8-K: First Northwest Bancorp Reports Net Loss for Q4 2024, Cites Elevated Credit Costs

First Northwest Bancorp reported a net loss of $2.8 million for the fourth quarter of 2024, impacted by elevated credit costs, but saw improvement in pre-provision net revenue.

Summary

• First Northwest Bancorp reported a net loss of $2.8 million for the fourth quarter of 2024, which is worse than the $2.0 million loss in the previous quarter but an improvement from the $5.5 million loss in the same quarter of 2023.
• The company's basic and diluted loss per share was $0.32 for the fourth quarter of 2024, compared to a loss of $0.23 in the third quarter of 2024 and a loss of $0.62 in the fourth quarter of 2023.
• Adjusted pre-tax, pre-provision net revenue (PPNR) was $1.2 million for the fourth quarter of 2024, a significant improvement from the $49,000 loss in the previous quarter and $327,000 in the fourth quarter of 2023.
• The company recorded a $3.8 million provision for credit losses on loans in the fourth quarter of 2024, primarily due to charge-offs of six commercial business loans.
• The company declared a quarterly cash dividend of $0.07 per common share, payable on February 28, 2025, to shareholders of record as of February 14, 2025.
• Investment security purchases during the fourth quarter of 2024 totaled $47.1 million, carrying a weighted-average yield of 6.7% at purchase and a weighted-average life of 3.1 years, which is expected to provide $2.6 million in revenue for 2025.
• The net interest margin increased to 2.73% for the fourth quarter of 2024, from 2.70% for the prior quarter, but decreased from 2.84% for the fourth quarter of 2023.
• Nonperforming loans totaled $30.5 million at December 31, 2024, an increase of $139,000 from September 30, 2024.
• The allowance for credit losses on loans (ACLL) decreased $1.5 million to $20.5 million at December 31, 2024, from $22.0 million at September 30, 2024.
• Net loans decreased $39.2 million to $1.68 billion at December 31, 2024, from $1.71 billion at September 30, 2024.
• Total deposits decreased $23.6 million to $1.69 billion at December 31, 2024, compared to $1.71 billion at September 30, 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the reported net loss and increased credit provisions, but there are positive aspects such as improved PPNR and strategic balance sheet management. The company is facing challenges but is taking steps to address them.

Positives

• Adjusted pre-tax, pre-provision net revenue (PPNR) showed a significant improvement, reaching $1.2 million in Q4 2024.
• The company successfully reduced FHLB borrowings.
• The company terminated its compliance Consent Order with the FDIC.
• Core operating expenses were reduced.
• The company improved its liquidity position with a loan to deposit ratio below 100% at year-end.
• The fair value hedge on loans added $1.1 million to interest income for the year.
• Bank-owned life insurance policies (BOLI) were reinvested into higher-yielding products, increasing the annual pre-tax net yield by 74 basis points.
• Investment security purchases in Q4 2024 are expected to provide $2.6 million in revenue for 2025.
• The net interest margin increased to 2.73% for Q4 2024, up from 2.70% in the previous quarter.
• Classified loans decreased $4.4 million to $42.5 million at December 31, 2024.

Negatives

• The company reported a net loss of $2.8 million for the fourth quarter of 2024.
• The company recorded a $3.8 million provision for credit losses on loans in the fourth quarter of 2024.
• Nonperforming loans increased to $30.5 million at December 31, 2024.
• The net interest margin decreased 11 basis points from 2.84% for the fourth quarter of 2023.
• Total deposits decreased $23.6 million to $1.69 billion at December 31, 2024.
• Total shareholders equity decreased to $153.9 million at December 31, 2024.
• The company experienced a $1.8 million write down on an equity investment due to a lawsuit.

Risks

• Elevated credit costs negatively impacted financial results in 2024.
• The company faces ongoing challenges in resolving problem assets.
• The company is exposed to credit risks associated with lending activities.
• The company is subject to pressures on liquidity, including withdrawals of deposits.
• Changes in the interest rate environment could impact the company's performance.
• The company is exposed to general economic conditions and conditions within the securities markets.
• The company is subject to legislative and regulatory changes.
• The company is monitoring a group of commercial business loans with similar collateral, with 15 loans totaling $2.2 million included in classified loans and an additional eight loans totaling $2.8 million in the special mention risk grading category.

Future Outlook

The company is optimistic for continued improvement in asset quality in early 2025 and is focused on growing core commercial and retail customer relationships while resolving problem assets, improving profitability, and maintaining a strong capital position. The company expects to maintain a positive carry on its derivative for up to an additional 25-basis points of rate cuts. The remaining surrender transaction for bank-owned life insurance policies is expected to be completed during the first quarter of 2025.

Management Comments

• Although financial results in 2024 were adversely impacted by elevated credit costs, we are optimistic for continued improvement in asset quality in early 2025.
• During the fourth quarter, our pre-provision net revenue grew to $1.2 million with modest margin improvement as we successfully reduced FHLB borrowings.
• As we look ahead to 2025, we are laser focused on growing core commercial and retail customer relationships while resolving problem assets, improving profitability and maintaining our strong capital position.
• I'd like to thank all our employees for their efforts and contributions in 2024, and for making a positive impact in the communities we serve.

Industry Context

The results reflect the challenges faced by many regional banks in the current economic environment, including elevated credit costs and interest rate pressures. The company's focus on improving asset quality and profitability aligns with industry trends aimed at strengthening financial positions. The company's strategic investments in higher-yielding products and focus on core customer relationships are also common strategies in the current banking landscape.

Comparison to Industry Standards

• The company's net loss of $2.8 million for the quarter is worse than some of its peers, such as those who have reported profits, but better than some who have reported larger losses.
• The company's adjusted PPNR of $1.2 million is a positive sign, indicating improvement in core operations, but still needs to be compared to other banks of similar size and scope.
• The provision for credit losses of $3.8 million is significant and highlights the challenges in the loan portfolio, which is a common issue for many banks in the current economic climate.
• The net interest margin of 2.73% is within the range of many regional banks, but the decrease from 2.84% in the same quarter last year is a concern.
• The company's capital ratios are above regulatory requirements, which is a positive sign of financial stability, but needs to be compared to the average capital ratios of its peers.
• The company's loan to deposit ratio below 100% is a positive sign of liquidity management, which is a key focus for banks in the current environment.
• The company's investment in higher-yielding products is a common strategy to improve profitability, but the success of this strategy needs to be compared to the performance of similar investments by other banks.
• The company's focus on resolving problem assets is a common strategy for banks facing credit quality issues, and the success of this strategy needs to be compared to the performance of other banks in similar situations.

Legal Proceedings

• The company experienced a $1.8 million write down on an equity investment in an organization that is involved in a lawsuit.

Stakeholder Impact

• Shareholders experienced a net loss for the quarter and a decrease in book value per share.
• Employees are recognized for their efforts and contributions in 2024.
• Customers may benefit from the company's focus on growing core relationships and providing a full array of financial products and services.
• The company's focus on resolving problem assets and improving profitability may have a positive impact on creditors.
• The company's community impact is highlighted through various awards and recognitions.

Next Steps

• The company will continue to focus on growing core commercial and retail customer relationships.
• The company will continue to work on resolving problem assets.
• The company will continue to focus on improving profitability.
• The company will continue to maintain a strong capital position.
• The remaining surrender transaction for bank-owned life insurance policies is expected to be completed during the first quarter of 2025.

Key Dates

Keywords

financial results, net loss, credit losses, pre-provision net revenue, dividends, interest margin, nonperforming loans, asset quality, loan portfolio, deposits, capital ratios, bank-owned life insurance, investment securities