First Northwest Bancorp
For the period ended Dec 31, 2024. Filed Mar 13, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 13, 2025
FNWB$9.93-1.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-15.
0001437749-24-008142
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-13.
0001437749-25-007492
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 99 previous paragraphs and 100 current paragraphs.
57 unchanged; 38 reworded; 5 added; 4 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 15 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (5)
Current report
MBS represent the largest portion of our investment portfolio and totaled $170.3 million at December 31, 2024, an increase of $31.0 million, or 22.2%, from $139.3 million at December 31, 2023. Municipal bonds are the second largest segment, totaling $77.9 million at December 31, 2024, a decrease of $9.9 million, or 11.3%, from $87.8 million at December 31, 2023. The purchase of investment securities during 2024 resulted in a shift in the investment mix from municipal bonds toward more mortgage-backed, corporate asset-backed and SBA securities. Other investment securities totaled $92.2 million at December 31, 2024, an increase of $23.6 million, or 34.5%, from $68.5 million at December 31, 2023. Included in MBS non-agency were $44.4 million of commercial mortgage-backed securities ("CMBS"), of which 93.4% were in "A" tranches with the remaining 6.6% in "B" tranches. Our largest exposure in the CMBS portfolio was to long-term care facilities, which comprised 76.8%, or $34.1 million, of our private label CMBS securities. All of the CMBS had credit enhancements ranging from 28.8% to 93.1%, with a weighted-average credit enhancement of 58.9%, that further reduced the risk of loss on these investments.
Current report
In the second quarter of 2024, the Bank completed the sale and leaseback of six branch properties to Mountainseed Real Estate Services, LLC ("Mountainseed"), reducing premises and equipment by $6.8 million. The Bank received the full sales price of $14.7 million. The proceeds of the sale transaction were used to pay down borrowings. First Fed is leasing back the six properties sold to Mountainseed under agreements with initial terms of 15 years with one 15-year renewal option each. The leases, recorded in the second quarter of 2024, resulted in an increase of $12.2 million to both other assets and other liabilities for the related right-of-use assets and lease liabilities created by the contracts, respectively.
Current report
Also in the second quarter of 2024, a redemption of First Northwest's limited partnership investment in Meriwether Group Hero Fund LP was offset by a subsequent limited partnership investment in the same entity by First Fed. First Northwest utilized the cash received to pay down the NexBank line of credit. Equity and partnership investments decreased to $13.2 million at December 31, 2024, compared to $14.8 million at December 31, 2023, due to a $1.8 million write down in the fourth quarter of 2024 on an equity investment in an organization that is involved in a lawsuit.
Current report
Borrowings increased $15.1 million, or 4.7%, to $336.0 million at December 31, 2024, from $320.9 million at December 31, 2023. The Bank increased long-term FHLB advances by $80.0 million during 2024 to take advantage of lower rates compared to those offered on FHLB overnight advances. FHLB overnight advances decreased $65.0 million compared to the prior year end.
Current report
Provision for Credit Losses. The total provision for credit losses increased $15.2 million to $16.5 million during the year ended December 31, 2024, compared to $1.3 million for 2023. The higher provision for credit losses on loans compared to 2023 is mainly the result of loan balances charged-off during the year, an increase in reserve for individually evaluated loans and an increase in loss factors applied to one-to-four family, multi-family and commercial business pooled loans. The unfunded commitments recapture is due to a decrease in the loss factor applied to this pool.
Removed paragraphs (4)
Previous report
Equity and partnership investments increased to $14.8 million at December 31, 2023, compared to $14.3 million at December 31, 2022, from 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, 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 a result of an increase in the fair market value of the investment portfolio.
Previous report
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.
Previous report
Provision for Credit Losses. The total provision for credit losses decreased $212,000 to $1.3 million during the year ended December 31, 2023, compared to $1.5 million for 2022. A recapture of provision for credit losses on unfunded commitments due to the significant decrease in unfunded construction loan commitments from the initial balance recorded upon the adoption of CECL on January 1, 2023, was recorded during 2023. A higher provision for credit losses on loans compared to 2022 is reflective of loan growth, a change to the life-of-loan loss methodology and an increase in net charge-offs during 2023, which partially offset the unfunded commitments recapture.
Previous report
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 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 controlling interest method of accounting. The proportional noncontrolling interest amount was then subtracted from net income. This resulted in noncontrolling interest net losses of $160,000 and $2.1 million being added back to net income for the years ended December 31, 2023 and 2022, respectively.
