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美國
證券交易委員會
華盛頓特區20549
 
表格 10-Q
 
☒根據1934年證券交易法第13或15(d)節的季度報告
 
 
截至季度結束日期的財務報告2024年9月30日
 
or
☐根據1934年證券交易法第13或15(d)節的轉型報告書
 
在從___________過渡到___________的過渡期間
委託文件編號：001-39866001-33652
 
第一金融西北
(根據其章程規定的註冊人準確名稱)
 
華盛頓州26-0610707
（設立或組織的其他管轄區域）（聯邦納稅人識別號）
  
201 Wells Avenue South, Renton, 華盛頓州
98057
，（主要行政辦公地址）(郵政編碼)
  
註冊人的電話號碼，包括區號：
(425) 255-4400
  
在法案第12(b)條的規定下注冊的證券：
每一類的名稱交易標誌在其上註冊的交易所的名稱
普通股，每股價值0.01美元FFNW納斯達克股票交易所名單
請勾選表示註冊人（1）在過去12個月（或者在註冊人需要提交此類報告的更短時間內）已經提交了證券交易法第13或第15（d）條規定需要提交的所有報告；以及（2）在過去90天內一直受到該等提交要求的約束。 x 否（¨）

Yes       不是  X    

在檢查標記中表明註冊人是否已經在過去的12個月內（或者爲註冊人需要提交這些文件的較短期間）根據S-T法規405規定，遞交了每個互動數據文件。

Yes    X   不是     

請通過複選標記表明註冊者是一家大型加速提交者、加速提交者、非加速提交者、較小的報告公司或新興增長公司。參閱交易所法案規則120億.2中「大型加速提交者」、「加速提交者」、「較小的報告公司」和「新興增長公司」的定義。
大型加速歸檔人加速報告人  非加速文件提交人 X
小型報告公司X新興成長公司
如果是新興成長公司，請在複選框中標明註冊人是否選擇不使用《交易所法》第13(a)條規定的任何新的或修訂後的財務會計準則的延長過渡期。_____
請用√標記表示註冊申報人是否爲殼公司（如《交易所法》第120億.2條所定義）。

是      No   X   

請指示截至2024年11月5日各類普通股的流通股數量： 9,230,010 發行人普通股每股面值0.01美元的股份正在流通。


第一金融西北，公司。
10-Q表格
目錄
頁面
第一部分 -財務信息
 
 第 1 項。財務報表
 第 2 項。 管理層對財務狀況和經營業績的討論和分析
第 3 項。 關於市場風險的定量和定性披露
 第 4 項。 控制和程序
第二部分 -其他信息
第 1 項。法律訴訟
 第 1A 項。風險因素
 第 2 項。 未註冊的股權證券銷售和所得款項的使用
 第 3 項。優先證券違約
 第 4 項。 礦山安全披露
 第 5 項。其他信息
 第 6 項。展品
簽名
 
 

2
第一金融西北公司及其子公司
合併資產負債表
(金額以千元爲單位，除每股數據外)

第一部分.財務信息
項目1. 基本報表
 2024年9月30日2023年12月31日
資產
(未經審計)
現金及銀行存款$8,423 $8,391 
與銀行進行的利息收入存款72,884 22,138 
可供出售的投資，公允價值（已攤銷成本$168,574 截至2024年9月30日的存款餘額爲$223,725 在2023年12月31日
156,609 207,915 
持有至到期投資的資產，按攤銷成本計量（估計公允價值爲$2,462 於2024年9月30日和$2,456 在2023年12月31日
2,462 2,456 
應收貸款淨額，扣除準備金$16,265 和 $15,306
1,126,146 1,175,925 
聯邦住房銀行（「FHLB」）股票，按成本計量5,403 6,527 
應計利息應收款6,638 7,359 
2,690 2,648 
資產和設備淨值18,584 19,667 
銀行擁有的人壽保險（"BOLI"），淨值38,661 37,653 
預付款項和其他資產8,898 10,478 
使用權（「ROU」）資產，淨值2,473 2,617 
商譽889 889 
核心存款無形資產，淨值326 419 
資產總額$1,451,086 $1,505,082 
負債和股東權益 
存款：
非計息存款$100,466 $100,899 
計息存款-存款利息1,066,889 1,093,208 
存款總額1,167,355 1,194,107 
FHLB墊款100,000 125,000 
借款人預付稅金和保險5,211 2,952 
租賃負債，淨額2,673 2,806 
應付應計利息294 2,739 
其他負債15,340 15,818 
負債合計1,290,873 1,343,422 
 
承諾和 contingencies
股東權益
優先股，$0.00010.01面值；授權 10,000,000股； no 股份已發行或流通
— — 
普通股，每股面值爲 $0.0001；0.01面值；授權 90,000,000 股；已發行及流通中的 9,213,969 於2024年9月30日的股數爲 9,179,510 股票數量：40,784,202
92 92 
額外實收資本72,916 73,035 
保留盈餘93,692 96,206 
歸屬於母公司股東權益的累積其他綜合收益（扣除所得稅後）(6,487)(7,673)
股東權益合計160,213 161,660 
負債和股東權益合計$1,451,086 $1,505,082 

請查看附帶的精選附註以獲取綜合財務報表。
3

第一金融西北公司及其子公司
合併利潤表
(金額以千元爲單位，除每股數據外)
(未經審計)
 截至9月30日的三個月截至9月30日的九個月
 2024202320242023
利息收入
包括費用在內的貸款$16,658 $16,918 $50,430 $49,796 
投資證券1,744 2,118 5,694 6,331 
與銀行進行的利息收入存款863 525 1,831 1,381 
FHLb股票的分紅派息150 113 420 364 
總利息收入19,415 19,674 58,375 57,872 
利息支出  
存款9,748 9,205 29,162 24,127 
FHLB貸款和其他借款1,213 766 2,889 2,476 
總利息支出10,961 9,971 32,051 26,603 
淨利息收入8,454 9,703 26,324 31,269 
信貸損失準備（恢復信貸損失準備）1,575 (300)1,200 (208)
信貸損失準備後的淨利息收入（恢復信貸損失準備）6,879 10,003 25,124 31,477 
非利息收入  
BOLI收入295 244 956 826 
财富管理營業收入，淨值42 53 190 193 
存款有關費用236 247 697 722 
貸款相關費用96 79 251 215 
其他收入，淨額8 54 43 184 
非利息收入總額677 677 2,137 2,140 
非利息支出
薪水和員工福利4,606 5,018 15,186 15,543 
租賃和設備1,183 1,193 3,634 3,517 
專業費用585 553 2,635 1,857 
數據處理838 742 2,480 2,139 
監管評估165 200 502 568 
保險和債券型保費113 111 363 356 
市場營銷46 97 155 273 
其他952 856 2,804 2,975 
總非利息支出8,488 8,770 27,759 27,228 
聯邦稅前收入(稅收)安排 (932)1,910 (498)6,389 
聯邦稅(稅收)安排 (324)409 (370)1,278 
淨（虧損）利潤$(608)$1,501 $(128)$5,111 
每股基本（虧損）收益$(0.07)$0.16 $(0.01)$0.56 
每股攤薄（虧損）收益$(0.07)$0.16 $(0.01)$0.56 
普通股平均基本股數9,190,146 9,127,568 9,171,579 9,117,554 
加權平均攤薄流通股數9,190,146 9,150,059 9,171,579 9,146,709 

See accompanying selected notes to consolidated financial statements.
4

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
(Unaudited)







Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Net (loss) income$(608)$1,501 $(128)$5,111 
Other comprehensive gain (loss), before tax:
Unrealized holding gains (losses) on investments available-for-sale2,967 (938)3,844 (3,726)
Tax effect(623)197 (807)783 
(Losses) gains on cash flow hedges(2,758)720 (2,343)213 
Tax effect579 (151)492 (45)
Other comprehensive gain (loss), net of tax165 (172)1,186 (2,775)
Total comprehensive (loss) income$(443)$1,329 $1,058 $2,336 

See accompanying selected notes to consolidated financial statements.

