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What changed in First Northwest Bancorp's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of First Northwest Bancorp's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+584 added−566 removedSource: 10-K (2026-03-12) vs 10-K (2025-03-13)

Top changes in First Northwest Bancorp's 2025 10-K

584 paragraphs added · 566 removed · 400 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

226 edited+50 added−73 removed158 unchanged
Biggest changeWhile we cannot prevent loans from becoming delinquent, we believe our monitoring and formal review processes provide us with the opportunity to better identify problem loans in a timely manner and to work with the borrower prior to the loan becoming delinquent. 13 Table of Contents The following table provides information on multi-family and commercial real estate loans by type at the dates indicated: December 31, 2024 2023 2022 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Non-owner occupied Multi-family $ 332,596 46.0 % $ 333,094 46.2 % $ 253,551 39.4 % Hospitality 63,611 8.8 69,076 9.6 48,387 7.5 Retail 51,065 7.1 53,368 7.4 56,701 8.8 Office building 50,819 7.0 54,743 7.6 60,541 9.4 Mixed use 20,772 2.9 18,180 2.5 19,022 3.0 Health care 19,027 2.6 11,972 1.7 12,208 1.9 Condominium 17,725 2.5 20,800 2.9 22,846 3.5 One-to-four family 9,877 1.4 11,699 1.6 13,378 2.1 Warehouse 7,114 1.0 8,262 1.1 8,954 1.4 Vehicle dealership 1,004 0.1 1,033 0.1 1,114 0.2 Other non-owner occupied 33,241 4.6 43,266 6.0 45,053 6.9 Total non-owner occupied 606,851 84.0 625,493 86.7 541,755 84.1 Owner occupied Health care 22,139 3.1 22,523 3.1 23,547 3.7 Office building 16,356 2.3 17,274 2.4 21,365 3.3 Warehouse 14,078 1.9 13,869 1.9 19,434 3.0 Retail 10,578 1.5 9,792 1.4 11,031 1.7 Mixed use 10,460 1.4 4,013 0.6 4,412 0.7 Vehicle dealership 10,229 1.4 11,005 1.5 8,820 1.4 One-to-four family 4,567 0.6 2,622 0.4 2,387 0.4 Hospitality 793 0.1 853 0.1 1,011 0.2 Condominium 789 0.1 870 0.1 938 0.1 Other owner-occupied 26,135 3.6 12,763 1.8 9,097 1.4 Total owner occupied 116,124 16.0 95,584 13.3 102,042 15.9 Summary by type Multi-family 332,596 46.0 333,094 46.2 253,551 39.4 Office building 67,175 9.3 72,017 10.0 81,906 12.7 Hospitality 64,404 8.9 69,929 9.7 49,398 7.7 Retail 61,643 8.6 63,160 8.8 67,732 10.5 Health care 41,166 5.7 34,495 4.8 35,755 5.6 Mixed use 31,232 4.3 22,193 3.1 23,434 3.7 Warehouse 21,192 2.9 22,131 3.0 28,388 4.4 Condominium 18,514 2.6 21,670 3.0 23,784 3.6 One-to-four family 14,444 2.0 14,321 2.0 15,765 2.5 Vehicle dealership 11,233 1.5 12,038 1.6 9,934 1.6 Other non-owner occupied 33,241 4.6 43,266 6.0 45,053 6.9 Other owner-occupied 26,135 3.6 12,763 1.8 9,097 1.4 Total multi-family and commercial real estate $ 722,975 100.0 % $ 721,077 100.0 % $ 643,797 100.0 % 14 Table of Contents If we foreclose on a commercial or multi-family real estate loan, the marketing and liquidation period can be a lengthy process with substantial holding costs.
Biggest changeWhile we cannot prevent loans from becoming delinquent, we believe our monitoring and formal review processes provide us with the opportunity to better identify problem loans in a timely manner and to work with the borrower prior to the loan becoming delinquent. 12 Table of Contents The following table provides information on multi-family and commercial real estate loans by type at the dates indicated: December 31, 2025 December 31, 2024 (dollars in thousands) Amount Percent Amount Percent Non-owner occupied Multi-family $ 288,529 41.7 % $ 332,596 46.0 % Hospitality 64,751 9.4 63,611 8.8 Retail 48,088 7.0 51,065 7.1 Office building 42,193 6.1 50,819 7.0 Health care 32,003 4.6 19,027 2.6 Mixed use 20,411 3.0 20,772 2.9 Condominium 17,495 2.5 17,725 2.5 One-to-four family 10,686 1.5 9,877 1.4 Warehouse 6,932 1.0 7,114 1.0 Vehicle dealership 974 0.1 1,004 0.1 Other non-owner occupied 44,036 6.4 33,241 4.6 Total non-owner occupied 576,098 83.3 606,851 84.0 Owner occupied Health care 21,473 3.1 22,139 3.1 Office building 17,329 2.5 16,356 2.3 Mixed use 11,882 1.7 10,460 1.4 Retail 11,191 1.6 10,578 1.5 Vehicle dealership 9,488 1.4 10,229 1.4 One-to-four family 8,921 1.3 4,567 0.6 Warehouse 6,761 1.0 14,078 1.9 Hospitality 669 0.1 793 0.1 Condominium 374 0.1 789 0.1 Other owner-occupied 27,026 3.9 26,135 3.6 Total owner occupied 115,114 16.7 116,124 16.0 Summary by type Multi-family 288,529 41.7 332,596 46.0 Hospitality 65,420 9.5 64,404 8.9 Office building 59,522 8.6 67,175 9.3 Retail 59,279 8.6 61,643 8.6 Health care 53,476 7.7 41,166 5.7 Mixed use 32,293 4.7 31,232 4.3 One-to-four family 19,607 2.8 14,444 2.0 Condominium 17,869 2.6 18,514 2.6 Warehouse 13,693 2.0 21,192 2.9 Vehicle dealership 10,462 1.5 11,233 1.5 Other non-owner occupied 44,036 6.4 33,241 4.6 Other owner-occupied 27,026 3.9 26,135 3.6 Total multi-family and commercial real estate $ 691,212 100.0 % $ 722,975 100.0 % 13 Table of Contents If we foreclose on a commercial or multi-family real estate loan, the marketing and liquidation period can be a lengthy process with substantial holding costs.
On March 25, 2021, the Company completed a private placement of $40.0 million of 3.75% fixed-to-floating rate subordinated notes due 2031 (the “Notes”) to certain qualified institutional buyers and institutional accredited investors. The net proceeds to the Company from the sale of the Notes were approximately $39.3 million after deducting placement agent fees and other offering expenses.
On March 25, 2021, the Company completed a private placement of $40.0 million of 3.75% fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and institutional accredited investors. The net proceeds to the Company from the sale of the Notes were approximately $39.3 million after deducting placement agent fees and other offering expenses.
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.
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.
The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S.
The Anti-Money Laundering Act of 2020 ("AMLA"), which amends the BSA, was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S.
As a result, it has been part of our strategy to originate and purchase loans outside of these areas in the counties surrounding the Puget Sound and elsewhere. As part of that strategy, we may purchase loans with different credit and underwriting criteria than those we originate directly. We sell residential first mortgage loans in the secondary market.
As a result, it has been part of our strategy to originate and purchase loans outside of these areas in the counties surrounding the Puget Sound and elsewhere. As part of that strategy, we may purchase loans with different credit and underwriting criteria than those we originate directly. We also sell residential first mortgage loans in the secondary market.
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.
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 focused on providing entrepreneurs with resources to help them succeed.
Under Washington corporate law, First Northwest Bancorp generally may not pay dividends if after that payment it would not be able to pay its liabilities as they become due in the usual course of business, or its total assets would be less than the sum of its total liabilities .
Under Washington corporate law, First Northwest generally may not pay dividends if after that payment it would not be able to pay its liabilities as they become due in the usual course of business, or its total assets would be less than the sum of its total liabilities .
A second $3.0 million investment was made in May 2022, bringing the Company's total investment in the Hero Fund to $6.0 million. In June 2024, First Northwest redeemed its investment in the Hero Fund and First Fed made a subsequent $6.0 million limited partnership investment in the same entity. The recorded investment was $6.0 million at December 31, 2024.
A second $3.0 million investment was made in May 2022, bringing the Company's total investment in the Hero Fund to $6.0 million. In June 2024, First Northwest redeemed its investment in the Hero Fund and First Fed made a subsequent $6.0 million limited partnership investment in the same entity. The recorded investment was $6.0 million at December 31, 2025.
This section provides a general overview of the federal and state regulatory framework applicable to First Northwest Bancorp and First Fed. The descriptions of laws and regulations included herein do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations.
This section provides a general overview of the federal and state regulatory framework applicable to First Northwest and First Fed. The descriptions of laws and regulations included herein do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations.
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.
First Northwest 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.
During 2022, First Northwest elected to be treated as a financial holding company (a type of bank holding company), allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities. Under the BHCA, First Northwest Bancorp is supervised by the Federal Reserve.
During 2022, First Northwest elected to be treated as a financial holding company (a type of bank holding company), allowing the Company to engage in non-banking activities that are financial in nature or incidental to financial activities. Under the BHCA, First Northwest is supervised by the Federal Reserve.
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%.
The minimum capital level requirements applicable to First Northwest 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%.
This regulation and oversight is generally intended to ensure that First Northwest Bancorp limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of First Fed.
This regulation and oversight is generally intended to ensure that First Northwest limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of First Fed.
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.
Under the Dodd-Frank Act and Federal Reserve policy, a bank holding company must 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.
If the borrower is a corporation, we generally require and obtain personal guarantees from principals, which include underwriting of their personal financial statements, tax returns, cash flows and individual credit reports, to provide us with additional support and a secondary source for repayment of the debt. 12 Table of Contents We offer both fixed- and adjustable-rate loans on commercial and multi-family real estate, which may include balloon payments.
