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

PART I - FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for First Northwest Bancorp Item 1 - Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows, for First Northwest Bancorp and First Fed Bank Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity Key Balance Sheet Items (in thousands): | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Cash and due from banks | $18,487 | $16,811 | | Interest-earning deposits in banks | $69,376 | $55,637 | | Investment securities available for sale | $303,515 | $340,344 | | Loans receivable (net) | $1,647,217 | $1,675,186 | | Deposits | $1,654,636 | $1,688,026 | | Borrowings | $344,108 | $336,014 | | Total assets | $2,195,363 | $2,232,006 | | Total liabilities | $2,045,630 | $2,078,124 | | Total shareholders' equity | $149,733 | $153,882 | - Total Assets decreased by 1.6% from $2.23 billion at December 31, 2024, to $2.20 billion at June 30, 2025[10] - Total Shareholders' Equity decreased from $153.9 million at December 31, 2024, to $149.7 million at June 30, 2025[10] Consolidated Statements of Operations This section presents the company's financial performance, detailing net income (loss) and key revenue and expense items Net Income (Loss) (in thousands): | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $3,661 | $(2,219) | | Six Months Ended June 30, | $(5,375) | $(1,823) | Basic and Diluted Earnings (Loss) per Common Share: | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $0.42 | $(0.25) | | Six Months Ended June 30, | $(0.61) | $(0.21) | Key Income Statement Items (in thousands): | Item | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $27,131 | $28,611 | $53,954 | $55,937 | | Total interest expense | $12,938 | $14,376 | $25,914 | $27,774 | | Net interest income | $14,193 | $14,235 | $28,040 | $28,163 | | (Recapture of) provision for credit losses | $(360) | $8,739 | $7,425 | $9,709 | | Total noninterest income | $2,170 | $7,347 | $5,947 | $9,535 | | Total noninterest expense | $12,765 | $15,609 | $32,765 | $29,912 | | Net income (loss) | $3,661 | $(2,219) | $(5,375) | $(1,823) | Consolidated Statements of Comprehensive Income (Loss) This section outlines the company's comprehensive income (loss), including net income and other comprehensive income components Comprehensive Income (Loss) (in thousands): | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $3,592 | $(1,351) | | Six Months Ended June 30, | $(3,401) | $(784) | Other Comprehensive Income (Loss), net of tax (in thousands): | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $(69) | $868 | | Six Months Ended June 30, | $1,974 | $1,039 | Consolidated Statements of Changes in Shareholders' Equity This section details changes in shareholders' equity, reflecting net income (loss), other comprehensive income, and dividends Total Shareholders' Equity (in thousands): | Period | Balance | | :-------------------------------- | :----- | | June 30, 2025 | $149,733 | | June 30, 2024 | $158,881 | | December 31, 2024 | $153,882 | | December 31, 2023 | $163,340 | - Net loss for the six months ended June 30, 2025, was $(5.4 million), compared to $(1.8 million) in 2024[18] - Other comprehensive income, net of tax, for the six months ended June 30, 2025, was $2.0 million, compared to $1.0 million in 2024[18] Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities Net Cash Flows (Six Months Ended June 30, in thousands): | Activity | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Operating activities | $(17,771) | $3,242 | | Investing activities | $59,228 | $(51,726) | | Financing activities | $(26,042) | $8,494 | | Net increase (decrease) in cash and cash equivalents | $15,415 | $(39,990) | | Cash and cash equivalents at end of period | $87,863 | $83,179 | - Provision for credit losses on loans was $7.5 million in 2025, compared to $9.9 million in 2024[20] - A gain on extinguishment of subordinated debt of $(0.8 million) was recorded in 2025, with no comparable amount in 2024[20] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1 - Basis of Presentation and Critical Accounting Policies This note outlines the company's structure, business activities, and critical accounting policies, including estimates for credit losses and fair value - First Northwest Bancorp is the holding company for First Fed Bank, a community-oriented financial institution in western Washington State[24][29] - Unaudited interim consolidated financial statements adhere to