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The Company's business activities are generally focused on passive investment activities and oversight of the activities of First Fed.
−Removed: The Company has also entered into partnerships to strategically invest in fintech-related businesses, which may result in the development of additional investment opportunities.
−Removed: First Fed is a community-oriented commercial bank serving Clallam, Jefferson, King, Kitsap, and Whatcom counties in Washington State, through its twelve full-service branches, three business centers and three administration centers.
+Added: The Company has also entered into partnerships to strategically invest in fintech-related businesses.
+Added: First Fed is a community-oriented commercial bank serving Clallam, Jefferson, King, Kitsap, Snohomish, and Whatcom counties in Washington State, through its twelve full-service branches and six business centers, including our headquarters.
We offer a wide range of products and services focused on the lending, deposit and money movement needs of the communities we serve.
To diversify our portfolio and increase interest income, we increased our origination of commercial real estate, multi-family real estate, and commercial business loans.
−Removed: We also increased our auto and consumer loans through originations, purchased auto loan programs, and purchased manufactured homes.
+Added: 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.
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Deposits are our primary source of funding for our lending and investing activities.
+Added: First Fed has a limited partnership investment in the Canapi Ventures SBIC Fund II, LP.
+Added: 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.
+Added: The Hero Fund is a private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest.
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.
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Our primary source of pre-tax income is net interest income.
−Removed: Net interest income is the difference between interest income earned on our loans and investments and interest expense paid on our deposits and borrowings.
+Added: 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.
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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.
−Removed: The noninterest expenses incurred in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, professional fees, deposit insurance premiums and regulatory assessments, digital delivery and data processing expenses, advertising and promotion expenses, expenses related to real estate and personal property owned, state and local taxes, federal income tax, and other miscellaneous expenses.
+Added: 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.
Our Business and Operating Strategy
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Investing in financial technology ("fintech") companies.
−Removed: The Company has five years remaining in a commitment to invest in Canapi Ventures, which provides funding to fintech start-ups.
+Added: The Company has four years remaining in a commitment to invest in Canapi Ventures, which provides funding to fintech start-ups.
The Canapi Ventures relationship allows us early access to companies producing technology and apps that may be of interest as we grow in the fintech sector.
−Removed: We also have eight years remaining in commitments to invest in BankTech Ventures and JAM FINTOP, two fintech-focused venture capital funds designed for community banks.
−Removed: The Bank has an additional Canapi Small Business Investment Company commitment with nine years remaining.
+Added: We also have seven years remaining in commitments to invest in BankTech Ventures and JAM FINTOP, two fintech-focused venture capital funds designed for community banks.
+Added: 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.
Below are strategies we have implemented, or intend to implement, to achieve our objectives:
−Removed: Increasing our portfolio of higher yielding loans.
+Added: Remixing our loan portfolio.
Through loan originations, we intend to increase the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans.
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We anticipate that future revenue will be generated through treasury management products and merchant services, which would add income and increased interchange fee income.
+Added: Our new consumer rewards products are also expected to generate additional interchange fee income.
Noninterest income will also be affected through changes in the value of our partnership investments and our share of MWG profitability.
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Maintaining strong asset quality is a key to our long-term financial success.
−Removed: We are focused on monitoring existing performing loans, resolving nonperforming loans, and selling foreclosed assets.
+Added: We are focused on monitoring existing performing loans and resolving nonperforming loans.
Nonperforming assets were $30.5 million at December 31, 2024 and $18.6 million at December 31, 2023.
−Removed: The current year increase was primarily due to one $15.0 million commercial construction project for which the Bank, based on a recent third-party appraisal, believes does not represent significant exposure to loss.
+Added: The current year increase was primarily due to an $8.2 million commercial construction project, which the Bank believes does not represent significant exposure to loss based on a recent property appraisal.
+Added: Two additional loans totaling $5.6 million in a commercial relationship we have been monitoring were also placed on nonaccrual.
We take proactive steps to resolve our nonperforming loans, including negotiating repayment plans, forbearances, loan modifications and loan extensions with our borrowers when appropriate.
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In addition to our retail branches, we offer digital delivery solutions, such as personal financial management, business online banking, business remote deposit products, mobile remote deposit services through personal devices, consumer credit score access, real-time account-to-account transfer services between First Fed and other banks, and real-time person-to-person funds transfer, enabling us to compete effectively with banks of all sizes.
−Removed: We enhanced our mobile banking platform, online account opening solutions, foreign exchange capabilities and are in the process of upgrading our business on-line banking platform.
+Added: We enhanced our mobile banking platform, online account opening solutions, foreign exchange capabilities and upgraded our business on-line banking platform.