If the borrower is a corporation, we generally require and obtain personal guarantees from principals, which include underwriting of their personal financial statements, tax returns, cash flows and individual credit reports, to provide us with additional support and a secondary source for repayment of the debt. 11 Table of Contents We offer both fixed- and adjustable-rate loans on commercial and multi-family real estate, which may include balloon payments.
In some cases, general contractors may be required to provide sub-contractor lien releases for any work performed prior to the filing of our deed of trust or prior to each construction loan advance. 15 Table of Contents Land acquisition, development and construction loans are available to local contractors and developers for the purpose of holding and/or developing residential building sites and homes when market conditions warrant such activity.
In some cases, general contractors may be required to provide sub-contractor lien releases for any work performed prior to the filing of our deed of trust or prior to each construction loan advance. 14 Table of Contents Land acquisition, development and construction loans are available to local contractors and developers for the purpose of holding and/or developing residential building sites and homes when market conditions warrant such activity.
First Fed is required to maintain minimum levels of regulatory capital and is subject to some limitations on the payment of dividends to First Northwest Bancorp. See "– Capital Requirements" and "– Dividends." Federal and State Enforcement Authority and Actions .
First Fed is required to maintain minimum levels of regulatory capital and is subject to some limitations on the payment of dividends to First Northwest. See "– Capital Requirements" and "– Dividends." Federal and State Enforcement Authority and Actions .
As a bank holding company, First Northwest Bancorp is required to file semi-annual and annual reports with the Federal Reserve and any additional information required by the Federal Reserve and is subject to regular examinations by the Federal Reserve.
As a bank holding company, First Northwest is required to file semi-annual and annual reports with the Federal Reserve and any additional information required by the Federal Reserve and is subject to regular examinations by the Federal Reserve.
At December 31, 2024, First Fed was categorized as "well capitalized." For additional information, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. Capital Requirements . Federal regulations require insured depository institutions and bank holding companies (including financial holding companies) to meet several minimum capital standards.
At December 31, 2025, First Fed was categorized as "well capitalized." For additional information, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. Capital Requirements . Federal regulations require insured depository institutions and bank holding companies (including financial holding companies) to meet several minimum capital standards.
This regulation of First Fed is intended for the protection of depositors and the deposit insurance fund ("DIF") of the FDIC and not for the purpose of protecting the shareholder(s) of First Fed or First Northwest Bancorp.
This regulation of First Fed is intended for the protection of depositors and the deposit insurance fund ("DIF") of the FDIC and not for the purpose of protecting the shareholder(s) of First Fed or First Northwest.
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.
In-house and direct lending sources have been used to originate auto loans in prior years. 17 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.
The Bank purchased $3.7 million of loans after the change in criteria was made and has experienced losses totaling $556,000 related to this group of loans. Purchases of Splash loans were suspended in August 2023. Consumer loans represent additional risks because of the mobility and rapidly depreciating nature of consumer assets in contrast to real estate-based collateral.
The Bank purchased $3.7 million of loans after the change in criteria was made and has experienced losses totaling $778,000 related to this group of loans. Purchases of Splash loans were suspended in August 2023. Consumer loans represent additional risks because of the mobility and rapidly depreciating nature of consumer assets in contrast to real estate-based collateral.
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.
In September 2022, the Company completed an additional purchase and holds a 33% interest in MWG valued at $2.8 million at December 31, 2025. 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.
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.
At December 31, 2025, 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.
Numerous changes to the statutes, regulations, and regulatory policies applicable to First Northwest Bancorp and First Fed have been made or proposed in recent years. Any such legislation or regulatory changes in the future by the FDIC, DFI, Federal Reserve or the CFPB could adversely affect our operations and financial condition. Regulation of First Fed Bank General .
Numerous changes to the statutes, regulations, and regulatory policies applicable to First Northwest and First Fed have been made or proposed in recent years. Any such legislation or regulatory changes in the future by the FDIC, DFI, Federal Reserve or the CFPB could adversely affect our operations and financial condition. Regulation of First Fed General .
We also purchase auto loans through a partnership with First Help Financial, a loan originator that operates in selected states, underwriting and funding loans to "superior subprime" customers who have a demonstrated capacity to pay and have limited or no blemishes on their credit report, but have limited credit experience.
We have also purchased auto loans through a partnership with First Help Financial, a loan originator that operates in selected states, underwriting and funding loans to "superior subprime" customers who have a demonstrated capacity to pay and have limited or no blemishes on their credit report, but have limited credit experience.
The population of the Puget Sound region beyond our current market area is approximately 2.4 million, or 29.5% of the state's population. The market area is a mix of urban, suburban and rural areas, with the Seattle metropolitan area representing a well-developed urban center.
The population of the Puget Sound region beyond our current market area is approximately 2.4 million, or 29.3% of the state's population. The market area is a mix of urban, suburban and rural areas, with the Seattle metropolitan area representing a well-developed urban center.
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.
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, 2025.
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 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 December 31, 2025 and 2024.
First Fed is subject to consumer protection regulations issued by the CFPB, but as a smaller financial institution, it is generally subject to supervision and enforcement by the FDIC and the DFI with respect to our compliance with consumer financial protection laws and CFPB regulations.
First Fed is subject to consumer protection regulations issued by the CFPB, but as a smaller financial institution, it is generally subject to supervision and enforcement by the FDIC with respect to our compliance with federal consumer financial protection laws and CFPB regulations.
These various laws and regulatory policies may affect First Northwest Bancorp’s ability to pay dividends or otherwise engage in capital distributions. Recent and Proposed Legislation. The economic and political environment of the past several years has led to a number of proposed legislative, governmental, and regulatory initiatives that may significantly impact the banking industry.
These various laws and regulatory policies may affect First Northwest’s ability to pay dividends or otherwise engage in capital distributions. Recent and Proposed Legislation. The economic and political environment of the past several years has led to a number of proposed legislative, governmental, and regulatory initiatives that may significantly impact the banking industry.
In that regard, our corporate mission, vision, and values are designed to promote commitment to making the lives of all those around us better and to uphold that principle in everything we do. That commitment has been a pillar in our approach to our employees and the communities we have proudly served for over 100 years.
In that regard, our corporate mission, vision, and values are designed to promote commitment to making the lives of all those around us better and to uphold that principle in everything we do. That commitment has been a pillar in our approach to our team members and the communities we have proudly served for over 100 years.
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.
As of December 31, 2025, First Northwest 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.
Future changes to the interchange fee cap could have a negative effect on the Bank’s fee revenue. Restrictions on Dividends . First Northwest Bancorp's ability to declare and pay dividends is subject to the Federal Reserve limits and Washington law, and may also depend on its ability to receive dividends from First Fed, as discussed above.
Future changes to the interchange fee cap could have a negative effect on the Bank’s fee revenue. Restrictions on Dividends . First Northwest's ability to declare and pay dividends is subject to the Federal Reserve limits and Washington law, and may also depend on its ability to receive dividends from First Fed, as discussed above.
First Fed is required to have certain reserves set by the Federal Reserve and is a member of the Federal Home Loan Bank of Des Moines ("FHLB"), which is one of the 11 regional banks in the Federal Home Loan Bank System ("FHLB System"). First Fed Bank is a community-oriented financial institution founded in 1923 in Port Angeles, Washington.
First Fed is required to have certain reserves set by the Federal Reserve and is a member of the Federal Home Loan Bank of Des Moines ("FHLB"), which is one of the 11 regional banks in the Federal Home Loan Bank System ("FHLB System"). First Fed is a community-oriented commercial bank founded in 1923 in Port Angeles, Washington.
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’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.
All individuals that guarantee $3.0 million or more in aggregate commercial debt of any type are subject to annual financial reviews. We purchase unsecured commercial loans to small businesses and professionals through a partnership with Bankers Healthcare Group, who underwrites and funds these loans. At December 31, 2024, $21.1 million of purchased loans were included in commercial business loans.
All individuals that guarantee $3.0 million or more in aggregate commercial debt of any type are subject to annual financial reviews. We purchase unsecured commercial loans to small businesses and professionals through a partnership with Bankers Healthcare Group, who underwrites and funds these loans. At December 31, 2025, $21.6 million of purchased loans were included in commercial business loans.
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.
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"). 19 Table of Contents Lending Authority.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to senior officers other than for certain specified purposes. Insurance of Accounts and Regulation by the FDIC .
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to senior officers other than for certain specified purposes. 39 Table of Contents Insurance of Accounts and Regulation by the FDIC .
Adjustable-rate multi-family residential and commercial real estate loans are generally priced to market indices with appropriate margins, which may include The Wall Street Journal prime rate, the U.S. Constant Maturity Treasury Rate, or a similar term FHLB borrowing rate. Adjustable-rate loans could have increased credit risk when interest rates rise.
Adjustable-rate multi-family residential and commercial real estate loans are generally priced to market indices with appropriate margins, which may include The Wall Street Journal prime rate, the U.S. Constant Maturity Treasury Rate, Term Secured Overnight Financing Rate ("TSOFR"), or a similar term FHLB borrowing rate. Adjustable-rate loans could have increased credit risk when interest rates rise.
In keeping with that culture, we strive to be a force for good in everyday life and expect our employees to treat each other and our customers with the highest level of care and respect, going out of their way to do the right thing.
In keeping with that culture, we strive to be a force for good in everyday life and expect our team members to treat each other and our customers with the highest level of care and respect, going out of their way to do the right thing.
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.
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.
We dedicate resources to promote a safe and inclusive workplace; attract, develop, and retain a diverse group of talented employees; promote a culture of integrity, caring, and excellence; and reward and recognize employees for both the results they deliver and, just as importantly, how they deliver them.
We dedicate resources to promote a safe and inclusive workplace; attract, develop, and retain a diverse group of talented team members; promote a culture of integrity, caring, and excellence; and reward and recognize team members for both the results they deliver and, just as importantly, how they deliver them.