SEC rules and GAAP, requiring estimates for credit losses, fair value, and deferred taxes[30][32] - Recently adopted and issued accounting pronouncements are not expected to materially impact the consolidated financial statements[35][36][37] Note 2 - Securities This note details investment securities available-for-sale, including fair value and unrealized gains/losses, primarily driven by interest rate changes Total Securities Available for Sale (in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Amortized Cost | $336,206 | $376,265 | | Estimated Fair Value | $303,515 | $340,344 | | Gross Unrealized Gains | $434 | $238 | | Gross Unrealized Losses | $(33,125) | $(36,159) | - Unrealized losses on investment securities are primarily due to general interest rate changes and market volatility, not credit quality deterioration, with no credit impairment recorded[42] Maturity Profile of Investment Securities (June 30, 2025, in thousands): | Maturity | Mortgage-backed securities (Amortized Cost) | All other investment securities (Amortized Cost) | | :-------------------------- | :------------------------------------------ | :---------------------------------------------- | | Due within one year | $5,929 | $0 | | Due after one through five years | $10,404 | $26,013 | | Due after five through ten years | $7,962 | $54,904 | | Due after ten years | $127,844 | $103,150 | | Total | $152,139 | $184,067 | Note 3 - Loans Receivable This note details the loan portfolio, including segments, nonaccrual loans, credit quality, and modified loans to troubled borrowers Total Loans Receivable (in thousands): | Loan Segment | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Real Estate Loans | $1,181,055 | $1,196,400 | | Consumer Loans | $365,804 | $347,930 | | Commercial Business Loans | $117,843 | $151,493 | | Total Loans Receivable | $1,664,702 | $1,695,823 | - Nonaccrual loans decreased from $30.5 million at December 31, 2024, to $20.4 million at June 30, 2025[50] - As of June 30, 2025, $31.0 million of loans were individually evaluated, with $79 thousand of ACLL attributed, primarily based on collateral value[62] - One new Modified Loan to Troubled Borrower (MLTB) was recorded for a commercial construction loan with a $5.5 million investment[66] - Other Real Estate Owned (OREO) increased to $1.3 million at June 30, 2025, from $0 at December 31, 2024[68] Note 4 - Allowance for Credit Losses on Loans This note details the Allowance for Credit Losses on Loans (ACLL) and unfunded commitments, including a Q2 2025 recapture of provision Allowance for Credit Losses on Loans (ACLL) (in thousands): | Period | Balance | | :-------------------- | :------ | | June 30, 2025 | $18,345 | | December 31, 2024 | $20,449 | Provision for Credit Losses on Loans (in thousands): | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $(296) | $8,640 | | Six Months Ended June 30, | $7,474 | $9,879 | - The ACLL as a percentage of total loans was 1.10% at June 30, 2025, down from 1.21% at December 31, 2024[161] - The ACLL as a percentage of nonaccrual loans increased to 90% at June 30, 2025, up from 67% at December 31, 2024[162] Note 5 - Deposits This note details deposit composition, interest rates, and maturities, showing a decrease in total deposits driven by brokered CDs Deposit Composition and Weighted Average Interest Rates (in thousands): | Deposit Type | June 30, 2025 (Amount) | June 30, 2025 (Rate) | Dec 31, 2024 (Amount) | Dec 31, 2024 (Rate) | | :-------------------------------- | :--------------------- | :------------------- | :-------------------- | :-------------------- | | Noninterest-bearing demand deposits | $240,051 | 0.00% | $256,416 | 0.00% | | Interest-bearing demand deposits | $144,409 | 0.11% | $164,891 | 0.44% | | Money market accounts | $484,787 | 2.47% | $413,822 | 2.26% | | Savings accounts | $227,968 | 1.56% | $205,055 | 1.35% | | Certificates of deposit, customer | $450,494 | 3.84% | $464,928 | 4.18% | | Certificates of deposit, brokered | $106,927 | 4.13% | $182,914 | 4.73% | | Total deposits | $1,654,636 | 2.26% | $1,688,026 | 2.42% | - Total deposits decreased by $33.4 million (2.0%), driven by a $76.0 million decrease in brokered deposits, partially offset by a $42.6 million increase in customer deposits[73][170] Maturities of Certificates of Deposit (in thousands): | Maturity | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Within one year or less | $512,244 | $527,486 | | After one year through two years | $29,933 | $66,767 | | After two years through three years | $10,601 | $29,378 | | After three years through four years | $3,879 | $21,967 | | After four years through five years | $764 | $2,244 | | Total certificates of deposit | $557,421 | $647,842 | Note 6 - Borrowings This note details borrowing arrangements, available capacities, and the Q1 2025 redemption of subordinated debt Borrowing Balances (in thousands): | Borrowing Type | June 30, 2025 (Balance) | Dec 31, 2024 (Balance) | | :-------------------- | :---------------------- | :--------------------- | | FHLB Long Term Advances | $170,000 | $160,000 | | FHLB Overnight Variable-Rate Advances | $130,000 | $130,000 | | NexBank Line of Credit | $9,500 | $6,500 | | Subordinated Debt, net | $34,608 | $39,514 | | Total | $344,108 | $336,014 | - Available borrowing capacity at June 30, 2025, included $179.9 million from FHLB, $17.6 million from FRB, $10.5 million from NexBank, and $50.0 million from PCBB[78][79][81][82][209] - In March 2025, the Company redeemed $5.0 million of subordinated notes, resulting in a $905 thousand gain on extinguishment of debt[80] Note 7 - Income Tax This note discusses deferred tax assets/liabilities, effective tax rates, and the potential impact of the "One Big Beautiful Bill Act" - The effective tax rate was 13.3% for the six months ended June 30, 2025, compared to 5.2% for the same period in 2024[87] - Factors influencing the effective tax rate include nontaxable earnings on BOLI, tax-exempt interest income, and estimates for early BOLI surrender penalties[87] - The "One Big Beautiful Bill Act" (July 4, 2025) includes federal tax law changes, such as 100% bonus depreciation, under evaluation for future impact[88] Note 8 - Earnings (Loss) per Common Share This note outlines the computation of basic and diluted earnings per share using the two-class method Basic and Diluted Earnings (Loss) per Common Share: | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $0.42 | $(0.25) | | Six Months Ended June 30, | $(0.61) | $(0.21) | Weighted Average Common Shares Outstanding (Basic, in thousands): | Period | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Three Months Ended June 30, | 8,783,035 | 8,783,086 | | Six Months Ended June 30, | 8,765,335 | 8,829,687 | Note 9 - Employee Benefits This note describes the Employee Stock Ownership Plan (ESOP), including its funding, share allocation, and compensation expense ESOP Compensation Expense (in thousands): | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $122 | $148 | | Six Months Ended June 30, | $262 | $345 | - Total ESOP shares issued remained constant at 1,048,029 shares at both June 30, 2025, and December 31, 2024[94] - The fair value of unallocated ESOP shares decreased to $3.9 million at June 30, 2025, from $5.4 million at December 31, 2024[94] Note 10 - Stock-based Compensation This note details equity incentive plans, including restricted stock and performance share awards, vesting, and compensation expense Total Compensation Expense for Equity Incentive Plans (in thousands): | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | $211 | $257 | | Six Months Ended June 30, | $405 | $521 | - As of June 30, 2025, 120,377 total shares were available for grant under the 2020 Equity Incentive Plan (EIP)[95] - Unrecognized compensation cost for non-vested shares was $1.4 million as of June 30, 2025, to be recognized over approximately 2.2 years[103] Note 11 - Fair Value Measurements This note explains the fair value measurement hierarchy and applies it to assets and liabilities, including securities and servicing rights - The Company uses a three-level valuation hierarchy for fair value measurements, categorizing inputs as Level 1 (quoted prices), Level 2 (observable), and Level 3 (unobservable)[105][106] Assets Measured at Fair Value on a Recurring Basis (June 30, 2025, in thousands): | Asset | Level 1 | Level 2 | Level 3 | Total | | :-------------------------- | :------ | :------ | :------ | :------ | | Securities available-for-sale | $13,109 | $277,208 | $13,198 | $303,515 | | Sold loan servicing rights | $0 | $0 | $3,220 | $3,220 | | Total | $13,109 | $277,208 | $16,418 | $306,735 | Level 3 Assets (June 30, 2025, in thousands): | Asset | Fair Value | Valuation Technique | Unobservable Input (Weighted Average) | | :-------------------- | :--------- | :------------------ | :------------------------------------ | | Sold loan servicing rights | $3,220 | Discounted cash flow | Constant prepayment