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First Northwest Bancorp

First Northwest BancorpFNWBEarnings & Financial Report

Nasdaq · commercial bank

First Midwest Bancorp, Inc. was headquartered in Chicago, Illinois, just east of O'Hare Airport. The company's predecessor traces back to Joliet, Illinois. From there the company has grown to serve many Chicago suburbs including northwest Indiana, downstate Illinois, southeast Wisconsin and the Quad Cities area including Iowa. First Midwest Bank is one of the largest banking institutions in the United States

What changed in First Northwest Bancorp's 10-K — 2023 vs 2024

Top changes in First Northwest Bancorp's 2024 10-K

483 paragraphs added · 525 removed · 397 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

236 edited+39 added−86 removed182 unchanged
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.
During the term of construction, the accumulated interest on the loan is either billed monthly, as is the case for acquisition and development loans, or added to the principal of the loan through an interest reserve.
The BLC also reviews, on a quarterly basis, policy exceptions, and related risk concerns. Additionally, all loan approval policies are reviewed no less than annually.
The BLC also reviews policy exceptions and related risk concerns on a quarterly basis. Additionally, all loan approval policies are reviewed no less than annually.
Under these regulations, an institution is treated as well capitalized if it has a ratio of total capital to risk-weighted assets of 10.0% or more (the total risk-based capital ratio); a ratio of common equity Tier 1 capital to risk-weighted assets (the Tier 1 risk-based capital ratio) of 8.0% or more; a ratio of Tier 1 common equity capital to risk-weighted assets of 6.5% or more (the common equity Tier 1 capital ratio); a ratio of Tier 1 capital to average consolidated assets (the leverage ratio) of 5.0% or more; and the institution is not subject to a federal order, agreement, or directive to meet a specific capital level.
Under these regulations, an institution is treated as well capitalized if it has a ratio of total capital to risk-weighted assets of 10.0% or more (the total risk-based capital ratio); a ratio of Tier 1 capital to risk-weighted assets (the Tier 1 risk-based capital ratio) of 8.0% or more; a ratio of Tier 1 common equity capital to risk-weighted assets (the common equity Tier 1 capital ratio) of 6.5% or more; a ratio of Tier 1 capital to average consolidated assets (the leverage ratio) of 5.0% or more; and the institution is not subject to a federal order, agreement, or directive to meet a specific capital level.
The minimum capital level requirements applicable to First Northwest Bancorp and First Fed are: (i) a common equity Tier 1 ("CET1") capital to risk-based assets ratio of 4.5%; (ii) a Tier 1 capital to risk-based assets ratio of 6%; (iii) a total capital to risk-based assets ratio of 8%; and (iv) a Tier 1 capital to total assets leverage ratio of 4%.
The minimum capital level requirements applicable to First Northwest Bancorp and First Fed are: (i) a common equity Tier 1 ("CET1") capital to risk-based assets ratio of 4.5%; (ii) a Tier 1 capital to risk-based assets ratio of 6%; (iii) a total capital to risk-based assets ratio of 8%; and (iv) a leverage ratio of Tier 1 capital to total assets of 4%.
In over 20 years of banking, he has experience in a variety of areas, including strategic planning and acquisitions, investor relations, financial reporting, and fintech, as well as operations, information technology, payments, internal controls and board governance. Mr. Deines served as Executive Vice President and Chief Financial Officer ("CFO") of Liberty Bay Bank from November 2018 until May 2019.
With over 20 years of banking, he has experience in a variety of areas, including strategic planning and acquisitions, investor relations, financial reporting, and fintech, as well as operations, information technology, payments, internal controls and board governance. Mr. Deines served as Executive Vice President and Chief Financial Officer ("CFO") of Liberty Bay Bank from November 2018 until May 2019.
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.
Underwriting criteria on commercial acquisition-renovation loans during the interest-only period include, but are not limited to, loan to value limitations and debt service coverage requirements of 1.00x or better, based on in-place rents and payment amortization of full commitment. These loans begin amortizing once renovations have been completed.
Recently, the Federal Reserve has reaffirmed that its strategy for monetary policy is focused on long-term goals and addressing continued concerns with inflation. After increasing the federal funds rate by 425 basis points in 2022, the Federal Reserve continued the trend, albeit at a slower pace, for a total increase in 2023 of 100 basis points.
The Federal Reserve has reaffirmed that its strategy for monetary policy is focused on long-term goals and addressing continued concerns with inflation. After increasing the federal funds rate by 425 basis points in 2022, the Federal Reserve continued the trend, albeit at a slower pace, for a total increase in 2023 of 100 basis points.
Dividends on First Fed’s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of First Fed without the approval of the Director of the DFI. Affiliate Transactions . Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates, including their financial holding companies.
Additionally, dividends on First Fed’s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of First Fed without the approval of the Director of the DFI. Affiliate Transactions . Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates, including their financial holding companies.
These loans typically range from $10,000 to over $600,000 with terms that range from 84 to 180 months and generally require down payments of 10% to 20% of the cost of the vehicle. We receive loan pools each week with complete packages that we underwrite to determine whether to purchase or pass on all loans submitted.
These loans typically range from $10,000 to over $600,000 with terms that range from 84 to 180 months and generally require down payments of 10% to 20% of the cost of the vehicle. We receive loan pools each week with complete packages that we underwrite to determine whether to purchase or pass on the loans submitted.
The classifications for "undercapitalized," "significantly undercapitalized" and "critically undercapitalized" institutions are also set forth in the regulations. An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits generally. Any institution which is neither well capitalized nor adequately capitalized is considered undercapitalized.
The classifications for "undercapitalized," "significantly undercapitalized" and "critically undercapitalized" institutions are also set forth in the regulations. An institution that is not well capitalized is subject to certain restrictions on brokered deposits and restrictions on the rates it can offer on its deposits generally. Any institution which is neither well capitalized nor adequately capitalized is considered undercapitalized.
With certain exceptions, the BHCA prohibits a bank holding company from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries.
Acquisitions. With certain exceptions, the BHCA prohibits a bank holding company from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries.
Effects of Federal Government Monetary Policy. First Northwest Bancorp’s earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve implements national monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates.
First Northwest Bancorp’s earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve implements national monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates.
Nonperforming assets include nonperforming loans, real estate owned, and other repossessed assets. Also presented below are totals, regardless of accrual status, for modified loans to troubled borrowers ("MLTB") restructured during 2023 and, for prior fiscal years, total troubled debt restructurings ("TDR").
Nonperforming assets include nonperforming loans, real estate owned, and other repossessed assets. Also presented below are totals, regardless of accrual status, for modified loans to troubled borrowers ("MLTB") restructured during 2024 and 2023 and, for prior fiscal years, total troubled debt restructurings ("TDR").
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. (3) Includes loans located primarily in California, Oregon, and Florida. 11 Table of Contents One-to-Four Family Real Estate Lending.
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. (3) Includes loans located primarily in California, Florida, Texas, and Oregon. 11 Table of Contents One-to-Four Family Real Estate Lending.
As part of the review of applications under the BHCA and the supervision of bank holding companies, the Federal Reserve assesses the adequacy of a bank holding company's capital pursuant to the capital rules it has adopted.
As part of the review of applications under the BHCA and the supervision of bank holding companies, the Federal Reserve assesses the adequacy of a bank holding company's capital pursuant to the capital rules the Federal Reserve has adopted.
In-house and direct lending sources have been used to originate auto loans in prior years. 18 Table of Contents We purchase auto loans through a partnership with Woodside Credit, LLC, a loan originator that operates in all 50 states, underwriting and funding loans for classic (25 years or older) and collector (premium price with limited production) vehicles.
In-house and direct lending sources have been used to originate auto loans in prior years. 18 Table of Contents We purchase auto loans through a relationship with Woodside Credit, LLC, a loan originator that operates in all 50 states, underwriting and funding loans for classic (25 years or older) and collector (premium price with limited production) vehicles.
Real estate owned properties are generally listed with a real estate broker, included in the multiple listing service, and actively marketed. Other repossessed property, including automobiles, is also recorded at the lower of cost or fair market value less selling costs. As of December 31, 2023, we had no repossessed real or personal property owned. Restructured Loans.
Real estate owned properties are generally listed with a real estate broker, included in the multiple listing service, and actively marketed. Other repossessed property, including automobiles, is also recorded at the lower of cost or fair market value less selling costs. As of December 31, 2024, we had no repossessed real or personal property owned. Restructured Loans.
First Fed is no longer subject to U.S. federal income tax examinations by tax authorities for years ended before December 31, 2020. See Note 10 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. First Northwest Bancorp will file a consolidated federal income tax return with First Fed.
First Fed is no longer subject to U.S. federal income tax examinations by tax authorities for years ended before December 31, 2021. See Note 10 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. First Northwest Bancorp will file a consolidated federal income tax return with First Fed.
The Company does not intend to sell the securities in an unrealized loss position and believes it is not likely it will be required to sell these investments prior to a market price recovery or maturity. Based on the Company’s evaluation of these securities, no credit impairment was recorded at either December 31, 2023 or December 31, 2022.
The Company does not intend to sell the securities in an unrealized loss position and believes it is not likely it will be required to sell these investments prior to a market price recovery or maturity. Based on the Company’s evaluation of these securities, no credit impairment was recorded at either December 31, 2024 or December 31, 2023.
The general objective of our investment portfolio is to provide liquidity, generate earnings, and manage risk, including credit, reinvestment, liquidity and interest rate risk. Securities.
The general objective of our investment portfolio is to provide liquidity, generate earnings, and manage risk, including credit, reinvestment, liquidity and interest rate risks. Securities.
In September 2022, the Company completed an additional purchase and holds a 33% interest in MWG valued at $2.8 million at December 31, 2023. First Northwest issued 115,777 shares of stock with a value of $1.9 million to the existing partners in MWG as consideration in the acquisition transaction. MWG also holds a 20% interest in MWGC.
In September 2022, the Company completed an additional purchase and holds a 33% interest in MWG valued at $2.8 million at December 31, 2024. First Northwest issued 115,777 shares of stock with a value of $1.9 million to the existing partners in MWG as consideration in the acquisition transaction. MWG also holds a 20% interest in MWGC.
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 ("GLBA") modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. First Fed is subject to FDIC regulations implementing the privacy protection provisions of the GLBA.
Privacy Standards . The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 ("GLBA") modernized the financial services industry by, among other things, establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. First Fed is subject to FDIC regulations implementing the privacy protection provisions of the GLBA.
At December 31, 2023, all of our brokered deposits were certificates. Balances at each of the periods presented reflect direct offerings issued by the Bank through contracts with third-party brokers. The Bank utilizes services provided to the Depository Trust and Clearing Corporation to disburse interest and principal payments on direct offerings.
At December 31, 2024, all of our brokered deposits were certificates. Balances at each of the periods presented reflect direct offerings issued by the Bank through contracts with third-party brokers. The Bank utilizes services provided to the Depository Trust and Clearing Corporation to disburse interest and principal payments on direct offerings.
The Company has entered into numerous 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.
The Company has entered into several partnerships to strategically invest in financial technology-related businesses, which may result in the development of additional investment opportunities. Aside from these investments, the information set forth in this report, including consolidated financial statements and related data, relates primarily to First Fed.
As of December 31, 2023, First Northwest Bancorp and First Fed qualified for the small issuer exemption from the Federal Reserve’s interchange fee cap, which applies to any debit card issuer that has total consolidated assets of less than $10 billion as of the end of the previous calendar year.
As of December 31, 2024, First Northwest Bancorp and First Fed qualified for the small issuer exemption from the Federal Reserve’s interchange fee cap, which applies to any debit card issuer that has total consolidated assets of less than $10 billion as of the end of the previous calendar year.
The Federal Reserve may approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than the bank holding company's home state, without regard to whether the transaction is prohibited by the laws of any state.
The Federal Reserve may approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than the bank holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. Interchange Fees.
At December 31, 2023, our securities portfolio contained securities issued by the United States Government and its agencies as well as securities issued by Capital Funding Mortgage Trust ("CFGMS") which had an aggregate book value in excess of 10% of our equity capital.