5

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended September 30, 2024
 SharesCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Loss,
 net of tax		Total Stockholders’ Equity
Balances at June 30, 20249,179,825 $92 $72,953 $94,300 $(6,652)$160,693 
Net loss— — — (608)— (608)
Other comprehensive gain, net of tax— — — — 165 165 
Exercise of stock options75,000 — 808 — — 808 
Compensation related to stock options and restricted stock awards— — 47 — — 47 
Canceled common stock - stock options(40,856)— (892)— — (892)
Balances at September 30, 20249,213,969 $92 $72,916 $93,692 $(6,487)$160,213 
Nine Months Ended September 30, 2024
SharesCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Loss,
 net of tax		Total Stockholders’ Equity
Balances at December 31, 20239,179,510 $92 $73,035 $96,206 $(7,673)$161,660 
Net loss— — — (128)— (128)
Other comprehensive gain, net of tax— — — — 1,186 1,186 
Exercise of stock options82,500 — 889 — — 889 
Issuance of common stock - restricted stock awards, net7,673 — — — — — 
Compensation related to stock options and restricted stock awards— — 195 — — 195 
Canceled common stock - restricted stock awards and stock options(55,714)— (1,203)— — (1,203)
Cash dividend declared and paid ($0.26 per share)
— — — (2,386)— (2,386)
Balances at September 30, 20249,213,969 $92 $72,916 $93,692 $(6,487)$160,213 
6

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended September 30, 2023
 SharesCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Loss,
 net of tax		Total Stockholders’ Equity
Balances at June 30, 20239,148,086 $92 $72,544 $95,896 $(9,817)$158,715 
Net income— — — 1,501 — 1,501 
Other comprehensive loss, net of tax— — — — (172)(172)
Exercise of stock options95,019 — 1,023 — — 1,023 
Issuance of common stock - restricted stock awards, net13,000 — — — — — 
Compensation related to stock options and restricted stock awards— — 270 — — 270 
Canceled common stock - restricted stock awards(76,595)— (911)— — (911)
Cash dividend declared and paid ($0.13 per share)
— — — (1,191)— (1,191)
Balances at September 30, 20239,179,510 $92 $72,926 $96,206 $(9,989)$159,235 
Nine Months Ended September 30, 2023
SharesCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Loss,
 net of tax		Total Stockholders’ Equity
Balances at December 31, 20229,127,595 $91 $72,424 $95,059 $(7,214)$160,360 
Net income— — — 5,111 — 5,111 
Other comprehensive loss, net of tax— — — — (2,775)(2,775)
Exercise of stock options95,019 — 1,023 — — 1,023 
Issuance of common stock - restricted stock awards, net40,618 1 — — — 1 
Compensation related to stock options and restricted stock awards— — 497 — — 497 
Canceled common stock - restricted stock awards(83,722)— (1,018)— — (1,018)
Cash dividend declared and paid ($0.39 per share)
— — — (3,569)— (3,569)
Adjustment to beginning retained earnings, net of tax - adoption of ASU 2016-13— — — (395)— (395)
Balances at September 30, 20239,179,510 $92 $72,926 $96,206 $(9,989)$159,235 
See accompanying selected notes to consolidated financial statements.
7

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months Ended September 30,
 20242023
Cash flows from operating activities:  
Net (loss) income$(128)$5,111 
Adjustments to reconcile net (loss) income to net cash provided by
   operating activities:
Provision (recapture of provision) for credit losses1,200 (208)
Net amortization of premiums and discounts on investments531 408 
Depreciation of premises and equipment1,475 1,531 
Loss on disposal of premises and equipment— 4 
Deferred federal income taxes(356)284 
Stock compensation expense195 497 
BOLI income(935)(826)
Annuity income(9)(9)
Changes in operating assets and liabilities:
Prepaid expenses and other assets(671)(884)
ROU asset586 565 
Advance payments from borrowers for taxes and insurance2,259 1,709 
Accrued interest receivable721 (750)
Lease liability(575)(551)
Accrued interest payable(2,445)2,318 
Other liabilities(475)(366)
Net cash provided by operating activities1,373 8,833 
Cash flows from investing activities:  
Proceeds from maturities of investments available-for-sale40,000 — 
Principal repayments on investments available-for-sale14,619 8,669 
Net decrease (increase) in loans receivable48,579 (1,096)
 Redemption of FHLB stock1,124 709 
Purchase of premises and equipment(392)(264)
Purchase of BOLI(73)(286)
Net cash provided by investing activities103,857 7,732 
8

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20242023
Cash flows from financing activities:  
Net (decrease) increase in deposits$(26,752)$40,370 
Advances from the FHLB104,000 179,000 
Repayments of advances from the FHLB(129,000)(199,000)
Proceeds from stock options exercised 889 1,023 
Net share settlement of stock awards(1,203)(1,017)
Dividends paid(2,386)(3,569)
Net cash (used) provided by financing activities(54,452)16,807 
Increase in cash and cash equivalents50,778 33,372 
Cash and cash equivalents at beginning of period30,529 24,320 
Cash and cash equivalents at end of period$81,307 $57,692 
Supplemental disclosures of cash flow information:  
Cash paid during the period for:  
Interest $34,496 $24,285 
Federal income taxes 635 1,900 
Noncash items:
Change in unrealized gain (loss) on investments available-for-sale$3,844 $(3,726)
Change in unrealized (loss) gain on cash flow hedges(2,344)213 
Initial recognition of ROU asset442 108 
Initial recognition of lease liability442 108 
   Adjustment to beginning retained earnings - adoption of ASU 2016-13, net of tax— 395 

See accompanying selected notes to consolidated financial statements.

9


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Description of Business

First Financial Northwest, Inc. (“First Financial Northwest”), a Washington corporation, was formed on June 1, 2007 for the purpose of becoming the holding company for First Financial Northwest Bank (the “Bank”) in connection with the conversion from a mutual holding company structure to a stock holding company structure completed on October 9, 2007. First Financial Northwest’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Accordingly, the information presented in the consolidated financial statements and accompanying data, relates primarily to the Bank. First Financial Northwest is a bank holding company, having converted from a savings and loan holding company on March 31, 2015, and as a bank holding company is subject to regulation by the Federal Reserve Bank of San Francisco (“FRB”). The Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Washington State Department of Financial Institutions (“DFI”).

At September 30, 2024, the Bank operated in 15 locations in Washington with the headquarters and seven retail branch locations in King County, five retail branch locations in Snohomish County and two retail branches in Pierce County. The Bank’s primary market area consists of King, Snohomish, Pierce and Kitsap counties, Washington.

The Bank is a portfolio lender, originating and purchasing one-to-four family residential, multifamily, commercial real estate, construction/land development, business, and consumer loans. Loans are primarily funded by deposits from the general public, supplemented by borrowings from the FHLB and deposits raised in the national brokered deposit market.

On January 10, 2024, Global Federal Credit Union (“Global”), First Financial Northwest and the Bank entered into a Purchase and Assumption (“P&A”) Agreement, pursuant to which Global will acquire substantially all of the assets and assume substantially all of the liabilities (including deposit liabilities) of the Bank, which we refer to herein as the asset sale, in exchange for $231.2 million in cash, subject to possible downward adjustments. The asset sale is the first integral step in the sale transaction contemplated by the P&A Agreement, which consists of: (1) the asset sale, (2) the voluntary liquidation of the Bank and distribution of the Bank’s remaining assets, which will include the cash consideration paid by Global to the Bank in the asset sale, to First Financial Northwest, and (3) the winding up and voluntary dissolution of First Financial Northwest and the distribution of its remaining assets, including the remaining net cash proceeds from the asset sale, to its shareholders.

Consummation of the asset sale and related transactions is subject to certain conditions, including, among others, the receipt of all required regulatory approvals and expiration of applicable waiting periods, accuracy of specified representations and warranties of each party, the performance in all material respects by each party of its obligations under the P&A Agreement, and the absence of any injunctions or other legal restraints. The P&A Agreement provides certain termination rights for both Global and the Bank, and further provides that upon termination of the P&A Agreement under certain circumstances, the Bank will be obligated to pay Global a termination fee of $9.4 million. Additional information regarding the asset sale, including the P&A Agreement, can be found in the Definitive Proxy Statement on Schedule 14A filed by First Financial Northwest with the U.S. Securities and Exchange Commission (“SEC”) on June 6, 2024. On July 19, 2024, the Company received its shareholders’ approval for the asset sale, as well as the proposal to voluntarily dissolve the Company and distribute its net assets following the completion of the asset sale.

The Bank previously received required regulatory approval from both the Washington State Department of Financial Institutions and the FDIC in connection with the asset sale and Bank liquidation, but consummation of the asset sale remains subject to the required regulatory approval from the National Credit Union Administration (“NCUA”), which has not been obtained. The Bank cannot provide any assurance as to whether the Bank or Global will obtain the required final regulatory approval from the NCUA, when such approval will be received, or whether there will be any conditions in such approval that are unacceptably burdensome to the Bank or Global.

As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to First Financial Northwest, Inc. and its consolidated subsidiary First Financial Northwest Bank, unless the context otherwise requires.





10

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 2 - Basis of Presentation

    The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC (“2023 Form 10-K”). In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the unaudited interim consolidated financial statements in accordance with GAAP have been included. All significant intercompany balances and transactions between the Company and its subsidiaries have been eliminated in consolidation. Operating results for the nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. In preparing the unaudited consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the allowance for credit losses (“ACL”).

The Company’s activities are considered a single industry segment for financial reporting purposes. The Company is engaged in the business of attracting deposits from the general public and originating and purchasing loans for its portfolio. Substantially all income is derived from a diverse base of commercial, multifamily, and residential real estate loans, consumer lending activities, and investments.