Reworded paragraphs (38)
Previous wording
First Northwest 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-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.
Current wording
First Northwest 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-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.
Previous wording
First Fed is a community-oriented commercial bank serving Clallam, Jefferson, King, Kitsap, and Whatcom counties in Washington State, through its twelve full-service branches, three business centers and three administration centers. We offer a wide range of products and services focused on the lending, deposit and money movement needs of the communities we serve. To diversify our portfolio and increase interest income, we increased our origination of commercial real estate, multi-family real estate, and commercial business loans. We also increased our auto and consumer loans through originations, purchased auto loan programs, and purchased manufactured homes. We continue to originate one-to-four family residential mortgage loans, primarily for sale into the secondary market to generate noninterest 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.
Current wording
First Fed is a community-oriented commercial bank serving Clallam, Jefferson, King, Kitsap, Snohomish, and Whatcom counties in Washington State, through its twelve full-service branches and six business centers, including our headquarters. We offer a wide range of products and services focused on the lending, deposit and money movement needs of the communities we serve. To diversify our portfolio and increase interest income, we increased our origination of commercial real estate, multi-family real estate, and commercial business loans. We also increased our auto and consumer loans through purchased auto loan programs and purchased manufactured homes. We continue to originate one-to-four family residential mortgage loans, primarily for sale into the secondary market to generate noninterest 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 has a limited partnership investment in the Canapi Ventures SBIC Fund II, LP. First Fed also has a limited partnership investment in the Meriwether Group Capital Hero Fund LP ("Hero Fund") which was previously held by First Northwest. The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest.
Previous wording
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 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 the sale of loans and securities.
Current wording
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 less interest expense paid on our deposits and borrowings. Changes in levels of interest rates 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 the sale of loans and securities.
Previous wording
The noninterest expenses incurred in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, 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.
Current wording
The noninterest expenses incurred in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, professional fees, deposit insurance premiums and regulatory assessments, digital delivery and data processing expenses, marketing and other customer acquisition expenses, expenses related to real estate and personal property owned, state and local taxes, federal income tax, and other miscellaneous expenses.
Previous wording
Assets*.* Total assets increased $159.7 million, or 7.8%, to $2.2 billion at December 31, 2023, from $2.04 billion at December 31, 2022.
Current wording
Assets*.* Total assets increased $30.2 million, or 1.4%, to $2.23 billion at December 31, 2024, from $2.2 billion at December 31, 2023.
Previous wording
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 proceeds from the sale of investment securities in the fourth quarter of 2023 were held in interest-bearing cash.
Current wording
Cash and cash equivalents decreased by $50.7 million, or 41.2%, to $72.5 million as of December 31, 2024, compared to $123.2 million at December 31, 2023, as proceeds from the sale of investment securities in the fourth quarter of 2023 were deployed into interest-earning assets.
Previous wording
Total investment securities decreased $31.0 million, or 9.5%, to $295.6 million at December 31, 2023, from $326.6 million at December 31, 2022. Theyear-over-year decrease was the result of sales and normal amortization during the year, partially offset by purchases and an improved portfolio market value. During 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$21.1 million of available-for-sale securities yielding 6.7%. The decrease in unrealized loss of $10.3 million relates mainly to a $5.4 million improvement in unrealized losses driven by a decrease in long-term interest rates and $4.9 million of realized losses related to the securities sale.
Current wording
Total investment securities increased $44.7 million, or 15.1%, to $340.3 million at December 31, 2024, from $295.6 million at December 31, 2023. Theyear-over-year increase was the result of purchases and an improvement in the portfolio market value, partially offset by sales and normal amortization during the year. During 2024, we repositioned the investment portfolio by selling $22.8 million of available-for-sale securities yielding 3.1% for a total loss of$2.1 million during the period, and purchased$100.4 million of available-for-sale securities yielding 6.5%. The increase in the portfolio market value of $2.4 million relates mainly to the recognition of $1.9 million in realized losses related to the securities sale and a $458,000 improvement in the remaining portfolio driven by changes in long-term interest rates.
Previous wording
The estimated average life of the total investment securities portfolio was 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 6.3 years as of December 31, 2023, compared to 7.1 years as of December 31, 2022, based on the interest rate environments at 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.
