First Northwest Bancorp(FNWB) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter 2025 Financial Performance Overview First Northwest Bancorp reported a significant improvement in profitability for Q2 2025, moving from a net loss in previous quarters to a net income of $3.7 million. This was accompanied by positive growth in Adjusted Pre-Tax, Pre-Provision Net Revenue (PPNR) and a decision to not declare a dividend to support capital management | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------------- | :------ | :------ | :------ | | Net Income (Loss) | $3.7M | ($9.0M) | ($2.2M) | | Basic & Diluted EPS (Loss per share) | $0.42 | ($1.03) | ($0.25) | | Adjusted PPNR | $2.1M | $1.5M | $0.53M | - The Board of Directors elected not to declare a dividend for Q2 2025 as part of a prudent capital management approach, focusing on maintaining a strong balance sheet[3] - Interim CEO Geraldine Bullard noted continued modest improvement in performance measures, including net interest margin expansion and the fifth consecutive quarter of growing Adjusted PPNR[5] Key Operational and Financial Trends The second quarter saw several positive operational and financial trends, including improved asset returns, net interest margin expansion, and enhanced efficiency. The company also recorded a significant payroll tax credit and consolidated business centers, while actively managing legal proceedings | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------------------- | :------ | :------ | :----------- | | Return on average assets | 0.68% | -1.69% | +2.37 pp | | Net interest margin | 2.83% | 2.76% | +0.07 pp | | Efficiency ratio | 78.0% | 113.5% | -35.5 pp | | Customer deposits | $1.55B | $1.53B | +$19.6M | | Recapture of provision for credit losses | $296K | $7.8M | -$7.5M | - The efficiency ratio improved significantly due to a $2.6 million payroll tax credit (Employee Retention Credit, ERC) recognized in Q2 2025, partially offset by a $528,000 consulting expense[9] - The Bank consolidated its Bellevue and Fremont business centers into a new Seattle location, incurring a one-time $599,000 expense for early lease termination but expecting $130,000 annual rent savings[9] - A settlement agreement was reached in one previously disclosed legal matter, while the Bank continues to vigorously defend against separate legal proceedings[9] Financial Performance Analysis Net Income and Earnings Per Share First Northwest Bancorp achieved a net income of $3.7 million in Q2 2025, a substantial turnaround from net losses in the preceding and prior year quarters, resulting in positive basic and diluted income per share | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------------- | :------ | :------ | :------ | | Net Income (Loss) | $3.7M | ($9.0M) | ($2.2M) | | Basic & Diluted EPS (Loss per share) | $0.42 | ($1.03) | ($0.25) | Adjusted Pre-Tax, Pre-Provision Net Revenue (PPNR) Adjusted PPNR continued its upward trend, increasing for the fifth consecutive quarter to $2.1 million in Q2 2025, reflecting improved core profitability before credit losses and taxes, and after adjusting for nonrecurring items | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :---------------- | :------ | :------ | :------ | | Adjusted PPNR | $2.1M | $1.5M | $0.53M | | Change (QoQ) | +$0.6M | | | | Change (YoY) | +$1.6M | | | | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--------------------- | :------------ | :------------- | :------------ | | Net interest income (GAAP) | $14,193 | $13,847 | $14,235 | | Total noninterest income (GAAP) | $2,170 | $3,777 | $7,347 | | Total noninterest expense (GAAP) | $12,765 | $20,000 | $15,609 | | PPNR (Non-GAAP) | $3,598 | ($2,376) | $5,973 | | Adjusted PPNR (Non-GAAP) | $2,085 | $1,469 | $530 | Net Interest Income and Margin Net interest income saw a modest increase quarter-over-quarter, driven by higher yields on loans and reduced interest expense from brokered CDs and customer deposits. This led to an expansion of the net interest margin | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------- | :------ | :------ | :------ | | Total interest income | $27.1M | $26.8M | $28.6M | | Total interest expense | $12.9M | $13.0M | $14.4M | | Net interest margin | 2.83% | 2.76% | 2.76% | - Interest income increased primarily due to higher yields on loans receivable, despite decreases in investment securities yield and volume[17] - Interest expense decreased due to a reduction in brokered CDs and lower rates paid on customer CDs and demand deposits, partially offset by increases in money market and savings accounts[17] Noninterest Income and Expense Noninterest income decreased quarter-over-quarter due to nonrecurring items in the prior quarter, while noninterest expense significantly decreased, primarily driven by the Employee Retention Credit and the absence of a large legal reserve | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------- | :------ | :------ | :----------- | | Noninterest income | $2.2M | $3.8M | -$1.6M | | Noninterest expense | $12.8M | $20.0M | -$7.2M | - The decrease in noninterest income was mainly due to the first quarter of 2025 including a $1.1 million BOLI death benefit and an $846,000 gain on extinguishment of debt[17] - The reduction in noninterest expense was primarily attributable to the Employee Retention Credit (ERC) recorded in compensation and benefits, and the absence of the $5.8 million legal reserve from the preceding quarter[17] Selected Quarterly Financial Ratios Key performance ratios showed significant improvement in Q2 2025, with a positive return on average assets and equity, and an improved efficiency ratio, reflecting enhanced profitability and operational effectiveness | Performance Ratio | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Return on average assets | 0.68% | -1.69% | -0.51% | -0.36% | -0.40% | | Adjusted PPNR return on average assets | 0.39% | 0.27% | 0.26% | 0.17% | 0.10% | | Return on average equity | 10.00% | -23.42% | -6.92% | -4.91% | -5.47% | | Net interest margin | 2.83% | 2.76% | 2.73% | 2.70% | 2.76% | | Efficiency ratio | 78.0% | 113.5% | 92.2% | 100.3% | 72.3% | | Equity to total assets | 6.82% | 6.75% | 6.89% | 7.13% | 7.17% | | Book value per common share | $15.85 | $15.52 | $16.45 | $17.17 | $16.81 | Asset Quality and Credit Losses Allowance for Credit Losses on Loans (ACLL) The Allowance for Credit Losses on Loans (ACLL) decreased in Q2 2025, primarily due to a release of reserves on individually evaluated loans, despite net loan charge-offs. This resulted in a recapture of provision expense for the quarter | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :------------ | | ACLL Balance | $18.4M | $20.6M | $19.3M | | ACLL as % of total loans | 1.10% | 1.24% | 1.14% | | Recapture of provision for credit losses | $296K | $7.8M | $8.7M | | Net loan charge-offs | $1.9M | $7.7M | $7.3M | - A $2.6 million release of reserves on individually evaluated loans contributed to the decrease in ACLL, partially offset by $1.9 million in net loan charge-offs[14] Nonperforming Loans and Classified Loans Nonperforming loans remained stable quarter-over-quarter, with new additions offset by principal payments and charge-offs. Classified loans decreased, although a significant portion remains concentrated in four collateral-dependent relationships, for which the Bank is pursuing legal remedies | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :------------ | | Nonperforming loans | $20.4M | $20.4M | $23.6M | | Classified loans | $30.9M | $31.6M | $30.4M | | ACLL to nonperforming loans | 90% | 101% | 82% | | Nonaccrual loans as % of total loans | 1.22% | 1.23% | 1.39% | | Nonperforming assets as % of total assets | 0.99% | 0.94% | 1.07% | - Nonperforming loans saw a $4.1 million commercial real estate loan transition to nonperforming status, balanced by $3.6 million in principal payments and $1.3 million in charge-offs[15] - Four collateral-dependent loans, totaling $23.8 million, represent 77% of the classified loan balance, with the Bank actively pursuing legal remedies including foreclosure[16] Financial Condition and Capital Management Investment Securities Investment securities decreased slightly in Q2 2025 due to maturities and principal payments, partially offset by new purchases. Net unrealized losses remained flat, and the portfolio's effective duration increased | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (%) | YoY Change (%) | | :-------------------------------- | :------------ | :------------- | :------------ | :------------- | :------------- | | Total securities available for sale | $303.5M | $315.4M | $306.7M | -3.8% | -1.0% | | Estimated average life | 7.6 years | 6.9 years | 7.8 years | +0.7 years | -0.2 years | | Effective duration | 4.9 years | 4.3 years | 4.3 years | +0.6 years | +0.6 years | - Maturities ($11.8 million) and principal payments ($5.7 million) outpaced purchases ($5.5 million) during the quarter[21] Loans Receivable Net loans increased modestly quarter-over-quarter, driven by new funding and draws, which exceeded payoffs, regular payments, and charge-offs. Construction loans showed significant growth, while multi-family and one-to-four family loans decreased | Loan Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (%) | YoY Change (%) | | :---------------------- | :------------ | :------------- | :------------ | :------------- | :------------- | | Total loans receivable, net | $1.647B | $1.638B | $1.678B | +0.6% | -1.8% | | Construction and land | $72.5M | $64.9M | $107.3M | +11.8% | -32.4% | | Home equity | $84.9M | $79.2M | $72.6M | +7.3% | +17.0% | | Multi-family | $329.7M | $338.1M | $350.1M | -2.5% | -5.8% | - New loan funding ($47.2 million) and draws ($23.9 million) exceeded loan payoffs ($34.1 million), regular payments ($28.4 million), and charge-offs ($2.4 million)[22] Deposits Total deposits decreased slightly, primarily due to a significant reduction in brokered time deposits, which offset an increase in customer deposits. The