Certain amounts in the unaudited interim consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation with no effect on consolidated net income or stockholders’ equity.

Note 3 - Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands disclosure requirements for significant segment expenses under Topic 280. The amendments require public entities to disclose significant expense categories for each reporting segment, other segment items, the title and position of the chief operating decision maker (“CODM”), and interim disclosures of certain segment-related information previously required only on an annual basis. The amendments clarify that entities reporting single segments must disclose both the new and existing segment disclosures under Topic 280, and a public entity is permitted to disclose multiple measures of segment profit or loss if certain criteria are met. This update was effective for financial statements issued for fiscal years beginning after December 15, 2023, and will be effective for interim periods for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect this standard to have a material impact on the financial condition or results of operations but is currently assessing the impact of additional disclosures to the consolidated financial statements.

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. ASU 2023-09 requires public business entities to disclose, on an annual basis, a rate reconciliation presented in both dollars and percentages in a tabular format. The guidance requires the rate reconciliation to include specific categories and provides further guidance on disaggregation of those categories based on a quantitative threshold equal to 5% or more of the amount determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. For entities reconciling to the U.S. statutory rate of 21%, this would generally require disclosing any reconciling items that impact the rate by 1.05% or more.

ASU 2023-09 also identifies specific categories that would require disclosure, including the following:

•State and local income tax, net of federal (national) income tax effect;
•Foreign tax effects;
•Effect of changes in tax laws or rates enacted in the current period;
•Effect of cross-border tax laws;
•Enactment of new tax laws;
•Nontaxable or nondeductible items;
•Tax credits;
11

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



•Changes in valuation allowances; and
•Changes in unrecognized tax benefits.

ASU 2023-09 makes changes to annual disclosures of income taxes paid for all entities. ASU 2023-09 requires entities to disclose the amount of income taxes paid, net of refunds received, disaggregated by federal, state and foreign jurisdiction. Additionally, entities are required to disclose income taxes paid, net of refunds received, for individual jurisdictions that comprise 5% or more of total income taxes paid. The 5% threshold is evaluated using the absolute value of the net refund or net payment in each jurisdiction compared to the absolute value of the total income taxes paid (net of refunds received). ASU 2023-09 requires all entities to disclose disaggregated domestic and foreign pretax income (or loss) from continuing operations along with disaggregated income tax expense (or benefit) by federal, state and foreign components. Such disaggregation by jurisdiction should classify taxes by jurisdiction based on the jurisdiction imposing the taxes. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 (generally, calendar year 2025) and effective for all other business entities one year later. The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of this ASU to have a material impact on its business operations or financial condition.

Note 4 - Investments

    Investments available-for-sale are summarized as follows at the dates indicated:
 September 30, 2024
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(In thousands)
Mortgage-backed investments:   
   Fannie Mae$11,398 $— $(1,335)$10,063 
   Freddie Mac11,849 — (1,254)10,595 
   Ginnie Mae27,029 106 (1,136)25,999 
   Other23,927 — (674)23,253 
Municipal bonds36,269 32 (4,248)32,053 
U.S. Government agencies25,102 9 (470)24,641 
Corporate bonds33,000 — (2,995)30,005 
Total$168,574 $147 $(12,112)$156,609 
 December 31, 2023
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
 (In thousands)
Mortgage-backed investments:   
   Fannie Mae$11,562 $— $(1,684)$9,878 
   Freddie Mac12,934 — (1,755)11,179 
   Ginnie Mae28,096 — (1,516)26,580 
   Other30,559 — (1,366)29,193 
Municipal bonds36,571 42 (4,764)31,849 
U.S. Government agencies71,003 5 (1,051)69,957 
Corporate bonds33,000 — (3,721)29,279 
Total$223,725 $47 $(15,857)$207,915 

There were no holdings of investment securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity at September 30, 2024 and December 31, 2023.
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    There were $2.5 million of investments classified as held-to-maturity at both September 30, 2024 and December 31, 2023. In January 2020, the Bank purchased three annuity contracts, totaling $2.4 million, to be held long-term to satisfy the benefit obligation associated with certain supplemental executive retirement plan (“SERP”) agreements. These annuities, along with an associated insurance policy and rider, provide for payments in retirement for the life of the executive. The rider that provides the long-term guarantee for the SERP has no cash value and is not transferable to another annuitant. The cash value of the annuity is representative of the liquidation value of the contract. Hence, the amortized cost of these held-to-maturity investments is their fair value.

The tables below summarize the aggregate fair value and gross unrealized loss by length of time those investment securities have been continuously in an unrealized loss position at the dates indicated:

 September 30, 2024
 Less Than 12 Months12 Months or LongerTotal
Fair ValueGross Unrealized
Loss		Fair ValueGross Unrealized
Loss		Fair ValueGross Unrealized
Loss
(In thousands)
Mortgage-backed investments:
   Fannie Mae$— $— $10,063 $(1,335)$10,063 $(1,335)
   Freddie Mac— — 10,595 (1,254)10,595 (1,254)
   Ginnie Mae— — 14,444 (1,136)14,444 (1,136)
   Other3,772 (29)19,481 (645)23,253 (674)
Municipal bonds— — 29,627 (4,248)29,627 (4,248)
U.S. Government agencies1,799 (2)19,006 (468)20,805 (470)
Corporate bonds— — 30,005 (2,995)30,005 (2,995)
Total$5,571 $(31)$133,221 $(12,081)$138,792 $(12,112)

 December 31, 2023
 Less Than 12 Months12 Months or LongerTotal
Fair ValueGross Unrealized
Loss		Fair ValueGross Unrealized
Loss		Fair ValueGross Unrealized
Loss
(In thousands)
Mortgage-backed investments:
   Fannie Mae$— $— $9,878 $(1,684)$9,878 $(1,684)
   Freddie Mac671 (57)10,508 (1,698)11,179 (1,755)
   Ginnie Mae11,601 (70)14,979 (1,446)26,580 (1,516)
   Other— — 28,330 (1,366)28,330 (1,366)
Municipal bonds2,477 (16)26,916 (4,748)29,393 (4,764)
U.S. Government agencies— — 67,440 (1,051)67,440 (1,051)
Corporate bonds5,966 (34)23,313 (3,687)29,279 (3,721)
Total$20,715 $(177)$181,364 $(15,680)$202,079 $(15,857)

On a quarterly basis, management evaluates available-for-sale (“AFS”) debt securities that are in an unrealized loss position to determine if an allowance for credit losses is required. If it is determined that a credit loss exists and an allowance is required, the credit loss on a debt security is measured as the difference between the amortized cost and the present value of the cash flows expected to be collected, limited by the amount that the fair value is less than the amortized cost. For debt securities in an unrealized loss position that the Company does not intend to sell, and it is not likely that it will be required to sell but does not expect to recover the entire security’s amortized cost basis, only the portion of the unrealized loss representing a credit loss would be recognized in earnings. If the Company intends to sell a debt security, or it is likely that the Company will be required to sell the debt security before recovering its cost basis, the entire unrealized loss would be recognized through earnings. The Company considers many factors including the severity and duration of the impairment, economic circumstances, recent events
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specific to the issuer or industry, and for debt securities, external credit ratings and recent rating updates. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the debt security being measured for a potential credit loss. The remaining unrealized loss related to all other factors is recognized as a charge to other comprehensive income (“OCI”).

The Company had 108 securities and 123 securities in an unrealized loss position, with 103 and 113 of these securities in an unrealized loss position for 12 months or more, at September 30, 2024 and December 31, 2023, respectively. Management does not believe that the unrealized losses at September 30, 2024 and December 31, 2023 were related to credit losses. The declines in fair market value of these securities were mainly attributed to changes in market interest rates, credit spreads, market volatility and liquidity conditions. Currently, the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell the positions before their recovery of the amortized cost basis, which may be at maturity. As such, no allowance for credit losses was recorded with respect to AFS securities for the three and nine months ended September 30, 2024.

    The amortized cost and estimated fair value of investments available-for-sale at September 30, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.
 September 30, 2024
 Amortized CostFair Value
 (In thousands)
Due within one year$2,500 $2,463 
Due after one year through five years8,538 8,148 
Due after five years through ten years34,332 31,010 
Due after ten years49,001 45,079 
 94,371 86,700 
Mortgage-backed investments74,203 69,909 
Total$168,574 $156,609 

Maturities of investments held-to-maturity (annuities) were established at the time the initial contract was signed. They mature (terminate) upon the earlier of the death of the executives or depletion of the related annuity.

Under Washington state law, to participate in the public funds program, the Company is required to pledge eligible securities as collateral in an amount equal to 50% of the public deposits held less the FDIC insured amount. Investment securities with market values of $29.5 million and $26.5 million were pledged as collateral for public deposits at September 30, 2024 and December 31, 2023, respectively, both of which exceeded the collateral requirements established by the Washington Public Deposit Protection Commission.