rate (5.89%), Discount rate (11.33%) | | MBS non-agency | $13,198 | Consensus pricing | Offered quotes (98.7 - 100.6) | Note 12 - Change in Accumulated Other Comprehensive Income ("AOCI") This note details the components of Accumulated Other Comprehensive Income (AOCI), including unrealized gains/losses on securities and defined benefit plans Total Accumulated Other Comprehensive Income (AOCI) (in thousands): | Period | Balance | | :-------------------- | :-------- | | June 30, 2025 | $(28,198) | | December 31, 2024 | $(30,172) | - Net other comprehensive income for the six months ended June 30, 2025, was $2.0 million, compared to $1.0 million for the same period in 2024[118] Note 13 - Derivatives and Hedging Activities This note describes the company's use of interest rate swaps as fair value hedges to manage interest rate risk - The Company uses interest rate swaps as fair value hedges to manage exposure to changes in fixed-rate asset fair value due to benchmark interest rates[119][120] Cumulative Fair Value Hedging Adjustment (June 30, 2025, in thousands): | Item | Amount | | :-------------------- | :----- | | Investment securities | $1,011 | | Loans receivable | $861 | | Total | $1,872 | - Net expense recognized on fair value hedges for the six months ended June 30, 2025, was $(43 thousand), compared to $(380 thousand) for the same period in 2024[123] Note 14 - Segment Reporting This note clarifies that First Fed operates as a single industry segment, with performance assessed on consolidated net income and assets - First Fed's business activities are considered a single industry segment for financial reporting purposes[127] - The Chief Operating Decision Maker (CODM) assesses performance based on consolidated net income and total consolidated assets[128][129] Note 15 - Contingencies This note discloses significant legal proceedings, including the Water Station Management Litigation and a new complaint alleging fraud - The Bank settled the Water Station Management Adversary Proceeding, agreeing to cash payments between $2.87 million and $5.74 million, with a $5.8 million reserve recorded in Q1 2025[132][133] - A new complaint against First Fed alleges fraud and seeks at least $106.9 million in compensatory damages, which the Company intends to vigorously defend[134] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and results, including forward-looking statements, regulatory developments, and liquidity Forward-Looking Statements This section highlights the nature and inherent uncertainties of forward-looking statements regarding future performance and risks - Forward-looking statements encompass goals, intentions, business plans, growth strategies, portfolio quality, litigation, and future risk estimates[137] - These statements are subject to significant business, economic, and competitive uncertainties, including lending risks, regulatory changes, and interest rate policies[136][137] - Actual results may differ materially from expectations, and the Company has no obligation to update or revise these statements[138] General Business Overview This section provides an overview of First Northwest Bancorp's structure, banking services, and primary income sources - First Northwest Bancorp is a bank holding company with First Fed Bank as its wholly-owned subsidiary, engaged in banking and non-banking financial activities[139] - First Fed Bank provides commercial and consumer banking services in Western Washington, offering diverse lending and traditional deposit products[140] - The Company holds strategic investments in fintech-related businesses through limited partnerships and equity interests[139][141] - Primary income sources include net interest income from loans and investments, and noninterest income from service fees, mortgage banking, and BOLI[143] Recent Regulatory Developments This section outlines recent regulatory changes impacting the banking industry, including CRA, bank mergers, and stablecoin legislation - Federal banking agencies proposed rescinding the October 2023 CRA final rule, restoring the previous framework under which the Bank received a 'satisfactory' rating[146] - The FDIC rescinded its 2024 Bank Merger Policy Statement, reinstating prior policy, while the DOJ maintains more stringent 2023 Merger Guidelines[147] - The 'GENIUS Act' established a federal framework for payment stablecoins, potentially increasing competition and creating new opportunities for banks[148] Critical Accounting