Expanding our market presence and capturing business opportunities resulting from changes in the competitive environment.
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We believe that our ability to continue to attract and retain banking professionals who have significant knowledge of existing and new market areas, possess strong commercial banking sales and service skills, and maintain a focus on community relationships will enhance our success.
−Removed: We intend to hire additional retail bankers, lenders and treasury management officers who are established in their communities to enhance our market position and add profitable growth opportunities.
+Added: 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.
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We intend to invest in our online presence and engage in digital strategies that will help us to successfully compete in an ever-changing digital marketplace.
−Removed: The Company has six years remaining in its commitment to Canapi Ventures to identify and infuse capital into early stage fintech companies.
+Added: The Company has five years remaining in its commitment to Canapi Ventures to identify and infuse capital into early stage fintech companies.
This commitment includes management participation in meetings and events that inform us when making decisions regarding banking-as-a-service, digital services offerings and customer engagement.
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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.
−Removed: We increased our auto loan portfolio through our partnership involving the purchase of loans made to borrowers purchasing high-end automobiles and classic cars.
+Added: We increased our auto loan portfolio through our partnerships with Woodside and First Help.
We continue to purchase manufactured home loans in pools and on a flow basis from Triad Financial Services.
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We realigned staff positions in 2022 to better meet organizational objectives, resulting in some workforce reductions.
+Added: Additional workforce reductions were made in 2024.
We believe that recent investments in technology may also provide opportunities to build efficiencies.
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Total assets increased $30.2 million, or 1.4%, to $2.23 billion at December 31, 2024, from $2.2 billion at December 31, 2023.
+Added: Cash and cash equivalents decreased by $50.7 million, or 41.2%, to $72.5 million as of December 31, 2024, compared to $123.2 million at December 31, 2023, as proceeds from the sale of investment securities in the fourth quarter of 2023 were deployed into interest-earning assets.
+Added: Total investment securities increased $44.7 million, or 15.1%, to $340.3 million at December 31, 2024, from $295.6 million at December 31, 2023.
+Added: The year-over-year increase was the result of purchases and an improvement in the portfolio market value, partially offset by sales and normal amortization during the year.
+Added: During 2024, we repositioned the investment portfolio by selling $22.8 million of available-for-sale securities yielding 3.1% for a total loss of $2.1 million during the period, and purchased $100.4 million of available-for-sale securities yielding 6.5%.
+Added: The increase in the portfolio market value of $2.4 million relates mainly to the recognition of $1.9 million in realized losses related to the securities sale and a $458,000 improvement in the remaining portfolio driven by changes in long-term interest rates.
+Added: 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.
+Added: 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.
+Added: If prevailing market interest rates fall, we expect prepayments will accelerate due to the current coupons of fixed rate bonds.
+Added: We anticipate the investment portfolio will continue to provide additional interest income and act as a source of liquidity.
+Added: 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.
+Added: Municipal bonds are the second largest segment, totaling $77.9 million at December 31, 2024, a decrease of $9.9 million, or 11.3%, from $87.8 million at December 31, 2023.
+Added: The purchase of investment securities during 2024 resulted in a shift in the investment mix from municipal bonds toward more mortgage-backed, corporate asset-backed and SBA securities.
+Added: Other investment securities totaled $92.2 million at December 31, 2024, an increase of $23.6 million, or 34.5%, from $68.5 million at December 31, 2023.
+Added: Included in MBS non-agency were $44.4 million of commercial mortgage-backed securities ("CMBS"), of which 93.4% were in "A" tranches with the remaining 6.6% in "B" tranches.
+Added: Our largest exposure in the CMBS portfolio was to long-term care facilities, which comprised 76.8%, or $34.1 million, of our private label CMBS securities.
+Added: All of the CMBS had credit enhancements ranging from 28.8% to 93.1%, with a weighted-average credit enhancement of 58.9%, that further reduced the risk of loss on these investments.
+Added: At December 31, 2024, the investment portfolio contained 60.2% of amortizing securities, compared to 52.0% at December 31, 2023.
+Added: 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.
+Added: We may purchase investment securities as a source of additional interest income.
+Added: 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.
−Removed: Multi-family and commercial real estate loans increased $79.5 million, or 12.4%, consisting mainly of an increase in multi-family real estate loans of $80.4 million as a result of new originations and $38.4 million of construction loans converting into permanent amortizing loans.
−Removed: Commercial real estate loans decreased $901,000 as payment activity exceeded new loan originations of $39.7 million and $10.1 million from construction loans converting into permanent amortizing loans.
+Added: Commercial business loans increased $39.2 million primarily due to an increase in the Northpointe MPP of $26.7 million, $15.2 million of equipment loan originations and purchases of $8.5 million of unsecured Bankers Healthcare Group loans in addition to advances on new and existing lines of credit and originations of amortizing commercial loans.