    For the three months ended September 30, 2024, there were no calls, sales or maturities of investment securities. For the nine months ended September 30, 2024, there were $40.0 million in maturities of investment securities with no gain or loss generated and there were no calls or sales of investment securities. For the three and nine months ended September 30, 2023, there were no calls, sales or maturities of investment securities.

    











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Note 5 - Loans Receivable and Allowance for Credit Losses

Loans receivable are summarized as follows at the dates indicated: 
 September 30, 2024December 31, 2023
 (In thousands)
One-to-four family residential:   
Permanent owner occupied$279,744 $284,471 
Permanent non-owner occupied221,127 228,752 
500,871 513,223 
 
Multifamily132,811 138,149 
 
Commercial real estate363,089 377,859 
 
Construction/land: 
One-to-four family residential42,846 47,149 
Multifamily 7,227 4,004 
Land10,148 9,771 
 60,221 60,924 
Business14,399 29,081 
Consumer71,020 71,995 
Total loans receivable, gross1,142,411 1,191,231 
Less: 
ACL for loans16,265 15,306 
Total loans receivable, net$1,126,146 $1,175,925 

    At September 30, 2024, loans totaling $608.4 million were pledged to secure borrowings from the FHLB compared to $636.9 million at December 31, 2023. In addition, loans totaling $73.7 million and $76.1 million were pledged to the FRB to secure a line of credit at September 30, 2024 and December 31, 2023, respectively.
    
Credit Quality Indicators. The Company assigns a risk rating to all credit exposures based on a risk rating system designed to define the basic characteristics and identify risk elements of each credit extension. The Company utilizes a nine-point risk rating system. A description of the general characteristics of the risk grades is as follows:

•Grades 1 through 5: These grades are considered to be “pass” credits. These include assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Company. Pass credits also include credits that are on the Company’s watch list (grade 5), where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower’s financial capacity and threaten their ability to fulfill debt obligations in the future.

•Grade 6: These credits, classified as “special mention”, possess weaknesses that deserve management’s close attention. Special mention assets do not expose the Company to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. If left uncorrected, these potential weaknesses may result in deterioration in the Company’s credit position at a future date.

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•Grade 7: These credits, classified as “substandard”, present a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These credits have well-defined weaknesses which jeopardize the orderly liquidation of the debt and are inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.

•Grade 8: These credits are classified as “doubtful” and possess well defined weaknesses which make the full collection or liquidation of the loan highly questionable and improbable. This classification is used where significant risk exposures are perceived but the exact amount of the loss cannot yet be determined due to pending events.

•Grade 9: Assets classified as “loss” are considered uncollectible and cannot be justified as a viable asset for the Company. There is little or no prospect of near-term recovery and no realistic strengthening action of significance is pending.

The grades for watch and special mention loans are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful or loss. These are loans which have been criticized based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan or stale financial information from the borrower and/or guarantors. Loans identified as criticized (watch and special mention) or classified (substandard, doubtful or loss) are subject to problem loan reporting every three months.

    Management considers the guidance in FASB Accounting Standards Codification (“ASC”) 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. As of September 30, 2024 and December 31, 2023, the Company had no loans rated as doubtful or loss. The following tables represent a summary of loans at September 30, 2024 and December 31, 2023 by type and risk category:
 September 30, 2024
 Term Loans by Year of Origination
 20242023202220212020PriorTotal Loans
 (In thousands)
One-to-four family residential     
Pass$158,643 $63,929 $96,391 $50,160 $42,077 $88,599 $499,799 
Watch— — — — — 676 676 
Special mention— — — — — 97 97 
Substandard— — — — — 299 299 
Total one-to-four family residential$158,643 $63,929 $96,391 $50,160 $42,077 $89,671 $500,871 
Current year-to-date (“YTD”) gross charge-offs$— $— $— $— $— $— $— 
Multifamily
Pass$427 $3,304 $8,182 $19,677 $42,558 $47,515 $121,663 
Watch— — — 72 — 9,516 9,588 
Substandard— — — — — 1,560 1,560 
Total multifamily$427 $3,304 $8,182 $19,749 $42,558 $58,591 $132,811 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
Commercial real estate
Pass$5,777 $19,805 $34,476 $73,787 $76,718 $104,767 $315,330 
Watch2,849 — — — — 12,540 15,389 
Substandard— — — — 526 31,844 32,370 
Total commercial real estate$8,626 $19,805 $34,476 $73,787 $77,244 $149,151 $363,089 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
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(Continued)
September 30, 2024
Term Loans by Year of Origination
20242023202220212020PriorTotal Loans
(In thousands)
Construction/land
Pass$23,924 $22,194 $7,237 $6,866 $— $— $60,221 
Watch— — — — — — — 
Special mention— — — — — — — 
Substandard— — — — — — — 
Total construction/land$23,924 $22,194 $7,237 $6,866 $— $— $60,221 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
Business
Pass$110 $1,604 $3,688 $322 $929 $7,746 $14,399 
Watch— — — — — — — 
Special mention— — — — — — — 
Substandard— — — — — — — 
Total business$110 $1,604 $3,688 $322 $929 $7,746 $14,399 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
Consumer
Pass$12,656 $17,884 $19,220 $8,777 $4,772 $6,809 $70,118 
Watch— — 324 — — — 324 
Special mention— — 25 — — — 25 
Substandard— 352 201 — — 553 
Total consumer$12,656 $17,884 $19,921 $8,978 $4,772 $6,809 $71,020 
Current YTD gross charge-offs$12 $7 $22 $— $— $— $41 
Total loans receivable, gross
Pass$201,537 $128,720 $169,194 $159,589 $167,054 $255,436 $1,081,530 
Watch2,849 — 324 72 — 22,732 25,977 
Special mention— — 25 — — 97 122 
Substandard— — 352 201 526 33,703 34,782 
Total loans$204,386 $128,720 $169,895 $159,862 $167,580 $311,968 $1,142,411 
Current YTD gross charge-offs$12 $7 $22 $— $— $— $41 














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(Unaudited)




 December 31, 2023
 Term Loans by Year of Origination
 20232022202120202019PriorTotal Loans
 (In thousands)
One-to-four family residential     
Pass$86,208 $142,563 $94,582 $61,946 $31,806 $95,012 $512,117 
Watch— — — — — 683 683 
Special mention— — — — — 130 130 
Substandard— — — — — 293 293 
Total one-to-four family residential$86,208 $142,563 $94,582 $61,946 $31,806 $96,118 $513,223 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
Multifamily
Pass$3,329 $8,332 $22,787 $43,259 $25,988 $30,561 $134,256 
Watch— — — — — 2,303 2,303 
Special mention— — — — — — — 
Substandard— — — — — 1,590 1,590 
Total multifamily$3,329 $8,332 $22,787 $43,259 $25,988 $34,454 $138,149 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
Commercial real estate
Pass$20,026 $35,054 $73,727 $78,204 $8,337 $98,316 $313,664 
Watch— — 4,108 — 12,745 3,322 20,175 
Special mention— — — — — — — 
Substandard— — — 526 1,295 42,199 44,020 
Total commercial real estate$20,026 $35,054 $77,835 $78,730 $22,377 $143,837 $377,859 
Current YTD gross charge-offs $— $— $— $— $— $— $— 
Construction/land
Pass$14,797 $26,286 $19,841 $— $— $— $60,924 
Watch— — — — — — — 
Special mention— — — — — — — 
Substandard— — — — — — — 
Total construction/land$14,797 $26,286 $19,841 $— $— $— $60,924 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
Business
Pass$1,480 $6,358 $388 $1,272 $1,486 $18,097 $29,081 
Watch— — — — — — — 
Special mention— — — — — — — 
Substandard— — — — — — — 
Total business$1,480 $6,358 $388 $1,272 $1,486 $18,097 $29,081 
Current YTD gross charge-offs$— $— $— $— $— $— $— 
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(Continued)
December 31, 2023
Term Loans by Year of Origination
20232022202120202019PriorTotal Loans
(In thousands)
Consumer
Pass$23,937 $23,921 $10,190 $5,523 $5,260 $2,917 $71,748 
Watch— 27 — — — — 27 
Special mention— — — — — — — 
Substandard— 19 201 — — — 220 
Total consumer$23,937 $23,967 $10,391 $5,523 $5,260 $2,917 $71,995 
Current YTD gross charge-offs$— $— $— $— $22 $— $22 
Total loans receivable, gross
Pass$149,777 $242,514 $221,515 $190,204 $72,877 $244,903 $1,121,790 
Watch— 27 4,108 — 12,745 6,308 23,188 
Special mention— — — — — 130 130 
Substandard— 19 201 526 1,295 44,082 46,123 
Total loans$149,777 $242,560 $225,824 $190,730 $86,917 $295,423 $1,191,231 
Current YTD gross charge-offs$— $— $— $— $22 $— $22 

ACL. ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the non-collectability of a loan balance is confirmed. Expected recoveries may not exceed the aggregate amounts previously charged-off and expected to be charged-off. The ACL, as reported in our consolidated balance sheets, is adjusted by a provision or recapture of provision for credit losses, which is reported in earnings, and reduced by the charge-offs of loan amounts, net of recoveries.

