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, 2022 or

☐	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 Section 240.1D-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, 2023, the registrant had 9,674,055 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, 2022, was $148,356,296.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference into Part III.

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FIRST NORTHWEST BANCORP

2022 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	6
Lending Activities	8
Asset Quality	25
Investment Activities	33
Deposit Activities and Other Sources of Funds	36
Subsidiary and Other Activities	41
Competition	42
Employees and Human Capital Resources	42
How We Are Regulated	44
Taxation	55
Item 1A. Risk Factors	56
Item 1B. Unresolved Staff Comments	68
Item 2. Properties	68
Item 3. Legal Proceedings	68
Item 4. Mine Safety Disclosures	68
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	69
Item 6. [Reserved]	69
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	70
General	70
Our Business and Operating Strategy	71
Critical Accounting Policies	73
New Accounting Pronouncements	74
Comparison of Financial Condition at December 31, 2022 and December 31, 2021	74
Comparison of Results of Operations for the Years Ended December 31, 2022 and December 31, 2021	77
Average Balances, Interest and Average Yields/Cost	81
Rate/Volume Analysis	82
Asset and Liability Management and Market Risk	82
Liquidity Management	84
Off-Balance Sheet Activities	85
Commitments and Off-Balance Sheet Arrangements	85
Capital Resources	85
Effect of Inflation and Changing Prices	86
Recent Accounting Pronouncements	86
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	87
Item 8. Financial Statements and Supplementary Data	87

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FIRST NORTHWEST BANCORP

2022 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS (Continued)

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

As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to First Northwest Bancorp ("First Northwest"), its consolidated subsidiary and its 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 First Northwest joint venture. First Northwest, the Bank, and Quin Ventures are collectively referred to as the "Company."

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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 risks associated with lending and potential adverse changes in the credit quality of loans in our portfolio, particularly with respect to borrowers affected by the COVID-19 pandemic, natural disasters, or climate change;

• legislative or regulatory changes, including expanded consumer protection regulation and responses to inflation and climate change issues, which could adversely affect the Company's business;

• a continued decrease in the market demand for loans that we originate for sale;

• our ability to control operating costs and expenses;

• whether our management team can implement our operational strategy, including but not limited to our efforts to achieve loan and revenue growth;

• our ability to successfully execute on merger and/or 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 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 in monetary policy 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;

• 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 at a reasonable cost;

• changes in consumer spending, borrowing and savings habits, resulting in reduced demand for banking products and services, particularly in the event of a recession that affects our market areas;

• results of examinations of us by the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, Federal Reserve Bank of San Francisco, or other regulatory authorities, which could result in restrictions that may adversely affect our liquidity and earnings;

• 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;

• the impacts related to or resulting from Russia's military action in Ukraine, including the broader impacts to financial markets and economic conditions;

• any failure of key third-party vendors to perform their obligations to us;

• 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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Any of the forward-looking statements that we make in this report and in other statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of 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, the forward-looking statements discussed in this report 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 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 a bank holding company and a financial holding company and is engaged in banking activities through its wholly owned subsidiary, First Fed Bank, as well as certain non-banking financial activities. Non-financial investments include a controlling interest in Quin Ventures, Inc. and several limited partnership investments, including a 33% interest in The Meriwether Group, LLC.

At December 31, 2022, the Company had total assets of $2.04 billion, net loans of $1.53 billion, total deposits of $1.56 billion, and total shareholders' equity of $158.3 million. The Company's business activities are generally focused on passive investment activities and oversight of the activities of First Fed Bank. The Company has entered into partnerships to strategically invest in financial technology-related businesses, which may result in the development of additional investment opportunities. Aside from these investments, the information set forth in this report, including consolidated financial statements and related data, relates primarily to First Fed.