The primary employers in Clallam County include the Olympic Medical Center, Peninsula College, the Port Angeles School District, Clallam County government, Jamestown S'Klallam Tribe, Clallam Bay Corrections Center, and the Westport Shipyard. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Clallam County was 5.9% at December 31, 2024, compared to 6.3% at December 31, 2023.
The primary employers in Clallam County include the Olympic Medical Center, Peninsula College, the Port Angeles School District, Clallam County government, Jamestown S'Klallam Tribe, Clallam Bay Corrections Center, and the Westport Shipyard. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Clallam County was 6.0% at December 31, 2025, compared to 5.9% at December 31, 2024.
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.
The composition and contractual maturities of our investment portfolio at December 31, 2025, excluding FHLB stock, are indicated in the following table. The yields on municipal bonds have not been computed on a tax equivalent basis.
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.
The average outstanding loan amount in our commercial real estate portfolio, including multi-family loans, was $1.6 million as of December 31, 2025. 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.
Construction loan advances are based on progress payments for "work in place" based on detailed line-item construction budgets. Independent construction inspectors are used to evaluate the construction draw request relative to the progress. Our construction administrator reviews all construction projects, inspection reports, and construction loan advance requests to ensure they are appropriate and in compliance with all loan conditions.
Construction loan advances are based on progress payments for "work in place" based on detailed line-item construction budgets. Independent construction inspectors are used to evaluate the construction draw request relative to the progress. Our construction administrators review all construction projects, inspection reports, and construction loan advance requests to ensure they are appropriate and in compliance with all loan conditions.
Changes in statutes, regulations, or regulatory policies applicable to First Northwest Bancorp and First Fed (including their interpretation or implementation) cannot be predicted and could have a material effect on First Northwest Bancorp’s and First Fed’s business and operations.
Changes in statutes, regulations, or regulatory policies applicable to First Northwest and First Fed (including their interpretation or implementation) cannot be predicted and could have a material effect on First Northwest’s and First Fed’s business and operations.
Auto loans have a maximum term of up to 180 months for purchased classic and collector vehicles, up to 96 months for indirect auto loans, and up to 84 months for all other auto loans, depending on the age and condition of the vehicle and strength of the borrower.
Auto loans have a maximum term of up to 180 months for purchased classic or collector vehicles and up to 84 months for all other auto loans, depending on the age and condition of the vehicle and strength of the borrower.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be considered in evaluating capital adequacy and provides supervisory criteria that identifies institutions that are potentially exposed to significant commercial real estate concentration risk, but does not specifically limit a bank’s commercial real estate lending to a specified concentration level.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be considered in evaluating capital adequacy and provides supervisory criteria that identifies institutions that are potentially exposed to significant commercial real estate concentration risk, but does not specifically limit a bank’s commercial real estate lending to a specified concentration level. 41 Table of Contents Privacy Standards .
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.
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, 2025, the average interest rate on our adjustable-rate mortgage loans was approximately 170 basis points under the fully indexed rate.
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 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.
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.
Historically, losses on these types of loans have been less than 2% and First Fed experienced a loss rate of 1.18% and 0.36%, respectively, for each of the years ended December 31, 2025 and 2024.
The primary employers in Jefferson County include Port Townsend Paper, Jefferson Healthcare, Port Townsend School District, the Port Authority of Port Townsend and related marine trade, and the Jefferson County government. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Jefferson County was 5.5% at December 31, 2024, compared to 5.8% at December 31, 2023.
The primary employers in Jefferson County include Port Townsend Paper, Jefferson Healthcare, Port Townsend School District, the Port Authority of Port Townsend and related marine trade, and the Jefferson County government. According to the U.S. Bureau of Labor Statistics, the unemployment rate for Jefferson County was 6.1% at December 31, 2025, compared to 5.5% at December 31, 2024.
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.
The general objective of our investment portfolio is to provide liquidity, generate earnings, and manage risk. These risks include credit, reinvestment, liquidity and interest rate risks. Securities.
Interest received on loans secured by mortgages or deeds of trust on residential properties and certain investment securities are exempt from this tax.
Interest received on loans secured by mortgages or deeds of trust on residential properties and certain investment securities are exempt from this tax. 45 Table of Contents
Loans are submitted on a weekly flow basis or as one-off pools. All loans are considered “full doc” and complete packages are reviewed to determine if the loan will be purchased or not.
Loans are submitted on a weekly flow basis or as one-off pools. All loans are considered "full document" and complete packages are reviewed to determine if the loan will be purchased or not.
For additional information, see the section above entitled "- Regulation of First Fed Bank - Capital Regulation" and Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. Interstate Banking .
For additional information, see the section above entitled "- Regulation of First Fed - Capital Requirements" and Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. 43 Table of Contents Interstate Banking .
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.
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, 2025, we had $1.4 million of repossessed real property owned and no personal property.
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.
We purchase manufactured home loans through a partnership with Triad Financial Services, a loan originator that underwrites and funds these loans. At December 31, 2025, $132.3 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.
This region dominates the economy of the Pacific Northwest and is broadly defined as the area surrounding the Puget Sound that extends into the northwestern quadrant of the state of Washington. Our current market area, described previously, has a population of 2.9 million, or 36.3% of the state's population.
This region dominates the economy of the Pacific Northwest and is broadly defined as the area surrounding the Puget Sound that extends into the northwestern quadrant of the state of Washington. Our current market area, described previously, has a population of 3.0 million, or 37.1%, of the state's population.
According to the U.S. Bureau of Labor Statistics, the unemployment rate for Whatcom County was 4.6% at December 31, 2024, compared to 5.1% at December 31, 2023. King County, which includes the City of Seattle, has a population of approximately 2.3 million and estimated median family income of $122,148.
According to the U.S. Bureau of Labor Statistics, the unemployment rate for Whatcom County was 5.2% at December 31, 2025, compared to 4.6% at December 31, 2024. King County, which includes the City of Seattle, has a population of approximately 2.3 million and estimated median family income of $124,746.
Through its current policy, the Board delegates lending authority to the Bank’s management and staff and to the Senior Loan Committee ("SLC"). Overdrafts and small business express loans require one signature.
Through its current policy, the Board delegates lending authority to the Bank’s management and staff and to the Senior Loan Committee ("SLC"). Overdrafts require one signature.
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.
First Fed, however, restricts its loans to one borrower to no more than 75% 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 $40.5 million at December 31, 2025. The following table provides a summary of our five largest relationships at December 31, 2025.
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.
In addition to nonperforming assets set forth in the table above, as of December 31, 2025, there were 45 loans totaling $29.9 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.
(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.
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. 26 Table of Contents Allowance for Credit Losses on Loans . The allowance for credit losses on loans was $17.0 million, or 1.04% of total loans, at December 31, 2025, compared to $20.5 million, or 1.21%, at December 31, 2024.
Key employment sectors include aerospace, military, information technology, biotechnology, education, logistics, international trade, and tourism. The region is well known for the long-term presence of The Boeing Company and Microsoft, two major industry leaders, and since the turn of the century, Amazon. The military presence includes a number of large installations serving the U.S. Air Force, Army and Navy.
Key employment sectors in the Puget Sound region include aerospace, military, information technology, biotechnology, education, logistics, international trade, and tourism. The region is well known for the long-term presence of Boeing and Microsoft, two major industry leaders, and since the turn of the century, Amazon. The military presence includes a number of large installations serving the U.S.
The recorded investment in MWG was $2.8 million at December 31, 2024. Competition We face competition in originating loans from other banks, credit unions, life insurance companies, mortgage bankers, public and private capital markets, and digital lenders.
The recorded investment in MWG was $3.0 million at December 31, 2025. Competition We face competition in originating loans from other banks, credit unions, life insurance companies, mortgage bankers, public and private capital markets, and digital lenders.
We offer traditional consumer and business deposit products, including transact ion accounts, savings and money market accounts and certificates of deposit ("CDs") for individuals and businesses. Deposits are our primary source of funding for our lending and investing activities. First Fed has a limited partnership investment in Canapi Ventures SBIC Fund II, LP.
We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts and certificates of deposit ("CDs" or "term certificates") 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.
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.
As of December 31, 2025, our deposit with the Federal Reserve Bank of San Francisco and vault cash exceeded our reserve requirements. 34 Table of Contents Borrowings.
Clallam County has a population of approximately 77,616 and estimated median family income of $67,999. The economic base in Clallam County is dependent on government, healthcare, education, tourism, marine services, forest products, agriculture, and technology industries.
Clallam County has a population of approximately 77,958 and estimated median family income of $70,370. The economic base in Clallam County is dependent on government, healthcare, education, tourism, marine services, forest products, agriculture, and technology industries.
Kitsap County has a population of approximately 277,658 and estimated median family income of $98,546. The economic base of Kitsap County is largely supported by the United States Navy through personnel stationed at Kitsap Naval Base along with other employers supporting the military. Private industries that support the economic base are healthcare, retail and tourism.
Kitsap County has a population of approximately 281,420 and estimated median family income of $104,158. The economic base of Kitsap County is largely supported by the United States Navy through personnel stationed at Kitsap Naval Base along with other employers supporting the military. Private industries that support the economic base are healthcare, retail and tourism.
Failure to comply with these laws and regulations can subject First Fed to various penalties including, but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of certain contractual rights. First Fed has established a comprehensive compliance system to ensure consumer protection. Regulation and Supervision of First Northwest Bancorp General.
Failure to comply with these laws and regulations can subject First Fed to various penalties including, but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of certain contractual rights. First Fed has established a comprehensive compliance system to promote compliance with applicable consumer protection laws and regulations.
Washington law imposes loans to one borrower restrictions limiting total loans and extensions of credit by a bank to 20% of its unimpaired capital and surplus, resulting in a legal limit of $45.7 million at December 31, 2024.
Washington law imposes loans to one borrower restrictions limiting total loans and extensions of credit by a bank to 20% of its unimpaired capital and surplus, resulting in a legal limit of $43.2 million at December 31, 2025.