When the Company classifies problem assets as either substandard or doubtful, pursuant to Federal regulations, or identifies a loan where it is uncertain if the Company will be able to collect all amounts due according to the contractual terms of the loan, it may establish a specific allowance in an amount deemed prudent to address the risk specifically. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to the particular problem assets. When an insured institution classifies problem assets as a loss, pursuant to Federal regulations, it is required to charge off such assets in the period in which they are deemed uncollectible. The determination as to the classification of the Company’s assets and the amount of valuation allowance is subject to review by bank regulators, who can require the establishment of additional allowances for credit losses.
















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Activity in the ACL for loans and the allowance for unfunded commitments was as follows:

Three Months Ended September 30,Nine Months Ended September 30,
20242024
ACL - loans:
Beginning balance$14,796 $15,306 
Charge-offs(31)(41)
Provision for credit losses1,500 1,000 
Ending balance$16,265 $16,265 
Allowance for unfunded commitments:
Beginning balance$564 $439 
Provision for credit losses75 200 
Ending balance$639 $639 
Provision for credit losses
  Loans$1,500 $1,000 
 Unfunded commitments75 200 
Total$1,575 $1,200 































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The following tables detail activity in the ACL on loans at or for the three and nine months ended September 30, 2024 and 2023, by loan category:
At or For the Three Months Ended September 30, 2024
One-to-Four
Family
Residential		MultifamilyCommercial Real EstateConstruction/
Land		BusinessConsumerTotal
(In thousands)
ACL:
Beginning balance$5,700 $1,553 $3,612 $1,868 $210 $1,853 $14,796 
Charge-offs— — — — — (31)(31)
(Recapture of provision) provision(60)(24)1,281 244 (14)73 1,500 
Ending balance$5,640 $1,529 $4,893 $2,112 $196 $1,895 $16,265 
 At or For the Nine Months Ended September 30, 2024
 One-to-Four
Family
Residential		MultifamilyCommercial Real EstateConstruction/
Land		BusinessConsumerTotal
(In thousands)
ACL:
Beginning balance$5,747 $1,509 $3,895 $1,856 $387 $1,912 $15,306 
   Charge-offs— — — — — (41)(41)
(Recapture of provision) provision(107)20 998 256 (191)24 1,000 
Ending balance$5,640 $1,529 $4,893 $2,112 $196 $1,895 $16,265 


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At or For the Three Months Ended September 30, 2023
One-to-Four
Family
Residential		MultifamilyCommercial Real EstateConstruction/
Land		BusinessConsumerTotal
(In thousands)
ACL:
Beginning balance$5,574 $1,582 $4,367 $1,664 $347 $2,072 $15,606 
   Charge-offs— — — — — — — 
   Recoveries— — — — — — — 
Provision (recapture of provision)172 (15)(430)(24)10 (13)(300)
Ending balance$5,746 $1,567 $3,937 $1,640 $357 $2,059 $15,306 
 At or For the Nine Months Ended September 30, 2023
 One-to-Four
Family
Residential		MultifamilyCommercial Real EstateConstruction/
Land		BusinessConsumerTotal
(In thousands)
ACL:
Beginning balance$4,043 $1,210 $5,397 $1,717 $948 $1,912 $15,227 
Adjustment for adoption of Topic 3261,520 83 (970)408 (510)(31)500 
   Charge-offs— — — — — (22)(22)
   Recoveries1 — — — — — 1 
Provision (recapture of provision)182 274 (490)(485)(81)200 (400)
Ending balance$5,746 $1,567 $3,937 $1,640 $357 $2,059 $15,306 

Past Due Loans. Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. At September 30, 2024, loans past due totaled $2.2 million, representing 0.20% of total loans receivable. In comparison, past due loans totaled $1.4 million, representing 0.12% of total loans receivable at December 31, 2023.




















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The following tables present a summary of the aging of loans by type at the dates indicated:

 Loans Past Due as of September 30, 2024  
 30-59 Days60-89 Days90 Days
or More		Total Past
Due		Current
Total (1)
 (In thousands)
Real estate:      
One-to-four family residential:    
Owner occupied$1,118 $— $— $1,118 $278,626 $279,744 
Non-owner occupied— — 21 21 221,106 221,127 
Multifamily— — — — 132,811 132,811 
Commercial real estate— — — — 363,089 363,089 
Construction/land— — — — 60,221 60,221 
Total real estate1,118 — 21 1,139 1,055,853 1,056,992 
Business— — — — 14,399 14,399 
Consumer244 300 554 1,098 69,922 71,020 
Total loans$1,362 $300 $575 $2,237 $1,140,174 $1,142,411 
 ________________ 

(1) There were no loans 90 days or more past due and still accruing interest.
 Loans Past Due as of December 31, 2023  
 30-59 Days60-89 Days90 Days
or More		Total Past
Due		Current
Total (1)
 (In thousands)
Real estate:      
One-to-four family residential:      
Owner occupied$— $378 $293 $671 $283,800 $284,471 
Non-owner occupied— — 24 24 228,728 228,752 
Multifamily— — — — 138,149 138,149 
Commercial real estate— — — — 377,859 377,859 
Construction/land— — — — 60,924 60,924 
Total real estate— 378 317 695 1,089,460 1,090,155 
Business— — — — 29,081 29,081 
Consumer453 9 220 682 71,313 71,995 
Total loans$453 $387 $537 $1,377 $1,189,854 $1,191,231 
_________________ 

(1) Includes two loans totaling $317,000 that were 90 days or more past due and still accruing interest.

Nonaccrual Loans. When a loan becomes 90 days past due, the Company generally places the loan on nonaccrual status. Loans may be placed on nonaccrual status prior to being 90 days past due if there is an identified problem that indicates the borrower is unable to meet their scheduled payment obligations. Nonaccrual loans were $853,000 at September 30, 2024 and $220,000 at December 31, 2023. The increase in nonaccrual loans was due in part to management placing a $278,000 one-to-four family residential loan that was 60 days past due in nonaccrual status.

The following tables present a summary of loans individually evaluated for credit losses at September 30, 2024 and December 31, 2023, by type of loan. At September 30, 2024 and December 31, 2023, the Company had allowance for individually evaluated loans of $1.3 million and $11,000, respectively.

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 September 30, 2024
Recorded Investment (1)
Unpaid Principal Balance (2)
Related Allowance
 (In thousands)
Loans with no related allowance:   
  One-to-four family residential:   
      Owner occupied$278 $282 $— 
  Multifamily1,560 1,560 — 
   Commercial real estate26,352 26,404 — 
Total28,190 28,246 — 
Loans with an allowance:
   Commercial real estate6,005 6,014 1,267 
Total6,005 6,014 1,267 
Total individually evaluated loans:
  One-to-four family residential:
      Owner occupied278 282 — 
   Multifamily1,560 1,560 — 
   Commercial real estate32,357 32,418 1,267 
Total$34,195 $34,260 $1,267 
________________ 

(1) Represents the loan balance less charge-offs.
(2) Contractual loan principal balance.

 December 31, 2023
Recorded Investment (1)
Unpaid Principal Balance (2)
Related Allowance
 (In thousands)
Loans with no related allowance:   
  One-to-four family residential:   
      Owner occupied$293 $295 $— 
  Multifamily1,590 1,591 — 
   Commercial real estate44,021 44,121 — 
Total45,904 46,007 — 
Loans with an allowance:
Consumer19 18 11 
Total19 18 11 
Total individually evaluated loans:
  One-to-four family residential:
      Owner occupied293 295 — 
   Multifamily1,590 1,591 — 
   Commercial real estate44,021 44,121 — 
   Consumer19 18 11 
Total$45,923 $46,025 $11 
_________________ 

(1) Represents the loan balance less charge-offs.
(2) Contractual loan principal balance.

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The following table presents the amortized cost basis of loans on nonaccrual status and loans 90 days or more past due and still accruing as of September 30, 2024:

September 30, 2024
Nonaccrual with No ACLNonaccrual with ACLTotal Nonaccrual90 Days or More Past Due and Still Accruing
(In thousands)
One-to-four family residential$— $299 $299 $— 
Consumer — 554 554 — 
Total $— $853 $853 $— 


Loan Modifications to Borrowers Experiencing Financial Difficulty. No loans to borrowers experiencing financial difficulty were modified in the three and nine months ended September 30, 2024. We had no modified loans that subsequently defaulted as of September 30, 2024. Loans that default after they have been modified are typically evaluated individually on a collateral basis.