Policies This section confirms no material changes to the critical accounting policies from the prior year's Form 10-K - There are no material changes to the critical accounting policies from those disclosed in the Company's 2024 Form 10-K[149] Comparison of Financial Condition at June 30, 2025 and December 31, 2024 This section compares the company's financial condition, including assets, liabilities, and equity, between June 30, 2025, and December 31, 2024 - Total assets decreased by 1.6% to $2.20 billion at June 30, 2025, from $2.23 billion at December 31, 2024[150] - Net loans decreased by 1.7% to $1.65 billion at June 30, 2025, from $1.68 billion at December 31, 2024, driven by decreases in commercial and real estate loans, partially offset by consumer loan increases[153][154][155] - Nonperforming loans decreased by 33.3% to $20.4 million at June 30, 2025, from $30.5 million at December 31, 2024, due to charge-offs and payments[162] - Total liabilities decreased to $2.05 billion at June 30, 2025, from $2.08 billion at December 31, 2024, primarily due to a $76.0 million decrease in brokered deposits[169][170] - Total shareholders' equity decreased by $4.2 million to $149.7 million due to net loss and dividends, partially offset by increased fair value of available-for-sale securities[172] Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024 This section compares the company's operational results for the three months ended June 30, 2025, and 2024, focusing on net income, interest income, and expenses - The Company recorded net income of $3.7 million for Q2 2025, a significant improvement from a net loss of $2.2 million in Q2 2024[173] - Net interest income decreased slightly by $42 thousand to $14.19 million, while the net interest margin increased 7 basis points to 2.83% for Q2 2025[174][175] - Total interest income decreased by 5.2% to $27.1 million, and total interest expense decreased by 10.0% to $12.9 million, due to lower asset yields and reduced funding costs[176][178] - A recapture of provision for credit losses of $360 thousand was recorded in Q2 2025, a significant improvement from the $8.6 million provision in Q2 2024[180] - Noninterest income decreased by 70.5% to $2.2 million, primarily due to the absence of a $7.9 million gain from a prior year sale-leaseback; noninterest expense decreased by 18.2% to $12.8 million due to an employee retention credit[181][182] Comparison of Results of Operations for the Six Months Ended June 30, 2025 and 2024 This section compares the company's operational results for the six months ended June 30, 2025, and 2024, focusing on net income, interest income, and expenses - The Company recorded a net loss of $5.4 million for H1 2025, compared to a net income of $1.8 million for the same period in 2024[184] - Net interest income decreased slightly by $123 thousand to $28.0 million, while the net interest margin increased 4 basis points to 2.80% for H1 2025[185][188] - Total interest income decreased by 3.5% to $54.0 million, and total interest expense decreased by 6.7% to $25.9 million, due to decreased asset yields and reduced funding costs[189][190] - A provision for credit losses of $7.5 million was recorded in H1 2025, compared to $9.9 million in H1 2024, reflecting collateral deficiencies and net charge-offs[192] - Noninterest income decreased by 37.6% to $6.0 million, primarily due to the absence of a $7.9 million gain from a prior year sale-leaseback, partially offset by a $1.1 million BOLI death benefit and an $846 thousand gain on debt extinguishment; noninterest expense increased by 9.5% to $32.8 million due to a $5.8 million accrued legal reserve[193][194] Average Balances, Interest and Average Yields/Cost This section presents average balances, interest income/expense, and average yields/costs for interest-earning assets and liabilities Average Yield on Interest-Earning Assets: | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | 5.41% | 5.55% | | Six Months Ended June 30, | 5.38% | 5.49% | Average Cost of Interest-Bearing Liabilities: | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | 3.01% | 3.28% | | Six Months Ended June 30, | 3.03% | 3.21% | Net Interest Margin: | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30, | 2.83% | 2.76% | | Six Months Ended June 30, | 2.80% | 2.76% | Rate/Volume Analysis This section analyzes changes in net interest income attributable to fluctuations in interest rates and asset/liability volumes Change in Net