Auto and other consumer loans increased $19.8 million, or 7.9%, with the purchase of a pool of manufactured home loans as well as purchases of individual manufactured home loans and specialty auto loans.
−Removed: Commercial business loans increased $35.4 million primarily due to an increase in the Northpointe Bank Mortgage Participation Program of $9.5 million and purchases of $15.9 million of unsecured Bankers Healthcare Group loans in addition to advances on new and existing lines of credit and originations of amortizing commercial loans.
−Removed: One-to-four family residential loans increased $34.9 million, or 10.2%, with $64.7 million in construction loans converting to permanent amortizing loans during the year.
−Removed: We continue to focus on the origination of one-to-four family mortgage loans with the intention of retaining certain adjustable-rate loans that may not be readily sold in the secondary market, while selling the majority of our saleable production to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and other investors.
+Added: Multi-family and commercial real estate loans increased $1.9 million, or 0.3%, consisting mainly of an increase in commercial real estate loans of $2.4 million as new loan originations of $34.6 million and $1.1 million from construction loans converting into permanent amortizing loans exceeded payment activity.
+Added: 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.
+Added: 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.
+Added: 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.
Construction and land loans decreased $51.6 million, or 39.8%, with $80.1 million converting into fully amortizing loans partially offset by draws on new and existing commitments.
Undisbursed construction commitments totaled $51.7 million at December 31, 2024 compared to $55.4 million at December 31, 2023.
−Removed: Undisbursed construction commitments at December 31, 2023 included $27.9 million of mainly custom one-to-four family residential construction, $22.1 million of multi-family construction, and $5.5 million of commercial real estate construction.
−Removed: Our construction loans are geographically disbursed throughout the state of Washington with one commitment for a property in Oregon.
−Removed: We manage our construction lending primarily by utilizing a licensed third-party vendor to assist us in monitoring our construction projects.
−Removed: Internal staff monitor certain projects, which enhances fee income related to these loans.
+Added: 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.
+Added: Our construction loans are geographically disbursed throughout the state of Washington.
+Added: All construction projects are monitored by either a third-party firm or our internal construction administration team.
+Added: Projects with larger loan commitments have more robust monitoring by firms with more services and expertise.
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;
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The Company also purchased loans totaling $88.9 million with the largest concentration of these loans located in California.
+Added: We will continue to strategically assess our lending strategies across all product lines and markets where we do business as well as evaluate opportunities to supplement organic originations through wholesale acquisitions with a goal of improving earnings while also prudently managing credit risk.
Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated:
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Commercial business loans
+Added: Derivative basis adjustment
Allowance for credit losses on loans
Total loans receivable, net
−Removed: Our allowance for credit losses on loans increased $1.4 million, or 8.6%, during the year ended December 31, 2023, as a result of our transition from the incurred loss model to CECL and loan growth.
+Added: Our allowance for credit losses on loans ("ACLL") increased $2.9 million, or 16.8%, during the year ended December 31, 2024, primarily due to increased loss factors applied to commercial business, one-to-four family and multi-family loan pools and additional reserves on individually evaluated commercial business loans.
Asset quality declined with increases in past due, nonaccrual and classified assets compared to the total loan portfolio.
Management continues to closely monitor economic conditions for potential weaknesses that could expose the loan portfolio to losses.
−Removed: The allowance for credit losses on loans as a percentage of total loans was 1.05% at December 31, 2023 and 1.04% at December 31, 2022.
−Removed: We believe our allowance for credit losses on loans is adequate to cover inherent losses in the loan portfolio.
+Added: The ACLL as a percentage of total loans was 1.21% at December 31, 2024 and 1.05% at December 31, 2023.
+Added: 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.
−Removed: This increase was mainly the result of increases in nonperforming commercial construction of $15.0 million, one-to-four family of $890,000, commercial business of $877,000 and auto and other consumer of $211,000, partially offset by decreases in home equity loans of $73,000 and commercial real estate of $25,000.
+Added: This increase was mainly the result of increases in nonperforming commercial real estate of $5.6 million, commercial construction of $4.6 million and commercial business of $2.3 million, partially offset by decreases in one-to-four family of $367,000, auto and other consumer of $86,000 and home equity loans of $68,000.
Nonperforming loans to total loans was 1.80% at December 31, 2024, an increase from 1.12% at December 31, 2023.
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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.
−Removed: The change in classified loans was mainly the result of a downgrade of a commercial loan relationship totaling $9.3 million involving several commercial real estate and business loans along with downgrades of a $3.6 million SBA loan and a $104,000 commercial business loan during the fourth quarter of 2023.
