,719 shares previously issued and the joint venture agreement was terminated. 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 ~~entered into~~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 ~~with BankTech Ventures, L.P.~~over a period not to exceed the first five years, beginning in 2021. As of December 31, 2023, $470,000 had been contributed to this partnership. The recorded investment was $564,000 at December 31, 2023.

In December 2021, the Company joined 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 ~~2021.~~2022. As of December 31, ~~2021~~2023, ~~$120,00~~$180,0000 had been contributed to this partnership. The recorded investment was $104,000 at December 31, 2023.

In April 2021, First Northwest entered into an Amended and Restated Joint Venture Agreement (the "Joint Venture Agreement") with the Bank, POM Peace of Mind, Inc.("POM"), and Quin Ventures, Inc. ("Quin" or "Quin Ventures"). First Northwest has partially fulfilled its commitment to extend $15.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $500,000. Under the Joint Venture Agreement, the Company and POM have established Quin to develop a digital financial wellness platform that will offer personal financial services to the general public. Under a related Marketing and Banking Services Agreement, Quin will promote the services offered through the digital financial wellness platform and the Bank will provide banking services to the customers who utilize the platform. The Marketing and Banking Services Agreement sets forth the terms governing the parties’ commercial and economic commitments and responsibilities, including the fees to be paid by the Bank to fund the costs of acquiring customers and the distribution of interchange fees.

~~In 2022 and beyond, the Company intends to explore additional opportunities to expand its fintech capabilities that will advance its competitive position.~~

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In February 2022, the Bank invested in a Small Business Investment Company through Canapi Ventures. This commitment will be for up to ten years with two possible one-year extensions, with cash installments totaling up to $2.0 million to be paid into the company over the commitment period, beginning in 2022. As of December 31, 2023, $307,000 has been contributed to this fund. The recorded investment was $173,000 at December 31, 2023.

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. The recorded investment was $6.3 million at December 31, 2023.

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, 2023. The recorded investment in MWGC was $8,000 at December 31, 2023.

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, 2023. 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 $3.0 million at December 31, 2023.

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.~~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, ~~2021,~~2023, First Fed’s share of bank, savings bank and savings and loan association deposits in Clallam and Jefferson counties was ~~38.7%~~42.3% and ~~23.2%~~21.8%, respectively, and was less than 4% in Whatcom, Kitsap and ~~Kitsap~~King counties.

Employees and Human Capital Resources

At December 31, ~~2021,~~2023, we had ~~288~~ 270 full-time equivalent employees. AtAt that date, the average tenure of all of our full-time employees was approximately 4.8 years while the average tenure of our executive officers was approximately ~~5.6 years.~~4.5 years. None of our employees are represented by collective bargaining agreements. We believe our employee relations to be excellent.

Our Board of Directors guides the implementation of our corporate mission, vision, and values as an important element of risk oversight because our people are integral to the success of our corporate strategy. Our Board 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 ~~central~~ pillar in our approach to our employees and the communities we have proudly served for ~~nearly~~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 ~~people~~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.

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We dedicate resources to promote a safe and inclusive workplace; attract, develop, and retain talented, diverse 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 ~~careers that are~~ fulfilling ~~ones,~~careers, with competitive compensation and benefits ~~alongside~~combined with a positive work-life ~~balance, and we~~balance. We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training, and development programs. This devotion to our people has earned us recognition on ~~Forbes~~Puget Sound Business Journal magazine's ~~Best-in-State Bank~~Washington's Best Workplaces list in ~~2021.~~2023.

Our employees are the cornerstone of our success as an ~~organization.~~organization as they serve our customer base. We are committed to attracting, retaining, and promoting highly qualified individuals from a diverse array of backgrounds. We believe employing a diverse workforce enhances our ability to serve our customers and our communities. We have established a voluntary, employee-led and -staffed ~~Diversity, Equity,~~Empathy and Inclusion team that is committed to promoting a diverse, equitable, and inclusive work environment for all employees. We seek to better understand the financial needs of our prospective and current customers by promoting and fostering a workforce that reflects the communities we serve, along with providing relevant financial service products. As we move forward, we will continue to grow our diversity, equity, and inclusion efforts in a manner consistent with our company vision: to create well-being and prosperity for our employees, customers, and communities.

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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, ~~2021:~~2023:

Matthew P. Deines, age ~~48,~~50, 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. ~~He serves as the Board Chairman for Quin Ventures, Inc., in which the Company has a 50% equity interest.~~ In over 1820 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 a member of the Port Angeles Waterfront Center Board of Directors and actively involved with several other non-profit organizations.

Geri Bullard, age ~~56,~~58, is Executive Vice President, ~~and~~ Chief Financial Officer ("CFO") and Chief Operating Officer ("COO") of the Company and First ~~Fed, a position she~~Fed. She has held the CFO position since March ~~2020.~~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 ~~and Chief Financial Officer~~ at Salal Credit Union, located in Seattle, from August 2018 to January 2020; ~~Chief Financial Officer~~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.

Christopher ~~J. Riffle~~W. Neros, age ~~46,~~54, is Executive Vice President and Chief ~~Operating~~Banking Officer ~~(COO)~~("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 28 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. He holds a Bachelor of Business Administration in Marketing from the University of Alaska Anchorage, a Master of Business Administration from Regis University, and is a graduate of the Pacific Coast Banking School at the University of Washington.

Christopher J. Riffle, age 48, is Executive Vice President, Chief Digital Officer ("CDO") and General Counsel of the Company and First Fed. Mr. Riffle has held the ~~COO~~CDO position since ~~October 2018~~January 2022 and has served as General Counsel since September 2017. He ~~serves~~also served as ~~a director for Quin Ventures, Inc., in which the Company has a 50% equity interest.~~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.

Terry Anderson, age ~~53,~~55, is Executive Vice President and Chief Credit Officer of First Fed, a position he has held since 2018. Mr. Anderson has more than two decades of management experience in credit administration, sales, commercial banking and strategic planning. He most recently served as Executive Vice President and Chief Credit Officer for South Sound Bank for more than six years and has previously worked in a variety of positions with West Coast Bank, US Bank, and Bank of America.

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~~Kelly A. Liske~~Derek J. Brown, age ~~45,~~ is Executive Vice President and Chief Banking Officer of First Fed, a position she has held since July 2013. Ms. Liske served as a Commercial Relationship Manager and Vice President for First Fed from July 2011 to July 2013. Prior to that she served as the Branch Manager, Assistant Vice President for First Fed’s Port Townsend Branch from 2006 until 2011. Prior to joining First Fed, Ms. Liske was employed for 11 years at Washington Mutual where she held various positions in the Retail Banking Division.

~~Derek J. Brown~~~~, age 51,~~53, is Executive Vice President and Chief Human Resources and Marketing Officer of First Fed, a position he has held since March 2020. Mr. Brown served as a Senior Vice President and Chief Human Resources and Marketing Officer for First Fed from January 2018 to March 2020, and Senior Vice President and Director of Human Resources from October 2015 to January 2018. Prior to joining First Fed, he served as a Human Resources and business leader at Citibank and held Human Resources leadership roles within the financial, professional services, and healthcare industries. He holds a Bachelor of Science degree in Management and Human Resources from Utah State University, a Master of Business Administration from Weber State University, and is a graduate of the Pacific Coast Banking School at the University of Washington.

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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 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. Washington commercial banks are permitted to charge the maximum interest rates on loans and other extensions of credit to Washington residents which are allowable for a national bank in another state if higher than Washington limits. In addition, the DFI may approve applications by Washington commercial banks to engage in an otherwise unauthorized activity if the DFI determines that the activity is closely related to banking and First Fed is otherwise qualified under the statute. This additional authority, however, is subject to review and approval by the FDIC if the activity is not permissible for national banks.

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Regulation of Management. Federal law (1) sets forth circumstances under which officers or directors of a bank may be removed by the bank's federal supervisory agency; (2) as discussed below, places restraints on lending by a bank to its executive officers, directors, principal shareholders, and their related interests; and (3) generally prohibits management personnel of a bank from serving as directors or in other management positions of another financial institution whose assets exceed a specified amount or which has an office within a specified geographic area.

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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, ~~2021,~~2023, were ~~$752,000.~~$1.4 million. No institution may pay a dividend to its parent holding company if it is in default on its federal deposit insurance assessment.

The FDIC ~~calculates assessments~~determines the amount of insurance premiums based on each financial institution's deposit base and the applicable assessment rate. The assessment rate for small institutions (those with less than $10 billion in assets) is based on an institution’s weighted average CAMELS component ratings and certain financial ratios. Currently, assessment rates range from 3 to 16 basis points for institutions with CAMELS composite ratings of 1 or 2, 6 to 30 basis points for those with a CAMELS composite score of 3, and 16 to 30 basis points for those with CAMELS ~~Composite~~composite scores of 4 or 5, subject to certain adjustments. ~~Assessment rates are scheduled to decrease in the future as the reserve ratio increases. The reserve ratio is the ratio of the net worth of the DIF to aggregate insured deposits.~~

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 ~~and any significant increases would~~ 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.

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Under these regulations, an institution is treated as well capitalized if it has a ratio of total capital to risk-weighted assets of 10.0% or more (the total risk-based capital ratio); a ratio of common equity Tier 1 capital to risk-weighted assets (the Tier 1 risk-based capital ratio) of 8.0% or more; a ratio of Tier 1 common equity capital to risk-weighted assets of 6.5% or more (the common equity Tier 1 capital ratio); a ratio of Tier 1 capital to average consolidated assets (the leverage ratio) of 5.0% or more; and the institution is not subject to a federal order, agreement, or directive to meet a specific capital level. An institution is considered adequately capitalized if it is not well capitalized but it has a total risk-based capital ratio of 8.0% or more; a Tier 1 risk-based capital ratio of 6.0% or more; a common equity Tier 1 capital ratio of 4.5% or more; and a leverage ratio of 4.0% or more. The classifications for "undercapitalized," "significantly undercapitalized" and "critically undercapitalized" institutions are also set forth in the regulations. An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits generally. 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.

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Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls, and restrictions which become more extensive as an institution becomes more severely undercapitalized. Failure by First Fed to comply with applicable capital requirements would, if not remedied, result in restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator. Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements. At December 31, ~~2021,~~2023, First Fed was categorized as "well capitalized" under the regulatory capital requirements described below. For additional information, see Note 1112 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 Tier 1 capital to total assets leverage ratio of 4%.

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

As of December 31, ~~2021,~~2023, First Northwest Bancorp and First Fed each met the requirements to be "well capitalized" and met the capital conservation buffer requirement. Management monitors the capital levels of First Northwest Bancorp and First Fed to provide for current and future business opportunities and to meet regulatory guidelines for "well capitalized" institutions. For additional information regarding First Northwest Bancorp’s and First Fed’s required and actual capital levels at December 31, ~~2021,~~2023, see Note 1112 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

The Federal Reserve and the FDIC have authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate considering particular risks or circumstances. Management believes that, under the current regulations, First Northwest Bancorp and First Fed will continue to meet their minimum capital requirements in the foreseeable future.

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Standards for Safety and Soundness. The federal banking regulatory agencies have prescribed, by regulation, guidelines for all insured depository institutions relating to internal controls, information systems and internal audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees, and benefits. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. Each insured depository institution must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution’s size and complexity and the nature and scope of its activities. The information security program must be designed to ensure the security and confidentiality of customer information, protect against any unanticipated threats or hazards to the security or integrity of such information, protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer, and ensure the proper disposal of customer and consumer information. Each insured depository institution must also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems. If the FDIC determines that an institution fails to meet any of these guidelines, it may require an institution to submit to the FDIC an acceptable plan to achieve compliance. First Fed has established comprehensive policies and risk management procedures to ensure the safety and soundness of First Fed.

Federal Home Loan Bank System. First Fed is a member of the FHLB of Des Moines. As a member, First Fed is required to purchase and maintain stock in the FHLB. At December 31, ~~2021,~~2023, First Fed held ~~$5.2~~$13.7 million in FHLB stock, which was in compliance with this requirement. Each FHLB serves as a reserve or central bank for its members within its assigned region, and it is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. Each FHLB makes loans or advances to members in accordance with policies and procedures, established by its Board of Directors, subject to the oversight of the Federal Housing Finance Agency. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB, and all long-term advances are required to provide funds for residential home financing. At December 31, ~~2021,~~2023, First Fed had ~~$80.0~~$275.0 million of outstanding advances from the FHLB of Des Moines. See Item 1, "Business – Deposit Activities and Other Sources of Funds – Borrowings."

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The FHLBs continue to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected ~~adversely~~ the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of First Fed's FHLB of Des Moines stock may result in a corresponding reduction in its capital.

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

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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 ~~bank~~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 ~~that necessary to meet~~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. 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 ~~bank~~financial holding companies. The Dodd-Frank Act further extended the definition of an "affiliate" and treats credit exposure arising from derivative transactions, securities lending, and borrowing transactions as covered transactions under the regulations. Transactions deemed to be a "covered transaction" under Section 23A of the Federal Reserve Act and between a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10% of the bank subsidiary’s capital and surplus and, with respect to the parent company and all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiary’s capital and surplus. Further, covered transactions that are loans and extensions of credit generally are required to be secured by eligible collateral in specified amounts. Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.

Community Reinvestment Act. First Fed is subject to the provisions of the Community Reinvestment Act of 1977 (the "CRA")~~, which requires~~. Under the ~~appropriate~~CRA, federal bank ~~regulatory agency to~~regulators assess a bank’s performance under the CRA in meeting the credit needs of the ~~community~~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 comply with the CRA, or CRA protests filed by interested parties during applicable comment periods, can result in the denial or delay of such transactions. First Fed received a "satisfactory" rating during its most recent CRA examination. In May 2022, federal bank regulators released a notice of proposed rulemaking to “strengthen and modernize” CRA regulations and related regulatory framework. Future changes in the evaluation process or requirements under CRA could impact the Bank’s rating.

Commercial Real Estate Ratios. The federal banking regulators issued guidance reminding financial institutions to reexamine the existing regulations regarding concentrations in commercial real estate lending, including acquisition, development and construction lending. The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The banking regulators are directed to examine each bank’s exposure to commercial real estate loans that are dependent on cash flow from the real estate held as collateral and to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk. The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be considered in evaluating capital adequacy and does not specifically limit a bank’s commercial real estate lending to a specified concentration level.

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

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Environmental Issues Associated with Real Estate Lending. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") is a federal statute that generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste. However, the term "owner and operator" excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this "secured creditor exemption" has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including First Fed, ~~that~~who have made loans secured by properties with ~~potential~~potentially hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs ~~which costs~~that often substantially exceed the value of the collateral property.

Federal Reserve System. The Federal Reserve Board requires that all depository institutions maintain reserves on transaction accounts or non-personal time deposits. 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. As of December 31, ~~2021,~~2023, First Fed was in compliance with the reserve requirements in place at that time.

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.

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Other 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 deems 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.

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 financial holding company (a type of bank holding ~~company~~company) registered with the Federal Reserve and the sole shareholder of First Fed. Bank holding companies and financial holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA"), and the regulations promulgated thereunder. This regulation and oversight is generally intended to ensure that First Northwest Bancorp limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of First Fed. During 2022, First Northwest elected to be treated as a financial holding company, allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities.

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.

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The Bank Holding Company Act. Under the BHCA, First Northwest Bancorp is supervised by the Federal Reserve. The Federal ~~Reserve has a~~Reserve's policy ~~that a~~requires bank holding ~~company is required~~companies to serve as a source of financial and managerial strength to ~~its~~their subsidiary banks and ~~may not conduct its operations in an~~prohibits unsafe or unsound ~~manner. In addition,~~operations. Additionally, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank holding company should serve as a source of strength to its subsidiary banks by being prepared to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity (including at times when a bank holding company may not be in a financial position to provide such resources or when it may not be in the bank holding company’s or its shareholders' best interests to do so), and should maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks.

Any capital loans a bank holding company makes to its bank subsidiaries are subordinate to deposits and to certain other indebtedness of the bank subsidiaries. A bank holding company's failure to meet its obligation to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve's regulations, or both.

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Under the BHCA, the Federal Reserve may approve ~~the ownership of shares by~~ a bank holding company's ownership of another company which engages in ~~any company the~~ activities ~~of which the Federal Reserve has determined to be so~~ closely related to the business of banking, ~~or managing or controlling banks~~ as ~~to be a proper incident thereto.~~determined by the Federal Reserve. These activities generally include, among others, operating a savings institution, mortgage company, finance company, credit card company, or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers' checks, and U.S. Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers.

Acquisitions. ~~The~~With certain exceptions, the BHCA prohibits a bank holding company ~~with certain exceptions,~~ 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. A bank holding company that meets certain supervisory and financial standards and elects to be designated as a financial holding company may also engage in certain securities, insurance and merchant banking activities, and other activities determined to be financial in nature or incidental to financial activities.

Regulatory Capital Requirements.~~The~~ As part of the review of applications under the BHCA and the supervision of bank holding companies, the Federal Reserve ~~has adopted capital rules pursuant to which it~~ assesses the adequacy of ~~capital in examining and supervising~~ a bank holding ~~company and in analyzing applications under~~company's capital pursuant to the ~~BHCA.~~capital rules it has adopted. These rules apply ~~on a consolidated basis~~ 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, ~~and on a~~or to bank-only ~~basis to other~~ 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 1112 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 interstate branching restrictions that were implemented as part of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Act") and removed many restrictions on de novo interstate branching by state and federally chartered banks. The Federal Reserve may approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than the bank holding company's home state, without regard to whether the transaction is prohibited by the laws of any state.

The Federal Reserve may not approve the acquisition of a bank that has not been in existence for ~~the~~a minimum ~~time period~~ of five years, or longer if specified by the law of the host state. In addition, the Federal Reserve generally may not approve an application for an interstate merger transaction if the applicant controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. Federal law does not affect the authority of states to limit the percentage of total insured deposits in the state that may be held or controlled by a bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the federal law. Banks may establish de novo branches in any state, subject to regulatory approval.

The federal banking agencies are authorized to approve interstate merger transactions without regard to whether the transaction is prohibited by the law of any state, unless the home state of one of the banks adopted a law prior to June 1, 1997, which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described above. Federal bank regulations prohibit banks from using their interstate branches primarily for deposit production, and federal bank regulatory agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.

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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, ~~2021,~~2023, First Northwest Bancorp and First Fed qualified for the small issuer exemption from the Federal Reserve’s interchange fee cap, which applies to any debit card issuer that has total consolidated assets of less than $10 billion as of the end of the previous calendar year. In October 2023, the Federal Reserve requested comments on a proposed rule that would lower the interchange fee cap and establish a regular process for updating the cap every other year going forward. 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 it 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. The capital conservation buffer requirements may limit First Northwest Bancorp's ability to pay dividends.

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

Tying Arrangements. First Northwest Bancorp and First Fed are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services. For example, with certain exceptions, neither First Northwest Bancorp nor First Fed may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by First Northwest Bancorp or First Fed; or (2) an agreement by the customer to refrain from obtaining other services from a competitor.

The Dodd-Frank Act. The Dodd-Frank Act was signed into law in July 2010 and ~~imposes~~imposed restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions, and ~~required~~implemented new capital regulations that are discussed above under "- Regulation of First Fed - Capital Regulations." ~~In addition, among other changes, the~~The Dodd-Frank Act also requires public companies, like First Northwest Bancorp, to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a "say on pay" vote every one, two, or three years; (ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions, or other transactions that would trigger the parachute payments; and (iii) provide disclosure in annual proxy materials concerning the relationship between the executive compensation paid and the financial performance of the issuer.

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In August 2015, the Securities and Exchange Commission ("SEC") adopted a rule mandated by the Dodd-Frank Act that requires a public company to disclose the ratio of the Chief Executive Officer's annual total compensation to the median annual total compensation of all other employees. The rule is intended to provide shareholders with information that they can use to evaluate a Chief Executive Officer’s compensation.

Federal Securities Law. The stock of First Northwest Bancorp is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result, First Northwest Bancorp is subject to the information, proxy solicitation, insider trading restrictions, and other requirements under the Exchange Act.

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First Northwest Bancorp stock held by persons who are affiliates of First Northwest Bancorp may not be resold without registration unless sold in accordance with certain resale restrictions. ~~Affiliates~~Executive officers, directors and principal shareholders of the company are generally considered to be ~~officers, directors and principal shareholders.~~affiliates. If First Northwest Bancorp meets specified current public information requirements, each affiliate of First Northwest Bancorp will be able to sell in the public market, without registration, a limited number of shares in any three-month period.

The SEC has adopted regulations and policies under the Sarbanes-Oxley Act of 2002 that apply to First Northwest Bancorp as a company with securities registered ~~company~~ under the Exchange Act. The stated goals of these Sarbanes-Oxley requirements are to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The SEC and Sarbanes-Oxley-related regulations and policies include very specific additional disclosure requirements and ~~new~~ corporate governance rules. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

During 2023, First Northwest became subject to Nasdaq listing rules that require the adoption of a policy providing for the recovery of compensation that had been erroneously paid to its executive officers in the event that its financial statements are restated. A copy of the policy is included as exhibit 97.1 to this Form 10-K.

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

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.

Recently, the Federal Reserve has ~~suggested~~reaffirmed that its ~~focus will shift from policies supportive of economic growth, including~~strategy for monetary policy is focused on long-term goals and addressing continued concerns with inflation. After increasing the ~~maintenance of low interest rates and other credit support, to policies that seek to address~~federal funds rate by 425 basis points in 2022, the ~~rapid~~Federal Reserve continued the trend, albeit at a slower pace, for a total increase in 2023 of 100 basis points. The last rate increase was in July 2023, and the Federal Reserve has communicated that the economic outlook continues to be uncertain and inflation ~~experienced~~risks remain present. Changes in ~~2021.~~monetary policy, including increases 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. In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federalFederal banking ~~law and regulations.~~

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~~The federal banking~~ regulators ~~regularly~~ issue new guidance and standards, and update existing guidance and standards, ~~regarding cybersecurity~~ intended to enhance cyber risk management among financial ~~institutions.~~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.

In November 2021, the federal banking agencies adopted a Final Rule, with compliance required by May 1, 2022, ~~that~~establishing new notification requirements for banking organizations. The new rule requires ~~banking organizations~~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 ~~or is reasonably likely to materially disrupt or degrade,~~ the banking organization’s ability to carry out banking operations ~~or deliver banking products and services~~ to a material portion of its customer base ~~its businesses and operations that would result~~ in ~~material loss, or its operations that would impact~~ the ~~stability~~ordinary course of ~~the United States.~~business.

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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 ~~recent~~current invasion of Ukraine.

~~COVID-19 Legislation~~In addition to guidance and ~~Regulation.~~ ~~Governments at~~standards implemented by banking regulators, in July 2023, the ~~federal, state,~~SEC adopted final rules requiring an annual disclosure of registrants’ cybersecurity risk management strategy and ~~local levels have taken significant steps over~~governance. Additionally, registrants are required to disclose material cybersecurity incidents, including the ~~last two years to address the~~nature, scope, timing, and impact of the ~~COVID-19 pandemic. On March 27, 2020,~~incident, within four business days of the ~~CARES Act was signed~~incident. The disclosure requirements went into ~~law, which included $350 billion~~effect in stimulus for small businesses under the SBA PPP, along with direct stimulus payments for many eligible Americans. The initial amounts available under the SBA PPP were quickly exhausted, and Congress twice provided historic amounts of additional funding to the SBA PPP and to other programs in support of spending for hospitals, schools and local governments, for vaccination efforts and virus testing, and for other related purposes. The SBA PPP ended in the second quarter of 2021, although we continue to receive and process applications for forgiveness and many borrowers remain eligible. The legislative and regulatory landscape surrounding the COVID-19 pandemic, and the effects of legislative and regulatory initiatives on the economy, have been subject to rapid change, and may continue to evolve, and neither the Company nor First Fed can predict with certainty the impact it will have on our results of operations or business generally.December 2023.

Environmental, Social and Governance. Bank regulatory agencies and the SEC have shown increasing interest in environmental, social and internal governance matters (often referred to as “ESG”) and have stated their intent to heighten regulatory oversight of companies’ efforts to address the effect of ESG issues on their businesses. First Northwest Bancorp and First Fed are committed to considering ESG factors, which we recognize are key drivers of long-term business growth, in the development of our business strategies. We believe our commitment to good corporate citizenship and the achievement of ESG policy goals enhances our ability to pursue business ~~opportunity and~~opportunities, manage risk across our business, and ~~supports~~uphold our values inby addressing the environmental and social challenges faced by the communities we serve. Our Board oversees our ESG activities, including our ESG strategies, compliance, and goals. Additionally, our Nominating and Corporate Governance Committee oversees our policies and operational controls for environmental, health, safety and social risks. The Nominating and Corporate Governance Committee meets regularly to set ESG goals for the Company, as well as to monitor progress and results.

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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, ~~2017.~~2020. See Note 910 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. ~~Beginning with the six months ended December 31, 2017, federal~~Federal income tax returns are filed using a December 31 year end. ~~Prior periods, through June 30, 2017, used a fiscal year ending on June 30 for filing federal income tax returns.~~

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.

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Item 1A. Risk Factors.

Economy and Our Markets

Adverse economic conditions in market areas we serve could adversely impact our earnings and could increase the credit risk associated with our loan portfolio.

A significant portion of our loans are to businesses and individuals in the state of Washington. An economic decline affecting our region could have a material adverse effect on our business, financial condition, results of operations, and prospects. Weakness in the global economy has adversely affected many businesses operating in our markets that are dependent on international trade. ~~Other businesses~~Deterioration in ~~our market area and around~~ the ~~world were impacted in a significant way by~~national economy may also have an adverse effect on the ~~COVID-19 pandemic.~~region.

~~While real estate values and unemployment rates have recently improved,~~Any future deterioration in economic conditions in the market areas we serve, in particular the North Olympic Peninsula and Puget Sound area of Washington State, could result in the following consequences, any of which could have a materially adverse impact on our business, financial condition, and results of operations:

	•	~~loan~~Loan delinquencies, problem assets and foreclosures may increase;
	•	~~demand~~Demand for our products and services may decline, possibly resulting in a decrease in our total loans or assets;
	•	Loan collateral ~~for loans made~~ may decline ~~further~~ in value, exposing us to increased risk of loss on existing loans and reducing customers’ borrowing power;
	•	~~the~~The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and
	•	~~the~~The amount of our deposits may decrease and the composition of our deposits may be adversely affected.

A decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected. Adverse changes in the regional and general economy could reduce our growth rate, impair our ability to collect loans, and generally have a negative effect on our financial condition and results of operations.

Public health crises, geopolitical developments, acts of terrorism, natural disasters, climate change and other external factors could harm our business.

Public health crises, ~~such as the global outbreak of COVID-19,~~ domestic or geopolitical crises, such as the ~~recent invasion of~~current wars in Ukraine ~~by Russia,~~and the Middle East, political instability or civil unrest, terrorism, human error or other events outside of our control, could cause disruptions to our business or the United ~~States~~States' economy, ~~and our business and~~resulting in potentially adverse operating ~~results could suffer.~~results. Natural disasters may disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate. Climate change may worsen the severity and impact of future natural disasters and other extreme weather-related events that could cause disruption to our business and operations. Chronic results of climate change such as shifting weather patterns could also cause disruption to the business and operations of our customers, with ~~potential~~potentially negative effects on our loan portfolio and growth opportunities. A significant natural disaster, such as a tsunami, earthquake, drought, fire or flood, where we or our customers live and do business, could have a material adverse impact on our local market areas and our ability to conduct business, ~~and~~especially if our insurance coverage ~~may be~~is insufficient to compensate for losses that may occur. The effects of any of the foregoing factors could have a material adverse effect on our business, operations, and financial condition.

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Conditions in the financial markets may limit our access to additional funding to meet our liquidity needs, which could adversely affect our earnings and capital levels.

Liquidity is essential to our business. We rely on a variety of sources in order to meet our potential liquidity demands. We require enough liquidity to meet customer loan requests, customer deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress. A tightening of the credit markets and the inability to obtain adequate funding may negatively affect our liquidity, asset growth and, consequently, our earnings capability and capital levels. In addition to any deposit growth, and the sale of loans or investment securities, maturity of investment securities and loan payments, we rely from time to time on advances from the FHLB and certain other wholesale funding sources to meet liquidity demands. Our liquidity position could be significantly constrained if we were unable to access funds from the FHLB or other wholesale funding sources.

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Factors that could detrimentally impact our access to liquidity sources include actions by the FRB, a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated, negative operating results, or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as consumer and business behavior utilizing funds on deposit to pay down higher cost debt or to seek higher yielding investments, a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations.

Additionally, collateralized public funds are bank deposits of state and local municipalities. These deposits are required to be secured by certain investment grade securities or other collateral to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these funds historically have been a relatively stable source of funds for us, availability depends on the individual municipality's fiscal policies and cash flow needs.

~~The COVID-19 pandemic has adversely impacted~~Competition for deposits may limit our ability to ~~conduct~~grow.

Our loan growth is primarily dependent on retaining and attracting additional customer deposits. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area, including from internet-based banking institutions, which have grown rapidly in recent years.

Deposit flows are influenced by various factors, including customer relationships, sales and marketing efforts, interest rates paid by competitors, alternative investments such as money market mutual funds, equities and bonds, government stimulus programs, and the overall levels of business and personal income and savings. The current elevated interest rate environment has increased competition for deposits across the banking industry, and deposit balances may adversely impact our financial results and those of our customers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.decrease if customers perceive alternative investments as providing a better risk/return tradeoff.

~~The COVID-19 pandemic has significantly affected our operations and the way we provide banking services~~Our failure to businesses and individuals. As an essential business, we provided banking and financial services to our customers throughout the pandemic. We returned to regular lobby and drive-thru access at our branch locations in May 2021. In addition, we continue to provide access to banking and financial services through online banking, Interactive Teller Machines ("ITMs"), Automated Teller Machines ("ATMs"), and by telephone. If the COVID-19 pandemic worsens it could limitgrow or ~~disrupt our ability to provide banking and financial services to our customers.~~

~~A number of our employees currently are working remotely to enable us to continue to provide banking services to our customers. Heightened cybersecurity, information security and operational risks~~retain deposits may result from these remote work-from-home arrangements. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic. We also rely upon our third-party vendors to conduct business and to process, record and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

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There is pervasive uncertainty surrounding the future economic conditions that will emerge in the years following the start of the pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. To date, the COVID-19 pandemic has resulted in changes in the demand for certain loan types, including government sponsored programs such as the Paycheck Protection Program, deposit availability, and market interest rates. Because the length of the pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, our net interest income and net interest margin may continue to be adversely affected.

Although the Company makes estimates of loan losses related to the pandemic as part of its evaluation of the allowance for loan losses, such estimates involve significant judgment and are made in the context of substantial uncertainty as to the impact the pandemic will have on the credit quality of our loan portfolio. Consistent with guidance provided by banking regulators, we modified loans by providing various loan payment deferral options to our borrowers affected by the COVID-19 pandemic. Notwithstanding these modifications, not every borrower may be able to make full payments on their loans once the COVID-19 pandemic is resolved. Any increases in the allowance for credit losses will result in a ~~decrease in net income~~loss of market share and ~~most~~slower or negative loan growth, which likely ~~capital, and may~~would have ~~a material negative~~an adverse effect on our financial condition and results of operations.

SBA PPP loans are subject to the provisions of the CARES Act and to complex and evolving rules and guidance issued by the SBA and other government agencies. The great majority of our SBA PPP borrowers have received full or partial forgiveness of their loan obligations. We have credit risk on SBA PPP loans if the SBA determines that there is a deficiency in the manner in which we originated, funded or serviced loans, including any issue with the eligibility of a borrower to receive an SBA PPP loan. As of December 31, 2021, we hold and service SBA PPP loans with an aggregate balance of $14.6 million.

Even after the COVID-19 pandemic subsides, the U.S. economy will likely require some time to recover from its effects, the length of which is unknown, and during which we may experience a recession. As a result, we anticipate our business may be materially and adversely affected during this recovery. To the extent the effects of the COVID-19 pandemic adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this section.

Credit and Asset Quality

Our increased emphasis on commercial real estate lending subjects us to various risks that could adversely impact our results of operations and financial condition.

We have increased the amount of our commercial real estate and multi-family loans to ~~$535.7~~$721.1 million, or ~~39.5% of our total loan portfolio, at December 31, 2021, from $459.0 million, or 39.8%~~43.4%, of our total loan portfolio, at December 31, ~~2020.~~2023, from $641.6 million, or 41.5%, of our total loan portfolio at December 31, 2022. We intend to continue to increase, subject to market demand, our origination and purchase of commercial real estate loans. As an institution’s concentration in commercial real estate lending increases, it becomes subject to more scrutiny byunder the ~~FDIC under its~~FDIC's policies ~~applicable to~~for management of its ~~portfolio of~~ commercial ~~loans.~~real estate loan portfolio.

Our increased focus on this type of lending has increased our risk profile. Commercial real estate loans are intended to enhance the average yield of our earning assets; however, they do involve a different level of risk ~~of delinquency or collection than one-~~compared to ~~four-family~~one-to-four family loans. The repayment of commercial real estate loans typically ~~is dependent~~depends on the successful operation and income stream of the borrowers’ operating business, or ~~the~~their ability to lease the commercial property at sufficient ~~rates, and the~~rates. The value of the commercial real estate securing the loan as collateral is a secondary source of repayment in case of default, which can be significantly affected by economic conditions. The FDIC has issued pronouncements alerting banks of its concerns about banks with a heavy concentration of commercial real estate loans. Moreover, federal bank regulators have highlighted the increased risk associated with commercial real estate loans, including with respect to the higher vulnerability of these credits to pressure as interest rates remain elevated and market conditions in many metropolitan areas continue to show signs of stress. These loans also involve larger balances to a single borrower or groups of related borrowers. Some of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development ~~with respect to~~on a single ~~one- to four-family~~one-to-four family residential mortgage loan.

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Since commercial real estate loans generally have large balances, deterioration in the quality of commercial loans may result in the need to significantly increase our provision for ~~loan~~credit losses on loans and charge-offs will likely be larger on a per loan basis compared to consumer loans. As a result, deterioration of this portfolio could have a materially ~~adversely affect~~adverse effect on our future earnings. Collateral evaluation and financial statement analysis ~~in these types of~~for commercial loans also requires a more detailed ~~analysis~~review at ~~the time of loan underwriting~~origination and on an ongoing basis. Finally, if we foreclose on a commercial real estate loan, our holding period for the collateral is typically longer than for a ~~one- to four-family~~one-to-four family residence because the market for most types of commercial real estate is not readily liquid, ~~which results~~resulting in less opportunity to mitigate credit risk by selling part or all of our interest in these assets. At December 31, ~~2021,~~2023, we had ~~$71,000~~$28,000 of nonperforming commercial real estate loans and $0 of nonperforming multi-family loans in our portfolio.

An increase in unsecured lending exposes us to an increase in loan losses.

We have increased our commercial business loan portfolio by purchasing unsecured loans to small businesses and professionals and our consumer loan portfolio through purchases from Splash Financial. Our exposure on these purchased loan portfolios was $21.1 million and $7.3 million, respectively, at December 31, 2023. Unsecured loans present additional risks to us because if a borrower defaults on an unsecured loan, there is no collateral to repossess and liquidate in order to satisfy the outstanding loan balance. Also, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on an unsecured loan in default. Our efforts to mitigate this risk include carefully assessing a borrower’s creditworthiness, including their income, employment history, and debt-to-income ratio.

In 2022, we began purchasing unsecured consumer loans through a partnership with Splash Financial, a private lender that underwrites and funds personal loans. First Fed has experienced losses of $3.4 million on the Splash Financial loans to date. We made changes to the program participation criteria for these loans in 2023 with the goal of reducing additional losses. Additional losses in our unsecured lending portfolio would negatively affect our profitability and capital.

The significant growth in our loan portfolio and expansion into new markets may increase our credit risk.

Since the completion of our initial public offering in January 2015, we have grown substantially in terms of total assets, total loans, total deposits, employees, and locations, expanding our business activities throughout the Puget Sound region. Our commercial loan portfolio, which includes loans ~~secured by~~for commercial and multi-family real estate as well as other business ~~assets,~~loans, has increased to ~~$615.6~~$833.4 million, or ~~45.4%~~50.2% of total loans, at December 31, ~~2021,~~2023, from ~~$559.2~~$718.6 million, or ~~48.5%~~46.4% of total loans, at December 31, ~~2020. Construction and land~~2022. One-to-four family loans have increased to ~~$224.7~~$378.4 million, or ~~16.5%~~22.8% of total loans, at December 31, ~~2021,~~2023, from ~~$123.6~~$343.6 million, or ~~10.7%~~22.2% of total loans, at December 31, ~~2020.~~2022. Total consumer loans have increased to $318.5 million, or 19.2% of total loans, at December 31, 2023, from $291.8 million, or 18.8% of total loans, at December 31, 2022. Rapidly growing loan portfolios are, by their nature, less seasoned and our experience with these loans may not provide us with a ~~significant~~useful payment history pattern. Rapid growth combined with the geographic expansion of our lending area may make estimating loan loss allowances more difficult and more susceptible to changes in estimates, and to losses exceeding estimates, than our more seasoned portfolio of loans in our traditional lending area. As a result, it is difficult to predict the future performance of these parts of our loan portfolio. These loans may develop delinquency or charge-off levels above our historical experience, which could adversely affect our future performance.

We plan to continue both strategic and opportunistic growth, understanding that we may see a slowing of growth as we mature and manage capital down to more efficient levels. Continued growth can present substantial demands on management personnel, line employees, and other aspects of our operations, especially if our growth occurs rapidly. We may face difficulties in managing that growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results. Also see "Our expansion strategy will cause our expenses to increase and may negatively affect our earnings."

We have a concentration of large loans outstanding to a limited number of borrowers that increases our risk of loss.

First Fed has extended significant amounts of credit to ~~a limited number of~~certain borrowers, largely in connection with high-end residential real estate and commercial and multi-family real estate loans. At December 31, ~~2021,~~2023, the aggregate amount of loans, including unused commitments, to First Fed's five largest borrowers (including related entities) amounted to approximately ~~$116.5~~$95.8 million. Outstanding loan balances for the ten largest borrowing relationships at December 31, ~~2021,~~2023, totaled ~~$146.6~~$171.2 million, or ~~10.8%~~10.3% of total loans. Although ~~none~~only one of the loans to First Fed's 20 largest borrowers ~~were~~was nonperforming ~~loans~~ as of December 31, ~~2021,~~2023, concentration of credit to a limited number of borrowers increases the risk in First Fed's loan portfolio. If one or more of these borrowers is not able to service the contractual repayment, the potential loss to First Fed is more likely to have a material adverse impact on our business, financial condition and results of operations.

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Our construction and land loans are based upon estimates of costs and the value of the completed project.

During the year ended December 31, ~~2021,~~2023, our construction and land loans ~~increased $101.1~~decreased $64.0 million, or ~~81.8%~~33.0%, to ~~$224.7~~$129.7 million, or ~~16.5%~~7.8%, of the total loan portfolio at December 31, ~~2021~~2023 and consisted of properties secured by ~~one- to four-family~~multi-family of $66.7 million, one-to-four family residential of ~~$39.7 million, multi-family of $89.7 million, commercial acquisition-renovation of $51.1~~$43.7 million, commercial real estate of ~~$35.7~~$11.8 million, and land of ~~$8.6~~$7.5 million. Land loans include raw land and land acquisition and development loans.

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Construction and land development lending generally involves additional risks when compared with permanent residential lending because funds are advanced upon estimates of costs in relation to values associated with the completed project that will produce a future value at completion. Because of the uncertainties inherent in estimating construction costs, the market value of the completed project, the effects of governmental regulation on real property, and changes in demand, it is relatively difficult to evaluate accurately the total funds required to complete a project and the completed project loan-to-value ratio, which may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders.

A downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of our builders have more than one loan outstanding with us, and an adverse development with respect to one loan or one credit relationship may expose us to a significantly greater risk of loss.

In addition, during the term of most of our construction loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve. As a result, these loans often involve the disbursement of funds with repayment substantially dependent on the successful outcome of the project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold, which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully recover unpaid loan funds and associated construction and liquidation costs.

Our business may be adversely affected by credit risk associated with residential real estate.

At December 31, ~~2021, $334.1~~2023, $447.8 million, or ~~24.6%~~27.0% of our total loan portfolio, consisted of ~~one- to four-family~~one-to-four family mortgage loans and home equity loans secured by residential properties. Lending on residential property is sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Declines in residential real estate values securing these types of loans may increase the level of borrower defaults and losses above the recent charge-off experience on these loans. Jumbo ~~one- to four-family~~one-to-four family residential loans that do not conform to secondary market mortgage requirements for our market areas would not be immediately saleable to Freddie Mac or other investors and may expose us to increased risk because of their larger balances. Further, a significant amount of our home equity lines of credit consist of ~~second mortgage loans.~~loans in a subordinate lien position to a first lienholder.

For ~~those~~ home equity lines secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan balances in the event of default unless we ~~are prepared to~~ repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property. For these reasons we may experience higher rates of delinquencies, default and losses on loans secured by junior liens.

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Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.

At December 31, ~~2021,~~2023, we had ~~$79.8~~$112.3 million, or ~~5.9%~~6.8% of total loans, in commercial business loans. Commercial business lending involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be ~~collateral based~~collateral-based lending with loan amounts based on the value of the collateral and predetermined loan to collateral ~~values, with~~ratios; liquidation of the underlying real estate collateral ~~being viewed as~~is the primary source of repayment in the event of borrower default. Our commercial business loans are primarily ~~made based on~~supported by the cash flow of the borrower and secondarily onby the underlying collateral provided by the borrower. ~~These~~The borrowers' cash flows may be unpredictable, and the collateral securing these loans may fluctuate in value. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event of default is often an insufficient source of ~~repayment because~~repayment. Factors affecting the value of this type of collateral include uncollectable accounts receivable ~~may be uncollectible~~ and ~~inventories may be~~ obsolete or of limited use inventory, among ~~other things. SBA PPP loans totaling $14.6 million~~ ~~are included in commercial business loans.~~others.

Our allowance for ~~loan~~credit losses on loans may prove to be insufficient to absorb losses in our loan portfolio.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the ~~amount of the~~ allowance for ~~loan~~credit losses on loans, we review our ~~loans and our~~loan portfolios, loss and delinquency ~~experience,~~trends, and ~~we evaluate~~ economic conditions. If our assumptions are incorrect, our allowance for ~~loan~~credit losses on loans may not be sufficient to cover ~~probable~~ incurred losses, ~~in our loan portfolio,~~ resulting in additions to our allowance for ~~loan~~credit losses on loans through the provision for credit losses on loans which is charged against income.

Additionally, pursuant to our growth strategy, management recognizes that significant new loan growth, new loan products, new market areas, and the refinancing of existing loans, resulting in portfolios composed of unseasoned loans that may not perform in a historical or projected manner, may increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions. Significant provisions to our allowance could materially decrease our net income. In addition, bank regulatory agencies periodically review our allowance for ~~loan~~credit losses on loans and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

In addition, if charge-offs in future periods exceed the allowance for ~~loan~~credit losses on loans, we will need additional provisions to replenish the allowance for ~~loan losses.~~credit losses on loans. Any additional provisions will result in a decrease in net income, and possibly capital, and may have a material adverse effect on our financial condition and results of operations.

In addition, the Financial Accounting Standards Board has adopted a new accounting standard update ("ASU") 2016-13 that will be effective on January 1, 2023. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses. This will change the current method of providing allowances for credit losses that are probable, which may require us to increase our allowance for loan losses, and may greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses. For more on this ASU, see Note 1 of the Notes to Consolidated Financial Statements - Recently Issued Accounting Pronouncements contained in Item 8 of this report.

If our nonperforming assets increase, our earnings will be adversely affected.

At December 31, ~~2021,~~2023, our nonperforming assets, which consist of nonaccrual loans, real estate owned and repossessed assets, were ~~$1.4~~$18.6 million, or ~~0.1%~~0.8% of total assets. Our nonperforming assets adversely affect our net income in various ways.

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If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.

Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, ratings agency actions, defaults or other adverse events affecting the issuer or the underlying collateral, if any, of the security, changes in market interest rates, and continued instability in the capital markets. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including the ~~recent invasion by Russia of~~current wars in Ukraine and the Middle East, terrorism, or other geopolitical events. A need for additional liquidity may also require us to sell investment securities at depressed prices. These factors, among others, could ~~cause other-than-temporary-impairment ("OTTI"),~~result in an allowance for credit losses on investment securities, realized and/or unrealized losses in future periods, and declines in other comprehensive income, which could materially affect our business, financial condition, and results of operations. Determining ~~OTTI~~an allowance for credit losses on investment securities requires complex, subjective judgments about the future financial performance and liquidity of the security's issuer and underlying collateral, if any, to assess the probability of receiving all contractual principal and interest payments due, and these estimates may differ significantly from actual future performance of the security.

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If our real estate owned is not properly valued or declines further in value, our earnings could be reduced.

We obtain updated valuations in the form of appraisals and tax assessed values when a loan has been foreclosed and the property taken in as real estate owned and at certain other times during the asset’s holding period. Our net book value of the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s net book value over its fair value. If our valuation process is incorrect, or if property values decline, the fair value of our real estate owned may not be sufficient to recover our carrying value in such assets, resulting in the need for additional charge-offs. In addition, bank regulators periodically review our real estate owned and may require us to recognize further charge-offs. Significant charge-offs to our real estate owned could have a material adverse effect on our financial condition and results of operations.

We operate in a highly competitive industry.

We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources. These competitors primarily include national, regional and digital banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including savings and loans, credit unions, mortgage banking finance companies, brokerage firms, insurance companies and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. ~~Also,~~Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies, non-fungible tokens, and other digital assets. Additionally, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Competitors in these nonbank sectors may have fewer regulatory constraints, as well as lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability and result in a material adverse effect on our financial condition and results of operations.

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We are subject to certain risks in connection with our use of networks and technology systems.

Our security measures may not be sufficient to mitigate the risk of a cyber-attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have a security impact. If one or more of these events occur, this could jeopardize our or our customers’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.

We support the ability of our customers to transact business through multiple automated methods. As such, we may be susceptible to fraud performed through these technologies.

Security breaches in our ~~Internet~~internet banking activities could further expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our ~~Internet~~internet banking services that involve the transmission of confidential information. We rely on standard ~~Internet~~internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant legal liability, heightened regulatory scrutiny or fines, violations of consumer protection and privacy laws, and significant damage to our reputation and our business.

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Our security measures may not protect us from systems failures or interruptions. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer and consumer information through various ~~other~~third-party vendors and their personnel.

The occurrence of any failures or interruptions may require us to identify alternative sources of such services, and we cannot assure that we would be able to negotiate terms that are as favorable to us or obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

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Interest Rates, Operations and Risk Management

We are subject to interest rate risk.

Our earnings and cash flows are largely dependent on our net interest income. Interest rates are highly sensitive to many factors ~~that are~~ beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve. The Federal Reserve slowed its increases to the federal funds target rate in 2023, with the most recent increase occurring in July 2023. When the Federal Reserve Board increases the Fed Funds rate, overall interest rates will likely rise, which may negatively impact housing markets by reducing refinancing activity and new home ~~purchases, and~~purchases. A rising or elevated interest rate environment may also adversely affect the U.S. economy and, as a result, our business as a whole. ~~Changes~~The Federal Reserve has communicated that the economic outlook continues to be uncertain, and while it has stated that rates may decrease later in 2024, there can be no assurance of the timing or amount of any future rate adjustments. Further, there can be no assurance regarding any forecasts or predictions about the effect that any future rate adjustment may have on our results of operations.

Further changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect (i) our ability to originate and/or sell ~~loans~~mortgage and SBA loans; (ii) the fair value of our financial assets and liabilities, which could negatively impact shareholders' equity, and our ability to realize gains from sales of such assets; (iii) our ability to obtain and retain deposits in competition with other available investment alternatives; (iv) the ability of our borrowers to repay adjustable or variable rate loans; and (v) the average duration of our mortgage-backed securities portfolio and other interest-earning assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

~~Changes~~Additional changes in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability. Our net interest margin is the net interest income divided by average interest-earning assets. ~~Changes~~Further changes in interest ~~rates-up~~rates, up or ~~down-could~~down, could adversely affect our net interest margin and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yields on interest-earning assets catch up. Changes in the slope of the "yield curve", or the spread between short-term and long-term interest rates, could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets.