At December 31, 2024, our securities portfolio contained securities issued by the United States Government and its agencies as well as securities issued by Capital Funding Mortgage Trust ("CFGMS") which had an aggregate book value in excess of 10% of our equity capital.
First Northwest Bancorp is a financial holding company (a type of bank holding company) registered with the Federal Reserve and the sole shareholder of First Fed. Bank holding companies and financial holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA"), and the regulations promulgated thereunder.
First Northwest Bancorp is a bank holding company registered with the Federal Reserve and the sole shareholder of First Fed. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA"), and the regulations promulgated thereunder.
In cases of significant concern, re-evaluation of the loan and associated risks are documented by completing a loan risk assessment and action plan. The following table shows our delinquent loans by type of loan and number of days delinquent as of December 31, 2023.
In cases of significant concern, re-evaluation of the loan and associated risks are documented by completing a loan risk assessment and action plan. The following table shows our delinquent loans by type of loan and number of days delinquent as of December 31, 2024.
The composition and contractual maturities of our investment portfolio at December 31, 2023 and December 31, 2022, excluding FHLB stock, are indicated in the following table. The yields on municipal bonds have not been computed on a tax equivalent basis.
The composition and contractual maturities of our investment portfolio at December 31, 2024 and December 31, 2023, excluding FHLB stock, are indicated in the following table. The yields on municipal bonds have not been computed on a tax equivalent basis.
Internal production is focused on originations of first lien one-to-four family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, commercial business loans, Small Business Administration ("SBA") loans, and consumer loans, consisting primarily of home equity loans and lines of credit.
Internal production is focused on originations of first lien one-to-four family mortgage loans, commercial and multi-family real estate loans, residential and commercial construction and land loans, commercial business loans, SBA loans, and consumer loans, consisting primarily of home equity loans and lines of credit.
Among other types of computer-security incidents, a "notification incident" includes one that has materially disrupted or degraded the banking organization’s ability to carry out banking operations to a material portion of its customer base in the ordinary course of business. 48 Table of Contents State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
Among other types of computer-security incidents, a "notification incident" includes one that has materially disrupted or degraded the banking organization’s ability to carry out banking operations to a material portion of its customer base in the ordinary course of business. State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
In addition to the minimum risk-based capital ratios, the capital regulations require a capital conservation buffer, designed to absorb losses during periods of economic stress, consisting of additional CET1 capital of more than 2.5% of risk-weighted assets above the required minimum risk-based ratios in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.
In addition to the minimum capital ratios, the capital regulations require a banking organization to maintain a capital conservation buffer, designed to absorb losses during periods of economic stress, consisting of additional CET1 capital of more than 2.5% of risk-weighted assets above the required minimum risk-based capital ratios in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.
Indirect commercial business loan customers receive a fixed rate loan up to 75% of the equipment cost based on a review of their FICO credit score, historical cash flows and overall financial strength.
Indirect commercial business loan customers received a fixed rate loan up to 75% of the equipment cost based on a review of their FICO credit score, historical cash flows and overall financial strength.
The average outstanding loan in our commercial real estate portfolio, including multi-family loans, was $1.7 million as of December 31, 2023. We generally target individual commercial and multi-family real estate loans between $1.0 million and $10.0 million to small and mid-size operators and investors in our market areas as well as other parts of Washington.
The average outstanding loan amount in our commercial real estate portfolio, including multi-family loans, was $1.7 million as of December 31, 2024. We generally target individual commercial and multi-family real estate loans between $1.0 million and $10.0 million to small and mid-size operators and investors in our market areas as well as other parts of Washington.
Bureau of Labor Statistics, the unemployment rate for King County was 3.5% at December 31, 2023, compared to 2.8% at December 31, 2022. 7 Table of Contents As a part of our business plan, we intend to extend our traditional and digital operations throughout the Puget Sound Region and beyond.
Bureau of Labor Statistics, the unemployment rate for King County was 3.8% at December 31, 2024, compared to 3.5% at December 31, 2023. 7 Table of Contents As a part of our business plan, we intend to extend our traditional and digital operations throughout the Puget Sound Region and beyond.
As we move forward, we will continue to grow our diversity, equity, and inclusion efforts in a manner consistent with our company vision: to create well-being and prosperity for our employees, customers, and communities.
As we move forward, we will continue to grow our inclusion efforts in a manner consistent with our company vision: to create well-being and prosperity for our employees, customers, and communities.
These limited partnerships invest in fintech-related businesses with a focus on developing digital solutions applicable to the banking industry. In 2022, First Northwest acquired a 33% interest in MWG, a boutique investment bank and consulting firm focusing on providing entrepreneurs with resources to help them succeed.
These limited partnerships invest in fintech-related businesses with a focus on developing digital solutions applicable to the banking industry. In 2022, First Northwest acquired a 33.3% interest in MWG, a boutique investment bank and consulting firm focused on providing entrepreneurs with resources to help them succeed.
As a state-chartered commercial bank, First Fed must pay semi-annual assessments, examination costs and certain other charges to the DFI. Washington law generally provides the same powers for Washington commercial banks as federally and other-state chartered banks and savings institutions with branches in Washington, subject to the approval of the DFI.
As a state-chartered commercial bank, First Fed must pay semi-annual assessments, examination costs and certain other charges to the DFI. Washington law generally provides the same powers for Washington commercial banks as federally and other-state chartered banks and savings institutions with branches in Washington, subject to the approval of the DFI. Insider Credit Transactions.
Under the BHCA, the Federal Reserve may approve a bank holding company's ownership of another company which engages in activities closely related to the business of banking, as determined by the Federal Reserve.
The Federal Reserve may approve a bank holding company's ownership of another company which engages in activities closely related to the business of banking, as determined by the Federal Reserve.
First Northwest Bancorp and First Fed have established comprehensive compliance programs designed to comply with the requirements of the BSA and Patriot Act. 44 Table of Contents Other Consumer Protection Laws and Regulations. The Dodd-Frank Act, among other things, established the CFPB as an independent bureau of the Federal Reserve Board.
First Northwest Bancorp and First Fed have established comprehensive compliance programs designed to comply with the requirements of the BSA and Patriot Act. Consumer Protection Laws and Regulations. The Dodd-Frank Act, among other things, established the CFPB as an independent bureau of the Federal Reserve Board.
Commercial business loans, including commercial and multi-family real estate loans, are originated by our relationship managers ("RMs") and underwritten centrally with credit presentations submitted for approval to the appropriate individuals and committee(s) with lending authority designated by the Board of Directors (the "Board"). 20 Table of Contents Lending Authority.
Commercial business loans, including commercial and multi-family real estate loans, are originated by our relationship managers ("RMs") and underwritten centrally with credit presentations submitted for approval to the appropriate individuals and committee(s) with lending authority designated by the Board of Directors (the "Board"). Lending Authority.
The FDIC also has the authority to initiate enforcement actions against insured institutions for similar reasons and may terminate the deposit insurance of such an institution if the FDIC determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC also has the authority to initiate enforcement actions against insured institutions for similar reasons and may terminate the deposit insurance of such an institution if, among other things, the FDIC determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
No institution may pay a dividend to its parent holding company if it is in default on its federal deposit insurance assessment. The FDIC determines the amount of insurance premiums based on each financial institution's deposit base and the applicable assessment rate.
No institution may pay a dividend to its parent holding company if it is in default on its federal deposit insurance assessment. 40 Table of Contents The FDIC determines the amount of insurance premiums based on each financial institution's deposit base and the applicable assessment rate.
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.
Given the employment profile and the presence of the University of Washington and other universities, the region's workforce is highly educated. Washington's geographic proximity to the Pacific Rim along with multiple deep-water ports makes it a center for international trade, which contributes significantly to the regional economy. The local ports make Washington the tenth largest exporting state in the nation.
First Fed, however, restricts its loans to one borrower to no more than 60% of the Bank's lending limit, unless specifically approved by the SLC as an exception to policy. The Bank's lending limit is adjusted quarterly and was $34.5 million at December 31, 2023. The following table provides a summary of our five largest relationships at December 31, 2023.
First Fed, however, restricts its loans to one borrower to no more than 60% of the Bank's lending limit, unless specifically approved by the SLC as an exception to policy. The Bank's lending limit is adjusted quarterly and was $34.3 million at December 31, 2024. The following table provides a summary of our five largest relationships at December 31, 2024.
Deines , age 50, became President and Chief Executive Officer ("CEO") and Director of First Fed on August 1, 2019, and was elected President, CEO, and director of the Company on December 5, 2019.
Deines , age 51, became President and Chief Executive Officer ("CEO") and Director of First Fed on August 1, 2019, and was elected President, CEO, and director of the Company on December 5, 2019.
We will also make commercial and multi-family real estate loans in other states if we have a pre-existing relationship with the borrower.
We may also make commercial and multi-family real estate loans in other states if we have a pre-existing relationship with the borrower.
As of December 31, 2023, our deposit with the Federal Reserve Bank of San Francisco and vault cash exceeded our reserve requirements. 35 Table of Contents Borrowings.
As of December 31, 2024, our deposit with the Federal Reserve Bank of San Francisco and vault cash exceeded our reserve requirements. 35 Table of Contents Borrowings.
Information About Our Executive Officers The following is a description of the principal occupation and employment of the executive officers of the Company and the Bank as of December 31, 2023: Matthew P.
Information About Our Executive Officers The following is a description of the principal occupation and employment of the executive officers of the Company and the Bank as of December 31, 2024: Matthew P.
The DIF of the FDIC insures deposit accounts in First Fed up to $250,000 per separately insured depositor. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. Our deposit insurance premiums for the year ended December 31, 2023, were $1.4 million.
The DIF of the FDIC insures deposit accounts in First Fed up to $250,000 per separately insured depositor. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. Our deposit insurance premiums for the year ended December 31, 2024, were $1.9 million.
This commitment to Canapi Ventures will be for up to ten years, with cash installments totaling up to $3.0 million to be paid into the partnership over a period not to exceed the first five years, beginning in 2020. As of December 31, 2023, $2.4 million had been contributed to this partnership.
This commitment to Canapi Ventures will be for up to ten years, with cash installments totaling up to $3.0 million to be paid into the partnership over a period not to exceed the first five years, beginning in 2020. As of December 31, 2024, $2.5 million had been contributed to this partnership.
Our interest rates on home equity loans are priced for risk based on credit score, loan to value and overall payment capacity of the applicant. Home equity loans are made for the improvement of residential properties and other purposes.
Our interest rates on home equity loans are priced based on risks including credit score, loan to value and overall payment capacity of the applicant. Home equity loans are made for the improvement of residential properties and other purposes.
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.
The scope of the annual review is generally based on relationship size, with those $1.5 million or greater subject to a full credit review, which includes detailed financial and cash flow analysis, property inspection, covenant compliance and annual risk rating certification.
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, 2023, the average interest rate on our adjustable-rate mortgage loans was approximately 352 basis points under the fully indexed rate.
In addition, depending on market conditions, we may underwrite the borrower at a higher interest rate and payment amount than the initial rate. At December 31, 2024, the average interest rate on our adjustable-rate mortgage loans was approximately 309 basis points under the fully indexed rate.
Adversely classified loans that are subsequently modified and placed in nonaccrual status are generally not returned to accrual status until a period of at least six months with consecutive satisfactory payment performance has occurred, and a return to accrual status is further supported by current financial information and analysis which demonstrates a particular borrower has the financial capacity to meet future debt service requirements. 25 Table of Contents At December 31, 2023, we had one loan with an aggregate amortized cost of $119,000 that was identified as an MLTB loan restructured during the year ended December 31, 2023, which was not performing in accordance with its revised payment terms and was on nonaccrual status.
Adversely classified loans that are subsequently modified and placed in nonaccrual status are generally not returned to accrual status until a period of at least six months with consecutive satisfactory payment performance has occurred, and a return to accrual status is further supported by current financial information and analysis which demonstrates a particular borrower has the financial capacity to meet future debt service requirements. 25 Table of Contents At December 31, 2024, we had one loan with an aggregate amortized cost of $6.4 million that was identified as an MLTB loan restructured during the year ended December 31, 2024, which was performing in accordance with its revised payment terms and was accruing.