First Northwest is subject to regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve"). A financial holding company is a bank holding company that is permitted to engage in specified types of non-banking financial services. First Fed is examined and regulated by the Washington State Department of Financial Institutions, Division of Banks ("DFI") and by the Federal Deposit Insurance Corporation ("FDIC"). First Fed is required to have certain reserves set by the Federal Reserve and is a member of the Federal Home Loan Bank of Des Moines ("FHLB"), which is one of the 11 regional banks in the Federal Home Loan Bank System ("FHLB System").

First Fed Bank is a community-oriented financial institution founded in 1923 in Port Angeles, Washington. We have 16 locations including 12 full-service branches and four business centers in Clallam, Jefferson, King, Kitsap, and Whatcom counties. First Fed’s business and operating strategy is focused on building sustainable earnings by delivering a fully array of financial products and services for individuals, small business, and commercial customers. Lending activities include the origination of first lien one- to four-family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, commercial business loans, Small Business Administration ("SBA") loans, and consumer loans, consisting primarily of home equity loans and lines of credit. Over the last five years, we have significantly increased the origination of commercial real estate, multi-family real estate, construction, and commercial business loans, and have increased our consumer loan portfolio through our manufactured home and auto loan purchase programs. We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts and certificates of deposit for individuals and businesses. Deposits are our primary source of funding for our lending and investing activities. Additionally, First Fed has started building strategic partnerships with financial technology (“fintech”) companies 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 of 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 retains a 50% equity interest in Quin Ventures and will receive a portion of Quil’s monthly subscription fee income, the value of which is reflected as a commitment receivable under "Other Assets." The fair value of the Quil ownership stake and the commitment receivable were evaluated by a third party with extensive experience in valuing bank assets and liabilities.

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 The Meriwether Group, LLC, 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 in Meriwether Group Capital, LLC, which provides financial advice for borrowers and capital for the Meriwether Group Capital Hero Fund LP ("Hero Fund"). The Meriwether Group, LLC, also holds a 20% interest in Meriwether Group Capital, LLC. In addition, First Northwest invested in the Hero Fund, a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest.

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 and four business centers located in Washington State. We have five branches in Clallam County, one in Jefferson County, one in King County, two in Kitsap County, and three in Whatcom County. We have two business centers located in Clallam County, one in King County and one in Whatcom County. All population and income data below is derived from the U.S. Census Bureau website.

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Clallam County has a population of approximately 78,209 and estimated median family income of $60,044. 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 6.1% at December 31, 2022, compared to 4.5% at December 31, 2021. By comparison, the unemployment rate for the state of Washington was 4.0%, and the national average was 3.5% at December 31, 2022.

Jefferson County has a population of approximately 33,605 and estimated median family income of $59,968. 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 5.4% at December 31, 2022, compared to 4.1% at December 31, 2021.

Kitsap County has a population of approximately 274,314 and estimated median family income of $84,600. The economic base of Kitsap County is largely supported by the United States Navy through personnel stationed at Kitsap Naval Base along with other employers supporting the military. Private industries that support the economic base are healthcare, retail and tourism. Other primary employers in Kitsap County include the Department of Defense, Amazon, Walmart, St. Michael Medical Center, Catholic Health Initiatives, and Port Madison Enterprises, which owns and operates the Clearwater Casino and Resort, gas stations and other retail operations. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Kitsap County was 4.3% at December 31, 2022, compared to 3.3% at December 31, 2021.

Whatcom County has a population of approximately 228,831 and estimated median family income of $70,011. 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 5.0% at December 31, 2022, compared to 4.0% at December 31, 2021.

King County, which includes the City of Seattle, has a population of approximately 2.3 million and estimated median family income of $106,326. 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 2.8% at December 31, 2022, compared to 3.2% at December 31, 2021.

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 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 as 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 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, South Korea and Mexico. Tourism has also developed into a major industry, due to the scenic beauty, temperate climate, and incredible food and culture. The maritime industry, supported by the trade and fishing industries, is also an important employment sector.

For a discussion regarding the competition in our primary market area, see "Competition."