−Removed: A $15.0 million construction loan, which became a classified loan in the fourth quarter of 2022, and the $9.3 million commercial loan relationship account for 69% of the classified loan balance at December 31, 2023.
+Added: The change in classified loans was mainly the result of downgrades of an $8.2 million commercial construction loan and a $6.4 million commercial real estate loan along with downgrades of six commercial business loans totaling $2.2 million during 2024.
+Added: These downgrades were partially offset by a $3.6 million net charge off on one commercial construction relationship and payments received on previously identified classified loans.
+Added: An $11.4 million construction loan relationship, which became a classified loan in the fourth quarter of 2022;
+Added: an $8.1 million commercial construction loan relationship, which became classified in the second quarter of 2024;
+Added: 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.
+Added: 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.
+Added: The Bank is also closely monitoring a group of commercial business loans that have similar collateral, with 15 loans totaling $2.2 million included in classified loans at December 31, 2024, and an additional eight loans totaling $2.8 million included in the special mention risk grading category.
The Bank continues to work with its borrowers to facilitate satisfactory repayment.
−Removed: Cash and cash equivalents increased by $77.6 million, or 170.1%, to $123.2 million as of December 31, 2023, compared to $45.6 million at December 31, 2022, as a portion of the proceeds from the sale of investment securities in the fourth quarter of 2023 were held in interest-bearing cash.
−Removed: Total investment securities decreased $31.0 million, or 9.5%, to $295.6 million at December 31, 2023, from $326.6 million at December 31, 2022.
−Removed: The year-over-year decrease was the result of sales and normal amortization during the year, partially offset by purchases and an improved portfolio market value.
−Removed: During 2023, we repositioned the investment portfolio by selling $44.8 million of available-for-sale securities yielding 2.4% for a total loss of $5.4 million during the period, and purchased $21.1 million of available-for-sale securities yielding 6.7%.
−Removed: The decrease in unrealized loss of $10.3 million relates mainly to a $5.4 million improvement in unrealized losses driven by a decrease in long-term interest rates and $4.9 million of realized losses related to the securities sale.
−Removed: The estimated average life of the total investment securities portfolio was 7.7 years as of December 31, 2023, compared to 8.2 years as of December 31, 2022 , and the average repricing term was approximate ly 6.3 years as of December 31, 2023, compared to 7.1 years as of December 31, 2022 , based on the interest rate environments at those times.
−Removed: Expected duration of the portfolio has decreased to 4.8 years as of December 31, 2023, compared to 5.1 years as of December 31, 2022 .
−Removed: We anticipate the investment portfolio will continue to provide additional interest income and act as a source of liquidity.
−Removed: Mortgage-backed securities represent the largest portion of our investment portfolio and totaled $139.3 million at December 31, 2023, a decrease of $29.6 million, or 17.5% from $169.0 million at December 31, 2022.
−Removed: Municipal bonds are the second largest segment, totaling $87.8 million at December 31, 2023, a decrease of $10.3 million, or 10.5%, from $98.1 million at December 31, 2022.
−Removed: The sale of investment securities during the fourth quarter of 2023 resulted in a shift in the investment mix from mortgage-backed securities, municipal bonds and U.S.
−Removed: Treasury notes toward more U.S.
−Removed: agency and corporate asset-backed securities.
−Removed: Other investment securities totaled $68.5 million at December 31, 2023, an increase of $9.0 million, or 15.0% from $59.6 million at December 31, 2022.
−Removed: At December 31, 2023, the investment portfolio contained 52.0% of amortizing securities, compared to 50.8% at December 31, 2022.
−Removed: The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is generally affected by changing interest rates.
−Removed: We may purchase investment securities as a source of additional interest income and in lieu of carrying higher cash balances.
−Removed: 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.
−Removed: Equity and partnership investments increased to $14.8 million at December 31, 2023, compared to $14.3 million at December 31, 2022, from contributions to existing commitments totaling $608,000 during 2023.
−Removed: Prepaid expenses and other assets decreased $1.5 million to $26.9 million at December 31, 2023, compared to $28.3 million one year ago.
−Removed: The decrease was mainly due to the $1.5 million write-off of the Quil commitment receivable in the fourth quarter of 2023, when the Company determined that Quil was no longer a going concern.
−Removed: Net deferred tax assets decreased $1.0 million from the prior year end as a result of an increase in the fair market value of the investment portfolio.
−Removed: Total liabilities increased $154.7 million, or 8.2%, to $2.04 billion at December 31, 2023, from $1.88 billion at December 31, 2022, with increases in deposits and borrowings used mainly to fund loan growth.