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.
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, 2025 and 2024, we sold $24.6 million and $22.5 million of residential mortgage loans, respectively.
Item 1. Business General First Northwest Bancorp, a Washington corporation, is a bank holding company and a financial holding company. First Northwest is engaged in banking activities through its wholly owned subsidiary, First Fed Bank, as well as certain non-banking financial activities.
Item 1. Business General First Northwest, a Washington corporation, is a bank holding company and a financial holding company. First Northwest is engaged in banking activities through its wholly owned subsidiary, First Fed, as well as certain non-banking financial activities. Non-banking investments include several limited partnership investments.
The average loan balance was $94,000 at December 31, 2024. These loans present unique risks with the collateral being located across the country; however, our loan originator mitigates risk of loss by providing an option to facilitate the collection efforts should repossession become necessary, for which we would incur a cost if we did it ourselves.
These loans present unique risks with the collateral being located across the country; however, our loan originator mitigates risk of loss by providing an option to facilitate the collection efforts should repossession become necessary, for which we would incur a cost if we did it ourselves.
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.
Bureau of Labor Statistics, the unemployment rate for King County was 4.9% at December 31, 2025, compared to 3.8% at December 31, 2024. 7 Table of Contents As a part of our business plan, we intend to extend our traditional and digital operations in the Puget Sound Region.
Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income or expense at the time of prepayment or sale. Net deferred loan fees included in net loans receivable on the balance sheet totaled $1.3 million, $1.9 million, and $2.8 million at December 31, 2024, 2023, and 2022, respectively.
Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income or expense at the time of prepayment or sale. Net deferred loan fees included in net loans receivable on the balance sheet totaled $551,000 and $1.3 million at December 31, 2025 and 2024, respectively.
The Director of Mortgage and Consumer Credit has approval authority of $1.0 million, and the CCO has approval authority of $2.0 million. Mortgage loans over $2.0 million are approved by the SLC. For commercial loans, the CCO has approval authority of $10.0 million based on aggregate credit exposure, and other personnel have approval authority ranging from $500,000 to $4.0 million.
For commercial loans, the CCO has approval authority of $10.0 million based on aggregate credit exposure, and other personnel have approval authority ranging from $500,000 to $4.0 million. Commercial loan relationships over $10.0 million are approved by the SLC.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFirst 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.
Biggest changeAt December 31, 2025, we had $9.8 million of nonperforming commercial real estate loans in our portfolio. We have a concentration of large loans outstanding to a limited number of borrowers that increases our risk of loss. First Fed has extended significant amounts of credit to borrowers connected with high-end residential real estate and commercial and multi-family real estate loans.
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.
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, among other things, (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.
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.
First Northwest 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.
Also, our interest rate risk modeling techniques and assumptions likely will not fully predict or capture the impact of actual interest rate changes on our balance sheet. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset and Liability Management and Market Risk," in this Form 10-K for additional information.
Further, our interest rate risk modeling techniques and assumptions likely will not fully predict or capture the impact of actual interest rate changes on our balance sheet. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset and Liability Management and Market Risk," in this Form 10-K for additional information.
Land loans include raw land and land acquisition and development loans. Construction and land development lending generally involves additional risks when compared with permanent residential lending because funds are advanced upon estimates of costs in relation to values associated with the completed project that will produce a future value at completion.
Land loans include raw land and land acquisition and development loans. 49 Table of Contents Construction and land development lending generally involves additional risks when compared with permanent residential lending because funds are advanced upon estimates of costs in relation to values associated with the completed project that will produce a future value at completion.
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.
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.
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.
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 business, financial condition and results of operations. 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.
Interest Rates, Operations and Risk Management We are subject to interest rate risk. Our earnings and cash flows are largely dependent on our net interest income. Interest rates are highly sensitive to many factors beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve.
Interest Rates, Operations and Risk Management We are subject to interest rate risk, which could adversely affect our earnings . Our earnings and cash flows are largely dependent on our net interest income. Interest rates are highly sensitive to many factors beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve.
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.
The Federal Reserve decreased the federal funds target rate beginning in September 2024, with the most recent decrease occurring in December 2025. When the Federal Reserve Board decreases the Fed Funds rate, overall interest rates are likely to fall, which may positively impact housing markets by increasing refinancing activity and new home purchases.
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.
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 events out of our control could harm our business.
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.
We currently have investments in Canapi Venture, BankTech Ventures, LP and JAM FINTOP Frontier Fund, 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.
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.
At December 31, 2025, $461.8 million, or 28.4% 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.
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.
If our real estate owned is not properly valued or declines further in value, our earnings could be reduced. We update our valuation assessments 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.
Over the past seven years, we have opened four new full-service branches and two business centers. We also acquired a branch from another financial institution in 2021.
Over the past eight years, we have opened four new full-service branches and three business centers. We also acquired a branch from another financial institution in 2021.
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.
Under its current policy, First Fed has elected to restrict its loans to one borrower to no more than 75% of the Bank's lending limit, which is adjusted quarterly and was $40.5 million at December 31, 2025, unless specifically approved by the Senior Loan Committee as an exception to policy.
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.
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, financial condition and results of operations.
Decreased volumes and lower gains on sales of loans could adversely impact our noninterest income. We originate and sell one-to-four family mortgage loans. Our mortgage banking income is a significant portion of our noninterest income. We generate gains on the sale of one-to-four family mortgage loans pursuant to programs currently offered by Freddie Mac and other secondary market investors.
We originate and sell one-to-four family mortgage loans. Our mortgage banking income is a significant portion of our noninterest income. We generate gains on the sale of one-to-four family mortgage loans pursuant to programs currently offered by Freddie Mac and other secondary market investors.
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 DIF.
As an institution’s concentration in commercial real estate lending increases, it becomes subject to more scrutiny under the FDIC's policies for management of its commercial real estate loan portfolio. Our increased focus on this type of lending has increased our risk profile.
We intend to continue, subject to market demand, our origination and purchase of commercial real estate loans. As an institution’s concentration in commercial real estate lending increases, it becomes subject to more scrutiny under the FDIC's policies for management of its commercial real estate loan portfolio. Our focus on this type of lending has increased our risk profile.
In addition, our results of operations are affected by the amount of noninterest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs.
This would result in a decrease in mortgage banking revenues and a corresponding decrease in noninterest income. In addition, our results of operations are affected by the amount of noninterest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs.
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, 2025, we had $130.3 million, or 8.0% 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.
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.
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.
Public health crises, domestic or geopolitical crises, such as the current wars in Ukraine and the Middle East, political instability or civil unrest, terrorism, human error or other events outside of our control, could cause disruptions to our business or the United States' economy, resulting in potentially adverse operating results.
Public health crises, domestic or geopolitical crises, such as the current wars in Ukraine and the Middle East, political instability or civil unrest, terrorism or other events outside of our control, could cause disruptions to our business and those of our customers, counterparties and service providers or the U.S.' economy, resulting in potentially adverse operating results.
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.
At December 31, 2025 , $141.9 million of our consumer, $24.0 million of our comm ercial real estate , and $13.3 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.
Item 1A. Risk Factors. Economy and Our Markets Adverse economic conditions in market areas we serve could adversely impact our earnings and could increase the credit risk associated with our loan portfolio. A significant portion of our loans are to businesses and individuals in the state of Washington.
Economy and Our Markets Our business and operations are concentrated in Washington, and adverse economic conditions in that area could adversely impact our earnings and could increase the credit risk associated with our loan portfolio. A significant portion of our loans are to businesses and individuals in the state of Washington.
Chronic results of climate change such as shifting weather patterns could also cause disruption to the business and operations of our customers, with potentially negative effects on our loan portfolio and growth opportunities.
Climate change may worsen the severity and impact of future natural disasters and other extreme weather-related events that could cause disruption to our business and operations. Chronic results of climate change such as shifting weather patterns could also cause disruption to the business and operations of our customers, with potentially negative effects on our loan portfolio and growth opportunities.
Factors that could detrimentally impact our access to liquidity sources include actions by the FRB, a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated, negative operating results, or adverse regulatory action against us.
Our liquidity position could be significantly constrained if we were unable to access funds from the FHLB or other wholesale funding sources. 46 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.
The current elevated interest rate environment has increased competition for deposits across the banking industry, and deposit balances may decrease if customers perceive alternative investments as providing a better risk/return tradeoff.
The interest rate environment impacts competition for deposits across the banking industry, and deposit balances may decrease if customers perceive alternative investments as providing a better risk/return tradeoff or if customers turn to other alternatives to deposits, such as stablecoins.
Accordingly, any new branch or lending center may negatively impact our earnings for some period of time until the office reaches certain economies of scale, and there is a risk that our new offices will not be successful even after they have been established. We may also expand our digital footprint through partnerships with and investments in fintech companies.
Accordingly, any new branch or lending center may negatively impact our earnings for some period of time until the office reaches certain economies of scale, and there is a risk that our new offices will not be successful even after they have been established. For example, the branch acquired in 2021 will be closed effective April 30, 2026.
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.
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. 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.
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.
During the year ended December 31, 2025, our construction and land loans decreased $16.8 million, or 21.6%, to $61.3 million, or 3.8%, of the total loan portfolio at December 31, 2025 and consisted of properties secured by commercial real estate of $23.0 million, one-to-four family residential of $22.0 million, multi-family of $10.1 million, and land of $6.2 million.
While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers.
Our security measures may not protect us from systems failures or interruptions. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies, non-fungible tokens, and other digital assets.
Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies, non-fungible tokens, and other digital assets.
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.
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. Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our business, financial condition and results of operations.
Any future changes in their purchase programs, our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially adversely affect our results of operations.
Any future changes in their purchase programs, our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially adversely affect our results of operations. 55 Table of Contents Further, in a rising or higher interest rate environment, our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors.
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 may also expand our digital footprint through technology or partnerships. The new technology and companies we invest in may not be as successful as anticipated or may fail, resulting in a total loss of our related investment. 59 Table of Contents The price of our common stock may be volatile or may decline.