Lending Activities

General. First Fed’s principal lending activities are concentrated in real estate secured loans with first lien one- to four-family mortgage, commercial, and multi-family loans. First Fed also makes construction and land loans (including lot loans and multi-family acquisition-renovation loans), commercial business loans, and consumer loans, consisting primarily of home-equity loans and lines of credit. The Bank also purchases automobile and manufactured home loans.

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,
	2022						2021
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate:
One- to four-family	$	343,825			22.4	%	$	294,965			21.7	%
Multi-family		253,551			16.5			172,409			12.7
Commercial real estate		390,246			25.5			363,299			26.8
Construction and land		194,646			12.7			224,709			16.5
Total real estate loans		1,182,268			77.1			1,055,382			77.7
Consumer:
Home equity		52,322			3.4			39,172			2.9
Auto and other consumer		222,794			14.5			182,769			13.5
Total consumer loans		275,116			17.9			221,941			16.4
Commercial business loans		76,996			5.0			79,838			5.9
Total loans		1,534,380			100.0	%		1,357,161			100.0	%
Less:
Net deferred loan fees		2,786						4,772
Premium on purchased loans, net		(15,957	)					(12,995	)
Allowance for loan losses		16,116						15,124
Total loans, net	$	1,531,435					$	1,350,260

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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,
	2022						2021
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Fixed-rate loans:
Real estate:
One- to four-family	$	253,351			16.5	%	$	203,746			15.0	%
Multi-family		100,189			6.5			65,331			4.8
Commercial real estate		148,607			9.7			127,522			9.4
Construction and land		103,259			6.7			73,104			5.4
Total real estate loans		605,406			39.4			469,703			34.6
Consumer:
Home equity		23,613			1.5			18,910			1.4
Auto and other consumer		222,457			14.5			182,412			13.4
Total consumer loans		246,070			16.0			201,322			14.8
Commercial business loans		23,918			1.6			52,406			3.9
Total fixed-rate loans		875,394			57.0			723,431			53.3
Adjustable-rate loans:
Real estate:
One- to four-family		90,474			5.9			91,219			6.7
Multi-family		153,362			10.0			107,078			7.9
Commercial real estate		241,639			15.7			235,777			17.4
Construction and land		91,387			6.0			151,605			11.2
Total real estate loans		576,862			37.6			585,679			43.2
Consumer:
Home equity		28,709			1.9			20,262			1.5
Auto and other consumer		337			—			357			—
Total consumer loans		29,046			1.9			20,619			1.5
Commercial business loans		53,078			3.5			27,432			2.0
Total adjustable-rate loans		658,986			43.0			633,730			46.7
Total loans		1,534,380			100.0	%		1,357,161			100.0	%
Less:
Net deferred loan fees		2,786						4,772
Premium on purchased loans, net		(15,957	)					(12,995	)
Allowance for loan losses		16,116						15,124
Total loans, net	$	1,531,435					$	1,350,260

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Loan Maturity

The following table illustrates the contractual maturity of our loan portfolio at December 31, 2022. 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, 2023, that have fixed interest rates is $871.9 million, while the total amount of loans due after such date that have adjustable interest rates is $606.9 million. The table does not reflect the effects of unpredictable principal prepayments.

	Within One Year (1)					After One Year Through Three Years					After Three Years Through Five Years					After Five Years Through Fifteen Years					Beyond Fifteen Years					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Real estate:
One- to four-family	$	5		2.70	%	$	399		3.94	%	$	4,186		3.48	%	$	37,209		3.89	%	$	302,026		3.76	%	$	343,825		3.77	%
Multi-family		43		3.75			36,001		3.84			47,120		4.12			155,753		4.36			14,634		5.20			253,551		4.29
Commercial real estate		6,453		6.51			28,029		6.31			71,624		4.62			282,959		5.11			1,181		6.91			390,246		5.14
Construction and land		39,635		8.97			22,555		4.53			29,573		4.49			48,920		5.60			53,963		3.84			194,646		5.51
Consumer:
Home equity		107		6.31			53		4.32			374		7.67			28,505		4.75			23,283		7.53			52,322		6.01
Auto and other consumer		729		9.92			8,249		11.34			16,547		15.47			120,507		6.76			76,762		5.87			222,794		7.28
Commercial business loans		8,568		8.47			20,601		8.18			12,724		7.51			35,103		6.38			—		—			76,996		7.19
Total loans	$	55,540		8.61	%	$	115,887		5.73	%	$	182,148		5.63	%	$	708,956		5.25	%	$	471,849		4.35	%	$	1,534,380		5.17	%

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

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Geographic Distribution of our Loans

The following table shows at December 31, 2022, the geographic distribution of our loan portfolio in dollar amounts and percentages.