+Added: In the second quarter of 2024, the Bank completed the sale and leaseback of six branch properties to Mountainseed Real Estate Services, LLC ("Mountainseed"), reducing premises and equipment by $6.8 million.
+Added: The Bank received the full sales price of $14.7 million.
+Added: The proceeds of the sale transaction were used to pay down borrowings.
+Added: First Fed is leasing back the six properties sold to Mountainseed under agreements with initial terms of 15 years with one 15-year renewal option each.
+Added: The leases, recorded in the second quarter of 2024, resulted in an increase of $12.2 million to both other assets and other liabilities for the related right-of-use assets and lease liabilities created by the contracts, respectively.
+Added: Also in the second quarter of 2024, a redemption of First Northwest's limited partnership investment in Meriwether Group Hero Fund LP was offset by a subsequent limited partnership investment in the same entity by First Fed.
+Added: First Northwest utilized the cash received to pay down the NexBank line of credit.
+Added: Equity and partnership investments decreased to $13.2 million at December 31, 2024, compared to $14.8 million at December 31, 2023, due to a $1.8 million write down in the fourth quarter of 2024 on an equity investment in an organization that is involved in a lawsuit.
+Added: Total liabilities increased $39.7 million, or 1.9%, to $2.08 billion at December 31, 2024, from $2.04 billion at December 31, 2023, with increases in deposits and borrowings used mainly to purchase investment securities and fund loan growth.
Deposit account balances increased $11.1 million, or 0.7%, to $1.69 billion at December 31, 2024 from $1.68 billion at December 31, 2023.
−Removed: Money market accounts decreased $110.8 million and transaction accounts decreased $87.1 million, while savings accounts increased $41.2 million.
−Removed: Retail CDs increased $195.6 million, or 78.9%, to $443.4 million and Brokered CDs increased $73.8 million, or 55.1%, to $207.6 million at December 31, 2023.
−Removed: We believe the current rate environment contributed to greater competition for deposits across the industry during 2023.
−Removed: Our focus continues to be on increasing core customer deposits, with an emphasis on small-to-medium sized business deposits, and maintaining a stable source of funding to reduce interest expense as a percentage of liabilities.
−Removed: Borrowings increased $35.6 million, or 12.5%, to $320.9 million at December 31, 2023, from $285.4 million at December 31, 2022, as the Bank utilized FHLB overnight funds to maintain on balance sheet liquidity.
−Removed: Total shareholders' equity increased $1.8 million, or 1.1%, to $163.3 million at December 31, 2023, from $161.6 million at December 31, 2022.
−Removed: The increase during the year resulted from a $7.9 million reduction in accumulated other comprehensive loss related to an improved unrealized market value of available for sale securities, net of tax, net income of $2.3 million, and an increase of $2.1 million related to share-based compensation plans.
−Removed: These increases were partially offset by a one-time decrease of $3.0 million upon the adoption of CECL, $2.7 million in dividends paid in 2023 and share repurchases of $1.1 million.
−Removed: During the year ended December 31, 2023, we repurchased 87,895 shares of common stock at an average cost of $12.95 per share, pursuant to the Company's 2020 stock repurchase plan.
+Added: Money market accounts increased $51.6 million, while savings accounts decreased $37.1 million and transaction accounts decreased $194,000.
+Added: Customer CDs increased $21.5 million, or 4.9%, to $464.9 million and Brokered CDs decreased $24.7 million, or 11.9%, to $182.9 million at December 31, 2024.
+Added: The current rate environment continued to contribute to greater competition for deposits across the industry during 2024.
+Added: As a result, the Bank continues offering deposit rate specials to attract new funds.
+Added: 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.
+Added: Borrowings increased $15.1 million, or 4.7%, to $336.0 million at December 31, 2024, from $320.9 million at December 31, 2023.
+Added: The Bank increased long-term FHLB advances by $80.0 million during 2024 to take advantage of lower rates compared to those offered on FHLB overnight advances.
+Added: FHLB overnight advances decreased $65.0 million compared to the prior year end.
+Added: Total shareholders' equity decreased $9.5 million, or 5.8%, to $153.9 million at December 31, 2024, from $163.3 million at December 31, 2023.
+Added: The decrease during the year resulted from a net loss of $6.6 million, share repurchases of $4.1 million and $2.6 million in dividends paid in 2024.
+Added: 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.
+Added: During the year ended December 31, 2024, we repurchased 214,132 shares of common stock at an average cost of $14.03 per share, pursuant to the Company's 2020 stock repurchase plan, closing out the 2020 plan.
+Added: An additional 98,156 shares of common stock were repurchased during 2024 at an average cost of $10.19 per share, pursuant to the Company's new 2024 stock repurchase plan, for a total of 312,288 shares repurchased during 2024.