Note 6 - Prepaid Expenses and Other Assets

Included in “Prepaid expenses and other assets” on the Company’s Consolidated Balance Sheets is an investment that the Company has in a Fintech focused fund that is designed to help accelerate technology adoption at banks. This equity investment is held at fair value, as reported by the Fund, and was $613,000 at September 30, 2024. During the nine months ended September 30, 2024, we contributed $100,000 to the Fund and recognized gains of $1,000. During the nine months ended September 30, 2023, we contributed $200,000 to the Fund and recognized gains of $152,000. The Company has committed up to $1.0 million in capital for the Fund; however, the Company is not obligated to fund these commitments prior to a capital call. Seven capital calls totaling $570,000 have been made since the Company’s initial investment in the Fund on August 15, 2022.

Note 7 - Fair Value

The Company measures the fair value of financial instruments for reporting in accordance with ASC Topic 820, Fair Value Measurements. Fair values of assets or liabilities are based on estimates of the exit price, which is the price that would be received to sell an asset or paid to transfer a liability. When available, observable market transactions or market information is used. The fair value estimate of loans receivable was based on similar techniques, with the addition of current origination spreads, liquidity premiums, or credit adjustments. The fair value of nonperforming loans is based on the underlying value of the collateral.

The Company determines the fair values of its financial instruments based on the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair values. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect its estimate for market assumptions.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability using one of the three valuation techniques. Inputs can be observable or unobservable. Observable inputs are those assumptions that market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from an independent source. Unobservable inputs are assumptions based on the Company’s own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date.
        
All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy:

•Level 1 - Quoted prices for identical instruments in active markets.

•Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable.
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•Level 3 - Instruments whose significant value drivers are unobservable.

The Company used the following methods to measure fair value on a recurring or nonrecurring basis:

•Investments available-for-sale: The fair value of all investments, excluding FHLB stock, is based upon quoted market prices for similar investments in active markets, identical or similar investments in markets that are not active, and model-derived valuations whose inputs are observable.

•Loans individually evaluated: The fair value of individually evaluated loans is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate.

•Derivatives: The fair value of derivatives is based on pricing models utilizing observable market data and discounted cash flow methodologies for which the determination of fair value may require significant management judgement or estimation.  

The tables below present the balances of assets measured at fair value on a recurring basis (there were no transfers between Level 1, Level 2 and Level 3 recurring measurements) at September 30, 2024 and December 31, 2023:

 Fair Value Measurements at September 30, 2024
 Fair Value MeasurementsQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
 (In thousands)
Investments available-for-sale:    
Mortgage-backed investments:   
Fannie Mae$10,063 $— $10,063 $— 
Freddie Mac10,595 — 10,595 — 
Ginnie Mae25,999 — 25,999 — 
Other23,253 — 23,253 — 
Municipal bonds32,053 — 32,053 — 
U.S. Government agencies24,641 — 24,641 — 
Corporate bonds30,005 — 30,005 — 
Total available-for-sale investments156,609 — 156,609 — 
Derivative fair value asset5,222 — 5,222 — 
Total$161,831 $— $161,831 $— 

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 Fair Value Measurements at December 31, 2023
 Fair Value MeasurementsQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(In thousands)
Investments available-for-sale:
Mortgage-backed investments:    
Fannie Mae$9,878 $— $9,878 $— 
Freddie Mac11,179 — 11,179 — 
Ginnie Mae26,580 — 26,580 — 
Other29,193 — 29,193 — 
Municipal bonds31,849 — 31,849 — 
U.S. Government agencies69,957 39,603 30,354 — 
Corporate bonds29,279 — 29,279 — 
Total available-for-sale investments207,915 39,603 168,312 — 
Derivative fair value asset7,565 — 7,565 — 
Total$215,480 $39,603 $175,877 $— 


The tables below present the balances of assets measured at fair value on a nonrecurring basis at September 30, 2024 and December 31, 2023: 

 Fair Value Measurements at September 30, 2024
Fair Value
Measurements		Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (In thousands)
Collateral dependent loans included in loans receivable $32,928 $— $— $32,928 
Total$32,928 $— $— $32,928 

 Fair Value Measurements at December 31, 2023
Fair Value
Measurements		Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (In thousands)
Collateral dependent loans included in loans receivable$45,912 $— $— $45,912 
Total$45,912 $— $— $45,912 
 
The fair value of collateral dependent (individually evaluated) loans reflects the exit price and is calculated using the collateral value method or on a discounted cash flow basis. Inputs used in the collateral value method include appraised values, less estimated costs to sell. Some of these inputs may not be observable in the marketplace. Appraised values may be discounted based on management’s knowledge of the marketplace, subsequent changes in market conditions, or management’s knowledge of the borrower.

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The following tables present quantitative information about Level 3 fair value measurements for assets measured at fair value on a nonrecurring basis at September 30, 2024 and December 31, 2023:

September 30, 2024
Fair ValueValuation TechniqueUnobservable Input(s)Range (Weighted Average)
(Dollars in thousands)
Collateral dependent loans$32,928 Market approachAppraised value of collateral discounted by expected selling costs
0.0% - 28.0%
(6.88%)
December 31, 2023
Fair ValueValuation TechniqueUnobservable Input(s)Range (Weighted Average)
(Dollars in thousands)
Collateral dependent loans$45,912 Market approachAppraised value of collateral discounted by expected selling costs
0.0% - 14.26%
(0.04%)

The carrying amounts and estimated fair values of financial instruments were as follows at the dates indicated: 
September 30, 2024
 EstimatedFair Value Measurements Using:
 Carrying ValueFair ValueLevel 1Level 2Level 3
 (In thousands)
Financial Assets:    
Cash on hand and in banks$8,423 $8,423 $8,423 $— $— 
Interest-earning deposits with banks72,884 72,884 72,884 — — 
Investments available-for-sale156,609 156,609 156,609 — 
Investments held-to-maturity2,462 2,462 — 2,462 — 
Loans receivable, net1,126,146 1,076,804 — — 1,076,804 
FHLB stock5,403 5,403 — 5,403 — 
Accrued interest receivable6,638 6,638 — 6,638 — 
Derivative fair value asset5,222 5,222 — 5,222 — 
Financial Liabilities:  
Deposits668,981 668,981 668,981 — — 
Certificates of deposit, retail447,474 447,770 — 447,770 — 
Brokered deposits50,900 51,077 — 51,077 — 
Advances from the FHLB100,000 100,015 — 100,015 — 
Accrued interest payable294 294 — 294 — 
    

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December 31, 2023
 EstimatedFair Value Measurements Using:
 Carrying ValueFair ValueLevel 1Level 2Level 3
 (In thousands)
Financial Assets:    
Cash on hand and in banks$8,391 $8,391 $8,391 $— $— 
Interest-earning deposits with banks22,138 22,138 22,138 — — 
Investments available-for-sale207,915 207,915 39,603 168,312 — 
Investments held-to-maturity2,456 2,456 — 2,456 — 
Loans receivable, net1,175,925 1,113,642 — — 1,113,642 
FHLB stock6,527 6,527 — 6,527 — 
Accrued interest receivable7,359 7,359 — 7,359 — 
Derivative fair value asset7,565 7,565 — 7,565 — 
Financial Liabilities:    
Deposits706,162 706,162 706,162 — — 
Certificates of deposit, retail357,154 353,881 — 353,881 — 
Brokered deposits130,791 130,977 — 130,977 — 
Advances from the FHLB125,000 124,976 — 124,976 — 
Accrued interest payable2,739 2,739 — 2,739 — 

Note 8 - Leases

    The Company follows ASC Topic 842, Leases, recognizing ROU assets and related lease liabilities on the Company’s Consolidated Balance Sheets. At September 30, 2024, the Company had 13 operating leases for retail branch locations. The remaining lease terms range from five months to 6.3 years, with most leases carrying optional extensions of three to five years. The Company will include optional lease term extensions in the ROU assets and lease liabilities when management believes it is reasonably certain that the term extension will be exercised, which will be determined based on indicators that the Company would have an economic incentive to extend the lease. The Company has elected to not apply ASU 2016-02 to short-term leases, which are those that have a term of one year or less. The Company did not have any short-term leases as of September 30, 2024. To calculate the present value of lease payments not yet paid, the Company uses the incremental borrowing rate, which is equal to the FHLB advance rate for the remaining term of the lease at the time of the lease inception.

    The minimum monthly lease payments are generally based on square footage of the leased premises, with escalating minimum rent over the lease term. At September 30, 2024, the Company was committed to paying $77,000 per month in minimum monthly lease payments. The minimum monthly lease payment over the initial lease term, including any free rent period, was used to calculate the ROU asset and lease liability. The Company’s current leases do not include any non-lease components.