Current wording
The estimated average life of the total investment securities portfolio was 6.9 years as of December 31, 2024, compared to 7.7 years as of December 31, 2023, and the average repricing term was approximately 5.3 years as of December 31, 2024, compared to 6.3 years as of December 31, 2023, based on the interest rate environments at those times. Expected duration of the portfolio has decreased to 3.9 years as of December 31, 2024, compared to 4.8 years as of December 31, 2023. If prevailing market interest rates fall, we expect prepayments will accelerate due to the current coupons of fixed rate bonds. We anticipate the investment portfolio will continue to provide additional interest income and act as a source of liquidity.
Previous wording
Mortgage-backed securities represent the largest portion of our investment portfolio and totaled $139.3 million at December 31, 2023, a decrease of $29.6 million, or 17.5% from $169.0 million at December 31, 2022. Municipal bonds are the second largest segment, totaling $87.8 million at December 31, 2023, a decrease of $10.3 million, or 10.5%, from $98.1 million at December 31, 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 totaled $68.5 million at December 31, 2023, an increase of $9.0 million, or 15.0% from $59.6 million at December 31, 2022.** **At December 31, 2023, the investment portfolio contained 52.0% of amortizing securities, compared to 50.8% at December 31, 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 may purchase investment securities as a source of additional interest income and in lieu of carrying higher cash 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.
Current wording
At December 31, 2024, the investment portfolio contained 60.2% of amortizing securities, compared to 52.0% at December 31, 2023. The projected average life of our securities may vary due to prepayment activity, which, particularly in the MBS portfolio, is generally affected by changing interest rates. We may purchase investment securities as a source of additional interest income. 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.
Previous wording
Total loans, excluding loans held for sale, increased $112.5 million, or 7.3%, during the year ended December 31, 2023. Multi-family and commercial real estate loans increased $79.5 million, or 12.4%, consisting mainly of an increase in multi-family real estate loans of $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 $10.2 million, or 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 increased $35.4 million primarily due to an increase in the Northpointe Bank Mortgage Participation Program of $9.5 million and purchases of $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.
Current wording
Total loans, excluding loans held for sale, increased $35.8 million, or 2.2%, during the year ended December 31, 2024. Commercial business loans increased $39.2 million primarily due to an increase in the Northpointe MPP of $26.7 million, $15.2 million of equipment loan originations and purchases of $8.5 million of unsecured Bankers Healthcare Group loans in addition to advances on new and existing lines of credit and originations of amortizing commercial loans. Auto and other consumer loans increased $19.8 million, or 7.9%, with the purchase of a pool of manufactured home loans as well as purchases of individual manufactured home loans and specialty auto loans. Multi-family and commercial real estate loans increased $1.9 million, or 0.3%, consisting mainly of an increase in commercial real estate loans of $2.4 million as new loan originations of $34.6 million and $1.1 million from construction loans converting into permanent amortizing loans exceeded payment activity. Multi-family real estate loans decreased $498,000 as a result of payoffs and regular payments exceeding $36.5 million of construction loans converting into permanent amortizing loans and $13.6 million of new originations.
Previous wording
One-to-four family residential loans increased $34.9 million, or 10.2%, 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 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.
Current wording
One-to-four family residential loans increased $16.9 million, or 4.5%, with $42.5 million in construction loans converting to permanent amortizing loans during the year, partially offset by payoffs and regular payments. We continue to focus on the origination of one-to-four family mortgage loans with the intention of selling the majority of our saleable production to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and other investors, while retaining certain adjustable-rate loans that may not be readily sold in the secondary market.
Previous wording
Construction and land loans decreased $64.0 million, or 33.0%, with $118.2 million converting into fully amortizing loans partially offset by draws on new and existing commitments. Undisbursed construction commitments totaled $55.4 million at December 31, 2023 compared to $120.7 million at December 31, 2022. Undisbursed construction commitments at December 31, 2023 included $27.9 million of mainly custom one-to-four family residential construction, $22.1 million of multi-family construction, and $5.5 million of commercial real estate construction. Our construction loans are geographically disbursed throughout the state of Washington with one commitment for 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.