Interest Income (in thousands): | Period | Change Due to Volume | Change Due to Rate | Total Change | | :-------------------------------- | :------------------- | :----------------- | :----------- | | Three Months Ended June 30, 2025 Compared to June 30, 2024 | $(1) | $(41) | $(42) | | Six Months Ended June 30, 2025 Compared to June 30, 2024 | $(54) | $(69) | $(123) | - For the six months ended June 30, 2025, the decrease in interest income from loans receivable was primarily due to volume ($1.2 million) and rate ($304 thousand)[203] - For the six months ended June 30, 2025, the decrease in interest expense from brokered certificates of deposit was due to both volume ($1.6 million) and rate ($267 thousand)[203] Off-Balance Sheet Activities This section confirms no material off-balance sheet transactions impacting financial condition or results of operations - The Company engaged in no off-balance sheet transactions with a material effect on financial condition, results of operations, or cash flows[204] Contractual Obligations This section details the company's contractual obligations, including certificates of deposit, FHLB advances, and operating leases Total Contractual Obligations (June 30, 2025, in thousands): | Obligation | Within 1 Year | After 1 Year Through 3 Years | After 3 Years Through 5 Years | Beyond 5 Years | Total Balance | | :-------------------------- | :------------ | :--------------------------- | :---------------------------- | :------------- | :------------ | | Certificates of deposit | $512,244 | $40,534 | $4,643 | $0 | $557,421 | | FHLB advances | $195,000 | $105,000 | $0 | $0 | $300,000 | | Line of credit | $9,500 | $0 | $0 | $0 | $9,500 | | Subordinated debt obligation | $0 | $0 | $0 | $34,608 | $34,608 | | Operating leases | $2,018 | $4,333 | $3,970 | $17,145 | $27,466 | | Borrower taxes and insurance | $1,325 | $0 | $0 | $0 | $1,325 | | Deferred compensation | $157 | $233 | $261 | $785 | $1,436 | | Total contractual obligations | $720,244 | $150,100 | $8,874 | $52,538 | $931,756 | Commitments and Off-Balance Sheet Arrangements This section outlines the company's commitments and off-balance sheet arrangements, including loan originations and unfunded commitments Total Commitments (June 30, 2025, in thousands): | Commitment Type | Within 1 Year | After 1 Year Through 3 Years | After 3 Years Through 5 Years | Beyond 5 Years | Total Amounts Committed | | :-------------------------------- | :------------ | :--------------------------- | :---------------------------- | :------------- | :---------------------- | | Commitments to originate loans: Fixed-rate | $175 | $0 | $0 | $0 | $175 | | Commitments to originate loans: Variable-rate | $500 | $0 | $0 | $0 | $500 | | Unfunded commitments under lines of credit | $14,464 | $16,647 | $7,189 | $74,040 | $112,340 | | Unfunded commitments under existing construction loans | $32,418 | $21,831 | $0 | $0 | $54,249 | | Standby letters of credit | $150 | $0 | $0 | $200 | $350 | | Unfunded commitments under partnership agreements | $2,875 | $0 | $0 | $0 | $2,875 | | Total commitments | $50,582 | $38,478 | $7,189 | $74,240 | $170,489 | Liquidity Management This section discusses the company's liquidity sources, liquid assets, borrowing capacity, and deposit maturities - Primary sources of funds include investment security payments, deposit inflows, loan repayments, security sales, and borrowings from FHLB and NexBank[207] - At June 30, 2025, liquid assets included $87.9 million in cash and cash equivalents and $246.2 million in unpledged available-for-sale securities[209] - The Bank had available borrowing capacity of $179.9 million from FHLB, $17.6 million from FRB, $50.0 million from PCBB, and $10.5 million from NexBank[209] - CDs due within one year totaled $512.2 million (91.9% of total CDs) with a weighted-average rate of 3.96% at June 30, 2025[211] - The Company had unconsolidated liquid assets of $359 thousand at June 30, 2025, responsible for dividends, stock repurchases, and debt payments[213] Capital Resources This section details the company's capital resources, including shareholders' equity and regulatory capital ratios - Shareholders' equity totaled $149.7 million, or 6.8% of total assets, at June 30, 2025, with a book value per share of $15.85[214] - First Fed exceeded all regulatory capital requirements and was considered 'well capitalized' under FDIC guidelines at June 30, 2025[214] First Fed Capital Ratios (June 30, 2025, in thousands): | Capital