Over the last five years, we have significantly increased the origination of commercial real estate, multi-family real estate, construction, and commercial business loans. Loans are purchased from experienced third-party lenders with a current focus on unsecured loans to small businesses and professionals, manufactured home loans and high-end auto loans to increase our commercial business and consumer loan portfolios.
Over the last five years, we have significantly increased the origination of commercial real estate, multi-family real estate, construction, and commercial business loans. Loans are also purchased from experienced third-party lenders with a current focus on manufactured home loans and high-end auto loans to increase our commercial business and consumer loan portfolios.
The Bank has historically focused on originating fixed-rate residential mortgages, which we may sell to the secondary market to manage our interest rate risk and improve noninterest income. During the years ended December 31, 2023, 2022, and 2021, we sold $25.5 million, $26.1 million, and $113.0 million of residential mortgage loans, respectively.
The Bank has historically focused on originating fixed-rate residential mortgages, which we may sell to the secondary market to manage our interest rate risk and improve noninterest income. During the years ended December 31, 2024, 2023, and 2022, we sold $22.5 million, $25.5 million, and $26.1 million of residential mortgage loans, respectively.
A bank holding company that meets certain supervisory and financial standards and elects to be designated as a financial holding company may also engage in certain securities, insurance and merchant banking activities, and other activities determined to be financial in nature or incidental to financial activities. Regulatory Capital Requirements.
A bank holding company that meets certain supervisory and financial standards and elects to be designated as a financial holding company may also engage in certain securities, insurance and merchant banking activities, and other activities determined to be financial in nature or incidental to financial activities. 44 Table of Contents Regulatory Capital Requirements.
A reserve account equal to approximately 3% of the unpaid balance serves as a credit enhancement to help protect against charge offs and prepaid loans. The loan originator has experienced a loss rate of 2.7% on this program. First Fed has not experienced any losses on these loans to-date.
A reserve account equal to approximately 3% of the unpaid balance serves as a credit enhancement to help protect against charge offs and prepaid loans. The loan originator has experienced a loss rate of 2.9% on the total portfolio of loans in this program. First Fed has not experienced any losses on these loans to-date.
Historically, losses on these types of loans have been less than 2% and First Fed experienced a loss rate of 1.07% and 0.06%, respectively, for each of the years ended December 31, 2023 and 2022.
Historically, losses on these types of loans have been less than 2% and First Fed experienced a loss rate of 0.36% and 1.07%, respectively, for each of the years ended December 31, 2024 and 2023.
Our secondary market relationship for residential loans is with Freddie Mac and other select third-party investors, which provides us greater flexibility in choosing the best pricing, whether we are selling on a servicing retained or released basis. At December 31, 2023, we were servicing $366.2 million of loans for others.
Our secondary market relationship for residential loans is with Freddie Mac and other select third-party investors, which provides us greater flexibility in choosing the best pricing, whether we are selling on a servicing retained or released basis. At December 31, 2024, we were servicing $329.3 million of loans for others.
At December 31, 2023, we had pledged securities with a carrying value of $6.9 million as collateral to support a borrowing capacity of $6.6 million. No funds have been borrowed on this arrangement to date.
At December 31, 2024, we had pledged securities with a carrying value of $18.6 million as collateral to support a borrowing capacity of $17.9 million. No funds have been borrowed on this arrangement to date.
The Bank operates in 18 locations including twelve full-service branches, three business centers, and three administration centers located in Clallam, Jefferson, King, Kitsap, and Whatcom counties. First Fed’s business and operating strategy is focused on building sustainable earnings by delivering a full array of financial products and services for individuals, small business, and commercial customers.
The Bank operates in 18 locations including twelve full-service branches and six business centers, including its headquarters, located in Clallam, Jefferson, King, Kitsap, Snohomish, and Whatcom counties. First Fed’s business and operating strategy is focused on building sustainable earnings by delivering a full array of financial products and services for individuals, small business, and commercial customers.
Interest received on loans secured by mortgages or deeds of trust on residential properties and certain investment securities are exempt from this tax. 49 Table of Contents
Interest received on loans secured by mortgages or deeds of trust on residential properties and certain investment securities are exempt from this tax.
The amount that was included in interest income on a cash basis on nonaccrual loans was $58,000, $28,000, and $48,000 for the years ended December 31, 2023, 2022, and 2021, respectively. Other Loans of Concern.
The amount that was included in interest income on a cash basis on nonaccrual loans was $201,000, $58,000, and $28,000 for the years ended December 31, 2024, 2023, and 2022, respectively. Other Loans of Concern.
The balance of loans serviced for others with life of the loan recourse provisions was $1.8 million at December 31, 2023. There were no loans repurchased during the years ended December 31, 2023, 2022, or 2021.
The balance of loans serviced for others with life of the loan recourse provisions was $1.5 million at December 31, 2024. There were no loans repurchased during the years ended December 31, 2024, 2023, or 2022.
The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Income. Accrued interest receivable on loans receivable is excluded from the estimate of credit losses. Instead, interest accrued, but not received, is reversed timely in accordance with the policy for loans receivable above.
The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Operations. Accrued interest receivable on loans receivable is excluded from the estimate of credit losses. Instead, interest accrued, but not received, is reversed timely in accordance with our loan policy.
The program has a credit enhancement in the form of a reserve account that can be used to protect the bank from charge offs and prepaid. The reserve represented 4.6% of related loan balances at year end; however, it will vary depending on the pricing options selected during the acquisition of the loans.
The program has a credit enhancement in the form of a reserve account that can be used to protect the bank from charge offs and prepayments. The reserve represented 5 .2% of related loan balances at year end; however, it will vary depending on the pricing options selected during the acquisition of the loans .
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.
Vacancies, deferred maintenance, repairs and market factors can result in losses during the time it takes to prepare the property for sale. Depending on the individual circumstances, initial charge-offs and subsequent losses relating to multi-family and commercial loans can be substantial and unpredictable.
Significant recent CFPB developments that may affect operations and compliance costs include: • Positions taken by the CFPB on fair lending, most recently expanding its supervisory approach to prevent discrimination by using the unfairness standard under the unfair, deceptive, or abuse acts or practices framework in the Dodd-Frank Act in addition to the historical reliance on regulatory requirements under the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act (“FHA”); • The CFPB's Final Rule amending Regulation C, which implements the Home Mortgage Disclosure Act, requiring most lenders to report expanded information in order for the CFPB to more effectively monitor fair lending concerns and other information shortcomings identified by the CFPB; • Positions taken by the CFPB regarding the Electronic Fund Transfer Act and Federal Reserve Regulation E, which require companies to obtain consumer authorizations before automatically debiting a consumer’s account for pre-authorized electronic funds transfers; • Efforts focused on enforcing certain compliance obligations the CFPB deems a priority, such as automobile and student loan servicing, debt collection, collateral repossession, mortgage origination and servicing, remittances, and fair lending, among others; and • Positions and focused efforts on enforcing compliance obligations related to deposit account fees, including overdraft, non-sufficient funds, and returned deposit fees.
Significant recent CFPB developments that may affect operations and compliance costs include: • Positions taken by the CFPB on fair lending, most recently expanding its supervisory approach to prevent discrimination by using the unfairness standard under the unfair, deceptive, or abuse acts or practices framework in the Dodd-Frank Act in addition to the historical reliance on regulatory requirements under the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act (“FHA”); • The CFPB's Final Rule amending Regulation C, which implements the Home Mortgage Disclosure Act, requiring most lenders to report expanded information in order for the CFPB to more effectively monitor fair lending concerns and other information shortcomings identified by the CFPB; • Positions taken by the CFPB regarding the Electronic Fund Transfer Act and Federal Reserve Regulation E, which require companies to obtain consumer authorizations before automatically debiting a consumer’s account for pre-authorized electronic funds transfers; • Efforts focused on enforcing certain compliance obligations the CFPB has deemed a priority, such as automobile and student loan servicing, debt collection, collateral repossession, mortgage origination and servicing, remittances, and fair lending, among others; and • Positions and focused efforts on enforcing compliance obligations related to deposit account fees, including overdraft, non-sufficient funds, and returned deposit fees. 43 Table of Contents There is continued uncertainty about the CFPB's priorities and how they will change under the current administration.
Additionally, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank holding company should serve as a source of strength to its subsidiary banks by being prepared to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity (including at times when a bank holding company may not be in a financial position to provide such resources or when it may not be in the bank holding company’s or its shareholders' best interests to do so), and should maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks.
Under the Dodd-Frank Act and Federal Reserve policy, a bank holding company should serve as a source of financial and managerial strength to its subsidiary banks, and the Federal Reserve may expect a bank holding company to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity (including at times when a bank holding company may not be in a financial position to provide such resources or when it may not be in the bank holding company’s or its shareholders' best interests to do so) and to maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks.
We sold $852,000, $5.7 million and $4.1 million of SBA participations during the years ended December 31, 2023, 2022, and 2021 , respectively. Gains, losses and transfer fees on sales of one-to-four family and commercial real estate loans are recognized at the time of the sale.
We sold $3.0 million, $852,000 and $5.7 million of SBA participations during the years ended December 31, 2024, 2023, and 2022 , respectively. Gains, losses and transfer fees on sales of one-to-four family and commercial real estate loans are recognized at the time of the sale.
We purchase manufactured home loans through a partnership with Triad Financial Services, a loan originator that underwrites and funds these loans. At December 31, 2023, $93.6 million of manufactured home loans was included in consumer loans. These loans range from $18,000 to $425,000 with terms that range from 84 to 360 months.
We purchase manufactured home loans through a partnership with Triad Financial Services, a loan originator that underwrites and funds these loans. At December 31, 2024, $128.2 million of manufactured home loans was included in consumer loans. These loans range from $18,000 to $425,000 with terms that range from 84 to 360 months.
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. 27 Table of Contents Allowance for Credit Losses on Loans . The allowance for credit losses on loans was $17.5 million, or 1.05% of total loans, at December 31, 2023, compared to $16.1 million, or 1.04%, at December 31, 2022.
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. 27 Table of Contents Allowance for Credit Losses on Loans . The allowance for credit losses on loans was $20.5 million, or 1.21% of total loans, at December 31, 2024, compared to $17.5 million, or 1.05%, at December 31, 2023.
We maintain a committed credit facility with the FHLB, and at December 31, 2023, had pledged loan and security collateral to support a borrowing capacity of $589.5 million. In addition, the Bank had outstanding letters of credit from the FHLB to secure public deposits and the Bellevue, Washington branch lease liability.
We maintain a committed credit facility with the FHLB, and at December 31, 2024, had pledged loan and security collateral to support a borrowing capacity of $558.0 million. In addition, the Bank had outstanding letters of credit from the FHLB to secure public deposits and the Bellevue, Washington branch lease liability.
In addition to nonperforming assets set forth in the table above, as of December 31, 2023, there were 20 loans totaling $31.8 million that continue to accrue interest but for which management has concerns about the ability of these borrowers to comply with loan repayment terms. These loans are classified as special mention or substandard.
In addition to nonperforming assets set forth in the table above, as of December 31, 2024, there were 40 loans totaling $16.7 million that continue to accrue interest but for which management has concerns about the ability of these borrowers to comply with loan repayment terms. These loans are classified as special mention or substandard.
Loan rates for auto lending, as well as all other consumer loans, are priced based on the specific loan type and the risks involved. Indirect lending sources are used to purchase auto loans.
Loan rates for auto lending, as well as all other consumer loans, are priced based on the specific loan type and the risks involved. First Fed utilizes indirect lending sources to purchase auto loans.
The Company wrote off its remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods, with no change to total shareholders' equity as a result of the transaction.
The Company wrote off the remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods. The balance of the noncontrolling interest in Quin Ventures balance was moved to retained earnings, with no change to total shareholders' equity as a result of the transaction.