Total lease expense included on the Company’s Consolidated Income Statements includes the amortized lease expense under ASC Topic 842, Leases, combined with variable lease expenses for maintenance or other expenses as defined in the individual lease agreements. The following table includes details on these items at and for the dates indicated:

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At or For the Three Months Ended
September 30, 2024September 30, 2023
(Dollars in thousands)
Lease expense, quarter-to-date$301 $279 
Lease expense, year-to-date874 862 
ROU asset2,473 2,818 
Lease liability 2,673 3,011 
Weighted average remaining term4.5 years4.9 years
Weighted average discount rate2.56 %2.29 %
    
The following table provides a reconciliation between the undiscounted minimum lease payments at September 30, 2024 and the discounted lease liability at that date:
September 30, 2024
(In thousands)
Due through one year$864 
Due after one year through two years572 
Due after two years through three years416 
Due after three years through four years391 
Due after four years through five years385 
Due after five years196 
Total minimum lease payments2,824 
Less: present value discount151 
Lease liability$2,673 

Note 9 - Derivatives

    The Company uses derivative financial instruments, in particular, interest rate swaps, which are designated as cash flow hedges, to manage the risk of changes in future cash flows due to interest rate fluctuations. At September 30, 2024, the hedged cash flows had a total notional amount of $100.0 million and consisted of rolling one-month or three-month FHLB advances that renew at the fixed interest rate at each renewal date. These hedging instruments had original terms between two and eight years, with remaining terms ranging from nine months to 5.0 years. The weighted average remaining term is 2.6 years. Under these agreements, the counterparty pays the Company a rate tied to either the one-month or three-month Secured Overnight Financing Rate (“SOFR”). In return, the Company pays a weighted-average fixed interest rate of 1.93% on a notional amount ranging from $10.0 million to $15.0 million per contract. The Company pays or receives the net interest amount monthly or quarterly based on the respective hedge agreement and includes this amount as part of its interest expense on the Company’s Consolidated Income Statements.

    Quarterly, the effectiveness evaluation is based upon the fluctuation of the fixed rate interest the Company pays to the FHLB for the period compared to the one-month or three-month SOFR-based interest received from the counterparty. At September 30, 2024, a $5.2 million net fair value gain of the cash flow hedges was reported in “prepaid expenses and other assets” on the Company’s Consolidated Balance Sheet. The tax effected amount of $4.1 million was included in “accumulated other comprehensive income, net of taxes” on the Company’s Consolidated Balance Sheets. There were no amounts recorded on the Consolidated Income Statements for the three and nine months ended September 30, 2024 or 2023, related to ineffectiveness.

    Fair value for these derivative instruments, which generally changes as a result of changes in the level of market interest rates, is estimated based on dealer quotes and secondary market sources.



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    The following table presents the fair value of these derivative instruments as of September 30, 2024 and December 31, 2023:
Balance Sheet LocationFair Value at
September 30, 2024		Fair Value at
December 31, 2023
(In thousands)
Interest rate swaps on FHLB debt
   designated as a cash flow hedge		Other Assets$5,222 $7,565 

    
    The following table presents the net unrealized gains and losses, net of tax, from these derivative instruments included on the Company’s Consolidated Statements of Comprehensive Income at the dates indicated:

Amount Recognized in OCI for the
three months ended
September 30, 2024		Amount Recognized in OCI for the
three months ended
September 30, 2023		Amount Recognized in OCI for the
nine months ended
September 30, 2024		Amount Recognized in OCI for the
nine months ended
September 30, 2023
(In thousands)
Interest rate swaps on FHLB debt designated as a cash flow hedge$(2,179)$569 $(1,851)$168 

Note 10 - Stock-Based Compensation

In June 2016, First Financial Northwest’s shareholders approved the First Financial Northwest, Inc. 2016 Equity Incentive Plan (“2016 Plan”). This plan provides for the granting of incentive stock options, non-qualified stock options, restricted stock and restricted stock units until June 2026. The 2016 Plan established 1,400,000 shares available to grant with a maximum of 400,000 of these shares available to grant as restricted stock awards. Each share issued as a restricted stock award counts as two shares towards the total shares available to award.

As a result of the approval of the 2016 Plan, the First Financial Northwest, Inc. 2008 Equity Incentive Plan (“2008 Plan”) was frozen with no additional awards being made under the 2008 Plan. Restricted stock awards and stock options that were granted under the 2008 Plan are fully vested and unexercised options remain exercisable, subject to the provisions of the 2008 Plan and the respective award agreements. At September 30, 2024, there were 833,252 total shares available for grant under the 2016 Plan, including 136,626 shares available to be granted as restricted stock.

Under the 2016 Plan, the vesting date for each option award or restricted stock award is determined by an award committee and specified in the award agreement. In the case of restricted stock awards granted in lieu of cash payments of directors’ fees, the grant date is used as the vesting date unless the award agreement provides otherwise.

For the three months ended September 30, 2024 and 2023, total compensation expense for awards granted under the 2016 Plan was $47,000 and $270,000, respectively, and the related income tax benefit was $10,000 and $57,000, respectively. For the nine months ended September 30, 2024 and 2023, total compensation expense for awards granted under the 2016 Plan was $195,000 and $497,000, respectively, and the related income tax benefit was $41,000 and $104,000, respectively.

Stock Options

Under the 2008 Plan, stock option awards were granted with an exercise price equal to the market price of First Financial Northwest’s common stock at the grant date. These option awards have a vesting period of five years, with 20% vesting on the anniversary date of each grant date, and a contractual life of ten years. Any unexercised stock options expire ten years after the grant date, or sooner in the event of the award recipient’s death, disability or termination of service with the Company. At September 30, 2024, there were 40,000 stock options from the 2008 Plan vested and available for exercise, subject to the 2008 Plan provisions.

Under the 2016 Plan, the exercise price and vesting period for stock options are determined by the award committee and specified in the award agreement, however, the exercise price shall not be less than the fair market value of a share as of the
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grant date. Any unexercised stock option will expire 10 years after the award date or sooner in the event of the award recipient’s death, disability, retirement, or termination of service. At September 30, 2024, there were 40,000 stock options granted from the 2016 Plan, of which 10,000 were vested and available for exercise.

The fair value of each option award is estimated on the grant date using a Black-Scholes model that uses the following assumptions. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. Historical employment data is used to estimate the forfeiture rate. The historical volatility of the Company’s stock price over a specified period of time is used for the expected volatility assumption. First Financial Northwest bases the risk-free interest rate on the U.S. Treasury Constant Maturity Indices in effect on the date of the grant. First Financial Northwest elected to use the “Share-Based Payments” method permitted by the SEC to calculate the expected term. This method uses the vesting term of an option along with the contractual term, setting the expected life at the midpoint.

Under certain conditions, a cashless exercise of vested stock options may occur by the option holder surrendering the number of options valued at the current stock price at the time of exercise to cover the total cost to exercise. The surrendered options are canceled and are unavailable for reissue.

The Company’s stock option plan awards and activity for the three and nine months ended September 30, 2024 are summarized as follows: 
For the Three Months Ended September 30, 2024
SharesWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term in YearsAggregate Intrinsic ValueWeighted-Average Grant Date Fair Value
Outstanding at July 1, 2024155,000 $11.70 $1,477,650 $3.97 
Exercised(75,000)10.79 827,500 4.12 
Outstanding at September 30, 202480,000 12.55 4.99797,600 3.83 
Vested and expected to vest assuming a 3% forfeiture rate over the vesting term
79,100 12.56 4.94788,186 3.84 
Exercisable at September 30, 202450,000 12.84 2.68483,800 4.34 
For the Nine Months Ended September 30, 2024
SharesWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term in YearsAggregate Intrinsic ValueWeighted-Average Grant Date Fair Value
Outstanding at January 1, 2024162,500 $11.65 $296,725 $3.98 
Exercised(82,500)10.79 904,675 4.12 
Outstanding at September 30, 202480,000 12.55 4.99797,600 3.83 
Vested and expected to vest assuming a 3% forfeiture rate over the vesting term
79,100 12.56 4.94788,186 3.84 
Exercisable at September 30, 202450,000 12.84 2.68483,800 4.34 

As of September 30, 2024, there was $82,000 of total unrecognized compensation cost related to nonvested stock options. The cost is expected to be recognized over the remaining weighted-average vesting period of 2.8 years.

Restricted Stock Awards

The 2016 Plan authorizes the grant of restricted stock awards subject to vesting periods or terms as defined by the award committee and specified in the award agreement. Restricted stock awards granted in lieu of cash payments for directors’ fees are subject to immediate vesting on the grant date unless the award agreement provides otherwise. In 2024, no restricted stock awards were granted to the directors as they received cash payments for directors’ fees.
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Changes in nonvested restricted stock awards for the three and nine months ended September 30, 2024, are summarized as follows:

For the Three Months Ended September 30, 2024
SharesWeighted-Average
Grant Date
Fair Value
Nonvested at July 1, 20247,673 $20.68 
Granted— — 
Vested— — 
Nonvested at September 30, 20247,673 20.68 
Expected to vest assuming a 3% forfeiture rate over the vesting term
7,443 20.68 
For the Nine Months Ended September 30, 2024
SharesWeighted-Average
Grant Date
Fair Value
Nonvested at January 1, 202427,618 $14.92 
Granted7,673 20.68 
Vested(27,618)14.92 
Nonvested at September 30, 20247,673 20.68 
Expected to vest assuming a 3% forfeiture rate over the vesting term
7,443 20.68 

As of September 30, 2024, there was $66,000 of total unrecognized compensation costs related to nonvested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining five month vesting period.




