Ratio | Actual Amount | Actual Ratio | Minimum Requirements Ratio | Minimum Required to be Well-Capitalized Ratio | | :-------------------------------- | :------------ | :----------- | :------------------------- | :-------------------------------------------- | | Tier 1 leverage capital | $199,317 | 9.1% | 4.0% | 5.0% | | Common equity tier 1 (CET1) | $199,317 | 12.0% | 4.5% | 6.5% | | Tier 1 risk-based capital | $199,317 | 12.0% | 6.0% | 8.0% | | Total risk-based capital | $217,474 | 13.1% | 8.0% | 10.0% | - The Bank's capital conservation buffer was 5.1% at June 30, 2025, exceeding the 2.5% requirement[217] Effect of Inflation and Changing Prices This section discusses the impact of inflation and changing interest rates on the company's financial statements and operations - Financial statements are prepared using historical dollars, without considering changes in purchasing power due to inflation[218] - The primary impact of inflation on operations is reflected in increased operating costs and its effect on interest rates[218] - Interest rates generally have a more significant impact on a financial institution's performance than general inflation levels[218] Item 3 - Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes to the market risk disclosures from the Company's 2024 Form 10-K - There have been no material changes to the market risk disclosures contained in the Company's 2024 Form 10-K[219] Item 4 - Controls and Procedures This section details the evaluation of disclosure controls and procedures, confirming their effectiveness and no material changes to internal controls - The Company's Interim CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[221] - There have been no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025[222] - The Company acknowledges the inherent limitations of control procedures, which provide reasonable assurance but may be circumvented[223] PART II - OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits Item 1 - Legal Proceedings This section refers to Note 15 for details on legal proceedings, with no other matters having a material impact - Material legal proceedings are discussed in Note 15 of the Notes to Consolidated Financial Statements[225] Item 1A - Risk Factors This section updates risk factors, highlighting potential impacts from litigation, regulatory actions, and dependence on key personnel - The Company's business may be adversely impacted by litigation and regulatory enforcement actions, including the Water Station Management complaint, potentially leading to significant liabilities[227][228][229] - The risk factor regarding dependence on key personnel is restated, highlighting the material adverse effect from recent departures of the President/CEO and Chief Banking Officer[230] - No other material changes to the risk factors set forth in the Company's 2024 Form 10-K have occurred[226] Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section reports on common stock repurchases for withholding taxes from restricted stock awards, with no repurchases under the April 2024 plan - During Q2 2025, 2,316 shares of common stock were repurchased from restricted stock award participants to cover withholding taxes upon vesting[232] - No shares were repurchased under the Company's April 2024 stock repurchase plan, leaving 846,123 shares available for future purchases[233] Item 3 - Defaults Upon Senior Securities This section confirms no applicable defaults upon senior securities - This item is not applicable, indicating no defaults upon senior securities[234] Item 4 - Mine Safety Disclosures This section confirms that mine safety disclosures are not applicable to the company - This item is not applicable, indicating no mine safety disclosures[235] Item 5 - Other Information This section confirms no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the fiscal quarter ended June 30, 2025[236] Item 6 - Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and iXBRL financial statements - Exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[237] - The Company's Quarterly Report on Form 10-Q, including financial statements, is filed in Inline Extensible Business Reporting Language (iXBRL) format[237] SIGNATURES This section contains the signatures of the Interim CEO, COO, and CFO, certifying the report on behalf of First Northwest Bancorp - The report is signed by Geraldine Bullard, Interim CEO, COO, and EVP, and Phyllis R. Nomura, CFO and EVP, on August 7, 2025[241]