	North Olympic Peninsula (1)					Puget Sound Region (2)					Other Washington					Total in Washington State					All Other States (3)					Total
	Amount		% of Total in Category			Amount		% of Total in Category			Amount		% of Total in Category			Amount		% of Total in Category			Amount		% of Total in Category			Amount		% of Total in Category
	(Dollars in thousands)
Real estate loans:
One- to four-family	$	112,943		32.8	%	$	200,972		58.5	%	$	5,966		1.7	%	$	319,881		93.0	%	$	23,944		7.0	%	$	343,825		22.4	%
Multi-family		6,218		2.5			198,740		78.3			35,473		14.0			240,431		94.8			13,120		5.2			253,551		16.5
Commercial real estate		77,337		19.8			275,948		70.8			24,757		6.3			378,042		96.9			12,204		3.1			390,246		25.5
Construction and land		23,198		11.9			158,304		81.4			10,338		5.3			191,840		98.6			2,806		1.4			194,646		12.7
Total real estate loans		219,696		18.6			833,964		70.5			76,534		6.5			1,130,194		95.6			52,074		4.4			1,182,268		77.1
Consumer loans:
Home equity		35,139		67.2			16,035		30.6			1,148		2.2			52,322		100.0			—		—			52,322		3.4
Auto and other consumer		6,844		3.1			9,621		4.3			2,215		1.0			18,680		8.4			204,114		91.6			222,794		14.5
Total consumer loans		41,983		15.3			25,656		9.3			3,363		1.2			71,002		25.8			204,114		74.2			275,116		17.9
Commercial business loans		23,295		30.2			23,230		30.2			4,092		5.3			50,617		65.7			26,379		34.3			76,996		5.0
Total loans	$	284,974		18.6	%	$	882,850		57.5	%	$	83,989		5.5	%	$	1,251,813		81.6	%	$	282,567		18.4	%	$	1,534,380		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.

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One- to Four-Family Real Estate Lending. At December 31, 2022, one- to four-family residential mortgage loans (excluding loans held for sale) totaled $343.8 million, or 22.4%, of our total loan portfolio, including $23.9 million, or 7.0%, 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 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 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, 2022, the average interest rate on our adjustable-rate mortgage loans was approximately 367 basis points under the fully indexed rate. As of December 31, 2022, we had $90.5 million, or 26.3%, of 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, 2022, $390.3 million, or 25.5%, and $253.6 million, or 16.5%, of our total loan portfolio was secured by commercial and multi-family real estate property, respectively. At December 31, 2022, we have identified $102.0 million, or 15.9%, of our commercial and multi-family real estate portfolio as owner-occupied commercial real estate and $541.8 million, or 84.1%, is secured by income producing, or non-owner-occupied, commercial and multi-family real estate. Over 95% of our commercial real estate and multi-family loans are secured by properties located in the state of Washington.

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Commercial and multi-family real estate loans are generally priced at a higher rate of interest than one- to four-family residential loans, to compensate for the greater risk associated with higher loan balances and the complexity of underwriting and monitoring these loans. Repayment on loans secured by commercial or multi-family properties is dependent on successful management by the property owner to create sufficient net operating income to meet debt service requirements. Changes in economic and real estate market conditions can affect net operating income, capitalization rates, and ultimately the valuation and marketability of the collateral. As a result, we analyze market data including vacancy rates, absorption percentages, leasing rates, and competing projects under development. Interest rate, occupancy and capitalization rate stress testing are required as part of our underwriting analysis. If the borrower is a corporation, we generally require and obtain personal guarantees from principals, which include underwriting of their personal financial statements, tax returns, cash flows and individual credit reports, to provide us with additional support and a secondary source for repayment of the debt.