A sustained increase in market interest rates could adversely affect our earnings. As a result of the exceptionally low interest rate environment ~~for~~in the ~~past few~~ years ~~an increasing~~prior to 2022, a high percentage of our deposits ~~have been~~were composed of deposits bearing no or a relatively low rate of interest and having a shorter duration than our assets. We ~~would~~will likely incur a higher cost of funds to retain these deposits in ~~a rising~~the current elevated interest rate environment. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, would be adversely affected.

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Changes in interest rates also affect the value of our interest-earning assets, including our securities portfolio. Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on our shareholders’ equity.

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Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely will not fully predict or capture the impact of actual interest rate changes on our balance sheet. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset and Liability Management and Market Risk," ofin this Form 10-K for additional information.

Changes in the method of determining the LIBOR or other reference rates may adversely impact the value of loans receivable and other financial instruments we hold that are linked to LIBOR or other reference rates in ways that are difficult to predict and could adversely impact our financial condition or results of operations.

In July 2017, the United Kingdom Financial Conduct Authority announced the potential replacement of the London Interbank Offered Rate ("LIBOR") at the end of 2021. LIBOR is used extensively in the U.S. and globally as a "benchmark" or "reference rate" for various commercial and financial contracts. In response, the Alternative Reference Rates Committee (“ARRC”), made up of financial and capital market institutions, was convened to address the replacement of LIBOR in the U.S. The ARRC identified a potential successor to LIBOR in the Secured Overnight Financing Rate (“SOFR”) and has crafted a plan to facilitate the transition. Our subordinated debt issued in March 2021 provides for application the SOFR rate to determine the interest that will be payable on the Notes beginning in March 2026. There are significant conceptual and technical differences between LIBOR and SOFR. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities, variable rate loans, and other securities or financial arrangements. ICE Benchmark Administration (“IBA”), the authorized and regulated administrator of LIBOR, recently announced it would consult on its plans for discontinuation of LIBOR. IBA ended publication of some LIBOR tenors on December 31, 2021, and intends to end publication of the remaining LIBOR tenors in June 2023. Financial services regulators and industry groups are seeking to develop alternate reference rate indices or reference rates. The transition to a new reference rate requires changes to contracts, risk and pricing models, valuation tools, systems, product design and hedging strategies. It is not currently possible to determine whether, or to what extent, the replacement of LIBOR will impact the value of any loans and other financial obligations or extensions of credit we hold or that are due to us, that are linked to LIBOR or other reference rates, or whether, or to what extent, such changes may impact our financial condition or results of operations.

Decreased volumes and lower gains on sales of loans could adversely impact our noninterest income.

We originate and sell ~~one- to four-family~~one-to-four family mortgage loans. Our mortgage banking income is a significant portion of our noninterest income. We generate gains on the sale of ~~one- to four-family~~one-to-four family mortgage loans pursuant to programs currently offered by Freddie Mac and other secondary market investors. Any future changes in their purchase programs, our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially adversely affect our results of operations.

Further, in a rising or higher interest rate environment, our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues and a corresponding decrease in noninterest income. In addition, our results of operations are affected by the amount of noninterest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. In addition, although we sell loans into the secondary market without recourse, we are required to give customary representations and warranties about the loans to the buyers. If we breach those representations and warranties, the buyers may require us to repurchase the loans and we may incur a loss on the repurchase.

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A portion of our loan portfolio is serviced by third parties, which may limit our ability to foreclose on or repossess such loans.

At December 31, ~~2021, $33.8 million of our one- to four-family, $64.0~~2023, $105.4 million of our consumer, ~~and $18.1~~$38.1 million of our commercial real estate, and $19.2 million of our one-to-four family loan portfolios were serviced by third parties. When a loan goes into default, it is the responsibility of the third-party servicer to enforce the borrower’s obligation to repay the outstanding indebtedness. We are reliant on the servicer to bring the loan current, enter into a satisfactory loan modification or foreclose on the property on behalf of First Fed. We must comply with any loan modification entered into by the servicer even if we would not otherwise agree to the modified terms, which may result in a reduction in our interest income due to the loan modification. Delays in foreclosing on property, whether caused by restrictions under state or federal law or the failure of a third-party servicer to timely pursue foreclosure action, may increase our potential loss on such property, due to factors such as lack of maintenance, unpaid property taxes and adverse changes in market conditions. These delays may adversely affect our ability to limit our credit losses.

Regulatory Matters

Our lending limit may restrict our growth.

Washington law provides that Washington chartered commercial banks are subject to loans-to-one-borrower restrictions, which generally restrict total loans and extensions of credit by a bank to 20% of its unimpaired capital and surplus. As a result, under Washington law, First Fed would be limited to loans to one borrower of ~~$42.4~~$46.0 million at December 31, ~~2021.~~2023. Under its current policy, First Fed has elected to restrict its loans to one borrower to no more than 60% of the Bank's lending limit, which is adjusted quarterly and was ~~$31.8~~$34.5 million at December 31, ~~2021,~~2023, unless specifically approved by the Senior Loan Committee as an exception to policy. This amount is significantly less than that of many of our competitors and may discourage potential commercial borrowers who have credit needs in excess of our loans to one borrower lending limit from doing business with us. Our loans to one borrower restriction also impacts the efficiency of our commercial lending operation because it lowers our average loan size, which means we have to generate a higher number of transactions to achieve the same portfolio volume. We can accommodate larger loans by selling participations in those loans to other financial partners, but this strategy is not the most efficient or always available. We may not be able to attract or maintain clients seeking larger loans or may not be able to sell participations in these loans on terms we consider favorable.

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We operate in a highly regulated environment and may be adversely affected by changes in laws and ~~regulations.~~regulations and the impact of consent orders to which we are subject.

We are subject to extensive examination, supervision and comprehensive regulation by the Federal Reserve, the FDIC as insurer of our deposits, and by the DFI. First Northwest Bancorp is subject to regulation and supervision by the Federal Reserve (as a ~~bank~~financial holding company) and regulation by the State of Washington (as a Washington corporation). The Bank is subject to regulation and supervision by the FDIC and the DFI. Such regulation and supervision govern the activities in which we may engage, primarily for the protection of depositors and the Deposit Insurance Fund. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on an institution’s operations, require additional capital, reclassify assets, determine the adequacy of an institution’s allowance for ~~loan~~credit losses on loans and determine the level of deposit insurance premiums assessed. Any future changes to the laws, rules and regulations applicable to us could make compliance more difficult and expensive, or otherwise adversely affect our business, financial condition or prospects.

On November 21, 2023, the Bank entered into a consent order ("Order") with the FDIC, the Bank's primary regulator. The Order, which will remain effective until modified, suspended or terminated by the FDIC, requires the Board and senior management to:

	•	Review, revise, develop, and/or implement, as necessary, a sound risk-based compliance management system, including a written compliance program, policies, and training designed to effect compliance with all applicable consumer protection laws, a consumer complaint monitoring process, and a monitoring program designed to detect and correct compliance weaknesses;
	•	Hold Bank management accountable for failing to adhere to consumer protection laws and the Bank’s policies and procedures;
	•	Review and analyze the resources, management, and staffing necessary (i) for compliance with all consumer protection laws, (ii) to manage and supervise the Bank’s compliance program, (iii) to provide sufficient oversight over third-party relationships and products and services offered by or through third-party relationships, and (iv) to appropriately address certain prior violations and compliance issues; and
	•	Review, revise, develop, and/or implement, as necessary, effective independent audit coverage of the Bank’s compliance program.

We are also subject to tax, accounting, securities, insurance, monetary laws and regulations, rules, standards, policies, and interpretations that control the methods by which financial institutions conduct business. These may change significantly over time, which could materially impact our business and have a significant adverse effect on our cost of regulatory compliance and results of operations. Further, changes in accounting standards and their interpretation may materially impact how we report, potentially retroactively, our financial condition and results of operations.

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Changes in federal policy and at regulatory agencies are expected to occur over time through policy and personnel changes, which could lead to changes involving the level of oversight and focus on the financial services industry. The nature, timing, and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain. If changes to laws, rules and/or regulations applicable to us are made, such changes could offset the otherwise anticipated increase in operating and compliance costs (included in noninterest expense); however, no assurance can be given as to whether such changes will occur or what may result from such changes.

The CFPB, which was created under the Dodd-Frank Act, has issued, and continues to issue, rules related to consumer protection, including The Truth in Lending Act and the Real Estate Settlement Procedures Act Integrated Disclosure (TRID), which combines certain disclosures that consumers receive in connection with applying for and closing a mortgage loan. These CFPB rules, including rules generally prohibiting creditors from extending mortgage loans without regard for the consumer's ability to repay, may adversely affect the volume of mortgage loans that we underwrite and subject us to increased potential liabilities related to such residential loan origination activities. The CFPB has adopted a number of additional requirements and issued additional guidance, including with respect to indirect auto lending, appraisals, escrow accounts and servicing, each of which may entail increased compliance costs.

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General Risk Factors

We are dependent on key personnel and the loss of one or more of those key persons may materially and adversely affect our prospects.

We rely heavily on the efforts and abilities of our executive officers, and certain other key management personnel, which make up our management team. The loss of the services of any of our current management team could have a material adverse impact on our operations. The ability to attract, retain and season replacements to our management team presents risks to executing our business plan. Changes in our current management team and their responsibilities may be disruptive to our business and operations and could have a material adverse effect on our business, financial condition, and results of operations. While we believe that our relationship with our management team is good, we cannot guarantee that all members of our management team will remain with our organization.

Our consideration of whole bank, branch acquisitions, or fintech partnerships in the future may expose us to financial, execution and operational risks that could adversely affect us.

We may evaluate supplementing organic growth by acquiring other financial institutions or their businesses that we believe will help us fulfill our strategic objectives and enhance our earnings. There are risks associated with this strategy, however, including the following:

	•	We may be exposed to potential asset quality issues or unknown or contingent liabilities of the financial institutions, businesses, assets and liabilities we acquire. If these issues or liabilities exceed our estimates, our results of operations and financial condition may be materially negatively affected;
	•	The acquisition of other entities generally requires integration of systems, procedures and personnel of the acquired entity into our company to make the transaction economically successful. This integration process is complicated and time consuming and can also be disruptive to the customers of the acquired business. If the integration process is not conducted successfully, we may not realize the anticipated economic benefits of particular acquisitions within the expected time frame, and we may lose customers or employees of the acquired business. We may also experience greater than anticipated customer losses even if the integration process is successful; ~~and~~
	•	To finance a future acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing ~~shareholders.~~shareholders; and
	•	If market or regulatory conditions change, we may be unable to successfully compete for, complete, or integrate potential future acquisitions as anticipated or at all. Downturns in the stock market and the market price of our stock, changes in our capital position, heightened regulatory scrutiny, and changes in our regulatory standing could each have a negative impact on our ability to complete future acquisitions.

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Our expansion strategy will cause our expenses to increase and may negatively affect our earnings.

Over the past seven years, we have opened four new full-service branches and two business centers. We also acquired a branch from another financial institution in 2021. We may continue to open or purchase new branches and lending centers, and the success of our expansion strategy into new markets is contingent upon numerous factors, such as our ability to select suitable locations, assess each market's competitive environment, secure managerial resources, hire and retain qualified personnel and implement effective marketing strategies. The opening of new offices may not increase the volume of our loans and deposits as quickly or to the degree that we projected and opening new offices will increase our operating expenses. The cost of opening additional de novo branches and lending centers is uncertain, and projected timelines and estimated dollar amounts involved in opening new offices could differ significantly from actual results. In addition, we may not successfully manage the costs and implementation risks associated with our branching strategy. Accordingly, any new branch or lending center may negatively impact our earnings for some period of time until the office reaches certain economies of scale, and there is a risk that our new offices will not be successful even after they have been established.

We may also ~~plan to~~ expand our digital footprint through partnerships with and investments in fintech companies. The new technology and start-up companies we invest in may not be as successful as anticipated or may fail, resulting a total loss of our related investment.

Item 1B. Unresolved Staff Comments

None.

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Item 1C. Cybersecurity

The Company recognizes cybersecurity as a critical risk to its operations and the management of this risk is a top priority. We are committed to protecting the confidentiality, integrity, and availability of our customer information, information systems, data, and assets from unauthorized access, use, disclosure, disruption, modification, or destruction. The Company adheres to cybersecurity industry best practices such as the National Institute of Standards and Technology cybersecurity framework and Federal Financial Institutions Examinations Council ("FFIEC") guidance. FNWB management has integrated its processes for assessing, identifying, and managing material risks from cybersecurity threats into the Company’s overall risk management program, including regularly conducting risk assessments and gap analyses in order to identify and prioritize cybersecurity threats and vulnerabilities across our entire digital estate which is comprised of our IT infrastructure as well cloud-based applications and storage. These assessments consider industry best practices, evolving threats, and the specific needs of our business.

The Company implements a defense in depth, or layered, approach to security controls, including network security, intrusion detection and prevention, anomaly detection, endpoint security, data encryption, identity and access management, and security awareness training. Staff evaluate and update our controls on an ongoing basis to address emerging threats. We have a documented incident response plan in place to identify, contain, and remediate cybersecurity incidents. The plan includes roles and responsibilities for key personnel, communication protocols, and procedures for recovery and notification. We also maintain business continuity, crisis management, and disaster recovery plans to ensure the continued operation of critical business functions in the event of a major disruption, including a cyberattack, which are tested regularly through tabletop exercises, simulations, parallel testing, and functional testing.

The Company adheres to a continuous improvement philosophy in regard to cybersecurity and leverages external experts, consultants, auditors, and assessors on a regular basis to complement the internal staff in identifying and remediating any gaps in the Company’s cybersecurity program.

The Company has a well-defined and mature vendor management program that includes controls to address third-party cybersecurity risks throughout the vendor management lifecycle.

The FNWB Board of Directors has oversight responsibility for enterprise-wide risks, including cybersecurity risks. The Board recently welcomed a cybersecurity expert as a director to help further understand and anticipate risks in this area. A designated committee of the Board, the Audit Committee, is responsible for overseeing the Company's cybersecurity risk management program and reviewing its effectiveness. The Chief Information Officer and Security Officer ("CIO/SO") is responsible for assessing and managing material risks from cybersecurity threats, with a dedicated staff of information security professionals. The CIO/SO has over 25 years of education, training, and experience managing technology and cybersecurity risks, and over 12 years of experience in the banking industry specifically. The CIO/SO regularly updates executive and senior management, including the Enterprise Risk Management Committee, as well as the Board Audit Committee on cybersecurity risks and mitigation strategies. The Company has implemented internal controls to address the effectiveness of our cybersecurity program. These controls include risk assessments, vulnerability assessments and scans, periodic audits, and periodic penetration testing.

We are committed to disclosing material cybersecurity incidents to investors and other stakeholders in a timely and transparent manner in compliance with applicable regulations and in keeping with market practices. Management will assess the materiality of a cybersecurity incident based on its potential impact on our financial condition, results of operations, reputation, or ability to meet our business objectives. The Company is not aware of any current cybersecurity threats that are reasonably likely to affect the Company’s business strategy, results of operations or financial condition.

See "We are subject to certain risks in connection with our use of networks and technology systems"in Item 1A. Risk Factors of this Form 10-K for additional information regarding the risks we face from cybersecurity threats.

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Item 2. Properties

The Company's main administrative office is located at 105 West Eighth Street, Port Angeles, WA 98362. As of December 31, ~~2021,~~2023, we conducted our business through twelve branch offices located in Clallam, Jefferson, King, Kitsap, and Whatcom Counties, Washington; two business centers and a support service center located in King ~~and~~County, Washington; one business center in Whatcom ~~Counties,~~County, Washington; and our main administrative office and a support service center located in Clallam County, Washington. The Company currently owns seven branch offices, the main administrative office and the Clallam County support services center. The remaining five branch offices, ~~and two~~three business centers and King County support service center are leased. The net book value of the Company’s properties totaled ~~$14.7~~$16.0 million at December 31, ~~2021.~~2023. Additional information is presented in Note 45 - Premises and Equipment, Note 6 - Leases, and Note 520 - ~~Leases~~Subsequent Event (relating to a potential sale and leaseback of six of the Company's owned properties) of the Notes to the Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data."

Item 3. Legal Proceedings

The Company and First Fed are involved from time to time in various claims and legal actions arising in the ordinary course of business. There are currently no matters that, in the opinion of management, would have a material adverse effect on our consolidated financial position, results of operation, or liquidity.

Item 4. Mine Safety Disclosures

Not applicable

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market and Holder Information. Our common stock is listed on The Nasdaq Stock Market LLC’s Global Market, under the symbol "FNWB." As of the close of business on March ~~10, 2022,~~8, 2024, there were ~~10,006,022~~9,443,271 shares of common stock issued and outstanding and we had approximately ~~539~~511 shareholders of record, excluding persons or entities who hold stock in nominee or "street name" accounts with brokers.

Stock Repurchases. The Company's repurchase programs permit shares to be repurchased in the open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with the SEC's Rule 10b5-1. On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase and retirement of up to an additional 1,023,420 shares of its common stock.

The following table provides information regarding repurchases of the Company's common stock during the quarter ended December 31, ~~2021.~~2023.

Period

Total Number of Shares Purchased (1)

Average Price Paid per Share

Total Number of Shares Repurchased as Part of Publicly Announced Plan

Maximum Number of Shares that May Yet Be Repurchased Under the Plan (2)

October 1, 2021 - October 31, 2021
24,801 $ 17.51 24,801 691,134
November 1, 2021 - November 30, 2021
5,502 18.31 2,934 688,200
December 1, 2021 - December 31, 2021
33,722 18.58 29,830 658,370
Total
64,025 $ 18.10 57,565

(1) Shares repurchased by the Company during the quarter include shares acquired from participants in connection with cancellation of restricted stock to pay withholding taxes totaling 0 shares, 2,568 shares, and 3,892 shares, respectively, for the periods indicated.

(2) On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 1,023,420 shares of its common stock, or approximately 10% of its shares of common stock issued and outstanding as of October 27, 2020. As of December 31, 2021, a total of 365,050 shares, or 35.7% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $17.05 per share, leaving 658,370 shares available for future purchases.

Period

Total Number of Shares Purchased ⁽¹⁾

Average Price Paid per Share

Total Number of Shares Repurchased as Part of Publicly Announced Plan

Maximum Number of Shares that May Yet Be Repurchased Under the Plan ⁽²⁾

October 1, 2023 - October 31, 2023
3,921 $ 12.98 3,921 222,416
November 1, 2023 - November 30, 2023
10,350 12.86 8,284 214,132
December 1, 2023 - December 31, 2023
3,188 — — 214,132
Total
17,459 $ 12.90 12,205

(1) Shares repurchased by the Company during the quarter include shares acquired from restricted stock award participants in connection with the cancellation of restricted stock to pay withholding taxes upon vesting totaling 0 shares, 2,066 shares, and 3,188 shares, respectively, for the periods indicated.

(2) On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 1,023,420 shares of its common stock, or approximately 10% of its shares of common stock issued and outstanding as of October 27, 2020. As of December 31, 2023, a total of 809,288 shares, or 79.1% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $15.81 per share, leaving 214,132 shares available for future purchases.

Item 6. [Reserved]

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

First Northwest is a bank holding company ~~primarily~~and a financial holding company and is engaged in ~~the business activity of~~banking activities through its wholly owned subsidiary, First Fed Bank, as well as certain non-banking financial activities. Non-banking investments include several limited partnership investments, including a 33% interest in The Meriwether Group, LLC ("MWG"). The Company's business activities are generally focused on passive investment activities and oversight of the activities of First Fed. The Company has also entered into partnerships to strategically invest in fintech-related businesses, which may result in the development of additional investment opportunities.
First Fed is a community-oriented ~~financial institution~~commercial bank serving Clallam, Jefferson, King, Kitsap, and Whatcom counties in Washington State, through its twelve full-service branches, three business centers and ~~two business~~three administration centers. We offer a wide range of products and services focused on the ~~financial security~~lending, deposit and ~~payment~~money movement needs of the communities we serve. ~~While we have a concentration of first lien one- to four-family mortgage loans, in order to~~To diversify our portfolio and increase interest income, we ~~have~~ increased our origination of commercial real estate, multi-family real estate, ~~construction,~~ and commercial business ~~loans, and have~~loans. We also increased our auto and consumer loans through originations, ~~indirect auto lending, and~~ purchased auto loan ~~programs.~~programs, and purchased manufactured homes. We continue to originate ~~one- to four-family~~one-to-four family residential mortgage loans, ~~and regularly sell conforming loans~~primarily for sale into the secondary market to ~~increase~~generate noninterest ~~income~~gain on sale and servicing fee revenue and manage interest rate risk, or retain select loans in our portfolio to enhance interest income. Home equity, residential construction and commercial construction loans are also originated primarily in Western Washington. We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts and certificates of deposit for individuals, businesses and nonprofit organizations. Deposits are our primary source of funding for our lending and investing activities.

First Fed is impacted by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal ~~affairs,~~policy, including fiscal stimulus, interest rate policy and open market operations, housing, and ~~financial institutions.~~consumer protection. Deposit flows are influenced by various factors, including changes in market rates; sales and marketing ~~efforts,~~efforts; interest rates paid ~~on competing deposits,~~by competitors; available alternative investments such as money market mutual funds, the stock ~~market,~~and bond markets; account ~~maturities,~~maturities; government stimulus and unemployment ~~programs,~~programs; and the overall level of personal income and savings. Lending activities are influenced by prevailing interest rates and property values in our markets, the demand for funds, the number and quality of lenders employed by First Fed, and both regional and national economic cycles.

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income earned on our loans and investments and interest expense paid on our deposits and borrowings. Changes in levels of interest rates ~~can affect~~impact our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, debit card interchange income, mortgage banking income, treasury and other commercial banking related fees, earnings from bank-owned life insurance, loan servicing income, earnings from equity and partnership investments, and gains and losses from ~~sales~~the sale of loans and securities.

An offset to net interest income is the provision for ~~loan~~credit losses, which represents the periodic charge to operations required to adequately provide for probable losses inherent in our loan, ~~portfolio~~unfunded commitments and investment portfolios through our allowance for ~~loan~~credit losses. ~~As a loan's risk rating improves, property values increase,~~A recapture of previously recognized provision for credit losses may be added to net interest income if forecasted macroeconomic factors improve, underlying balances decrease, or recoveries of amounts previously charged off are ~~received, a recapture of previously recognized provision for loan losses may be added to net interest income.~~received.

The noninterest expenses ~~we incur~~incurred in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, ~~federal~~professional fees, deposit insurance premiums and regulatory assessments, digital delivery and data processing expenses, advertising and promotion expenses, expenses related to real estate and personal property owned, state and local taxes, federal income tax, and other miscellaneous expenses.

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Our Business and Operating Strategy

Our operating strategy is focused on growing and diversifying our loan portfolio, expanding our deposit product offerings, and enhancing our digital infrastructure. Certain highlights of our operations in the last three years include:

•
~~Expanding our market presence.~~ We hired several experienced and talented bankers with connections throughout Western Washington. We opened a full-service branch in Ferndale, Washington and purchased a branch in Bellevue, Washington. Through these new locations, we have realized growth in deposits and expanded our ability to secure customer relationships and lending opportunities outside of our market areas in the North Olympic Peninsula; Kitsap Peninsula; and Bellingham, Washington. We also utilize technology to expand our market presence and to service new and existing businesses and consumers.
• ~~Investing in financial technology ("fintech") companies.~~ We have a ten-year commitment to invest in Canapi, which provides funding to fintech start-ups. The Canapi relationship allows us early access to companies producing technology and apps that may be of interest as we grow in the fintech sector. One such connection led us to POM and our partnership in Quin Ventures to build a financial wellness platform. We also have a ten-year commitment to invest in BankTech, a newly formed venture capital fund with a focus on technology designed for community banks.
•
~~Enhancing~~Repositioning the loan portfolio. ~~We have~~The Bank has significantly increased the origination of commercial real estate, multi-family real estate, and construction and land loans, as well as our portfolio of commercial business loans. The Bank has also utilized wholesale lending programs to add auto, manufactured home, and commercial business loans to our portfolio. This has helped to increase overall ~~net~~ interest ~~income.~~income and improved interest rate risk.

•
Adding new products and servicing capabilities. In addition to traditional consumer and business deposit products, ~~we offer~~the Bank offers remote deposit capture, consumer and small business digital banking, treasury cash management capabilities, and commercial digital banking capabilities. At our branch locations in Forks, Port Angeles, Silverdale, Bainbridge Island, and Bellingham, Washington, and at our main administrative building and downtown locations in Port Angeles, Washington, we haveWe implemented interactive teller machines, allowing our customers to conduct business with a teller through ~~a video monitor.~~an interactive screen, at several locations. In 2023, we further enhanced our offerings for earnest money payment solutions, real-time person-to-person and account-to-account transfers and online business account opening.

•
Enhancing our infrastructure. ~~We have~~The Bank focused on upgrading ~~our~~its infrastructure, in terms of ~~both~~technology, equipment and personnel, ~~in order~~ to support ~~our~~its changing lending and deposit capabilities and position ~~ourselves~~the Bank for growth.
• Expanding small-to-medium size business relationships. Our Treasury Management and Commercial Relationship teams have deepened relationships with new and existing customers through acquiring operating accounts and increasing SBA and other commercial business lending.
• Investing in financial technology ("fintech") companies. The Company has five years remaining in a commitment to invest in Canapi Ventures, which provides funding to fintech start-ups. The Canapi Ventures relationship allows us early access to companies producing technology and apps that may be of interest as we grow in the fintech sector. We also have eight years remaining in commitments to invest in BankTech Ventures and JAM FINTOP, two fintech-focused venture capital funds designed for community banks. The Bank has an additional Canapi Small Business Investment Company commitment with nine years remaining.

Our objective is to be an independent, high performing bank focused on meeting the needs of individuals, small businesses and community organizations throughout our market areas with exceptional service and competitive products. WeBelow are strategies we have implemented, or intend to implement, ~~these strategies~~ to achieve our objectives:

•
Increasing our portfolio of higher yielding ~~commercial~~ loans. Through ~~increased~~ loan originations, we intend to increase ~~our loan to deposit ratio and~~ the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans. These loan categories offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate, ~~one- to four-family~~one-to-four family residential loans. Our commercial and ~~multifamily~~multi-family real estate and commercial business loans have increased ~~from $559.2~~to $833.4 million, or ~~48.5%~~50.2% of total loans, at December 31, ~~2020, to $615.6~~2023, from $718.6 million, or ~~45.4%~~46.4% of total loans, at December 31, ~~2021. We also increased our commercial construction lending from $90.8 million, or 7.9% of total loans, at December 31, 2020, to $176.4 million, or 13.0% of total loans, at December 31, 2021.~~2022. The increase resulted in part from ~~building~~adding talented leaders to the commercial team, ~~by adding talented lenders;~~ developing relationships with loan referral sources, ~~including our Board of Directors and loan brokers;~~ pursuing loan purchase and participation ~~opportunities;~~opportunities, and competing successfully in new and existing ~~markets; and benefiting from the improvement of the economy in northwestern Washington.~~markets.

•
Increasing noninterest income. ~~We plan to broaden our offerings of~~The Bank offers SBA loan products, which provide the opportunity to sell the guaranteed portion of loans originated, adding to our gain on sale of loans while also generating servicing fee income. We will continue our participation in an assumable rate conversion ("ARC") program, whereby a commercial loan customer enters into a contract to pay a fixed rate on their First Fed loan to the ~~ARC~~third-party program while the Bank receives the variable rate interest stated in the note, which generates referral fee income for the Bank at the time of placement. We remain committed to ~~generate additional loan fee income. We will maintain~~ our ~~focus on~~ mortgage ~~loan sales~~line of business to ~~increase~~serve our customers and add to noninterest income from both sale and servicing fees. We may also sell commercial loans ~~in order~~ to manage concentrations and risk, which would generate gain and possibly additional servicing income. We anticipate that future revenue will be generated through ~~our fintech partnerships~~treasury management products and ~~banking-as-a-service,~~merchant services, which would add ~~transactional~~ income and increased interchange fee income. Noninterest income will also be affected through changes in the value of our partnership investments and our share of MWG profitability.
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• Maintaining our focus on asset quality. ~~We believe that~~Maintaining strong asset quality is a key to our long-term financial success. We are focused on monitoring existing performing loans, resolving nonperforming loans, and selling foreclosed assets. Nonperforming assets were ~~$2.3~~$18.6 million at December 31, ~~2020~~2023 and ~~$1.4~~$1.8 million at December 31, ~~2021.~~2022. The current year increase was primarily due to one $15.0 million commercial construction project for which the Bank, based on a recent third-party appraisal, believes does not represent significant exposure to loss. We ~~have taken~~take proactive steps to resolve our nonperforming loans, including negotiating repayment plans, forbearances, loan modifications and loan extensions with our borrowers when appropriate. We ~~have also accepted short payoffs on delinquent loans, particularly when such payoffs result in a smaller loss to us than foreclosure. We~~ also retain the services of independent firms to periodically review segments of our loan portfolio and provide ~~comments~~feedback regarding our loan policies and procedures.
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•
Attracting core deposits and other deposit products. ~~Our strategy is to~~We emphasize relationship banking with our customers to obtain a greater share of their deposits, with specific emphasis on ~~their~~ primary transaction accounts. We believe this emphasis will help to increase our level of core deposits. In addition to our retail branches, we ~~continually upgrade our~~offer digital delivery solutions, such as ~~on-line~~ personal financial management, business online banking, business remote deposit products, mobile remote deposit services through ~~smartphones and tablets,~~personal devices, consumer credit score access, real-time account-to-account transfer services between First Fed and other banks, and real-time person-to-person funds transfer, ~~through smartphones and tablets,~~ enabling us to compete effectively with banks of all sizes. We enhanced our ~~integrated~~ mobile banking platform, ~~by introducing applications for both smartphones~~online account opening solutions, foreign exchange capabilities and ~~tablets, upgraded~~are in the process of upgrading our business on-line banking platform, and extended banking hours through our interactive teller machines. In 2020, we significantly increased our level of commercial demand deposits with the addition of a Treasury Management department.platform.

•
Expanding our market presence and capturing business opportunities resulting from changes in the competitive environment. By delivering high quality, customer-focused products and services, we believe we can attract additional borrowers and depositors and thus increase our market share and revenue generation in our market areas. We intend to continue our franchise growth. We expect that community bank consolidation will continue to take place and may consider acquiring additional individual branches or other banks. Our primary focus for expansion will be in Western Washington; however, we ~~may~~ offer digital delivery in other markets.

•
Hiring experienced employees with a customer sales and service focus. Our goal is to compete by relying on the strength of our customer service and relationship building. We believe that our ability to continue to attract and retain banking professionals who have significant knowledge of existing and new market areas, possess strong commercial banking sales and service skills, and maintain a focus on community relationships will enhance our success. We intend to hire additional retail bankers, lenders and ~~relationship managers~~treasury management officers who are established in their communities to enhance our market position and add profitable growth opportunities.

•
Improving our digital presence and streamlining the customer experience. By investing in and improving on the interfaces that connect customers to our products and services, we believe we will be in a better position to compete and grow in an environment that is becoming increasingly technology driven. We intend to invest in our online presence and engage in digital strategies that will help us to successfully compete in an ever-changing digital marketplace. ~~In 2019, the~~The Company ~~committed~~has six years remaining in its commitment to ~~fund $3.0 million in~~ Canapi Ventures to identify and infuse capital into ~~certain promising digital companies for which we may have an interest in using their services at some future date or which may result in additional investment opportunities.~~early stage fintech companies. This commitment includes management participation in meetings and events that ~~we feel will benefit~~inform us when making decisions regarding banking-as-a-service, digital services offerings and customer engagement. ~~We introduced~~In 2022, the Company implemented a ~~new online mortgage application with a leading fintech partner in 2020 and launched new digital deposit application~~customer relationship management software to improve business and consumer ~~loan origination platforms in 2021.~~relationships.

•
Exploring alternative lending opportunities to improve interest income. We strive to grow the balance sheet and leverage capital in a safe and sound manner and believe that lending opportunities outside of organic originations may be a valuable source of interest income. We ~~continued to engage with Northpointe Bank to participate in interim financing for mortgage originators during the year and have~~ increased our auto loan portfolio ~~significantly as a result of~~through our partnership involving the purchase of loans made to borrowers purchasing high-end automobiles and classic cars. We ~~also engaged with Triad Financial Services in 2020~~continue to purchase ~~a pool of~~ manufactured home loans ~~as well as~~in pools and on a flow basis from Triad Financial Services. We also purchase ~~individual~~ loans ~~on an ongoing basis.~~to small businesses and professionals from Banker's Healthcare Group. We will continue to explore other opportunities such as these as a means to improve net income and supplement organic loan originations.
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• Creating operating leverage. We will continue to look for ways to improve operational efficiency. We realigned staff positions in 2022 to better meet organizational objectives, resulting in some workforce reductions. We believe that recent investments in technology may also provide opportunities to build efficiencies. Net interest income decreased substantially in 2023 as a result of accelerated funding costs. We also experienced a decrease in noninterest income, specifically in areas which are impacted by interest rates. We remain focused on building core noninterest income product lines, such as SBA and swap fees, and are pursuing new revenue channels related to payments while continuing to control noninterest expense.
• Expanding ~~into~~offerings to small-to-medium sized business. Another priority for the ~~digital~~Company is expanding offerings for small-to-medium sized business with a focus on entrepreneurs. We intend to accomplish this through the commercial team, with a focus on systems and ~~fintech markets.~~ ~~Banking-as-a-service offers significant growth opportunities. The fintech~~support, the further development of treasury management and ~~digital banking markets offer innovation and expansion that First Fed can support through servicing products offered. We announced~~ our partnership with ~~Splash~~MWG. For small-to-medium sized businesses, we believe there are multiple opportunities in ~~January 2022~~payment processing for ACH, check, wire transfers, international payments and debit card interchange. In addition, we intend to ~~collaborate on developing~~build out our capabilities for accounts payable and ~~deploying consumer loan products~~receivable, payroll, merchant card acquisition and ~~solutions throughout the country. We continue to explore additional opportunities to partner with fintech and digital banking partners in order to expand this part of our digital strategy.~~corporate card spend management solutions.

Critical Accounting Policies

We have certain accounting policies that are important to the assessment of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Our accounting policies are discussed in detail in Note 1 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

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The following represent our critical accounting policies:

Allowance for ~~Loan~~Credit Losses on Loans. The allowance for ~~loan~~credit losses on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount ~~estimated by management as necessary~~expected to ~~cover losses inherent in the loan portfolio as of the balance sheet date.~~be collected. The allowance is established through the provision for ~~loan~~credit losses on loans, which is charged to income. Determining the amount of the ~~allowance for loan losses~~ACLL necessarily involves a high degree of judgment. ~~Among~~Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ~~material estimates required~~ACLL. For certain segments with smaller portfolios or where data is prohibitive to ~~establish~~running a DCF calculation, management has elected to use a remaining life methodology. The Company also uses established metrics to estimate qualitative risk factors by segment based on the ~~allowance are: the likelihood of default; the loss exposure at default; the amount and timing of future~~identified risk. The Company evaluates individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis using either a collateral value or cash ~~flows on impaired loans; the value of collateral; and the determination of loss factors to be applied to the various elements~~flow method. All of the ~~portfolio. All of~~factors used in these ~~estimates~~methodologies are susceptible to significant change. Management reviews and ~~the Board of Directors~~ approves, at least quarterly, the level of the allowance and the provision for ~~loan~~credit losses on loans based on ~~past loss experience, current~~anticipated future economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for ~~loan~~credit losses on loans, future ~~adjustments to the allowance may be necessary if~~ economic or other conditions may differ substantially from the assumptions used in making the evaluation. ~~In addition, the~~The FDIC and the DFI, as an ~~integral~~integral part of their examination process, periodically review our ~~allowance for loan losses~~ACLL and may require us to recognize adjustments to the allowance based on their judgment about information available at the time of their examination. A large loss could deplete the allowance and require increased provisions for ~~loan~~credit losses on loans to replenish the allowance, which would adversely affect earnings. ~~See Note 3~~Management considers the ACLL to be a critical accounting estimate. 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.

Mortgage Servicing Rights. We record ~~mortgage~~ servicing rights on loans originated and subsequently sold into the secondary market. We stratify our capitalized ~~mortgage~~ servicing rights based on the type, term and interest rates of the underlying loans. ~~Mortgage servicing~~Servicing rights are ~~initially recognized~~measured at fair ~~value.~~value at each reporting date with the change reported in earnings. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. If our assumptions prove to be incorrect, the value of our mortgage servicing rights could be negatively affected. See Notes 1, 7 and 615 to the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

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Income Taxes. Management makes estimates and judgments to calculate certain tax liabilities and to determine the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses. We also estimate a valuation allowance for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. In evaluating the recoverability of deferred tax assets, management considers all available positive and negative evidence, including past operating results, recent cumulative losses - both capital and operating - and the forecast of future taxable income, both capital gains and operating. In determining future taxable income, management makes assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require judgments about future taxable income and are consistent with the plans and estimates to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on future earnings.

Fair Value. Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-party pricing services.

New Accounting Pronouncements

For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

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Comparison of Financial Condition at December 31, ~~2021~~2023 and December 31, ~~2020~~2022

Assets. Total assets increased ~~$266.7~~$159.7 million, or ~~16.1%~~7.8%, to ~~$1.92~~$2.2 billion at December 31, ~~2021,~~2023, from ~~$1.65~~$2.04 billion at December 31, ~~2020, primarily due to an increase in new deposits.~~2022.

Total loans, excluding loans held for sale, increased ~~$203.1~~$112.5 million, or ~~17.6%~~7.3%, during the year ended December 31, ~~2021.~~2023. Multi-family and commercial real estate loans increased ~~$76.7~~$79.5 million, or ~~16.7%~~12.4%, consisting mainly of an increase in multi-family real estate loans of ~~$66.7 million.~~$80.4 million as a result of new originations and $38.4 million of construction loans converting into permanent amortizing loans. Commercial real estate loans decreased $901,000 as payment activity exceeded new loan originations of $39.7 million and $10.1 million from construction loans converting into permanent amortizing loans. Auto and other consumer loans increased ~~$54.5~~$10.2 million, or ~~42.5%~~4.3%, with the purchase of a pool of manufactured home loans as well as purchases of individual manufactured home loans and specialty auto loans. Commercial business loans ~~decreased $20.4~~increased $35.4 million primarily due to ~~a decrease~~an increase in the Northpointe Bank Mortgage Participation Program of $9.5 million and ~~payoffs~~purchases of ~~SBA Paycheck Protection Program~~$15.9 million of unsecured Bankers Healthcare Group loans in addition to advances on new and existing lines of credit and originations of amortizing commercial loans.

~~One- to four-family~~One-to-four family residential loans ~~decreased $14.9~~increased $34.9 million, or ~~4.8%~~10.2%, ~~as payoffs outpaced new loan production~~with $64.7 million in construction loans converting to permanent amortizing loans during the year. We continue to focus on the origination of ~~one- to four-family~~one-to-four family mortgage loans with the intention of retaining certain adjustable-rate loans that may not be readily sold in the secondary market, while selling the majority of our saleable production to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and other investors.

Construction and land loans ~~increased $101.1~~decreased $64.0 million, or ~~81.8%. There was $194.3~~33.0%, with $118.2 million ~~in undisbursed~~converting into fully amortizing loans partially offset by draws on new and existing commitments. Undisbursed construction commitments ~~at December 31, 2021 compared to $155.1~~totaled $55.4 million at December 31, ~~2020.~~2023 compared to $120.7 million at December 31, 2022. Undisbursed construction commitments at December 31, ~~2021~~2023 included ~~$54.5~~$27.9 million of mainly custom ~~one- to four-family~~one-to-four family residential construction, ~~$105.0~~$22.1 million of multi-family construction, ~~$29.7~~and $5.5 million of commercial real estate ~~construction, and $5.0 million of commercial acquisition-renovation~~ construction. Our construction loans are geographically disbursed throughout the state of Washington with ~~two commitments~~one commitment for ~~properties~~a property in Oregon. We manage our construction lending primarily by utilizing a licensed third-party vendor to assist us in monitoring our construction projects. Internal staff monitor certain projects, which enhances fee income related to these loans.

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During the year ended December 31, ~~2021,~~2023, the Company originated ~~$780.5~~$221.9 million of loans, of which ~~$226.4~~$156.9 million, or ~~29.0%~~70.80%, were originated in the Puget Sound region; $55.9 million, or 25.20%, in the Olympic Peninsula region; ~~$479.7~~$5.7 million, or ~~61.5%, in the Puget Sound region; $42.7 million, or 5.5%~~2.60%, in other areas in Washington; and ~~$31.6~~$3.5 million, or ~~4.1%~~1.60%, in other states. The Company also purchased loans totaling ~~$115.5~~$83.1 million with the largest concentration of ~~property~~these loans located in California.

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

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

(In thousands)

(In thousands)

Real Estate:

One- to four-family
$ 294,965 $ 309,828
One-to-four family
$ 378,432 $ 343,559
Multi-family
172,409 162,467 333,094 252,745
Commercial real estate
363,299 296,574 387,983 388,884
Construction and land
224,709 123,627 129,691 193,646
Total real estate loans
1,055,382 892,496 1,229,200 1,178,834

Consumer:

Home equity
39,172 33,103 69,403 52,877
Auto and other consumer
182,769 128,233 249,130 238,913
Total consumer loans
221,941 161,336 318,533 291,790

Commercial business loans
79,838 100,201 112,295 76,927

Total loans
1,357,161 1,154,033 1,660,028 1,547,551
Less:

Net deferred loan fees
4,772 4,346
Premium on purchased loans, net
(12,995 ) (6,129 )
Allowance for loan losses
15,124 13,847
Allowance for credit losses on loans
17,510 16,116
Total loans receivable, net
$ 1,350,260 $ 1,141,969 $ 1,642,518 $ 1,531,435
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Our allowance for ~~loan~~credit losses on loans increased ~~$1.3~~$1.4 million, or ~~9.2%~~8.6%, during the year ended December 31, ~~2021,~~2023, as ~~the~~a result of our transition from the incurred loss model to CECL and loan growth. Asset quality ~~has remained stable year over year despite the uncertain economic conditions~~declined with increases in past due, nonaccrual and classified assets compared to the ~~pandemic. As a result, a negative provision of $150,000 was taken during 2021.~~total loan portfolio. Management continues to closely monitor ~~these conditions.~~economic conditions for potential weaknesses that could expose the loan portfolio to losses. The allowance for ~~loan~~credit losses on loans as a percentage of total loans was ~~1.1%~~1.05% at December 31, ~~2021~~2023 and ~~1.2%~~1.04% at December 31, ~~2020. There was no material change in our allowance for loan losses as a percentage of total loans during the year ended December 31, 2021 compared to 2020.~~2022. We believe our allowance for ~~loan~~credit losses on loans is adequate to cover inherent losses in the loan portfolio.

Nonperforming loans ~~decreased $892,000,~~increased $16.9 million, or ~~39.2%~~939.8%, during the year ended December 31, ~~2021~~2023 to ~~$1.4~~$18.6 million. This ~~decrease~~increase was mainly the result of ~~decreases~~increases in nonperforming ~~one- to four-family~~commercial construction of ~~$418,000,~~$15.0 million, one-to-four family of $890,000, commercial business of $877,000 and auto and other consumer of ~~$309,000, and multi-family loans of $284,000,~~$211,000, partially offset by ~~an increase~~decreases in home equity loans of ~~$209,000.~~$73,000 and commercial real estate of $25,000. Nonperforming loans to total loans was ~~0.1%~~1.12% at December 31, ~~2021, a decline~~2023, an increase from ~~0.2%~~0.12% at December 31, 2020. Real estate owned and repossessed assets decreased $2,000, or 100.0%, as defaulted auto loans were sold. The allowance for loan losses as a percentage of nonperforming loans increased to 1095.1% at December 31, 2021 from 609.2% at December 31, 2020 as result of the decrease in nonperforming loans.2022.
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At December 31, ~~2021,~~2023, substantially all restructured loans were performing in accordance with their modified payment terms and returned to accrual status. Classified loans, consisting solely of substandard loans, increased by ~~$5.1~~$18.2 million, or ~~67.3%~~107.7%, to ~~$12.6~~$35.1 million at December 31, ~~2021,~~2023, from ~~$7.5~~$16.9 million at December 31, ~~2020.~~2022. The change in classified loans was mainly the result of ~~an increase in substandard~~a downgrade of a commercial loan relationship totaling $9.3 million involving several commercial real estate and business loans along with downgrades of a $3.6 million SBA loan and a $104,000 commercial business loan during the ~~year.~~fourth quarter of 2023. A $15.0 million construction loan, which became a classified loan in the fourth quarter of 2022, and the $9.3 million commercial loan relationship account for 69% of the classified loan balance at December 31, 2023. The Bank ~~continued~~continues to work with its borrowers to facilitate satisfactory repayment.

~~In late March 2020,~~Cash and cash equivalents increased by $77.6 million, or 170.1%, to $123.2 million as of December 31, 2023, compared to $45.6 million at December 31, 2022, as a portion of the ~~Bank announced loan modification programs to support and provide relief for its borrowers during~~proceeds from the ~~COVID-19 pandemic. Loans subject to payment forbearance under~~sale of investment securities in the ~~Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. For additional information, see "COVID-19 Loan Modifications"~~fourth quarter of 2023 were held in ~~Item 1.~~interest-bearing cash.

Total investment securities decreased ~~$20.1~~$31.0 million, or ~~5.5%~~9.5%, to ~~$344.2~~$295.6 million at December 31, ~~2021,~~2023, from ~~$364.3~~$326.6 million at December 31, ~~2020.~~2022. The year-over-year decrease was the result of sales ~~prepayment activity,~~ and normal amortization during the year, partially offset by ~~purchases.~~purchases and an improved portfolio market value. During ~~2021,~~2023, we repositioned the investment portfolio by selling $44.8 million of available-for-sale securities yielding 2.4% for a total loss of $5.4 million during the period, and purchased $~~148.4~~21.1 million of available-for-sale securities asyielding 6.7%. The decrease in unrealized loss of $10.3 million relates mainly to a ~~source of additional~~$5.4 million improvement in unrealized losses driven by a decrease in long-term interest ~~income. We also took advantage of market opportunities to improve long-term yields, reduce our LIBOR risk,~~rates and ~~manage duration by selling $107.8~~$4.9 million of ~~available-for-sale~~realized losses related to the securities ~~for a total gain of~~ ~~$2.4 million~~sale.
~~during the same period.~~ The estimated average life of the total investment securities portfolio was ~~5.7~~7.7 years as of December 31, 2023, compared to 8.2 years as of December 31, 2022, and the average repricing term was approximately ~~7.3~~6.3 years as of December 31, ~~2021,~~ 2023, compared to 7.1 years as of December 31, 2022, based on the interest rate ~~environment~~environments at ~~that time.~~ those times. Expected duration of the portfolio has decreased to 4.8 years as of December 31, 2023, compared to 5.1 years as of December 31, 2022. We anticipate the investment portfolio will continue to provide additional interest income and act as a source of ~~liquidity to fund loan growth and give us the ability to manage interest rate risk.~~liquidity.