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.
Significant charge-offs to our real estate owned could have a material adverse effect on our financial condition and results of operations. 52 Table of Contents 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.
We may evaluate supplementing organic growth by acquiring other financial institutions or their businesses that we believe will help us fulfill our strategic objectives and enhance our earnings.
Our consideration of whole bank, branch acquisitions, or fintech partnerships in the future may expose us to financial, execution and operational risks that could adversely affect us. We may evaluate supplementing organic growth by acquiring other financial institutions or their businesses that we believe will help us fulfill our strategic objectives and enhance our earnings.
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.
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. 57 Table of Contents We are subject to laws regarding the privacy, information security, and protection of personal information, and any violation of these laws or other incidents involving personal, confidential, or proprietary information of individuals could damage our reputation and otherwise adversely affect our business.
If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer and consumer information through various third-party vendors and their personnel.
In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. If our third-party providers encounter difficulties, we have difficulty in communicating with them, or they terminate their services our ability to adequately process and account for transactions, among other things, could be affected, and our business operations could be adversely impacted.
Natural disasters may disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate. Climate change may worsen the severity and impact of future natural disasters and other extreme weather-related events that could cause disruption to our business and operations.
Natural disasters may disrupt our operations and those of our customers, counterparties and service providers, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate.
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.
As these technologies improve in the future, we may be required to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have an adverse effect on our business, financial condition, and results of operations. 48 Table of Contents Credit and Asset Quality Our emphasis on commercial real estate lending subjects us to various risks that could adversely impact our results of operations and financial condition.
Additionally, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Competitors in these nonbank sectors may have fewer regulatory constraints, as well as lower cost structures.
For example, financial technology companies and other firms have begun to offer services such as stablecoins that may serve as alternatives to traditional banking products such as deposits. Additionally, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.
These delays may adversely affect our ability to limit our credit losses. Regulatory Matters Our lending limit may restrict our growth. Washington law provides that Washington chartered commercial banks are subject to loans-to-one-borrower restrictions, which generally restrict total loans and extensions of credit by a bank to 20% of its unimpaired capital and surplus.
Washington law provides that Washington chartered commercial banks are subject to loans-to-one-borrower restrictions, which generally restrict total loans and extensions of credit by a bank to 20% of its unimpaired capital and surplus. As a result, under Washington law, First Fed would be limited to loans to one borrower of $43.2 million at December 31, 2025.
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.
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.
Significant charge-offs to our real estate owned could have a material adverse effect on our financial condition and results of operations. We operate in a highly competitive industry. We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources. These competitors primarily include national, regional, community and digital banks within the various markets in which we operate.
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.
Although none of the loans to First Fed's 20 largest borrowers were nonperforming as of December 31, 2025, concentration of credit to a limited number of borrowers increases the risk in First Fed's loan portfolio. The deterioration of one or a few of these loans may cause a significant increase in our non-performing loans.
We rely heavily on the efforts and abilities of our executive officers, and certain other key management personnel, which make up our management team. The loss of the services of any of our current management team could have a material adverse impact on our operations.
The loss of the services of these individuals, and the potential loss of any of our current management team, could have a material adverse impact on our business, financial condition, and results of operations.
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.
We may not be able to measure and limit our credit risk adequately, which could adversely affect our profitability. At December 31, 2025, our nonperforming assets, which consist of nonaccrual loans, real estate owned and repossessed assets, were $24.0 million, or 1.1% of total assets.
While we believe that our relationship with our management team is good, we cannot guarantee that all members of our management team will remain with our organization. Our consideration of whole bank, branch acquisitions, or fintech partnerships in the future may expose us to financial, execution and operational risks that could adversely affect us.
While we believe that our relationship with our remaining management team is good, we cannot guarantee that all members of our management team will remain with our organization. The ability to attract, retain, and season replacements to our management team presents risks to executing our business plan.
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.
Our commercial real estate and multi-family loans represent a significant portion of our portfolio, with balances of $691.2 million, or 42.5%, of our total loan portfolio, at December 31, 2025, and $723.0 million, or 42.6%, of our total loan portfolio at December 31, 2024.
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.
For these reasons we may experience higher rates of delinquencies, default and losses on loans secured by junior liens. Any of these results could have a material and adverse effect on our business, financial condition and results of operations.
These competitors primarily include national, regional and digital banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including savings and loans, credit unions, mortgage banking finance companies, brokerage firms, insurance companies and other financial intermediaries.
We also face competition from many other types of financial institutions, including savings and loans, credit unions, mutual funds, mortgage banking finance companies, brokerage firms, insurance companies and other financial intermediaries or alternative investment vehicles. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.
The ability to attract, retain and season replacements to our management team presents risks to executing our business plan. Changes in our current management team and their responsibilities may be disruptive to our business and operations and could have a material adverse effect on our business, financial condition, and results of operations.
Any of these results could have a material and adverse effect on our business, financial condition and results of operations. Our business may be adversely affected by credit risk associated with residential real estate.
Removed
Our liquidity position could be significantly constrained if we were unable to access funds from the FHLB or other wholesale funding sources.
Added
Item 1A. Risk Factors. The following is a discussion of what we currently believe are the most significant risks and uncertainties that may affect our business, financial condition, and future results.
Removed
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.
Added
You should carefully consider the following risks, together with all of the other information contained in this Form 10-K, including the sections entitled "Forward-Looking Statements" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes thereto.
Removed
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.
Added
Any of the following risks could have an adverse effect on our business, financial condition, and results of operations and could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment.
Removed
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.
Added
Our business, financial condition, and results of operations could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.
Removed
Unsecured loans present additional risks to us because if a borrower defaults on an unsecured loan, there is no collateral to repossess and liquidate in order to satisfy the outstanding loan balance.
Added
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of the Company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
Also, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on an unsecured loan in default. Our efforts to mitigate this risk include carefully assessing a borrower’s creditworthiness, including their income, employment history, and debt-to-income ratio.
Added
Furthermore, as banking organizations experienced in the Spring of 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed "too big to fail" or remove deposits from the banking system entirely.
Removed
In 2022, we began purchasing unsecured consumer loans through a partnership with Splash Financial, a private lender that underwrites and funds personal loans. First Fed has experienced losses of $3.4 million on the Splash Financial loans to date. We made changes to the program participation criteria for these loans in 2023 with the goal of reducing additional losses.
Added
We may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason.
Removed
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.
Added
We also could be adversely affected if our key personnel or a significant number of our employees were to become unavailable due to a public health crisis (such as an outbreak of a contagious disease), natural disaster, war, act of terrorism, accident or other reason.
Removed
Since the completion of our initial public offering in January 2015, we have grown substantially in terms of total assets, total loans, total deposits, employees, and locations, expanding our business activities throughout the Puget Sound region.
Added
The effects of any of the foregoing factors could have a material adverse effect on our business, financial condition and results of operations. 47 Table of Contents We may be impacted by the actions, soundness or creditworthiness of other financial institutions, which can cause disruption within the industry and increase expenses.
Removed
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.
Added
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We execute transactions with various counterparties in the financial industry, including broker-dealers, commercial banks, and investment banks.
Removed
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.
Added
Defaults or failures of financial services institutions and instability in the financial services industry in general can lead to market-wide liquidity problems, increased credit risk and withdrawals of uninsured deposits. Such events could adversely affect our business, results of operations, and financial condition, as well as the market price and volatility of our common stock.
Removed
Rapid growth combined with the geographic expansion of our lending area may make estimating loan loss allowances more difficult and more susceptible to changes in estimates, and to losses exceeding estimates, than our more seasoned portfolio of loans in our traditional lending area.
Added
Bank failures may increase the risk of a recession or lead to regulatory changes and initiatives, such as enhanced capital, liquidity, or risk management requirements, which could adversely impact us. Changes to laws or regulations, or the imposition of additional restrictions through supervisory or enforcement activities, could have a material impact on our business.
Removed
As a result, it is difficult to predict the future performance of these parts of our loan portfolio. These loans may develop delinquency or charge-off levels above our historical experience, which could adversely affect our future performance.
Added
Regulatory changes could also adversely impact our ability to access funding, increase the cost of funding, limit our access to capital markets, and negatively impact our overall financial condition. For example, certain bank failures in 2023 resulted in a special assessment by the FDIC to replenish the DIF. We operate in a highly competitive industry.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditional 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."
Biggest changeWe believe that these facilities and additional or alternative space available to us are adequate to meet our needs for the foreseeable future. Additional information is presented in Note 5 - Premises and Equipment and Note 6 - Leases of the Notes to the Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data."
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.
As of December 31, 2025, we conducted our business through twelve branch offices located in Clallam, Jefferson, King, Kitsap, and Whatcom Counties, Washington; one business center 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.
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.
The branch located in King County will close on April 30, 2026. The Company currently owns the main administrative office and the Clallam County business center. The remaining twelve branch offices and three business centers are leased. The net book value of the Company’s properties totaled $6.7 million at December 31, 2025.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The Company and First Fed are involved from time to time in various claims and legal actions arising in the ordinary course of business. There are currently no matters that, in the opinion of management, would have a material adverse effect on our consolidated financial position, results of operation, or liquidity.
Biggest changeLegal Proceedings From time to time, the Company is engaged in various claims and legal actions arising in the ordinary course of business, none of which are currently considered to have a material adverse effect on our consolidated financial position, results of operation, or liquidity, other than the matters discussed in Note 14 of the Notes to the Consolidated Financial Statements included in "Item 8.
Added
Financial Statements and Supplementary Data.". Item 4. Mine Safety Disclosures Not applicable PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(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.
Biggest changeOn 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.
Stock Repurchases. The Company's repurchase programs permit shares to be repurchased in the open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with the SEC's Rule 10b5-1.
The Company's repurchase programs permit shares to be repurchased in the open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with the SEC's Rule 10b5-1.