Comparison of Results of Operations for the Years Ended December 31, 2024 and 2023
−Removed: The Company generated a return on average assets of 0.11%, and a return on average equity of 1.43%, for the year ended December 31, 2023, compared to 0.79% and 9.09%, respectively, for the year ended December 31, 2022.
−Removed: Net income decreased $13.4 million, or 85.4%, compared to 2022.
+Added: 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.
+Added: Net income decreased $8.9 million compared to 2023.
Net interest income declined as increases to interest expense outpaced increases to interest income.
−Removed: Noninterest income was down due to a loss on sale of securities of $5.4 million as well as lower loan and deposit fee, servicing rights and loan sale income.
−Removed: Noninterest expense was lower due to decreased compensation, advertising, data processing, and occupancy expenses.
−Removed: We earned $0.26 per common and diluted share for the year ended December 31, 2023, compared to $1.71 per common and diluted share for the year ended December 31, 2022.
−Removed: The decrease in earnings per share was the result of the decrease in net income as the Bank recognized a loss on sale of securities to reposition the portfolio by paying down higher cost funding and investing in higher yielding loans and securities.
+Added: The provision for credit losses increased as the Bank charged-off several large commercial loan balances during 2024.
+Added: Noninterest income increased over the prior year primarily due to the gain on sale of premises, lower loss on sale of investment securities and a BOLI death benefit received.
+Added: Noninterest expense was lower due to decreased advertising and professional fees and did not include the one-time write-off expenses recorded in December 2023 for the investment in QUIL.
+Added: 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.
3 unchanged sentences
This resulted in a 39-basis point decrease in our net interest margin to 2.74% for the year ended December 31, 2024, from 3.13% for the year ended December 31, 2023.
−Removed: The $1.8 million net increase in interest income from the volume of interest earning assets was offset by the net increase in interest costs of $10.3 million as changes in rates outpaced increases in yields.
−Removed: As noted above, loans receivable was the main contributor to the increase in interest income with $6.9 million due to an increase in average volume and $9.1 million due higher rates.
−Removed: The increase to the cost of average interest-bearing liabilities for the year ended December 31, 2023 was due primarily to costs from higher rates paid of $24.6 million and increased average balances of $4.3 million on advances, certificates of deposit and money market accounts.
+Added: The $11.4 million increase in interest income was offset by the net increase in interest costs of $16.6 million as changes in rates outpaced increases in yields.
+Added: As noted above, loans receivable was the main contributor to the increase in interest income with $4.9 million due to an increase in average volume and $4.2 million due to higher rates.
+Added: 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.
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.
−Removed: Interest and fees on loans receivable increased $16.0 million during the year, in part, as the Bank grew the loan portfolio through single-family, multi-family and commercial real estate lending as well as purchased auto and manufactured home loans.
−Removed: Loan yields also increased due to higher rates on new originations as well as the repricing of variable rate loans tied to the Prime Rate or other indices.
+Added: Interest and fees on loans receivable increased $9.1 million during the year, in part, as the Bank grew the loan portfolio through participation in the Northpointe MPP and purchased auto and manufactured home loans.
+Added: Loan yields also increased due to higher rates on new originations.
+Added: 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.
−Removed: The increase in interest income on investment securities was driven by an increase in the average yield during the year of 108 basis points due to the repricing of variable rate securities and slower prepayment activity reducing the amount of premium amortization during the period.
+Added: The increase in interest income on investment securities was driven by an increase in the average yield during the year of 64-basis points due to the investment securities portfolio restructure in the first half of 2024.
+Added: The higher rate environment in the first part of the year also contributed to increased interest income as slower prepayment activity reduced the amount of premium amortization during the period.
+Added: The fair value hedge on investments added $621,000 and $449,000 to interest income for the years ended December 31, 2024 and 2023, respectively.
The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:
9 unchanged sentences
Interest Expense.
−Removed: Total interest expense increased $29.0 million, or 275.3%, for the year ended December 31, 2023, compared to the prior year, with increases in borrowing costs and deposit costs of $7.1 million and $21.8 million, respectively.
−Removed: Borrowing costs increased 207 basis points, mainly due to higher rates paid on overnight and short-term borrowings, combined with an increase of $86.0 million in the average balance outstanding.
−Removed: Deposit costs increased due to higher funding costs and an increase of $116.8 million in the average balance of interest-bearing deposits, as we utilized brokered certificates of deposits.
+Added: Total interest expense increased $16.6 million, or 41.9%, for the year ended December 31, 2024, compared to the prior year, with increases in deposit costs and borrowing costs of $15.4 million and $1.2 million, respectively.