Current wording
Construction and land loans decreased $51.6 million, or 39.8%, with $80.1 million converting into fully amortizing loans partially offset by draws on new and existing commitments. Undisbursed construction commitments totaled $51.7 million at December 31, 2024 compared to $55.4 million at December 31, 2023. Undisbursed construction commitments at December 31, 2024 included $27.5 million of commercial real estate construction, $15.4 million of mainly custom one-to-four family residential construction, and $8.9 million of multi-family construction. Our construction loans are geographically disbursed throughout the state of Washington. All construction projects are monitored by either a third-party firm or our internal construction administration team. Projects with larger loan commitments have more robust monitoring by firms with more services and expertise.
Previous wording
During the year ended December 31, 2023, the Company originated $221.9 million of loans, of which $156.9 million, or 70.80%, were originated in the Puget Sound region; $55.9 million, or 25.20%, in the Olympic Peninsula region; $5.7 million, or 2.60%, in other areas in Washington; and $3.5 million, or 1.60%, in other states. The Company also purchased loans totaling $83.1 million with the largest concentration of these loans located in California.
Current wording
During the year ended December 31, 2024, the Company originated $232.4 million of loans, of which $156.0 million, or 67.2%, were originated in the Puget Sound region; $55.8 million, or 24.0%, in the Olympic Peninsula region; $8.7 million, or 3.7%, in other areas in Washington; and $11.8 million, or 5.1%, in other states. The Company also purchased loans totaling $88.9 million with the largest concentration of these loans located in California. We will continue to strategically assess our lending strategies across all product lines and markets where we do business as well as evaluate opportunities to supplement organic originations through wholesale acquisitions with a goal of improving earnings while also prudently managing credit risk.
Previous wording
Our allowance for credit losses on loans increased $1.4 million, or 8.6%, during the year ended December 31, 2023, as a result of our transition from the incurred loss model to CECL and loan growth. Asset quality declined with increases in past due, nonaccrual and classified assets compared to the total loan portfolio. Management continues to closely monitor economic conditions for potential weaknesses that could expose the loan portfolio to losses. The allowance for credit losses on loans as a percentage of total loans was 1.05% at December 31, 2023 and 1.04% at December 31, 2022. We believe our allowance for credit losses on loans is adequate to cover inherent losses in the loan portfolio.
Current wording
Our allowance for credit losses on loans ("ACLL") increased $2.9 million, or 16.8%, during the year ended December 31, 2024, primarily due to increased loss factors applied to commercial business, one-to-four family and multi-family loan pools and additional reserves on individually evaluated commercial business loans. Asset quality declined with increases in past due, nonaccrual and classified assets compared to the total loan portfolio. Management continues to closely monitor economic conditions for potential weaknesses that could expose the loan portfolio to losses. The ACLL as a percentage of total loans was 1.21% at December 31, 2024 and 1.05% at December 31, 2023. We believe our ACLL is adequate to cover current expected credit losses in the loan portfolio.
Previous wording
Nonperforming loans increased $16.9 million, or 939.8%, during the year ended December 31, 2023 to $18.6 million. This increase was mainly the result of increases in nonperforming commercial construction of $15.0 million, one-to-four family of $890,000, commercial business of $877,000 and auto and other consumer of $211,000, partially offset by decreases in home equity loans of $73,000 and commercial real estate of $25,000. Nonperforming loans to total loans was 1.12% at December 31, 2023, an increase from 0.12% at December 31, 2022.
Current wording
Nonperforming loans increased $11.9 million, or 63.7%, during the year ended December 31, 2024 to $30.5 million. This increase was mainly the result of increases in nonperforming commercial real estate of $5.6 million, commercial construction of $4.6 million and commercial business of $2.3 million, partially offset by decreases in one-to-four family of $367,000, auto and other consumer of $86,000 and home equity loans of $68,000. Nonperforming loans to total loans was 1.80% at December 31, 2024, an increase from 1.12% at December 31, 2023.
Previous wording
At December 31, 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 $18.2 million, or 107.7%, to $35.1 million at December 31, 2023, from $16.9 million at December 31, 2022. The change in classified loans was mainly the result of 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 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 continues to work with its borrowers to facilitate satisfactory repayment.