We received $880,000, $502,000, and $190,000 in dividends from the FHLB during the years ended December 31, 2023, 2022, and 2021, respectively. 30 Table of Contents The table below sets forth information regarding the composition of our securities portfolio and other investments at the dates indicated.
We received $1.2 million, $880,000, and $502,000 in dividends from the FHLB during the years ended December 31, 2024, 2023, and 2022, respectively. 30 Table of Contents The table below sets forth information regarding the composition of our securities portfolio and other investments at the dates indicated.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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The new technology and start-up companies we invest in may not be as successful as anticipated or may fail, resulting a total loss of our related investment.
The new technology and start-up companies we invest in may not be as successful as anticipated or may fail, resulting in a total loss of our related investment.
We have increased our commercial business loan portfolio by purchasing unsecured loans to small businesses and professionals and our consumer loan portfolio through purchases from Splash Financial. Our exposure on these purchased loan portfolios was $21.1 million and $7.3 million, respectively, at December 31, 2023.
We have increased our commercial business loan portfolio by purchasing unsecured loans to small businesses and professionals and our consumer loan portfolio through purchases from Splash Financial. Our exposure on these purchased loan portfolios was $21.1 million and $7.3 million, respectively, at December 31, 2024.
If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations. Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates.
If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations. 51 Table of Contents Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates.
If one or more of these borrowers is not able to service the contractual repayment, the potential loss to First Fed is more likely to have a material adverse impact on our business, financial condition and results of operations. 52 Table of Contents Our construction and land loans are based upon estimates of costs and the value of the completed project.
If one or more of these borrowers is not able to service the contractual repayment, the potential loss to First Fed is more likely to have a material adverse impact on our business, financial condition and results of operations. Our construction and land loans are based upon estimates of costs and the value of the completed project.
For these reasons we may experience higher rates of delinquencies, default and losses on loans secured by junior liens. 53 Table of Contents Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.
For these reasons we may experience higher rates of delinquencies, default and losses on loans secured by junior liens. Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.
These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant legal liability, heightened regulatory scrutiny or fines, violations of consumer protection and privacy laws, and significant damage to our reputation and our business. 55 Table of Contents Our security measures may not protect us from systems failures or interruptions.
These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant legal liability, heightened regulatory scrutiny or fines, violations of consumer protection and privacy laws, and significant damage to our reputation and our business. Our security measures may not protect us from systems failures or interruptions.
Additional changes in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability. Our net interest margin is the net interest income divided by average interest-earning assets.
Increases in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability. Our net interest margin is the net interest income divided by average interest-earning assets.
If we breach those representations and warranties, the buyers may require us to repurchase the loans and we may incur a loss on the repurchase. A portion of our loan portfolio is serviced by third parties, which may limit our ability to foreclose on or repossess such loans.
If we breach those representations and warranties, the buyers may require us to repurchase the loans and we may incur a loss on the repurchase. 54 Table of Contents A portion of our loan portfolio is serviced by third parties, which may limit our ability to foreclose on or repossess such loans.
First Fed has extended significant amounts of credit to certain borrowers, largely in connection with high-end residential real estate and commercial and multi-family real estate loans. At December 31, 2023, the aggregate amount of loans, including unused commitments, to First Fed's five largest borrowers (including related entities) amounted to approximately $95.8 million.
First Fed has extended significant amounts of credit to certain borrowers, largely in connection with high-end residential real estate and commercial and multi-family real estate loans. At December 31, 2024, the aggregate amount of loans, including unused commitments, to First Fed's five largest borrowers (including related entities) amounted to approximately $95.9 million.
Under its current policy, First Fed has elected to restrict its loans to one borrower to no more than 60% of the Bank's lending limit, which is adjusted quarterly and was $34.5 million at December 31, 2023, unless specifically approved by the Senior Loan Committee as an exception to policy.
Under its current policy, First Fed has elected to restrict its loans to one borrower to no more than 60% of the Bank's lending limit, which is adjusted quarterly and was $34.3 million at December 31, 2024, unless specifically approved by the Senior Loan Committee as an exception to policy.
At December 31, 2023, we had $28,000 of nonperforming commercial real estate loans and $0 of nonperforming multi-family loans in our portfolio. An increase in unsecured lending exposes us to an increase in loan losses.
At December 31, 2024, we had $5,598,000 of nonperforming commercial real estate loans and $0 of nonperforming multi-family loans in our portfolio. An increase in unsecured lending exposes us to an increase in loan losses.
Our commercial loan portfolio, which includes loans for commercial and multi-family real estate as well as other business loans, has increased to $833.4 million, or 50.2% of total loans, at December 31, 2023, from $718.6 million, or 46.4% of total loans, at December 31, 2022.
Our commercial loan portfolio, which includes loans for commercial and multi-family real estate as well as other business loans, has increased to $874.5 million, or 51.6% of total loans, at December 31, 2024, from $833.4 million, or 50.2% of total loans, at December 31, 2023.
We have increased the amount of our commercial real estate and multi-family loans to $721.1 million, or 43.4%, of our total loan portfolio, at December 31, 2023, from $641.6 million, or 41.5%, of our total loan portfolio at December 31, 2022. We intend to continue to increase, subject to market demand, our origination and purchase of commercial real estate loans.
We have increased the amount of our commercial real estate and multi-family loans to $723.0 million, or 42.6%, of our total loan portfolio, at December 31, 2024, from $721.1 million, or 43.4%, of our total loan portfolio at December 31, 2023. We intend to continue to increase, subject to market demand, our origination and purchase of commercial real estate loans.
We rely on a variety of sources in order to meet our potential liquidity demands. We require enough liquidity to meet customer loan requests, customer deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress.
We require enough liquidity to meet customer loan requests, customer deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress.
Outstanding loan balances for the ten largest borrowing relationships at December 31, 2023, totaled $171.2 million, or 10.3% of total loans. Although only one of the loans to First Fed's 20 largest borrowers was nonperforming as of December 31, 2023, concentration of credit to a limited number of borrowers increases the risk in First Fed's loan portfolio.
Outstanding loan balances for the ten largest borrowing relationships at December 31, 2024, totaled $165.7 million, or 9.8% of total loans. Although only one of the loans to First Fed's 20 largest borrowers was nonperforming as of December 31, 2024, concentration of credit to a limited number of borrowers increases the risk in First Fed's loan portfolio.
At December 31, 2023, we had $112.3 million, or 6.8% of total loans, in commercial business loans. Commercial business lending involves risks that are different from those associated with residential and commercial real estate lending.
At December 31, 2024, we had $151.5 million, or 8.9% of total loans, in commercial business loans. Commercial business lending involves risks that are different from those associated with residential and commercial real estate lending.
At December 31, 2023 , $105.4 million of our consumer, $38.1 million of our comm ercial real estate , and $19.2 million of our one-to-four family loan portfolios were serviced by third parties. When a loan goes into default, it is the responsibility of the third-party servicer to enforce the borrower’s obligation to repay the outstanding indebtedness.
At December 31, 2024 , $145.7 million of our consumer, $36.1 million of our comm ercial real estate , and $16.5 million of our one-to-four family loan portfolios were serviced by third parties. When a loan goes into default, it is the responsibility of the third-party servicer to enforce the borrower’s obligation to repay the outstanding indebtedness.
As a result, under Washington law, First Fed would be limited to loans to one borrower of $46.0 million at December 31, 2023.
As a result, under Washington law, First Fed would be limited to loans to one borrower of $45.7 million at December 31, 2024.
If our nonperforming assets increase, our earnings will be adversely affected. At December 31, 2023, our nonperforming assets, which consist of nonaccrual loans, real estate owned and repossessed assets, were $18.6 million, or 0.8% of total assets. Our nonperforming assets adversely affect our net income in various ways.
If our nonperforming assets increase, our earnings will be adversely affected. At December 31, 2024, our nonperforming assets, which consist of nonaccrual loans, real estate owned and repossessed assets, were $30.5 million, or 1.4% of total assets. Our nonperforming assets adversely affect our net income in various ways.
Additional losses in our unsecured lending portfolio would negatively affect our profitability and capital. The significant growth in our loan portfolio and expansion into new markets may increase our credit risk.
Purchases of Splash loans were suspended in August 2023. Additional losses in our unsecured lending portfolio would negatively affect our profitability and capital. The significant growth in our loan portfolio and expansion into new markets may increase our credit risk.
Further changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect (i) our ability to originate and/or sell mortgage and SBA loans; (ii) the fair value of our financial assets and liabilities, which could negatively impact shareholders' equity, and our ability to realize gains from sales of such assets; (iii) our ability to obtain and retain deposits in competition with other available investment alternatives; (iv) the ability of our borrowers to repay adjustable or variable rate loans; and (v) the average duration of our mortgage-backed securities portfolio and other interest-earning assets.
Further, there can be no assurance regarding any forecasts or predictions about the effect that any future rate adjustment may have on our results of operations. 53 Table of Contents Further changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect (i) our ability to originate and/or sell mortgage and SBA loans; (ii) the fair value of our financial assets and liabilities, which could negatively impact shareholders' equity, and our ability to realize gains from sales of such assets; (iii) our ability to obtain and retain deposits in competition with other available investment alternatives; (iv) the ability of our borrowers to repay adjustable or variable rate loans; and (v) the average duration of our MBS portfolio and other interest-earning assets.
The Bank is subject to regulation and supervision by the FDIC and the DFI. Such regulation and supervision govern the activities in which we may engage, primarily for the protection of depositors and the Deposit Insurance Fund.
Such regulation and supervision govern the activities in which we may engage, primarily for the protection of depositors and the Deposit Insurance Fund.
We are subject to extensive examination, supervision and comprehensive regulation by the Federal Reserve, the FDIC as insurer of our deposits, and by the DFI. First Northwest Bancorp is subject to regulation and supervision by the Federal Reserve (as a financial holding company) and regulation by the State of Washington (as a Washington corporation).
First Northwest Bancorp is subject to regulation and supervision by the Federal Reserve (as a financial holding company) and regulation by the State of Washington (as a Washington corporation). The Bank is subject to regulation and supervision by the FDIC and the DFI.
We obtain updated valuations in the form of appraisals and tax assessed values when a loan has been foreclosed and the property taken in as real estate owned and at certain other times during the asset’s holding period.
If our real estate owned is not properly valued or declines further in value, our earnings could be reduced. We obtain updated valuations in the form of appraisals and tax assessed values when a loan has been foreclosed and the property taken in as real estate owned and at certain other times during the asset’s holding period.
Our liquidity position could be significantly constrained if we were unable to access funds from the FHLB or other wholesale funding sources. 50 Table of Contents Factors that could detrimentally impact our access to liquidity sources include actions by the FRB, a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated, negative operating results, or adverse regulatory action against us.
Factors that could detrimentally impact our access to liquidity sources include actions by the FRB, a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated, negative operating results, or adverse regulatory action against us.
Determining an allowance for credit losses on investment securities requires complex, subjective judgments about the future financial performance and liquidity of the security's issuer and underlying collateral, if any, to assess the probability of receiving all contractual principal and interest payments due, and these estimates may differ significantly from actual future performance of the security. 54 Table of Contents If our real estate owned is not properly valued or declines further in value, our earnings could be reduced.
Determining an allowance for credit losses on investment securities requires complex, subjective judgments about the future financial performance and liquidity of the security's issuer and underlying collateral, if any, to assess the probability of receiving all contractual principal and interest payments due, and these estimates may differ significantly from actual future performance of the security.
Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on our shareholders’ equity.
Changes in interest rates also affect the value of our interest-earning assets, including our securities portfolio. Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax.
We can accommodate larger loans by selling participations in those loans to other financial partners, but this strategy is not the most efficient or always available.
We can accommodate larger loans by selling participations in those loans to other financial partners, but this strategy is not the most efficient or always available. We may not be able to attract or maintain clients seeking larger loans or may not be able to sell participations in these loans on terms we consider favorable.
Our failure to grow or retain deposits may result in a loss of market share and slower or negative loan growth, which likely would have an adverse effect on our financial condition and results of operations.