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.
As of December 31, 2025, a total of 98,156 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 2024 stock repurchase plan during the fourth quarter of 2025.
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.
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 5, 2026, there were 9,450,547 shares of common stock issued and outstanding and we had approximately 432 shareholders of record.
Removed
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.
Added
The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by banks, brokers and other nominees. Through May 2025, we historically declared cash dividends on our common stock.
Removed
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.
Added
However, we have not done so since then, as part of a prudent approach to capital management. Our cash dividend policy is reviewed regularly by management and the Board of Directors.
Removed
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.
Added
Any dividends declared and paid in the future would depend upon a number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in future periods.
Added
See Item 1, "Business – How We Are Regulated," of this Form 10-K for a discussion of regulatory requirements applicable to dividends by First Northwest and First Fed. Issuer Purchases of Equity Securities.

Item 7. Management's Discussion & Analysis

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

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Biggest changeYear 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.
Biggest changeYear Ended December 31, 2025 2024 (dollars in thousands) Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Interest-earning assets: Loans receivable, net (1), (2) $ 1,629,888 $ 90,290 5.54 % $ 1,686,972 $ 93,752 5.56 % Total investment securities 303,501 13,484 4.44 311,434 15,025 4.82 FHLB dividends 12,706 1,182 9.30 12,986 1,215 9.36 Interest-earning deposits in banks 46,708 2,045 4.38 43,934 2,348 5.34 Total interest-earning assets (3) 1,992,803 107,001 5.37 2,055,326 112,340 5.47 Noninterest-earning assets 146,555 144,812 Total average assets $ 2,139,358 $ 2,200,138 Interest-bearing liabilities: Interest-bearing demand deposits $ 153,762 $ 615 0.40 $ 165,097 $ 777 0.47 Money market accounts 445,837 10,462 2.35 414,305 10,017 2.42 Savings accounts 228,622 3,465 1.52 223,505 3,512 1.57 Certificates of deposit, customer 446,703 17,172 3.84 428,630 17,838 4.16 Certificates of deposit, brokered 119,623 5,306 4.44 205,619 10,283 5.00 Total interest-bearing deposits (4) 1,394,547 37,020 2.65 1,437,156 42,427 2.95 FHLB and other advances 262,438 11,263 4.29 264,948 12,015 4.53 Subordinated debt, net 35,543 1,419 3.99 39,475 1,578 4.00 Total interest-bearing liabilities 1,692,528 49,702 2.94 1,741,579 56,020 3.22 Noninterest-bearing deposits (4) 246,566 252,600 Other noninterest-bearing liabilities 47,201 44,217 Total average liabilities 1,986,295 2,038,396 Average equity 153,063 161,742 Total average liabilities and equity $ 2,139,358 $ 2,200,138 Net interest income $ 57,299 $ 56,320 Net interest rate spread 2.43 2.25 Net earning assets $ 300,275 $ 313,747 Net interest margin (5) 2.88 2.74 Average interest-earning assets to average interest-bearing liabilities 117.7 % 118.0 % (1) The average loans receivable, net balances include nonaccrual loans.
See Item 1, "Business-How We Are Regulated," and Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K for additional information regarding First Northwest Bancorp and First Fed’s regulatory capital requirements.
See Item 1, "Business-How We Are Regulated," and Note 12 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K for additional information regarding First Northwest and First Fed’s regulatory capital requirements.
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.
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 may impact our net interest income.
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.
The provision includes accruals for both federal and state income taxes. 71 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.
(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.
(5) Net interest income divided by average interest-earning assets. 72 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.
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 estimated average life of the total investment securities portfolio was 6.5 years as of December 31, 2025, compared to 6.9 years as of December 31, 2024 , and the average repricing term was approximate ly 6.7 years as of December 31, 2025, compared to 5.3 years as of December 31, 2024 , based on the interest rate environments at those times.
Capital adequacy requirements are quantitative measures established by regulation that require us to maintain minimum amounts and ratios of capital. First Fed is subject to meeting minimum capital adequacy requirements for common equity Tier 1 ("CET1") capital, Tier 1 risk-based capital, total risk-based capital, and tier 1 capital ("leverage").
Capital adequacy requirements are quantitative measures established by regulation that require us to maintain minimum amounts and ratios of capital. First Fed is subject to meeting minimum capital adequacy requirements for CET1 capital, Tier 1 risk-based capital, total risk-based capital, and tier 1 capital ("leverage").
The Bank has exercised legal remedies, including the appointment of a third-party receiver and foreclosure actions, to liquidate the underlying collateral to satisfy the real estate loans in two of these three collateral-dependent relationships.
The Bank has exercised legal remedies, including the appointment of a third-party receiver and foreclosure actions, to liquidate the underlying collateral to satisfy the real estate loans in the third largest of these three collateral-dependent relationships.
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 .
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. The following represent our critical accounting policies: Allowance for Credit Losses on Loans .
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.
The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at December 31, 2025. We estimate that 20-25% of our customer deposit balances, or $371.3 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.
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 .
We have also pledged collateral of $17.3 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, 2025 .
The Company also purchased loans totaling $88.9 million with the largest concentration of these loans located in California.
The Company also purchased loans totaling $77.9 million with the largest concentration of these loans located in California.
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.
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 64% of deposit account balances held by consumers, 31% held by business and public fund depositors, and 5% in brokered deposits.
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.
At December 31, 2025, the Bank and consolidated Company exceeded all regulatory capital requirements, and the Bank was considered "well capitalized" under FDIC regulatory capital guidelines. 76 Table of Contents The following table provides the capital requirements and actual results at December 31, 2025.
Expected duration of the portfolio has decreased to 3.9 years as of December 31, 2024, compared to 4.8 years as of December 31, 2023. If prevailing market interest rates fall, we expect prepayments will accelerate due to the current coupons of fixed rate bonds.
Expected duration of the portfolio has increased to 4.6 years as of December 31, 2025, compared to 3.9 years as of December 31, 2024. If prevailing market interest rates fall, we expect prepayments will accelerate due to the current coupons of fixed rate bonds.
The allowance for credit losses on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected. The allowance is established through the provision for credit losses on loans, which is charged to income.
The ACLL is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected. The allowance is established through the provision for credit losses on loans, which is charged to income. Determining the amount of the ACLL necessarily involves a high degree of judgment.
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.
Asset quality improved with decreases 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 1.04% at December 31, 2025 and 1.21% at December 31, 2024.
First Northwest maintains a $20.0 million line of credit with NexBank, with an available borrowing capacity of $13.5 million at year end, which is secured by First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments.
First Northwest maintains a $15.0 million line of credit with NexBank, with an available borrowing capacity of $1.5 million at year end, which is secured by First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The line of credit matures in November 2026.
We recorded a loss of $0.75 per common and diluted share for the year ended December 31, 2024, compared to earnings of $0.26 per common and diluted share for the year ended December 31, 2023. Net Interest Income.
We recorded a loss of $0.48 per common and diluted share for the year ended December 31, 2025, compared to a loss of $0.75 per common and diluted share for the year ended December 31, 2024. Net Interest Income.
Determining the amount of the ACLL necessarily involves a high degree of judgment. Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a remaining life methodology.
Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a remaining life methodology.
The 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 levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2025, cash and cash equivalents totaled $85.1 million and securities classified as available-for-sale had a market value of $270.3 million.
First Fed also has a limited partnership investment in the Meriwether Group Capital Hero Fund LP ("Hero Fund") which was previously held by First Northwest. The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest.
First Fed has a limited partnership investment in the Canapi Ventures SBIC Fund II, LP. First Fed also has a limited partnership investment in the Hero Fund which was previously held by First Northwest. The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest.
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 average cost of all interest-bearing deposit products decreased 30 basis points to 2.65% for the year ended December 31, 2025 from 2.95% for the year ended December 31, 2024. The average balances of money market, customer CD and savings accounts increased year-over-year, while lower cost transaction average account balances declined.
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.
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 Freddie Mac and other investors, while retaining certain adjustable-rate loans that may not be readily sold in the secondary market. 66 Table of Contents Construction and land loans decreased $16.8 million, or 21.6%, with $22.9 million converting into fully amortizing loans partially offset by draws on new and existing commitments.
For additional information, see Note 2 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. Total loans, excluding loans held for sale, increased $35.8 million, or 2.2%, during the year ended December 31, 2024.
For additional information, see Note 2 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. Total loans, excluding loans held for sale, decreased $67.7 million, or 4.0%, during the year ended December 31, 2025.
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 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 successfully increased our auto loan portfolio through our partnership with Woodside and our manufactured home loan portfolio through our partnership with Triad Financial Services.
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.
Brokered CDs due within one year as of December 31, 2025, totaled $70.4 million, or 13.5% 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.
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 pledged loan collateral with principal balances totaling $871.3 million to support borrowings from the FHLB of $260.0 million, with a remaining borrowing capacity of $204.4 million.
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.
Our Business and Operating Strategy 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 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 $5.3 million decrease in interest income was largely attributable to changes in loans receivable with an average balance decrease of $57.1 million, at an average yield of 5.54%, for the year ended December 31, 2025 compared to an average yield of 5.56%, for the year ended December 31, 2024.
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.
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.
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.
This decrease was mainly the result of decreases in commercial construction of $14.4 million, partially offset by increases in nonperforming commercial real estate of $4.2 million, commercial business of $1.2 million, one-to-four family of $795,000, auto and other consumer of $386,000 and home equity loans of $2,000.
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.
The Company is a separate legal entity from the Bank and relies on dividends from its subsidiary, First Fed, the NexBank line of credit and future investment redemptions for liquidity to pay its operating expenses and other financial obligations.
The fair value hedge on loans added $1.1 million to interest income for the year ended December 31, 2024. Interest income on investment securities increased $1.8 million to $15.0 million for the year ended December 31, 2024, compared to $13.3 million for the year ended December 31, 2023.