Current wording
At December 31, 2024, 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 $7.4 million, or 21.1%, to $42.5 million at December 31, 2024, from $35.1 million at December 31, 2023. The change in classified loans was mainly the result of downgrades of an $8.2 million commercial construction loan and a $6.4 million commercial real estate loan along with downgrades of six commercial business loans totaling $2.2 million during 2024. These downgrades were partially offset by a $3.6 million net charge off on one commercial construction relationship and payments received on previously identified classified loans. An $11.4 million construction loan relationship, which became a classified loan in the fourth quarter of 2022; an $8.1 million commercial construction loan relationship, which became classified in the second quarter of 2024; and a $6.2 million commercial loan relationship, which became classified in the fourth quarter of 2023, account for 61% of the classified loan balance at December 31, 2024. The Bank has exercised legal remedies, including the appointment of a third-party receiver and foreclosure actions, to liquidate the underlying collateral to satisfy the real estate loans in two of these three collateral-dependent relationships. The Bank is also closely monitoring a group of commercial business loans that have similar collateral, with 15 loans totaling $2.2 million included in classified loans at December 31, 2024, and an additional eight loans totaling $2.8 million included in the special mention risk grading category. The Bank continues to work with its borrowers to facilitate satisfactory repayment.
Previous wording
Liabilities. Total liabilities increased $154.7 million, or 8.2%, to $2.04 billion at December 31, 2023, from $1.88 billion at December 31, 2022, with increases in deposits and borrowings used mainly to fund loan growth.
Current wording
Liabilities. Total liabilities increased $39.7 million, or 1.9%, to $2.08 billion at December 31, 2024, from $2.04 billion at December 31, 2023, with increases in deposits and borrowings used mainly to purchase investment securities and fund loan growth.
Previous wording
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.
Current wording
Deposit account balances increased $11.1 million, or 0.7%, to $1.69 billion at December 31, 2024 from $1.68 billion at December 31, 2023. Money market accounts increased $51.6 million, while savings accounts decreased $37.1 million and transaction accounts decreased $194,000. Customer CDs increased $21.5 million, or 4.9%, to $464.9 million and Brokered CDs decreased $24.7 million, or 11.9%, to $182.9 million at December 31, 2024. The current rate environment continued to contribute to greater competition for deposits across the industry during 2024. As a result, the Bank continues offering deposit rate specials to attract new funds. Our focus continues to be on increasing core customer deposits, with an emphasis on small-to-medium sized business deposits, digital accounts and maintaining a stable source of funding to reduce interest expense as a percentage of liabilities.
Previous wording
Equity***.*** Total shareholders' equity increased $1.8 million, or 1.1%, to $163.3 million at December 31, 2023, from $161.6 million at December 31, 2022. The increase during the year resulted from a $7.9 million reduction in accumulated other comprehensive loss related to an improved unrealized market value of available for sale securities, net of tax, net income of $2.3 million, and 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 2023 and share repurchases of $1.1 million. During the year ended December 31, 2023, we repurchased 87,895 shares of common stock at an average cost of $12.95 per share, pursuant to the Company's 2020 stock repurchase plan.
Current wording
Equity***.*** Total shareholders' equity decreased $9.5 million, or 5.8%, to $153.9 million at December 31, 2024, from $163.3 million at December 31, 2023. The decrease during the year resulted from a net loss of $6.6 million, share repurchases of $4.1 million and $2.6 million in dividends paid in 2024. These decreases were partially offset by a $2.5 million reduction in accumulated other comprehensive loss related to an improved unrealized market value of available for sale securities, net of tax, and an increase of $1.6 million related to share-based compensation plans. During the year ended December 31, 2024, we repurchased 214,132 shares of common stock at an average cost of $14.03 per share, pursuant to the Company's 2020 stock repurchase plan, closing out the 2020 plan. An additional 98,156 shares of common stock were repurchased during 2024 at an average cost of $10.19 per share, pursuant to the Company's new 2024 stock repurchase plan, for a total of 312,288 shares repurchased during 2024.
Previous wording
General. The Company generated a return on average assets of 0.11%, and a return on average equity of 1.43%, for the year ended December 31, 2023, compared to 0.79% and 9.09%, respectively, for the year ended December 31, 2022. Net income decreased $13.4 million, or 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 a loss on sale of securities of $5.4 million as well as lower loan and deposit fee, servicing rights and loan sale income. Noninterest expense was lower due to decreased compensation, advertising, data processing, and occupancy expenses. We earned $0.26 per common and diluted share for the year ended December 31, 2023, compared to $1.71 per common and diluted share for the year ended December 31, 2022. The decrease in earnings per share was the result of the decrease in net income as the Bank recognized a loss on sale of securities to reposition the portfolio by paying down higher cost funding and investing in higher yielding loans and securities.