Mortgage-backed securities represent the largest portion of our investment portfolio and totaled ~~$140.0~~$139.3 million at December 31, ~~2021, an increase~~2023, a decrease of ~~$50.7~~$29.6 million, or ~~56.8%~~17.5% from ~~$89.3~~$169.0 million at December 31, ~~2020.~~2022. Municipal bonds are the second largest segment, totaling ~~$113.4~~$87.8 million at December 31, ~~2021,~~2023, a decrease of ~~$14.5~~$10.3 million, or ~~11.3%~~10.5%, from ~~$127.9~~$98.1 million at December 31, ~~2020.~~2022. The sale of investment securities during the fourth quarter of 2023 resulted in a shift in the investment mix from mortgage-backed securities, municipal bonds and U.S. Treasury notes toward more U.S. agency and corporate asset-backed securities. Other investment securities ~~including U.S. government agencies, corporate and asset-backed securities, were $90.9~~totaled $68.5 million at December 31, ~~2021,~~2023, an increase of ~~$56.3~~$9.0 million, or ~~38.3%~~15.0% from ~~$147.2~~$59.6 million at December 31, ~~2020.~~2022. At December 31, ~~2021,~~2023, the investment portfolio contained ~~43.0%~~52.0% of amortizing securities, compared to ~~48.0%~~50.8% at December 31, ~~2020.~~2022. The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is generally affected by changing interest rates. We ~~continue to focus on growing our loan portfolio and improving our earning asset mix over the long term, as evidenced by net loan growth exceeding the rate of investments during the year. We~~ may purchase investment securities as a source of additional interest income and in lieu of carrying higher cash ~~balances at nominal interest rates.~~balances. For additional information, see Note 2 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

~~Liabilities.~~ ~~Total liabilities~~Equity and partnership investments increased ~~$262.6 million, or 17.9%,~~ to $1.73 billion at December 31, 2021, from $1.47 billion at December 31, 2020, mainly due to deposit account balances increasing $247.1 million, or 18.5%, to $1.58 billion at December 31, 2021 from $1.33 billion at December 31, 2020. Money market accounts increased $168.7 million, transaction accounts increased $69.0 million, and savings accounts increased $30.2 million as customers significantly increased their liquidity during the year. Certificates of deposit decreased $61.5 million, or 19.9%, to $247.2$14.8 million at December 31, ~~2021. Included in certificates of deposit balances at year end were $65.7 million in brokered certificates of deposit. Our focus will continue~~2023, compared to ~~be on increasing our customer deposits and maintaining a stable source of funding for our continued growth.~~
~~FHLB borrowings decreased $30.0 million, or 27.3%, to $80.0~~$14.3 million at December 31, ~~2021,~~2022, from ~~$110.0~~contributions to existing commitments totaling $608,000 during 2023. Prepaid expenses and other assets decreased $1.5 million to $26.9 million at December 31, ~~2020,~~2023, compared to $28.3 million one year ago. The decrease was mainly due to the $1.5 million write-off of the Quil commitment receivable in the fourth quarter of 2023, when the Company determined that Quil was no longer a going concern. Net deferred tax assets decreased $1.0 million from the prior year end as ~~lower-cost deposit balances increased. Overnight variable-rate advances were repaid, helping to manage our cost~~a result of ~~funds and interest rate risk.~~an increase in the fair market value of the investment portfolio.

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~~On March 25, 2021, the Company completed a private placement of $40.0~~Liabilities. Total liabilities increased $154.7 million, ~~of 3.75% fixed-to-floating rate subordinated notes due 2031 (the “Notes”)~~or 8.2%, 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 are structured to qualify as Tier 2 capital for the Company for regulatory capital purposes. The Company intends to use the net proceeds of the offering for general corporate purposes and provided $20.0 million to the Bank as Tier 1 capital. The remaining balance$2.04 billion at December 31, ~~2021 was $39.3~~2023, from $1.88 billion at December 31, 2022, with increases in deposits and borrowings used mainly to fund loan growth.
Deposit account balances increased $112.6 million, or 7.2%, to $1.68 billion at December 31, 2023 from $1.56 billion at December 31, 2022. Money market accounts decreased $110.8 million and transaction accounts decreased $87.1 million, while savings accounts increased $41.2 million. Retail CDs increased $195.6 million, or 78.9%, to $443.4 million and Brokered CDs increased $73.8 million, or 55.1%, to $207.6 million at December 31, 2023. We believe the current rate environment contributed to greater competition for deposits across the industry during 2023. Our focus continues to be on increasing core customer deposits, with an emphasis on small-to-medium sized business deposits, and maintaining a stable source of funding to reduce interest expense as a percentage of liabilities.
Borrowings increased $35.6 million, or 12.5%, to $320.9 million at December 31, 2023, from $285.4 million at December 31, 2022, as the Bank utilized FHLB overnight funds to maintain on balance sheet liquidity.

Equity. Total shareholders' equity increased ~~$4.6~~$1.8 million, or ~~2.5%~~1.1%, to ~~$191.0~~$163.3 million at December 31, ~~2021,~~2023, from ~~$186.4~~$161.6 million at December 31, ~~2020. This~~2022. The increase during the year resulted from ~~net income of $15.4~~a $7.9 million and an increase of $2.4 million related to our stock-based compensation plans. These increases were partially offset by a decrease of $6.0 million related to our repurchase of shares, a decrease of $5.2 million due to the changereduction in accumulated other comprehensive loss related to ~~the change in~~an improved unrealized market value of available for sale securities, net of tax, net income of $2.3 million, and ~~$2.5~~an increase of $2.1 million related to share-based compensation plans. These increases were partially offset by a one-time decrease of $3.0 million upon the adoption of CECL, $2.7 million in dividends paid in ~~2021.~~2023 and share repurchases of $1.1 million. During the year ended December 31, ~~2021,~~2023, we repurchased ~~349,497~~87,895 shares of common stock at an average cost of ~~$17.07~~$12.95 per share, pursuant to the Company's 2020 stock repurchase ~~plans.~~plan.

Comparison of Results of Operations for the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022

General. The Company ~~had net income~~generated a return on average assets of 0.11%, and a return on average equity of 1.43%, for the year ended December 31, ~~2021 of $15.4 million,~~2023, compared to ~~net income of $10.3 million~~0.79% and 9.09%, respectively, for the year ended December 31, ~~2020, an increase of $5.1~~2022. Net income decreased $13.4 million, or ~~49.1%. The increase in net~~85.4%, compared to 2022. Net interest income declined as increases to interest expense outpaced increases to interest income. Noninterest income was down due to ~~increases in net interest income~~a loss on sale of securities of $5.4 million as well as lower loan and ~~noninterest~~deposit fee, servicing rights and loan sale income. Noninterest expense was lower due to decreased compensation, advertising, data processing, and occupancy expenses. We earned ~~$1.63~~$0.26 per common and diluted share for the year ended December 31, ~~2021,~~2023, compared to ~~$1.07~~$1.71 per common and diluted share for the year ended December 31, ~~2020.~~2022. The ~~increase~~decrease in earnings per share ~~year-over-year~~ was the result of ~~an increase~~the decrease in net income ~~combined with lower weighted-average common shares outstanding~~as the Bank recognized a loss on sale of ~~9,133,953 basic~~securities to reposition the portfolio by paying down higher cost funding and ~~9,228,740 diluted shares~~investing in ~~2021, compared to 9,370,778 basic~~higher yielding loans and 9,402,198 diluted shares for the same period in 2020. The decrease in average shares year-over-year is due to our share repurchase program and restricted stock award forfeitures offset by restricted stock award grants.securities.

Net Interest Income. Net interest income ~~increased $14.3~~decreased $8.4 million, or ~~32.6%~~12.1%, to ~~$58.3~~$61.4 million for the year ended December 31, ~~2021,~~2023, from ~~$44.0~~$69.9 million for the year ended December 31, ~~2020,~~2022, mainly as the result of additional interest ~~income~~expense related to ~~the~~higher costs on both deposit and advance balances as well as an increase in the average balances of ~~loans receivable~~CDs and ~~investment securities.~~advances.

The increase in interest income was largely attributable to changes in loans receivable with an average balance increase of ~~loans receivable increased $270.0~~$145.5 million, at an average yield of ~~4.44%~~5.31%, for the year ended December 31, ~~2021~~2023 compared to an average yield of ~~4.44%~~4.74%, for the year ended December 31, ~~2020.~~2022. The ~~cost of~~interest income earned from higher yields was offset by higher interest-bearing ~~liabilities decreased~~liability costs which increased to ~~0.43%~~2.42% for the year ended December 31, ~~2021~~2023 compared to ~~0.75%~~0.73% for the year ended December 31, ~~2020. The combination of increased loan receivable balances and lower cost of funds~~2022. This resulted in a 2466 basis point ~~increase~~decrease in our net interest margin to ~~3.51% at December 31, 2021, from 3.27% at December 31, 2020.~~
~~Net interest income increased $14.3 million during~~3.13% for the year ended December 31, ~~2021 compared to~~2023, from 3.79% for the year ended December 31, ~~2020, of which $12.5~~2022.
The $1.8 million ~~was the result of an~~net increase in interest income from the volume ~~and $1.8~~of interest earning assets was offset by the net increase in interest costs of $10.3 million ~~due to~~as changes in rates outpaced increases in yields. As noted above, loans receivable was the main contributor to the increase in ~~net~~ interest income with ~~$12.0~~$6.9 million due to an increase in average ~~volumes.~~volume and $9.1 million due higher rates. The ~~decrease~~increase to the cost of average interest-bearing liabilities for the year ended December 31, ~~2021~~2023 was due primarily to ~~lower~~costs from higher rates paid of $24.6 million and increased average balances of $4.3 million on advances, certificates of deposit ~~accounts, partially offset by an increase from the subordinated debt issued in 2021.~~and money market accounts.

Interest Income. Interest income increased ~~$12.0~~$20.5 million, or ~~23.2%~~25.5%, to ~~$63.7~~$100.9 million for the year ended December 31, ~~2021~~2023 from ~~$51.7~~$80.4 million for the comparable period in ~~2020,~~2022, primarily due to an increase in the average balance of and higher yields on loans receivable. Interest and fees on loans receivable increased ~~$12.0~~$16.0 million during the year, in part, as ~~a result.~~the Bank grew the loan portfolio through single-family, multi-family and commercial real estate lending as well as purchased auto and manufactured home loans. Loan yields also increased due to higher rates on new originations as well as the repricing of variable rate loans tied to the Prime Rate or other indices.

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Interest income on investment securities increased ~~$250,000~~$2.4 million to ~~$5.8~~$13.3 million for the year ended December 31, ~~2021~~2023, compared to ~~$5.6~~$10.9 million for the year ended December 31, ~~2020.~~2022. The increase in interest income on investment securities was driven by ~~a $17.1 million~~an increase in the average ~~balance~~yield during the year of 108 basis points due to ~~$244.4 million for~~ the ~~year ended December 31, 2021 compared to $227.3 million for~~repricing of variable rate securities and slower prepayment activity reducing the ~~year ended December 31, 2020. The average yield decreased 7 basis points. The change in average yields on investment securities does not include~~amount of premium amortization during the benefit of nontaxable income from municipal bonds. Interest income on mortgage-backed and related securities decreased $151,000 to $2.6 million for the year ended December 31, 2021 from $2.7 million for the year ended December 31, 2020, commensurate with a decline in the average balance of $3.2 million and a decrease in average yield of 7 basis points.period.

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

Year Ended December 31,

Year Ended December 31,

2021

2020

2023

2022

Average Balance Outstanding

Yield

Average Balance Outstanding

Yield

Increase/ (Decrease) in Interest Income

Average Balance Outstanding

Yield

Average Balance Outstanding

Yield

Increase/ (Decrease) in Interest Income

(Dollars in thousands)

(Dollars in thousands)

Loans receivable, net
$ 1,239,919 4.44 % $ 970,039 4.44 % $ 11,966 $ 1,594,268 5.31 % $ 1,448,777 4.74 % $ 15,979
Investment securities
244,364 2.38 227,269 2.45 250 317,924 4.18 350,521 3.10 2,413
Mortgage-backed securities
120,636 2.11 123,838 2.18 (151 )
FHLB stock
4,058 4.68 4,495 5.67 (65 ) 12,035 7.31 8,540 5.88 378
Interest-bearing deposits in banks
52,242 0.16 20,129 0.47 (11 )
Interest-earning deposits in banks
40,832 5.21 34,807 1.08 1,751
Total interest-earning assets
$ 1,661,219 3.83 % $ 1,345,770 3.84 % $ 11,989 $ 1,965,059 5.13 % $ 1,842,645 4.36 % $ 20,521

Interest Expense. Total interest expense ~~decreased $2.4~~increased $29.0 million, or ~~30.4%~~275.3%, for the year ended December 31, ~~2021,~~2023, compared to the prior year, with ~~decreases in deposit costs of $3.3 million, partially offset by~~ increases in borrowing costs and deposit costs of ~~$916,000.~~$7.1 million and $21.8 million, respectively. Borrowing costs increased 207 basis points, mainly due to higher rates paid on overnight and short-term borrowings, combined with an increase of $86.0 million in the average balance outstanding. Deposit costs ~~decreased~~increased due to ~~the decrease~~higher funding costs and an increase of $116.8 million in the ~~interest rates combined with growth in lower-rate non-maturity deposits. The~~ average balance of interest-bearing deposits, ~~increased $197.1 million, or 20.6%, to $1.15 billion for the year ended December 31, 2021 from $957.3 million for the year ended December 31, 2020,~~ as we continued to target growth in deposits in new and existing market areas. Additionally, the bank experienced deposit growth due the significant inflow of deposits into the banking system during the pandemic due to government stimulus payments and changes to consumer and business savings and spending habits. During the year ended December 31, 2021, the cost ofutilized brokered certificates of deposit decreased $2.3 million due to a decrease in the average rate paid of 59 basis points. The average rate paid on savings accounts decreased 43 basis points and the cost of money market accounts decreased 21 basis points even though the average balance of all deposit accounts increased $300.6 million.deposits. The average cost of all interest-bearing deposit products ~~decreased 41~~increased 159 basis points to ~~0.29%~~2.01% for the year ended December 31, ~~2021~~2023 from ~~0.70%~~0.42% for the year ended December 31, ~~2020. Borrowing rates decreased 42.7%, or 32 basis points, mainly due to~~2022. The average balances of savings and CD accounts increased year-over-year, while lower ~~rates paid on overnight~~cost transaction and ~~long-term borrowings, partially offset by the subordinated debt issued in March 2021.~~money market average account balances declined.
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The following table details average balances, cost of funds and the change in interest expense for the periods shown:

Year Ended December 31,

Year Ended December 31,

2021

2020

2023

2022

Average Balance Outstanding

Rate

Average Balance Outstanding

Rate

Increase/ (Decrease) in Interest Expense

Average Balance Outstanding

Rate

Average Balance Outstanding

Rate

Increase/ (Decrease) in Interest Expense

(Dollars in thousands)

(Dollars in thousands)

Interest-bearing transaction
$ 175,608 0.02 % $ 135,315 0.03 % $ 6 $ 178,577 0.45 % $ 193,064 0.07 % $ 659
Money market accounts
525,986 0.22 332,854 0.43 (281 ) 388,287 1.09 555,038 0.31 2,519
Savings accounts
185,315 0.07 170,016 0.50 (715 ) 243,300 1.24 197,707 0.08 2,854
Certificates of deposit
267,521 0.77 319,096 1.36 (2,277 )
FHLB borrowings
54,033 1.43 73,268 1.45 (287 )
Certificates of deposit, retail
369,480 3.39 194,743 1.07 10,430
Certificates of deposit, brokered
165,486 3.91 87,734 1.26 5,359
FHLB and other advances
249,172 4.36 163,198 2.29 7,130
Subordinated debt, net
30,370 3.96 — — 1,203 39,395 4.01 39,312 4.01 1
Total interest-bearing liabilities
$ 1,238,833 0.43 % $ 1,030,549 0.75 % $ (2,351 ) $ 1,633,697 2.42 % $ 1,430,796 0.73 % $ 28,952

Provision for ~~Loan~~Credit Losses. The total provision for ~~loan~~credit losses decreased $212,000 to $1.3 million during the year ended December 31, ~~2021~~2023, compared to ~~2020. The lower~~$1.5 million for 2022. A recapture of provision ~~reflects improvement~~for credit losses on unfunded commitments due to the significant decrease in ~~economic conditions, less uncertainty regarding~~unfunded construction loan commitments from the ~~impact~~initial balance recorded upon the adoption of ~~COVID-19, and stable~~CECL on January 1, 2023, was recorded during 2023. A higher provision for credit ~~quality~~losses on loans compared to 2022 is reflective of loan growth, a change to the ~~prior year. Management took a negative provision~~life-of-loan loss methodology and an increase in net charge-offs during 2023, which partially offset the unfunded commitments recapture.
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Table of ~~$150,000 during 2021.~~
Contents

The following table details activity and information related to the allowance for ~~loan~~credit losses on loans and reserve for unfunded commitments for the periods shown:

Year Ended December 31,

2021

2020

(Dollars in thousands)

Provision for loan losses
$ 1,350 $ 5,046
Charge offs net of recoveries
(73 ) (827 )
Allowance for loan losses
15,124 13,847
Allowance for losses as a percentage of total gross loans receivable at the end of this period
1.1 % 1.2 %
Total nonaccrual loans
1,381 1,796
Allowance for loan losses as a percentage of nonaccrual loans at end of period
1095.1 % 771.0 %
Nonaccrual and 90 days or more past due loans as a percentage of total loans
0.1 % 0.2 %
Total loans
$ 1,357,161 $ 1,154,033

Year Ended December 31,

2023

2022

(Dollars in thousands)

Provision for credit losses on loans
$ 2,357 $ 1,535
Charge offs net of recoveries
(3,172 ) (543 )
Allowance for credit losses on loans
17,510 16,116
Allowance for credit losses on loans as a percentage of total gross loans receivable at the end of this period
1.05 % 1.04 %
Total nonaccrual loans
18,644 1,796
Allowance for credit losses on loans as a percentage of nonaccrual loans at end of period
94 % 897 %
Nonaccrual and 90 days or more past due loans as a percentage of total loans
1.12 % 0.12 %
Total loans receivable
$ 1,660,028 $ 1,547,551

Recapture of provision for credit losses on unfunded commitments
$ (1,034 ) $ —
Reserve for unfunded commitments
817 325
Unfunded loan commitments
149,631 225,836

Noninterest Income. Noninterest income decreased ~~1.3%~~61.1% to ~~$15.6~~$4.0 million for the year ended December 31, ~~2021, compared to $15.9~~2023, from $10.3 million for the year ended December 31, ~~2020, reflecting~~2022. The decrease compared to the prior year was primarily due to a ~~lower~~$5.4 million loss on sale of investment securities during 2023. One-time increases to other income include a gain on sale of Visa, Inc. Class B common stock of $470,000 and $950,000 received from the Splash loan program as a partial reimbursement of program losses incurred by the Bank during 2023. Saleable mortgage loan production and related gains continued to be impacted by higher market rates on mortgage loans ~~lower gain on sale of securities, and~~compared to the prior year. Fee income in 2023 was impacted by a decrease in ~~the cash surrender value of bank owned life insurance (BOLI) due to~~late fees on commercial loans. In 2022, a one-time increase was recorded ~~in the third quarter~~for a BOLI death benefit payment of 2020 from a restructure of the BOLI policies in 2020. Decreases were partially offset by increases in the gain on sale of commercial loans and related servicing asset, SBA and adjustable-rate conversion program participation fees, and a gain on our investment in Canapi Ventures Fund LP.$1.5 million.
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The following table provides ~~a detailed~~an analysis of the changes in the components of noninterest income for the periods shown:

Year Ended December 31,

Increase (Decrease)

Year Ended December 31,

Increase (Decrease)

2021

2020

Amount

Percent

2023

2022

Amount

Percent

(Dollars in thousands)

(Dollars in thousands)

Loan and deposit service fees
$ 3,860 $ 3,454 $ 406 11.8 %
Sold loan servicing fees, net of amortization
946 137 809 590.5
Loan and deposit fees
$ 4,341 $ 4,729 $ (388 ) (8.2 )%
Sold loan servicing fees and servicing rights mark-to-market
676 867 (191 ) (22.0 )
Net gain on sale of loans
5,278 6,433 (1,155 ) (18.0 ) 438 824 (386 ) (46.8 )
Net gain on sale of investment securities
2,410 3,147 (737 ) (23.4 )
Net (loss) gain on sale of investment securities
(5,397 ) 118 (5,515 ) (4,673.7 )
Increase in cash surrender value of bank-owned life insurance, net
965 1,826 (861 ) (47.2 ) 928 916 12 1.3
Income from death benefit on bank-owned life insurance, net
— 1,489 (1,489 ) (100.0 )
Other income
2,179 849 1,330 156.7 3,034 1,384 1,650 119.2
Total noninterest income
$ 15,638 $ 15,846 $ (208 ) (1.3 )% $ 4,020 $ 10,327 $ (6,307 ) (61.1 )%

Noninterest Expense. Noninterest expense ~~increased~~decreased to ~~$54.4~~$61.5 million for the year ended December 31, ~~2021,~~2023, from ~~$41.5~~$62.3 million for the year ended December 31, ~~2020.~~2022. The year-over-year ~~increase~~decrease reflects ~~higher~~lower compensation expense, ~~including salaries, production-related~~primarily due to lower Bank commissions, ~~incentives~~payroll taxes, and ~~benefits,~~medical insurance expenses along with a $1.5 million reduction related to Quin Ventures compensation. Other one-time noninterest expenses recorded during 2023 included the Quil commitment receivable write-off of $1.5 million, a write-off of Fannie Mae and Freddie Mac investor accounting related items totaling $725,000, and an accrual for a civil money penalty proposed by the FDIC of $718,000. The FDIC proposed assessing a civil money penalty in connection with the concerns detailed in a consent order entered into by the Bank during 2023.
Quin Ventures non-compensation expenses included for the year ended December 31, 2023, totaled $320,000 compared to $2.7 million in the year ended December 31, 2022, as ~~well as costs associated with expanding our footprint with two new locations~~a result of decreases in advertising, depreciation and data processing expenses. The full amount of Quin Ventures activity was reported in noninterest income and noninterest expense under the ~~relocation~~controlling interest method of ~~our Fairhaven branch,~~accounting. The proportional noncontrolling interest amount was then subtracted from net income. This resulted in noncontrolling interest net losses of $160,000 and ~~technology enhancements~~$2.1 million being added back to net income for ~~digital~~the years ended December 31, 2023 and ~~mobile banking products.~~2022, respectively.
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Table of Contents

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

Year Ended December 31,

Increase (Decrease)

Year Ended December 31,

Increase (Decrease)

2021

2020

Amount

Percent

2023

2022

Amount

Percent

(Dollars in thousands)

(Dollars in thousands)

Compensation and benefits
$ 33,515 $ 24,590 $ 8,925 36.3 % $ 31,209 $ 35,940 $ (4,731 ) (13.2 )%
Data processing
6,244 4,637 1,607 34.7 8,170 7,539 631 8.4
Occupancy and equipment
4,312 3,879 433 11.2 4,858 5,398 (540 ) (10.0 )
Supplies, postage, and telephone
1,189 985 204 20.7 1,433 1,376 57 4.1
Regulatory assessments and state taxes
1,213 930 283 30.4 1,635 1,539 96 6.2
Advertising
2,040 1,506 534 35.5 2,706 3,288 (582 ) (17.7 )
Professional fees
1,997 1,523 474 31.1 3,738 2,645 1,093 41.3
FDIC insurance premium
752 245 507 206.9 1,357 888 469 52.8
FHLB prepayment penalty
— 210 (210 ) (100.0 )
Other
3,151 2,959 192 6.5
Total
$ 54,413 $ 41,464 $ 12,949 31.2 %
Other expense
6,348 3,699 2,649 71.6
Total noninterest expense
$ 61,454 $ 62,312 $ (858 ) (1.4 )%

Provision for Income Tax. The provision for income tax for the year ended December 31, ~~2021,~~2023, was ~~$3.2 million~~$549,000 compared to ~~$3.0~~$2.9 million for the year ended December 31, ~~2020,~~2022, reflecting ~~higher net income before provision for income~~differences in pre-tax income. The effective tax ~~in the current year, while~~rate increased over the prior year ~~included a penalty recorded related to the surrender of a bank-owned life insurance policy in the third quarter of 2020 which resulted in a higher tax provision as well~~ as a ~~higher effective~~result of the permanent tax ~~rate for~~exclusion of BOLI noninterest income, including the ~~related period.~~BOLI death benefit, in 2022.

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Average Balances, Interest and Average Yields/Cost

The following ~~tables set~~table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at December 31, ~~2021~~2023 and ~~2020.~~2022. Income and all average balances are ~~monthly~~daily average ~~balances, which management deems to be not materially different than daily averages.~~balances. Nonaccrual loans have been included in the table as loans carrying a zero yield.

At December 31,

Year Ended December 31,

Year Ended December 31,

2021

2021

2020

2023

2022

Yield/ Rate

Average Balance Outstanding

Interest Earned/ Paid

Yield/ Rate

Average Balance Outstanding

Interest Earned/ Paid

Yield/ Rate
Average Balance Outstanding
Interest Earned/ Paid

Yield/ Rate
Average Balance Outstanding
Interest Earned/ Paid

Yield/ Rate

Interest-earning assets:

(Dollars in thousands)

(Dollars in thousands)

Loans receivable, net (1)
4.39 % $ 1,239,919 $ 55,029 4.44 % $ 970,039 $ 43,063 4.44 %
Investment securities
2.85 244,364 5,819 2.38 227,269 5,569 2.45
Mortgage-backed securities
2.31 120,636 2,550 2.11 123,838 2,701 2.18
Loans receivable, net ^{(1), (2)}
$ 1,594,268 $ 84,614 5.31 % $ 1,448,777 $ 68,635 4.74 %
Total investment securities
317,924 13,279 4.18 350,521 10,866 3.10
FHLB dividends
4.85 4,058 190 4.68 4,495 255 5.67 12,035 880 7.31 8,540 502 5.88
Interest-bearing deposits in banks
0.18 52,242 83 0.16 20,129 94 0.47
Total interest-earning assets (2)
3.80 1,661,219 63,671 3.83 1,345,770 51,682 3.84
Interest-earning deposits in banks
40,832 2,126 5.21 34,807 375 1.08
Total interest-earning assets ⁽³⁾
1,965,059 100,899 5.13 1,842,645 80,378 4.36
Noninterest-earning assets
104,011 91,125 144,141 132,588
Total average assets
$ 1,765,230 $ 1,436,895 $ 2,109,200 $ 1,975,233

Interest-bearing liabilities:

Interest-bearing demand deposits
0.01 $ 175,608 $ 43 0.02 $ 135,315 $ 37 0.03 $ 178,577 $ 796 0.45 $ 193,064 $ 137 0.07
Money market accounts
0.21 525,986 1,165 0.22 332,854 1,446 0.43 388,287 4,217 1.09 555,038 1,698 0.31
Savings accounts
0.05 185,315 128 0.07 170,016 843 0.50 243,300 3,019 1.24 197,707 165 0.08
Certificates of deposit
0.62 267,521 2,060 0.77 319,096 4,337 1.36
Total deposits
0.19 1,154,430 3,396 0.29 957,281 6,663 0.70
FHLB borrowings
1.34 54,033 774 1.43 73,268 1,061 1.45
Certificates of deposit, retail
369,480 12,520 3.39 194,743 2,090 1.07
Certificates of deposit, brokered
165,486 6,467 3.91 87,734 1,108 1.26
Total interest-bearing deposits ⁽⁴⁾
1,345,130 27,019 2.01 1,228,286 5,198 0.42
FHLB and other advances
249,172 10,870 4.36 163,198 3,740 2.29
Subordinated debt, net
3.94 30,370 1,203 3.96 — — — 39,395 1,578 4.01 39,312 1,577 4.01
Total interest-bearing liabilities
0.33 1,238,833 5,373 0.43 1,030,549 7,724 0.75 1,633,697 39,467 2.42 1,430,796 10,515 0.73
Noninterest-bearing deposits(4)
308,467 205,043 278,123 335,646
Noninterest-bearing liabilities
29,715 22,805
Other noninterest-bearing liabilities
37,967 36,666
Total average liabilities
1,949,787 1,803,108
Average equity
188,215 178,498 159,413 172,125
Total interest-bearing liabilities
$ 1,765,230 $ 1,436,895
Total average liabilities and equity
$ 2,109,200 $ 1,975,233

Net interest income
$ 58,298 $ 43,958 $ 61,432 $ 69,863
Net interest rate spread
3.47 3.40 3.09 2.71 3.63
Net earning assets
$ 422,386 $ 315,221 $ 331,362 $ 411,849
Net interest margin (3)
3.51 3.27
Net interest margin ⁽⁵⁾
3.13 3.79
Average interest-earning assets to average interest-bearing liabilities
134.1 % 130.6 % 120.3 % 128.8 %

(1) The average loans receivable, net balances include nonaccrual loans.
(2) Interest earned on loans receivable includes net deferred costs of $561,000 for the year ended December 31, 2023, and net deferred fees of $1.7 million, including $377,000 of deferred fee income from SBA Paycheck Protection Plan loans, for the year ended December 31, 2022.
(3) Includes interest-bearing deposits ~~(cash)~~ at other financial institutions.
~~(3)~~(4) Cost of all deposits, including noninterest-bearing demand deposits, was 1.66% and 0.33% for the years ended December 31, 2023 and 2022.
(5) Net interest income divided by average interest-earning assets.

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Rate/Volume Analysis

The following ~~tables present~~table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The presentation distinguishes between the changes related to outstanding balances and the changes in interest rates. For each ~~category of interest-earning assets and interest-bearing liabilities,~~component, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

Year Ended

December 31, 2021 vs. 2020

Year Ended December 31, 2023 vs. 2022

Increase (Decrease) Due to

Total Increase

Increase (Decrease) Due to

Total Increase

Volume

Rate

(Decrease)

Volume

Rate

(Decrease)

(In thousands)

(In thousands)

Interest-earning assets:

Loans receivable
$ 11,966 $ — $ 11,966
Investment and mortgage-backed securities
349 (250 ) 99
Loans receivable ⁽¹⁾
$ 6,894 $ 9,085 $ 15,979
Investment securities
(1,016 ) 3,429 2,413
FHLB stock
(25 ) (40 ) (65 ) 206 172 378
Other(1)
151 (162 ) (11 )
Other ⁽²⁾
65 1,686 1,751
Total interest-earning assets
$ 12,441 $ (452 ) $ 11,989 $ 6,149 $ 14,372 $ 20,521

Interest-bearing liabilities:

Interest-bearing demand deposits
$ 18 $ (12 ) $ 6 $ (15 ) $ 674 $ 659
Money market accounts
827 (1,108 ) (281 ) (514 ) 3,033 2,519
Savings accounts
79 (794 ) (715 ) 34 2,820 2,854
Certificates of deposit
(700 ) (1,577 ) (2,277 )
FHLB advances
(277 ) (10 ) (287 )
Subordinated debt
— 1,203 1,203
Certificates of deposit, retail
1,864 8,566 10,430
Certificates of deposit, brokered
974 4,385 5,359
FHLB and other advances
1,970 5,160 7,130
Subordinated debt, net
1 — 1
Total interest-bearing liabilities
$ (53 ) $ (2,298 ) $ (2,351 ) $ 4,314 $ 24,638 $ 28,952

Net change in interest income
$ 12,494 $ 1,846 $ 14,340 $ 1,835 $ (10,266 ) $ (8,431 )

(1) Includes net deferred fee income.
(2) Includes interest-bearing deposits ~~(cash)~~ at other financial institutions.

Asset and Liability Management and Market Risk

Risk Management Overview. Managing risk is an essential part of successfully managing a financial institution. Our Enterprise Risk Management Committee reports key risk indicators to the Board of Directors through the Audit Committee. The most prominent risk exposures management monitors are strategic, credit, interest rate, liquidity, operational, compliance, reputational, cybersecurity, and legal risk. ~~We utilize the services of outside firms to assist us in our asset and liability management and our analysis of market risk.~~
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Interest Rate Risk Management. We manage the interest rate sensitivity of interest-earning assets and interest-bearing liabilities in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts may reprice more quickly in response to changes in market interest rates because of their shorter maturities. Certain adjustable-rate investment securities, home equity lines of credit, and commercial real estate loans that are tied to the prime rate, the twelve-month constant maturity treasury, ~~the London Interbank Offered Rate ("LIBOR"),~~ or the Term Secured Overnight Financing Rate ("~~SOFR"~~TSOFR") will also reprice higher when market interest rates increase. Increases in interest rates should beneficially affect our earnings when variable or adjustable interest-earning assets reprice at higher interest rates faster than it takes for deposit and borrowing costs to reprice higher. Decreases in interest rates may adversely affect earnings as variable and adjustable assets will reprice lower which will reduce interest income. ~~Given the current low cost of funding there is little ability to reduce funding costs to offset the decrease in interest income.~~
Additionally, lower rates may result in increased prepayments and refinancing associated with loans and investment securities, particularly consumer and ~~one- to four-family~~one-to-four family residential loans and MBS securities with no prepayment restrictions, which are then reinvested into lower yielding assets, further reducing interest income.

~~We currently do not participate~~The Bank employs the services of outside firms to assist us in ~~hedging programs, interest rate swaps or other activities involving the use~~our asset and liability management and our analysis of ~~derivative financial instruments to manage interest rate~~market risk.
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Interest Rate Sensitivity Analysis. Management uses an interest rate sensitivity analysis to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in the present value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. The present value of equity is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to ~~300~~400 basis point increase or a 100 to 400 basis point decrease in market interest rates with no effect given to any future steps that management might take to counter the impact of that interest rate movement. The Bank's balance sheet became more liability sensitive in 2023 due to slower loan prepayment speeds, driven by higher interest rates and deposit migration from non-maturity deposits to certificates of deposits with shorter average lives.
The following table presents the change in the present value of First Fed’s equity at December 31, ~~2021,~~2023, that would occur in the event of an immediate change in interest rates based on management's assumptions.

December 31, 2021

December 31, 2023

Economic Value of Equity

Economic Value of Equity

Basis Point Change in Interest Rates

$ Amount

$ Change

% Change

EVE Ratio %

$ Amount

$ Change

% Change

EVE Ratio %

(Dollars in thousands)

(Dollars in thousands)

+ 400 $ 195,896 $ (63,435 ) (24.5 )% 10.4 %
+ 300
$ 331,261 $ 7,437 2.3 % 18.7 % 209,769 (49,562 ) (19.1 ) 10.9
+ 200
330,571 6,747 2.1 18.2 223,942 (35,389 ) (13.6 ) 11.4
+ 100
328,392 4,568 1.4 17.7 237,754 (21,577 ) (8.3 ) 11.9
0 323,824 — — 17.0 259,331 — — 12.6
-100 292,916 (30,908 ) (9.5 ) 15.1 269,042 9,711 3.7 12.7
-200 261,103 1,772 0.7 12.1
-300 249,539 (9,792 ) (3.8 ) 11.3
-400 217,691 (41,640 ) (16.1 ) 9.8

Using the same assumptions as above, the sensitivity of our projected net interest income over a one-year period for the year ended December 31, ~~2021,~~2023, is as follows:

December 31, 2021

Basis Point Change

Projected Net Interest Income

in Interest Rates

$ Amount

$ Change

% Change

(Dollars in thousands)

+ 300 $ 62,967 $ 1,425 2.3 %
+ 200 62,364 822 1.3
+ 100 61,695 153 0.2
0 61,542 — —
-100 59,991 (1,551 ) (2.5 )
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December 31, 2023

Basis Point Change

Projected Net Interest Income

in Interest Rates

$ Amount

$ Change

% Change

(Dollars in thousands)

+ 400 $ 45,706 $ (11,591 ) (20.2 )%
+ 300 48,610 (8,687 ) (15.2 )
+ 200 51,471 (5,826 ) (10.2 )
+ 100 54,247 (3,050 ) (5.3 )
0 57,297 — —
-100 57,152 (145 ) (0.3 )
-200 56,001 (1,296 ) (2.3 )
-300 54,986 (2,311 ) (4.0 )
-400 54,123 (3,174 ) (5.5 )

~~Assumptions made by management relate to~~Management makes assumptions about interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in ~~the method of analysis presented in the foregoing tables.~~our analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may take longer to adjust to changes in market rates. Additionally, certain assets have features, such as rate caps or floors, which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating forgoing the table.
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Liquidity Management

Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of investment security principal and interest payments, deposit inflows, brokered deposits, loan repayments, maturities, ~~and~~ sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are usually predictable sources of funds, deposit flows, calls of investment securities and borrowed funds, and prepayments on loans and investment securities are greatly influenced by general interest rates, economic conditions and competition, which can cause those sources of funds to fluctuate.

Management regularly adjusts our ~~investments in~~holdings of liquid assets based upon an assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and objectives of our interest-rate risk and investment policies.

Our most liquid assets are cash and cash equivalents followed by available for sale securities. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, ~~2021,~~2023, cash and cash equivalents totaled ~~$126.0~~$123.2 million and securities classified as available-for-sale ~~which provide additional potential sources of liquidity,~~ had a market value of ~~$344.2~~$295.6 million. We have pledged loan collateral with principal balances totaling $896.2 million to support borrowings from the FHLB of ~~$80.0~~$275.0 million, with a remaining borrowing capacity of $589.5 million. We have also pledged collateral of $6.6 million and $15.2 million, respectively, to the Federal Reserve Bank of San Francisco to secure discount window and Bank Term Funding Program advances; the Company has performed periodic borrowing tests on these lines with the Federal Reserve; however, no such funds were borrowed as of December 31, ~~2021.~~2023. First Northwest maintains a $20.0 million line of credit with NexBank, with an available borrowing capacity of $13.5 million at year end, which is secured by First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments.

At December 31, ~~2021,~~2023, we had ~~$2.7 million~~$220,000 in loan commitments outstanding and an additional ~~$270.5~~$148.2 million in undisbursed loans, including undisbursed construction commitments, and standby letters of credit. The Company also had unfunded partnership commitments totaling $3.7 million.

~~Certificates of deposit~~Customer CDs due within one year as of December 31, ~~2021~~2023, totaled ~~$153.5~~$349.4 million, or ~~62.1%~~53.7% of ~~certificates of deposit. The large percentage of certificates of deposit that mature~~total CDs. Brokered CDs due within one year ~~reflects customers' hesitancy to invest their funds for longer periods in this low-rate environment.~~as of December 31, 2023, totaled $146.2 million, or 22.5% of total CDs. Management believes ~~based on past experience, that~~ a significant portion of our ~~certificates of deposit~~customer CDs will be renewed or rolled into new certificates of deposit given the current rate ~~environment; however, should rates continue to stay at lower levels, balances could continue to shift into more liquid money market accounts over time.~~environment. If these maturing deposits are not renewed or rolled into other deposit products, ~~however,~~ we will ~~be required to~~ seek other sources of funds, which may include borrowings and brokered deposits. We also ~~can~~ attract and retain deposits by adjusting the interest rates offered, including the offering of promotional rates on certificates of deposit to encourage the renewal or rollover of maturing certificates of deposit and mitigate the risk of loss of these ~~deposits to our competitors.~~deposits. Depending on market conditions, we may ~~also be required to~~ pay higher rates on borrowings or brokered deposits than we currently pay on standard certificates of deposit or promotional rate offerings. However, rates on these sources of funds may also be less than what the market demands for customer deposits. We believe ~~that business~~relationships developed by our sales teams, including our commercial relationship managers, branch managers and members of our branch network, and the general cash flows from our existing lending and investment activities, will afford us ~~enough~~sufficient short- and long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

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~~Table~~
First Fed has a diversified deposit base with approximately 60% of ~~Contents~~
deposit account balances held by consumers, 28% held by business and public fund depositors, and 12% in brokered deposits. The average deposit account balance, excluding brokered and public fund accounts, was $27,000 at December 31, 2023. We estimate that 20-25% of our retail customer deposit balances are over the $250,000 FDIC insurance limit, representing less than 5% of deposit customers. Management believes that maintaining a diversified deposit base is an important factor in managing liquidity.

The Company is a separate legal entity from the Bank and relies on dividends from its subsidiary, First Fed Bank, the NexBank line of credit and ~~cash received from the issuance of subordinated debt~~future investment redemptions for liquidity to pay its operating expenses and other financial obligations. At December 31, ~~2021,~~2023, the Company (on an unconsolidated basis) had liquid assets of ~~$14.1 million.~~
$500,000.

Off-Balance Sheet Activities

In the normal course of operations, First Fed engages in a variety of financial transactions that are not recorded in the financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For the year ended December 31, ~~2021,~~2023, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.

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Commitments and Off-Balance Sheet Arrangements

The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of December 31, ~~2021:~~2023:

Amount of Commitment Expiration - Per Period

Total Amounts Committed

Due in One Year

(In thousands)

Commitments to originate loans:

Fixed-rate loans
$ 1,658 $ 1,658
Variable-rate loans
1,062 1,062
Unfunded commitments under lines of credit
75,977 75,977
Unfunded commitments under existing construction loans
194,296 194,296
Standby letters of credit
212 212
Total
$ 273,205 $ 273,205

Amount of Commitment Expiration

Within 1 Year

After 1 Year Through 3 Years

After 3 Years Through 5 Years

Beyond 5 Years

Total Amounts Committed

(In thousands)

Commitments to originate loans:

Fixed-rate loans
$ 220 $ — $ — $ — $ 220
Unfunded commitments under lines of credit
17,624 9,232 2,198 63,488 92,542
Unfunded commitments under existing construction loans
23,842 10,761 1,442 19,394 55,439
Unfunded commitments under existing maritime loans
— — — 1,650 1,650
Standby letters of credit
— — — 200 200
Unfunded commitments under partnership agreements
3,659 — — — 3,659
Total
$ 45,345 $ 19,993 $ 3,640 $ 84,732 $ 153,710

Capital Resources

First Northwest Bancorp is a financial holding company (a type of bank holding ~~company~~company) subject to regulation by the Federal Reserve. As a bank holding company, we are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. Our subsidiary, First Fed, is subject to minimum capital requirements imposed by the FDIC. Capital adequacy requirements are quantitative measures established by regulation that require us to maintain minimum amounts and ratios of capital.

First Fed is subject to meeting minimum capital adequacy requirements for common equity Tier 1 ("CET1") capital, Tier 1 risk-based capital, total risk-based capital, and tier 1 capital ("leverage"). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

First Fed is subject to capital requirements adopted by the Federal Reserve and the FDIC. See Item 1, "Business-How We Are Regulated," and Note 1112 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K for additional information regarding First Northwest Bancorp and First Fed’s regulatory capital requirements.
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~~Table of Contents~~

In order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions, First Northwest Bancorp and First Fed must maintain CET1 capital at an amount greater than the required minimum levels plus a capital conservation buffer. This new capital conservation buffer requirement was phased in starting in January 2016 until fully implemented in the amount of 2.5% of risk-weighted assets in January 2019. As of December 31, ~~2021,~~2023, the conservation buffer was 2.5%.

Consistent with our goals to operate a sound and profitable organization, our policy for First Fed is to maintain its "well-capitalized" status in accordance with regulatory standards. At December 31, ~~2021,~~2023, the Bank and consolidated Company exceeded all regulatory capital requirements, and the Bank was considered "well capitalized" under FDIC regulatory capital guidelines.

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Table of Contents
The following table provides the capital requirements and actual results at December 31, ~~2021.~~2023.

Actual

Minimum Capital Requirements

Minimum Required to be Well-Capitalized

Actual

Minimum Capital Requirements

Minimum Required to be Well-Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

(Dollars in thousands)

Tier I leverage capital (to average assets)

Bank only
$ 196,319 10.6 % $ 74,362 4.0 % $ 92,953 5.0 % $ 214,049 9.9 % $ 86,508 4.0 % $ 108,135 5.0 %
Common equity tier I (to risk-weighted assets)

Bank only
196,319 13.8 64,081 4.5 92,562 6.5 214,049 13.1 73,407 4.5 106,032 6.5
Tier I risk-based capital (to risk-weighted assets)

Bank only
196,319 13.8 85,442 6.0 113,923 8.0 214,049 13.1 97,876 6.0 130,501 8.0
Total risk-based capital (to risk-weighted assets)

Bank only
211,828 14.9 113,923 8.0 142,403 10.0 230,163 14.1 130,501 8.0 163,127 10.0

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented in this report have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that general inflation may have on both short-term and long-term interest rates. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Recent Accounting Pronouncements

See Note 1 of the Notes to Consolidated Financial Statements contained in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information contained under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk and Asset and Liability Management" of this Form 10-K is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements
Page

Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Everett, Washington, PCAOB ID: 659)
8879
Consolidated Balance Sheets, December 31, ~~2021~~2023 and ~~2020~~2022
9082
Consolidated Statements of Income For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022
9183
Consolidated Statements of Comprehensive Income For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022
9284
Consolidated Statements of Changes in ~~Shareholders’~~Shareholders' Equity For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022
9385
Consolidated Statements of Cash Flows For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022
9486
Notes to Consolidated Financial Statements
9688

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Table of Contents

Report of Independent Registered Public Accounting Firm

~~To the~~The Shareholders and Board of Directors of
First Northwest Bancorp and Subsidiary

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Northwest Bancorp and Subsidiary (the ~~“Company”)~~Company) as of December 31, ~~2021~~2023 and ~~2020,~~2022, the related consolidated statements of income, comprehensive income, ~~stockholders’~~stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the ~~“consolidated~~"consolidated financial ~~statements”~~statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, ~~2021~~2023 and ~~2020,~~2022, and the consolidatedresults of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments - Credit Losses (Topic 326). The Company adopted the new credit loss standard using the modified retrospective approach such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The new credit loss standard is also communicated a a critical audit matter below.
Basis for Opinion

These consolidated financial statements are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on the ~~Company’s~~Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~(“PCAOB”)~~(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our ~~audit~~audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the ~~Company’s~~Company's internal control over financial reporting in accordance with the standards of the PCAOB. Accordingly, we express no such opinion.

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Our ~~audit~~audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our ~~audit~~audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our ~~audit provides~~audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

88

~~Table of Contents~~
Allowance for ~~Loan~~Credit Losses on Loans

As described in Notes 1 and 34 to the consolidated financial statements, the ~~Company’s~~Company's consolidated allowance for ~~loan~~credit losses on loans (ACLL) balance was ~~$15.1~~$17.5 million at December 31, ~~2021.~~2023. The ~~allowance for loan losses~~ACLL is ~~maintained~~a valuation account that is deducted from the amortized cost of loans receivable to ~~provide for estimated inherent losses based on evaluating known and inherent risks in~~present the ~~loan portfolio, and is based upon the Company’s analysis~~net amount expected to be collected. Management's estimate of the ~~factors underlying the quality of the loan portfolio. These factors include, among others, changes in the size~~ACLL uses relevant available information, from internal and ~~composition of the loan portfolio, actual loan loss experience,~~external sources, relating to past events, current ~~economic~~ conditions, ~~analysis of individual loans for which full collectability may not be assured,~~ and ~~determination of the discounted cash flows or determination of the existence~~reasonable and ~~realizable value of the collateral and guarantees securing the loans.~~supportable forecasts.

We identified management’s application of historical losses including reasonable and supportable forecasts of future economic conditions in the discounted cash flow model, and management’s estimation of qualitative risk factors, which are both components of the ~~qualitative factor adjustment, which is used in the allowance for loan losses~~ACLL calculation, as a critical audit matter. ~~The qualitative factors~~Baseline loss rates are ~~comprised of subjective factors used to estimate losses~~calculated using peer institution data related to ~~factors that~~historical losses. Historical losses are ~~not captured in the historical loss rates, and are based on~~adjusted for management’s evaluation of available internal and external data and involves significant management judgment. The qualitative factor adjustment is added to the historical loss rate to calculate the allowance for loan losses. Auditing management’s judgments regarding the determinationconsideration of the forecasted direction of the economic and business environment. The Company also considers other qualitative ~~factor adjustment applied~~risk factors to adjust the ~~allowance for loan losses involved a high degree of subjectivity.~~estimated ACLL.

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

●
~~Obtaining an understanding~~Tested the completeness and accuracy of the ~~design~~data used in the calculation, application of historical loss rates and ~~implementation~~forecasted economic conditions, and application of ~~controls relating to management’s calculation~~qualitative risk factors, and assessed the appropriateness for the peer groups used in historical loss rates, all of which are determined by management and used in the ~~allowance for loan losses, including controls over the determination of the qualitative factor adjustment used.~~calculation.

●
~~Obtaining management’s~~Obtained management's analysis and supporting documentation related to the forecasted economic conditions and qualitative risk factors and tested whether the forecasted economic conditions and qualitative risk factors used in the calculation of the ~~allowance for loan losses~~ACLL were supported by the analysis provided by ~~management, as well as tested source data used in management’s analysis.~~management.

●
~~Performing~~Performed an independent sensitivity analysis to evaluate the reasonableness of the qualitative ~~factor adjustment~~risk factors used by ~~management to account for inherent losses that are not captured in the allowance for loan losses based on historical loss rates alone.~~
management.
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●
~~Testing~~Analytically reviewed the ~~qualitative factor adjustment was applied appropriately into~~ACLL for directional consistency with historical asset quality trends and the ~~allowance for~~overall characteristics of the loan ~~loss calculation.~~
portfolio.