The fair value hedge on loans added $392,000 to interest income for the year ended December 31, 2025, compared to $1.1 million for the year ended December 31, 2024. Interest income on investment securities decreased $1.5 million to $13.5 million for the year ended December 31, 2025, compared to $15.0 million for the year ended December 31, 2024.
First Fed is impacted by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal policy, including fiscal stimulus, interest rate policy and open market operations, housing, and consumer protection.
Subsequent to year end, the Company redeemed its interest in MWGC in full at par. First Fed is impacted by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal policy, including fiscal stimulus, interest rate policy and open market operations, housing, and consumer protection.
We intend to accomplish this through the commercial team, with a focus on systems and support, the further development of treasury management and our partnership with MWG. 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.
Another priority for the Company is expanding offerings for small-to-medium sized business with a focus on entrepreneurs. We intend to accomplish this through the commercial team, with a focus on systems and support. 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.
The total provision for credit losses increased $15.2 million to $16.5 million during the year ended December 31, 2024, compared to $1.3 million for 2023.
The total provision for credit losses decreased $9.2 million to $7.3 million during the year ended December 31, 2025, compared to $16.5 million for 2024.
All construction projects are monitored by either a third-party firm or our internal construction administration team. Projects with larger loan commitments have more robust monitoring by firms with more services and expertise.
Our construction loans are geographically disbursed throughout the state of Washington with one project in California. All construction projects are monitored by either a third-party firm or our internal construction administration team. Projects with larger loan commitments have more robust monitoring by firms with more services and expertise.
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.
At December 31, 2025, we had $168.6 million in commitments to grant loans, undisbursed lines of credit, undisbursed construction commitments, and standby letters of credit. The Company also had unfunded partnership commitments totaling $2.3 million. Customer CDs due within one year as of December 31, 2025, totaled $380.5 million, or 73.2% of total CDs.
We believe our ACLL is adequate to cover current expected credit losses in the loan portfolio. Nonperforming loans increased $11.9 million, or 63.7%, during the year ended December 31, 2024 to $30.5 million.
We believe our ACLL is adequate to cover current expected credit losses in the loan portfolio. Nonperforming loans decreased $7.9 million, or 26.0%, during the year ended December 31, 2025 to $22.6 million.
We continue to originate one-to-four family residential mortgage loans, primarily for sale into the secondary market to generate noninterest gain on sale and servicing fee revenue and manage interest rate risk or retain select loans in our portfolio to enhance interest income. Home equity, residential construction and commercial construction loans are also originated primarily in Western Washington.
We also increased our auto and consumer loans through purchased auto loan programs and purchased manufactured homes. We continue to originate one-to-four family residential mortgage loans, primarily for sale into the secondary market to generate noninterest gain on sale and servicing fee revenue and manage interest rate risk or retain select loans in our portfolio to enhance interest income.
Multi-family real estate loans decreased $498,000 as a result of payoffs and regular payments exceeding $36.5 million of construction loans converting into permanent amortizing loans and $13.6 million of new originations.
Multi-family real estate loans decreased $44.1 million as a result of payoffs and regular payments exceeding $11.1 million of construction loans converting into permanent amortizing loans and $2.7 million of new originations.
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.
Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at December 31, 2025 and 2024. Income and all average balances are daily average balances.
We anticipate the investment portfolio will continue to provide additional interest income and act as a source of liquidity. MBS represent the largest portion of our investment portfolio and totaled $170.3 million at December 31, 2024, an increase of $31.0 million, or 22.2%, from $139.3 million at December 31, 2023.
We anticipate the investment portfolio will continue to provide supplemental interest income and act as a source of liquidity. MBS represent the largest portion of our investment portfolio and totaled $125.1 million at December 31, 2025, a decrease of $45.3 million, or 26.6%, from $170.3 million at December 31, 2024.
These decreases were partially offset by a $2.5 million reduction in accumulated other comprehensive loss related to an improved unrealized market value of available for sale securities, net of tax, and an increase of $1.6 million related to share-based compensation plans.
The increase during the year resulted from a $7.8 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 $1.2 million related to share-based compensation plans.
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 Company generated a loss on average assets of -0.20%, and a loss on average equity of -2.74%, for the year ended December 31, 2025, compared to a loss on average assets of -0.30% and a loss on average equity of -4.09% for the year ended December 31, 2024. Net income increased $2.4 million compared to 2024.
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 decrease to the cost of average interest-bearing liabilities for the year ended December 31, 2025 was due primarily to lower costs of $4.6 million from reduced brokered CD average balances and lower costs of $3.3 million on reduced rates paid for all interest-bearing deposits and advances.
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.
Actual Minimum Capital Requirements Minimum Required to be Well-Capitalized (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Tier I leverage capital (to average assets) Bank only $ 198,895 9.5 % $ 83,639 4.0 % $ 104,549 5.0 % Common equity tier I (to risk-weighted assets) Bank only 198,895 12.5 71,656 4.5 103,504 6.5 Tier I risk-based capital (to risk-weighted assets) Bank only 198,895 12.5 95,542 6.0 127,389 8.0 Total risk-based capital (to risk-weighted assets) Bank only 215,737 13.6 127,389 8.0 159,236 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 U.S., 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.
In order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions, First Northwest Bancorp and First Fed must maintain CET1 capital at an amount greater than the required minimum levels plus a capital conservation buffer.
In order to avoid limitations, based on percentages of eligible retained income, on paying dividends, engaging in share repurchases, and paying discretionary bonuses, the Bank must maintain risk-based capital in an amount greater than the required minimum levels plus a capital conservation buffer, comprised of CET1, of 2.5% of risk-weighted assets.
Off-Balance Sheet Activities In the normal course of operations, First Fed engages in a variety of financial transactions that are not recorded in the financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks.
At December 31, 2025, the Company (on an unconsolidated basis) had liquid assets of $7,587,000. 75 Table of Contents Off-Balance Sheet Activities In the normal course of operations, First Fed engages in a variety of financial transactions that are not recorded in the financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks.
Noninterest expense decreased to $60.0 million for the year ended December 31, 2024, from $61.5 million for the year ended December 31, 2023.
Noninterest expense increased to $67.1 million for the year ended December 31, 2025, from $60.0 million for the year ended December 31, 2024.
Our accounting policies are discussed in detail in Notes 1 and 4 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. Mortgage Servicing Rights. We record servicing rights on loans originated and subsequently sold into the secondary market.
Our accounting policies are discussed in detail in Notes 1 and 4 of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. Income Taxes .
Interest income increased $11.4 million, or 11.3%, to $112.3 million for the year ended December 31, 2024 from $100.9 million for the comparable period in 2023, primarily due to an increase in the average balance of and higher yields on loans receivable.
Interest income decreased $5.3 million, or 4.8%, to $107.0 million for the year ended December 31, 2025 from $112.3 million for the comparable period in 2024, primarily due to a decrease in the average balance of and lower yields on loans receivable.
The higher provision for credit losses on loans compared to 2023 is mainly the result of loan balances charged-off during the year, an increase in reserve for individually evaluated loans and an increase in loss factors applied to one-to-four family, multi-family and commercial business pooled loans.
The lower provision for credit losses on loans compared to 2024 is mainly the result of higher recoveries on charged-off loan balances, lower pooled loan reserve balances and a decrease in the loss factors applied to one-to-four family and other consumer loan balances.
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.
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, (dollars in thousands) 2025 2024 Provision for credit losses on loans $ 7,320 $ 16,716 Charge offs net of recoveries (10,782 ) (13,777 ) Allowance for credit losses on loans 16,987 20,449 Allowance for credit losses on loans as a percentage of total gross loans receivable at the end of this period 1.04 % 1.21 % Total nonaccrual loans 22,595 30,515 Allowance for credit losses on loans as a percentage of nonaccrual loans at end of period 75 % 67 % Nonaccrual loans as a percentage of total loans 1.39 % 1.80 % Total loans receivable $ 1,628,112 $ 1,695,823 Recapture of provision for credit losses on unfunded commitments $ (5 ) $ (218 ) Reserve for unfunded commitments 592 599 Unfunded loan commitments 167,897 163,827 Noninterest Income.
Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated: December 31, 2024 December 31, 2023 (In thousands) Real Estate: One-to-four family $ 395,315 $ 378,432 Multi-family 332,596 333,094 Commercial real estate 390,379 387,983 Construction and land 78,110 129,691 Total real estate loans 1,196,400 1,229,200 Consumer: Home equity 79,054 69,403 Auto and other consumer 268,876 249,130 Total consumer loans 347,930 318,533 Commercial business loans 151,493 112,295 Total loans 1,695,823 1,660,028 Less: Derivative basis adjustment 188 — Allowance for credit losses on loans 20,449 17,510 Total loans receivable, net $ 1,675,186 $ 1,642,518 Our allowance for credit losses on loans ("ACLL") increased $2.9 million, or 16.8%, during the year ended December 31, 2024, primarily due to increased loss factors applied to commercial business, one-to-four family and multi-family loan pools and additional reserves on individually evaluated commercial business loans.
Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated: (dollars in thousands) December 31, 2025 December 31, 2024 Real Estate: One-to-four family $ 376,731 $ 395,315 Multi-family 288,529 332,596 Commercial real estate 402,683 390,379 Construction and land 61,268 78,110 Total real estate loans 1,129,211 1,196,400 Consumer: Home equity 85,088 79,054 Auto and other consumer 283,502 268,876 Total consumer loans 368,590 347,930 Commercial business loans 130,311 151,493 Total loans 1,628,112 1,695,823 Less: Derivative basis adjustment (903 ) 188 Allowance for credit losses on loans 16,987 20,449 Total loans receivable, net $ 1,612,028 $ 1,675,186 Our ACLL decreased $3.5 million, or 16.9%, during the year ended December 31, 2025, primarily due to a reduction in the reserves on individually evaluated loans, lower pooled loan reserve balances and a decrease in the loss factors applied to one-to-four family and other consumer loan balances.