Current wording
General. The Company generated a loss on average assets of -0.30%, and a loss on average equity of -4.09%, for the year ended December 31, 2024, compared to a return on average assets of 0.11% and a return on average equity of 1.43% for the year ended December 31, 2023. Net income decreased $8.9 million compared to 2023. Net interest income declined as increases to interest expense outpaced increases to interest income. The provision for credit losses increased as the Bank charged-off several large commercial loan balances during 2024. Noninterest income increased over the prior year primarily due to the gain on sale of premises, lower loss on sale of investment securities and a BOLI death benefit received. Noninterest expense was lower due to decreased advertising and professional fees and did not include the one-time write-off expenses recorded in December 2023 for the investment in QUIL. We recorded a loss of $0.75 per common and diluted share for the year ended December 31, 2024, compared to earnings of $0.26 per common and diluted share for the year ended December 31, 2023.
Previous wording
Net Interest Income. Net interest income decreased $8.4 million, or 12.1%, to $61.4 million for the year ended December 31, 2023, from $69.9 million for the year ended December 31, 2022, mainly as the result of additional interest expense related to higher costs on both deposit and advance balances as well as an increase in the average balances of CDs and advances.
Current wording
Net Interest Income. Net interest income decreased $5.1 million, or 8.3%, to $56.3 million for the year ended December 31, 2024, from $61.4 million for the year ended December 31, 2023, mainly as the result of additional interest expense related to higher costs on both deposit and advance balances as well as an increase in the average balances of CDs and advances.
Previous wording
The increase in interest income was largely attributable to changes in loans receivable with an average balance increase of $145.5 million, at an average yield of 5.31%, for the year ended December 31, 2023 compared to an average yield of 4.74%, for the year ended December 31, 2022. The interest income earned from higher yields was offset by higher interest-bearing liability costs which increased to 2.42% for the year ended December 31, 2023 compared to 0.73% for the year ended December 31, 2022. This resulted in a 66 basis point decrease in our net interest margin to 3.13% for the year ended December 31, 2023, from 3.79% for the year ended December 31, 2022.
Current wording
The increase in interest income was largely attributable to changes in loans receivable with an average balance increase of $92.7 million, at an average yield of 5.56%, for the year ended December 31, 2024 compared to an average yield of 5.31%, for the year ended December 31, 2023. The interest income earned from higher yields was offset by higher interest-bearing liability costs which increased to 3.22% for the year ended December 31, 2024 compared to 2.42% for the year ended December 31, 2023. This resulted in a 39-basis point decrease in our net interest margin to 2.74% for the year ended December 31, 2024, from 3.13% for the year ended December 31, 2023.
Previous wording
The $1.8 million net increase in interest income from the volume of interest earning assets was offset by the net increase in interest costs of $10.3 million as changes in rates outpaced increases in yields. As noted above, loans receivable was the main contributor to the increase in interest income with $6.9 million due to an increase in average volume and $9.1 million due higher rates. The increase to the cost of average interest-bearing liabilities for the year ended December 31, 2023 was due primarily to costs from higher rates paid of $24.6 million and increased average balances of $4.3 million on advances, certificates of deposit and money market accounts.
Current wording
The $11.4 million increase in interest income was offset by the net increase in interest costs of $16.6 million as changes in rates outpaced increases in yields. As noted above, loans receivable was the main contributor to the increase in interest income with $4.9 million due to an increase in average volume and $4.2 million due to higher rates. The increase to the cost of average interest-bearing liabilities for the year ended December 31, 2024 was due primarily to costs from higher rates paid of $12.3 million on all interest-bearing deposits and advances and increased average balances of $3.6 million on certificates of deposit.
Previous wording
Interest Income. Interest income increased $20.5 million, or 25.5%, to $100.9 million for the year ended December 31, 2023 from $80.4 million for the comparable period in 2022, primarily due to an increase in the average balance of and higher yields on loans receivable. Interest and fees on loans receivable increased $16.0 million during the year, in part, as 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.
Current wording
Interest Income. Interest income increased $11.4 million, or 11.3%, to $112.3 million for the year ended December 31, 2024 from $100.9 million for the comparable period in 2023, primarily due to an increase in the average balance of and higher yields on loans receivable. Interest and fees on loans receivable increased $9.1 million during the year, in part, as the Bank grew the loan portfolio through participation in the Northpointe MPP and purchased auto and manufactured home loans. Loan yields also increased due to higher rates on new originations. The fair value hedge on loans added $1.1 million to interest income for the year ended December 31, 2024.