/s/ Moss Adams LLP

Everett, Washington
March ~~18, 2022~~15, 2024

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

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

ASSETS

Cash and due from banks
$ 13,868 $ 13,508 $ 19,845 $ 17,104
Interest-bearing deposits in banks
112,148 51,647 103,324 28,492
Investment securities available for sale, at fair value
344,212 364,296 295,623 326,569
Loans held for sale
760 3,753 753 597
Loans receivable (net of allowance for loan losses of $15,124 and $13,847)
1,350,260 1,141,969
Loans receivable (net of allowance for credit losses on loans of $17,510 and $16,116)
1,642,518 1,531,435
Federal Home Loan Bank (FHLB) stock, at cost
5,196 5,977 13,664 11,681
Accrued interest receivable
5,289 6,966 7,894 6,743
Premises and equipment, net
19,830 14,785 18,049 18,089
Servicing rights on sold loans, net
3,282 2,120
Servicing rights on sold loans, at fair value
3,793 3,887
Bank-owned life insurance, net
39,318 38,353 40,578 39,665
Equity and partnership investments
14,794 14,289
Goodwill and other intangible assets
1,183 0 1,086 1,089
Deferred tax asset, net
13,001 14,091
Prepaid expenses and other assets
25,735 10,975 26,875 28,339

Total assets
$ 1,921,081 $ 1,654,349 $ 2,201,797 $ 2,042,070

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits
$ 1,580,580 $ 1,333,517 $ 1,676,892 $ 1,564,255
Borrowings
80,000 109,977 320,936 285,358
Subordinated debt, net
39,280 0
Accrued interest payable
393 53 3,396 455
Accrued expenses and other liabilities
29,240 23,303 35,973 32,344
Advances from borrowers for taxes and insurance
1,108 1,116 1,260 1,376

Total liabilities
1,730,601 1,467,966 2,038,457 1,883,788

Commitments and Contingencies (Note 13)

Commitments and Contingencies (Note 14)

Shareholders' Equity

Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding
0 0
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 9,972,698 at December 31, 2021; issued and outstanding 10,247,185 at December 31, 2020
100 102
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding
— —
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 9,611,876 at December 31, 2023; issued and outstanding 9,703,581 at December 31, 2022
96 97
Additional paid-in capital
96,131 97,412 95,784 95,508
Retained earnings
103,014 92,657 107,349 114,424
Accumulated other comprehensive income, net of tax
288 5,442
Accumulated other comprehensive loss, net of tax
(32,636 ) (40,543 )
Unearned employee stock ownership plan (ESOP) shares
(8,572 ) (9,230 ) (7,253 ) (7,913 )

Total parent's shareholders' equity
190,961 186,383 163,340 161,573
Noncontrolling interest in Quin Ventures, Inc.
(481 ) 0 — (3,291 )

Total shareholders' equity
190,480 186,383 163,340 158,282

Total liabilities and shareholders' equity
$ 1,921,081 $ 1,654,349 $ 2,201,797 $ 2,042,070

See accompanying notes to the consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

For the Year Ended December 31, For the Year Ended December 31,

2021

2020

2023

2022

INTEREST INCOME

Interest and fees on loans receivable
$ 55,029 $ 43,063 $ 84,614 $ 68,635
Interest on mortgage-backed and related securities
2,550 2,701
Interest on investment securities
5,819 5,569 13,279 10,866
Interest-bearing deposits and other
83 94 2,126 375
FHLB dividends
190 255 880 502

Total interest income
63,671 51,682 100,899 80,378
INTEREST EXPENSE

Deposits
3,396 6,663 27,019 5,198
Borrowings
774 1,061 12,448 5,317
Subordinated debt
1,203 0

Total interest expense
5,373 7,724 39,467 10,515

Net interest income
58,298 43,958 61,432 69,863
PROVISION FOR LOAN LOSSES
1,350 5,046

Net interest income after provision for loan losses
56,948 38,912
PROVISION FOR CREDIT LOSSES

Provision for credit losses on loans
2,357 1,535
Recapture of provision for credit losses on unfunded commitments
(1,034 ) —
Provision for credit losses
1,323 1,535
Net interest income after provision for credit losses
60,109 68,328
NONINTEREST INCOME

Loan and deposit service fees
3,860 3,454
Sold loan servicing fees, net of amortization
946 137
Loan and deposit fees
4,341 4,729
Sold loan servicing fees and servicing rights mark-to-market
676 867
Net gain on sale of loans
5,278 6,433 438 824
Net gain on sale of investment securities
2,410 3,147
Net (loss) gain on sale of investment securities
(5,397 ) 118
Increase in cash surrender value of bank-owned life insurance, net
965 1,826 928 916
Income from death benefit on bank-owned life insurance, net
— 1,489
Other income
2,179 849 3,034 1,384

Total noninterest income
15,638 15,846 4,020 10,327
NONINTEREST EXPENSE

Compensation and benefits
33,515 24,590 31,209 35,940
Data processing
6,244 4,637 8,170 7,539
Occupancy and equipment
4,312 3,879 4,858 5,398
Supplies, postage, and telephone
1,189 985 1,433 1,376
Regulatory assessments and state taxes
1,213 930 1,635 1,539
Advertising
2,040 1,506 2,706 3,288
Professional fees
1,997 1,523 3,738 2,645
FDIC insurance premium
752 245 1,357 888
FHLB prepayment penalty
0 210
Other
3,151 2,959

Other expense
6,348 3,699
Total noninterest expense
54,413 41,464 61,454 62,312

INCOME BEFORE PROVISION FOR INCOME TAXES
18,173 13,294
PROVISION FOR INCOME TAXES
3,194 2,954

NET INCOME
14,979 10,340
Income before provision for income taxes
2,675 16,343
Provision for income taxes
549 2,847
Net income
2,126 13,496
Net loss attributable to noncontrolling interest in Quin Ventures, Inc.
439 0 160 2,149

NET INCOME ATTRIBUTABLE TO PARENT
$ 15,418 $ 10,340
Net income attributable to parent
$ 2,286 $ 15,645

Basic and diluted earnings per common share
$ 1.63 $ 1.07 $ 0.26 $ 1.71

See accompanying notes to the consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

For the Year Ended December 31,

2021

2020

NET INCOME
$ 14,979 $ 10,340

Other comprehensive income:

Unrealized holding (losses) gains on investments available for sale arising during the period
(1,771 ) 11,984
Income tax benefit (provision) related to unrealized holding (losses) gains
373 (2,517 )
Unrecognized defined benefit ("DB") plan unrealized holding gain and prior service cost, net of amortization
(2,344 ) 0
Income tax benefit related to DB plan prior service cost, net of amortization
492 0
Reclassification adjustment for net (gains) losses on sales of securities realized in income
(2,410 ) (3,147 )
Income tax benefit related to reclassification adjustment on sales of securities
506 661

Other comprehensive (loss) income, net of tax
(5,154 ) 6,981

COMPREHENSIVE INCOME
9,825 17,321

Comprehensive (loss) income attributable to noncontrolling interest
(439 ) 0

COMPREHENSIVE INCOME ATTRIBUTABLE TO PARENT
$ 10,264 $ 17,321

For the Year Ended December 31,

2023

2022

Net income
$ 2,126 $ 13,496

Other comprehensive income (loss):

Unrealized holding gains (losses) on investments available for sale arising during the period
4,890 (51,204 )
Income tax (provision) benefit related to unrealized holding gains (losses)
(824 ) 10,753
Net actuarial gains (losses) on defined benefit ("DB") plan assets
397 (509 )
Income tax benefit (provision) related to net actuarial gains (losses) on DB plan assets
(85 ) 106
Amortization of unrecognized DB plan prior service cost
150 147
Income tax benefit (provision) related to amortization of DB plan prior service cost
(32 ) (31 )
Unrealized holding losses on derivatives
(1,054 ) —
Income tax benefit related to unrealized holding losses on derivatives
226 —
Reclassification adjustment for net losses (gains) on sales of securities realized in income
5,397 (118 )
Income tax benefit (provision) related to reclassification adjustment on sales of securities
(1,158 ) 25
Other comprehensive income (loss), net of tax
7,907 (40,831 )
Comprehensive income (loss)
10,033 (27,335 )
Comprehensive (loss) income attributable to noncontrolling interest
(160 ) (2,149 )
Comprehensive income (loss) attributable to parent
$ 10,193 $ (25,186 )

See accompanying notes to the consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)

Common Stock

Additional Paid-in

Retained

Unearned ESOP

Accumulated Other Comprehensive Gain

Noncontrolling

Total Shareholders'

Common Stock

Additional Paid-in

Retained

Unearned ESOP

Accumulated Other Comprehensive Loss

Noncontrolling

Total Shareholders'

Shares

Amount

Capital

Earnings

Shares

Net of Tax

Interest

Equity

Shares

Amount

Capital

Earnings

Shares

Net of Tax

Interest

Equity

BALANCE, December 31, 2019
10,731,639 $ 107 $ 102,017 $ 86,156 $ (9,890 ) $ (1,539 ) $ 0 $ 176,851
Balance at December 31, 2021
9,972,698 $ 100 $ 96,131 $ 103,014 $ (8,572 ) $ 288 $ (481 ) $ 190,480
Net income
15,645 (2,149 ) 13,496
Common stock issued
115,777 1 1,868 — 1,869
Common stock repurchased
(386,062 ) (4 ) (3,993 ) (1,873 ) (5,870 )
Restricted stock award grants net of forfeitures
22,470 — — —
Restricted stock awards canceled
(21,302 ) — (392 ) — (392 )
Other comprehensive loss, net of tax
(40,831 ) (40,831 )
Reclassification resulting from change in accounting method, net of tax
425 425
Quin Ventures asset sale in-substance distribution
— — — — (661 ) (661 )
Share-based compensation
1,601 1,601
ESOP shares committed to be released
293 659 952
Cash dividends declared and paid ($0.28 per share)
(2,787 ) (2,787 )

Balance at December 31, 2022
9,703,581 $ 97 $ 95,508 $ 114,424 $ (7,913 ) $ (40,543 ) $ (3,291 ) $ 158,282

Net income
0 0 10,340 0 0 0 10,340 2,286 (160 ) 2,126
Common stock repurchased
(575,859 ) (6 ) (5,753 ) (1,654 ) 0 0 0 (7,413 ) (87,895 ) (1 ) (889 ) (259 ) (1,149 )
Restricted stock awards granted net of forfeitures
105,124 1 (1 ) 0 0 0 0 0
Restricted stock award grants net of forfeitures
16,856 — — —
Restricted stock awards canceled
(13,719 ) 0 (178 ) 0 0 0 0 (178 ) (20,666 ) — (280 ) (280 )
Other comprehensive income, net of tax
0 0 0 0 6,981 0 6,981 7,907 7,907
Reclassification resulting from adoption of Accounting Standards Codification 326, net of tax
(2,951 ) (2,951 )
Close out investment in Quin Ventures
(3,451 ) 3,451 —
Share-based compensation
0 1,295 0 0 0 0 1,295 1,413 1,413
Allocation of ESOP shares
0 32 0 660 0 0 692
Cash dividends declared and paid ($0.21 per share)
0 0 (2,185 ) 0 0 0 (2,185 )

BALANCE, December 31, 2020
10,247,185 $ 102 $ 97,412 $ 92,657 $ (9,230 ) $ 5,442 $ 0 $ 186,383

Net income
0 0 15,418 0 0 (439 ) 14,979
Common stock issued and initial investment in Quin Ventures
29,719 1 498 (44 ) 0 0 (42 ) 413
Common stock repurchased
(349,497 ) (4 ) (3,491 ) (2,484 ) 0 0 0 (5,979 )
Restricted stock awards granted net of forfeitures
64,839 1 (1 ) 0 0 0 0 0
Restricted stock awards canceled
(19,548 ) 0 (352 ) 0 0 0 0 (352 )
Other comprehensive loss, net of tax
0 0 0 0 (5,154 ) 0 (5,154 )
Share-based compensation
0 1,794 0 0 0 0 1,794
Allocation of ESOP shares
0 271 0 658 0 0 929
Cash dividends declared and paid ($0.25 per share)
0 0 (2,533 ) 0 0 0 (2,533 )

BALANCE, December 31, 2021
9,972,698 $ 100 $ 96,131 $ 103,014 $ (8,572 ) $ 288 $ (481 ) $ 190,480
ESOP shares committed to be released
32 660 692
Cash dividends declared and paid ($0.28 per share)
(2,700 ) (2,700 )
Balance at December 31, 2023
9,611,876 $ 96 $ 95,784 $ 107,349 $ (7,253 ) $ (32,636 ) $ — $ 163,340

See accompanying notes to the consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

CASH FLOWS FROM OPERATING ACTIVITIES

Cash flows from operating activities:

Net income before noncontrolling interest
$ 14,979 $ 10,340 $ 2,126 $ 13,496
Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization
1,432 1,375 1,612 1,960
Amortization of core deposit intangible
5 0 3 94
Amortization and accretion of premiums and discounts on investments, net
1,753 1,551 1,387 1,666
Accretion (amortization) of deferred loan fees, net
1,260 (1,113 )
(Accretion) amortization of deferred loan fees and purchased premiums, net
(653 ) 981
Amortization of debt issuance costs
57 0 78 78
Amortization of servicing rights on sold loans
108 278
Additions to servicing rights on sold loans
(1,233 ) (1,564 )
Net (decrease) increase on the valuation allowance on servicing rights on sold loans
(37 ) 37
Provision for loan losses
1,350 5,046
Change in fair value of sold loan servicing rights
243 (13 )
Additions to servicing rights on sold loans, net
(149 ) (54 )
Provision for credit losses on loans
2,357 1,535
Recapture of provision for credit losses on unfunded commitments
(1,034 ) —
Deferred federal income taxes, net
63 (1,131 ) 134 (1,529 )
Allocation of ESOP shares
675 475 692 673
Share-based compensation
2,294 1,295
Share-based compensation expense
1,413 1,601
Gain on sale of loans, net
(5,278 ) (6,433 ) (438 ) (824 )
Gain on sale of securities available for sale, net
(2,410 ) (3,147 )
Loss (gain) on sale of securities available for sale, net
5,397 (118 )
Increase in cash surrender value of life insurance, net
(965 ) (1,826 ) (928 ) (916 )
Income from death benefit on bank-owned life insurance, net
— (1,489 )
Origination of loans held for sale
(137,715 ) (187,959 ) (25,612 ) (25,926 )
Proceeds from loans held for sale
145,986 191,142 25,894 26,913
Change in assets and liabilities:

Decrease (increase) in accrued interest receivable
1,677 (3,035 )
(Increase) decrease in prepaid expenses and other assets
(15,404 ) 781
Increase (decrease) in accrued interest payable
340 (319 )
Increase in accrued interest receivable
(1,151 ) (1,454 )
Decrease (increase) in prepaid expenses and other assets
1,293 (3,938 )
Increase in accrued interest payable
2,941 62
Increase in accrued expenses and other liabilities
6,218 7,463 2,270 3,104
Net cash provided by operating activities
17,875 15,902

Net cash from operating activities
15,155 13,256

CASH FLOWS FROM INVESTING ACTIVITIES

Cash flows from investing activities:

Purchase of securities available for sale
(152,930 ) (305,713 ) (20,330 ) (78,409 )
Proceeds from maturities, calls, and principal repayments of securities available for sale
59,663 57,166 14,161 30,497
Proceeds from sales of securities available for sale
109,829 210,264 40,619 12,685
Redemption of FHLB stock
781 57
Purchase of bank-owned life insurance policy
0 (6,500 )
Purchase of FHLB stock
(1,983 ) (6,485 )
Early surrender of bank-owned life insurance policy
15 —
Net increase in loans receivable
(210,901 ) (267,994 ) (114,997 ) (183,691 )
Purchase of premises and equipment, net
(6,019 ) (1,818 ) (1,571 ) (2,914 )
Capital contributions to equity investments
(584 ) (1,416 ) (608 ) (7,364 )
Capital disbursements from equity and partnership agreements
759 —
Capital contributions to low-income housing tax credit partnerships
(248 ) 0 (259 ) (137 )
Net cash acquired from branch acquisition
63,545 0

Net cash from investing activities
(136,864 ) (315,954 )
Capital contributions to historic tax credit partnerships
— (1,829 )
Net cash used by investing activities
(84,194 ) (237,647 )

See accompanying notes to the consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

For the Year Ended December 31,

2021

2020

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase in deposits
$ 182,196 $ 331,872
Proceeds from long-term FHLB advances
40,000 30,000
Repayment of long-term FHLB advances
(10,000 ) (30,000 )
Net decrease in short-term FHLB advances
(59,977 ) (2,953 )
Proceeds from issuance of subordinated debt, net
39,223 0
Net decrease in advances from borrowers for taxes and insurance
(8 ) (29 )
Net share settlement of stock awards
(352 ) (178 )
Repurchase of common stock
(5,979 ) (7,413 )
Payment of dividends
(2,533 ) (2,185 )

Net cash from financing activities
182,570 319,114

NET INCREASE IN CASH AND CASH EQUIVALENTS
60,861 16,416

CASH AND CASH EQUIVALENTS, beginning of period
65,155 48,739

CASH AND CASH EQUIVALENTS, end of period
$ 126,016 $ 65,155

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:

Interest on deposits and borrowings
$ 4,550 $ 8,043
Income taxes
$ 4,270 $ 2,900
Prior unrecognized service cost of defined benefit plan transferred to single-employer plan
$ 2,718 $ 0

NONCASH INVESTING ACTIVITIES

Unrealized (loss) gain on securities available for sale
$ (4,181 ) $ 8,837
Loans transferred to real estate owned and repossessed assets, net of deferred loan fees and allowance for loan losses
$ 0 $ 529
Investment in low-income housing tax credit partnership and related funding commitment
$ 4,949 $ 0
Lease liabilities arising from obtaining right-of-use assets
$ 4,402 $ 1,047

BUSINESS COMBINATION (See Note 17)

Fair value of assets acquired
$ 1,340 $ 0
Fair value of liabilities assumed
$ 65,947 $ 0

For the Year Ended December 31,

2023

2022

Cash flows from financing activities:

Net increase (decrease) in deposits
$ 112,637 $ (16,325 )
Proceeds from long-term FHLB advances
15,000 —
Repayment of long-term FHLB advances
(15,000 ) —
Net increase in short-term FHLB advances
41,000 154,000
Net (decrease) increase in line of credit
(5,500 ) 12,000
Net (decrease) increase in advances from borrowers for taxes and insurance
(116 ) 268
Payment of dividends
(2,700 ) (2,787 )
Restricted stock awards canceled
(280 ) (392 )
Repurchase of common stock
(1,149 ) (5,439 )
Net cash provided by financing activities
143,892 141,325
Net increase (decrease) in cash and cash equivalents
77,573 (80,420 )
Cash and cash equivalents at beginning of period
45,596 126,016
Cash and cash equivalents at end of period
$ 123,169 $ 45,596

Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings
$ 36,526 $ 10,453
Cash paid for income taxes
2,125 4,446

Supplemental disclosures of noncash investing activities:

Change in unrealized loss on securities available for sale
$ 10,287 $ (51,322 )
Change in unrealized loss on fair value hedge
(1,054 ) —
Cumulative adjustment to servicing right asset due to election of fair value option
— 538
Cumulative effect of adoption of ASU 2016-13 Financial Instruments - Credit Losses on January 1, 2023
(3,735 ) —
Lease liabilities arising from obtaining right-of-use assets
152 —
Transfer of bank-owned life insurance proceeds to prepaid expenses and other assets due to death benefit accrued but not paid at year end
— 2,057
(Loss on) equity investment in Quil received through Quin Ventures asset sale
(225 ) 225
Investment in Meriwether Group, LLC acquired through issuance of shares
— 1,869

See accompanying notes to the consolidated financial statements.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Nature of operations - First Northwest Bancorp, a Washington corporation ("First Northwest"), became the holding company of First Fed Bank ("First Fed" or the "Bank") on January 29, 2015, upon completion of the Bank's conversion from a mutual to stock form of organization (the "Conversion").

In connection with the Conversion, the Company issued an aggregate of 12,167,000 shares of common stock at an offering price of $10.00 per share for gross proceeds of $121.7 million. An additional 933,360 shares of Company common stock and $400,000 in cash were contributed to the First Federal Community Foundation ("Foundation"), a charitable foundation that was established in connection with the Conversion, resulting in the issuance of a total of 13,100,360 shares. The Company received $117.6 million in net proceeds from the stock offering of which $58.4 million were contributed to the Bank upon Conversion.

At the time of Conversion, the Bank established a liquidation account in an amount equal to its total net worth, approximately $79.7 million, as of June 30, 2014, the latest statement of financial condition appearing in First Northwest's prospectus. The liquidation account is maintained for the benefit of eligible depositors who continue to maintain their accounts at the Bank after the Conversion. The liquidation account is reduced annually to the extent that eligible depositors have reduced their qualifying deposits. Subsequent increases will not restore an eligible holder’s interest in the liquidation account. In the event of a complete liquidation, each eligible depositor will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. The liquidation account balance is not available for payment of dividends, and the Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

Pursuant to the Conversion, the Bank’s Board of Directors adopted an ESOP which purchased in the open market 8% of the common stock originally issued for a total of 1,048,029 shares. As of December 15, 2015, 1,048,029 shares, or 100.0% of the total, had been purchased. As of December 31, ~~2021~~2023, First Northwest had allocated ~~333,396~~439,174 shares from the total shares purchased to participants.

In April 2021, First Northwest entered into an Amended and Restated Joint Venture Agreement (the "Joint Venture Agreement") with the Bank, ~~POM~~ Peace of Mind, Inc. ("POM"), and Quin Ventures, Inc. ("Quin" or "Quin Ventures"). First Northwest ~~has partially fulfilled its commitment to extend $15.0~~extended $8.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $500,000. Quin Ventures sold substantially all of its assets in December 2022 to Quil Ventures, Inc. ("Quil"), at which time POM returned the 29,719 shares previously issued and the joint venture agreement was terminated. 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 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, making the collectability of the receivable from and investment in Quil unlikely. As result, the related investment of $225,000 and commitment receivable of $1.5 million were written off during the fourth quarter of 2023, impacting other noninterest income and other noninterest expense, respectively.

On October 31, 2021, the Bank converted from a State Savings Bank Charter to a State Commercial Bank Charter and was simultaneously renamed First Fed Bank from First Federal Savings and Loan Association of Port Angeles.

On August 5, 2022, First Northwest's election to be treated as a financial holding company became effective, allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities.
First Northwest and the Bank ~~and Quin Ventures~~ are collectively referred to as the "Company." For periods prior to June 30, 2023, Company references also include Quin Ventures.

First Northwest's business activities generally are limited to passive investment activities and oversight of its investments in First Fed and former controlling interest in Quin Ventures. Accordingly, the information set forth in this report, including the consolidated financial statements and related data, relates primarily to the ~~Bank.~~Bank for balance sheet related disclosures and the Bank and Quin Ventures for income statement related disclosures.

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The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses primarily in ~~Western~~western Washington State with offices in Clallam, Jefferson, Kitsap, King, and Whatcom counties. These services include deposit and lending transactions that are supplemented with borrowing and investing activities.

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Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions. These assumptions result in estimates that affect the reported amounts of assets and liabilities, revenues and expenses, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for ~~loan~~credit losses, fair value of financial instruments, deferred tax assets and liabilities, and the valuation of ~~impaired~~collateral dependent loans.

Principles of consolidation - The accompanying consolidated financial statements include the accounts of First Northwest Bancorp and its wholly owned subsidiary, First Fed, and its former controlling interest in Quin Ventures, Inc. All material intercompany accounts and transactions have been eliminated in consolidation. ~~While~~ Through June 2023, First Northwest and POM ~~share~~shared equal ownership in Quin ~~Ventures,~~Ventures; however, it ~~has been~~was previously determined that First Northwest ~~has~~had a controlling interest for financial reporting purposes under Accounting Standards Codification 810. As a result, 100% of Quin Ventures balances, excluding intercompany activity, are reported in the consolidated financial statements presented. The Quin Ventures net loss allocable to POM is shown on the financial statements ~~where applicable~~ thorough a noncontrolling interest ~~adjustment.~~adjustment where applicable.

Subsequent events - The Company has evaluated subsequent events for potential recognition and ~~disclosure and determined there are~~ no ~~such events or transactions requiring recognition or~~ disclosure.

Cash and cash equivalents - Cash and cash equivalents consist of currency on hand, due from banks, and interest-bearing deposits with financial institutions with an original maturity of three months or less. The amounts on deposit fluctuate and, at times, exceed the insured limit by the FDIC, which potentially subjects First Fed to credit risk. First Fed has not experienced any losses due to balances exceeding FDIC insurance limits.

Restricted assets - Federal Reserve Board regulations require maintenance of certain minimum reserve balances on deposit with the Federal Reserve Bank of San Francisco. The deposit requirement was zero at both December 31, ~~2021~~2023 and ~~2020~~2022. First Fed was in compliance with its reserve requirements at December 31, ~~2021~~2023 and ~~2020~~2022.
~~Equity securities~~ - Equity securities, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, are carried at fair value. Changes in the fair value of investments in equity securities are recorded in other non-interest income.

Investment securities - ~~Investment~~Investments in debt securities are classified into one of three categories: (1) held-to-maturity, (2) available-for-sale, or (3) trading. First Fed had 0no trading securities at December 31, ~~2021~~2023 and ~~2020~~2022. Investment securities are categorized as held-to-maturity when First Fed has the positive intent and ability to hold those securities to maturity. First Fed had no held-to-maturity securities at December 31, ~~2021~~2023 and ~~2020~~2022.

Securities that are held-to-maturity are stated at cost and adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income.

Investment securities categorized as available for sale are generally held for investment purposes (to maturity), although unanticipated future events may result in the sale of some securities. Available-for-sale securities are recorded at fair value, with the unrealized holding gain or loss reported in other comprehensive income (OCI), net of tax, as a separate component of shareholders' equity. Realized gains or losses are determined using the amortized cost basis of securities sold using the specific identification method and are included in earnings. Dividend and interest income on investments are recognized when earned. Premiums and discounts on securities without call features are recognized in interest income using the level yield method over the period to maturity. Premiums on securities with call features are amortized to the earliest call date.

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The Company reviews the need for an allowance for credit losses on investment securities ~~for other-than-temporary impairment (OTTI)~~("ACLI") on at least a quarterly ~~basis.~~basis, and more frequently when economic or market conditions warrant such an evaluation. For ~~debt~~investment securities available for sale in an unrealized loss position, the Company ~~considers~~first assesses whether ~~management~~it intends to sell, ~~a security~~ or if it is more likely than notthat ~~the Company~~it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis ofis written down to fair value through income. For investment securities available for sale that do not meet the ~~investment, which~~ ~~may~~ ~~be maturity. For debt securities, if management intends to sell the security or it is likely that~~aforementioned criteria, the Company ~~will be required~~evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to ~~sell the security before recovering its cost basis, the entire impairment loss would be recognized as OTTI and charged against earnings. If management does~~ ~~not~~ ~~intend to sell the security and it~~which fair value is ~~not~~ ~~likely that the Company will be required to sell the security, but management does~~ ~~not~~ ~~expect to recover the entire~~less than amortized cost, ~~basis~~any changes to the rating of the security ~~only~~by a rating agency and adverse conditions specifically related to the ~~portion of the impairment loss representing credit losses would be recognized in earnings.~~security, among other factors. The credit loss ~~on a security~~ is ~~measured~~defined as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, i.e., the difference between the present value of the cash flows expected to be collected and the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLI is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any decline in fair value that has not been recorded through an ACLI is recognized in other comprehensive income (loss). Changes in the ACLI are recorded as ~~a charge to OCI. Impairment losses related to all other factors are presented as separate categories within OCI. If there is an indication~~provision, or recapture of ~~additional~~provision, for credit losses expense. Losses are charged against the allowance when management believes the uncollectibility of an investment security available for sale is ~~re-evaluated according~~confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on investment securities available for sale is excluded from the ~~procedures described~~estimate of credit losses as interest accrued, but not received, is reversed timely in accordance with the policy for investment securities above.

Federal Home Loan Bank stock - First Fed’s investment in Federal Home Loan Bank of Des Moines (FHLB) stock is carried at cost, which approximates fair value. As a member of the FHLB system, First Fed is required to maintain a minimum investment in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB advances. At December 31, ~~2021~~2023 and ~~2020~~2022, First Fed’s minimum investment requirement was approximately ~~$5.2~~$13.7 million and ~~$5.9~~$11.7 million, respectively. First Fed was in compliance with the FHLB minimum investment requirement at December 31, ~~2021~~2023 and ~~2020~~2022. First Fed may request redemption at par value of any stock in excess of the amount First Fed is required to hold. Stock redemptions are granted at the discretion of the FHLB.

Management evaluates FHLB stock for impairment based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB compared with the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB. Based on its evaluation, First Fed did not recognize ~~an OTTI~~a loss on its FHLB stock at December 31, ~~2021~~2023 and ~~2020~~2022.

Loans held for sale - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value. Fair value is determined based upon market prices from third-party purchasers and brokers. Net unrealized losses, if any, are recognized through a valuation allowance by charges to earnings. Gains or losses on the sale of loans are recognized at the time of sale and determined by the difference between net sale proceeds and the net book value of the loan less the estimated fair value of any retained mortgage servicing rights.

Loans receivable - Loans are stated at the amount of unpaid principal, net of charge-offs, unearned income, allowance for ~~loan loss (ALLL)~~credit losses on loans (ACLL) and any deferred fees or costs. Interest on loans is calculated using the simple interest method based on the month end balance of the principal amount outstanding and is credited to income as earned. The estimated life is adjusted for prepayments.

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Each loan segment and class inherently contains differing credit risk profiles depending on the unique aspects of that segment or class of loans. For example, borrowers tend to consider their primary residence and access to transportation for employment-related purposes as basic requirements; accordingly, many consumers prioritize making payments on real estate first-mortgage loans and vehicle loans. Conversely, second-mortgage real estate loans or unsecured loans may not be supported by sufficient collateral; thus, in the event of financial hardship, borrowers may tend to place less importance on maintaining these loans as current and the Bank may not have adequate collateral to provide a secondary source of repayment in the event of default. Notwithstanding the various risk profiles unique to each class of loan, management believes that the credit risk for all loans is similarly dependent on essentially the same factors, including the financial strength of the borrower, the cash flow available to service maturing debt obligations, the condition and value of underlying collateral, the financial strength of any guarantors, and other factors.

~~Loans~~
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Problem loans are ~~classified as impaired when, based on current information~~monitored and ~~events, it is probable that First Fed will be unable to collect the scheduled payments of principal and interest when due, in accordance with the terms~~a portion or all of the ~~original~~balance is charged off when collectability is sufficiently questionable that the Bank can no longer justify showing the loan ~~agreement. The carrying value of impaired loans is based~~as an asset on the ~~present value~~balance sheet. To determine if a loan should be charged off, all possible sources of ~~expected~~repayment are analyzed. Possible sources of repayment include the potential for future cash ~~flows discounted at each loan’s effective interest rate or, for collateral dependent loans, at fair~~flow, the value of the Bank’s collateral, ~~less selling costs. If~~and the ~~measurement~~strength of ~~each impaired loan’s value is less than the recorded investment in~~co-makers or guarantors. When these sources do not add up to a reasonable probability that the loan ~~First Fed recognizes this impairment and adjusts the carrying value of the loan to fair value through the allowance for loan losses. This~~ can be ~~accomplished by charging~~collected, charge off ~~the impaired portion of the loan or establishing a specific component to be provided for in the allowance for loan losses.~~is processed.

The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent, unless the credit is well secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. For those loans placed on non-accrual status due to payment delinquency, return to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less than six months.

Loan fees and purchased premiums - Loan origination fees and certain direct origination costs are deferred and amortized as an adjustment to the yield of the loan over the contractual life using the effective interest method. In the event a loan is sold, the remaining deferred loan origination fees and/or costs are recognized as a component of gains or losses on the sale of loans. 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 as an adjustment to the yield over the contractual life using the effective interest method.

Allowance for credit losses (applicable to 2023) - On January 1, 2023, the Company adopted Financial Accounting Standards Board ("FASB") ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with a current expected credit loss ("CECL") methodology. The allowance for credit losses on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected. Loans are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance. The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Income. Accrued interest receivable on loans receivable is excluded from the estimate of credit losses. Instead, interest accrued, but not received, is reversed timely in accordance with the policy for loans receivable above.
The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies. Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a remaining life methodology. The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment. If the present value of cash flows is less than the total recorded investment, a reserve is calculated.
For each loan segment collectively measured, the baseline loss rates are calculated using peer institution data from FFIEC Call Report filings. The Bank evaluates the historical period on a quarterly basis. The baseline loss rates are applied to each loan's estimated cash flows over the life of the loan to determine the baseline loss estimate for each loan. Estimated cashflows consider the principal and interest in accordance with the contractual term of the loan and estimated prepayments. Contractual cashflows are based on the amortized cost, as adjusted for balances guaranteed by governmental entities, such as the Small Business Administration ("SBA") or the United States Department of Agriculture ("USDA"), or the unguaranteed amortized cost. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: 1) management has a reasonable expectation at the reporting date that a modification agreement will be executed with an individual borrower or 2) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Prepayments are established for each segment based on historical averages for the segments, which management believes is an accurate representation of future prepayment activity. Management reviews the adequacy of the prepayment period assumption on a quarterly basis.
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The CECL methodology includes consideration of the forecasted direction of the economic and business environment and its likely impact to the estimated allowance as compared to the historical losses over the reasonable and supportable time frame. Economic forecast models for the current period are uploaded to the model, which targets two forecasted macroeconomic factors, which are national gross domestic product ("GDP") and unemployment figures. Each of the forecasted DCF segments is impacted by these macroeconomic factors. Further, each of the macroeconomic factors is utilized differently by segment, including the application of lagged factors and various transformations such as percent change year over year.
The Bank uses the Federal Open Market Committee ("FOMC") forecast via an application programming interface with our CECL software. FOMC provides various forecast scenarios used to determine the loan portfolio’s expected credit loss. Based on known/knowable information at the measurement date, management has determined that the FOMC scenarios and the underlying assumptions most closely align with current and expected conditions. The Bank has elected to forecast the firstfour quarters of the credit loss estimate and revert on a straight-line basis as permitted in ASC 326-20-30-9. The Bank also considers other qualitative risk factors to adjust the estimated ACLL calculated by the above-mentioned model. While there are many factors available to incorporate into the quantitative model, the Bank has selected to use the most critical factors. Additional metrics will be included only if internal or external factors outside those considered in its historical losses or macroeconomic forecast indicate otherwise. The Bank has established metrics to estimate the qualitative risk factor by segment based on the identified risk.
In general, management's estimate of the ACLL uses relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses on loans evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management utilizes its best judgment and information available to recognize losses on loans, future additions to the allowance may be necessary based on further declines in local and national economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s ACLL. Such agencies may require the Bank to make adjustments to the allowance based on their judgments about information available to them at the time of their examinations. The Company believes the ACLL at December 31, 2023, is appropriate given the above considerations.
Allowance for loan losses (applicable to 2022 and prior years) - Prior to the implementation of CECL, First Fed ~~maintains~~maintained a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors ~~include~~included changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. When determining the appropriate historical loss and qualitative factors, management took into consideration the impact of the COVID-19 pandemic on such factors as the national and state unemployment rates and related trends, the amount of and timing of financial assistance provided by the government, consumer spending levels and trends, industries significantly impacted by the COVID-19 pandemic, and the Company's COVID-19 loan modification program. Qualitative factors such as economic, market, industry, and political changes ~~are~~were also considered for calculation of the allowance. The appropriateness of the allowance for loan losses iswas estimated based upon these factors and trends identified by management at the time the consolidated financial statements ~~are prepared. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are~~were prepared.

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The ultimate recovery of loans is susceptible to future market factors beyond First Fed’s control, which may result in losses or recoveries differing significantly from those provided in the consolidated financial statements. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review First Fed’s allowance for loan losses. Such agencies may require First Fed to recognize additional provisions for loan losses based on their judgment using information available to them at the time of their examination.

Allowances for losses on specific problem loans are charged to income when it is determined that the value of these loans and properties, in the judgment of management, is impaired. First Fed accounts for impaired loans in accordance with Accounting Standards Codification (ASC) 310-10-35, Receivables—Overall—Subsequent Measurement. A loan is considered impaired when, based on current information and events, it is probable that First Fed will be unable to collect all amounts due according to the contractual terms of the loan agreement.

When a loan has been identified as being impaired, the amount of the impairment is measured by using discounted cash flows, except when it is determined that the sole source of repayment for the loan is the operation or liquidation of the underlying collateral. In such cases, impairment is measured at current fair value generally based on a current appraisal of the collateral, reduced by estimated selling costs. When the measurement of the impaired loan is less than the recorded investment in the loan (including collected interest that has been applied to principal, net deferred loan fees or costs, and unamortized premiums or discounts), loan impairment is recognized by establishing or adjusting an allocation of the allowance for loan losses. Uncollected accrued interest is reversed against interest income.

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If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance. The impairment amount for small balance homogeneous loans is calculated using the adjusted historical loss rate for the class and risk category related to each loan, unless the loan is subject to a troubled debt restructuring ("TDR").

A TDR is a loan for which First Fed, for reasons related to the borrower’s financial difficulties, grants a concession to the borrower that First Fed would not otherwise consider. The loan terms that have been modified or restructured due to the borrower’s financial difficulty include, but are not limited to, a reduction in the stated interest rate; an extension of the maturity; an interest rate below market; a reduction in the face amount of the debt; a reduction in the accrued interest; or extension, deferral, renewal, or rewrite of the original loan terms.

The restructured loans may be classified "special mention" or "substandard" depending on the severity of the modification. Loans that were paid current at the time of modification may be upgraded in their classification after a sustained period of repayment performance, usually six months or longer, and there is reasonable assurance that repayment will continue. Loans that are past due at the time of modification are classified "substandard" and placed on nonaccrual status.

TDR loans may be upgraded in their classification and placed on accrual status once there is a sustained period of repayment performance, usually six months or longer, and there is a reasonable assurance that repayment will continue. First Fed allows reclassification of a troubled debt restructuring back into the general loan pool (as a non-troubled debt restructuring) if the borrower is able to refinance the loan at then-current market rates and meet all of the underwriting criteria of First Fed required of other borrowers. The refinance must be based on the borrower’s ability to repay the debt and no special concessions of rate and/or term are granted to the borrower.

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InAllowance for credit losses on unfunded commitments (applicable to ~~March 2020,~~ ~~the Company announced loan modification programs to support and provide relief for its borrowers during the novel coronavirus of~~ ~~2019~~ ~~("COVID-~~~~19"~~2023) ~~pandemic.~~- The ~~Company has followed the loan modification criteria within the Coronavirus Aid, Relief, and Economic Security Act of~~ ~~2020~~ ~~("CARES Act"), which was signed into law~~Bank estimates expected credit losses on ~~March 27, 2020,~~ ~~and interagency guidance from the federal banking agencies when determining if a borrower's modification is subject to a TDR classification. On~~ ~~December 27, 2020,~~ ~~the Consolidated Appropriations Act,~~ ~~2021~~ ~~(the “Relief Act”) was signed into law, which further extended the relief to the earlier of~~ ~~January 1, 2022~~ or 60 ~~days after the date of termination of the national emergency. If it is determined that the modification does~~ ~~not~~ meet the criteria under the CARES Act or interagency guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework. Loans subject to forbearance under the COVID-19 ~~loan modification program are~~ ~~not~~ ~~reported as past due or placed on non-accrual status during the forbearance time period, and interest income continues to be recognized~~unfunded, off-balance sheet commitments over the contractual ~~life~~period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Bank has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit. The allowance methodology is similar to the ACLL, but additionally includes an estimate of the ~~loans.~~future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class. The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (reversal of provision) for credit losses on the Consolidated Statements of Income.

Reserve for unfunded commitments (applicable to 2022 and prior years) - Management maintains a reserve for unfunded commitments to absorb probable losses associated with off-balance sheet commitments to lend funds such as unused lines of credit and the undisbursed portion of construction loans. Management determines the adequacy of the reserve based on reviews of individual exposures, current economic conditions, and other relevant factors. The reserve is based on estimates and ultimate losses may vary from the current estimates. The reserve is evaluated on a regular basis and necessary adjustments are reported in earnings during the period in which they become known. The reserve for unfunded commitments is included in "Accrued expenses and other liabilities" on the consolidated balance sheets.

Real estate owned and repossessed assets - Real estate owned and repossessed assets include real estate and personal property acquired through foreclosure or repossession and may include in-substance foreclosed properties. These properties are initially recorded at the fair market value of the property less selling costs. Properties are subsequently evaluated for impairment. In-substance foreclosed properties are those properties for which the Bank has taken physical possession, regardless of whether formal foreclosure proceedings have taken place.

Loan servicing rights - ~~Originated~~Loan servicing rights are recorded at fair value when loans are originated and subsequently sold with the servicing rights retained. ~~Servicing assets are initially capitalized at fair value with the income statement effect recorded in gains on sales of loans.~~ Management ~~uses a valuation model that calculates the present value of future cash flows to determine~~assesses the fair value of servicing rights. Assumptions used in the valuation model include market discount rates and anticipated prepayment speeds. In addition, estimates of the cost of servicing per loan, an inflation rate, ancillary income per loan, and default rates are used. The fair value of the servicing asset is amortized into noninterest income in proportion to, and over the period of, estimated future net servicing income.
~~Management assesses impairment of the~~ loan servicing rights based on recalculations of the present value of remaining future cash flows using updated market discount rates and prepayment speeds. Subsequent loan prepayments and changes in prepayment assumptions in excess of those forecasted can adversely impact the carrying value of the servicing rights. ~~Impairment is assessed on a stratified basis with any impairment recognized through a valuation allowance for each impaired stratum.~~ The servicing rights are stratified based on the predominant risk characteristics of the underlying loans: fixed-rate loans and adjustable-rate loans. The effect of changes in market interest rates on estimated rates of loan prepayments is the predominant risk characteristic for loan servicing rights. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, and default rates and losses.

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Sold loan servicing income represents fees earned for servicing loans. Fees for servicing sold loans are generally based upon a percentage of the principal balance of the loans serviced, as well as related ancillary income such as late charges. Servicing income is recognized as earned unless collection is doubtful. The caption in the consolidated statement of income "Sold loan servicing fees ~~net of amortization"~~and servicing rights mark-to-market" includes sold loan servicing income ~~amortization~~and changes in fair value.

Premises and equipment - Premises and equipment are stated at cost less accumulated depreciation. Depreciation is recognized and computed on the straight-line method over the estimated useful lives as follows:
Years
Buildings
37.5 - 50
Furniture, fixtures, and equipment
3 - 10
Software
3
Automobiles
5
Bank-owned life insurance - The carrying amount of ~~loan servicing rights,~~life insurance approximates fair value. Fair value of life insurance is estimated using the ~~effects~~cash surrender value, less applicable surrender charges. The change in cash surrender value is included in noninterest income.
Equity and partnership investments - Equity investments include amounts invested in non-publicly traded stock and simple agreements for future equity ("SAFE"). Partnership investments include limited partnerships in investment funds and other business ventures. Investments in non-publicly traded stock and SAFE are measured at cost, less impairment, plus or minus changes resulting from observable price changes in ordinary transactions for the identical or similar investment of ~~sold loan servicing run-off,~~the same issuer. The recorded balance of these equity investments was $1.6 million and $1.7 million at December 31, 2023 and 2022, respectively. Partnership investments that do not result in consolidation of the investee are accounted for under the equity method of accounting; the recorded balance of these partnership investments was $13.2 million and $12.6 million at December 31, 2023 and 2022, respectively. Throughout the year we assess whether impairment indicators exist to trigger the performance of an impairment analysis. Changes in the fair value of partnership investments are recorded in other noninterest income. The SAFE investment converted to non-publicly traded stock in 2023.
Goodwill - Goodwill is recorded from a business combination as the difference in the purchase price and fair value of assets acquired and liabilities assumed. Goodwill has an indefinite useful life, and as such, is not amortized. The Company reviews goodwill for impairment annually, or more frequently if ~~applicable.~~an indication of impairment exists between annual tests. Any impairment will be recorded as noninterest expense and corresponding reduction in intangible asset on the consolidated financial statements.

Core deposit intangible - A core deposit intangible ("CDI") asset is recognized from the assumption of core deposit liabilities in connection with the acquisition of deposits from another financial institution. The asset is valued by a third party and is amortized into noninterest expense over its estimated useful life. The CDI is evaluated for impairment annually with any additional decline recorded as noninterest expense on the Consolidated Income Statement.

Income taxes - First Fed accounts for income taxes in accordance with the provisions of ASC 740-10, Income Taxes, which requires the use of the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for their future tax consequences, attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

~~Premises and equipment~~ ~~- Premises and equipment are stated at cost less accumulated depreciation. Depreciation is recognized and computed on the straight-line method over the estimated useful lives as follows:~~
~~Years~~
~~Buildings~~
~~37.5 - 50~~
~~Furniture, fixtures, and equipment~~
~~3 - 10~~
~~Software~~
3
~~Automobiles~~
5
~~Goodwill~~ - Goodwill is recorded from a business combination as the difference in the purchase price and fair value of assets acquired and liabilities assumed. Goodwill has an indefinite useful life, and as such, is ~~not~~ amortized. The Company will perform a goodwill impairment on an annual basis. Additionally, the Company will perform an impairment analysis as needed when circumstances indicate impairment potentially exists. Any impairment will be recorded as noninterest expense and corresponding reduction in intangible asset on the consolidated financial statements.

~~Core deposit intangible~~ ~~- A core deposit intangible ("CDI") asset is recognized from the assumption of core deposit liabilities in connection with the acquisition of~~ ~~one~~ ~~branch from Sterling Bank and Trust of Southfield, Michigan (the "Branch Acquisition"). The asset was valued by a~~ ~~third~~ ~~party and is amortized into noninterest expense over~~ ~~ten~~ ~~years. The CDI is evaluated for impairment annually with any additional decline recorded as noninterest expense on the Consolidated Income Statement.~~
Leases - Operating lease right-of-use ("ROU") assets represent the Company's right to use the underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the future lease payments using the Company's incremental borrowing rate. The discount rate used in determining the present value is the Company's incremental borrowing rate using the FHLB fixed advance rate based on the remaining lease term as of January 1, 2019, or the commencement date for subsequent leases. The Company does not capitalize short-term leases, which are leases with terms of twelve months or less. ROU assets and related operating lease liabilities are remeasured when lease terms are amended, extended, or when management intends to exercise available extension options. We have lease agreements with lease and non-lease components, which are generally accounted for separately for real estate leases.
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~~Low~~Historic Tax Credit Investment - The Company holds an interest in an Historic Tax Credit investment ("HTC") partnership, also referred to as the Rehabilitation Credit, which met the National Park Service's requirements to qualify for a tax incentive on the rehabilitation of a certified historic structure. As a limited liability investor in this partnership, the Company receives a tax benefit in the form of a tax deduction from partnership operating losses and a federal income tax credit. The federal income tax credit is earned over a 5-year period upon the qualified rehabilitated building being placed in service and having met all the requirements.
The Company uses the deferral method to amortize the initial cost of the investment over the life of the related tax credit and other tax benefits received and recognizes the net investment performance on the Consolidated Statements of Income as a component of income tax expense. The Company reports the carrying value of the equity investment in the unconsolidated HTC in "Prepaid expenses and other assets" on the Company’s Consolidated Balance Sheets. The maximum exposure to loss in the HTC is the amount of equity invested by the Company. The Company has evaluated the variable interests held by the Company in the HTC investment and determined that the Company does not have controlling financial interests in such investment and is not the primary beneficiary.
Low-Income Housing Tax Credit Investment - The Company has an equity investment in a ~~Low Income~~Low-Income Housing Tax Credit Investment ("LIHTC") partnership which is an indirect federal subsidy that finances low-income housing projects. As a limited liability investor in this partnership, the Company receives a tax benefit in the form of a tax deduction from partnership operating losses and a federal income tax credit. The federal income tax credit is earned over a 10-year period as a result of the investment properties meeting certain criteria and is subject to recapture for noncompliance with such criteria over a 15-year period.

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The Company accounts for the LIHTC under the proportional amortization method and amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance on the Consolidated Statements of Income as a component of income tax expense. The Company reports the carrying value of the equity investment in the unconsolidated LIHTC in ~~Prepaid~~"Prepaid expenses and other ~~assets~~assets" on the Company’s Consolidated Balance Sheets.
The maximum exposure to loss in the LIHTC is the amount of equity invested and credit extended by the Company. The Company has evaluated the variable interests held by the Company in the LIHTC investment and determined that the Company does not have controlling financial interests in such investment and is not the primary beneficiary.

Transfers of financial assets - Transfers of an entire financial asset, a group of financial assets, or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from First Fed, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) First Fed does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The mortgage loans that are sold with recourse provisions are accounted for as sales until such time as the loan defaults.

