Financial Performance and Capital Management - As of December 31, 2024, the company had seven interest rate swaps with an aggregate notional amount of 6.3 million, compared to eight swaps with a notional amount of 7.6 million at December 31, 2023[138]. - The company paid 160,671, representing a ratio of 11.16%, up from 10.18% in 2023[166]. - The Common Equity Tier 1 capital increased to 173,748, reflecting a ratio of 16.65%, an increase from 16.15% in 2023[166]. - The Bank's excess Tier 1 risk-based capital was 5.0 billion or more, at an annual rate of approximately 13.4 basis points, beginning in 2024[154]. - The Company is subject to a business and occupation tax in Washington state at a rate of 1.75% of gross receipts for the Bank, and 1.50% for other subsidiaries with gross receipts less than 3 billion in consolidated assets, including First Financial Northwest, are generally no longer subject to the Federal Reserve's capital regulations[198]. - First Financial Northwest was considered "well capitalized" with a total risk-based capital ratio of 10.0% or more and a Tier 1 risk-based capital ratio of 8.0% or more at the time of the regulatory change[198]. - The Federal Reserve has a policy that a bank holding company must maintain an adequate capital position and should not pay cash dividends unless net income is sufficient to fund them[199]. Risk Management and Operational Challenges - The company employs asset and liability management strategies to mitigate interest rate risk, but unexpected rate changes could materially affect financial condition and results of operations[248]. - The implementation of the CECL model may introduce increased earnings volatility due to the forward-looking approach in estimating expected credit losses[260]. - Non-compliance with regulations such as the USA PATRIOT Act could result in fines or sanctions, adversely affecting the company’s financial condition and reputation[256]. - The company is exposed to risks related to its corporate bond portfolio, particularly from securities issued by other financial institutions, which could impact financial condition if market perception deteriorates[254]. - The company’s security measures may not be sufficient to prevent cyber-attacks, which could jeopardize confidential information and lead to significant reputational damage[261]. - The company’s risk management framework aims to balance risk and return, but inherent limitations may lead to unexpected losses if not effectively managed[257]. - The fair value of the company’s investment securities is susceptible to significant shifts due to factors beyond its control, potentially leading to credit losses[252]. - The company’s reliance on third-party vendors for data processing could expose it to operational risks, including system failures and security breaches[263]. - The company faces significant risks associated with the increasing adoption of Artificial Intelligence (AI), including model risk and cybersecurity threats[265]. - Operational risks may arise from potential system failures and over-reliance on AI, impacting critical functions like fraud detection and customer support[266]. - Effective data management and aggregation are crucial, as manual processes may lead to human error and limit the company's ability to manage risks[268]. - The prevalence of fraud and financial crimes has increased nationally, leading to potential financial losses and reputational damage for the company[270]. - The company relies on external vendors for key operations, exposing it to risks if vendors fail to meet contractual obligations[271]. - Effective liquidity management is essential, as an inability to raise funds could severely impact the company's operations and financial condition[272]. - The company may need to raise additional capital in the future, which could be challenging depending on market conditions and financial performance[273]. - The company is dependent on dividends from the Bank for its revenue, and any inability of the Bank to pay dividends could affect its financial obligations[276]. - Increasing scrutiny regarding environmental, social, and governance (ESG) practices may impose additional costs and risks on the company[277]. - The pending Global transaction poses uncertainties and contractual restrictions that could adversely affect the company's operations and relationships[279]. Market Position and Competition - The Bank's share of aggregate deposits in the Seattle-Tacoma-Bellevue metropolitan area is less than 1%, while the top five banks control 71% of the deposit market[141]. - The Bank's aggregate recorded loan balances for construction, land development, and land loans were 40.5% of regulatory capital as of December 31, 2024[175]. - Loans on commercial real estate were 300.8% of regulatory capital, indicating significant exposure[175]. - The Bank received $597,000 in dividends from the Federal Home Loan Bank during the year ended December 31, 2024[171]. - First Financial Northwest did not repurchase any of its outstanding common stock during the year ended December 31, 2024[201].
First Financial Northwest(FFNW) - 2024 Q4 - Annual Report