Previous wording
Interest income on investment securities increased $2.4 million to $13.3 million for the year ended December 31, 2023, compared to $10.9 million for the year ended December 31, 2022. The increase in interest income on investment securities was driven by an increase in the average yield during the year of 108 basis points due to the repricing of variable rate securities and slower prepayment activity reducing the amount of premium amortization during the period.
Current wording
Interest income on investment securities increased $1.8 million to $15.0 million for the year ended December 31, 2024, compared to $13.3 million for the year ended December 31, 2023. The increase in interest income on investment securities was driven by an increase in the average yield during the year of 64-basis points due to the investment securities portfolio restructure in the first half of 2024. The higher rate environment in the first part of the year also contributed to increased interest income as slower prepayment activity reduced the amount of premium amortization during the period. The fair value hedge on investments added $621,000 and $449,000 to interest income for the years ended December 31, 2024 and 2023, respectively.
Previous wording
Interest Expense. Total interest expense increased $29.0 million, or 275.3%, for the year ended December 31, 2023, compared to the prior year, with increases in borrowing costs and deposit costs of $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 increased due to higher funding costs and an increase of $116.8 million in the average balance of interest-bearing deposits, as we utilized brokered certificates of deposits. The average cost of all interest-bearing deposit products increased 159 basis points to 2.01% for the year ended December 31, 2023 from 0.42% for the year ended December 31, 2022. The average balances of savings and CD accounts increased year-over-year, while lower cost transaction and money market average account balances declined.
Current wording
Interest Expense. Total interest expense increased $16.6 million, or 41.9%, for the year ended December 31, 2024, compared to the prior year, with increases in deposit costs and borrowing costs of $15.4 million and $1.2 million, respectively. Deposit costs increased due to higher funding costs and an increase of $92.0 million in the average balance of interest-bearing deposits. The average cost of all interest-bearing deposit products increased 94-basis points to 2.95% for the year ended December 31, 2024 from 2.01% for the year ended December 31, 2023. The average balances of money market and CD accounts increased year-over-year, while lower cost transaction and savings average account balances declined. Borrowing costs increased 16-basis points, due to higher rates paid combined with an increase of $15.8 million in the average balance outstanding.
Previous wording
**Noninterest Income.**Noninterest income decreased 61.1% to $4.0 million for the year ended December 31, 2023, from $10.3 million for the year ended December 31, 2022. The decrease compared to the prior year was primarily due to a $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 compared to the prior year. Fee income in 2023 was impacted by a decrease in late fees on commercial loans. In 2022, a one-time increase was recorded for a BOLI death benefit payment of $1.5 million.
Current wording
**Noninterest Income.**Noninterest income increased to $12.6 million for the year ended December 31, 2024, from $4.0 million for the year ended December 31, 2023. The increase compared to the prior year was primarily due to one-time transactions in 2024, including the gain on sale of six branch properties in the sale-leaseback transaction and a BOLI death benefit payment, partially offset by the loss on sale of securities. First Northwest also recorded a $1.8 million write down on an equity investment in an organization that is involved in a lawsuit, included in Other (loss) income below. Saleable mortgage loan production and related gains continued to be impacted by higher market rates on mortgage loans. The BOLI exchange and reinvestment transactions during 2024 resulted in an increase in the cash surrender value recorded for the year.
Previous wording
**Noninterest Expense.**Noninterest expense decreased to $61.5 million for the year ended December 31, 2023, from $62.3 million for the year ended December 31, 2022. The year-over-year decrease reflects lower compensation expense, primarily due to lower Bank commissions, payroll taxes, and 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.
Current wording
**Noninterest Expense.**Noninterest expense decreased to $60.0 million for the year ended December 31, 2024, from $61.5 million for the year ended December 31, 2023. The decrease from the prior year is primarily related to one-time noninterest expenses recorded during 2023, including 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 the consent order entered into by the Bank during 2023 which was lifted in 2024 and the penalty reduced by $218,000. Compensation expense increased compared to the prior year as a result of nonrecurring payments related to the July 2024 reduction-in-force and increases in incentives and commissions. Other year-over-year changes include increased lease expense included in occupancy as a result additional lease expense after the sale-leaseback transaction, partially offset by lower advertising and professional fees.