Periodically, First Fed sells mortgage loans with "life of the loan" recourse provisions, requiring First Fed to repurchase the loan at any time if it defaults. The remaining balance of such loans at December 31, ~~2021~~2023 and ~~2020~~2022, was approximately ~~$2.0~~$1.8 million and ~~$2.7~~$1.9 million, respectively. Of these loans, 0no loans were repurchased during the years ended December 31, ~~2021~~2023 or ~~2020~~2022. There is an associated allowance of ~~$11,000 and $11,000~~$9,000 at December 31, ~~2021~~ ~~and~~ ~~2020~~2022, ~~respectively,~~ included in "accrued expenses and other liabilities" on the consolidated balance sheets related to these loans.
~~Bank-owned life insurance~~ ~~- The carrying amount of life insurance approximates fair value. Fair value of life insurance~~No allowance is ~~estimated using the cash surrender value, less applicable surrender charges. The change in cash surrender value is included in noninterest income.~~recorded for these loans under CECL at December 31, 2023.

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

Advertising costs - First Fed expenses advertising costs as they are incurred.

Comprehensive income (loss) - Accounting principles generally require that recognized revenue, expenses, and gains and losses be included in net income (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net income (loss), are components of comprehensive income (loss).

Dividend restriction - Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to shareholders.

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Components of noninterest income evaluated under ~~Topic~~Revenue Recognition (Topic 606) - The Company recognizes revenue as it is earned and noted no impact to its revenue recognition policies as a result of the adoption of ASU 2014-09. The following is a discussion of key revenues within the scope of the new revenue guidance.

Deposit fees - The Company earns fees from its deposit customers for account maintenance, transaction-based activity and overdraft services. Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts on a monthly basis. The performance obligation is satisfied and the fees are recognized on a monthly basis as the service period is completed. Transaction-based fees on deposit accounts are charged to deposit customers for specific services provided to the customer, such as non-sufficient funds fees, overdraft fees, and wire fees. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer. Deposit fees are included in Service Fees on the Consolidated Statements of Income.

Debit card interchange income - Debit and Automated Teller Machine ("ATM") interchange income represent fees earned when a debit card issued by the Company is used. The Company earns interchange fees from debit cardholder transactions through card networks. In addition, the Company earns interchange fees for use of its ATMs by customers of other banking institutions. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholder's debit card. Certain expenses directly associated with the credit and debit card are netted against interchange income. Debit card interchange income is included in Service Fees on the Consolidated Statements of Income.

Third-party credit card interchange income - Third-party credit card interchange income represents fees earned when a credit card issued by the Bank through a third-party vendor is used. Similar to the debit card interchange, the Bank earns an interchange fee for each transaction made with a Bank-branded credit card. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholder's credit card. Certain expenses directly related to the third-party credit card interchange contract are netted against interchange income. Third-party credit card interchange income is included in Service Fees on the Consolidated Statements of Income.

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

Gains/losses on the sale of other real estate owned are included in non-interest expense and are generally recognized when the performance obligation is complete. This is typically at delivery of control over the property to the buyer at time of each real estate closing.

Fair value measurements - Fair values of financial instruments are estimated using relevant market information and other assumptions (Note 1415). Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Derivative instruments and hedging activities - FASB ASC 815, Derivatives and Hedging ("ASC 815"), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation.
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Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.
In accordance with the FASB’s fair value measurement guidance in ASU 2011-04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Segment information - First Fed is engaged in the business of attracting deposits and providing lending services. Substantially all income is derived from a diverse base of commercial, mortgage, and consumer lending activities and investments. The Company’s activities are considered to be a single industry segment for financial reporting purposes.
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Employee Stock Ownership Plan - The cost of shares issued to the ESOP but not yet allocated to participants is shown as a reduction of shareholders' equity. Compensation expense is based on the market price of shares as they are committed to be released to participants' accounts. Dividends on allocated and unallocated ESOP shares reduce debt and accrued interest.

Earnings per Common Share - Earnings per share ("EPS") is computed using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared or accumulated and participation rights in undistributed earnings. Under the two-class method, basic EPS is computed by dividing earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. Earnings allocated to common shareholders represents net income reduced by earnings allocated to participating securities. ESOP shares that are committed to be released are outstanding for EPS calculation purposes, while unallocated ESOP shares are not considered outstanding for basic or diluted EPS calculations. Diluted EPS is computed by dividing net income by the weighted average common shares outstanding plus the number of additional common shares that would have been outstanding if unvested restricted stock awards were included unless those additional shares would have been anti-dilutive. For the diluted EPS computation, the treasury stock method is applied and compared to the two-class method and whichever method results in a more dilutive impact is utilized to calculate diluted EPS.

Recently adopted accounting pronouncements

InSummary of Credit Losses Adoption
On ~~November 2019,~~January 1, 2023, the ~~FASB issued~~Company adopted Financial Accounting Standards ~~Update~~Board ("~~ASU"~~FASB") ASU ~~2019~~2016-~~10,~~13 Financial ~~Instruments—~~Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ~~Derivatives and Hedging (Topic~~ ~~815~~~~), and Leases (Topic~~ ~~842~~~~): Effective Dates. ASU~~ ~~2019~~-10 ~~defers~~as amended, which replaces the ~~effective date of the~~incurred loss methodology with a current expected credit loss ~~model (CECL) guidance issued in ASUs~~("CECL") methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and held-to-maturity securities. It also applies to off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. In addition, the CECL adoption made changes to the accounting for investment securities available for sale.
The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and unfunded commitments. This method resulted in recording a cumulative-effect adjustment as of the beginning of ~~2019~~-~~04,~~2023 ~~and~~with ~~2019~~-~~05.~~no change to prior periods. The ~~effective date~~Company elected not to measure an ACL on accrued interest receivable on loans receivable or accrued interest receivable on investment securities available for ~~smaller~~sale as Company policy is to reverse interest income for uncollectible accrued interest receivable balances in a timely manner.
Results for the reporting ~~companies was changed from the interim and annual periods~~period beginning after ~~December 15, 2020~~January 1, 2023, are presented under ASU 2016-13, while prior period amounts were not restated and continue to be reported in accordance with previously applicable GAAP. The accounting policies for prior periods are included in the ~~interim and annual periods beginning after~~Company's Annual Report on Form 10-K for the year ended December ~~15,~~31, 2022.~~Early adoption is permitted for interim and annual periods beginning after~~ ~~December 15, 2018.~~ ~~The Company adopted this ASU and anticipates implementing CECL effective~~ ~~January 1, 2023.~~

InThe accounting policies for all financial instruments impacted by the CECL adoption are as follows:
Investment Securities
A debt security is placed on nonaccrual status at the time any principal or payments become more than ~~December 2019,~~ ~~FASB issued ASU~~ ~~No.~~90 ~~2019~~-~~12,~~~~Income Taxes (Topic~~ ~~740~~~~): Simplifying the Accounting for Income Taxes~~~~. ASU~~ ~~2019~~-12 ~~simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic~~ ~~740.~~ ~~The standard also clarifies and amends existing guidance to improve consistent application. This ASU, which is effective for fiscal years beginning after~~ ~~December 15, 2020,~~ ~~did~~days delinquent. Interest accrued, but not ~~have~~received for a ~~material impact~~security placed on nonaccrual, is reversed against interest income during the ~~Company's financial statements.~~
In ~~January 2020,~~ period that the ~~FASB issued ASU~~ ~~No.~~~~2020~~-~~01,~~~~Investments-Equity Securities (Topic~~ ~~321~~~~), Investments-Equity Method and Joint Ventures (Topic~~ ~~323~~~~), and Derivatives and Hedging (Topic~~ ~~815~~~~)-Clarifying the Interactions between Topic~~ ~~321,~~ ~~Topic~~ ~~323,~~ ~~and Topic~~ ~~815~~~~. ASU~~ ~~2020~~-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The ASU, whichdebt security is ~~effective for fiscal years beginning after~~ ~~December~~ ~~15,~~~~2020,~~ ~~did~~ ~~not~~ ~~have a material effect~~placed on ~~the Company's financial statements.~~
In ~~August 2021,~~ ~~the FASB issued ASU~~ ~~No.~~~~2021~~-~~06,~~~~Presentation of Financial Statements (Topic~~ ~~205~~~~), Financial Services - Depository and Lending (Topic~~ ~~942~~~~), and Financial Services - Investment Companies (Topic~~ ~~946~~~~): Amendments to SEC Paragraphs Pursuant to SEC Final Rules Release~~ ~~No.~~33-~~10786,~~ ~~Amendments to Financial Disclosures about Acquired and Disposed Businesses, and~~ ~~No.~~33-~~10835,~~ ~~Update of Statistical Disclosures for Bank and Savings and Loan Registrants. ASU~~ ~~2021~~-06 ~~was effective upon addition to the Accounting Standards Codification in~~ ~~August 2021.~~ ~~This ASU did~~ ~~not~~ ~~have a material impact on the Company's financial statements.~~
nonaccrual status.

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~~Recently issued accounting pronouncements~~
Allowance for Credit Losses on Investment Securities
Management evaluates the need for an ACL on investment securities ("ACLI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For investment securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not ~~yet adopted~~that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For investment securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLI is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any decline in fair value that has not been recorded through an ACLI is recognized in other comprehensive income (loss).

~~Credit Losses~~
In ~~June 2016,~~ Changes in the ~~FASB issued ASU~~ ~~No.~~~~2016~~-~~13,~~~~Financial Instruments - Credit Loss~~~~, with subsequent amendments issued in ASU~~ ~~2018~~-~~19,~~ ~~ASU~~ ~~2019~~-04 ~~and ASU~~ ~~2019~~-~~05.~~ ~~This ASU updates the guidance on recognition and measurement~~ACLI are recorded as provision, or recapture of provision, for credit losses for financial assets. The new requirements, known as the current expected credit loss model (CECL) will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU ~~No.~~~~2016~~-13 ~~is now effective for fiscal years beginning after~~ ~~December 15, 2022,~~ ~~including interim periods within those fiscal years. Upon adoption, the Company will change processes and procedures to calculate~~expense. Losses are charged against the allowance when management believes the uncollectibility of an investment security available for ~~loan losses, including changes in assumptions and estimates to consider expected credit losses over the life~~sale is confirmed or when either of the ~~loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for other-than-temporary impairment~~criteria regarding intent or requirement to sell is met.
Accrued interest receivable on investment securities available for sale ~~will be replaced~~is excluded from the estimate of credit losses as interest accrued, but not received, is reversed timely in accordance with ~~an allowance approach.~~the policy for investment securities above.

~~Additional updates were issued~~Loans Receivable
Loans receivable include loans originated and indirect loans purchased by the Bank as well as loans acquired in ~~ASU~~ ~~No.~~~~2019~~-~~04,~~~~Codification Improvements~~business combinations.
Loans that management has the intent and ability to ~~Topic~~ ~~326,~~ ~~Financial Instruments -~~hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the outstanding principal balance, net of purchased premiums and discounts, unearned discounts, and net deferred loan origination fees and costs. Accrued interest receivable for loans receivable is reported in prepaid expenses and other assets on the Consolidated Balance Sheets.
Allowance for Credit Losses ~~Topic~~ ~~815,~~ ~~Derivatives and Hedging (Topic~~ ~~825~~on Loans
The ACL on loans ("ACLL")~~, Financial Instruments~~~~. This ASU clarifies and improves guidance related~~ 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 ~~previously issued standards on credit losses, hedging and recognition and measurement of financial instruments.~~allowance. The ~~amendments provide entities with various measurement alternatives and policy elections related to accounting~~Bank records the changes in the ACLL through earnings, as a provision for credit losses ~~and accrued~~on the Consolidated Statements of Income. This accounting policy is discussed in detail previously in Note 1 with additional detail provided in Note 4 of the Notes to Consolidated Financial Statements.
Accrued interest receivable ~~balances. Entities are also able to elect a practical expedient to separately disclose~~on loans receivable is excluded from the ~~total amount~~estimate of credit losses. Instead, interest accrued, ~~interest included~~but not received, is reversed timely in accordance with the ~~amortized cost basis as a single balance to meet certain disclosure requirements.~~ policy for loans receivable above.
Allowance for Credit Losses on Unfunded Commitments
The amendments clarify that the estimated allowance for credit losses should include all expected recoveries of financial assets and trade receivables that were previously written off and expected to be written off. The amendments also allow entities to use projections of future interest rate environments when using a discounted cash flow method to measureBank estimates expected credit losses on ~~variable-rate financial instruments.~~
~~In addition, new updates were issued through ASU~~unfunded, off-balance sheet commitments over the contractual period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Bank has determined that ~~No.~~no ~~2019~~-~~05,~~~~Financial Instruments - Credit Losses (Topic~~ ~~326~~~~): Targeted Transition Relief~~~~. This amendment allows entities~~allowance is necessary for its home equity line of credit portfolio as it has the ability to ~~elect~~unconditionally cancel the ~~fair value option on certain financial instruments. On adoption, an entity is allowed to irrevocably elect the fair value option on an instrument-by-instrument basis. This alternative is~~ available ~~for all instruments in the scope~~lines of ~~Subtopic~~ ~~326~~-20 except for existing held-to-maturity debt securities. If an entity elects the fair value option, the difference between the instrument’s fair value and carrying amount is recognized as a cumulative-effect adjustment.credit.

The ~~Company~~allowance methodology is ~~evaluating~~similar to the ~~provisions~~ACLL, but additionally includes an estimate of ~~ASU~~ ~~No.~~~~2016~~-~~13,~~ ~~ASU~~ ~~No.~~~~2019~~-04the future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class.
The allowance is recognized in accrued expenses and ~~ASU~~ ~~No.~~~~2019~~-~~05,~~ ~~and will closely monitor developments and additional guidance to determine the potential impact~~other liabilities on the ~~Company’s consolidated financial statements. At this time, we cannot reasonably estimate the impact the implementation~~Consolidated Balance Sheets and is adjusted as a provision (recapture of ~~these ASUs will have~~provision) for credit losses on the ~~Company's consolidated financial statements. The Company's internal project management team continues to review models, work with our~~ ~~third~~-party vendor, and discuss changes to processes and procedures to ensure the Company is fully compliant with the amendments at the adoption date. Early adoption is permitted for interim and annual periods beginning after ~~December 15, 2018.~~ ~~The Company plans to adopt this guidance on~~ ~~January 1, 2023.~~
Consolidated Statements of Income.

Provision for Credit Losses
The provision for credit losses as presented in the Company's Consolidated Statements of Income includes the provision for credit losses on loans and the provision for credit losses on unfunded commitments.
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Summary of CECL Impact:
~~Other ASUs~~Investment Securities - As of December 31, 2022, the Company had no historical charge-off or recovery history and did not ~~yet~~have any investment securities available for sale outstanding at the adoption date for which an other-than-temporary impairment was previously recorded. At the adoption date of ASU 2016-13, the unrealized losses present in the portfolio of investment securities available for sale were primarily due to higher market interest rates at that time making our lower coupon investments less attractive. The fair value of these securities was expected to recover as the securities approach their maturity dates. The basis of management’s conclusion was that at January 1, 2023, 23.9% of the investment securities were issued by or guaranteed by the United States government or its agencies, 30.0% were issued and guaranteed by State and local governments and the remainder of the portfolio was invested in at least investment-grade securities. As a result of the analysis, no allowance for credit losses on investment securities available for sale was recorded upon adoption. See Note 2 Investment Securities for more information.
Loan Receivable - ASU 2016-13 was applied prospectively and replaced the allowance for loan losses with the ACLL on the Consolidated Balance Sheet and replaced the related provision for loan losses with the provision for credit losses on loans as presented on the Consolidated Statements of Income, net of provision for credit losses on unfunded commitments.
The Bank recorded a pretax increase to the ACLL of $2.2 million to increase the reserve to the estimated credit losses at January 1, 2023 based on its CECL methodology as part of the cumulative-effect adjustment to beginning retained earnings. Upon adoption, the adjusted beginning balance of the ACLL as a percentage of loans receivable was 1.18% as compared to 1.04% at December 31, 2022 under the prior incurred loss methodology. At December 31, 2023, the ACLL as a percentage of loans receivable was 1.05%.
See Note 4 - Allowance for Credit Loss on Loans for more information.
Unfunded Commitments - ASU 2016-13 was applied prospectively and replaced the reserve for unfunded commitments with the ACL on unfunded commitments ("ACLUC") as included in accrued liabilities and other expenses on the Consolidated Balance Sheet and replaced the provision for unfunded commitments with the provision for credit losses on unfunded commitments as presented on the Consolidated Statements of Income, net of provision for credit losses on loans. Upon adoption, the Bank recorded a pretax increase in the beginning ACLUC of $1.5 million.
Overall CECL Impact Upon Adoption - The adoption of ASU 2016-13, included an increase to the ACLL of $2.2 million and an increase to the ACLUC of $1.5 million, which resulted in a pretax cumulative-effect adjustment of $3.7 million. The impact of this adjustment to beginning retained earnings on January 1, 2023 was $3.0 million, net of tax.
Other Recently Adopted Accounting Pronouncements
In March 2022, the FASB issued ASU 2022-02,Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancing and restructuring activity by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write offs by year of origination for financing receivables and net investments in leases. This ASU is effective upon adoption of ASU 2016-13. On January 1, 2023, the Company adopted this ASU at the same time ASU 2016-13 was adopted. The Company recorded gross charge-offs of $3.3 million during the year ended December 31, 2023, and recoveries for the same period were $150,000. See table in Note 3 for additional information.
On March 28, 2022, the FASB issued Accounting Standards Update (ASU) 2022-01,Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption in the interim period, permitted. For entities who have already adopted ASU 2017-12, immediate adoption is allowed. ASU 2022-01 requires a modified retrospective transition method for basis adjustments in which the entity will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company adopted this ASU on January 1, 2023 on a prospective basis; therefore, there was no impact to the consolidated financial statements.
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In March 2020, the FASB issued ASU~~No.~~ 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. ~~The~~This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, ~~that~~which reference the London Inter-Bank Offered Rate ~~(“LIBOR”~~("LIBOR") or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. On December 31, 2022, the FASB issued ASU 2022-06, which deferred the sunset date for Topic 848 to December 31, 2024. The Company ~~is implementing~~implemented a transition plan to identify and modify its loans and other financial instruments that ~~are~~were either directly or indirectly influenced by LIBOR. ~~The Company is in the process~~There was no material impact as a result of ~~evaluating ASU~~ ~~No.~~~~2020~~-04 ~~and its impact on the Company’s transition~~implementing these ASUs, transitioning away from LIBOR for its loan and other financial instruments ~~with~~effective noJuly 1, 2023.
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Recently issued accounting pronouncements not ~~material expected impact on the Company's financial statements.~~yet adopted

In ~~January 2021,~~June 2022, the FASB issued ASU 2022-03,Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring fair value, nor should the contractual restriction be recognized and measured separately. Further, this ASU requires disclosure of the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the restriction(s), and the circumstances that could cause a lapse in the restriction(s). ASU 2022-03 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company does not believe this ASU will have a material impact on its consolidated financial statements and related disclosures.
In March 2023, the FASB issued ASU 2023-02,Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. ASU 2023-02 allows an entity the option to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits if certain conditions are met. Prior to this ASU, the application of the proportional amortization method of accounting was limited to investments in low-income housing tax credit structures. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the statements of income, income tax expense. Under this ASU, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this ASU require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this ASU, low-income housing tax credit investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this ASU specifies that impairment of low-income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10:Investments - Equity Method and Joint Ventures - Overall. This ASU also clarifies that for low-income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321:Investments - Equity Securities. The amendments in this ASU also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations. ASU 2023-02 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect that ASU 2023-02 will have on its consolidated financial statements and related disclosures.
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In November 2023, the FASB issued ASU No. ~~2021~~2023-~~01,~~07, ~~Reference Rate Reform~~Segment Reporting (Topic ~~848~~280): ~~Scope~~Improvements to Reportable Segment Disclosures. This ASU enhances disclosures about significant segment expenses. The key amendments: (1) require that a public entity disclose on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, (2) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition, (3) require that a public entity provide all annual disclosures about a reportable segment's profit or loss currently required by GAAP in interim periods as well, (4) clarify that if CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, an entity may report one or more of those additional measures of segment profit, (5) require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources and (6) require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures. This ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. As the Company has one reportable segment, the requirements of this standard for such entities will apply beginning with the Company's annual report for the year ending December 31, 2024. The Company does not expect adoption of this ASU to have a material effect on the Company's consolidated financial statements.
In December 2023, the FASB issued ASU No. ~~2021~~2023-0109, ~~clarifies~~Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires that ~~certain optional expedients~~public business entities disclose, on an annual basis, specific categories in the rate reconciliation and ~~exceptions~~provide additional information for reconciling items that meet a quantitative threshold. The ASU requires all entities to disclose on an annual basis (1) the amount of income taxes paid, disaggregated by federal, state and foreign taxes and (2) the amount of income taxes paid disaggregated by individual jurisdictions in ~~ASC~~which income taxes paid is equal or greater than ~~848~~5 percent of total income taxes paid. The ASU also requires that all entities disclose income (loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic or foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state and foreign. This ASU is effective for ~~contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU~~public business entities for annual periods beginning after ~~No.~~December 15, 2024. The Company does not ~~2021~~-01 ~~also amends the expedients and exceptions in ASC~~ ~~848~~ ~~to capture the incremental consequences~~expect adoption of the ~~scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. This~~ ASU ~~was effective upon issuance and generally can be applied through~~ ~~December 31, 2022.~~ ~~The adoption of ASU~~ ~~2021~~-01 is ~~not~~ ~~expected~~ to have a material ~~impact~~effect on the ~~Company’s~~Company's consolidated financial statements.

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

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Note 2 - Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at December 31, ~~2021~~2023, are summarized as follows:

December 31, 2021

December 31, 2023

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

(In thousands)

(In thousands)

Available for Sale

Municipal bonds
$ 110,497 $ 3,207 $ (340 ) $ 113,364 $ 102,998 $ — $ (15,237 ) $ 87,761
International agency issued bonds (Agency bonds)
1,947 0 (27 ) 1,920
U.S. government agency issued asset-backed securities (ABS agency)
11,847 — (65 ) 11,782
Corporate issued asset-backed securities (ABS corporate)
14,556 0 (67 ) 14,489 5,370 — (84 ) 5,286
Corporate issued debt securities (Corporate debt)
58,906 1,450 (567 ) 59,789 56,515 — (5,061 ) 51,454
U.S. Small Business Administration securities (SBA)
14,404 276 0 14,680
Mortgage-Backed Securities:

U.S. government agency issued mortgage-backed securities (MBS agency)
80,877 248 (1,163 ) 79,962 75,665 — (12,418 ) 63,247
Corporate issued mortgage-backed securities (MBS corporate)
60,317 71 (380 ) 60,008

Non-agency issued mortgage-backed securities (MBS non-agency)
81,555 — (5,462 ) 76,093
Total securities available for sale
$ 341,504 $ 5,252 $ (2,544 ) $ 344,212 $ 333,950 $ — $ (38,327 ) $ 295,623

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The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at December 31, ~~2020~~2022, are summarized as follows:

December 31, 2020

December 31, 2022

Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

(In thousands)

(In thousands)

Available for Sale

Municipal bonds
$ 122,667 $ 5,212 $ (17 ) $ 127,862 $ 119,990 $ — $ (21,940 ) $ 98,050
U.S. government agency issued asset-backed securities (ABS agency)
62,934 1,240 (354 ) 63,820
ABS corporate
29,661 37 (418 ) 29,280
U.S. Treasury notes
2,469 — (105 ) 2,364
International agency issued bonds (Agency bonds)
1,955 — (253 ) 1,702
Corporate debt
35,408 687 (585 ) 35,510 60,700 — (5,201 ) 55,499
SBA
18,420 144 0 18,564
Mortgage-Backed Securities

MBS agency
61,859 876 (52 ) 62,683 88,930 1 (13,283 ) 75,648
MBS corporate
26,458 162 (43 ) 26,577

MBS non-agency
101,139 — (7,833 ) 93,306
Total securities available for sale
$ 357,407 $ 8,358 $ (1,469 ) $ 364,296 $ 375,183 $ 1 $ (48,615 ) $ 326,569

There were no securities classified as held-to-maturity at December 31, 2023 and 2022.
Accrued interest receivable on available-for-sale debt securities totaled $1.9 million and $2.0 million as of December 31, 2023 and 2022, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Balance Sheets and is excluded from the calculation of the allowance for credit losses on investment securities.
The following table shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of December 31, 2023:

Less Than Twelve Months

Twelve Months or Longer

Total

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

(In thousands)

Available for Sale

Municipal bonds
$ — $ — $ (15,237 ) $ 87,461 $ (15,237 ) $ 87,461
ABS agency
(65 ) 11,782 — — (65 ) 11,782
ABS corporate
(84 ) 3,771 — — (84 ) 3,771
Corporate debt
— — (5,061 ) 51,454 (5,061 ) 51,454
Mortgage-Backed Securities

MBS agency
(27 ) 3,941 (12,391 ) 59,305 (12,418 ) 63,246
MBS non-agency
— — (5,462 ) 76,086 (5,462 ) 76,086
Total
$ (176 ) $ 19,494 $ (38,151 ) $ 274,306 $ (38,327 ) $ 293,800

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The following table shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of December 31, ~~2021~~2022:

Less Than Twelve Months

Twelve Months or Longer

Total

Less Than Twelve Months

Twelve Months or Longer

Total

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

(In thousands)

(In thousands)

Available for Sale

Municipal bonds
$ (306 ) $ 23,125 $ (34 ) $ 1,475 $ (340 ) $ 24,600 $ (15,749 ) $ 79,129 $ (6,191 ) $ 18,621 $ (21,940 ) $ 97,750
U.S. Treasury notes
(105 ) 2,364 — — (105 ) 2,364
Agency bonds
(27 ) 1,920 0 0 (27 ) 1,920 — — (253 ) 1,702 (253 ) 1,702
ABS corporate
(67 ) 10,976 0 0 (67 ) 10,976
Corporate debt
(333 ) 18,890 (234 ) 9,752 (567 ) 28,642 (2,570 ) 30,555 (2,631 ) 24,944 (5,201 ) 55,499
SBA
0 0 0 69 0 69
Mortgage-Backed Securities

MBS agency
(713 ) 39,029 (450 ) 12,802 (1,163 ) 51,831 (5,079 ) 40,099 (8,204 ) 33,064 (13,283 ) 73,163
MBS corporate
(374 ) 32,849 (6 ) 5,505 (380 ) 38,354
MBS non-agency
(3,956 ) 51,994 (3,877 ) 41,311 (7,833 ) 93,305
Total
$ (1,820 ) $ 126,789 $ (724 ) $ 29,603 $ (2,544 ) $ 156,392 $ (27,459 ) $ 204,141 $ (21,156 ) $ 119,642 $ (48,615 ) $ 323,783

~~The following table shows the~~There were 6 available-for-sale securities with unrealized ~~gross~~ losses of less than one year, and ~~fair value~~156 available-for-sale securities with an unrealized loss of ~~the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of~~more than one year at December 31, ~~2020~~2023:

Less Than Twelve Months

Twelve Months or Longer

Total

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

(In thousands)

Available for Sale

Municipal bonds
$ (15 ) $ 5,214 $ (2 ) $ 1,319 $ (17 ) $ 6,533
ABS Agency
0 0 (354 ) 21,430 (354 ) 21,430
ABS Corporate
0 0 (418 ) 27,283 (418 ) 27,283
Corporate debt
(8 ) 5,892 (577 ) 9,409 (585 ) 15,301
SBA
0 63 0 47 0 110
Mortgage-Backed Securities

MBS agency
(52 ) 18,516 0 261 (52 ) 18,777
MBS corporate
(43 ) 10,003 0 0 (43 ) 10,003
Total
$ (118 ) $ 39,688 $ (1,351 ) $ 59,749 $ (1,469 ) $ 99,437
~~The Company~~ ~~may~~ ~~hold certain investment~~. There were 113 available-for-sale securities inwith unrealized losses of less than one year, and 69 available-for-sale securities with an unrealized loss ~~position that are~~of more than ~~not~~one ~~considered OTTI. At~~year at December 31, ~~2021~~2022~~, there were 76 investment securities with $2.5 million of unrealized losses and a fair value of approximately $156.4 million. At~~ ~~December 31, 2020~~~~, there were 36 investment securities with $1.5 million of unrealized losses and a fair value of approximately $99.4 million.~~
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. Management believes that the unrealized losses on our investment securities relate principally to the general change in interest rates, market liquidity and ~~illiquidity,~~demand, and ~~not~~ ~~credit quality,~~market volatility that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. We do not believe the unrealized losses on our securities are related to a deterioration in credit quality. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend to sell the securities in an unrealized loss position and believes that it is ~~not~~ ~~likely it~~unlikely that we will be required to sell these investments prior to a market price recovery or maturity.
~~There were 0 OTTI losses during~~ Based on the ~~years ended~~Company’s evaluation of these securities, no credit loss was recorded at December 31, ~~2021~~ 2023~~and~~ or ~~2020~~December 31, 2022.

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

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

(In thousands)

(In thousands)

Mortgage-backed securities:

Due within one year
$ 7,827 $ 7,832 $ 80 $ 84 $ 25,279 $ 25,017 $ 13,762 $ 13,490
Due after one through five years
24,347 24,371 12,446 12,402 16,622 16,029 28,890 27,808
Due after five through ten years
8,466 8,391 0 0 8,874 8,197 13,436 12,165
Due after ten years
100,554 99,376 75,791 76,774 106,445 90,097 133,981 115,491

Total mortgage-backed securities
141,194 139,970 88,317 89,260 157,220 139,340 190,069 168,954

All other investment securities:

Due within one year
0 0 0 0 300 300 — —
Due after one through five years
6,391 6,289 2,210 2,328 18,187 17,384 20,700 18,957
Due after five through ten years
79,679 80,807 74,568 74,351 57,328 50,768 64,211 57,523
Due after ten years
114,240 117,146 192,312 198,357 100,915 87,831 100,203 81,135

Total all other investment securities
200,310 204,242 269,090 275,036 176,730 156,283 185,114 157,615

Total investment securities
$ 341,504 $ 344,212 $ 357,407 $ 364,296 $ 333,950 $ 295,623 $ 375,183 $ 326,569

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

For the Year Ended December 31,

2021

2020

(In thousands)

Proceeds
$ 109,829 $ 210,264
Gross gains
2,827 4,537
Gross losses
(417 ) (1,390 )

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

For the Year Ended December 31,

2023

2022

(In thousands)

Proceeds
$ 40,619 $ 12,685
Gross gains
— 128
Gross losses
(5,397 ) (10 )

Note 3 - Loans Receivable

The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality. The three loan portfolio segments are: Real Estate Loans, Consumer Loans and Commercial Business Loans. These segments are further disaggregated into classes based on similar attributes and risk characteristics.
Loan amounts are net of unearned loan fees in excess of unamortized costs and premiums of $14.8 million and $13.2 million as of December 31, 2023 and 2022, respectively. Net loans do not include accrued interest receivable. Accrued interest receivable ~~consist~~on loans was $6.0 million and $4.7 million as of December 31, 2023 and 2022, respectively, and was reported in accrued interest receivable on the consolidated balance sheets.
The amortized cost of loans receivable, net of ACLL, consisted of the following at the dates indicated:

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

(In thousands)

(In thousands)

Real Estate:

One- to four-family
$ 294,965 $ 309,828
One-to-four family
$ 378,432 $ 343,559
Multi-family
172,409 162,467 333,094 252,745
Commercial real estate
363,299 296,574 387,983 388,884
Construction and land
224,709 123,627 129,691 193,646
Total real estate loans
1,055,382 892,496 1,229,200 1,178,834

Consumer:

Home equity
39,172 33,103 69,403 52,877
Auto and other consumer
182,769 128,233 249,130 238,913
Total consumer loans
221,941 161,336 318,533 291,790

Commercial business loans
79,838 100,201 112,295 76,927

Total loans
1,357,161 1,154,033

Total loans receivable
1,660,028 1,547,551
Less:

Net deferred loan fees
4,772 4,346
Premium on purchased loans, net
(12,995 ) (6,129 )
Allowance for loan losses
15,124 13,847

Allowance for credit losses on loans ⁽¹⁾
17,510 16,116
Total loans receivable, net
$ 1,350,260 $ 1,141,969 $ 1,642,518 $ 1,531,435
(1) Allowance for credit losses on loans in 2023 reported using the CECL method and in 2022 reported using the incurred loss method.

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

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

(In thousands)

(In thousands)

Adjustable-rate loans

Due within one year
$ 302,187 $ 149,701 $ 353,493 $ 329,190
After one but within five years
258,094 231,491 314,634 276,676
After five but within ten years
54,351 83,286 51,528 51,317
After ten years
19,098 16,608 — 888
633,730 481,086
Total adjustable-rate loans
719,655 658,071
Fixed-rate loans

Due within one year
$ 31,970 54,903 $ 49,582 $ 3,479
After one but within five years
148,233 107,785 167,137 189,768
After five but within ten years
194,245 219,014 205,188 220,224
After ten years
348,983 291,245 518,466 476,009
723,431 672,947
Total loans
$ 1,357,161 $ 1,154,033
Total fixed-rate loans
940,373 889,480
Total loans receivable
$ 1,660,028 $ 1,547,551

The adjustable-rate loans have interest rate adjustment limitations and are generally indexed to multiple indices. Future market factors may affect the correlation of adjustable loan interest rates with the rates First Fed pays on the short-term deposits that have been primarily used to fund such loans.

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

December 31, 2023

December 31, 2022

Collateral Dependent Loans

Non-collateral Dependent Loans

Total Nonaccrual Loans

Total Nonaccrual Loans ⁽¹⁾

(In thousands)

One-to-four family

$1,426
$ 418 $ 1,844 $ 954
Commercial real estate

—
28 28 53
Construction and land

14,981
5 14,986 15
Home equity

30
93 123 196
Auto and other consumer

180
606 786 575
Commercial business loans

877
— 877 —
Total nonaccrual loans
$ 17,494 $1,150 $ 18,644 $ 1,793
(1) Presentation of December 31, 2022, balances is in ~~the ALLL and the loan portfolio by segment and impairment method at or~~accordance with pre-CECL disclosure requirements.
Interest income recognized on a cash basis on nonaccrual loans for the ~~periods shown:~~year ended was $58,000.

At or For the Year Ended December 31, 2021

One- to four-family

Multi-family

Commercial real estate

Construction and land

Home equity

Auto and other consumer

Commercial business

Unallocated

Total

(In thousands)

ALLL:

Beginning balance
$ 3,469 $ 1,764 $ 3,420 $ 1,461 $ 368 $ 2,642 $ 429 $ 294 $ 13,847
(Recapture of) provision for loan losses
(291 ) 52 576 1,203 (25 ) (270 ) 41 64 1,350
Charge-offs
0 0 0 0 (12 ) (865 ) 0 0 (877 )
Recoveries
6 0 0 8 76 714 0 0 804
Ending balance
$ 3,184 $ 1,816 $ 3,996 $ 2,672 $ 407 $ 2,221 $ 470 $ 358 $ 15,124
Prior to the implementation of CECL, the Bank categorized loans as performing or nonperforming based on payment activity. Loans that were more than 90 days past due and nonaccrual loans were considered nonperforming.

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At December 31, 2021

One- to four-family

Multi-family

Commercial real estate

Construction and land

Home equity

Auto and other consumer

Commercial business

Unallocated

Total

(In thousands)

Total ALLL
$ 3,184 $ 1,816 $ 3,996 $ 2,672 $ 407 $ 2,221 $ 470 $ 358 $ 15,124
General reserve
3,159 1,816 3,996 2,672 402 2,138 470 358 15,011
Specific reserve
25 0 0 0 5 83 0 0 113

Total loans
$ 294,965 $ 172,409 $ 363,299 $ 224,709 $ 39,172 $ 182,769 $ 79,838 $ 0 $ 1,357,161
General reserves (1)
292,708 172,409 363,228 224,687 38,839 182,257 79,838 0 1,353,966
Specific reserves (2)
2,257 0 71 22 333 512 0 0 3,195
⁽¹⁾ ~~Loans collectively evaluated for general reserves.~~
⁽²⁾ ~~Loans individually evaluated for specific reserves.~~

At or For the Year Ended December 31, 2020

One- to four-family

Multi-family

Commercial real estate

Construction and land

Home equity

Auto and other consumer

Commercial business

Unallocated

Total

(In thousands)

ALLL:

Beginning balance
$ 3,024 $ 888 $ 2,243 $ 399 $ 454 $ 2,261 $ 208 $ 151 $ 9,628
Provision for (recapture of) loan losses
387 876 1,177 1,062 (99 ) 1,279 221 143 5,046
Charge-offs
0 0 0 (5 ) 0 (992 ) 0 0 (997 )
Recoveries
58 0 0 5 13 94 0 0 170
Ending balance
$ 3,469 $ 1,764 $ 3,420 $ 1,461 $ 368 $ 2,642 $ 429 $ 294 $ 13,847

At December 31, 2020

One- to four-family

Multi-family

Commercial real estate

Construction and land

Home equity

Auto and other consumer

Commercial business

Unallocated

Total

(In thousands)

Total ALLL
$ 3,469 $ 1,764 $ 3,420 $ 1,461 $ 368 $ 2,642 $ 429 $ 294 $ 13,847
General reserve
3,433 1,764 3,419 1,461 364 2,366 429 294 13,530
Specific reserve
36 0 1 0 4 276 0 0 317

Total loans
$ 309,828 $ 162,467 $ 296,574 $ 123,627 $ 33,103 $ 128,233 $ 100,201 $ 0 $ 1,154,033
General reserves (1)
306,862 162,183 295,296 123,601 32,968 127,411 100,201 0 1,148,522
Specific reserves (2)
2,966 284 1,278 26 135 822 0 0 5,511
⁽¹⁾ ~~Loans collectively evaluated for general reserves.~~
⁽²⁾ ~~Loans individually evaluated for specific reserves.~~
~~113~~105
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table ~~presents a summary~~represents the credit risk profile based on payment activity by class of loans ~~individually evaluated for impairment by portfolio segment including~~as of December 31, 2022, in accordance with pre-CECL disclosure requirements:

Nonperforming

Performing

Total

(In thousands)

Real Estate:

One-to-four family
$ 954 $ 342,605 $ 343,559
Multi-family
— 252,745 252,745
Commercial real estate
53 388,831 388,884
Construction and land
15 193,631 193,646
Consumer:

Home equity
196 52,681 52,877
Auto and other consumer
575 238,338 238,913
Commercial business loans
— 76,927 76,927
Total loans receivable
$ 1,793 $ 1,545,758 $ 1,547,551

Past due loans. Loans are considered past due if the ~~average recorded investment in~~required principal and interest ~~income recognized on impaired~~payments have not been received as of the date such payments were due. There were no loans past due 90 days or more and still accruing interest at ~~or for the periods shown:~~December 31, 2023 and 2022.

Year Ended

December 31, 2021

December 31, 2021

Recorded Investment

Unpaid Principal Balance

Related Allowance

Average Recorded Investment

Interest Income Recognized

(In thousands)

With no allowance recorded:

One- to four-family
$ 212 $ 247 $ — $ 219 $ 12
Multi-family
0 0 — 94 0
Commercial real estate
71 177 — 1,016 0
Construction and land
0 24 — 0 0
Home equity
26 59 — 32 1
Auto and other consumer
0 77 — 29 7
Commercial business
0 0 — 0 0
Total
309 584 — 1,390 20

With an allowance recorded:

One- to four-family
2,045 2,245 25 2,281 138
Multi-family
0 0 0 0 0
Commercial real estate
0 0 0 121 0
Construction and land
22 22 0 24 1
Home equity
307 329 5 155 9
Auto and other consumer
512 512 83 653 13
Commercial business
0 0 0 0 0
Total
2,886 3,108 113 3,234 161

Total impaired loans:

One- to four-family
2,257 2,492 25 2,500 150
Multi-family
0 0 0 94 0
Commercial real estate
71 177 0 1,137 0
Construction and land
22 46 0 24 1
Home equity
333 388 5 187 10
Auto and other consumer
512 589 83 682 20
Commercial business
0 0 0 0 0
Total
$ 3,195 $ 3,692 $ 113 $ 4,624 $ 181
The following table presents the amortized cost of past due loans by segment and class as of December 31, 2023:

30-59 Days Past Due

60-89 Days Past Due

90 Days or More Past Due

Total Past Due

Current

Total loans receivable

(In thousands)

Real Estate:

One-to-four family
$ 802 $ — $ 1,010 $ 1,812 $ 376,620 $ 378,432
Multi-family
— — — — 333,094 333,094
Commercial real estate
— 8,526 — 8,526 379,457 387,983
Construction and land
14 — — 14 129,677 129,691
Total real estate loans
816 8,526 1,010 10,352 1,218,848 1,229,200
Consumer:

Home equity
59 — — 59 69,344 69,403
Auto and other consumer
1,854 601 791 3,246 245,884 249,130
Total consumer loans
1,913 601 791 3,305 315,228 318,533
Commercial business loans
1,117 757 — 1,874 110,421 112,295
Total loans receivable
$ 3,846 $ 9,884 $ 1,801 $ 15,531 $ 1,644,497 $ 1,660,028
The following table presents the amortized cost of past due loans by segment and class as of December 31, 2022, in accordance with pre-CECL disclosure requirements:

30-59 Days Past Due

60-89 Days Past Due

90 Days or More Past Due

Total Past Due

Current

Total loans receivable

(In thousands)

Real Estate:

One-to-four family
$ 1,449 $ 155 $ 652 $ 2,256 $ 341,303 $ 343,559
Multi-family
— — — — 252,745 252,745
Commercial real estate
— — — — 388,884 388,884
Construction and land
— 18 — 18 193,628 193,646
Total real estate loans
1,449 173 652 2,274 1,176,560 1,178,834
Consumer:

Home equity
153 — 11 164 52,713 52,877
Auto and other consumer
1,390 698 557 2,645 236,268 238,913
Total consumer loans
1,543 698 568 2,809 288,981 291,790
Commercial business loans
— — — — 76,927 76,927
Total loans receivable
$ 2,992 $ 871 $ 1,220 $ 5,083 $ 1,542,468 $ 1,547,551

~~114~~106
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a summary of loans individually evaluated for impairment by portfolio segment including the average recorded investment in and interest income recognized on impaired loans at or for the periods shown:

Year Ended

December 31, 2020

December 31, 2020

Recorded Investment

Unpaid Principal Balance

Related Allowance

Average Recorded Investment

Interest Income Recognized

(In thousands)

With no allowance recorded:

One- to four-family
$ 227 $ 257 $ — $ 168 $ 13
Commercial real estate
1,216 1,308 — 1,213 33
Construction and land
0 29 — 9 0
Home equity
37 94 — 41 1
Auto and other consumer
0 224 — 0 13
Commercial business
0 0 — 68 0
Total
1,764 2,196 — 1,718 60

With an allowance recorded:

One- to four-family
2,739 2,941 36 3,197 177
Multi-family
0 0 — 119 0
Commercial real estate
62 62 1 301 3
Construction and land
26 26 0 27 3
Home equity
98 157 4 186 9
Auto and other consumer
822 953 276 721 33
Commercial business
0 0 0 109 0
Total
3,747 4,139 317 4,660 225

Total impaired loans:

One- to four-family
2,966 3,198 36 3,365 190
Multi-family
284 284 0 338 0
Commercial real estate
1,278 1,370 1 1,514 36
Construction and land
26 55 0 36 3
Home equity
135 251 4 227 10
Auto and other consumer
822 1,177 276 721 46
Commercial business
0 0 0 177 0
Total
$ 5,511 $ 6,335 $ 317 $ 6,378 $ 285
~~Interest income recognized on a cash basis on impaired loans for the years ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020~~~~, was $162,000 and $256,000, respectively.~~
~~115~~

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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~The following table presents the recorded investment in nonaccrual loans by class of loan at the dates indicated:~~

December 31, 2021

December 31, 2020

(In thousands)

One- to four-family
$ 494 $ 912
Multi-family
0 284
Commercial real estate
71 157
Construction and land
22 26
Home equity
282 73
Auto and other consumer
512 821

Total nonaccrual loans
$ 1,381 $ 2,273
~~Past due loans~~ ~~- There were 0 loans past due~~ 90 ~~days or more and still accruing interest at~~ ~~December 31, 2021~~ ~~and~~ ~~2020~~.
~~The following table presents the recorded investment of past due loans, by class, as of~~ ~~December 31, 2021~~:

30-59 Days Past Due

60-89 Days Past Due

90 Days or More Past Due

Total Past Due

Current

Total Loans

(In thousands)

Real Estate:

One- to four-family
$ 786 $ 0 $ 0 $ 786 $ 294,179 $ 294,965
Multi-family
0 0 0 0 172,409 172,409
Commercial real estate
0 0 0 0 363,299 363,299
Construction and land
293 0 0 293 224,416 224,709
Total real estate loans
1,079 0 0 1,079 1,054,303 1,055,382

Consumer:

Home equity
83 0 0 83 39,089 39,172
Auto and other consumer
469 368 99 936 181,833 182,769
Total consumer loans
552 368 99 1,019 220,922 221,941

Commercial business loans
7 0 0 7 79,831 79,838

Total loans
$ 1,638 $ 368 $ 99 $ 2,105 $ 1,355,056 $ 1,357,161
~~116~~

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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~The following table presents the recorded investment of past due loans, by class, as of~~ ~~December 31, 2020~~:

30-59 Days Past Due

60-89 Days Past Due

90 Days or More Past Due

Total Past Due

Current

Total Loans

(In thousands)

Real Estate:

One- to four-family
$ 406 $ 132 $ 29 $ 567 $ 309,261 $ 309,828
Multi-family
0 0 0 0 162,467 162,467
Commercial real estate
0 0 0 0 296,574 296,574
Construction and land
56 0 26 82 123,545 123,627
Total real estate loans
462 132 55 649 891,847 892,496

Consumer:

Home equity
94 0 0 94 33,009 33,103
Auto and other consumer
815 138 137 1,090 127,143 128,233
Total consumer loans
909 138 137 1,184 160,152 161,336

Commercial business loans
0 0 0 0 100,201 100,201

Total loans
$ 1,371 $ 270 $ 192 $ 1,833 $ 1,152,200 $ 1,154,033
Credit quality ~~indicator~~indicator. - Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss; risk ratings 6, 7, and 8 in our 8-point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that First Fed will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a ~~specific~~credit loss reserve is not warranted.

When First Fed classifies problem assets as either substandard or doubtful, it may ~~establish a specific allowance~~choose to ~~address~~individually evaluate the ~~risk specifically~~expected credit loss or ~~First Fed~~ may ~~allow~~determine that the loss to be addressed in the general allowance. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities but that, unlike specific allowances, havecharacteristics are not ~~been specifically allocated to particular problem assets.~~significantly different from those in pooled loan analysis. The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose First Fed to sufficient risk to warrant classification as substandard or doubtful but possess identified weaknesses are designated as either watch or special mention assets; risk ratings 4 and 5 in our risk rating system, respectively. Loans not otherwise classified are considered pass graded loans and are rated 1-3 in our risk rating system.

