8-K/A: First Northwest Bancorp Reports Net Loss in Q1 2025, Updates Financial Results Amid Legal Matter

First Northwest Bancorp reported a net loss of $9.0 million for Q1 2025, updating its initial press release due to an ongoing legal matter.

Summary

• First Northwest Bancorp reported a net loss of $9.0 million for the first quarter of 2025, compared to a net loss of $2.8 million for the fourth quarter of 2024 and net income of $396,000 for the first quarter of 2024.
• Basic and diluted loss per share were $1.03 for the first quarter of 2025, compared to basic and diluted loss per share of $0.32 for the fourth quarter of 2024 and basic and diluted income per share of $0.04 for the first quarter of 2024.
• The company recorded adjusted pre-tax, pre-provision net revenue (PPNR) of $1.5 million in Q1 2025, compared to $1.4 million in the previous quarter and $1.2 million in Q1 2024.
• A quarterly cash dividend of $0.07 per common share was declared, payable on May 23, 2025, to shareholders of record as of May 9, 2025.
• The company recorded a $7.8 million provision for credit losses on loans in the first quarter of 2025, primarily due to $7.7 million of charge-offs.
• A favorable deposit mix shift included a $45.0 million decrease in brokered deposits while core customer deposits grew $23.0 million.
• The loan-to-deposit ratio was stable at 99.9% compared to 99.3% in the fourth quarter of 2024.
• Borrowings were reduced by $28.9 million, and the total cost of funds decreased to 2.67% compared to 2.80% in the fourth quarter of 2024.
• The company recorded a $846,000 gain on extinguishment of debt related to repurchasing at a discount $5.0 million of subordinated debt during the first quarter of 2025.
• Noninterest expense included a $5.8 million legal reserve recorded in other expense during the current quarter, in connection with the legal matter discussed in Part II, Item 1 of the Quarterly Report.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the reported net loss, increased credit loss provisions, and the legal reserve. However, some positive trends in deposit mix and cost of funds provide a slightly mitigating factor.

Positives

• Core customer deposits grew by $23.0 million.
• Borrowings were reduced by $28.9 million.
• The total cost of funds decreased to 2.67%.
• The company recorded a $846,000 gain on extinguishment of debt.
• Nonperforming loans decreased by $10.2 million, or 33.3%, from December 31, 2024.

Negatives

• The company reported a net loss of $9.0 million for Q1 2025.
• A $7.8 million provision for credit losses was recorded, primarily due to $7.7 million in charge-offs.
• Noninterest expense included a $5.8 million legal reserve.

Risks

• The company faces risks related to the legal matter discussed in Part II, Item 1 of the Quarterly Report, which led to a $5.8 million legal reserve.
• There are credit risks associated with lending activities, as evidenced by the $7.7 million in charge-offs.
• The company acknowledges potential risks from changes in the interest rate environment and general economic conditions.

Future Outlook

The company expects further improvement in nonperforming loans over the course of 2025 and anticipates receiving the return of surrendered BOLI funds early in the third quarter of 2025.

Industry Context

The report reflects challenges in the banking sector, including increased credit loss provisions and legal expenses, while also highlighting efforts to improve deposit mix and reduce borrowing costs.

Comparison to Industry Standards

• It is difficult to compare First Northwest Bancorp's results directly to industry standards without more specific peer data.
• However, the company's focus on improving its deposit mix and reducing borrowing costs aligns with common strategies employed by regional banks to enhance profitability.
• The increase in credit loss provisions and the legal reserve suggest potential challenges in asset quality and risk management, which would need to be assessed against industry benchmarks for similar institutions.

Legal Proceedings

• The company recorded a $5.8 million legal reserve in connection with the legal matter discussed in Part II, Item 1 of the Quarterly Report.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and the decrease in equity.
• The dividend payment of $0.07 per share provides some return to shareholders.
• Employees may be affected by the company's cost-cutting measures and restructuring efforts.

Next Steps

• The company will continue to work on resolution plans for troubled borrowers.
• The surrendered policy value was reinvested in the second quarter of 2025 and the company expects to receive the return of the surrendered funds early in the third quarter of 2025.

Key Dates

Keywords

financial results, net loss, credit losses, charge-offs, deposits, borrowings, legal reserve, First Northwest Bancorp, FNWB