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.
The BOLI exchange and reinvestment transactions during 2024 resulted in an increase in the cash surrender value for both years. 70 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) (dollars in thousands) 2025 2024 Amount Percent Loan and deposit fees $ 4,359 $ 4,291 $ 68 1.6 % Sold loan servicing fees and servicing rights mark-to-market 429 188 241 128.2 Net gain on sale of loans 112 312 (200 ) (64.1 ) Net loss on sale of investment securities — (2,117 ) 2,117 (100.0 ) Net gain on sale of premises and equipment — 7,919 (7,919 ) (100.0 ) Increase in BOLI cash surrender value, net 1,889 1,179 710 60.2 Income from BOLI death benefit, net 1,059 1,536 (477 ) (31.1 ) Other income (loss) 3,791 (694 ) 4,485 (646.3 ) Total noninterest income $ 11,639 $ 12,614 $ (975 ) (7.7 )% Noninterest Expense.
(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.
(2) Interest earned on loans receivable includes net deferred costs of $1.7 million and $1.1 million for the years ended December 31, 2025 and 2024, respectively and loan derivative interest of $392,000 and $1.1 million for the years ended December 31, 2025 and 2024, respectively. (3) Includes interest-bearing deposits at other financial institutions.
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.
One-to-four family residential loans decreased $18.6 million, or 4.7%, with payoffs and regular payments exceeding $10.9 million in construction loans converting to permanent amortizing loans during the year and $7.5 million of new originations.
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.
During the year ended December 31, 2025, the Company originated $213.1 million of loans, of which $117.0 million, or 54.9%, were originated in the Puget Sound region; $50.5 million, or 23.7%, in the Olympic Peninsula region; $27.3 million, or 12.8%, in other areas in Washington; and $18.3 million, or 8.6%, in other states.
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 following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown: Year Ended December 31, 2025 2024 (dollars in thousands) Average Balance Outstanding Yield Average Balance Outstanding Yield Increase/ (Decrease) in Interest Income Loans receivable, net $ 1,629,888 5.54 % $ 1,686,972 5.56 % $ (3,462 ) Investment securities 303,501 4.44 311,434 4.82 (1,541 ) FHLB stock 12,706 9.30 12,986 9.36 (33 ) Interest-earning deposits in banks 46,708 4.38 43,934 5.34 (303 ) Total interest-earning assets $ 1,992,803 5.37 % $ 2,055,326 5.47 % $ (5,339 ) 69 Table of Contents Interest Expense.
This analysis measures interest rate risk by computing changes in the present value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates.
This analysis measures the estimated change in the present value of expected cash flows from assets, liabilities, and off‑balance‑sheet instruments under a range of assumed interest rate movements.
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 details average balances, cost of funds and the change in interest expense for the periods shown: Year Ended December 31, 2025 2024 (dollars in thousands) Average Balance Outstanding Rate Average Balance Outstanding Rate Increase/ (Decrease) in Interest Expense Interest-bearing transaction $ 153,762 0.40 % $ 165,097 0.47 % $ (162 ) Money market accounts 445,837 2.35 414,305 2.42 445 Savings accounts 228,622 1.52 223,505 1.57 (47 ) Certificates of deposit, customer 446,703 3.84 428,630 4.16 (666 ) Certificates of deposit, brokered 119,623 4.44 205,619 5.00 (4,977 ) FHLB and other advances 262,438 4.29 264,948 4.53 (752 ) Subordinated debt, net 35,543 3.99 39,475 4.00 (159 ) Total interest-bearing liabilities $ 1,692,528 2.94 % $ 1,741,579 3.22 % $ (6,318 ) Provision for Credit Losses.
Consistent with our goals to operate a sound and profitable organization, our policy for First Fed is to maintain its "well-capitalized" status in accordance with regulatory standards.
The Bank's capital conservation buffer was 5.55% at December 31, 2025, exceeding this requirement by over 3.00%. Consistent with our goals to operate a sound and profitable organization, our policy for First Fed is to maintain its "well-capitalized" status in accordance with regulatory standards.
The following table provides an analysis of the changes in the components of noninterest expense for the periods shown: Year Ended December 31, Increase (Decrease) 2024 2023 Amount Percent (Dollars in thousands) Compensation and benefits $ 32,665 $ 31,209 $ 1,456 4.7 % Data processing 8,102 8,170 (68 ) (0.8 ) Occupancy and equipment 6,151 4,858 1,293 26.6 Supplies, postage, and telephone 1,266 1,433 (167 ) (11.7 ) Regulatory assessments and state taxes 1,978 1,635 343 21.0 Advertising 1,457 2,706 (1,249 ) (46.2 ) Professional fees 3,105 3,738 (633 ) (16.9 ) FDIC insurance premium 1,883 1,357 526 38.8 Other expense 3,386 6,348 (2,962 ) (46.7 ) Total noninterest expense $ 59,993 $ 61,454 $ (1,461 ) (2.4 )% Provision for Income Tax.
The following table provides an analysis of the changes in the components of noninterest expense for the periods shown: Year Ended December 31, Increase (Decrease) (dollars in thousands) 2025 2024 Amount Percent Compensation and benefits $ 28,808 $ 32,665 $ (3,857 ) (11.8 )% Data processing 7,868 8,102 (234 ) (2.9 ) Occupancy and equipment 6,143 6,151 (8 ) (0.1 ) Supplies, postage, and telephone 1,320 1,266 54 4.3 Regulatory assessments and state taxes 2,226 1,978 248 12.5 Advertising 1,136 1,457 (321 ) (22.0 ) Professional fees 6,851 3,105 3,746 120.6 FDIC insurance premium 1,732 1,883 (151 ) (8.0 ) Legal settlement paid 5,740 — 5,740 100.0 Other expense 5,233 3,386 1,847 54.5 Total noninterest expense $ 67,057 $ 59,993 $ 7,064 11.8 % Provision for Income Tax.
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.
Undisbursed construction commitments totaled $49.5 million at December 31, 2025 compared to $51.7 million at December 31, 2024. Undisbursed construction commitments at December 31, 2025 included $14.6 million of commercial real estate construction, $23.1 million of mainly custom one-to-four family residential construction, and $11.8 million of multi-family construction.
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 .
In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-party pricing services. 65 Table of Contents 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.
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.
Home equity, residential construction and commercial construction loans are also originated primarily in Western Washington. We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts and certificates of deposit for individuals, businesses and nonprofit organizations. Deposits are our primary source of funding for our lending and investing activities.
The increase compared to the prior year was primarily due to one-time transactions in 2024, including the gain on sale of six branch properties in the sale-leaseback transaction and a BOLI death benefit payment, partially offset by the loss on sale of securities.
One-time transactions in 2024 included the gain on sale of six branch properties in the sale-leaseback transaction and a $1.1 million BOLI death benefit payment, partially offset by the loss on sale of securities and a $1.8 million equity investment write-down included in other income (loss) in the table below.
Borrowing costs increased 16-basis points, due to higher rates paid combined with an increase of $15.8 million in the average balance outstanding.
Borrowing costs decreased 21 basis points, due to lower rates paid combined with a decrease of $6.4 million in the average balance outstanding.
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 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. 73 Table of Contents We manage interest rate risk by monitoring repricing gaps, earnings sensitivity, and changes in the economic value of equity under various interest rate scenarios.
An $11.4 million construction loan relationship, which became a classified loan in the fourth quarter of 2022; an $8.1 million commercial construction loan relationship, which became classified in the second quarter of 2024; and a $6.2 million commercial loan relationship, which became classified in the fourth quarter of 2023, account for 61% of the classified loan balance at December 31, 2024.
Over 77% of the classified loan balance at December 31, 2025, is comprised of the following relationships: a $12.5 million commercial real estate loan relationship, which became classified in the fourth quarter of 2025; a $6.3 million commercial real estate loan relationship, which became classified in the third quarter of 2024; a $5.1 million construction loan relationship, which became a classified loan in the fourth quarter of 2022; and a $3.4 million commercial real estate loan relationship, which became classified in the second quarter of 2025.
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.
At December 31, 2025, our balance sheet was more asset‑sensitive in the short‑term horizon, reflecting slower loan prepayment speeds driven by higher interest rates and deposit migration from non‑maturity deposits to certificates of deposit with shorter average lives. Net Interest Income Sensitivity.
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.
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. Borrowings decreased $27.9 million, or 8.3%, to $308.1 million at December 31, 2025, from $336.0 million at December 31, 2024.
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.
A recapture of previously recognized provision for credit losses may be added to net interest income if forecasted macroeconomic factors improve, underlying balances decrease, or recoveries of amounts previously charged off are received. 63 Table of Contents 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.
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. • Hiring experienced employees with a customer sales and service focus. Our goal is to compete by relying on the strength of our customer service and relationship building.
Deposit accounts may reprice more quickly in response to changes in market interest rates because of their shorter maturities.
Deposit accounts may also reprice more quickly due to their shorter effective maturities. Interest Rate Sensitivity Analysis. We use interest rate sensitivity analysis to evaluate our exposure to changes in market interest rates.
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.
We intend to hire community bankers and lenders who are established in their communities to enhance our market position and add profitable growth opportunities as needed. Continued focus on high-quality loan growth through relationship-based lending in core markets: • Remixing our loan portfolio.
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.
Nonperforming loans to total loans was 1.39% at December 31, 2025, an increase from 1.80% at December 31, 2024. 67 Table of Contents At December 31, 2025, classified loans, consisting solely of substandard loans, decreased by $7.2 million, or 17.0%, to $35.3 million at December 31, 2025, from $42.5 million at December 31, 2024.
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 Company recorded an income tax benefit for the year ended December 31, 2025, of $1.2 million compared to a benefit of $944,000 for the year ended December 31, 2024, reflecting differences in pre-tax income. The effective tax rate decreased over the prior year as 2024 included an estimate for the penalty on the early surrender of the BOLI contracts.

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