Our failure to grow or retain deposits may result in a loss of market share and slower or negative loan growth, which likely would have an adverse effect on our financial condition and results of operations. Public health crises , geopolitical developments, acts of terrorism, natural disasters, climate change and other external factors could harm our business.
Credit and Asset Quality Our increased emphasis on commercial real estate lending subjects us to various risks that could adversely impact our results of operations and financial condition.
The effects of any of the foregoing factors could have a material adverse effect on our business, operations, and financial condition. 48 Table of Contents Credit and Asset Quality Our increased emphasis on commercial real estate lending subjects us to various risks that could adversely impact our results of operations and financial condition.
If changes to laws, rules and/or regulations applicable to us are made, such changes could offset the otherwise anticipated increase in operating and compliance costs (included in noninterest expense); however, no assurance can be given as to whether such changes will occur or what may result from such changes.
If changes to laws, rules and/or regulations applicable to us are made, such changes could offset the otherwise anticipated increase in operating and compliance costs (included in noninterest expense); however, no assurance can be given as to whether such changes will occur or what may result from such changes. 55 Table of Contents General Risk Factors We are dependent on key personnel and the loss of one or more of those key persons may materially and adversely affect our prospects.
This may require us to advance additional funds and/or contract with another builder to complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully recover unpaid loan funds and associated construction and liquidation costs.
Under these circumstances we may be required to advance additional funds and/or contract with another builder to complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully recover unpaid loan funds and associated construction and liquidation costs. 50 Table of Contents Our business may be adversely affected by credit risk associated with residential real estate.
Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development on a single one-to-four family residential mortgage loan. 51 Table of Contents Since commercial real estate loans generally have large balances, deterioration in the quality of commercial loans may result in the need to significantly increase our provision for credit losses on loans and charge-offs will likely be larger on a per loan basis compared to consumer loans.
Since commercial real estate loans generally have large balances, deterioration in the quality of commercial loans may result in the need to significantly increase our provision for credit losses on loans and charge-offs will likely be larger on a per loan basis compared to consumer loans.
During the year ended December 31, 2023, our construction and land loans decreased $64.0 million, or 33.0%, to $129.7 million, or 7.8%, of the total loan portfolio at December 31, 2023 and consisted of properties secured by multi-family of $66.7 million, one-to-four family residential of $43.7 million, commercial real estate of $11.8 million, and land of $7.5 million.
During the year ended December 31, 2024, our construction and land loans decreased $51.6 million, or 39.8%, to $78.1 million, or 4.6%, of the total loan portfolio at December 31, 2024 and consisted of properties secured by multi-family of $15.4 million, one-to-four family residential of $38.9 million, commercial real estate of $17.3 million, and land of $6.5 million.
The Federal Reserve slowed its increases to the federal funds target rate in 2023, with the most recent increase occurring in July 2023. When the Federal Reserve Board increases the Fed Funds rate, overall interest rates will likely rise, which may negatively impact housing markets by reducing refinancing activity and new home purchases.
The Federal Reserve decreased the federal funds target rate beginning in September 2024, with the most recent decrease occurring in December 2024. When the Federal Reserve Board decreases the Fed Funds rate, overall interest rates will likely fall, which may positively impact housing markets by increasing refinancing activity and new home purchases.
One-to-four family loans have increased to $378.4 million, or 22.8% of total loans, at December 31, 2023, from $343.6 million, or 22.2% of total loans, at December 31, 2022. Total consumer loans have increased to $318.5 million, or 19.2% of total loans, at December 31, 2023, from $291.8 million, or 18.8% of total loans, at December 31, 2022.
One-to-four family loans have increased to $395.3 million, or 23.3% of total loans, at December 31, 2024, from $378.4 million, or 22.8% of total loans, at December 31, 2023.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, would be adversely affected. 56 Table of Contents Changes in interest rates also affect the value of our interest-earning assets, including our securities portfolio.
We would likely incur a higher cost of funds to retain these deposits in an elevated interest rate environment. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, would be adversely affected.
The effects of any of the foregoing factors could have a material adverse effect on our business, operations, and financial condition. Conditions in the financial markets may limit our access to additional funding to meet our liquidity needs, which could adversely affect our earnings and capital levels. Liquidity is essential to our business.
Adverse changes in the regional and general economy could reduce our growth rate, impair our ability to collect loans, and generally have a negative effect on our financial condition and results of operations. 47 Table of Contents Conditions in the financial markets may limit our access to additional funding to meet our liquidity needs, which could adversely affect our earnings and capital levels.
Our security measures may not be sufficient to mitigate the risk of a cyber-attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business.
Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks.
Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.
Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. 52 Table of Contents Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability and result in a material adverse effect on our financial condition and results of operations.
A rising or elevated interest rate environment may also adversely affect the U.S. economy and, as a result, our business as a whole.
A falling interest rate environment may also positively affect the U.S. economy and, as a result, our business as a whole. However, there can be no assurance of the timing or amount of any future rate adjustments.
Lending on residential property is sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Declines in residential real estate values securing these types of loans may increase the level of borrower defaults and losses above the recent charge-off experience on these loans.
Declines in residential real estate values securing these types of loans may increase the level of borrower defaults and losses above the recent charge-off experience on these loans.
Rapidly growing loan portfolios are, by their nature, less seasoned and our experience with these loans may not provide us with a useful payment history pattern.
Total consumer loans have increased to $347.9 million, or 20.6% of total loans, at December 31, 2024, from $318.5 million, or 19.2% of total loans, at December 31, 2023. 49 Table of Contents Rapidly growing loan portfolios are, by their nature, less seasoned and our experience with these loans may not provide us with a useful payment history pattern.
We are also subject to tax, accounting, securities, insurance, monetary laws and regulations, rules, standards, policies, and interpretations that control the methods by which financial institutions conduct business. These may change significantly over time, which could materially impact our business and have a significant adverse effect on our cost of regulatory compliance and results of operations.
These may change significantly over time, which could materially impact our business and have a significant adverse effect on our cost of regulatory compliance and results of operations. Further, changes in accounting standards and their interpretation may materially impact how we report, potentially retroactively, our financial condition and results of operations.
The nature, timing, and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain.
Changes in federal policy and at regulatory agencies are expected to occur over time through policy and personnel changes, which could lead to changes involving the level of oversight and focus on the financial services industry. The nature, timing, and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain.
Any future changes to the laws, rules and regulations applicable to us could make compliance more difficult and expensive, or otherwise adversely affect our business, financial condition or prospects. On November 21, 2023, the Bank entered into a consent order ("Order") with the FDIC, the Bank's primary regulator.
Any future changes to the laws, rules and regulations applicable to us could make compliance more difficult and expensive, or otherwise adversely affect our business, financial condition or prospects. We are also subject to tax, accounting, securities, insurance, monetary laws and regulations, rules, standards, policies, and interpretations that control the methods by which financial institutions conduct business.
We may not be able to attract or maintain clients seeking larger loans or may not be able to sell participations in these loans on terms we consider favorable. 57 Table of Contents We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations and the impact of consent orders to which we are subject.
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations. We are subject to extensive examination, supervision and comprehensive regulation by the Federal Reserve, the FDIC as insurer of our deposits, and by the DFI.
Our business may be adversely affected by credit risk associated with residential real estate. At December 31, 2023, $447.8 million, or 27.0% of our total loan portfolio, consisted of one-to-four family mortgage loans and home equity loans secured by residential properties.
At December 31, 2024, $474.4 million, or 28.0% of our total loan portfolio, consisted of one-to-four family mortgage loans and home equity loans secured by residential properties. Lending on residential property is sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict.
Some of our commercial borrowers have more than one loan outstanding with us.
Some of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development on a single one-to-four family residential mortgage loan.
Removed
Adverse changes in the regional and general economy could reduce our growth rate, impair our ability to collect loans, and generally have a negative effect on our financial condition and results of operations. Public health crises , geopolitical developments, acts of terrorism, natural disasters, climate change and other external factors could harm our business.
Added
Liquidity is essential to our business. We rely on a variety of sources in order to meet our potential liquidity demands.
Removed
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability and result in a material adverse effect on our financial condition and results of operations. We are subject to certain risks in connection with our use of networks and technology systems.
Added
Our liquidity position could be significantly constrained if we were unable to access funds from the FHLB or other wholesale funding sources.
Removed
Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks.
Added
We may incur losses due to direct and indirect minority investments in fintech and specialty finance companies. We have and may continue to make minority investments in fintech and specialty finance companies or make investments in funds that do the same.
Removed
The Federal Reserve has communicated that the economic outlook continues to be uncertain, and while it has stated that rates may decrease later in 2024, there can be no assurance of the timing or amount of any future rate adjustments.
Added
For example, we currently have investments in Canapi Venture Fund, LP, BankTech Ventures, LP and JAM FINTOP Blockchain, LP to strategically invest in fintech-related businesses. In addition, we have invested in Meriwether Group Capital Hero Fund LP, Meriwether Group Capital, LLC and The Meriwether Group, LLC, which provide funding and services to lower-middle market businesses and entrepreneurs.
Removed
Further, there can be no assurance regarding any forecasts or predictions about the effect that any future rate adjustment may have on our results of operations.
Added
We generally are not able to influence the activities of companies or funds in which we invest and may suffer losses due to these activities. For example, in 2021 we entered into a joint venture with Quin Ventures, Inc. and Peace of Mind, Inc., which ultimately resulted in the Company writing off the related investment.
Removed
We will likely incur a higher cost of funds to retain these deposits in the current elevated interest rate environment.
Added
In addition, the companies or funds we invest in may have economic or business interests, values, or goals that are inconsistent or conflict with ours, which could damage our reputation or business.
Removed
The Order, which will remain effective until modified, suspended or terminated by the FDIC, requires the Board and senior management to: • Review, revise, develop, and/or implement, as necessary, a sound risk-based compliance management system, including a written compliance program, policies, and training designed to effect compliance with all applicable consumer protection laws, a consumer complaint monitoring process, and a monitoring program designed to detect and correct compliance weaknesses; • Hold Bank management accountable for failing to adhere to consumer protection laws and the Bank’s policies and procedures; • Review and analyze the resources, management, and staffing necessary (i) for compliance with all consumer protection laws, (ii) to manage and supervise the Bank’s compliance program, (iii) to provide sufficient oversight over third-party relationships and products and services offered by or through third-party relationships, and (iv) to appropriately address certain prior violations and compliance issues; and • Review, revise, develop, and/or implement, as necessary, effective independent audit coverage of the Bank’s compliance program.
Added
Additionally, the companies or funds we invest in may experience financial difficulties, default on their obligations, diminished liquidity or insolvency; or our management team’s distraction relative to the potential financial benefit may be disproportional.
Removed
Further, changes in accounting standards and their interpretation may materially impact how we report, potentially retroactively, our financial condition and results of operations. Changes in federal policy and at regulatory agencies are expected to occur over time through policy and personnel changes, which could lead to changes involving the level of oversight and focus on the financial services industry.
Added
If the companies we invest in, directly or indirectly, seek additional financing in the future to fund their growth strategies, these financing transactions may result in dilution to our ownership stakes and these transactions may occur at lower valuations than the investment transaction through which we acquired such ownership interest, which could significantly decrease the fair value of our investment in those entities.
Removed
The CFPB, which was created under the Dodd-Frank Act, has issued, and continues to issue, rules related to consumer protection, including The Truth in Lending Act and the Real Estate Settlement Procedures Act Integrated Disclosure (TRID), which combines certain disclosures that consumers receive in connection with applying for and closing a mortgage loan.
Added
We may also be unable to dispose of our minority investments within our contemplated time horizon or at all or withdraw our investment from funds in which we participate.
Removed
These CFPB rules, including rules generally prohibiting creditors from extending mortgage loans without regard for the consumer's ability to repay, may adversely affect the volume of mortgage loans that we underwrite and subject us to increased potential liabilities related to such residential loan origination activities.
Added
Our inability to dispose of our minority investment in an entity, a downward adjustment to or impairment of an equity investment or our inability to access funds otherwise invested could adversely impact our business, financial condition, results of operations, or cash flows.