+Added: Deposit costs increased due to higher funding costs and an increase of $92.0 million in the average balance of interest-bearing deposits.
The average cost of all interest-bearing deposit products increased 94-basis points to 2.95% for the year ended December 31, 2024 from 2.01% for the year ended December 31, 2023.
−Removed: The average balances of savings and CD accounts increased year-over-year, while lower cost transaction and money market average account balances declined.
+Added: The average balances of money market and CD accounts increased year-over-year, while lower cost transaction and savings average account balances declined.
+Added: Borrowing costs increased 16-basis points, due to higher rates paid combined with an increase of $15.8 million in the average balance outstanding.
The following table details average balances, cost of funds and the change in interest expense for the periods shown:
7 unchanged sentences
Savings accounts
−Removed: Certificates of deposit, retail
+Added: Certificates of deposit, customer
Certificates of deposit, brokered
3 unchanged sentences
Provision for Credit Losses.
−Removed: The total provision for credit losses decreased $212,000 to $1.3 million during the year ended December 31, 2023, compared to $1.5 million for 2022.
−Removed: A recapture of provision for credit losses on unfunded commitments due to the significant decrease in unfunded construction loan commitments from the initial balance recorded upon the adoption of CECL on January 1, 2023, was recorded during 2023.
−Removed: A higher provision for credit losses on loans compared to 2022 is reflective of loan growth, a change to the life-of-loan loss methodology and an increase in net charge-offs during 2023, which partially offset the unfunded commitments recapture.
+Added: 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.
+Added: 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.
+Added: The unfunded commitments recapture is due to a decrease in the loss factor applied to this pool.
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:
13 unchanged sentences
Noninterest Income.
−Removed: Noninterest income decreased 61.1% to $4.0 million for the year ended December 31, 2023, from $10.3 million for the year ended December 31, 2022.
−Removed: The decrease compared to the prior year was primarily due to a $5.4 million loss on sale of investment securities during 2023.
−Removed: One-time increases to other income include a gain on sale of Visa, Inc.
−Removed: Class B common stock of $470,000 and $950,000 received from the Splash loan program as a partial reimbursement of program losses incurred by the Bank during 2023.
−Removed: Saleable mortgage loan production and related gains continued to be impacted by higher market rates on mortgage loans compared to the prior year.
−Removed: Fee income in 2023 was impacted by a decrease in late fees on commercial loans.
−Removed: In 2022, a one-time increase was recorded for a BOLI death benefit payment of $1.5 million.
+Added: Noninterest income increased to $12.6 million for the year ended December 31, 2024, from $4.0 million for the year ended December 31, 2023.
+Added: 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.
+Added: First Northwest also recorded a $1.8 million write down on an equity investment in an organization that is involved in a lawsuit, included in Other (loss) income below.
+Added: Saleable mortgage loan production and related gains continued to be impacted by higher market rates on mortgage loans.
+Added: The BOLI exchange and reinvestment transactions during 2024 resulted in an increase in the cash surrender value recorded for the year.
The following table provides an analysis of the changes in the components of noninterest income for the periods shown:
5 unchanged sentences
Net gain on sale of loans
−Removed: Net (loss) gain on sale of investment securities
+Added: Net loss on sale of investment securities
+Added: Net gain on sale of premises and equipment
Increase in cash surrender value of bank-owned life insurance, net
Income from death benefit on bank-owned life insurance, net
+Added: Other (loss) income
Total noninterest income
1 unchanged sentence
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.
−Removed: The year-over-year decrease reflects lower compensation expense, primarily due to lower Bank commissions, payroll taxes, and medical insurance expenses along with a $1.5 million reduction related to Quin Ventures compensation.
−Removed: Other one-time noninterest expenses recorded during 2023 included the Quil commitment receivable write-off of $1.5 million, a write-off of Fannie Mae and Freddie Mac investor accounting related items totaling $725,000, and an accrual for a civil money penalty proposed by the FDIC of $718,000.
−Removed: The FDIC proposed assessing a civil money penalty in connection with the concerns detailed in a consent order entered into by the Bank during 2023.
−Removed: Quin Ventures non-compensation expenses included for the year ended December 31, 2023, totaled $320,000 compared to $2.7 million in the year ended December 31, 2022, as a result of decreases in advertising, depreciation and data processing expenses.
−Removed: The full amount of Quin Ventures activity was reported in noninterest income and noninterest expense under the controlling interest method of accounting.
−Removed: The proportional noncontrolling interest amount was then subtracted from net income.
−Removed: This resulted in noncontrolling interest net losses of $160,000 and $2.1 million being added back to net income for the years ended December 31, 2023 and 2022, respectively.