~~Additionally, First Fed categorizes loans as performing or nonperforming based on payment activity. Loans that are more than~~ 90 ~~days past due and nonaccrual loans are considered nonperforming.~~
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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~The following table represents the internally assigned grade as of~~ ~~December 31, 2021~~~~, by class of loans:~~

Pass

Watch

Special Mention

Substandard

Total

(In thousands)

Real Estate:

One- to four-family
$ 291,421 $ 2,727 $ 53 $ 764 $ 294,965
Multi-family
153,704 18,705 0 0 172,409
Commercial real estate
326,444 22,850 3,057 10,948 363,299
Construction and land
215,262 295 9,130 22 224,709
Total real estate loans
986,831 44,577 12,240 11,734 1,055,382

Consumer:

Home equity
38,739 83 0 350 39,172
Auto and other consumer
181,356 835 65 513 182,769
Total consumer loans
220,095 918 65 863 221,941

Commercial business loans
79,616 222 0 0 79,838

Total loans
$ 1,286,542 $ 45,717 $ 12,305 $ 12,597 $ 1,357,161
~~The following table represents the internally assigned grade as of~~ ~~December 31, 2020~~~~, by class of loans:~~

Pass

Watch

Special Mention

Substandard

Total

(In thousands)

Real Estate:

One- to four-family
$ 303,840 $ 2,487 $ 1,730 $ 1,771 $ 309,828
Multi-family
146,536 15,647 0 284 162,467
Commercial real estate
250,970 20,759 20,690 4,155 296,574
Construction and land
114,575 8,914 74 64 123,627
Total real estate loans
815,921 47,807 22,494 6,274 892,496

Consumer:

Home equity
32,500 349 100 154 33,103
Auto and other consumer
124,115 2,034 1,216 868 128,233
Total consumer loans
156,615 2,383 1,316 1,022 161,336

Commercial business loans
92,010 7,791 168 232 100,201

Total loans
$ 1,064,546 $ 57,981 $ 23,978 $ 7,528 $ 1,154,033
~~118~~

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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~The following table represents the credit risk profile based on payment activity as of~~ ~~December 31, 2021~~~~, by class of loans:~~

Nonperforming

Performing

Total

(In thousands)

Real Estate:

One- to four-family
$ 494 $ 294,471 $ 294,965
Multi-family
0 172,409 172,409
Commercial real estate
71 363,228 363,299
Construction and land
22 224,687 224,709

Consumer:

Home equity
282 38,890 39,172
Auto and other consumer
512 182,257 182,769

Commercial business loans
0 79,838 79,838

Total loans
$ 1,381 $ 1,355,780 $ 1,357,161
~~The following table represents the credit risk profile based on payment activity as of~~ ~~December 31, 2020~~~~, by class of loans:~~

Nonperforming

Performing

Total

(In thousands)

Real Estate:

One- to four-family
$ 912 $ 308,916 $ 309,828
Multi-family
284 162,183 162,467
Commercial real estate
157 296,417 296,574
Construction and land
26 123,601 123,627

Consumer:

Home equity
73 33,030 33,103
Auto and other consumer
821 127,412 128,233

Commercial business loans
0 100,201 100,201

Total loans
$ 2,273 $ 1,151,760 $ 1,154,033
~~119~~

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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~The Coronavirus Aid, Relief, and Economic Security Act of~~ ~~2020~~ ~~signed into law on~~ ~~March 27, 2020, (~~~~"CARES Act") provided guidance around the modification of loans as a result of the COVID-~~19 ~~pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are~~ ~~not~~ ~~TDRs. This included short-term (i.e.,~~ ~~six~~ months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers were considered current under the CARES Act and related regulatory guidance if they are less than 30 ~~days past due on their contractual payments at the time a modification program is implemented. Through~~ ~~December 31, 2020,~~ ~~the Company had granted COVID-~~19 pandemic related temporary loan modifications on a total of 357 loans aggregating to $177.6 million. Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining whether or ~~not~~ ~~a loan is deemed to be impaired. As of~~ ~~December 31, 2021,~~ ~~0 loans remain on deferral.~~
~~The following is a summary of information pertaining to TDR loans included in impaired loans at the dates indicated:~~

December 31, 2021

December 31, 2020

(In thousands)

Total TDR loans
$ 1,843 $ 2,224
Allowance for loan losses related to TDR loans
21 26
Total nonaccrual TDR loans
29 108
~~There were 0 newly restructured and renewals or modifications of existing TDR loans that occurred during the year ended~~ ~~December 31, 2021~~.
~~The following is a summary of TDR loans that incurred a payment default within~~ 12 ~~months of the restructure date during the year ended~~ ~~December 31, 2021~~.

Number of Contracts

Rate Modification

Term Modification

Combination Modification

Total Modifications

(Dollars in thousands)

TDR loans that subsequently defaulted

One- to four-family
1 $ 29 $ 0 $ 0 $ 29
~~The following table presents newly restructured and renewals or modifications of existing TDR loans by class that occurred during the year ended~~ ~~December 31, 2020~~~~, by type of concession granted:~~

Number of Contracts

Rate Modification

Term Modification

Combination Modification

Total Modifications

(Dollars in thousands)

Pre-modification outstanding recorded investment

One- to four-family
1 $ 29 $ 0 $ 0 $ 29

Post-modification outstanding recorded investment

One- to four-family
1 $ 29 $ 0 $ 0 $ 29
~~There were 0 TDR loans that incurred a payment default within~~ 12 ~~months of the restructure date during the year ended~~ ~~December 31, 2020~~.
~~NaN additional funds are committed to be advanced in connection with TDR loans at~~ ~~December 31, 2021~~.
~~120~~107
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2023, as well as gross charge-off activity for the year ended December 31, 2023. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

Term Loans by Year of Origination ⁽¹⁾

Revolving

Total

2023

2022

2021

2020

2019

Prior

Loans

Loans

(In thousands)

One-to-four family

Pass (Grades 1-3)
$ 2,282 $ 102,389 $ 118,028 $ 69,229 $ 13,882 $ 65,701 $ — $ 371,511
Watch (Grade 4)
— 275 1,338 1,569 — 1,295 — 4,477
Special Mention (Grade 5)
— — — 300 — 80 — 380
Substandard (Grade 6)
— — — 327 482 1,255 — 2,064
Total one-to-four family
2,282 102,664 119,366 71,425 14,364 68,331 — 378,432
Gross charge-offs
— — — — — — — —
Multi-family

Pass (Grades 1-3)
52,208 105,902 88,293 57,588 6,922 5,356 — 316,269
Watch (Grade 4)
— — 15,126 708 — 991 — 16,825
Total multi-family
52,208 105,902 103,419 58,296 6,922 6,347 — 333,094
Gross charge-offs
— — — — — — — —
Commercial Real Estate

Pass (Grades 1-3)
52,823 87,712 99,058 76,664 13,096 22,425 — 351,778
Watch (Grade 4)
4,433 1,168 1,340 8,829 3,561 496 — 19,827
Special Mention (Grade 5)
— — 6,528 — — 2 — 6,530
Substandard (Grade 6)
— 28 8,526 1,294 — — — 9,848
Total commercial real estate
57,256 88,908 115,452 86,787 16,657 22,923 — 387,983
Gross charge-offs
— — — — — — — —
Construction and Land

Pass (Grades 1-3)
20,772 49,508 23,988 727 344 464 — 95,803
Watch (Grade 4)
6,512 4,935 229 — — 15 — 11,691
Special Mention (Grade 5)
7,196 — — — — 14 — 7,210
Substandard (Grade 6)
14,981 — — — — 6 — 14,987
Total construction and land
49,461 54,443 24,217 727 344 499 — 129,691
Gross charge-offs
— — — — — — — —
Home Equity

Pass (Grades 1-3)
7,179 7,169 4,638 3,063 1,331 4,283 41,105 68,768
Watch (Grade 4)
— — — — — 155 345 500
Substandard (Grade 6)
— — 30 59 — 13 33 135
Total home equity
7,179 7,169 4,668 3,122 1,331 4,451 41,483 69,403
Gross charge-offs
— — — — — 10 — 10
Auto and Other Consumer

Pass (Grades 1-3)
49,649 69,052 64,101 29,113 14,660 18,593 385 245,553
Watch (Grade 4)
270 919 579 204 138 59 4 2,173
Special Mention (Grade 5)
90 334 33 162 — — — 619
Substandard (Grade 6)
84 393 — — 30 278 — 785
Total auto and other consumer
50,093 70,698 64,713 29,479 14,828 18,930 389 249,130
Gross charge-offs
— 3,018 15 52 11 112 104 3,312
Commercial business

Pass (Grades 1-3)
23,499 19,191 11,032 2,440 455 13,635 29,976 100,228
Watch (Grade 4)
340 62 275 270 — (1 ) 3,806 4,752
Substandard (Grade 6)
291 3,653 104 779 — (1 ) 2,489 7,315
Total commercial business
24,130 22,906 11,411 3,489 455 13,633 36,271 112,295
Gross charge-offs
— — — — — — — —
Total loans

Pass (Grades 1-3)
208,412 440,923 409,138 238,824 50,690 130,457 71,466 1,549,910
Watch (Grade 4)
11,555 7,359 18,887 11,580 3,699 3,010 4,155 60,245
Special Mention (Grade 5)
7,286 334 6,561 462 — 96 — 14,739
Substandard (Grade 6)
15,356 4,074 8,660 2,459 512 1,551 2,522 35,134
Total loans
$ 242,609 $ 452,690 $ 443,246 $ 253,325 $ 54,901 $ 135,114 $ 78,143 $ 1,660,028
Total gross charge-offs
$ — $ 3,018 $ 15 $ 52 $ 11 $ 122 $ 104 $ 3,322
(1) Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2022, in accordance with pre-CECL disclosure requirements:

Pass

Watch

Special Mention

Substandard

Total

(In thousands)

Real Estate:

One-to-four family
$ 339,812 $ 2,234 $ 27 $ 1,486 $ 343,559
Multi-family
237,077 15,668 — — 252,745
Commercial real estate
350,001 25,586 12,161 1,136 388,884
Construction and land
179,116 529 — 14,001 193,646
Total real estate loans
1,106,006 44,017 12,188 16,623 1,178,834
Consumer:

Home equity
52,295 372 14 196 52,877
Auto and other consumer
238,522 222 75 94 238,913
Total consumer loans
290,817 594 89 290 291,790
Commercial business loans
66,276 2,234 8,417 — 76,927
Total loans receivable
$ 1,463,099 $ 46,845 $ 20,694 $ 16,913 $ 1,547,551
Individually Evaluated Loans. The Company evaluates loans collectively for purposes of determining the ACLL in accordance with ASC 326 by aggregating loans deemed to possess similar risk characteristics and individually evaluates loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified loans made to borrowers experiencing financial difficulty, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral.
Loans that are deemed by management to possess unique risk characteristics are evaluated individually for purposes of determining an appropriate lifetime ACLL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent. Collateral dependent loans are evaluated based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACLL for collateral dependent individually evaluated loans based on changes in the estimated expected fair value of the collateral. In cases where the loan is well-secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACLL is recorded. Changes in the ACLL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans. As of December 31, 2023, $20.0 million of loans were individually evaluated with $165,000 of ACLL attributed to such loans. At December 31, 2023, one individually evaluated loan with a recorded investment of $2.5 million was evaluated using a discounted cash flow approach and the remaining loans totaling $17.5 million were evaluated based on the underlying value of the collateral. The loan evaluated using the discounted cash flow method was accruing at year end, while the collateral dependent loans were all on nonaccrual status at December 31, 2023.
Collateral Dependent Loans. Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral.
The following table summarizes individually evaluated collateral dependent loans by segment and collateral type as of December 31, 2023:

Collateral Type

Single Family Residence

Condominium

Automobile

Business Assets

Total

(In thousands)

One-to-four family
$ 1,426 $ — $ — $ — $ 1,426
Construction and land
— 14,981 — — 14,981
Home equity
30 — — — 30
Auto and other consumer
— — 180 — 180
Commercial business
— 119 — 652 771
Total collateral dependent loans
$ 1,456 $ 15,100 $ 180 $ 652 $ 17,388
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Troubled debt restructuring. Prior to the implementation of CECL on January 1, 2023, a loan was identified as a TDR when a loan to a borrower who was experiencing financial difficulty was modified from its original terms and conditions in such a way that the Bank granted the borrower a concession of some kind. First Fed had granted a variety of concessions to borrowers in the form of loan modifications. The modifications were generally related to the loan's interest rate, term and payment amount or a combination thereof.
The following table is a summary of information pertaining to TDR loans included in impaired loans at the date indicated, in accordance with pre-CECL disclosure requirements:

December 31, 2022

(In thousands)

Total TDR loans
$ 1,753
Allowance for loan losses related to TDR loans
18
Total nonaccrual TDR loans
29
There were no newly restructured and renewals or modifications of existing TDR loans that occurred during the year ended December 31, 2022.
There were no TDR loans that incurred a payment default within 12 months of the restructure date during the year ended December 31, 2022.
The following table presents TDR loans by class ~~at the dates indicated~~ by accrual and nonaccrual ~~status.~~status at the date indicated, in accordance with pre-CECL disclosure requirements:

December 31, 2021

December 31, 2020

December 31, 2022

Accrual

Nonaccrual

Total

Accrual

Nonaccrual

Total

Accrual

Nonaccrual

Total

(In thousands)

(In thousands)

One- to four-family
$ 1,763 $ 29 $ 1,792 $ 2,054 $ 108 $ 2,162
One-to-four family
$ 1,697 $ 29 $ 1,726
Home equity
51 0 51 62 0 62 27 — 27

Total TDR loans
$ 1,814 $ 29 $ 1,843 $ 2,116 $ 108 $ 2,224 $ 1,724 $ 29 $ 1,753
Modified Loans to Troubled Borrowers. On January 1, 2023, the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. The Company refers to these loans as modified loans to troubled borrowers ("MLTB"). A MLTB arises from a modification made to a loan in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or any combination of the foregoing. The ACLL for a MLTB is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACLL for a MLTB is determined through individual evaluation.
During the year ended December 31, 2023, there was one new MLTB, a commercial business loan with a recorded investment of $119,000 for which the Bank agreed to deferred principal payments. The borrower continues to make interest-only payments and the loan was current at year end based on the modified terms.

Note 4 - Allowance for Credit Losses on Loans
The Company maintains an ACLL and an ACLUC in accordance with ASC 326:Financial Instruments - Credit Losses. ASC 326 requires the Company to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses at origination or acquisition represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (recapture of provision) for credit losses on the Consolidated Statements of Income. The Company adopted ASU 2016-13 effective January 1, 2023, as discussed in Note 1. The incurred loss methodology presentation is used for periods prior to the adoption of ASU 2016-13.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table details activity in the allowance for credit losses on loans by class for the periods shown:

At or For the Year Ended December 31, 2023

Beginning Balance

Impact of Day 1 CECL Adoption

Adjusted Beginning Balance

Charge-offs

Recoveries

Provision for (Recapture of) Credit Losses

Ending Balance

(In thousands)

One-to-four family
$ 3,343 $ (429 ) $ 2,914 $ — $ 9 $ 52 $ 2,975
Multi-family
2,468 (1,449 ) 1,019 — — 135 1,154
Commercial real estate
4,217 (604 ) 3,613 — — 58 3,671
Construction and land
2,344 1,555 3,899 — — (2,010 ) 1,889
Home equity
549 346 895 (10 ) 15 177 1,077
Auto and other consumer
2,024 2,381 4,405 (3,312 ) 126 3,190 4,409
Commercial business
786 794 1,580 — — 755 2,335
Unallocated
385 (385 ) — — — — —
Total
$ 16,116 $ 2,209 $ 18,325 $ (3,322 ) $ 150 $ 2,357 $ 17,510
The following table details activity in the ALLL by class for the period shown under the incurred loss methodology:

At or For the Year Ended December 31, 2022

One-to-four family

Multi-family

Commercial real estate

Construction and land

Home equity

Auto and other consumer

Commercial business

Unallocated

Total

(In thousands)

ALLL:

Beginning balance
$ 3,184 $ 1,816 $ 3,996 $ 2,672 $ 407 $ 2,221 $ 470 $ 358 $ 15,124
Provision for (recapture of) loan losses
45 652 221 (330 ) 112 634 174 27 1,535
Charge-offs
— — — — — (1,025 ) — — (1,025 )
Recoveries
114 — — 2 30 194 142 — 482
Ending balance
$ 3,343 $ 2,468 $ 4,217 $ 2,344 $ 549 $ 2,024 $ 786 $ 385 $ 16,116
The following table details the ALLL and loan portfolio by class and impairment method for the period shown under the incurred loss methodology:

At December 31, 2022

One-to-four family

Multi-family

Commercial real estate

Construction and land

Home equity

Auto and other consumer

Commercial business

Unallocated

Total

(In thousands)

Total ALLL
$ 3,343 $ 2,468 $ 4,217 $ 2,344 $ 549 $ 2,024 $ 786 $ 385 $ 16,116
General reserve
3,321 2,468 4,217 2,343 545 2,019 786 385 16,084
Specific reserve
22 — — 1 4 5 — — 32

Total loans receivable
$ 343,825 $ 253,551 $ 390,246 $ 194,646 $ 52,322 $ 222,794 $ 76,996 $ — $ 1,534,380
General reserves ⁽¹⁾
341,171 253,551 390,196 194,630 52,100 222,702 76,996 — 1,531,346
Specific reserves ⁽²⁾
2,654 — 50 16 222 92 — — 3,034
⁽¹⁾ Loans collectively evaluated for general reserves.
⁽²⁾ Loans individually evaluated for specific reserves.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impaired loans incurred loss model. Prior to the implementation of CECL on January 1, 2023, a loan was considered impaired when the Bank has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan. Impairment was measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying TDR loans.
The following table provides additional information on loans individually evaluated for impairment by portfolio class at the date indicated under the incurred loss methodology. Recorded investment includes the unpaid principal balance or carrying amount of loans less charge-offs.

Year Ended

December 31, 2022

December 31, 2022

Recorded Investment

Unpaid Principal Balance

Related Allowance

Average Recorded Investment

Interest Income Recognized

(In thousands)

With no allowance recorded:

One-to-four family
$ 666 $ 705 $ — $ 371 $ 99
Commercial real estate
50 149 — 60 —
Construction and land
— 14 — 437 1
Home equity
— — — 2 —
Auto and other consumer
— 2 — 184 2
Total
716 870 — 1,054 102

With an allowance recorded:

One-to-four family
1,988 2,129 22 2,150 136
Commercial real estate
— — — 5 —
Construction and land
16 19 1 20 2
Home equity
222 224 4 259 11
Auto and other consumer
92 95 5 91 3
Total
2,318 2,467 32 2,525 152

Total impaired loans:

One-to-four family
2,654 2,834 22 2,521 235
Commercial real estate
50 149 — 65 —
Construction and land
16 33 1 457 3
Home equity
222 224 4 261 11
Auto and other consumer
92 97 5 275 5
Total
$ 3,034 $ 3,337 $ 32 $ 3,579 $ 254
Interest income recognized on a cash basis on impaired loans for the year ended December 31, 2022, was $141,000 under the incurred loss methodology.
Allowance for Credit Losses on Unfunded Loan Commitments. The Company maintains an ACL for off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities on the consolidated balance sheets. The allowance for unfunded commitments was $817,000 at December 31, 2023, a decrease compared to $1.9 million at the adoption of CECL on January 1, 2023. Included in the year-to-date provision for credit loss expense was a provision recapture for unfunded commitments of $1.0 million for the year ended December 31, 2023, primarily attributable to construction loan disbursements resulting in lower unfunded commitments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Premises and Equipment

Premises and equipment consist of the following as of:

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

(In thousands)

(In thousands)

Land
$ 2,907 $ 2,564 $ 2,907 $ 2,907
Buildings
6,697 6,075 6,697 6,697
Building improvements
14,492 12,067 17,945 16,747
Furniture, fixtures, and equipment
7,512 7,063 7,300 7,082
Software
599 1,261 599 598
Automobiles
66 66 66 66
Construction in progress
3,361 1,257 104 663
35,634 30,353
Total premises and equipment
35,618 34,760
Less accumulated depreciation and amortization
(15,804 ) (15,568 ) (17,569 ) (16,671 )
$ 19,830 $ 14,785
Premises and equipment, net of accumulated depreciation and amortization
$ 18,049 $ 18,089

Depreciation expense was ~~$1.43~~$1.6 million and ~~$1.38~~$2.0 million for the years ended December 31, ~~2021~~2023 and ~~2020~~2022, respectively.

Note 56 - Leases
On ~~January 1, 2019,~~ ~~the Company adopted ASU~~ ~~2016~~-~~02,~~~~Leases (Topic~~ ~~842~~)~~, and all subsequent ASUs that are related to Topic~~ ~~842.~~ ~~The Company, as lessee, leases certain assets for use in its operations. Leased assets primarily include retail branches and operation centers. For each lease with an original term greater than~~ 12 months, the Company records a lease liability and a corresponding right of use ("ROU") asset, based on the present value of lease payments over the lease term. The discount rate used in determining the present value is the Company's incremental borrowing rate using the FHLB fixed advance rate based on the remaining lease term as of ~~January 1, 2019,~~ ~~or the commencement date for subsequent leases. At~~ ~~December 31, 2021~~~~, the Company's ROU assets included in other assets and lease liabilities included in other liabilities were $7.6 million and $7.7 million, respectively.~~
~~Total costs incurred by the Company, as a lessee, were $868,000 and $587,000 for the years ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020~~~~, respectively, and principally related to contractual lease payments on operating leases. The Company's leases do~~ ~~not~~ ~~impose significant covenants or other restrictions on the Company.~~

The Bank has lease agreements with unaffiliated parties for ~~eight~~nine locations, including five full-service branches, ~~two~~three business centers, and a parking easement. Lease expirations range from one to twenty years, with additional renewal options on certain leases ranging from two to ten years. If the exercise of a renewal option is considered to be reasonably certain, the Company includes the extended term in the calculation of the right-of-use asset and lease liability.
At December 31, 2023
~~121~~

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~, the Company's ROU assets included in other assets and lease liabilities included in other liabilities were $6.05 million and $6.43 million, respectively.

Total costs incurred by the Company, as a lessee, were $1.17 million and $1.19 million for the years ended December 31, 2023 and 2022, respectively, and principally related to contractual lease payments on operating leases. The Company's leases do not impose significant covenants or other restrictions on the Company.
The following table presents amounts relevant to the Company's assets leased for use in its operations for the years ~~ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020~~:

December 31, 2021

December 31, 2020

(In Thousands)

Operating cash flows from operating leases
$ 868 $ 587
Right of use assets obtained in exchange for new operating lease liabilities
4,364 1,047
ended:

December 31, 2023

December 31, 2022

(In Thousands)

Operating cash flows from operating leases
$ 1,165 $ 1,194
Right of use assets obtained in exchange for new operating lease liabilities
152 —

The following table presents the weighted-average remaining lease terms and discount rates of the Company's assets leased for use in its operations at ~~December 31, 2021~~:at:

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

Weighted-average remaining lease term of operating leases (in years)
10.8 12.5 9.0 10.0
Weighted-average discount rate of operating leases
2.4 % 3.2 % 2.4 % 2.4 %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All lease agreements require the Bank to pay its pro-rata share of building operating expenses. The minimum annual lease payments under non-cancelable operating leases with initial or remaining terms of one year or more through the initial lease term are as follows:

December 31, 2021

December 31, 2023

Twelve-month period ending:

(In Thousands)

(In Thousands)

2022
$ 831
2023
852
2024
886 $ 904
2025
925 944
2026
903 927
2027
891
2028
705
Thereafter
4,825 3,229
Total minimum payments required
$ 9,222 $ 7,600
Less imputed interest
1,488 1,260
Present value of lease liabilities
$ 7,734 $ 6,340

Note 67 - Servicing Rights on Sold Loans

Mortgage loans serviced for FHLB, Fannie Mae, and Freddie Mac are not included in the accompanying consolidated balance sheets. Selected commercial loan balances have also been sold in whole or in part to various participants, including the Main Street Lending Program, with servicing retained by First Fed and are not included in the accompanying consolidated balance sheets. The unpaid principal balances of serviced loans, primarily mortgage loans, were ~~$454.4~~$366.1 million and ~~$268.2~~$418.7 million at December 31, ~~2021~~2023 and ~~2020~~2022, respectively.

Loan servicing rights for the periods shown are as follows:

For the Year Ended December 31,

2021

2020

(In thousands)

Balance at beginning of period
$ 2,120 $ 871
Additions
1,234 1,564
Amortization
(109 ) (278 )
Valuation allowance net recovery (impairment)
37 (37 )
Balance at end of period
$ 3,282 $ 2,120
~~122~~

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~The aggregate change in valuation allowance for loan servicing rights for the periods shown are as follows:~~

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

(In thousands)

(In thousands)

Balance at beginning of period
$ (37 ) $ 0 $ 3,887 $ 3,282
Impairments
0 (37 )
Recoveries
37 0
One-time adjustment for fair value reporting election
— 538
Additions
149 54
Change in fair value
(243 ) 13
Balance at end of period
$ 0 $ (37 ) $ 3,793 $ 3,887

The key economic assumptions used in determining the fair value of loan servicing rights for the periods shown are as follows:

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

Constant prepayment rate
9.3 % 14.4 % 7.4 % 8.3 %
Weighted-average life (years)
5.4 4.8 6.6 6.0
Yield to maturity discount
10.3 % 8.4 % 11.7 % 13.3 %

The fair values of loan servicing rights ~~are~~were approximately $3.8 million and ~~$2.2~~$3.9 million at December 31, ~~2021~~2023 and ~~2020~~2022, respectively. See Note 15 Fair Value Measurement for additional information.

The following represents servicing and late fees earned in connection with loan servicing rights and is included in the accompanying consolidated financial statements as a component of noninterest income for the periods shown:

For the Year Ended December 31,

2021

2020

(In thousands)

Servicing fees
$ 1,013 $ 452
Late fees
9 12
~~Note~~ 7 ~~- Deposits~~
~~The aggregate amount of time deposits that meet or exceed the FDIC insured limit, currently~~ ~~$250,000,~~ at ~~December 31, 2021~~ ~~and~~ ~~2020~~~~, was $75.1 million and $91.7 million, respectively. Deposits and weighted-average interest rates at the dates indicated are as follows:~~

December 31, 2021

December 31, 2020

Amount

Weighted- Average Interest Rate

Amount

Weighted- Average Interest Rate

(Dollars in thousands)

Noninterest-bearing demand deposits
$ 343,932 — % $ 274,930 — %
Interest-bearing demand deposits
196,970 0.01 % 156,241 0.01 %
Money market accounts
597,815 0.21 % 429,143 0.31 %
Savings accounts
194,620 0.05 % 164,434 0.17 %
Certificates of deposit
247,243 0.62 % 308,769 1.00 %
$ 1,580,580 0.19 % $ 1,333,517 0.36 %

For the Year Ended December 31,

2023

2022

(In thousands)

Servicing fees
$ 916 $ 972
Late fees
9 12

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the hypothetical effect on the fair value of the Company's loan servicing rights using unfavorable shock analyses of certain key valuation assumptions as of December 31, 2023 and 2022. This analysis is presented for hypothetical purposes only. As the amounts indicate, changes in fair value based on changes in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.

For the Year Ended December 31,

2023

2022

(Dollars in thousands)

Servicing right fair value
$ 3,793 $ 3,887

Constant prepayment rate assumption (weighted-average)
7.4 % 8.3 %
Impact on fair value with a 10% adverse change in prepayment speed
$ (90 ) $ (264 )
Impact on fair value with a 20% adverse change in prepayment speed
$ (175 ) $ (416 )

Yield to maturity discount assumption (weighted-average)
11.7 % 13.3 %
Impact on fair value with a 10% adverse change in discount rate
$ (168 ) $ (194 )
Impact on fair value with a 20% adverse change in discount rate
$ (321 ) $ (287 )
Note 8 - Deposits
Deposits and weighted-average interest rates at the dates indicated are as follows:

December 31, 2023

December 31, 2022

Amount

Weighted- Average Interest Rate

Amount

Weighted- Average Interest Rate

(Dollars in thousands)

Noninterest-bearing demand deposits
$ 252,083 — % $ 315,083 — %
Interest-bearing demand deposits
169,418 0.56 % 193,558 0.01 %
Money market accounts
362,205 1.78 % 473,009 0.58 %
Savings accounts
242,148 1.62 % 200,920 0.26 %
Certificates of deposit, retail
443,412 4.04 % 247,824 2.03 %
Certificates of deposit, brokered
207,626 4.85 % 133,861 2.46 %
$ 1,676,892 2.34 % $ 1,564,255 0.74 %
The aggregate amount of time deposits in excess of the FDIC insured limit, currently $250,000, at December 31, 2023 and 2022, were $173.8 million and $96.6 million, respectively.
Maturities of certificates at the dates indicated are as follows:

December 31, 2021

December 31, 2023

(In thousands)

(In thousands)

Within one year or less
$ 153,472 $ 495,605
After one year through two years
54,970 79,537
After two years through three years
17,620 28,881
After three years through four years
14,358 24,198
After four years through five years
6,823 22,817
After five years
0
$ 247,243 $ 651,038

~~Brokered certificates~~
115
Table of ~~deposits of $65.7 million and $89.6 million are included in the~~Contents
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, ~~2021~~2023 and ~~2020~~2022 ~~certificate of~~, deposits ~~totals above, respectively.~~
~~Deposits at~~ ~~December 31, 2021~~ ~~and~~ ~~2020~~~~, include $134.1~~included $114.2 million and ~~$80.9~~$93.3 million, respectively, in public fund deposits. The Bank had an outstanding letter of credit from the Federal Home Loan Bank of Des Moines ("FHLB") with a notional amount of $60.0 million at December 31, 2023, to secure public deposits. The Bank had investment securities with a carrying value of $57.1 million that were pledged as collateral for these deposits at December 31, 2022. These amounts exceed the minimum collateral requirements established by the Washington Public Deposit Protection Commission. Also included in deposits at December 31, 2023 and 2022, were funds held by federally recognized tribes totaling $18.4 million and $10.3 million, respectively. Investment securities with a carrying value of ~~$67.9~~$23.8 million and ~~$48.1~~$23.6 million were pledged as collateral for these deposits at December 31, ~~2021~~2023 and ~~2020~~2022, respectively. This exceeds the minimum collateral requirements established by the ~~Washington Public Deposit Protection Commission.~~Bureau of Indian Affairs.

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

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

(In thousands)

(In thousands)

Demand deposits
$ 43 $ 37 $ 796 $ 137
Money market accounts
1,165 1,446 4,217 1,698
Savings accounts
128 843 3,019 165
Certificates of deposit
2,060 4,337
Certificates of deposit, retail
12,520 2,090
Certificates of deposit, brokered
6,467 1,108
$ 3,396 $ 6,663 $ 27,019 $ 5,198

Note 89 - Borrowings

First Fed is a member of the FHLB. As a member, First Fed has a committed line of credit of up to ~~40%~~45% of total assets, subject to the amount of FHLB stock ownership and certain collateral requirements.

First Fed ~~has entered into~~maintains borrowing arrangements with the FHLB to borrow funds ~~primarily~~ under long-term, fixed-rate advance agreements. First Fed also has overnight borrowings through FHLB which renew daily until paid. First Fed periodically uses fixed-rate advances maturing in less than one year as an alternative source of funds. All borrowings are secured by collateral consisting of single-family, home equity, commercial real estate, and multi-family loans receivable in the amounts of ~~$699.5~~$896.1 million and ~~$641.7~~$753.6 million at December 31, ~~2021~~2023 and ~~2020~~2022, respectively. ~~Investment securities~~The Bank had outstanding letters of credit from the FHLB with ~~a carrying value~~notional amounts of ~~$152,000 were also pledged as collateral~~$60.0 million to secure public deposits and $772,000 to secure the Bellevue, Washington branch lease at December 31, ~~2020~~~~. NaN investment securities were pledged as collateral at~~ ~~December 31, 2021~~2023.

First Fed also has an established borrowing arrangement with the Federal Reserve Board of San Francisco ("FRB") to utilize the discount window for short-term borrowing. ~~NaN~~Available borrowing capacity was $6.6 million and $8.6 million at December 31, 2023 and 2022, respectively. No funds have been borrowed to date. Investment securities with a carrying value of ~~$17.2~~$6.9 million and $8.9 million were pledged to the FRB at December 31, ~~2021~~2023 .and 2022, respectively.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
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 ~~intends to use~~used the net proceeds of the offering for general corporate ~~purposes and has provided~~purposes.
On May 20, 2022, First Northwest consummated a borrowing arrangement with NexBank for a $20.0 million torevolving line of credit. Borrowings are secured by a blanket lien on First Northwest's personal property assets (with certain exclusions), including all the ~~Bank as~~outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The Company was in compliance with all covenants at December 31, 2023, including fixed coverage, Tier 1 ~~capital.~~leverage, and risk-based capital ratio minimum requirements and classified assets to Tier 1 capital and Texas ratio maximum requirements. The line of credit matures on May 18, 2024, with the option for one364-day extension.

~~FHLB advances and subordinated debt outstanding by type~~In June 2023, First Fed established a Bank Term Funding Program ("BTFP") borrowing arrangement with the FRB as an additional source of ~~advance~~liquidity. Available borrowing capacity was $15.2 million at December 31, 2023. No funds have been borrowed to date. Investment securities with a carrying value of $12.9 million were ~~as follows:~~pledged to secure the BTFP at December 31, 2023.

December 31, 2021

December 31, 2020

(In thousands)

Long-term advances
$ 80,000 $ 50,000
Overnight variable-rate advances
0 59,977
Subordinated debt
40,000 0

~~The maximum and average outstanding balances and average interest rates on overnight variable-rate advances were as follows:~~

For the Year Ended December 31,

2021

2020

(Dollars in thousands)

Maximum outstanding at any month-end
$ 40,000 $ 100,021
Monthly average outstanding
5,207 54,548
Weighted-average daily interest rates

Annual
0.30 % 0.60 %
Period End
0.31 % 0.32 %
Interest expense during the period
6 132
~~The amounts by year of maturity and weighted-average interest rate of FHLB long-term, fixed-rate advances are as follows:~~

December 31, 2021

December 31, 2020

Weighted- Average Interest Rate

Amount

Weighted- Average Interest Rate

Amount

(Dollars in thousands)

Within one year or less
— % $ — 0 % $ 0
After one year through two years
1.54 15,000 1.79 10,000
After two years through three years
1.47 15,000 1.54 15,000
After three years through four years
1.42 25,000 1.47 15,000
After four years through five years
1.55 15,000 1.36 10,000
After five years
1.76 10,000 0 0
1.52 $ 80,000 1.53 $ 50,000

~~125~~116
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2023

December 31, 2022

(In thousands)

Long-term advances
$ 80,000 $ 80,000
Short-term fixed-rate advances
— 10,000
Overnight variable-rate advances
195,000 144,000
Line of credit
6,500 12,000
Subordinated debt, net
39,436 39,358
The maximum and average outstanding balances and average interest rates on FHLB overnight variable-rate advances were as follows:

For the Year Ended December 31,

2023

2022

(Dollars in thousands)

Maximum outstanding at any month-end
$ 195,000 $ 206,000
Monthly average outstanding
149,500 90,983
Weighted-average daily interest rates

Annual
5.26 % 2.83 %
Period End
5.52 % 4.30 %
Interest expense during the period
6,674 1,845
The maximum and average outstanding balances and average interest rates on FHLB short-term, fixed-rate advances were as follows:

For the Year Ended December 31,

2023

2022

(Dollars in thousands)

Maximum outstanding at any month-end
$ 95,000 $ 42,500
Monthly average outstanding
25,000 15,208
Weighted-average daily interest rates

Annual
5.08 % 1.82 %
Period End
5.27 % 2.12 %
Interest expense during the period
1,692 246
The maximum and average outstanding balances and average interest rates on FHLB long-term, fixed-rate advances were as follows:

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

(Dollars in thousands)

(Dollars in thousands)

Maximum outstanding at any month-end
$ 80,000 $ 55,000 $ 85,000 $ 80,000
Monthly average outstanding
52,500 50,000 81,667 80,000
Weighted-average interest rates

Annual
1.46 % 1.75 % 2.00 % 1.52 %
Period End
1.52 % 1.53 % 2.09 % 1.52 %
Interest expense during the period
768 920 1,650 1,260
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts by year of maturity and weighted-average interest rate of FHLB long-term, fixed-rate advances are as follows:

December 31, 2023

December 31, 2022

Amount

Weighted- Average Interest Rate

Amount

Weighted- Average Interest Rate

(Dollars in thousands)

Within one year or less
$ 25,000 2.76 % $ 15,000 1.54 %
After one year through two years
30,000 1.93 15,000 1.47
After two years through three years
15,000 1.55 25,000 1.42
After three years through four years
10,000 1.76 15,000 1.55
After four years through five years
— — 10,000 1.76
$ 80,000 2.09 % $ 80,000 1.52 %
The maximum and average outstanding balances and average interest rates on the line of credit were as follows:

For the Year Ended December 31,

2023

2022

(Dollars in thousands)

Maximum outstanding at any month-end
$ 11,000 $ 12,000
Monthly average outstanding
9,327 5,770
Weighted-average interest rates

Annual
9.15 % 6.76 %
Period End
9.00 % 8.00 %
Interest expense during the period
854 389

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

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

(Dollars in thousands)

(Dollars in thousands)

Maximum outstanding at any month-end
$ 40,000 $ 0 $ 39,436 $ 39,358
Monthly average outstanding
30,370 0 39,395 39,312
Weighted-average interest rates

Annual
3.96 % 0 % 4.01 % 4.01 %
Period End
3.01 % 0 % 4.00 % 4.01 %
Interest expense during the period
1,203 0 1,578 1,577

Note 910 - Federal Taxes on Income

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

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

(In thousands)

(In thousands)

Current
$ 3,131 $ 4,085 $ 415 $ 4,376
Deferred
63 (1,131 ) 134 (1,529 )
$ 3,194 $ 2,954 $ 549 $ 2,847

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A reconciliation of the tax provision (benefit) based on statutory corporate tax rates, estimated to be 21% for the year ended December 31, ~~2021~~2023, on pre-tax income and the provision (benefit) shown in the accompanying consolidated statements of income for the periods shown is summarized as follows:

For the Year Ended December 31,

2021

2020

(In thousands)

Income taxes computed at statutory rates
$ 3,909 $ 2,792
Tax-exempt income
(218 ) (236 )
Bank-owned life insurance income
(203 ) (383 )
Bank-owned life insurance penalty for early surrender of contract
0 748
Other, net
(294 ) 33
$ 3,194 $ 2,954

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For the Year Ended December 31,

2023

2022

(In thousands)

Federal income tax computed at statutory rates
$ 562 $ 3,432
State taxes
5 —
Low-income housing tax credits
(25 ) —
Tax-exempt income
(63 ) (183 )
Bank-owned life insurance income
(195 ) (505 )
FDIC penalty
151 —
Other, net
114 103
$ 549 $ 2,847

As a result of the bad debt deductions taken in years prior to 1988, retained earnings include accumulated earnings of approximately $6.4 million, on which federal income taxes have not been provided. If, in the future, this portion of retained earnings is used for any purpose other than to absorb losses on loans or on property acquired through foreclosure, federal income taxes may be imposed at the then-prevailing corporate tax rates. The Company does not contemplate that such amounts will be used for any purpose that would create a federal income tax liability; therefore, no provision has been made.

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

On ~~March 27, 2020,~~ ~~the CARES Act was enacted in response to the COVID-~~19 ~~pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset~~ ~~100%~~ ~~of taxable income for taxable years beginning before~~ ~~2021.~~ ~~In addition, the CARES Act allows NOLs incurred in~~ ~~2018,~~~~2019,~~ ~~and~~ ~~2020,~~ ~~to be carried back to each of the~~ ~~five~~ ~~preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the impact of the CARES Act and determined that~~ ~~none~~ ~~of the changes would result in a material income tax benefit to the Company.~~
On ~~December 27, 2020,~~ ~~the Consolidated Appropriations Act~~ ~~2021~~ ~~was signed into law and extends several provisions of the CARES Act.~~ As of December 31, ~~2020,~~ 2023, the Company ~~determined that neither~~has written off its investment in Quin Ventures. The tax loss as a result of the investment being written off was of $8.4 million; this ~~Act nor changes~~contributed to an overall net operating loss of $6.3 million for the Company. This net operating loss is not subject to expiration and is able to offset 80% of taxable income in each future year. We believe there will be sufficient income in future years to utilize the loss and, therefore, a valuation allowance is not necessary. As of December 31, 2022, Quin Ventures had a net operating loss carryforward of $5.2 million which was included in the Company's consolidated tax ~~laws or regulations in other jurisdictions will have~~provision. As a ~~significant impact on our effective tax rate.~~result of the Quin Ventures write-off during 2023, the Company wrote off the 2022 Quin Ventures net operating loss carryforward.

The Company applies the provisions of FASB ASC 740 that require the application of a more-likely-than-not recognition criterion for the reporting of uncertain tax positions on its financial statements. The Company had 0no unrecognized tax assets at December 31, ~~2021~~2023 and ~~2020~~2022. ~~During the years ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020~~~~, the Company recognized 0 interest and penalties. The Company recognizes interest~~Interest and penalties are recognized in income tax expense. The Company recognized no interest or penalties during the year ended December 31, 2023, and a small amount of interest and no penalties during the year ended December 31, 2022. The Company files consolidated income tax returns in the U.S. federal jurisdiction and is no longer subject to ~~U.S. federal income~~ tax examinations ~~by tax authorities~~ for years ending before December 31, ~~2017.~~2020.

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

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

(In thousands)

(In thousands)

Deferred tax assets

Allowance for loan losses
$ 3,255 $ 2,971
Allowance for credit losses on loans
$ 3,932 $ 3,528
Unrealized loss on securities available for sale
8,674 10,432
Accrued compensation
461 602 432 368
Nonaccrual loans
1 1 2 —
ESOP timing differences
173 159 168 160
Restricted stock awards
312 152 297 319
Deferred lease liabilities
1,654 868 1,379 1,507
Net operating loss carryforward
1,317 1,111
Employee retention credit benefit
1,009 1,168
Total deferred tax assets
5,856 4,753 17,210 18,593

Deferred tax liabilities

Deferred loan fees
702 605 1,027 1,126
Unrealized gain on securities available for sale
569 1,447
FHLB stock dividends
417 421 — 374
Accumulated depreciation
609 632 706 864
Deferred investment gain
341 58
Outside basis differences in pass-through entity investments
510 424
Defined benefit plan
59 0 576 42
Right of use assets
1,595 840 1,298 1,435
Other, net
3 4 92 237
Total deferred tax liabilities
4,295 4,007 4,209 4,502

Deferred tax asset, net
$ 1,561 $ 746 $ 13,001 $ 14,091

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Note 1011 - Benefit Plans

~~Multi-employer Pension Plan~~
The Bank participated in the Pentegra Defined Benefit Plan for Financial Institutions (the Pentegra DB Plan), a tax-qualified defined-benefit pension plan that covered substantially all employees after ~~one~~ ~~year of continuous employment. Pension benefits vested over a period of~~ ~~five~~ ~~years of credited service. The Pentegra DB Plan’s Employer Identification Number is~~ 13-~~5645888~~ ~~and the Plan Number is~~ ~~12004.~~ ~~The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of~~ ~~1974~~ ~~("ERISA") and the Internal Revenue Code. There are~~ no ~~collective bargaining agreements in place that require contributions to the Pentegra DB Plan. The Pentegra Defined Benefit Plan was frozen and~~ no ~~new benefits were allowed as of~~ ~~February 1, 2010.~~
~~The Pentegra DB Plan is a single plan under Internal Revenue Code Section~~ ~~413~~~~(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan, contributions made by a participating employer~~ ~~may~~ ~~be used to provide benefits to participants of other participating employers.~~
~~The table below presents the funded status (market value of plan assets divided by funding target) of the plan as of~~ ~~July 1:~~
~~2020~~
~~Source~~
~~Valuation Report~~
~~Our plan~~
~~109.7~~ %
~~There was~~ no ~~change to the funded status of the plan as of~~ ~~December 31, 2020.~~ ~~First Fed’s contributions to the Pentegra DB Plan were~~ ~~not~~ ~~more than 5% of the total contributions to the Pentegra DB Plan. First Fed’s policy was to fund pension costs as accrued.~~
~~Total contributions during the periods shown were:~~
Year Ended

December 31, 2020

Date Paid

Amount

(In thousands)

12/24/2020
$ 364
~~Change from Multi-employer to~~ Single-employer Pension Plan

Effective March 23, 2021, the Company ~~withdrew from the Pentegra Defined Benefit Plan for Financial Institutions ("Pentegra DB Plan") and~~ established the First Federal Defined Benefit Plan ("Bank DB Plan"), a single-employer plan. On March 23, 2021, all assets and liabilities were transferred from the prior Pentegra DBDefined Benefit Plan for Financial Institutions to the newly established Bank DB Plan.

The Bank DB Plan is a defined benefit pension plan covering current and former employees. Benefits available under the plan are ~~frozen.~~frozen, not allowing any new participants. The plan provides defined benefits based on years of service and final average salary prior to the freeze. The Company uses December 31 as the measurement date for this plan. ~~The initial measurement period will be~~ ~~March 23, 2021 –~~
A related prior service cost of $1.4 million and $1.6 million, net of tax, was included in accumulated other comprehensive loss on the Company's balance sheet at December 31, ~~2021.~~2023 and 2022, respectively. The prior service cost is expected to be amortized over 15 years.

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The ~~fair value of~~following table summarizes the changes in benefit obligations and plan assets ~~and projected benefit obligation on~~for the periods shown:

December 31, 2023

December 31, 2022

(Dollars in thousands)

Change in fair value of plan assets

Fair value at beginning of period
$ 10,813 $ 15,821
Actual return on plan assets
777 (3,680 )
Benefits paid
(667 ) (462 )
Settlements and curtailments
— (866 )
Fair value at end of period
$ 10,923 $ 10,813

Change in projected benefit obligation

Projected benefit obligation at beginning of period
$ 10,618 $ 15,328
Interest cost
492 374
Actuarial loss
(45 ) (3,756 )
Benefits paid
(667 ) (462 )
Settlements and curtailments
— (866 )
Projected benefit obligation at end of period
$ 10,398 $ 10,618

Funded status at period end
$ 525 $ 195

Amounts recognized on Consolidated Balance Sheet

Other assets
$ 525 $ 195
Accumulated other comprehensive income
(1,708 ) (2,138 )
Net amount recognized
$ 2,233 $ 2,333

Other changes recognized in other comprehensive income

Net (gain) loss
$ (398 ) $ 535
Amortization of prior service (cost) credit
(150 ) (147 )
Amount recognized due to settlement
— (26 )
Net periodic benefit cost (income)
$ (548 ) $ 362

Weighted-average assumptions used to determine projected obligation

Discount rate
4.90 % 5.10 %
Rate of compensation increase
N/A N/A
The Company does ~~March 23, 2021,~~ not~~Bank DB Plan adoption date were $14,705,000 and $14,197,000, respectively. A $2,717,599 cash~~ expect to make a contribution ~~was made~~ to the ~~Pentegra~~Bank DB Plan in ~~March 2021~~ 2024~~prior~~. It is the policy of the Company to fund no less than the ~~transition. A prior service~~minimum funding amount required by ERISA. The following table sets forth the components of net periodic benefit cost ~~of $1.6 million, net of tax, was included~~and other amounts recognized in accumulated other comprehensive ~~loss on~~income (loss) for the ~~Company's balance sheet at~~ ~~December 31, 2021~~~~. The prior service cost is expected to be amortized over 15 years.~~periods shown:

December 31, 2021

(Dollars in thousands)

Fair value, January 1
$ 14,705
Actual return on plan assets
1,618
Company contributions
0
Settlements and curtailments
0
Benefits paid
(502 )
Federal subsidy on benefits paid
0
Fair value, December 31
15,821
Change in projected benefit obligation

Projected benefit obligation, January 1
14,197
Service cost
0
Interest cost
304
Plan amendments
0
Settlements and curtailments
0
Actuarial loss
1,329
Benefits paid
(502 )
Federal subsidy on benefits paid
0
Projected benefit obligation, December 31
15,328
Amounts recognized on Consolidated Balance Sheet

Other assets
493
Accumulated other comprehensive income
(1,852 )
Net amount recognized, December 31
2,345
Funded status, December 31

Accumulated benefit obligation
15,328
Overfunded (underfunded) status of ABO
493
Provision for future salaries
0
Projected benefit obligation
15,328
Weighted-average assumptions, December 31

Discount rate
2.65 %
Rate of compensation increase
N/A
Interest-crediting rate
0.00 %

For the Year Ended December 31,

2023

2022

(Dollars in thousands)

Components of net periodic benefit cost (income)

Interest cost
$ 492 $ 374
Expected return on plan assets
(424 ) (611 )
Amortization of prior service cost
150 147
Settlements and curtailments
— 26
Net periodic benefit cost (income)
$ 218 $ (64 )

Weighted-average assumptions used to determine net cost

Discount rate
5.10 % 2.65 %
Expected return on plan assets
5.40 % 5.30 %
Rate of compensation increase
N/A N/A

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~~The Company does~~ ~~not~~ ~~expect to make a contribution to the Bank DB Plan in~~ ~~2022.~~ ~~It is the policy of the Company to fund~~ no ~~less than the minimum funding amount required by ERISA.~~

For the Year Ended

December 31, 2021

(Dollars in thousands)

Components of Net Period Benefit Cost (Income)

Interest cost
$ 304
Expected return on plan assets
(538 )
Amortization of prior service cost (credit)
(26 )
Other
0
Net periodic benefit cost (income)
(260 )
Other changes recognized in other comprehensive income

Net (gain) loss
$ 249
Amortization of prior service (cost) credit
26
Other
0
Net periodic benefit cost (income)
275
Weighted-average assumptions used to determine net cost

Discount rate
2.65 %
Expected return on plan assets
5.75 %
Rate of compensation increase
N/A
The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the Long-Term Capital Market Assumptions for the corresponding fiscal year end. Gains and losses are recognized in accordance with the standard amortization provisions of the applicable accounting guidance. The Company's net periodic benefit income recognized for the Bank DB Plan is sensitive to the discount rate and expected return on plan assets.