Removed
The CFPB has adopted a number of additional requirements and issued additional guidance, including with respect to indirect auto lending, appraisals, escrow accounts and servicing, each of which may entail increased compliance costs. 58 Table of Contents General Risk Factors We are dependent on key personnel and the loss of one or more of those key persons may materially and adversely affect our prospects.
Added
We are subject to certain risks in connection with our use of networks and technology systems Our security measures may not be sufficient to mitigate the risk of a cyber-attack.
Added
Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on our shareholders’ equity.
Added
For example, in November 2023, the Bank entered into a consent order with the FDIC in connection with certain deficiencies in the Bank's compliance program. The consent order was terminated on October 23, 2024.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Removed
Item 1C. Cybersecurity The Company recognizes cybersecurity as a critical risk to its operations and the management of this risk is a top priority. We are committed to protecting the confidentiality, integrity, and availability of our customer information, information systems, data, and assets from unauthorized access, use, disclosure, disruption, modification, or destruction.
Added
Item 1C. Cybersecurity 57 Item 2. Properties 58 Item 3. Legal Proceedings 58 Item 4. Mine Safety Disclosures 58 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 59 Item 6. [Reserved] 59 Item 7.
Removed
The Company adheres to cybersecurity industry best practices such as the National Institute of Standards and Technology cybersecurity framework and Federal Financial Institutions Examinations Council ("FFIEC") guidance.
Added
Management's Discussion and Analysis of Financial Condition and Results of Operations 60 General 60 Our Business and Operating Strategy 61 Critical Accounting Policies 62 New Accounting Pronouncements 63 Comparison of Financial Condition at December 31, 2024 and December 31, 2023 64 Comparison of Results of Operations for the Years Ended December 31, 2024 and December 31, 2023 67 Average Balances, Interest and Average Yields/Cost 70 Rate/Volume Analysis 71 Asset and Liability Management and Market Risk 71 Liquidity Management 73 Off-Balance Sheet Activities 73 Commitments and Off-Balance Sheet Arrangements 74 Capital Resources 74 Effect of Inflation and Changing Prices 75 Recent Accounting Pronouncements 75 Item 7A.
Removed
FNWB management has integrated its processes for assessing, identifying, and managing material risks from cybersecurity threats into the Company’s overall risk management program, including regularly conducting risk assessments and gap analyses in order to identify and prioritize cybersecurity threats and vulnerabilities across our entire digital estate which is comprised of our IT infrastructure as well cloud-based applications and storage.
Added
Quantitative and Qualitative Disclosures About Market Risk 75 Item 8. Financial Statements and Supplementary Data 75 2 Table of Contents FIRST NORTHWEST BANCORP 2024 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS (Continued) Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 132 Item 9A. Controls and Procedures 132
Removed
These assessments consider industry best practices, evolving threats, and the specific needs of our business. The Company implements a defense in depth, or layered, approach to security controls, including network security, intrusion detection and prevention, anomaly detection, endpoint security, data encryption, identity and access management, and security awareness training.
Removed
Staff evaluate and update our controls on an ongoing basis to address emerging threats. We have a documented incident response plan in place to identify, contain, and remediate cybersecurity incidents. The plan includes roles and responsibilities for key personnel, communication protocols, and procedures for recovery and notification.
Removed
We also maintain business continuity, crisis management, and disaster recovery plans to ensure the continued operation of critical business functions in the event of a major disruption, including a cyberattack, which are tested regularly through tabletop exercises, simulations, parallel testing, and functional testing.
Removed
The Company adheres to a continuous improvement philosophy in regard to cybersecurity and leverages external experts, consultants, auditors, and assessors on a regular basis to complement the internal staff in identifying and remediating any gaps in the Company’s cybersecurity program.
Removed
The Company has a well-defined and mature vendor management program that includes controls to address third-party cybersecurity risks throughout the vendor management lifecycle. The FNWB Board of Directors has oversight responsibility for enterprise-wide risks, including cybersecurity risks. The Board recently welcomed a cybersecurity expert as a director to help further understand and anticipate risks in this area.
Removed
A designated committee of the Board, the Audit Committee, is responsible for overseeing the Company's cybersecurity risk management program and reviewing its effectiveness. The Chief Information Officer and Security Officer ("CIO/SO") is responsible for assessing and managing material risks from cybersecurity threats, with a dedicated staff of information security professionals.
Removed
The CIO/SO has over 25 years of education, training, and experience managing technology and cybersecurity risks, and over 12 years of experience in the banking industry specifically. The CIO/SO regularly updates executive and senior management, including the Enterprise Risk Management Committee, as well as the Board Audit Committee on cybersecurity risks and mitigation strategies.
Removed
The Company has implemented internal controls to address the effectiveness of our cybersecurity program. These controls include risk assessments, vulnerability assessments and scans, periodic audits, and periodic penetration testing. We are committed to disclosing material cybersecurity incidents to investors and other stakeholders in a timely and transparent manner in compliance with applicable regulations and in keeping with market practices.
Removed
Management will assess the materiality of a cybersecurity incident based on its potential impact on our financial condition, results of operations, reputation, or ability to meet our business objectives. The Company is not aware of any current cybersecurity threats that are reasonably likely to affect the Company’s business strategy, results of operations or financial condition.
Removed
See " We are subject to certain risks in connection with our use of networks and technology systems " in Item 1A. Risk Factors of this Form 10-K for additional information regarding the risks we face from cybersecurity threats. 60 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

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As of December 31, 2023, we conducted our business through twelve branch offices located in Clallam, Jefferson, King, Kitsap, and Whatcom Counties, Washington; two business centers and a support service center located in King County, Washington; one business center in Whatcom County, Washington; and our main administrative office and a support service center located in Clallam County, Washington.
As of December 31, 2024, we conducted our business through twelve branch offices located in Clallam, Jefferson, King, Kitsap, and Whatcom Counties, Washington; two business centers located in King County, Washington; one business center in Snohomish County, Washington; one business center in Whatcom County, Washington; and our main administrative office and a business center located in Clallam County, Washington.
Additional information is presented in Note 5 - Premises and Equipment, Note 6 - Leases, and Note 20 - Subsequent Event (relating to a potential sale and leaseback of six of the Company's owned properties) of the Notes to the Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data."
Additional information is presented in Note 5 - Premises and Equipment, Note 6 - Leases, and Note 20 - Sale and Leaseback of Premises of the Notes to the Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data."
The Company currently owns seven branch offices, the main administrative office and the Clallam County support services center. The remaining five branch offices, three business centers and King County support service center are leased. The net book value of the Company’s properties totaled $16.0 million at December 31, 2023.
The Company currently owns the main administrative office and the Clallam County business center. The remaining twelve branch offices and four business centers are leased. The net book value of the Company’s properties totaled $8.3 million at December 31, 2024.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Our common stock is listed on The Nasdaq Stock Market LLC’s Global Market, under the symbol "FNWB." As of the close of business on March 8, 2024, there were 9,443,271 shares of common stock issued and outstanding and we had approximately 511 shareholders of record, excluding persons or entities who hold stock in nominee or "street name" accounts with brokers.
Our common stock is listed on The Nasdaq Stock Market LLC’s Global Market, under the symbol "FNWB." As of the close of business on March 6, 2025, there were 9,358,008 shares of common stock issued and outstanding and we had approximately 477 shareholders of record, excluding persons or entities who hold stock in nominee or "street name" accounts with brokers.
On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase and retirement of up to an additional 1,023,420 shares of its common stock. The following table provides information regarding repurchases of the Company's common stock during the quarter ended December 31, 2023.
On April 25, 2024, the Company announced that its Board of Directors had authorized the repurchase and retirement of up to an additional 944,279 shares of its common stock. The following table provides information regarding repurchases of the Company's common stock during the quarter ended December 31, 2024.
(2) On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 1,023,420 shares of its common stock, or approximately 10% of its shares of common stock issued and outstanding as of October 27, 2020.
(2) On April 25, 2024, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 944,279 shares of its common stock, or approximately 10% of its shares of common stock issued and outstanding as of April 24, 2024.
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plan Maximum Number of Shares that May Yet Be Repurchased Under the Plan (2) October 1, 2023 - October 31, 2023 3,921 $ 12.98 3,921 222,416 November 1, 2023 - November 30, 2023 10,350 12.86 8,284 214,132 December 1, 2023 - December 31, 2023 3,188 — — 214,132 Total 17,459 $ 12.90 12,205 (1) Shares repurchased by the Company during the quarter include shares acquired from restricted stock award participants in connection with the cancellation of restricted stock to pay withholding taxes upon vesting totaling 0 shares, 2,066 shares, and 3,188 shares, respectively, for the periods indicated.
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plan Maximum Number of Shares that May Yet Be Repurchased Under the Plan (2) October 1, 2024 - October 31, 2024 253 $ — — 846,123 November 1, 2024 - November 30, 2024 370 — — 846,123 December 1, 2024 - December 31, 2024 514 — — 846,123 Total 1,137 $ — — (1) Shares repurchased by the Company during the quarter include shares acquired from restricted stock award participants in connection with the cancellation of restricted stock to pay withholding taxes upon vesting totaling 253 shares, 370 shares, and 514 shares, respectively, for the periods indicated.
As of December 31, 2023, a total of 809,288 shares, or 79.1% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $15.81 per share, leaving 214,132 shares available for future purchases.
As of December 31, 2024, a total of 98,156 shares, or 10.4% percent of the shares authorized in the April 2024 stock repurchase plan, have been purchased at an average cost of $10.23 per share, leaving 846,123 shares available for future purchases. No shares were repurchased pursuant to the April 25, 2024, stock repurchase plan during the periods indicated.
Added
On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase and retirement of up to an additional 1,023,420 shares of its common stock. As of December 31, 2024, all 1,023,420 shares at an average cost of $14.07 per share had been repurchased pursuant to the October 28, 2020 stock repurchase plan.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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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.
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.
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.
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.
Our Treasury Management and Commercial Relationship teams have deepened relationships with new and existing customers through acquiring operating accounts and increasing SBA and other commercial business lending. • Investing in financial technology ("fintech") companies. The Company has five years remaining in a commitment to invest in Canapi Ventures, which provides funding to fintech start-ups.
Our Treasury Management and Commercial Relationship teams have deepened relationships with new and existing customers through acquiring operating accounts and increasing SBA and other commercial business lending. • Investing in financial technology ("fintech") companies. The Company has four years remaining in a commitment to invest in Canapi Ventures, which provides funding to fintech start-ups.
We also retain the services of independent firms to periodically review segments of our loan portfolio and provide feedback regarding our loan policies and procedures. 64 Table of Contents • Attracting core deposits and other deposit products. We emphasize relationship banking with our customers to obtain a greater share of their deposits, with specific emphasis on primary transaction accounts.
We also retain the services of independent firms to periodically review segments of our loan portfolio and provide feedback regarding our loan policies and procedures. 61 Table of Contents • Attracting core deposits and other deposit products. We emphasize relationship banking with our customers to obtain a greater share of their deposits, with specific emphasis on primary transaction accounts.
The Canapi Ventures relationship allows us early access to companies producing technology and apps that may be of interest as we grow in the fintech sector. We also have eight years remaining in commitments to invest in BankTech Ventures and JAM FINTOP, two fintech-focused venture capital funds designed for community banks.
The Canapi Ventures relationship allows us early access to companies producing technology and apps that may be of interest as we grow in the fintech sector. We also have seven years remaining in commitments to invest in BankTech Ventures and JAM FINTOP, two fintech-focused venture capital funds designed for community banks.
Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating forgoing the table. 75 Table of Contents Liquidity Management Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature.
Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating forgoing the table. 72 Table of Contents Liquidity Management Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature.
The Bank has an additional Canapi Small Business Investment Company commitment with nine years remaining. Our objective is to be an independent, high performing bank focused on meeting the needs of individuals, small businesses and community organizations throughout our market areas with exceptional service and competitive products.
The Bank has an additional Canapi Small Business Investment Company commitment with eight years remaining. Our objective is to be an independent, high performing bank focused on meeting the needs of individuals, small businesses and community organizations throughout our market areas with exceptional service and competitive products.