+Added: The decrease from the prior year is primarily related to one-time noninterest expenses recorded during 2023, including the QUIL commitment receivable write-off of $1.5 million, a write-off of Fannie Mae and Freddie Mac investor accounting related items totaling $725,000, and an accrual for a civil money penalty proposed by the FDIC of $718,000.
+Added: The FDIC proposed assessing a civil money penalty in connection with the concerns detailed in the consent order entered into by the Bank during 2023 which was lifted in 2024 and the penalty reduced by $218,000.
+Added: Compensation expense increased compared to the prior year as a result of nonrecurring payments related to the July 2024 reduction-in-force and increases in incentives and commissions.
+Added: Other year-over-year changes include increased lease expense included in occupancy as a result additional lease expense after the sale-leaseback transaction, partially offset by lower advertising and professional fees.
The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:
12 unchanged sentences
Provision for Income Tax.
−Removed: The provision for income tax for the year ended December 31, 2023, was $549,000 compared to $2.9 million for the year ended December 31, 2022, reflecting differences in pre-tax income.
−Removed: The effective tax rate increased over the prior year as a result of the permanent tax exclusion of BOLI noninterest income, including the BOLI death benefit, in 2022.
+Added: 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.
+Added: The effective tax rate decreased over the prior year as a result of the permanent tax exclusion of BOLI noninterest income, including the BOLI death benefit, in 2024, partially offset by an estimate for the penalty on the early surrender of the BOLI contracts.
+Added: The provision includes accruals for both federal and state income taxes.
Average Balances, Interest and Average Yields/Cost
21 unchanged sentences
Savings accounts
−Removed: Certificates of deposit, retail
+Added: Certificates of deposit, customer
Certificates of deposit, brokered
14 unchanged sentences
(1) The average loans receivable, net balances include nonaccrual loans.
−Removed: (2) Interest earned on loans receivable includes net deferred costs of $561,000 for the year ended December 31, 2023, and net deferred fees of $1.7 million, including $377,000 of deferred fee income from SBA Paycheck Protection Plan loans, for the year ended December 31, 2022.
+Added: (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.
−Removed: (4) Cost of all deposits, including noninterest-bearing demand deposits, was 1.66% and 0.33% for the years ended December 31, 2023 and 2022.
+Added: (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.
(5) Net interest income divided by average interest-earning assets.
16 unchanged sentences
Savings accounts
−Removed: Certificates of deposit, retail
+Added: Certificates of deposit, customer
Certificates of deposit, brokered
17 unchanged sentences
Additionally, lower rates may result in increased prepayments and refinancing associated with loans and investment securities, particularly consumer and one-to-four family residential loans and MBS securities with no prepayment restrictions, which are then reinvested into lower yielding assets, further reducing interest income.
−Removed: The Bank employs the services of outside firms to assist us in our asset and liability management and our analysis of market risk.
+Added: 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.
Interest Rate Sensitivity Analysis.
3 unchanged sentences
This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 400 basis point increase or a 100 to 400 basis point decrease in market interest rates with no effect given to any future steps that management might take to counter the impact of that interest rate movement.
−Removed: The Bank's balance sheet became more liability sensitive in 2023 due to slower loan prepayment speeds, driven by higher interest rates and deposit migration from non-maturity deposits to certificates of deposits with shorter average lives.
+Added: 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.
The following table presents the change in the present value of First Fed’s equity at December 31, 2024, that would occur in the event of an immediate change in interest rates based on management's assumptions.
24 unchanged sentences
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.
−Removed: We have also pledged collateral of $6.6 million and $15.2 million, respectively, to the Federal Reserve Bank of San Francisco to secure discount window and Bank Term Funding Program advances;
−Removed: the Company has performed periodic borrowing tests on these lines with the Federal Reserve;
+Added: We have also pledged collateral of $17.9 million to the Federal Reserve Bank of San Francisco to secure discount window advances;
+Added: the Company has performed periodic borrowing tests on this line with the Federal Reserve;
however, no such funds were borrowed as of December 31, 2024 .
First Northwest maintains a $20.0 million line of credit with NexBank, with an available borrowing capacity of $13.5 million at year end, which is secured by First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments.
−Removed: At December 31, 2023, we had $220,000 in loan commitments outstanding and an additional $148.2 million in undisbursed loans, including undisbursed construction commitments, and standby letters of credit.
+Added: 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.
10 unchanged sentences
The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at December 31, 2024.
−Removed: We estimate that 20-25% of our retail customer deposit balances are over the $250,000 FDIC insurance limit, representing less than 5% of deposit customers.
+Added: 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.
15 unchanged sentences
(In thousands)
−Removed: Commitments to originate loans:
−Removed: Fixed-rate loans
Unfunded commitments under lines of credit
37 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.