We offer both fixed- and adjustable-rate loans on commercial and multi-family real estate, which may include balloon payments. As of December 31, 2022, we had $241.6 million in adjustable-rate commercial real estate loans and $153.4 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 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, the Bank moved away from the London Interbank Offered Rate ("LIBOR") as a market index in anticipation of its complete sunset in 2023 and in order to mitigate the transition of existing loans tied to LIBOR to the Term Secured Overnight Financing Rate ("TSOFR") index. We currently utilize LIBOR on Main Street Lending contracts and floating rate adjustable-rate conversion ("ARC") loans originated in prior years; however, these contracts stipulate that we can use a different index upon the sunset of LIBOR. Of the adjustable-rate commercial and multi-family real estate loans, 67.69% are subject to a floor rate and the weighted average floor rate on these loans was 3.56% at December 31, 2022. Of the adjustable-rate commercial loans, 100.00% are subject to a ceiling rate and the weighted average ceiling rate on those loans was 16.37% at December 31, 2022.

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

Once commercial real estate or multi-family loans are originated, we review most relationships at least annually to assure the borrower continues to meet certain loan requirements as set forth at origination, which may include an annual inspection of the property. The scope of the review is based on relationship size, with those $1.5 million or greater subject to a full credit review at least annually, which includes detailed financial and cash flow analysis, property inspection, covenant compliance and annual risk rating certification. Relationships $750,000 or greater are subject to brief financial and cash flow analysis, covenant compliance and annual risk rating certification. While we cannot prevent loans from becoming delinquent, we believe our monitoring and formal review processes provide us with the opportunity to better identify problem loans in a timely manner and to work with the borrower prior to the loan becoming delinquent.

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

	December 31,
	2022					2021					2020
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Non-owner occupied
Multi-family	$	253,551		39.4	%	$	172,409		32.2	%	$	158,964		34.6	%
Office building		60,541		9.4			63,209		11.8			58,715		12.8
Retail		56,701		8.8			47,710		8.9			45,645		9.9
Hospitality		48,387		7.5			44,385		8.3			50,243		10.9
Condominium		22,846		3.5			19,781		3.7			3,923		0.9
Mixed use		19,022		3.0			20,938		3.9			19,920		4.3
Health care		12,208		1.9			8,374		1.6			16,365		3.6
Warehouse		8,954		1.4			15,374		2.8			7,193		1.5
Self-storage		5,997		0.9			13,246		2.5			12,290		2.7
Vehicle dealership		1,114		0.2			1,152		0.2			1,169		0.2
Other non-owner occupied		52,434		8.1			38,705		7.2			21,198		4.6
Total non-owner occupied		541,755		84.1			445,283		83.1			395,625		86.0
Owner occupied
Health care		23,547		3.7			24,123		4.5			21,595		4.7
Office building		21,365		3.3			20,769		3.9			10,455		2.3
Warehouse		19,434		3.0			16,266		3.0			4,444		1.0
Retail		11,031		1.7			8,777		1.6			7,713		1.7
Vehicle dealership		8,820		1.4			4,289		0.8			6,716		1.5
Mixed use		4,412		0.7			4,458		0.8			4,487		1.0
Hospitality		1,011		0.2			374		0.1			346		0.1
Condominium		938		0.1			372		0.1			376		0.1
Manufacturing		80		—			1,987		0.4			2,103		0.5
Other owner-occupied		11,404		1.8			9,010		1.7			5,181		1.1
Total owner occupied		102,042		15.9			90,425		16.9			63,416		14.0
Summary by type
Multi-family		253,551		39.4			172,409		32.2			158,964		34.6
Office building		81,906		12.7			83,978		15.7			69,170		15.1
Retail		67,732		10.5			56,487		10.5			53,358		11.6
Hospitality		49,398		7.7			44,759		8.4			50,589		11.0
Health care		35,755		5.6			32,497		6.1			37,960		8.3
Warehouse		28,388		4.4			31,640		5.8			11,637		2.5
Condominium		23,784		3.6			20,153		3.8			4,299		1.0
Mixed use		23,434		3.7			25,396		4.7			24,407		5.3
Vehicle dealership		9,934		1.6			5,441		1.0			7,885		1.7
Self-storage		5,997		0.9			13,246		2.5			12,290		2.7
Manufacturing		80		—			1,987		0.4			2,103		0.5
Other non-owner occupied		52,434		8.1			38,705		7.2			21,198		4.6
Other owner-occupied		11,404		1.8			9,010		1.7			5,181		1.1
Total multi-family and commercial real estate	$	643,797		100.0	%	$	535,708		100.0	%	$	459,041		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 $1.5 million as of December 31, 2022. 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 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, 2022 consisted of a $21.3 million relationship secured by commercial real estate and business assets in King County, Washington; a $17.7 million relationship secured by multi-family residential and multi-family construction in Benton, Pierce, and Spokane Counties; and a $17.6 million relationship secured by commercial real estate in Kitsap, King and Thurston Counties.