Previous wording
Provision for Income Tax. The provision for income tax for the year ended December 31, 2023, was $549,000 compared to $2.9 million for the year ended December 31, 2022, reflecting differences in pre-tax income. The effective tax rate increased over the prior year as a result of the permanent tax exclusion of BOLI noninterest income, including the BOLI death benefit, in 2022.
Current wording
Provision for Income Tax. The Company recorded an income tax benefit for the year ended December 31, 2024, of $944,000 compared to expense of $549,000 for the year ended December 31, 2023, reflecting differences in pre-tax income. The effective tax rate decreased over the prior year as a result of the permanent tax exclusion of BOLI noninterest income, including the BOLI death benefit, in 2024, partially offset by an estimate for the penalty on the early surrender of the BOLI contracts. The provision includes accruals for both federal and state income taxes.
Previous wording
(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.
Current wording
(2) Interest earned on loans receivable includes net deferred costs of $12,000 and $561,000 for the years ended December 31, 2024 and 2023, respectively.
Previous wording
(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.
Current wording
(4) Cost of all deposits, including noninterest-bearing demand deposits, was 2.51% and 1.66% for the years ended December 31, 2024 and 2023, respectively.
Previous wording
The Bank employs the services of outside firms to assist us in our asset and liability management and our analysis of market risk.
Current wording
The Bank employs the services of outside firms to assist us in our asset and liability management and our analysis of market and interest rate risk.
Previous wording
**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 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.
Current wording
**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 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 remains more liability sensitive due to slower loan prepayment speeds, driven by higher interest rates during the first nine months of 2024, and deposit migration from non-maturity deposits to certificates of deposits with shorter average lives.
Previous wording
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, 2023, cash and cash equivalents totaled $123.2 million and securities classified as available-for-sale had a market value of $295.6 million. We have pledged loan collateral with principal balances totaling $896.2 million to support borrowings from the FHLB of $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, 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.
Current wording
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, 2024, cash and cash equivalents totaled $72.5 million and securities classified as available-for-sale had a market value of $340.3 million. We have pledged loan collateral with principal balances totaling $951.8 million to support borrowings from the FHLB of $290.0 million, with a remaining borrowing capacity of $207.3 million. We have also pledged collateral of $17.9 million to the Federal Reserve Bank of San Francisco to secure discount window advances; the Company has performed periodic borrowing tests on this line with the Federal Reserve; however, no such funds were borrowed as of December 31, 2024. 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.
Previous wording
At December 31, 2023, we had $220,000 in loan commitments outstanding and an additional $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.
Current wording
At December 31, 2024, we had $165.8 million in undisbursed loans, including undisbursed construction commitments, and standby letters of credit. The Company also had unfunded partnership commitments totaling $3.2 million.
Previous wording
Customer CDs due within one year as of December 31, 2023, totaled $349.4 million, or 53.7% of total CDs. Brokered CDs due within one year as of December 31, 2023, totaled $146.2 million, or 22.5% of total CDs. Management believes a significant portion of our customer CDs will be renewed or rolled into new certificates of deposit given the current rate environment. If these maturing deposits are not renewed or rolled into other deposit products, we will seek other sources of funds, which may include borrowings and brokered deposits. We also 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. Depending on market conditions, we may 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 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 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.
Current wording
Customer CDs due within one year as of December 31, 2024, totaled $426.6 million, or 65.9% of total CDs. Brokered CDs due within one year as of December 31, 2024, totaled $100.9 million, or 15.6% of total CDs. Management believes a significant portion of our customer CDs will be renewed or rolled into new certificates of deposit given the current rate environment. If these maturing deposits are not renewed or rolled into other deposit products, we will seek other sources of funds, which may include borrowings and brokered deposits. We also 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. Depending on market conditions, we may 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 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 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.
Previous wording
First Fed has a diversified deposit base with approximately 60% of 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.
Current wording
First Fed has a diversified deposit base with approximately 61% of deposit account balances held by consumers, 28% held by business and public fund depositors, and 11% in brokered deposits. The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at December 31, 2024. We estimate that 20-25% of our customer deposit balances, or $390.5 million, 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.
Previous wording
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 future investment redemptions for liquidity to pay its operating expenses and other financial obligations. At December 31, 2023, the Company (on an unconsolidated basis) had liquid assets of $500,000.
Current wording
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 future investment redemptions for liquidity to pay its operating expenses and other financial obligations. At December 31, 2024, the Company (on an unconsolidated basis) had liquid assets of $441,000.