deposit mix shifted towards money market and customer CD accounts, reflecting the competitive rate environment | Deposit Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (%) | YoY Change (%) | | :-------------------------- | :------------ | :------------- | :------------ | :------------- | :------------- | | Total deposits | $1.65B | $1.67B | $1.71B | -0.7% | -3.1% | | Customer deposits | +$19.6M | | | | | | Brokered time deposits | -$31.0M | | | | | | Money market accounts | $484.8M | $424.5M | $423.0M | +14.2% | +14.6% | | Certificates of deposit, brokered | $106.9M | $137.9M | $223.7M | -22.5% | -52.2% | - The current rate environment continues to drive competition for deposits, leading to increased volumes and higher rates paid on money market and savings accounts[25] Shareholders' Equity and Capital Ratios Shareholders' equity increased due to net income and an increase in the fair market value of available-for-sale securities. The Company and Bank maintain capital levels well above regulatory requirements, with the Bank categorized as 'well-capitalized' | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Total shareholders' equity | $149.7M | $146.5M | | Common Equity Tier 1 Ratio (Bank) | 12.1% | 12.1% | | Total Risk-Based Capital Ratio (Bank) | 13.1% | 13.4% | - The increase in shareholders' equity was primarily driven by net income of $3.7 million and a $128,000 increase in the after-tax fair market values of available-for-sale investment securities[26] - The Bank was categorized as 'well-capitalized' at June 30, 2025, with preliminary Common Equity Tier 1 and Total Risk-Based Capital Ratios of 12.1% and 13.1%, respectively[27] Dividend Policy The Board of Directors decided not to declare a dividend for Q2 2025 as a prudent capital management measure, despite having paid cash dividends in the quarter. The company remains committed to evaluating future dividend decisions based on long-term strategic objectives - The Board of Directors elected not to declare a dividend for Q2 2025 to maintain a strong balance sheet and support long-term strategic objectives[3] - The Company paid cash dividends totaling $650,000 in Q2 2025, but no shares were repurchased under the April 2024 Stock Repurchase Plan[28] Company Overview and Other Information About First Northwest Bancorp First Northwest Bancorp is a financial holding company operating First Fed Bank, a Pacific Northwest institution established in 1923. The company focuses on building sustainable earnings through a full range of financial products and services, strategic partnerships, and modern financial services - First Northwest Bancorp (Nasdaq: FNWB) is the holding company for First Fed Bank, a Pacific Northwest financial institution serving customers since 1923[30] - First Fed operates 17 locations in Washington state, including 12 full-service branches, and focuses on building sustainable earnings by offering diverse financial products and services[30] - The company also engages in strategic partnerships to provide modern financial services like digital payments and marketplace lending, and made an investment in The Meriwether Group, LLC in 2022[30] Awards and Recognition First Northwest Bancorp received several awards and recognitions in 2024 and 2025, highlighting its standing as a leading bank and corporate philanthropist in the region - Recognized as 'Forbes Best-in-State Banks' in 2025[29] - Received multiple awards in 2024, including 'Puget Sound Business Journal Top Corporate Philanthropists', 'Bellingham Best of the Northwest - Silver', 'The Leader Readers Choice Award - Best Bank', and 'Best Lender/Bank in Clallam and Jefferson County' by Sound Publishing[29] Forward-Looking Statements This section contains forward-looking statements regarding future expectations, performance, and market opportunities, which are subject to various risks and uncertainties. Readers are cautioned against undue reliance on these statements, as actual results may differ materially - The press release includes forward-looking statements concerning business environment expectations, future performance, market opportunities, and potential credit experience[31] - These statements are based on current management beliefs and involve risks and uncertainties, such as competitive pressures, interest rate changes, credit risks, liquidity pressures, and regulatory changes[31] - The Company disclaims any obligation to revise forward-looking statements to reflect future events or circumstances, and actual results may differ materially from those expressed or implied[32] Consolidated Financial Statements Consolidated Balance Sheets The consolidated balance sheets provide a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity across multiple quarters, showing trends in key accounts like loans, deposits, and investment securities | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | ASSETS | | | | | | | Total assets | $2,195,363 | $2,171,430 | $2,232,006 | $2,255,486 | $2,215,962 | | Loans receivable (net) | $1,647,217 | $1,637,573 | $1,675,186 | $1,714,416 | $1,677,764 | | Investment securities available for sale | $303,515 | $315,433 | $340,344 | $310,860 | $306,714 | | LIABILITIES | | | | | | | Total liabilities | $2,045,630 | $2,024,938 | $2,078,124 | $2,094,697 | $2,057,081 | | Deposits | $1,654,636 | $1,666,068 | $1,688,026 | $1,711,641 | $1,708,288 | | Borrowings | $344,108 | $307,091 | $336,014 | $334,994 | $302,575 | | SHAREHOLDERS' EQUITY | | | | | | | Total shareholders' equity | $149,733 | $146,492 | $153,882 | $160,789 | $158,881 | Consolidated Statements of Operations The consolidated statements of operations detail the company's revenues, expenses, and net income (loss) over various periods, illustrating the drivers of profitability, including interest income, interest expense, provision for credit losses, and noninterest items | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total interest income | $27,131 | $26,823 | $28,197 | $28,206 | $28,611 | | Total interest expense | $12,938 | $12,976 | $14,060 | $14,186 | $14,376 | | Net interest income | $14,193 | $13,847 | $14,137 | $14,020 | $14,235 | | (Recapture of) provision for credit losses | ($360) | $7,785 | $3,655 | $3,134 | $8,739 | | Total noninterest income | $2,170 | $3,777 | $1,300 | $1,779 | $7,347 | | Total noninterest expense | $12,765 | $20,000 | $14,233 | $15,848 | $15,609 | | Net income (loss) | $3,661 | ($9,036) | ($2,810) | ($1,980) | ($2,219) | | Basic and diluted earnings (loss) per common share | $0.42 | ($1.03) | ($0.32) | ($0.23) | ($0.25) | Net Interest Margin Analysis The net interest margin analysis provides a detailed breakdown of average balances, interest earned/paid, and yields/rates for interest-earning assets and interest-bearing liabilities, highlighting the factors contributing to the net interest margin | (Dollars in thousands) | Average Balance (Q2 2025) | Interest Earned/Paid (Q2 2025) | Yield/Rate (Q2 2025) | Average Balance (Q2 2024) | Interest Earned/Paid (Q2 2024) | Yield/Rate (Q2 2024) | | :-------------------------------- | :------------------------ | :----------------------------- | :------------------- | :------------------------ | :----------------------------- | :------------------- | | Interest-earning assets: | | | | | | | | Loans receivable, net | $1,639,236 | $22,814 | 5.58% | $1,698,777 | $23,733 | 5.62% | | Total interest-earning assets | $2,010,434 | $27,131 | 5.41% | $2,072,280 | $28,611 | 5.55% | | Interest-bearing liabilities: | | | | | | | | Total interest-bearing deposits | $1,413,606 | $9,552 | 2.71% | $1,408,018 | $10,180 | 2.91% | | Total interest-bearing liabilities | $1,723,382 | $12,938 | 3.01% | $1,762,858 | $14,376 | 3.28% | | Net interest income | | $14,193 | | | $14,235 | | | Net interest margin | | | 2.83% | | | 2.76% | Non-GAAP Financial Measures Reconciliation This section provides reconciliations of non-GAAP financial measures, such as PPNR and Adjusted PPNR, to their most directly comparable GAAP measures. These non-GAAP metrics are used by management to assess core operating performance by removing volatile estimates and nonrecurring transactions - Non-GAAP measures like PPNR and Adjusted PPNR are presented to help investors understand the Company's results and assess trends by removing volatile estimates and nonrecurring transactions[43][44] | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Net income (loss) (GAAP) | $3,661 | ($9,036) | ($2,810) | ($1,980) | ($2,219) | | PPNR (Non-GAAP) | $3,598 | ($2,376) | $1,204 | ($49) | $5,973 | | Adjusted PPNR (Non-GAAP) | $2,085 | $1,469 | $1,430 | $947 | $530 | | Return on average assets (GAAP) | 0.68% | -1.69% | -0.51% | -0.36% | -0.40% | | Adjusted PPNR return on average assets (Non-GAAP) | 0.39% | 0.27% | 0.26% | 0.17% | 0.10% | Tangible Common Equity Reconciliation This section reconciles GAAP equity measures to tangible common equity, which is used to improve comparability with other institutions by excluding goodwill and other intangible assets. It provides insights into the tangible book value and return on tangible common equity - The use of tangible equity and tangible assets improves comparability to other institutions that have not engaged in acquisitions resulting in goodwill and other intangibles[46] | (Dollars in thousands, except per share data) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total shareholders' equity | $149,733 | $146,492 | $153,882 | $160,789 | $158,881 | | Total tangible common equity | $148,280 | $144,995 | $152,377 | $159,217 | $157,280 | | Total assets | $2,195,363 | $2,171,430 | $2,232,006 | $2,255,486 | $2,215,962 | | Total tangible assets | $2,193,910 | $2,169,933 | $2,230,501 | $2,253,914 | $2,214,361 | | Tangible common equity to tangible assets (Non-GAAP) | 6.76% | 6.68% | 6.83% | 7.06% | 7.10% | | Return on average tangible common equity (Non-GAAP) | 10.10% | -23.65% | -6.99% | -4.96% | -5.53% | | Tangible book value per common share (Non-GAAP) | $15.70 | $15.36 | $16.29 | $17.00 | $16.64 |