Construction and Land Lending. Our construction and land loans totaled $194.7 million, or 12.7% of the total loan portfolio at December 31, 2022 and the undisbursed portion of construction loans in process totaled $120.7 million.

First Fed offers an "all-in-one" residential custom construction loan product, which upon completion of construction will be held in our loan portfolio. We also originate construction loans for certain commercial real estate projects. These projects include, but are not limited to, subdivisions, multi-family, retail, office, warehouse, hotel, and office buildings. We also offer commercial acquisition-renovation loans that have a small construction component combined with a traditional real estate loan. Underwriting criteria on construction loans include, but are not limited to, minimum debt service coverage requirements of 1.25x or better, loan to value limitations, pre-leasing requirements, construction cost over-run contingency reserves, interest and absorption period reserves, occupancy, capitalization rates and interest rate stress testing, as well as other underwriting criteria. Underwriting criteria on commercial acquisition-renovation loans during the interest-only period include, but are not limited to, loan to value limitations and debt service coverage requirements of 1.00x or better, based on in-place rents and 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 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, 2022, the average construction commitment for single-family residential construction was $872,000, $3.1 million for multi-family construction, $2.4 million for acquisition-renovation loans, and $1.9 million for commercial real estate construction. The largest construction commitments for multi-family, acquisition-renovation, and commercial real estate were $13.9 million, $14.3 million, and $14.3 million, respectively, at December 31, 2022.

Substantially all of our adjustable-rate land acquisition, development and construction lending have rates of interest based on The Wall Street Journal prime rate. During the term of construction, the accumulated interest on the loan is either added to the principal of the loan through an interest reserve or billed monthly, as is the case for acquisition and development loans. 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 extension fee policy to entice commercial borrowers to finish projects on time, which we believe mitigates risk and enhances the return on these loans.

We also originate individual lot loans, which are secured by a first lien on the property, for borrowers who are planning to build on the lot within the next five years. Generally, these loans have a maximum loan to value ratio of 75% for improved lands (legal access, water and power). The interest rate on these loans is fixed with a 20-year amortization and a five-year term.

At the dates indicated, the composition of our construction and land portfolio was as follows:

	December 31,
	2022		2021		2020
	(In thousands)
One- to four-family residential	$	58,739	$	39,733	$	24,029
Multi-family residential		77,026		89,655		34,513
Commercial acquisition-renovation		19,323		51,099		39,346
Commercial real estate		27,716		35,671		16,918
Land		11,842		8,551		8,821
Total construction and land	$	194,646	$	224,709	$	123,627

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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, 2022	Olympic Peninsula		Puget Sound Region			Other Washington	Oregon	Idaho	Total
	(In thousands)
Construction Commitment
One- to four-family residential	$	39,031	$	75,745	&