We intend to invest in our online presence and engage in digital strategies that will help us to successfully compete in an ever-changing digital marketplace. The Company has six years remaining in its commitment to Canapi Ventures to identify and infuse capital into early stage fintech companies.
We intend to invest in our online presence and engage in digital strategies that will help us to successfully compete in an ever-changing digital marketplace. The Company has five years remaining in its commitment to Canapi Ventures to identify and infuse capital into early stage fintech companies.
Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at December 31, 2023 and 2022. Income and all average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield.
Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at December 31, 2024 and 2023. Income and all average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield.
Our accounting policies are discussed in detail in Note 1 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. 65 Table of Contents The following represent our critical accounting policies: Allowance for Credit Losses on Loans .
Our accounting policies are discussed in detail in Note 1 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. 62 Table of Contents The following represent our critical accounting policies: Allowance for Credit Losses on Loans .
(5) Net interest income divided by average interest-earning assets. 73 Table of Contents Rate/Volume Analysis The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The presentation distinguishes between the changes related to outstanding balances and the changes in interest rates.
(5) Net interest income divided by average interest-earning assets. 70 Table of Contents Rate/Volume Analysis The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The presentation distinguishes between the changes related to outstanding balances and the changes in interest rates.
Below are strategies we have implemented, or intend to implement, to achieve our objectives: • Increasing our portfolio of higher yielding loans. Through loan originations, we intend to increase the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans.
Below are strategies we have implemented, or intend to implement, to achieve our objectives: • Remixing our loan portfolio. Through loan originations, we intend to increase the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans.
The Bank employs the services of outside firms to assist us in our asset and liability management and our analysis of market risk. 74 Table of Contents Interest Rate Sensitivity Analysis. Management uses an interest rate sensitivity analysis to review our level of interest rate risk.
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. 71 Table of Contents Interest Rate Sensitivity Analysis. Management uses an interest rate sensitivity analysis to review our level of interest rate risk.
The following table presents the change in the present value of First Fed’s equity at December 31, 2023, that would occur in the event of an immediate change in interest rates based on management's assumptions.
The following table presents the change in the present value of First Fed’s equity at December 31, 2024, that would occur in the event of an immediate change in interest rates based on management's assumptions.
This new capital conservation buffer requirement was phased in starting in January 2016 until fully implemented in the amount of 2.5% of risk-weighted assets in January 2019. As of December 31, 2023, the conservation buffer was 2.5%.
This new capital conservation buffer requirement was phased in starting in January 2016 until fully implemented in the amount of 2.5% of risk-weighted assets in January 2019. As of December 31, 2024, the conservation buffer was 2.5%.
For additional information, see the Consolidated Statements of Cash Flows included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. 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.
For additional information, see the Consolidated Statements of Cash Flows included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. 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 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.
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.
New Accounting Pronouncements For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. 66 Table of Contents Comparison of Financial Condition at December 31, 2023 and December 31, 2022 Assets .
New Accounting Pronouncements For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. 63 Table of Contents Comparison of Financial Condition at December 31, 2024 and December 31, 2023 Assets .
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. 63 Table of Contents Our Business and Operating Strategy Our operating strategy is focused on growing and diversifying our loan portfolio, expanding our deposit product offerings, and enhancing our digital infrastructure.
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. 60 Table of Contents Our Business and Operating Strategy Our operating strategy is focused on growing and diversifying our loan portfolio, expanding our deposit product offerings, and enhancing our digital infrastructure.
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.
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.
At December 31, 2023, the Bank and consolidated Company exceeded all regulatory capital requirements, and the Bank was considered "well capitalized" under FDIC regulatory capital guidelines. 77 Table of Contents The following table provides the capital requirements and actual results at December 31, 2023.
At December 31, 2024, the Bank and consolidated Company exceeded all regulatory capital requirements, and the Bank was considered "well capitalized" under FDIC regulatory capital guidelines. 74 Table of Contents The following table provides the capital requirements and actual results at December 31, 2024.
These loan categories offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate, one-to-four family residential loans. Our commercial and multi-family real estate and commercial business loans have increased to $833.4 million, or 50.2% of total loans, at December 31, 2023, from $718.6 million, or 46.4% of total loans, at December 31, 2022.
These loan categories offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate, one-to-four family residential loans. Our commercial and multi-family real estate and commercial business loans have increased to $874.5 million, or 51.6% of total loans, at December 31, 2024, from $833.4 million, or 50.2% of total loans, at December 31, 2023.
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.
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.
We intend to hire additional retail bankers, lenders and treasury management officers who are established in their communities to enhance our market position and add profitable growth opportunities. • Improving our digital presence and streamlining the customer experience.
We intend to hire community bankers, lenders and treasury management officers who are established in their communities to enhance our market position and add profitable growth opportunities as needed. • Improving our digital presence and streamlining the customer experience.
The average deposit account balance, excluding brokered and public fund accounts, was $27,000 at December 31, 2023. We estimate that 20-25% of our retail customer deposit balances are over the $250,000 FDIC insurance limit, representing less than 5% of deposit customers. Management believes that maintaining a diversified deposit base is an important factor in managing liquidity.
The 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.
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.
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.
We enhanced our mobile banking platform, online account opening solutions, foreign exchange capabilities and are in the process of upgrading our business on-line banking platform. • Expanding our market presence and capturing business opportunities resulting from changes in the competitive environment.
We enhanced our mobile banking platform, online account opening solutions, foreign exchange capabilities and upgraded our business on-line banking platform. • Expanding our market presence and capturing business opportunities resulting from changes in the competitive environment.
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.
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.
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.
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.
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 approximate ly 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.
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 approximate ly 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.
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.
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.
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 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 Company also purchased loans totaling $83.1 million with the largest concentration of these loans located in California.
The Company also purchased loans totaling $88.9 million with the largest concentration of these loans located in California.
Nonperforming loans to total loans was 1.12% at December 31, 2023, an increase from 0.12% at December 31, 2022. At December 31, 2023, substantially all restructured loans were performing in accordance with their modified payment terms and returned to accrual status.
Nonperforming loans to total loans was 1.80% at December 31, 2024, an increase from 1.12% at December 31, 2023. 65 Table of Contents At December 31, 2024, substantially all restructured loans were performing in accordance with their modified payment terms and returned to accrual status.
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 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.
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 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 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.
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.
The Bank's balance sheet became more liability sensitive in 2023 due to slower loan prepayment speeds, driven by higher interest rates and deposit migration from non-maturity deposits to certificates of deposits with shorter average lives.
The 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.
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.
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.
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%.
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 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. Interest Income.
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. Interest Income.
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.
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.
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.
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.
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 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 $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 .
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 .
Actual Minimum Capital Requirements Minimum Required to be Well-Capitalized Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tier I leverage capital (to average assets) Bank only $ 214,049 9.9 % $ 86,508 4.0 % $ 108,135 5.0 % Common equity tier I (to risk-weighted assets) Bank only 214,049 13.1 73,407 4.5 106,032 6.5 Tier I risk-based capital (to risk-weighted assets) Bank only 214,049 13.1 97,876 6.0 130,501 8.0 Total risk-based capital (to risk-weighted assets) Bank only 230,163 14.1 130,501 8.0 163,127 10.0 Effect of Inflation and Changing Prices The consolidated financial statements and related financial data presented in this report have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.
Actual Minimum Capital Requirements Minimum Required to be Well-Capitalized Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tier I leverage capital (to average assets) Bank only $ 208,836 9.4 % $ 88,930 4.0 % $ 111,163 5.0 % Common equity tier I (to risk-weighted assets) Bank only 208,836 12.4 75,515 4.5 109,077 6.5 Tier I risk-based capital (to risk-weighted assets) Bank only 208,836 12.4 100,686 6.0 134,248 8.0 Total risk-based capital (to risk-weighted assets) Bank only 228,409 13.6 134,248 8.0 167,810 10.0 Effect of Inflation and Changing Prices The consolidated financial statements and related financial data presented in this report have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.
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.
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.
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.
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.
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.
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.
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.
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 strive to grow the balance sheet and leverage capital in a safe and sound manner and believe that lending opportunities outside of organic originations may be a valuable source of interest income. We increased our auto loan portfolio through our partnership involving the purchase of loans made to borrowers purchasing high-end automobiles and classic cars.
We strive to grow the balance sheet and leverage capital in a safe and sound manner and believe that lending opportunities outside of organic originations may be a valuable source of interest income. We increased our auto loan portfolio through our partnerships with Woodside and First Help.
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.
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.
We will continue to look for ways to improve operational efficiency. We realigned staff positions in 2022 to better meet organizational objectives, resulting in some workforce reductions. We believe that recent investments in technology may also provide opportunities to build efficiencies. Net interest income decreased substantially in 2023 as a result of accelerated funding costs.
We will continue to look for ways to improve operational efficiency. We realigned staff positions in 2022 to better meet organizational objectives, resulting in some workforce reductions. Additional workforce reductions were made in 2024. We believe that recent investments in technology may also provide opportunities to build efficiencies.
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.
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 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.
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.
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.
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.
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. Customer CDs due within one year as of December 31, 2023, totaled $349.4 million, or 53.7% of total CDs.
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. Customer CDs due within one year as of December 31, 2024, totaled $426.6 million, or 65.9% of total CDs.
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. 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.
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. 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.
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 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.
We also experienced a decrease in noninterest income, specifically in areas which are impacted by interest rates. We remain focused on building core noninterest income product lines, such as SBA and swap fees, and are pursuing new revenue channels related to payments while continuing to control noninterest expense. • Expanding offerings to small-to-medium sized business .
We remain focused on building core noninterest income product lines, such as SBA and swap fees, and are pursuing new revenue channels related to payments while continuing to control noninterest expense. • Expanding offerings to small-to-medium sized business . Another priority for the Company is expanding offerings for small-to-medium sized business with a focus on entrepreneurs.
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.
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.
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.
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. 64 Table of Contents 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.
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. The year-over-year decrease was the result of sales and normal amortization during the year, partially offset by purchases and an improved portfolio market value.
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. The year-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.
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. 72 Table of Contents Average Balances, Interest and Average Yields/Cost The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities.
The provision includes accruals for both federal and state income taxes. 69 Table of Contents Average Balances, Interest and Average Yields/Cost The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities.
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. 70 Table of Contents The following table details activity and information related to the allowance for credit losses on loans and reserve for unfunded commitments for the periods shown: Year Ended December 31, 2023 2022 (Dollars in thousands) Provision for credit losses on loans $ 2,357 $ 1,535 Charge offs net of recoveries (3,172 ) (543 ) Allowance for credit losses on loans 17,510 16,116 Allowance for credit losses on loans as a percentage of total gross loans receivable at the end of this period 1.05 % 1.04 % Total nonaccrual loans 18,644 1,796 Allowance for credit losses on loans as a percentage of nonaccrual loans at end of period 94 % 897 % Nonaccrual and 90 days or more past due loans as a percentage of total loans 1.12 % 0.12 % Total loans receivable $ 1,660,028 $ 1,547,551 Recapture of provision for credit losses on unfunded commitments $ (1,034 ) $ — Reserve for unfunded commitments 817 325 Unfunded loan commitments 149,631 225,836 Noninterest Income.
The following table details activity and information related to the allowance for credit losses on loans and reserve for unfunded commitments for the periods shown: Year Ended December 31, 2024 2023 (Dollars in thousands) Provision for credit losses on loans $ 16,716 $ 2,357 Charge offs net of recoveries (13,777 ) (3,172 ) Allowance for credit losses on loans 20,449 17,510 Allowance for credit losses on loans as a percentage of total gross loans receivable at the end of this period 1.21 % 1.05 % Total nonaccrual loans 30,515 18,644 Allowance for credit losses on loans as a percentage of nonaccrual loans at end of period 67 % 94 % Nonaccrual and 90 days or more past due loans as a percentage of total loans 1.80 % 1.12 % Total loans receivable $ 1,695,823 $ 1,660,028 Recapture of provision for credit losses on unfunded commitments $ (218 ) $ (1,034 ) Reserve for unfunded commitments 599 817 Unfunded loan commitments 163,827 149,631 Noninterest Income.