From initial funding in the first quarter of 2021 through December 31, ~~2021~~2023, the Bank DB Plan assets have been invested primarily in fixed income and large U.S. equity funds, with additional investments in international equity, real estate, and small/mid-range U.S. equity funds. The target allocations for ~~2022~~2024 by asset category are presented in the table below.

Asset Category

Fixed Income
80% - 100%
U.S. Equities
~~10%~~0% - 30%
Non-U.S. Equities
0% - 20%
Real Assets
0% - 10%

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Benefit payments projected to be made from the Bank DB Plan are as follows:

December 31, 2021

December 31, 2023

(Dollars in thousands)

(Dollars in thousands)

Estimated future benefit payments

2022
$ 2,390
2023
900
2024
1,010 $ 1,980
2025
870 750
2026
700 630
Years 2027 - 2031
3,980
2027
670
2028
640
Years 2029 - 2033
3,480
Thereafter
5,478 2,248
Projected benefit obligation
$ 15,328 $ 10,398

Fair value measurements, including descriptions of Level 1, 2, and 3 of the fair value hierarchy and the valuation methods employed by the Company are provided in Note 1415 - Fair Value Measurements. Plan investment assets measured at fair value by level and in total are as follows:

December 31, 2021

December 31, 2023

Quoted Prices in Active Markets for Identical Assets or Liabilities

Significant Other Observable Inputs

Significant Unobservable Inputs

Quoted Prices in Active Markets for Identical Assets or Liabilities

Significant Other Observable Inputs

Significant Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

Total

(Level 1)

(Level 2)

(Level 3)

Total

(In thousands)

(In thousands)

Large U.S. Equity
$ 4,848 $ 0 $ 0 $ 4,848 $ 857 $ — $ — $ 857
Small/Mid U.S. Equity
781 0 0 781
International Equity
1,389 0 0 1,389 216 — — 216
Fixed Income
7,769 0 0 7,769 9,850 — — 9,850
Other
1,034 0 0 1,034
$ 15,821 $ 0 $ 0 $ 15,821 $ 10,923 $ — $ — $ 10,923

December 31, 2022

Quoted Prices in Active Markets for Identical Assets or Liabilities

Significant Other Observable Inputs

Significant Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

Total

(In thousands)

Large U.S. Equity
$ 903 $ — $ — $ 903
International Equity
236 — — 236
Fixed Income
9,674 — — 9,674
$ 10,813 $ — $ — $ 10,813
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Nonqualified Deferred Compensation Plan

First Fed also sponsors a nonqualified Deferred Compensation Plan ("DCP") for members of the Board of Directors and eligible officer-level employees. This plan, approved by the Board on February 1, 2012, allows eligible participants to defer and invest a portion of their earnings in a selection of investment options identified in the plan at no expense to First Fed. All deferrals are remitted to Principal, the Plan Administrator, and held in a trust. The aggregate balance held in trust at December 31, ~~2021~~2023, was ~~$1.3~~$1.4 million. The Company's obligation to make payments under the DCP is a general obligation of the Company and is to be paid from the Company's general assets. As such, participants are general unsecured creditors of the Company with respect to their participation of the plan. The market value of the DCP assets is recorded in "other assets" and the related liability to participants is recorded in "other liabilities" on the Balance Sheet.

The Company also has agreements with certain key officers that provide for potential payments upon retirement, disability, termination, change in control and death.

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401(k) Plan

First Fed maintains a single-employer 401(k) plan. Employees may contribute up to 100% of their pre-tax compensation to the 401(k) plan, subject to regulatory limits. First Fed provides matching funds of 50% limited to the first 6% of salary contributed. First Fed's contributions were ~~$569,000~~$566,000 and ~~$380,000~~$634,000 during the years ended December 31, ~~2021~~2023 and December 31, ~~2020~~2022, respectively.

Employee Stock Ownership Plan

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

Pursuant to the Plan, the ESOP purchased in the open market 8% of the common stock originally issued in the mutual to stock conversion. As of December 31, ~~2021~~2023, 1,048,029 shares, or 100% of the total, have been purchased in the open market at an average price of $12.45 per share with funds borrowed from First Northwest. The Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to First Northwest over a period of 20 years, bearing estimated interest at 2.46%.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP assets. Annual principal and interest payments of $835,000 were made by the ESOP during the years ended December 31, ~~2021~~2023 and ~~2020~~2022.

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

Compensation expense related to the ESOP for the years ended December 31, ~~2021~~2023 and ~~2020~~2022, was ~~$675,000~~$418,000 and ~~$475,000,~~$673,000, respectively.

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

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

(Dollars in thousands)

(Dollars in thousands)

Allocated shares
333,396 280,507 439,174 386,285
Committed-to-be-released shares
26,442 26,442 26,514 26,442
Unallocated shares
688,191 741,080 582,341 635,302

Total ESOP shares issued
1,048,029 1,048,029 1,048,029 1,048,029

Fair value of unallocated shares
$ 13,901 $ 11,561 $ 9,283 $ 9,758

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Stock-based Compensation

On November 16, 2015, the Company's shareholders approved the First Northwest Bancorp 2015 Equity Incentive Plan (the "2015 EIP"), which provided for the grant of incentive stock options, non-qualified stock options, restricted stock and restricted stock units to eligible participants. The cost of awards under the 2015 EIP generally is based on the fair value of the awards on their grant date. Shares of common stock issued under the EIP may be authorized but unissued shares or repurchased shares. During the year ended June 30, 2017, the Company purchased and retired 523,014 shares of common stock to be used for future stock awards.

In May 2020, the Company's shareholders approved the First Northwest Bancorp 2020 Equity Incentive Plan ("2020 EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock shares or restricted stock units, and performance share awards to eligible participants through May 2030. The cost of awards under the 2020 EIP generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the 2020 EIP is 520,000. At December 31, ~~2021~~2023, there were ~~344,537~~289,511 total shares available for grant under the 2020 EIP, all of which are available to be granted as restricted shares. Following adoption of the 2020 EIP, no additional awards may be made under the 2015 EIP. At December 31, ~~2021~~2023, ~~103,520~~21,620 restricted shares are outstanding under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.

During the years ended December 31, ~~2021~~2023 and ~~2020~~2022, restricted awards ~~for 102,033~~of 32,449 and ~~161,224~~59,443 shares were awarded, respectively, and 0no stock options were granted. Restricted shares vest ratably over periods of up to five years from the date of grant provided the eligible participant remains in service to the Company. The Company recognizes compensation expense for the restricted awards based on the fair value of the shares at the grant date amortized over the stated period.

For the years ended December 31, ~~2021~~2023 and ~~2020~~2022, total compensation expense for the 2015 and 2020 EIPs was ~~$1.8~~$1.4 million and ~~$1.3~~$1.6 million, respectively.

Included in the above compensation expense for the years ended December 31, ~~2021~~2023 and ~~2020~~2022, was directors' compensation of ~~$368,000~~$246,000 and ~~$358,000,~~$239,000, respectively.

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

For the Year Ended

For the Year Ended

December 31, 2021

December 31, 2023

Shares

Weighted-Average Grant Date Fair Value

Shares

Weighted-Average Grant Date Fair Value

Non-vested at January 1, 2021
292,892 $ 13.96
Non-vested at January 1, 2023
166,839 $ 17.78
Granted
102,033 18.49 32,449 13.90
Vested
(101,751 ) 13.63 (67,007 ) 17.25
Canceled (1)
(19,548 ) 13.63 (20,666 ) 17.25
Forfeited
(37,194 ) 13.30 (15,593 ) 17.40

Non-vested at December 31, 2021
236,432 16.19
Non-vested at December 31, 2023
96,022 $ 17.02

(1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the participant's tax obligation of the vested shares. The surrendered shares are canceled and are unavailable for reissue.

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As of December 31, ~~2021~~2023, there was ~~$3.0 million~~$823,000 of total unrecognized compensation cost related to non-vested restricted shares. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately ~~2.26~~1.25 years.

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Note 1112 - Regulatory Capital Requirements

Under Federal regulations, pre-conversion retained earnings are restricted for the protection of pre-conversion depositors. The Company is a ~~bank~~financial holding company under the supervision of the Federal Reserve Bank of San Francisco. ~~Bank~~Financial holding companies are subject to capital adequacy requirements of the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve Board. The Bank is a federally insured institution and thereby is subject to the capital requirements established by the FDIC. The Federal Reserve Board capital requirements generally parallel the FDIC requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to ~~bank~~financial holding companies.

The minimum requirements are a ratio of common equity Tier 1 capital ("CET1 capital") to total risk-weighted assets the ("CET1 risk-based ratio") of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0%, and a leverage ratio of 4.0%. In addition to the minimum regulatory capital ratios, First Northwest Bancorp and First Fed must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of retained income that could be utilized for such actions. At December 31, ~~2021~~2023, the Bank's CETI capital exceeded the required capital conservation buffer.

At periodic intervals, banking regulators routinely examine First Northwest and First Fed as part of their legally prescribed oversight of the banking industry. A future examination could include a review of certain transactions or other amounts reported in the Company's consolidated financial statements. Based on these examinations, the regulators can direct that the Company's consolidated financial statements be adjusted in accordance with their findings. In view of the uncertain regulatory environment in which First Northwest and First Fed operate, the extent, if any, to which a forthcoming regulatory examination may ultimately result in adjustments to the accompanying consolidated financial statements cannot presently be determined.

At December 31, ~~2021~~2023, First Fed exceeded all regulatory capital requirements. As of December 31, ~~2021~~2023, the most recent regulatory notifications categorized First Fed as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," the Bank must maintain minimum total risk-based, CET1 risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed First Fed’s category.

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

Actual

For Capital Adequacy Purposes

To Be Categorized As Well Capitalized Under Prompt Corrective Action Provision

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of December 31, 2023

Common equity tier 1 capital
$ 214,049 13.12 % $ 73,407 4.50 % $ 106,032 6.50 %
Tier 1 risk-based capital
214,049 13.12 97,876 6.00 130,501 8.00
Total risk-based capital
230,163 14.11 130,501 8.00 163,127 10.00
Tier 1 leverage capital
214,049 9.90 86,508 4.00 108,135 5.00

As of December 31, 2022

Common equity tier 1 capital
$ 215,037 13.40 % $ 72,230 4.50 % $ 104,332 6.50 %
Tier 1 risk-based capital
215,037 13.40 96,306 6.00 128,408 8.00
Total risk-based capital
231,405 14.42 128,408 8.00 160,510 10.00
Tier 1 leverage capital
215,037 10.41 82,607 4.00 103,259 5.00
~~135~~125
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~Actual and required capital amounts and ratios are presented for First Fed in the following table:~~

Actual

For Capital Adequacy Purposes

To Be Categorized As Well Capitalized Under Prompt Corrective Action Provision

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of December 31, 2021

Common equity tier 1 capital
$ 196,319 13.79 % $ 64,081 4.50 % $ 92,562 6.50 %
Tier 1 risk-based capital
196,319 13.79 85,442 6.00 113,923 8.00
Total risk-based capital
211,828 14.88 113,923 8.00 142,403 10.00
Tier 1 leverage capital
196,319 10.56 74,362 4.00 92,953 5.00

As of December 31, 2020

Common equity tier 1 capital
$ 159,842 13.40 % $ 53,678 4.50 % $ 77,535 6.50 %
Tier 1 risk-based capital
159,842 13.40 71,571 6.00 95,427 8.00
Total risk-based capital
173,998 14.59 95,427 8.00 119,284 10.00
Tier 1 leverage capital
159,842 10.28 62,194 4.00 77,742 5.00

Note 1213 - Related Party Transactions

Certain directors and executive officers are also customers who transact business with First Fed. All loans and commitments included in such transactions were made in compliance with applicable laws on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectability or present any other unfavorable features.

The following table presents the activity in loans to directors and executive officers for the periods shown:

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

(In thousands)

(In thousands)

Beginning balance
$ 143 $ 689 $ 64 $ —
Loan advances
1 4 34 64
Loan repayments
(11 ) (550 )
Reclassifications (1)
(133 ) 0 138 —
Ending balance
$ 0 $ 143 $ 236 $ 64

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

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

Deposits and certificates from related parties totaled ~~$3.2~~$4.5 million and ~~$3.0~~$2.2 million at December 31, ~~2021~~2023 and ~~2020~~2022, respectively.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 1314 - Commitments and Contingencies

First Fed is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally represent a commitment to extend credit in the form of loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

First Fed’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, is represented by the contractual notional amount of those instruments. First Fed uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Management does not anticipate any material loss as a result of these transactions.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established by the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. First Fed evaluates each customer’s creditworthiness on a case-by-case basis. First Fed did not incur any significant losses on its commitments for the years ended December 31, ~~2021~~2023, and ~~2020~~2022.

The following financial instruments were outstanding whose contract amounts represent credit risk at:

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

(In thousands)

(In thousands)

Commitments to grant loans
$ 2,720 $ 1,629 $ 220 $ 25
Standby letters of credit
212 182 200 758
Unfunded commitments under lines of credit or existing loans
270,273 212,114 147,981 225,836

~~Variable Interests - Low Income~~Low-Income Housing Tax Credit Investments - The carrying value of the unconsolidated LIHTC investment was $4.7 million and $4.9 million ~~and $0 as of~~at December 31, ~~2021~~2023 and ~~2020~~2022, respectively. During the years ended December 31, ~~2021~~2023 and ~~2020~~2022, the Company ~~recognized 0~~recognized tax ~~benefit or~~benefits of $194,000 and $77,000 and proportional ~~amortization.~~amortization of $165,000 and $66,000, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total unfunded contingent commitments related to the Company’s LIHTC investment totaled ~~$4.7~~$4.4 million and $0$4.7 million, at December 31, ~~2021~~2023 and ~~2020~~2022, respectively. The Company expects to fund LIHTC commitments of ~~$1.2 million during the year ending~~ ~~December 31, 2023~~ ~~and~~ $3.4 million during the year ending December 31, 2024 and $748,000 during the year ending December 31, 2025, with the remaining commitments of ~~$87,000~~$291,000 funded by December 31, ~~2035.~~ 2037. There were 0no impairment losses on the Company’s LIHTC investment during the years ended December 31, ~~2021~~2023 and ~~2020~~2022.

Legal contingencies - Various legal claims may arise from time to time in the normal course of business, which, in the opinion of management, have no current material effect on First Fed’s consolidated financial statements.

Significant group concentrations of credit risk - Concentration of credit risk is the risk associated with a lack of diversification, such as having substantial loan concentrations in a specific type of loan within First Fed’s loan portfolio, thereby exposing First Fed to greater risks resulting from adverse economic, political, regulatory, geographic, industrial, or credit developments. Loans to one borrower are subject to the state banking regulations general limitation of 20 percent of First Fed’s equity, excluding accumulated other comprehensive income. At December 31, ~~2021~~2023 and ~~2020~~2022, First Fed’s most significant concentration of credit risk was in loans secured by real estate. These loans totaled approximately ~~$1.12~~$1.33 billion and ~~$929.2 million,~~$1.24 billion, or ~~82.5%~~80.0% and ~~80.5%~~79.8%, of First Fed’s total loan portfolio at December 31, ~~2021~~2023 and ~~2020~~2022, respectively. Real estate construction, including land acquisition and land development, commercial real estate, multi-family, home equity, and one~~- to~~ -to-four~~-family~~ family residential loans, are included in the total loans secured by real estate for purposes of this calculation.

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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
At December 31, ~~2021~~2023 and ~~2020~~2022, First Fed’s most significant investment portfolio exposure was from municipal bonds totaling $87.8 million and $98.1 million, or 28.4% and 29.0%, of the total investment portfolio. At December 31, 2023 and 2022, First Fed's second most significant investment concentration of credit risk was with the U.S. Government, its agencies, and Government-Sponsored Enterprises ~~(GSEs)~~("GSEs"). First Fed’s exposure, which results from positions in securities issued by the U.S. Government, its agencies, and securities guaranteed by GSEs, was ~~$99.8~~$88.7 million and ~~$151.0~~$87.3 million, or ~~28.6%~~28.7% and ~~40.8%~~25.8%, of First Fed’s total investment portfolio (including FHLB stock) at December 31, ~~2021~~2023 and ~~2020~~2022, respectively. At ~~December 31, 2021~~~~, First Fed's~~ ~~second~~ ~~most significant exposure was from municipal bonds totaling $113.4 million, or 32.4%, of the total investment portfolio.~~

Note 1415 - Fair Value Measurements

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

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

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

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

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

Level 3 - Unobservable inputs.

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

~~Qualitative disclosures~~
127

Table of ~~valuation techniques~~ -Contents
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company used the following methods to measure fair value on a recurring and nonrecurring basis.
Securities available for ~~sale: where~~sale: Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities.
If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for ~~a particular~~an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.

~~138~~

~~Table~~
Partnership investments: Management determines fair value using quoted prices of ~~Contents~~
~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~similar investments or discounted cash flows, which are considered Level 2, when available. Where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. The Company believes that the net asset value obtained through financial statements provided by each partnership approximates fair value. Such instruments are classified as Level 3.

Sold loan servicing rights, at fair value: The fair value of sold loan servicing rights is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs. Servicing rights are classified as Level 3 due to reliance on assumptions used in the valuation.
Loans receivable, net: The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans and leases would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.
Interest rate swap derivative: The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third-party pricing services without adjustment.
Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets and liabilities measured at fair value on a recurring basis at the dates indicated:

December 31, 2021

Quoted Prices in Active Markets for Identical Assets or Liabilities

Significant Other Observable Inputs

Significant Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

Total

(In thousands)

Securities available for sale

Municipal bonds
$ 5,902 $ 107,462 $ 0 $ 113,364
Agency bonds
0 1,920 0 1,920
ABS corporate
0 14,489 0 14,489
SBA
0 14,680 0 14,680
Corporate debt
6,061 53,728 0 59,789
MBS agency
0 79,962 0 79,962
MBS corporate
0 60,008 0 60,008
Equity investments
0 3,071 0 3,071
$ 11,963 $ 335,320 $ 0 $ 347,283

December 31, 2020

Quoted Prices in Active Markets for Identical Assets or Liabilities

Significant Other Observable Inputs

Significant Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

Total

(In thousands)

Securities available for sale

Municipal bonds
$ 0 $ 127,862 $ 0 $ 127,862
ABS agency
0 63,820 0 63,820
ABS corporate
0 29,280 0 29,280
SBA
0 18,564 0 18,564
Corporate debt
0 32,970 2,540 35,510
MBS agency
0 62,683 0 62,683
MBS corporate
0 20,205 6,372 26,577
Equity investments
0 1,260 0 1,260
$ 0 $ 356,644 $ 8,912 $ 365,556

December 31, 2023

Quoted Prices in Active Markets for Identical Assets or Liabilities

Significant Other Observable Inputs

Significant Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

Total

Financial Assets

(In thousands)

Securities available for sale

Municipal bonds
$ 5,118 $ 82,643 $ — $ 87,761
ABS agency
— 11,782 — 11,782
ABS corporate
— 5,286 — 5,286
Corporate debt
1,883 49,571 — 51,454
MBS agency
— 63,247 — 63,247
MBS non-agency
— 48,624 27,469 76,093
Sold loan servicing rights
— — 3,793 3,793
Partnership investments
— — 13,183 13,183
Total assets measured at fair value
$ 7,001 $ 261,153 $ 44,445 $ 312,599
Financial Liabilities

Interest rate swap derivative
$ — $ 1,002 $ — $ 1,002

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~The significant unobservable inputs in the fair value measurement of the Company's Level~~ 3 ~~securities are noted below. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.~~

December 31, 2022

Quoted Prices in Active Markets for Identical Assets or Liabilities

Significant Other Observable Inputs

Significant Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

Total

Financial Assets

(In thousands)

Securities available for sale

Municipal bonds
$ 4,913 $ 93,137 $ — $ 98,050
U.S. Treasury notes
2,364 — — 2,364
Agency bonds
— 1,702 — 1,702
Corporate debt
5,326 50,173 — 55,499
MBS agency
— 75,648 — 75,648
MBS non-agency
— 63,707 29,599 93,306
Sold loan servicing rights
— — 3,887 3,887
Partnership investments
— — 12,563 12,563
Total assets measured at fair value
$ 12,603 $ 284,367 $ 46,049 $ 343,019

The following table ~~presents quantitative~~provides a description of the valuation technique, unobservable input, and qualitative information about ~~recurring~~the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value ~~measurements~~on a recurring basis at the date indicated:
December 31, 2020

Fair Value (In thousands)

Valuation Technique

Unobservable Input

Range (a)

Corporate debt
$ 1,540
Consensus pricing

Offered quotes

89 - 91

Comparability adjustments (%)

-0.7% - +1.3%

1,000
Consensus pricing

Offered quotes
92 - 100

Comparability adjustments (%)
-7.4% - 0%
MBS corporate
6,372
Consensus pricing

Offered quotes
104 - 107

Comparability adjustments (%)

-1.5% - +1.5%

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

December 31, 2023

Fair Value (In thousands)

Valuation Technique

Unobservable Input

Range (Weighted Average) (a)

Sold loan servicing rights
$ 3,793
Discounted cash flow

Constant prepayment rate

4.10% - 47.53% (7.39%)

Discount rate

11.00% - 13.42% (11.74%)

MBS non-agency
$ 27,469
Consensus pricing

Offered quotes
98 - 100

Partnership investments
$ 13,183
Net asset value per share

Net asset value
n/a
(a) Unobservable inputs were weighted by the relative fair value of the instruments.

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

December 31, 2021

Balance at January 1, 2021

Transfers Out of Level 3 (1)

Purchases

Unrealized

Total

(In thousands)

Securities available for sale

Corporate debt
$ 2,540 $ (2,540 ) $ 0 $ 0 $ 0
MBS corporate
6,372 (6,372 ) — 0 0
$ 8,912 $ (8,912 ) $ 0 $ 0 $ 0

As of or For the Year Ended December 31,

2023

2022

(In thousands)

Sold loan servicing rights:

Balance at beginning of period
$ 3,887 $ 3,820
Servicing rights that result from transfers and sale of financial assets
149 54
Changes in fair value due to changes in model inputs or assumptions ⁽¹⁾
(243 ) 13
Balance at end of period
$ 3,793 $ 3,887
(1) Represents changes due to collection/realization of expected cash flows and curtailments.

(1~~) Transferred from Level~~ 3 ~~to Level~~ 2 ~~after obtaining observable market data.~~

December 31, 2020

Balance at January 1, 2020

Transfers Into Level 3 (1)

Purchases

Unrealized

Total

(In thousands)

Securities available for sale

Corporate debt
$ 0 $ 1,540 $ 1,000 $ 0 $ 2,540
MBS corporate
0 0 6,372 0 6,372
$ — $ 1,540 $ 7,372 $ — $ 8,912
(1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the securities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of or For the Year Ended December 31,

2023

2022

(In thousands)

Securities available for sale:

MBS non-agency

Balance at beginning of period
$ 29,599 $ —
Transfers Into Level 3 ⁽¹⁾
— 29,599
Sales
(1,912 )
Unrealized Losses
(218 ) —
Balance at end of period
$ 27,469 $ 29,599
(1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the investments.

As of or For the Year Ended December 31,

2023

2022

(In thousands)

Partnership investments:

Balance at beginning of period
$ 12,563 $ —
Transfers Into Level 3 ⁽¹⁾
— 12,490
Purchases, net of Distributions
620 —
Unrealized Gains
— 73
Balance at end of period
$ 13,183 $ 12,563
(1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the investments.

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

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

December 31, 2021

Level 1

Level 2

Level 3

Total

(In thousands)

Impaired loans
$ 0 $ 0 $ 3,195 $ 3,195

December 31, 2020

Level 1

Level 2

Level 3

Total

(In thousands)

Impaired loans
$ 0 $ 0 $ 5,511 $ 5,511
Real estate owned and repossessed assets
0 0 2 2
$ 0 $ 0 $ 5,513 $ 5,513

December 31, 2023

Level 1

Level 2

Level 3

Total

(In thousands)

Collateral dependent loan
$ — $ — $ 17,388 $ 17,388

~~During the years ended~~At December 31, ~~2021~~ ~~and~~ ~~2020~~2023, there were 0no collateral dependent loans with discounts to appraisal disposition value or other unobservable inputs.

December 31, 2022

Level 1

Level 2

Level 3

Total

(In thousands)

Impaired loans
$ — $ — $ 3,034 $ 3,034
At December 31, 2022, there were no impaired loans with discounts to appraisal disposition ~~value. The following table presents the techniques used to~~ value ~~assets measured at fair value on a nonrecurring basis at the dates indicated:~~or other unobservable inputs.

December 31, 2020

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted-Average) (1)

(In thousands)

Real estate owned and repossessed assets
$ 2
Market comparable

Discount to appraisal
0% - 10%(5%)

(1~~) Discount to appraisal disposition value.~~
~~141~~130
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2021

December 31, 2023

Carrying

Estimated Fair

Fair Value Measurements Using:

Carrying

Estimated Fair

Fair Value Measurements Using:

Amount

Value

Level 1

Level 2

Level 3

Amount

Value

Level 1

Level 2

Level 3

(In thousands)

(In thousands)

Financial assets

Cash and cash equivalents
$ 126,016 $ 126,016 $ 126,016 $ 0 $ 0 $ 123,169 $ 123,169 $ 123,169 $ — $ —
Investment securities available for sale
344,212 347,283 11,963 335,320 0 295,623 295,623 7,001 261,153 27,469
Loans held for sale
760 760 0 760 0 753 753 — 753 —
Loans receivable, net
1,350,260 1,328,589 0 0 1,328,589 1,642,518 1,506,130 — — 1,506,130
FHLB stock
5,196 5,196 0 5,196 0 13,664 13,664 — 13,664 —
Accrued interest receivable
5,289 5,289 0 5,289 0 7,894 7,894 — 7,894 —
Servicing rights on sold loans, net
3,282 3,820 0 0 3,820
Equity investments
3,071 3,071 0 3,071 0

Servicing rights on sold loans, at fair value
3,793 3,793 — — 3,793
Partnership investments
13,183 13,183 — — 13,183
Financial liabilities

Demand deposits
$ 1,333,337 $ 1,333,337 $ 1,333,337 $ 0 $ 0 $ 1,469,266 $ 1,469,266 $ 1,469,266 $ — $ —
Time deposits
247,243 247,217 0 0 247,217 207,626 648,428 — — 648,428
Borrowings
80,000 80,192 0 0 80,192
FHLB borrowings
275,000 271,284 — — 271,284
Line of credit
6,500 6,524 — — 6,524
Subordinated debt, net
39,280 39,144 0 0 39,144 39,436 42,116 — — 42,116
Accrued interest payable
393 393 0 393 0 3,396 3,396 — 3,396 —
Interest rate swap derivative
1,002 1,002 — 1,002 —

December 31, 2020

December 31, 2022

Carrying

Estimated Fair

Fair Value Measurements Using:

Carrying

Estimated Fair

Fair Value Measurements Using:

Amount

Value

Level 1

Level 2

Level 3

Amount

Value

Level 1

Level 2

Level 3

(In thousands)

(In thousands)

Financial assets

Cash and cash equivalents
$ 65,155 $ 65,155 $ 65,155 $ 0 $ 0 $ 45,596 $ 45,596 $ 45,596 $ — $ —
Investment securities available for sale
364,296 365,556 0 356,644 8,912 326,569 326,569 12,603 284,367 29,599
Loans held for sale
3,753 3,753 0 3,753 0 597 597 — 597 —
Loans receivable, net
1,141,969 1,129,570 0 0 1,129,570 1,531,435 1,461,470 — — 1,461,470
FHLB stock
5,977 5,977 0 5,977 0 11,681 11,681 — 11,681 —
Accrued interest receivable
6,966 6,966 0 6,966 0 6,743 6,743 — 6,743 —
Servicing rights on sold loans, net
2,120 2,189 0 0 2,189 3,887 3,887 — — 3,887
Equity investments
1,260 1,260 0 1,260 0

Partnership investments
12,563 12,563 — — 12,563
Financial liabilities

Demand deposits
$ 1,024,748 $ 1,024,748 $ 1,024,748 $ 0 $ 0 $ 1,182,570 $ 1,182,570 $ 1,182,570 $ — $ —
Time deposits
308,769 310,992 0 310,992 0 381,685 372,865 — — 372,865
Borrowings
109,977 111,462 0 111,462 0
FHLB Borrowings
234,000 229,103 — — 229,103
Line of credit
12,000 12,034 — — 12,034
Subordinated debt, net
39,358 39,358 — — 39,358
Accrued interest payable
53 53 0 53 0 455 455 — 455 —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1516 - Earnings per Common Share

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

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

For the Year Ended December 31,

For the Year Ended December 31,

2021

2020

2023

2022

(In thousands, except share data)

(In thousands, except share data)

Net income:

Net income attributable to parent:

Net income available to common shareholders
$ 15,418 $ 10,340 $ 2,286 $ 15,645
Earnings allocated to participating securities
(505 ) (292 ) (11 ) (141 )
Earnings allocated to common shareholders
$ 14,913 $ 10,048 $ 2,275 $ 15,504

Basic:

Weighted average common shares outstanding
10,151,946 10,407,042 9,655,499 9,956,823
Weighted average unvested restricted stock awards
(310,088 ) (270,991 ) (135,108 ) (219,776 )
Weighted average unallocated ESOP shares
(707,905 ) (765,273 ) (602,107 ) (655,015 )
Total basic weighted average common shares outstanding
9,133,953 9,370,778 8,918,284 9,082,032

Diluted:

Basic weighted average common shares outstanding
9,133,953 9,370,778 8,918,284 9,082,032
Dilutive restricted stock awards
94,787 31,420 22,896 61,583
Total diluted weighted average common shares outstanding
9,228,740 9,402,198 8,941,180 9,143,615

Basic earnings per common share
$ 1.63 $ 1.07 $ 0.26 $ 1.71

Diluted earnings per common share
$ 1.63 $ 1.07 $ 0.26 $ 1.71

Potentially dilutive shares are excluded from the computation of EPS if their effect is anti-dilutive. For the years ended December 31, ~~2021~~2023 and ~~2020~~2022, anti-dilutive shares as calculated under the treasury stock method totaled ~~115~~10,965 and ~~33,208,~~3,460, respectively.

Note 17 - Derivatives and Hedging Activities
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreement without the exchange of the underlying notional amount.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges. The Company had no fair value hedges at December 31, 2022.

Carrying Amount of the Hedged Assets

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets

(In thousands)

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

December 31, 2023

Interest on investment securities ⁽¹⁾
$ 51,054 $ 1,054
Total
$ 51,054 $ 1,054
(1) These amounts include the amortized cost basis of a closed portfolio of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At December 31, 2023, the amortized cost basis of the closed portfolio used in this hedging relationship was $57.4 million, the cumulative basis adjustments associated with this hedging relationship was $1.1 million, and the amount of the designated hedged items was $50.0 million.
The following table summarizes the Company’s derivative instruments at the date indicated. The Company has master netting agreements with derivative dealers with which it does business, but reflects gross assets and liabilities as “Other assets” and “Other liabilities,” respectively, on the Consolidated Balance Sheets, as follows:

Fair Value

Notional Amount

Other Assets

Other Liabilities

(In thousands)

December 31, 2023

Fair value hedges:

Interest rate swaps - securities
$ 50,000 $ — $ 1,002
The following table summarizes the effect of fair value accounting on the Consolidated Statements of Income for the periods shown:

Year Ended December 31,

2023

2022

(In thousands)

Total amount recognized in interest on investment securities
$ 13,279 $ 10,866
Net gains (losses) on fair value hedging relationships included in the preceding total

Interest rate swaps - securities

Recognized on hedged items
$ 1,054 $ —
Recognized on derivatives designated as hedging instruments
(605 ) —
Net income recognized on fair value
$ 449 $ —
Credit Risk-related Contingent Features
The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted.
The Company has an interest rate swap agreement with its derivative counterparty that contains a provision where if the Company either defaults or fails to maintain its status as a well or adequately capitalized institution, then the Company could be required to terminate the contract or post additional collateral. At December 31, 2023, the Company had $1.0 million derivatives in a net liability position related to this agreement. The Company has minimum collateral posting thresholds with its derivative counterparty and has posted cash of $1.1 million to secure the interest rate swap agreement at December 31, 2023. In certain cases, the Company will have posted excess collateral compared to total exposure due to initial margin requirements or day-to-day rate volatility.
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2023, the Company was in compliance with all credit risk-related contingent features. Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial.

Note 1618 - Change in Accumulated Other Comprehensive Income ("AOCI")
AOCI includes unrealized gain (loss) on available-for-sale securities and an unrecognized defined benefit plan prior service cost. The following table presents changes to accumulated other comprehensive income after-tax for the periods shown:

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

Net Actuarial Gains (Losses) on Defined Benefit Plan Assets

Unrecognized Defined Benefit Plan Prior Service Cost, Net of Amortization

Unrealized Gains (Losses) on Derivatives

Total

(In thousands)

Balance at December 31, 2021
$ 2,140 $ (197 ) $ (1,655 ) $ — $ 288
Other comprehensive loss before reclassification
(40,451 ) (403 ) — — (40,854 )
Amounts reclassified from accumulated other comprehensive income
(93 ) — 116 — 23
Net other comprehensive (loss) income
(40,544 ) (403 ) 116 — (40,831 )
Balance at December 31, 2022
$ (38,404 ) $ (600 ) $ (1,539 ) $ — $ (40,543 )

Balance at December 31, 2022
$ (38,404 ) $ (600 ) $ (1,539 ) $ — $ (40,543 )
Other comprehensive income before reclassification
4,066 312 — (828 ) 3,550
Amounts reclassified from accumulated other comprehensive income
4,239 — 118 — 4,357
Net other comprehensive income
8,305 312 118 (828 ) 7,907
Balance at December 31, 2023
$ (30,099 ) $ (288 ) $ (1,421 ) $ (828 ) $ (32,636 )
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FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 - Parent Company Only Financial Statements

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

FIRST NORTHWEST BANCORP
Condensed Balance Sheets
(In thousands)

December 31, 2021

December 31, 2020

December 31, 2023

December 31, 2022

ASSETS

Cash and due from banks
$ 14,087 $ 8,655 $ 500 $ 1,028
Investment in bank
198,660 165,285 180,766 176,297
Investment in equity securities
2,588 1,260
Equity and partnership investments
14,122 10,371
ESOP loan receivable
9,576 10,164 8,354 8,972
Commercial business loan receivable
5,000 0
Commercial business loans receivable, net
4,000 14,912
Accrued interest receivable
300 126 430 678
Prepaid expenses and other assets
525 1,069 1,714 1,214

Total assets
$ 230,736 $ 186,559 $ 209,886 $ 213,472

LIABILITIES AND SHAREHOLDERS' EQUITY

Subordinated debt, net
$ 39,280 $ 0 $ 39,436 $ 39,358
Line of credit
6,500 12,000
Interest payable
375 0 378 375
Payable to subsidiary
96 72 174 96
Other liabilities
24 104 58 70

Total liabilities
39,775 176 46,546 51,899

Shareholders' equity
190,961 186,383 163,340 161,573

Total liabilities and shareholders' equity
$ 230,736 $ 186,559 $ 209,886 $ 213,472

FIRST NORTHWEST BANCORP
Condensed Statements of Income
(In thousands)

For the Year Ended December 31,

2023

2022

Operating income:

Interest and fees on loans receivable
$ 737 $ 954
Unrealized gain (loss) on equity and partnership investments
444 (513 )
Dividends from Bank
8,000 3,000
Total operating income
9,181 3,441
Operating expenses:

Interest paid on subordinated debt, net
1,578 1,578
Interest paid on line of credit
855 388
(Recapture of) provision for credit losses on loans
(73 ) 73
Other expenses
2,817 1,221
Total operating expenses
5,177 3,260
Income before (benefit) provision for income taxes and equity in undistributed earnings of subsidiary
4,004 181
(Benefit) provision for income taxes
(873 ) 26
Income before equity in undistributed earnings of subsidiary
4,877 155
Equity in undistributed earnings of subsidiary
(2,591 ) 15,490
Net income
$ 2,286 $ 15,645

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FIRST NORTHWEST BANCORP
Condensed Statements of ~~Income~~Cash Flows
(In thousands)

For the Year Ended December 31,

2021

2020

Operating income:

Interest and fees on loans receivable
$ 420 $ 254
Interest on mortgage-backed and related securities
0 58
Interest on investment securities
0 105
Gain (loss) on sale of securities
0 250
Unrealized gain (loss) on equity securities
788 (140 )
Dividends from Bank
1,000 2,000
Total operating income
2,208 2,527
Operating expenses:

Interest paid on subordinated debt, net
1,203 0
Other expenses
1,759 875
Total operating expenses
2,962 875
(Loss) income before benefit for income taxes and equity in undistributed earnings of subsidiary
(754 ) 1,652
Benefit for income taxes
(368 ) (73 )
(Loss) income before equity in undistributed earnings of subsidiary
(386 ) 1,725
Equity in undistributed earnings of subsidiary
16,804 10,615

Net income
$ 16,418 $ 12,340

For the Year Ended December 31,

2023

2022

Cash flows from operating activities:

Net income
$ 2,286 $ 15,645
Adjustments to reconcile net income to net cash from operating activities:

Equity in undistributed earnings of subsidiary
2,591 (15,490 )
Amortization of deferred loan fees
65 15
Amortization of debt issuance costs
78 78
(Recapture of) provision for credit losses on loans
(73 ) 73
Change in payable to subsidiary
78 —
Change in accrued interest receivable and other assets
260 (51 )
Change in accrued interest payable and other liabilities
(9 ) 46
Net cash from operating activities
5,276 316
Cash flows from investing activities:

Net decrease (increase) loans receivable
2,912 (10,000 )
ESOP loan repayment
618 604
Capital contributions to equity investments
(438 ) (7,364 )
Capital disbursements from equity and partnership agreements
733 —
Net cash from investing activities
3,825 (16,760 )
Cash flows from financing activities:

Net (decrease) increase in line of credit
(5,500 ) 12,000
Repurchase of common stock
(1,149 ) (5,828 )
Restricted stock awards canceled
(280 ) —
Payment of dividends
(2,700 ) (2,787 )
Net cash from financing activities
(9,629 ) 3,385
Net decrease in cash
(528 ) (13,059 )
Cash and cash equivalents at beginning of period
1,028 14,087
Cash and cash equivalents at end of period
$ 500 $ 1,028

Supplemental disclosures of cash flow information:

Cash paid during the year for income taxes
$ (192 ) $ (824 )
Cash paid during the year for interest on borrowings
1,500 1,500

Supplemental disclosures of noncash investing activities:

(Loss on) equity investment in Quil received through Quin Ventures asset sale
$ (225 ) $ 225
Investment in Meriwether Group, LLC acquired through issuance of shares
— 1,869
Note 20 - Subsequent Event

On January 30, 2024, the Bank entered into an agreement for the purchase and sale of real property (the "Sale Agreement") with Mountainseed Real Estate Services, LLC, a Georgia limited liability company ("Mountainseed"), providing for the Bank’s sale to Mountainseed of up to six properties (the "Properties") for an aggregate cash purchase price of $14.67 million, assuming all of the Properties are sold. All of the properties are currently operated as branches and located in Clallam County or Jefferson County, Washington.
Under the Sale Agreement, Mountainseed has the right to terminate the Sale Agreement prior to closing, in its entirety or with respect to any of the Properties. The Bank may terminate the Sale Agreement if Mountainseed determines to purchase fewer than four of the Properties.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~FIRST NORTHWEST BANCORP~~
~~Condensed Statement~~The parties have agreed, concurrently with the closing of ~~Cash Flows~~
~~(In thousands)~~the sale of the Properties, to enter into triple net lease agreements (the "Lease Agreements") pursuant to which the Bank will lease each of the Properties sold. Each Lease Agreement will have an initial term of ﬁfteen years with one 15-year renewal option. The Lease Agreements will provide for annual rent of approximately $1.35 million in the aggregate for all Properties. Assuming all of the Properties are sold, the increase in rent will be partially oﬀset by the elimination of the depreciation expense on the buildings and investment of the proceeds.

For the Year Ended December 31,

2021

2020

Cash flows from operating activities:

Net income
$ 16,418 $ 12,340
Adjustments to reconcile net income to net cash from operating activities:

Equity in undistributed earnings of subsidiary
(16,804 ) (10,615 )
Amortization of premiums and accretion of discounts on investments, net
0 50
Amortization of debt issuance costs
57 0
Gain on sale of securities available for sale
0 (250 )
Share-based compensation
500 0
Change in payable to subsidiary
24 (105 )
Change in other assets
(421 ) (171 )
Change in other liabilities
295 81

Net cash from operating activities
69 1,330

Cash flows from investing activities:

Proceeds from maturities, calls, and principal repayments of securities available for sale
0 2,065
Proceeds from sales of securities available for sale
0 9,872
Dividend paid to subsidiary
(20,000 ) 0
Loan originations, net of repayments
(5,000 ) 0
ESOP loan repayment
588 576
Investment in equity securities
(584 ) (1,401 )

Net cash from investing activities
(24,996 ) 11,112

Cash flows from financing activities:

Proceeds from issuance of subordinated debt, net
39,223 0
Repurchase of common stock
(6,331 ) (7,591 )
Payment of dividends
(2,533 ) (2,185 )

Net cash from financing activities
30,359 (9,776 )

Net increase in cash
5,432 2,666

Cash and cash equivalents at beginning of period
8,655 5,989

Cash and cash equivalents at end of period
$ 14,087 $ 8,655

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for income taxes
$ (987 ) $ 360
Cash paid during the year for interest on borrowings
$ 771 $ 0
The Company anticipates the transaction will close, if at all, no later than the second quarter of 2024. The closing is subject to Mountainseed performing satisfactory due diligence on the Properties and other customary closing conditions. The sale-leaseback transaction is expected to result in a pre-tax gain, assuming all of the Properties are sold.

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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~Note~~ 17 ~~- Business Combination~~
On ~~July 23, 2021,~~ the Bank acquired certain assets and assumed liabilities of the Sterling Bank and Trust of Southfield, Michigan ("Sterling") upon purchasing their sole branch located in Washington State. As a result of the Sterling transaction, the Bank has established a presence in Bellevue, Washington, and expanded its deposit base. Total consideration paid under the Sterling transaction consisted of $63.5 million in cash. There were no ~~transfers of common stock or other equity instruments in connection with the transaction, and the Bank did~~ ~~not~~ ~~obtain any equity interests in Sterling.~~
~~The acquired assets and assumed liabilities were recorded in the Company's consolidated balance sheets at their estimated fair value as of the~~ ~~July 23, 2021,~~ transaction date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired was recorded as goodwill. The goodwill arising from the transaction consists largely of a premium paid for the deposit accounts.
In most instances, determining the estimated fair values of the acquired assets and assumed liabilities required the Bank to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at the appropriate rate of interest. Differences ~~may~~ arise between contractually required payments and the expected cash flows at the acquisition date due to items such as prepayments or early withdrawals, and other factors. Goodwill is expected to be fully deductible for income tax purposes as, under the terms of the transaction, the Bank purchased certain assets and assumed certain liabilities of Sterling but did ~~not~~ ~~acquire any equity or other ownership interests.~~
The following table summarizes the fair value of consideration transferred, the estimated fair values of assets acquired and liabilities assumed as of the acquisition date, and the resulting goodwill relating to the transaction (in thousands):

At July 23, 2021

Book Value

Fair Value Adjustment

Estimated Fair Value

(In thousands)

Cash consideration received
0 0 $ 63,545

Recognized amounts of identifiable assets acquired and liabilities assumed

Identifiable assets acquired

Core deposit intangible ("CDI")
$ 0 $ 126 $ 126
Premises and equipment
459 — 459
Accrued interest receivable and other assets
755 — 755
Total identifiable assets acquired
1,214 126 1,340

Liabilities assumed

Deposits
$ 65,096 $ (229 ) $ 64,867
Accrued expenses and other liabilities
1,080 — 1,080
Total liabilities assumed
66,176 (229 ) 65,947
Total identifiable net liabilities assumed
(64,962 ) 355 (64,607 )
Goodwill recognized
$ 1,062
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~~FIRST NORTHWEST BANCORP AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
CDI represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of an acquisition. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ~~ten~~ ~~years. CDI is evaluated for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount~~ ~~may~~ ~~not~~ ~~be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life.~~
~~Note~~ 18 ~~- Change in Accumulated Other Comprehensive Income ("AOCI")~~
Our AOCI includes unrealized gain (loss) on available-for-sale securities and an unrecognized defined benefit plan prior service cost. The following table presents changes to accumulated other comprehensive income after-tax for the periods shown:

Unrealized Gains and Losses on Available-for-Sale Securities

Unrecognized Defined Benefit Plan Prior Service Cost, Net of Amortization

Total

(In thousands)

BALANCE, December 31, 2019
$ (1,539 ) $ 0 $ (1,539 )
Other comprehensive income before reclassification
9,467 0 9,467
Amounts reclassified from accumulated other comprehensive income
(2,486 ) 0 (2,486 )
Net other comprehensive income
6,981 0 6,981
BALANCE, December 31, 2020
$ 5,442 $ 0 $ 5,442

BALANCE, December 31, 2020
$ 5,442 $ 0 $ 5,442
Other comprehensive loss before reclassification
(1,398 ) (1,852 ) (3,250 )
Amounts reclassified from accumulated other comprehensive income
(1,904 ) 0 (1,904 )
Net other comprehensive loss
(3,302 ) (1,852 ) (5,154 )
BALANCE, December 31, 2021
$ 2,140 $ (1,852 ) $ 288
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~~Table of Contents~~

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure controls and procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Section 13a-15(e) of the Securities Exchange Act of 1934 (the "Act") was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management as of the end of the period covered by this report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures in effect as of December 31, ~~2021~~2023 were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act was (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management's report on internal control over financial reporting. First Northwest Bancorp's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Act. The Company's internal control system is designed to provide reasonable assurance to our management and the board of directors regarding the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles.

This process includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, ~~2021.~~2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on that assessment, the Company's management believes that, as of December 31, ~~2021,~~2023, First Northwest Bancorp's internal control over financial reporting is effective based on those criteria.

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~~Table of Contents~~
Moss Adams LLP, an independent registered public accounting firm, has audited the Company's consolidated financial statements as of December 31, ~~2021,~~2023, which is included in Item 8. Financial Statements and Supplementary Data.

Changes in Internal Controls. There have been no changes in the Company’s internal control over financial reporting for the year ended December 31, ~~2021~~2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Table of Contents
Item 9B. Other Information

Not applicable.

Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections

None.
PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information regarding the Company's directors contained under the section captioned "Proposal 1 – Election of Directors" in the Company’s proxy statement, a copy of which will be filed with the SEC no later than 120 days after December 31, ~~2021,~~2023, (the "Proxy Statement"), is incorporated herein by reference.

For information regarding the executive officers of the Company and the Bank, see the information contained under the section captioned "Item 1. Business - Information About Our Executive Officers," which is incorporated by reference.

The Company has an audit committee. The members of the Audit Committee are directors Sherilyn Anderson (Chairperson), Stephen Oliver, Dana Behar, Cindy Finnie, Lynn Terwoerds and Jennifer Zaccardo. Each member of the Audit Committee is "independent" as defined in the Nasdaq Stock Market listing standards. The Board of Directors has determined that Ms. Zaccardo meets the definition of "audit committee financial expert," as defined by the SEC.

The Board of Directors has adopted a Code of Ethics for the Company’s officers (including its principal executive officer and senior financial officers), directors and employees. The Company’s Code of Ethics is posted on the Investor Relations section of our website at www.ourfirstfed.com.

The information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 included in the section captioned "Delinquent Section 16(a) Reports" in the Proxy Statement is incorporated herein by reference.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Company's Board of Directors.

Item 11. Executive Compensation

The information contained in the sections captioned "Executive Compensation" and "Director Compensation" in the Proxy Statement is incorporated herein by reference.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information contained in the sections captioned "Principal Shareholders" and "Beneficial Ownership by Directors and Named Executive Officers" in the Proxy Statement is incorporated herein by reference.