For the year ended December 31, 2023, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows. 76 Table of Contents Commitments and Off-Balance Sheet Arrangements The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of December 31, 2023: Amount of Commitment Expiration Within 1 Year After 1 Year Through 3 Years After 3 Years Through 5 Years Beyond 5 Years Total Amounts Committed (In thousands) Commitments to originate loans: Fixed-rate loans $ 220 $ — $ — $ — $ 220 Unfunded commitments under lines of credit 17,624 9,232 2,198 63,488 92,542 Unfunded commitments under existing construction loans 23,842 10,761 1,442 19,394 55,439 Unfunded commitments under existing maritime loans — — — 1,650 1,650 Standby letters of credit — — — 200 200 Unfunded commitments under partnership agreements 3,659 — — — 3,659 Total $ 45,345 $ 19,993 $ 3,640 $ 84,732 $ 153,710 Capital Resources First Northwest Bancorp is a financial holding company (a type of bank holding company) subject to regulation by the Federal Reserve.
For the year ended December 31, 2024, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows. 73 Table of Contents Commitments and Off-Balance Sheet Arrangements The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of December 31, 2024: Amount of Commitment Expiration Within 1 Year After 1 Year Through 3 Years After 3 Years Through 5 Years Beyond 5 Years Total Amounts Committed (In thousands) Unfunded commitments under lines of credit $ 18,030 $ 17,615 $ 5,789 $ 69,077 $ 110,511 Unfunded commitments under existing construction loans 19,079 8,975 — 23,662 51,716 Unfunded commitments under existing maritime loans — — — 1,600 1,600 Standby letters of credit 1,817 — — 200 2,017 Unfunded commitments under partnership agreements 3,158 — — — 3,158 Total $ 42,084 $ 26,590 $ 5,789 $ 94,539 $ 169,002 Capital Resources First Northwest Bancorp is a financial holding company (a type of bank holding company) subject to regulation by the Federal Reserve.
Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022 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.
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.
The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown: Year Ended December 31, 2023 2022 Average Balance Outstanding Yield Average Balance Outstanding Yield Increase/ (Decrease) in Interest Income (Dollars in thousands) Loans receivable, net $ 1,594,268 5.31 % $ 1,448,777 4.74 % $ 15,979 Investment securities 317,924 4.18 350,521 3.10 2,413 FHLB stock 12,035 7.31 8,540 5.88 378 Interest-earning deposits in banks 40,832 5.21 34,807 1.08 1,751 Total interest-earning assets $ 1,965,059 5.13 % $ 1,842,645 4.36 % $ 20,521 Interest Expense.
The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown: Year Ended December 31, 2024 2023 Average Balance Outstanding Yield Average Balance Outstanding Yield Increase/ (Decrease) in Interest Income (Dollars in thousands) Loans receivable, net $ 1,686,972 5.56 % $ 1,594,268 5.31 % $ 9,138 Investment securities 311,434 4.82 317,924 4.18 1,746 FHLB stock 12,986 9.36 12,035 7.31 335 Interest-earning deposits in banks 43,934 5.34 40,832 5.21 222 Total interest-earning assets $ 2,055,326 5.47 % $ 1,965,059 5.13 % $ 11,441 67 Table of Contents Interest Expense.
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.
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.
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.
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.
The following table details average balances, cost of funds and the change in interest expense for the periods shown: Year Ended December 31, 2023 2022 Average Balance Outstanding Rate Average Balance Outstanding Rate Increase/ (Decrease) in Interest Expense (Dollars in thousands) Interest-bearing transaction $ 178,577 0.45 % $ 193,064 0.07 % $ 659 Money market accounts 388,287 1.09 555,038 0.31 2,519 Savings accounts 243,300 1.24 197,707 0.08 2,854 Certificates of deposit, retail 369,480 3.39 194,743 1.07 10,430 Certificates of deposit, brokered 165,486 3.91 87,734 1.26 5,359 FHLB and other advances 249,172 4.36 163,198 2.29 7,130 Subordinated debt, net 39,395 4.01 39,312 4.01 1 Total interest-bearing liabilities $ 1,633,697 2.42 % $ 1,430,796 0.73 % $ 28,952 Provision for Credit Losses.
The following table details average balances, cost of funds and the change in interest expense for the periods shown: Year Ended December 31, 2024 2023 Average Balance Outstanding Rate Average Balance Outstanding Rate Increase/ (Decrease) in Interest Expense (Dollars in thousands) Interest-bearing transaction $ 165,097 0.47 % $ 178,577 0.45 % $ (19 ) Money market accounts 414,305 2.42 388,287 1.09 5,800 Savings accounts 223,505 1.57 243,300 1.24 493 Certificates of deposit, customer 428,630 4.16 369,480 3.39 5,318 Certificates of deposit, brokered 205,619 5.00 165,486 3.91 3,816 FHLB and other advances 264,948 4.53 249,172 4.36 1,145 Subordinated debt, net 39,475 4.00 39,395 4.01 — Total interest-bearing liabilities $ 1,741,579 3.22 % $ 1,633,697 2.42 % $ 16,553 Provision for Credit Losses.
The following table provides an analysis of the changes in the components of noninterest income for the periods shown: Year Ended December 31, Increase (Decrease) 2023 2022 Amount Percent (Dollars in thousands) Loan and deposit fees $ 4,341 $ 4,729 $ (388 ) (8.2 )% Sold loan servicing fees and servicing rights mark-to-market 676 867 (191 ) (22.0 ) Net gain on sale of loans 438 824 (386 ) (46.8 ) Net (loss) gain on sale of investment securities (5,397 ) 118 (5,515 ) (4,673.7 ) Increase in cash surrender value of bank-owned life insurance, net 928 916 12 1.3 Income from death benefit on bank-owned life insurance, net — 1,489 (1,489 ) (100.0 ) Other income 3,034 1,384 1,650 119.2 Total noninterest income $ 4,020 $ 10,327 $ (6,307 ) (61.1 )% Noninterest Expense.
The BOLI exchange and reinvestment transactions during 2024 resulted in an increase in the cash surrender value recorded for the year. 68 Table of Contents The following table provides an analysis of the changes in the components of noninterest income for the periods shown: Year Ended December 31, Increase (Decrease) 2024 2023 Amount Percent (Dollars in thousands) Loan and deposit fees $ 4,291 $ 4,341 $ (50 ) (1.2 )% Sold loan servicing fees and servicing rights mark-to-market 188 676 (488 ) (72.2 ) Net gain on sale of loans 312 438 (126 ) (28.8 ) Net loss on sale of investment securities (2,117 ) (5,397 ) 3,280 (60.8 ) Net gain on sale of premises and equipment 7,919 — 7,919 100.0 Increase in cash surrender value of bank-owned life insurance, net 1,179 928 251 27.0 Income from death benefit on bank-owned life insurance, net 1,536 — 1,536 100.0 Other (loss) income (694 ) 3,034 (3,728 ) (122.9 ) Total noninterest income $ 12,614 $ 4,020 $ 8,594 213.8 % Noninterest Expense.
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.
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.
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 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 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.
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.
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.
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.
(2) Interest earned on loans receivable includes net deferred costs of $561,000 for the year ended December 31, 2023, and net deferred fees of $1.7 million, including $377,000 of deferred fee income from SBA Paycheck Protection Plan loans, for the year ended December 31, 2022. (3) Includes interest-bearing deposits at other financial institutions.
(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. (3) Includes interest-bearing deposits at other financial institutions. (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.
For small-to-medium sized businesses, we believe there are multiple opportunities in payment processing for ACH, check, wire transfers, international payments and debit card interchange. In addition, we intend to build out our capabilities for accounts payable and receivable, payroll, merchant card acquisition and corporate card spend management solutions.
In addition, we intend to build out our capabilities for accounts payable and receivable, payroll, merchant card acquisition and corporate card spend management solutions.
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.
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.
Year Ended December 31, 2023 2022 Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Interest-earning assets: (Dollars in thousands) Loans receivable, net (1), (2) $ 1,594,268 $ 84,614 5.31 % $ 1,448,777 $ 68,635 4.74 % Total investment securities 317,924 13,279 4.18 350,521 10,866 3.10 FHLB dividends 12,035 880 7.31 8,540 502 5.88 Interest-earning deposits in banks 40,832 2,126 5.21 34,807 375 1.08 Total interest-earning assets (3) 1,965,059 100,899 5.13 1,842,645 80,378 4.36 Noninterest-earning assets 144,141 132,588 Total average assets $ 2,109,200 $ 1,975,233 Interest-bearing liabilities: Interest-bearing demand deposits $ 178,577 $ 796 0.45 $ 193,064 $ 137 0.07 Money market accounts 388,287 4,217 1.09 555,038 1,698 0.31 Savings accounts 243,300 3,019 1.24 197,707 165 0.08 Certificates of deposit, retail 369,480 12,520 3.39 194,743 2,090 1.07 Certificates of deposit, brokered 165,486 6,467 3.91 87,734 1,108 1.26 Total interest-bearing deposits (4) 1,345,130 27,019 2.01 1,228,286 5,198 0.42 FHLB and other advances 249,172 10,870 4.36 163,198 3,740 2.29 Subordinated debt, net 39,395 1,578 4.01 39,312 1,577 4.01 Total interest-bearing liabilities 1,633,697 39,467 2.42 1,430,796 10,515 0.73 Noninterest-bearing deposits (4) 278,123 335,646 Other noninterest-bearing liabilities 37,967 36,666 Total average liabilities 1,949,787 1,803,108 Average equity 159,413 172,125 Total average liabilities and equity $ 2,109,200 $ 1,975,233 Net interest income $ 61,432 $ 69,863 Net interest rate spread 2.71 3.63 Net earning assets $ 331,362 $ 411,849 Net interest margin (5) 3.13 3.79 Average interest-earning assets to average interest-bearing liabilities 120.3 % 128.8 % (1) The average loans receivable, net balances include nonaccrual loans.
Year Ended December 31, 2024 2023 Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Interest-earning assets: (Dollars in thousands) Loans receivable, net (1), (2) $ 1,686,972 $ 93,752 5.56 % $ 1,594,268 $ 84,614 5.31 % Total investment securities 311,434 15,025 4.82 317,924 13,279 4.18 FHLB dividends 12,986 1,215 9.36 12,035 880 7.31 Interest-earning deposits in banks 43,934 2,348 5.34 40,832 2,126 5.21 Total interest-earning assets (3) 2,055,326 112,340 5.47 1,965,059 100,899 5.13 Noninterest-earning assets 144,812 144,141 Total average assets $ 2,200,138 $ 2,109,200 Interest-bearing liabilities: Interest-bearing demand deposits $ 165,097 $ 777 0.47 $ 178,577 $ 796 0.45 Money market accounts 414,305 10,017 2.42 388,287 4,217 1.09 Savings accounts 223,505 3,512 1.57 243,300 3,019 1.24 Certificates of deposit, customer 428,630 17,838 4.16 369,480 12,520 3.39 Certificates of deposit, brokered 205,619 10,283 5.00 165,486 6,467 3.91 Total interest-bearing deposits (4) 1,437,156 42,427 2.95 1,345,130 27,019 2.01 FHLB and other advances 264,948 12,015 4.53 249,172 10,870 4.36 Subordinated debt, net 39,475 1,578 4.00 39,395 1,578 4.01 Total interest-bearing liabilities 1,741,579 56,020 3.22 1,633,697 39,467 2.42 Noninterest-bearing deposits (4) 252,600 278,123 Other noninterest-bearing liabilities 44,217 37,967 Total average liabilities 2,038,396 1,949,787 Average equity 161,742 159,413 Total average liabilities and equity $ 2,200,138 $ 2,109,200 Net interest income $ 56,320 $ 61,432 Net interest rate spread 2.25 2.71 Net earning assets $ 313,747 $ 331,362 Net interest margin (5) 2.74 3.13 Average interest-earning assets to average interest-bearing liabilities 118.0 % 120.3 % (1) The average loans receivable, net balances include nonaccrual loans.

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