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Table of Contents
The following table summarizes share and exercise price information about First Northwest Bancorp's equity compensation plans as of December 31, ~~2021.~~2023.
Plan category

Number of securities to be issued upon exercise of outstanding options, warrants, and rights

Weighted-average exercise price of outstanding options, warrants, and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders:

First Northwest Bancorp 2020 Equity Incentive Plan ⁽¹⁾
— N/A ~~344,537~~289,511
Equity compensation plans not approved by security holders
N/A N/A N/A

Total
— — ~~344,537~~289,511

(1) Shareholders approved the First Northwest Bancorp 2020 Equity Incentive Plan (the ~~'2020 Plan'~~"2020 Plan") on May 5, 2020. As of December 31, ~~2021, 132,912~~2023, 74,402 restricted shares were outstanding under the 2020 Plan and no stock options have been awarded. The restricted shares will vest in equal annual installments over periods of up to three years. All of the shares shown in column (c) may be granted under the 2020 Plan in the form of restricted shares, as well as other types of awards. No additional awards may be made under the First Northwest Bancorp 2015 Equity Incentive Plan (the ~~'2015 Plan'~~"2015 Plan"), which was approved by shareholders on November 16, 2015. As of December 31, ~~2021, 103,520~~2023, 21,620 restricted shares and no options remained outstanding under the 2015 Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information contained in the sections captioned "Corporate Governance and Board Matters – Transactions with Related Persons" and "Corporate Governance and Board Matters – Director Independence" in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information contained under the section captioned "Proposal 53 – Ratification of Appointment of Independent Auditor" in the Proxy Statement is incorporated herein by reference.

PART IV
Item 15. Exhibits, Financial Statement Schedules

(a) 1. Financial Statements.

For a list of the financial statements filed as part of this report see Part II – Item 8.

~~151~~

~~Table of Contents~~
2. Financial Statement Schedules.

All schedules have been omitted as the required information is either inapplicable or contained in the Consolidated Financial Statements or related Notes contained in Part II, Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

140
Table of Contents
3. Exhibits required by Item 601 of Regulation S-K:

Exhibit No.

Exhibit Description

Filed Herewith

Form

Original Exhibit No.

Filing Date
3.1

Articles of Incorporation of First Northwest Bancorp, as amended through August 28, 2014

10-K

3.1

3/15/2019
3.2

Bylaws of First Northwest Bancorp as amended effective January 22, 2019

10-K

3.2

3/15/2019
4.1 Indenture, Including Forms of 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 8-K 4.1 3/25/2021
4.2

Description of Common Stock

10-K

4.1

3/9/2020
10.1*

First Northwest Bancorp 2015 Equity Incentive Plan

10-K

10.1

3/15/2019
10.2*

Form of First Northwest Bancorp 2015 Equity Incentive Plan Restricted Stock Award Agreement as amended effective November 23, 2020

10-K 10.2 3/15/2021
10.3*

Employment Agreement with Matthew P. Deines dated December 7, 2021

8-K

10.1
12/9/2021
10.4*

Form of Executive Employment Agreement with Terry A. Anderson, Derek J. Brown, Geraldine L. Bullard, Kelly A. Liske, and Christopher J. Riffle

10-K

10.4

3/15/2019
10.5*

First Northwest Bancorp 2020 Equity Incentive Plan

10-Q
10.4 5/11/2020
10.6*

Form of First Northwest Bancorp 2020 Equity Incentive Plan Restricted Share Award Agreement

10-Q
10.1
8/10/2020
10.7*

First Federal Fiscal 2021 Cash Incentive Plan

10-Q

10.3
5/14/2021
10.8*

Non-Employee Director Compensation Policy

10-K

10.9

3/9/2020
21

Subsidiaries of First Northwest Bancorp

X

23

Consent of Independent Registered Public Accounting Firm

X

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

X

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

X

32

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

X

101

The following materials from First Northwest Bancorp's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Changes in Shareholders' Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101
* Denotes a management contract or compensatory plan or arrangement.
Exhibit No.

Exhibit Description

Filed Herewith

Form

Original Exhibit No.

Filing Date
3.1

Articles of Incorporation of First Northwest Bancorp, as amended June 3, 2022

10-Q

3.1

8/12/2022
3.2

Bylaws of First Northwest Bancorp as amended effective June 3, 2022

10-Q

3.2

8/12/2022
4.1 Indenture, Including Forms of 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 8-K 4.1 3/25/2021
4.2

Description of Common Stock

10-Q

4.1

8/12/2022
10.1*

First Northwest Bancorp 2015 Equity Incentive Plan

10-K

10.1

3/15/2019
10.2*

Form of First Northwest Bancorp 2015 Equity Incentive Plan Restricted Stock Award Agreement as amended effective November 23, 2020

10-K 10.2 3/15/2021
10.3*

Employment Agreement with Matthew P. Deines dated December 7, 2021

8-K

10.1
12/9/2021
10.4*

Form of Executive Employment Agreement with Terry A. Anderson, Derek J. Brown, Geraldine L. Bullard, Christopher W. Neros, and Christopher J. Riffle

10-K

10.4

3/15/2019
10.5*

First Northwest Bancorp 2020 Equity Incentive Plan

10-Q
10.4 5/11/2020
10.6*

Form of First Northwest Bancorp 2020 Equity Incentive Plan Restricted Share Award Agreement

10-Q
10.1
8/10/2020
10.7*

First Federal Fiscal 2023 Cash Incentive Plan

10-Q

10.1
5/12/2023
10.8*

Non-Employee Director Compensation Policy

10-Q 10.2 5/12/2023
10.9 Loan Agreement, dated as of May 20, 2022, by and Between First Northwest Bancorp and NexBank 8-K 10.1 5/27/2022
10.10 Security Agreement, dated as of May 20, 2022, by and between First Northwest Bancorp and NexBank 8-K 10.2 5/27/2022
10.11 Revolving Credit Note dated May 20, 2022, of First Northwest Bancorp 8-K 10.3 5/27/2022
10.12 Agreement for the Purchase and Sale of Real Property by and between First Fed Bank and Mountainseed Real Estate Services, LLC** 8-K 10.1 1/31/2024
21

Subsidiaries of First Northwest Bancorp

X

23

Consent of Independent Registered Public Accounting Firm

X

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

X

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

X

32

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

X

97.1 Compensation Clawback Policy X
101

The following materials from First Northwest Bancorp's Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Changes in Shareholders' Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101
* Denotes a management contract or compensatory plan or arrangement.
** Certain schedules and exhibits to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.

Item 16. Form 10-K Summary

None.

~~152~~141
Table of Contents
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST NORTHWEST BANCORP

March ~~18, 2022~~15, 2024
By:
/s/Matthew P. Deines

Matthew P. Deines

President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:
/s/Matthew P. Deines
March ~~18, 2022~~15, 2024

Matthew P. Deines

President, Chief Executive Officer and Director

(Principal Executive Officer)

By:
/s/Geraldine L. Bullard
March ~~18, 2022~~15, 2024

Geraldine L. Bullard

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

By:
/s/~~Stephen E. Oliver~~Cindy H. Finnie
March ~~18, 2022~~15, 2024

~~Stephen E. Oliver~~Cindy H. Finnie

~~Chairman~~Chair of the Board and Director

By:
/s/Sherilyn G. Anderson
March ~~18, 2022~~15, 2024

Sherilyn G. Anderson

Director

By:
/s/Dana D. Behar
March ~~18, 2022~~15, 2024

Dana D. Behar

Director

By:
/s/Craig A. Curtis
March ~~18, 2022~~15, 2024

Craig A. Curtis

Director

By:
/s/~~Cindy H. Finnie~~ Gabriel S. Galanda
March ~~18, 2022~~15, 2024

~~Cindy H. Finnie~~
Gabriel S. Galanda

Director

~~153~~

~~Table of Contents~~
~~By:~~
~~/s/ Gabriel S. Galanda~~
~~March 18, 2022~~
By:
~~Gabriel Galanda~~
/s/ Lynn A. Terwoerds
March 15, 2024
~~Director~~
Lynn A. Terwoerds
Director

By:
/s/Norman J. Tonina, Jr.
March ~~18, 2022~~15, 2024

Norman J. Tonina, Jr.

Director

By:
/s/Jennifer Zaccardo
March ~~18, 2022~~15, 2024

Jennifer Zaccardo

Director

~~154~~142

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plan		Maximum Number of Shares that May Yet Be Repurchased Under the Plan (2)
October 1, 2021 - October 31, 2021		24,801	$	17.51		24,801		691,134
November 1, 2021 - November 30, 2021		5,502		18.31		2,934		688,200
December 1, 2021 - December 31, 2021		33,722		18.58		29,830		658,370
Total		64,025	$	18.10		57,565

(1) Shares repurchased by the Company during the quarter include shares acquired from participants in connection with cancellation of restricted stock to pay withholding taxes totaling 0 shares, 2,568 shares, and 3,892 shares, respectively, for the periods indicated.
(2) On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 1,023,420 shares of its common stock, or approximately 10% of its shares of common stock issued and outstanding as of October 27, 2020. As of December 31, 2021, a total of 365,050 shares, or 35.7% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $17.05 per share, leaving 658,370 shares available for future purchases.

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plan		Maximum Number of Shares that May Yet Be Repurchased Under the Plan ⁽²⁾
October 1, 2023 - October 31, 2023		3,921	$	12.98		3,921		222,416
November 1, 2023 - November 30, 2023		10,350		12.86		8,284		214,132
December 1, 2023 - December 31, 2023		3,188		—		—		214,132
Total		17,459	$	12.90		12,205

(1) Shares repurchased by the Company during the quarter include shares acquired from restricted stock award participants in connection with the cancellation of restricted stock to pay withholding taxes upon vesting totaling 0 shares, 2,066 shares, and 3,188 shares, respectively, for the periods indicated.
(2) On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 1,023,420 shares of its common stock, or approximately 10% of its shares of common stock issued and outstanding as of October 27, 2020. As of December 31, 2023, a total of 809,288 shares, or 79.1% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $15.81 per share, leaving 214,132 shares available for future purchases.

	•	~~Expanding our market presence.~~ We hired several experienced and talented bankers with connections throughout Western Washington. We opened a full-service branch in Ferndale, Washington and purchased a branch in Bellevue, Washington. Through these new locations, we have realized growth in deposits and expanded our ability to secure customer relationships and lending opportunities outside of our market areas in the North Olympic Peninsula; Kitsap Peninsula; and Bellingham, Washington. We also utilize technology to expand our market presence and to service new and existing businesses and consumers.
	•	~~Investing in financial technology ("fintech") companies.~~ We have a ten-year commitment to invest in Canapi, which provides funding to fintech start-ups. The Canapi relationship allows us early access to companies producing technology and apps that may be of interest as we grow in the fintech sector. One such connection led us to POM and our partnership in Quin Ventures to build a financial wellness platform. We also have a ten-year commitment to invest in BankTech, a newly formed venture capital fund with a focus on technology designed for community banks.
	•	~~Enhancing~~Repositioning the loan portfolio. ~~We have~~The Bank has significantly increased the origination of commercial real estate, multi-family real estate, and construction and land loans, as well as our portfolio of commercial business loans. The Bank has also utilized wholesale lending programs to add auto, manufactured home, and commercial business loans to our portfolio. This has helped to increase overall ~~net~~ interest ~~income.~~income and improved interest rate risk.
	•	Adding new products and servicing capabilities. In addition to traditional consumer and business deposit products, ~~we offer~~the Bank offers remote deposit capture, consumer and small business digital banking, treasury cash management capabilities, and commercial digital banking capabilities. At our branch locations in Forks, Port Angeles, Silverdale, Bainbridge Island, and Bellingham, Washington, and at our main administrative building and downtown locations in Port Angeles, Washington, we haveWe implemented interactive teller machines, allowing our customers to conduct business with a teller through ~~a video monitor.~~an interactive screen, at several locations. In 2023, we further enhanced our offerings for earnest money payment solutions, real-time person-to-person and account-to-account transfers and online business account opening.
	•	Enhancing our infrastructure. ~~We have~~The Bank focused on upgrading ~~our~~its infrastructure, in terms of ~~both~~technology, equipment and personnel, ~~in order~~ to support ~~our~~its changing lending and deposit capabilities and position ~~ourselves~~the Bank for growth.
	•	Expanding small-to-medium size business relationships. Our Treasury Management and Commercial Relationship teams have deepened relationships with new and existing customers through acquiring operating accounts and increasing SBA and other commercial business lending.
	•	Investing in financial technology ("fintech") companies. The Company has five years remaining in a commitment to invest in Canapi Ventures, which provides funding to fintech start-ups. The Canapi Ventures relationship allows us early access to companies producing technology and apps that may be of interest as we grow in the fintech sector. We also have eight years remaining in commitments to invest in BankTech Ventures and JAM FINTOP, two fintech-focused venture capital funds designed for community banks. The Bank has an additional Canapi Small Business Investment Company commitment with nine years remaining.

	•	Increasing our portfolio of higher yielding ~~commercial~~ loans. Through ~~increased~~ loan originations, we intend to increase ~~our loan to deposit ratio and~~ the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans. These loan categories offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate, ~~one- to four-family~~one-to-four family residential loans. Our commercial and ~~multifamily~~multi-family real estate and commercial business loans have increased ~~from $559.2~~to $833.4 million, or ~~48.5%~~50.2% of total loans, at December 31, ~~2020, to $615.6~~2023, from $718.6 million, or ~~45.4%~~46.4% of total loans, at December 31, ~~2021. We also increased our commercial construction lending from $90.8 million, or 7.9% of total loans, at December 31, 2020, to $176.4 million, or 13.0% of total loans, at December 31, 2021.~~2022. The increase resulted in part from ~~building~~adding talented leaders to the commercial team, ~~by adding talented lenders;~~ developing relationships with loan referral sources, ~~including our Board of Directors and loan brokers;~~ pursuing loan purchase and participation ~~opportunities;~~opportunities, and competing successfully in new and existing ~~markets; and benefiting from the improvement of the economy in northwestern Washington.~~markets.
	•	Increasing noninterest income. ~~We plan to broaden our offerings of~~The Bank offers SBA loan products, which provide the opportunity to sell the guaranteed portion of loans originated, adding to our gain on sale of loans while also generating servicing fee income. We will continue our participation in an assumable rate conversion ("ARC") program, whereby a commercial loan customer enters into a contract to pay a fixed rate on their First Fed loan to the ~~ARC~~third-party program while the Bank receives the variable rate interest stated in the note, which generates referral fee income for the Bank at the time of placement. We remain committed to ~~generate additional loan fee income. We will maintain~~ our ~~focus on~~ mortgage ~~loan sales~~line of business to ~~increase~~serve our customers and add to noninterest income from both sale and servicing fees. We may also sell commercial loans ~~in order~~ to manage concentrations and risk, which would generate gain and possibly additional servicing income. We anticipate that future revenue will be generated through ~~our fintech partnerships~~treasury management products and ~~banking-as-a-service,~~merchant services, which would add ~~transactional~~ income and increased interchange fee income. Noninterest income will also be affected through changes in the value of our partnership investments and our share of MWG profitability.

	•	Attracting core deposits and other deposit products. ~~Our strategy is to~~We emphasize relationship banking with our customers to obtain a greater share of their deposits, with specific emphasis on ~~their~~ primary transaction accounts. We believe this emphasis will help to increase our level of core deposits. In addition to our retail branches, we ~~continually upgrade our~~offer digital delivery solutions, such as ~~on-line~~ personal financial management, business online banking, business remote deposit products, mobile remote deposit services through ~~smartphones and tablets,~~personal devices, consumer credit score access, real-time account-to-account transfer services between First Fed and other banks, and real-time person-to-person funds transfer, ~~through smartphones and tablets,~~ enabling us to compete effectively with banks of all sizes. We enhanced our ~~integrated~~ mobile banking platform, ~~by introducing applications for both smartphones~~online account opening solutions, foreign exchange capabilities and ~~tablets, upgraded~~are in the process of upgrading our business on-line banking platform, and extended banking hours through our interactive teller machines. In 2020, we significantly increased our level of commercial demand deposits with the addition of a Treasury Management department.platform.
	•	Expanding our market presence and capturing business opportunities resulting from changes in the competitive environment. By delivering high quality, customer-focused products and services, we believe we can attract additional borrowers and depositors and thus increase our market share and revenue generation in our market areas. We intend to continue our franchise growth. We expect that community bank consolidation will continue to take place and may consider acquiring additional individual branches or other banks. Our primary focus for expansion will be in Western Washington; however, we ~~may~~ offer digital delivery in other markets.
	•	Hiring experienced employees with a customer sales and service focus. Our goal is to compete by relying on the strength of our customer service and relationship building. We believe that our ability to continue to attract and retain banking professionals who have significant knowledge of existing and new market areas, possess strong commercial banking sales and service skills, and maintain a focus on community relationships will enhance our success. We intend to hire additional retail bankers, lenders and ~~relationship managers~~treasury management officers who are established in their communities to enhance our market position and add profitable growth opportunities.
	•	Improving our digital presence and streamlining the customer experience. By investing in and improving on the interfaces that connect customers to our products and services, we believe we will be in a better position to compete and grow in an environment that is becoming increasingly technology driven. We intend to invest in our online presence and engage in digital strategies that will help us to successfully compete in an ever-changing digital marketplace. ~~In 2019, the~~The Company ~~committed~~has six years remaining in its commitment to ~~fund $3.0 million in~~ Canapi Ventures to identify and infuse capital into ~~certain promising digital companies for which we may have an interest in using their services at some future date or which may result in additional investment opportunities.~~early stage fintech companies. This commitment includes management participation in meetings and events that ~~we feel will benefit~~inform us when making decisions regarding banking-as-a-service, digital services offerings and customer engagement. ~~We introduced~~In 2022, the Company implemented a ~~new online mortgage application with a leading fintech partner in 2020 and launched new digital deposit application~~customer relationship management software to improve business and consumer ~~loan origination platforms in 2021.~~relationships.
	•	Exploring alternative lending opportunities to improve interest income. We strive to grow the balance sheet and leverage capital in a safe and sound manner and believe that lending opportunities outside of organic originations may be a valuable source of interest income. We ~~continued to engage with Northpointe Bank to participate in interim financing for mortgage originators during the year and have~~ increased our auto loan portfolio ~~significantly as a result of~~through our partnership involving the purchase of loans made to borrowers purchasing high-end automobiles and classic cars. We ~~also engaged with Triad Financial Services in 2020~~continue to purchase ~~a pool of~~ manufactured home loans ~~as well as~~in pools and on a flow basis from Triad Financial Services. We also purchase ~~individual~~ loans ~~on an ongoing basis.~~to small businesses and professionals from Banker's Healthcare Group. We will continue to explore other opportunities such as these as a means to improve net income and supplement organic loan originations.

	•	Creating operating leverage. We will continue to look for ways to improve operational efficiency. We realigned staff positions in 2022 to better meet organizational objectives, resulting in some workforce reductions. We believe that recent investments in technology may also provide opportunities to build efficiencies. Net interest income decreased substantially in 2023 as a result of accelerated funding costs. We also experienced a decrease in noninterest income, specifically in areas which are impacted by interest rates. We remain focused on building core noninterest income product lines, such as SBA and swap fees, and are pursuing new revenue channels related to payments while continuing to control noninterest expense.
	•	Expanding ~~into~~offerings to small-to-medium sized business. Another priority for the ~~digital~~Company is expanding offerings for small-to-medium sized business with a focus on entrepreneurs. We intend to accomplish this through the commercial team, with a focus on systems and ~~fintech markets.~~ ~~Banking-as-a-service offers significant growth opportunities. The fintech~~support, the further development of treasury management and ~~digital banking markets offer innovation and expansion that First Fed can support through servicing products offered. We announced~~ our partnership with ~~Splash~~MWG. For small-to-medium sized businesses, we believe there are multiple opportunities in ~~January 2022~~payment processing for ACH, check, wire transfers, international payments and debit card interchange. In addition, we intend to ~~collaborate on developing~~build out our capabilities for accounts payable and ~~deploying consumer loan products~~receivable, payroll, merchant card acquisition and ~~solutions throughout the country. We continue to explore additional opportunities to partner with fintech and digital banking partners in order to expand this part of our digital strategy.~~corporate card spend management solutions.

	Year Ended December 31,				Increase (Decrease)						Year Ended December 31,					Increase (Decrease)
	2021		2020		Amount			Percent			2023			2022		Amount			Percent
	(Dollars in thousands)										(Dollars in thousands)
Loan and deposit service fees	$	3,860	$	3,454	$	406			11.8	%
Sold loan servicing fees, net of amortization		946		137		809			590.5
Loan and deposit fees											$	4,341		$	4,729	$	(388	)		(8.2	)%
Sold loan servicing fees and servicing rights mark-to-market												676			867		(191	)		(22.0	)
Net gain on sale of loans		5,278		6,433		(1,155	)		(18.0	)		438			824		(386	)		(46.8	)
Net gain on sale of investment securities		2,410		3,147		(737	)		(23.4	)
Net (loss) gain on sale of investment securities												(5,397	)		118		(5,515	)		(4,673.7	)
Increase in cash surrender value of bank-owned life insurance, net		965		1,826		(861	)		(47.2	)		928			916		12			1.3
Income from death benefit on bank-owned life insurance, net												—			1,489		(1,489	)		(100.0	)
Other income		2,179		849		1,330			156.7			3,034			1,384		1,650			119.2
Total noninterest income	$	15,638	$	15,846	$	(208	)		(1.3	)%	$	4,020		$	10,327	$	(6,307	)		(61.1	)%

	At December 31,			Year Ended December 31,																Year Ended December 31,
	2021			2021								2020								2023								2022
	Yield/ Rate			Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate			Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate			Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate			Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate

Interest-earning assets:				(Dollars in thousands)																(Dollars in thousands)
Loans receivable, net (1)		4.39	%	$	1,239,919		$	55,029		4.44	%	$	970,039		$	43,063		4.44	%
Investment securities		2.85			244,364			5,819		2.38			227,269			5,569		2.45
Mortgage-backed securities		2.31			120,636			2,550		2.11			123,838			2,701		2.18
Loans receivable, net ^{(1), (2)}																				$	1,594,268		$	84,614		5.31	%	$	1,448,777		$	68,635		4.74	%
Total investment securities																					317,924			13,279		4.18			350,521			10,866		3.10
FHLB dividends		4.85			4,058			190		4.68			4,495			255		5.67			12,035			880		7.31			8,540			502		5.88
Interest-bearing deposits in banks		0.18			52,242			83		0.16			20,129			94		0.47
Total interest-earning assets (2)		3.80			1,661,219			63,671		3.83			1,345,770			51,682		3.84
Interest-earning deposits in banks																					40,832			2,126		5.21			34,807			375		1.08
Total interest-earning assets ⁽³⁾																					1,965,059			100,899		5.13			1,842,645			80,378		4.36
Noninterest-earning assets					104,011								91,125								144,141								132,588
Total average assets				$	1,765,230							$	1,436,895							$	2,109,200							$	1,975,233

Interest-bearing liabilities:
Interest-bearing demand deposits		0.01		$	175,608		$	43		0.02		$	135,315		$	37		0.03		$	178,577		$	796		0.45		$	193,064		$	137		0.07
Money market accounts		0.21			525,986			1,165		0.22			332,854			1,446		0.43			388,287			4,217		1.09			555,038			1,698		0.31
Savings accounts		0.05			185,315			128		0.07			170,016			843		0.50			243,300			3,019		1.24			197,707			165		0.08
Certificates of deposit		0.62			267,521			2,060		0.77			319,096			4,337		1.36
Total deposits		0.19			1,154,430			3,396		0.29			957,281			6,663		0.70
FHLB borrowings		1.34			54,033			774		1.43			73,268			1,061		1.45
Certificates of deposit, retail																					369,480			12,520		3.39			194,743			2,090		1.07
Certificates of deposit, brokered																					165,486			6,467		3.91			87,734			1,108		1.26
Total interest-bearing deposits ⁽⁴⁾																					1,345,130			27,019		2.01			1,228,286			5,198		0.42
FHLB and other advances																					249,172			10,870		4.36			163,198			3,740		2.29
Subordinated debt, net		3.94			30,370			1,203		3.96			—			—		—			39,395			1,578		4.01			39,312			1,577		4.01
Total interest-bearing liabilities		0.33			1,238,833			5,373		0.43			1,030,549			7,724		0.75			1,633,697			39,467		2.42			1,430,796			10,515		0.73
Noninterest-bearing deposits(4)					308,467								205,043								278,123								335,646
Noninterest-bearing liabilities					29,715								22,805
Other noninterest-bearing liabilities																					37,967								36,666
Total average liabilities																					1,949,787								1,803,108
Average equity					188,215								178,498								159,413								172,125
Total interest-bearing liabilities				$	1,765,230							$	1,436,895
Total average liabilities and equity																				$	2,109,200							$	1,975,233

Net interest income							$	58,298							$	43,958							$	61,432							$	69,863
Net interest rate spread		3.47								3.40								3.09								2.71								3.63
Net earning assets				$	422,386							$	315,221							$	331,362							$	411,849
Net interest margin (3)										3.51								3.27
Net interest margin ⁽⁵⁾																										3.13								3.79
Average interest-earning assets to average interest-bearing liabilities					134.1	%							130.6	%							120.3	%							128.8	%

	Year Ended
	December 31, 2021 vs. 2020									Year Ended December 31, 2023 vs. 2022
	Increase (Decrease) Due to						Total Increase			Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	(In thousands)									(In thousands)
Interest-earning assets:
Loans receivable	$	11,966		$	—		$	11,966
Investment and mortgage-backed securities		349			(250	)		99
Loans receivable ⁽¹⁾										$	6,894		$	9,085		$	15,979
Investment securities											(1,016	)		3,429			2,413
FHLB stock		(25	)		(40	)		(65	)		206			172			378
Other(1)		151			(162	)		(11	)
Other ⁽²⁾											65			1,686			1,751
Total interest-earning assets	$	12,441		$	(452	)	$	11,989		$	6,149		$	14,372		$	20,521

Interest-bearing liabilities:
Interest-bearing demand deposits	$	18		$	(12	)	$	6		$	(15	)	$	674		$	659
Money market accounts		827			(1,108	)		(281	)		(514	)		3,033			2,519
Savings accounts		79			(794	)		(715	)		34			2,820			2,854
Certificates of deposit		(700	)		(1,577	)		(2,277	)
FHLB advances		(277	)		(10	)		(287	)
Subordinated debt		—			1,203			1,203
Certificates of deposit, retail											1,864			8,566			10,430
Certificates of deposit, brokered											974			4,385			5,359
FHLB and other advances											1,970			5,160			7,130
Subordinated debt, net											1			—			1
Total interest-bearing liabilities	$	(53	)	$	(2,298	)	$	(2,351	)	$	4,314		$	24,638		$	28,952

Net change in interest income	$	12,494		$	1,846		$	14,340		$	1,835		$	(10,266	)	$	(8,431	)

	December 31, 2021											December 31, 2023
	Economic Value of Equity											Economic Value of Equity
Basis Point Change in Interest Rates	$ Amount		$ Change			% Change			EVE Ratio %			$ Amount		$ Change			% Change			EVE Ratio %
	(Dollars in thousands)											(Dollars in thousands)
+ 400												$	195,896	$	(63,435	)		(24.5	)%		10.4	%
+ 300	$	331,261	$	7,437			2.3	%		18.7	%		209,769		(49,562	)		(19.1	)		10.9
+ 200		330,571		6,747			2.1			18.2			223,942		(35,389	)		(13.6	)		11.4
+ 100		328,392		4,568			1.4			17.7			237,754		(21,577	)		(8.3	)		11.9
0		323,824		—			—			17.0			259,331		—			—			12.6
-100		292,916		(30,908	)		(9.5	)		15.1		269,042		9,711			3.7			12.7
-200												261,103		1,772			0.7			12.1
-300												249,539		(9,792		)	(3.8		)	11.3
-400												217,691		(41,640		)	(16.1		)	9.8

December 31, 2021
Basis Point Change	Projected Net Interest Income
in Interest Rates	$ Amount		$ Change			% Change
	(Dollars in thousands)
+ 300	$	62,967	$	1,425			2.3	%
+ 200		62,364		822			1.3
+ 100		61,695		153			0.2
0		61,542		—			—
-100		59,991		(1,551	)		(2.5	)

	Amount of Commitment Expiration - Per Period
	Total Amounts Committed		Due in One Year
	(In thousands)
Commitments to originate loans:
Fixed-rate loans	$	1,658	$	1,658
Variable-rate loans		1,062		1,062
Unfunded commitments under lines of credit		75,977		75,977
Unfunded commitments under existing construction loans		194,296		194,296
Standby letters of credit		212		212
Total	$	273,205	$	273,205

	Amount of Commitment Expiration
	Within 1 Year		After 1 Year Through 3 Years		After 3 Years Through 5 Years		Beyond 5 Years		Total Amounts Committed
									(In thousands)
Commitments to originate loans:
Fixed-rate loans	$	220	$	—	$	—	$	—	$	220
Unfunded commitments under lines of credit		17,624		9,232		2,198		63,488		92,542
Unfunded commitments under existing construction loans		23,842		10,761		1,442		19,394		55,439
Unfunded commitments under existing maritime loans		—		—		—		1,650		1,650
Standby letters of credit		—		—		—		200		200
Unfunded commitments under partnership agreements		3,659		—		—		—		3,659
Total	$	45,345	$	19,993	$	3,640	$	84,732	$	153,710

	Actual					Minimum Capital Requirements					Minimum Required to be Well-Capitalized					Actual					Minimum Capital Requirements					Minimum Required to be Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in thousands)															(Dollars in thousands)
Tier I leverage capital (to average assets)
Bank only	$	196,319		10.6	%	$	74,362		4.0	%	$	92,953		5.0	%	$	214,049		9.9	%	$	86,508		4.0	%	$	108,135		5.0	%
Common equity tier I (to risk-weighted assets)
Bank only		196,319		13.8			64,081		4.5			92,562		6.5			214,049		13.1			73,407		4.5			106,032		6.5
Tier I risk-based capital (to risk-weighted assets)
Bank only		196,319		13.8			85,442		6.0			113,923		8.0			214,049		13.1			97,876		6.0			130,501		8.0
Total risk-based capital (to risk-weighted assets)
Bank only		211,828		14.9			113,923		8.0			142,403		10.0			230,163		14.1			130,501		8.0			163,127		10.0

Index to Consolidated Financial Statements	Page

Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Everett, Washington, PCAOB ID: 659)	8879
Consolidated Balance Sheets, December 31, ~~2021~~2023 and ~~2020~~2022	9082
Consolidated Statements of Income For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022	9183
Consolidated Statements of Comprehensive Income For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022	9284
Consolidated Statements of Changes in ~~Shareholders’~~Shareholders' Equity For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022	9385
Consolidated Statements of Cash Flows For the Years Ended December 31, ~~2021~~2023 and ~~2020~~2022	9486
Notes to Consolidated Financial Statements	9688

	●	~~Obtaining an understanding~~Tested the completeness and accuracy of the ~~design~~data used in the calculation, application of historical loss rates and ~~implementation~~forecasted economic conditions, and application of ~~controls relating to management’s calculation~~qualitative risk factors, and assessed the appropriateness for the peer groups used in historical loss rates, all of which are determined by management and used in the ~~allowance for loan losses, including controls over the determination of the qualitative factor adjustment used.~~calculation.
	●	~~Obtaining management’s~~Obtained management's analysis and supporting documentation related to the forecasted economic conditions and qualitative risk factors and tested whether the forecasted economic conditions and qualitative risk factors used in the calculation of the ~~allowance for loan losses~~ACLL were supported by the analysis provided by ~~management, as well as tested source data used in management’s analysis.~~management.
	●	~~Performing~~Performed an independent sensitivity analysis to evaluate the reasonableness of the qualitative ~~factor adjustment~~risk factors used by ~~management to account for inherent losses that are not captured in the allowance for loan losses based on historical loss rates alone.~~ management.

	December 31, 2021			December 31, 2020			December 31, 2023			December 31, 2022

ASSETS
Cash and due from banks	$	13,868		$	13,508		$	19,845		$	17,104
Interest-bearing deposits in banks		112,148			51,647			103,324			28,492
Investment securities available for sale, at fair value		344,212			364,296			295,623			326,569
Loans held for sale		760			3,753			753			597
Loans receivable (net of allowance for loan losses of $15,124 and $13,847)		1,350,260			1,141,969
Loans receivable (net of allowance for credit losses on loans of $17,510 and $16,116)								1,642,518			1,531,435
Federal Home Loan Bank (FHLB) stock, at cost		5,196			5,977			13,664			11,681
Accrued interest receivable		5,289			6,966			7,894			6,743
Premises and equipment, net		19,830			14,785			18,049			18,089
Servicing rights on sold loans, net		3,282			2,120
Servicing rights on sold loans, at fair value								3,793			3,887
Bank-owned life insurance, net		39,318			38,353			40,578			39,665
Equity and partnership investments								14,794			14,289
Goodwill and other intangible assets		1,183			0			1,086			1,089
Deferred tax asset, net								13,001			14,091
Prepaid expenses and other assets		25,735			10,975			26,875			28,339

Total assets	$	1,921,081		$	1,654,349		$	2,201,797		$	2,042,070


LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits	$	1,580,580		$	1,333,517		$	1,676,892		$	1,564,255
Borrowings		80,000			109,977			320,936			285,358
Subordinated debt, net		39,280			0
Accrued interest payable		393			53			3,396			455
Accrued expenses and other liabilities		29,240			23,303			35,973			32,344
Advances from borrowers for taxes and insurance		1,108			1,116			1,260			1,376

Total liabilities		1,730,601			1,467,966			2,038,457			1,883,788

Commitments and Contingencies (Note 13)
Commitments and Contingencies (Note 14)

Shareholders' Equity
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding		0			0
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 9,972,698 at December 31, 2021; issued and outstanding 10,247,185 at December 31, 2020		100			102
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding								—			—
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 9,611,876 at December 31, 2023; issued and outstanding 9,703,581 at December 31, 2022								96			97
Additional paid-in capital		96,131			97,412			95,784			95,508
Retained earnings		103,014			92,657			107,349			114,424
Accumulated other comprehensive income, net of tax		288			5,442
Accumulated other comprehensive loss, net of tax								(32,636	)		(40,543	)
Unearned employee stock ownership plan (ESOP) shares		(8,572	)		(9,230	)		(7,253	)		(7,913	)

Total parent's shareholders' equity		190,961			186,383			163,340			161,573
Noncontrolling interest in Quin Ventures, Inc.		(481	)		0			—			(3,291	)

Total shareholders' equity		190,480			186,383			163,340			158,282

Total liabilities and shareholders' equity	$	1,921,081		$	1,654,349		$	2,201,797		$	2,042,070

	For the Year Ended December 31,				For the Year Ended December 31,
	2021		2020		2023			2022
INTEREST INCOME
Interest and fees on loans receivable	$	55,029	$	43,063	$	84,614		$	68,635
Interest on mortgage-backed and related securities		2,550		2,701
Interest on investment securities		5,819		5,569		13,279			10,866
Interest-bearing deposits and other		83		94		2,126			375
FHLB dividends		190		255		880			502

Total interest income		63,671		51,682		100,899			80,378
INTEREST EXPENSE
Deposits		3,396		6,663		27,019			5,198
Borrowings		774		1,061		12,448			5,317
Subordinated debt		1,203		0

Total interest expense		5,373		7,724		39,467			10,515

Net interest income		58,298		43,958		61,432			69,863
PROVISION FOR LOAN LOSSES		1,350		5,046

Net interest income after provision for loan losses		56,948		38,912
PROVISION FOR CREDIT LOSSES
Provision for credit losses on loans						2,357			1,535
Recapture of provision for credit losses on unfunded commitments						(1,034	)		—
Provision for credit losses						1,323			1,535
Net interest income after provision for credit losses						60,109			68,328
NONINTEREST INCOME
Loan and deposit service fees		3,860		3,454
Sold loan servicing fees, net of amortization		946		137
Loan and deposit fees						4,341			4,729
Sold loan servicing fees and servicing rights mark-to-market						676			867
Net gain on sale of loans		5,278		6,433		438			824
Net gain on sale of investment securities		2,410		3,147
Net (loss) gain on sale of investment securities						(5,397	)		118
Increase in cash surrender value of bank-owned life insurance, net		965		1,826		928			916
Income from death benefit on bank-owned life insurance, net						—			1,489
Other income		2,179		849		3,034			1,384

Total noninterest income		15,638		15,846		4,020			10,327
NONINTEREST EXPENSE
Compensation and benefits		33,515		24,590		31,209			35,940
Data processing		6,244		4,637		8,170			7,539
Occupancy and equipment		4,312		3,879		4,858			5,398
Supplies, postage, and telephone		1,189		985		1,433			1,376
Regulatory assessments and state taxes		1,213		930		1,635			1,539
Advertising		2,040		1,506		2,706			3,288
Professional fees		1,997		1,523		3,738			2,645
FDIC insurance premium		752		245		1,357			888
FHLB prepayment penalty		0		210
Other		3,151		2,959

Other expense						6,348			3,699
Total noninterest expense		54,413		41,464		61,454			62,312

INCOME BEFORE PROVISION FOR INCOME TAXES		18,173		13,294
PROVISION FOR INCOME TAXES		3,194		2,954

NET INCOME		14,979		10,340
Income before provision for income taxes						2,675			16,343
Provision for income taxes						549			2,847
Net income						2,126			13,496
Net loss attributable to noncontrolling interest in Quin Ventures, Inc.		439		0		160			2,149

NET INCOME ATTRIBUTABLE TO PARENT	$	15,418	$	10,340
Net income attributable to parent					$	2,286		$	15,645

Basic and diluted earnings per common share	$	1.63	$	1.07	$	0.26		$	1.71

	Common Stock						Additional Paid-in			Retained			Unearned ESOP			Accumulated Other Comprehensive Gain			Noncontrolling			Total Shareholders'			Common Stock						Additional Paid-in			Retained			Unearned ESOP			Accumulated Other Comprehensive Loss			Noncontrolling			Total Shareholders'
	Shares			Amount			Capital			Earnings			Shares			Net of Tax			Interest			Equity			Shares			Amount			Capital			Earnings			Shares			Net of Tax			Interest			Equity

BALANCE, December 31, 2019		10,731,639		$	107		$	102,017		$	86,156		$	(9,890	)	$	(1,539	)	$	0		$	176,851
Balance at December 31, 2021																										9,972,698		$	100		$	96,131		$	103,014		$	(8,572	)	$	288		$	(481	)	$	190,480
Net income																																			15,645									(2,149	)		13,496
Common stock issued																										115,777			1			1,868			—												1,869
Common stock repurchased																										(386,062	)		(4	)		(3,993	)		(1,873	)											(5,870	)
Restricted stock award grants net of forfeitures																										22,470			—			—															—
Restricted stock awards canceled																										(21,302	)		—			(392	)		—												(392	)
Other comprehensive loss, net of tax																																									(40,831	)					(40,831	)
Reclassification resulting from change in accounting method, net of tax																																			425												425
Quin Ventures asset sale in-substance distribution																										—			—			—			—									(661	)		(661	)
Share-based compensation																																1,601															1,601
ESOP shares committed to be released																																293						659									952
Cash dividends declared and paid ($0.28 per share)																																			(2,787	)											(2,787	)

Balance at December 31, 2022																										9,703,581		$	97		$	95,508		$	114,424		$	(7,913	)	$	(40,543	)	$	(3,291	)	$	158,282

Net income					0			0			10,340			0			0			0			10,340												2,286									(160	)		2,126
Common stock repurchased		(575,859	)		(6	)		(5,753	)		(1,654	)		0			0			0			(7,413	)		(87,895	)		(1	)		(889	)		(259	)											(1,149	)
Restricted stock awards granted net of forfeitures		105,124			1			(1	)		0			0			0			0			0
Restricted stock award grants net of forfeitures																										16,856			—			—															—
Restricted stock awards canceled		(13,719	)		0			(178	)		0			0			0			0			(178	)		(20,666	)		—			(280	)														(280	)
Other comprehensive income, net of tax					0			0			0			0			6,981			0			6,981																		7,907						7,907
Reclassification resulting from adoption of Accounting Standards Codification 326, net of tax																																			(2,951	)											(2,951	)
Close out investment in Quin Ventures																																			(3,451	)								3,451			—
Share-based compensation					0			1,295			0			0			0			0			1,295									1,413															1,413
Allocation of ESOP shares					0			32			0			660			0			0			692
Cash dividends declared and paid ($0.21 per share)					0			0			(2,185	)		0			0			0			(2,185	)

BALANCE, December 31, 2020		10,247,185		$	102		$	97,412		$	92,657		$	(9,230	)	$	5,442		$	0		$	186,383

Net income					0			0			15,418			0			0			(439	)		14,979
Common stock issued and initial investment in Quin Ventures		29,719			1			498			(44	)		0			0			(42	)		413
Common stock repurchased		(349,497	)		(4	)		(3,491	)		(2,484	)		0			0			0			(5,979	)
Restricted stock awards granted net of forfeitures		64,839			1			(1	)		0			0			0			0			0
Restricted stock awards canceled		(19,548	)		0			(352	)		0			0			0			0			(352	)
Other comprehensive loss, net of tax					0			0			0			0			(5,154	)		0			(5,154	)
Share-based compensation					0			1,794			0			0			0			0			1,794
Allocation of ESOP shares					0			271			0			658			0			0			929
Cash dividends declared and paid ($0.25 per share)					0			0			(2,533	)		0			0			0			(2,533	)

BALANCE, December 31, 2021		9,972,698		$	100		$	96,131		$	103,014		$	(8,572	)	$	288		$	(481	)	$	190,480
ESOP shares committed to be released																																32						660									692
Cash dividends declared and paid ($0.28 per share)																																			(2,700	)											(2,700	)
Balance at December 31, 2023																										9,611,876		$	96		$	95,784		$	107,349		$	(7,253	)	$	(32,636	)	$	—		$	163,340

FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Years
Buildings		37.5 - 50
Furniture, fixtures, and equipment		3 - 10
Software		3
Automobiles		5

	~~Years~~
~~Buildings~~		~~37.5 - 50~~
~~Furniture, fixtures, and equipment~~		~~3 - 10~~
~~Software~~		3
~~Automobiles~~		5

	December 31, 2021									December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(In thousands)									(In thousands)
Available for Sale
Municipal bonds	$	110,497	$	3,207	$	(340	)	$	113,364	$	102,998	$	—	$	(15,237	)	$	87,761
International agency issued bonds (Agency bonds)		1,947		0		(27	)		1,920
U.S. government agency issued asset-backed securities (ABS agency)											11,847		—		(65	)		11,782
Corporate issued asset-backed securities (ABS corporate)		14,556		0		(67	)		14,489		5,370		—		(84	)		5,286
Corporate issued debt securities (Corporate debt)		58,906		1,450		(567	)		59,789		56,515		—		(5,061	)		51,454
U.S. Small Business Administration securities (SBA)		14,404		276		0			14,680
Mortgage-Backed Securities:
U.S. government agency issued mortgage-backed securities (MBS agency)		80,877		248		(1,163	)		79,962		75,665		—		(12,418	)		63,247
Corporate issued mortgage-backed securities (MBS corporate)		60,317		71		(380	)		60,008

Non-agency issued mortgage-backed securities (MBS non-agency)											81,555		—		(5,462	)		76,093
Total securities available for sale	$	341,504	$	5,252	$	(2,544	)	$	344,212	$	333,950	$	—	$	(38,327	)	$	295,623

	December 31, 2020									December 31, 2022
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(In thousands)									(In thousands)
Available for Sale
Municipal bonds	$	122,667	$	5,212	$	(17	)	$	127,862	$	119,990	$	—	$	(21,940	)	$	98,050
U.S. government agency issued asset-backed securities (ABS agency)		62,934		1,240		(354	)		63,820
ABS corporate		29,661		37		(418	)		29,280
U.S. Treasury notes											2,469		—		(105	)		2,364
International agency issued bonds (Agency bonds)											1,955		—		(253	)		1,702
Corporate debt		35,408		687		(585	)		35,510		60,700		—		(5,201	)		55,499
SBA		18,420		144		0			18,564
Mortgage-Backed Securities
MBS agency		61,859		876		(52	)		62,683		88,930		1		(13,283	)		75,648
MBS corporate		26,458		162		(43	)		26,577

MBS non-agency											101,139		—		(7,833	)		93,306
Total securities available for sale	$	357,407	$	8,358	$	(1,469	)	$	364,296	$	375,183	$	1	$	(48,615	)	$	326,569

	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale
Municipal bonds	$	—		$	—	$	(15,237	)	$	87,461	$	(15,237	)	$	87,461
ABS agency		(65	)		11,782		—			—		(65	)		11,782
ABS corporate		(84	)		3,771		—			—		(84	)		3,771
Corporate debt		—			—		(5,061	)		51,454		(5,061	)		51,454
Mortgage-Backed Securities
MBS agency		(27	)		3,941		(12,391	)		59,305		(12,418	)		63,246
MBS non-agency		—			—		(5,462	)		76,086		(5,462	)		76,086
Total	$	(176	)	$	19,494	$	(38,151	)	$	274,306	$	(38,327	)	$	293,800

	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale
Municipal bonds	$	(15	)	$	5,214	$	(2	)	$	1,319	$	(17	)	$	6,533
ABS Agency		0			0		(354	)		21,430		(354	)		21,430
ABS Corporate		0			0		(418	)		27,283		(418	)		27,283
Corporate debt		(8	)		5,892		(577	)		9,409		(585	)		15,301
SBA		0			63		0			47		0			110
Mortgage-Backed Securities
MBS agency		(52	)		18,516		0			261		(52	)		18,777
MBS corporate		(43	)		10,003		0			0		(43	)		10,003
Total	$	(118	)	$	39,688	$	(1,351	)	$	59,749	$	(1,469	)	$	99,437

	December 31, 2023						December 31, 2022
	Collateral Dependent Loans		Non-collateral Dependent Loans		Total Nonaccrual Loans		Total Nonaccrual Loans ⁽¹⁾
					(In thousands)
One-to-four family	$1,426		$	418	$	1,844	$	954
Commercial real estate	—			28		28		53
Construction and land	14,981			5		14,986		15
Home equity	30			93		123		196
Auto and other consumer	180			606		786		575
Commercial business loans	877			—		877		—
Total nonaccrual loans	$	17,494	$1,150		$	18,644	$	1,793

	At or For the Year Ended December 31, 2021
	One- to four-family			Multi-family		Commercial real estate		Construction and land		Home equity			Auto and other consumer			Commercial business		Unallocated		Total
	(In thousands)
ALLL:
Beginning balance	$	3,469		$	1,764	$	3,420	$	1,461	$	368		$	2,642		$	429	$	294	$	13,847
(Recapture of) provision for loan losses		(291	)		52		576		1,203		(25	)		(270	)		41		64		1,350
Charge-offs		0			0		0		0		(12	)		(865	)		0		0		(877	)
Recoveries		6			0		0		8		76			714			0		0		804
Ending balance	$	3,184		$	1,816	$	3,996	$	2,672	$	407		$	2,221		$	470	$	358	$	15,124

	At December 31, 2021
	One- to four-family		Multi-family		Commercial real estate		Construction and land		Home equity		Auto and other consumer		Commercial business		Unallocated		Total
	(In thousands)
Total ALLL	$	3,184	$	1,816	$	3,996	$	2,672	$	407	$	2,221	$	470	$	358	$	15,124
General reserve		3,159		1,816		3,996		2,672		402		2,138		470		358		15,011
Specific reserve		25		0		0		0		5		83		0		0		113

Total loans	$	294,965	$	172,409	$	363,299	$	224,709	$	39,172	$	182,769	$	79,838	$	0	$	1,357,161
General reserves (1)		292,708		172,409		363,228		224,687		38,839		182,257		79,838		0		1,353,966
Specific reserves (2)		2,257		0		71		22		333		512		0		0		3,195

	At December 31, 2020
	One- to four-family		Multi-family		Commercial real estate		Construction and land		Home equity		Auto and other consumer		Commercial business		Unallocated		Total
	(In thousands)
Total ALLL	$	3,469	$	1,764	$	3,420	$	1,461	$	368	$	2,642	$	429	$	294	$	13,847
General reserve		3,433		1,764		3,419		1,461		364		2,366		429		294		13,530
Specific reserve		36		0		1		0		4		276		0		0		317

Total loans	$	309,828	$	162,467	$	296,574	$	123,627	$	33,103	$	128,233	$	100,201	$	0	$	1,154,033
General reserves (1)		306,862		162,183		295,296		123,601		32,968		127,411		100,201		0		1,148,522
Specific reserves (2)		2,966		284		1,278		26		135		822		0		0		5,511