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Note 11 - Accumulated Other Comprehensive (Loss) Income

The table below presents the changes in accumulated other comprehensive (loss) income, net of tax, for the three and nine months ended September 30, 2024 and 2023.
Unrealized Gains (Losses) on Available-for-Sale SecuritiesUnrealized (Losses) Gains on Cash Flow HedgesTotal
(In thousands)
Balance June 30, 2024$(12,956)$6,304 $(6,652)
Other comprehensive income (loss) before reclassifications2,344 (2,179)165 
Net other comprehensive income (loss) 2,344 (2,179)165 
Balance September 30, 2024$(10,612)$4,125 $(6,487)
Balance December 31, 2023$(13,649)$5,976 $(7,673)
Other comprehensive income (loss) before reclassifications3,037 (1,851)1,186 
Net other comprehensive income (loss) 3,037 (1,851)1,186 
Balance September 30, 2024$(10,612)$4,125 $(6,487)
Balance June 30, 2023$(17,699)$7,882 $(9,817)
Other comprehensive (loss) income before reclassifications(741)569 (172)
Net other comprehensive (loss) income (741)569 (172)
Balance September 30, 2023$(18,440)$8,451 $(9,989)
Balance December 31, 2022$(15,497)$8,283 $(7,214)
Other comprehensive (loss) income before reclassifications(2,943)168 (2,775)
Net other comprehensive (loss) income (2,943)168 (2,775)
Balance September 30, 2023$(18,440)$8,451 $(9,989)

Note 12 - (Loss) Earnings Per Share

Per the provisions of FASB ASC 260, Earnings Per Share, nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested restricted stock awards qualify as participating securities.

Net income is allocated between the common stock and participating securities pursuant to the two-class method, based on their rights to receive dividends, participate in earnings, or absorb losses. Basic earnings per common share is computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period, excluding participating nonvested restricted shares.








34

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following table presents a reconciliation of the components used to compute basic and diluted (loss) earnings per share for the periods indicated:
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
 (Dollars in thousands, except per share data)
Net (loss) income $(608)$1,501 $(128)$5,111 
Less: Earnings allocated to participating securities— (4)— (15)
(Loss) earnings allocated to common shareholders$(608)$1,497 $(128)$5,096 
Basic weighted average common shares outstanding9,190,146 9,127,568 9,171,579 9,117,554 
Dilutive stock options— 13,991 — 23,069 
Dilutive restricted stock grants— 8,500 — 6,086 
Diluted weighted average common shares outstanding9,190,146 9,150,059 9,171,579 9,146,709 
Basic (loss) earnings per share$(0.07)$0.16 $(0.01)$0.56 
Diluted (loss) earnings per share$(0.07)$0.16 $(0.01)$0.56 

    Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For both the three and nine months ended September 30, 2024, there were no options to purchase shares of common stock and no restricted stock award (“RSA”) shares that were omitted from the computation of diluted (loss) earnings per share because their effect would be anti-dilutive. For the three and nine months ended September 30, 2023, there were 80,000 options to purchase shares of common stock and no RSA shares that were omitted from the computation of diluted earnings per share because their effect would be anti-dilutive.

Note 13 - Revenue Recognition

    In accordance with ASU 2014-09, Revenue from Contracts with Customers Topic 606, revenues are recognized when goods or services are transferred to the customer in exchange for the consideration the Company expects to be entitled to receive. To determine the appropriate recognition of revenue for transactions within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with the customer; (ii) identify the separate performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the separate performance obligations in the contract; and (v) recognize revenue when the entity satisfies a performance obligation. A contract may not exist if there are doubts as to collectability of the amounts the Company is entitled to in exchange for the goods or services transferred. If a contract is determined to be within the scope of Topic 606, the Company recognizes revenue as it satisfies a performance obligation. The largest portion of the Company’s revenue is from net interest income which is not within the scope of Topic 606.
















35

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Disaggregation of Revenue

    The following table includes the Company’s noninterest income disaggregated by type of income for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
(In thousands)
BOLI change in cash surrender value (1)
$295 $244 $956 $826 
Wealth management revenue42 53 190 193 
Deposit related fees87 85 257 246 
Debit card and ATM fees149 162 440 476 
Loan related fees96 79 251 215 
Other8 54 43 184 
Total noninterest income$677 $677 $2,137 $2,140 
_______________
(1) Not within scope of Topic 606

    For both the three and nine months ended September 30, 2024 and 2023, substantially all of the Company’s revenues under the scope of Topic 606 are for performance obligations satisfied at a specified date.

Revenues recognized within scope of Topic 606

Wealth management revenue: Our wealth management revenue consists of commissions received on the investment portfolio managed by Bank personnel but held by a third party. Commissions are earned on brokerage services and advisory services based on contract terms at the onset of a new customer’s investment agreement or quarterly for ongoing services. Commissions are paid by the third party to the Company when the performance obligation has been completed by both entities.

Deposit related fees: Fees are earned on deposit accounts for various products or services performed for the Company’s customers. Fees include business account fees, non-sufficient fund fees, stop payment fees, wire services, safe deposit box, and others. These fees are recognized on a daily or monthly basis, depending on the type of service.

Debit card and ATM fees: Fees are earned when a debit card issued by the Company is used or when another financial institution’s customer uses the Company’s ATM services. Revenue is recognized at the time the fees are collected from the customer’s account or remitted by the VISA interchange network.

Loan related fees: Noninterest fee income is earned on loans for servicing or annual fees earned on certain loan types. Fees are also earned on the prepayment of certain loans and are recognized at the time the loan is paid off.

Other: Fees earned on other services, such as merchant services or occasional non-recurring type services, are recognized at the time of the event or the applicable billing cycle. Also included is income relating to our investment in a Fintech focused fund.

Contract Balances

    At September 30, 2024, the Company had no contract liabilities where the Company had an obligation to transfer goods or services for which the Company had already received consideration. In addition, the Company had no material performance obligations as of this date.







36


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

When used in this document, “First Financial Northwest” refers to First Financial Northwest, Inc., the holding company for First Financial Northwest Bank (the “Bank”). The terms “we,” “our,” “us,” or the “Company” as used throughout this report refers to First Financial Northwest and the Bank on a consolidated basis, unless the context otherwise requires.

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, our pending transaction with Global Federal Credit Union (“Global”) whereby Global, pursuant to the definitive purchase and assumption agreement (the “P&A” Agreement), will acquire substantially all of the assets and assume substantially all of the liabilities of First Financial Northwest Bank, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to:

•the occurrence of any event, change or other circumstances that could give rise to the right of one or all of the parties to terminate the P&A Agreement;
•delays in completing requirements of the P&A Agreement;
•the failure to obtain the NCUA approval or to satisfy any conditions to the Global transaction, including those contained in the P&A Agreement on a timely basis or at all;
•delays or other circumstances arising from the dissolution of First Financial Northwest Bank and First Financial Northwest Inc. following completion of the requirements of the P&A Agreement;
•delays as a result of new merger or application statements of policy or requirements from any of the regulatory authorities with jurisdiction over the transaction;
•diversion of management’s attention from ongoing business operations and opportunities during the pending Global transaction;
•adverse reactions or changes to business or employee relationships, including those resulting from the announcement of the Global transaction;
•adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation or deflation, a recession or slowed economic growth;
•changes in the interest rate environment including the increases or decreases in the Board of Governors of the Federal Reserve System (“Federal Reserve”) benchmark rate and duration at which such interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity;
•the impact of inflation and the current and future monetary policies of the Federal Reserve in response thereto;
•the effects of any federal government shutdown;
•the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs, that may be affected by deterioration in the housing and commercial real estate markets, and may lead to increased losses and nonperforming assets in our loan portfolio, and may result in our allowance for credit losses not being adequate to cover actual losses, and require us to materially increase our allowance for credit losses;
•changes in the levels of general interest rates, and the relative differences between short- and-long term interest rates, deposit interest rates, our net interest margin and funding sources;
•fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas;
•the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;
37


•results of examinations of us by the Federal Reserve Bank of San Francisco (“FRB”) and our bank subsidiary by the Federal Deposit Insurance Corporation (“FDIC”), the Washington State Department of Financial Institutions, Divisions of Banks (“DFI”) or other regulatory authorities, including the possibility that any such regulatory authority may initiate an enforcement action against the Company or the Bank which could require us to increase our allowance for credit losses, write-down assets, change our regulatory capital position, affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;
•our ability to pay dividends on our common stock;
•our ability to attract and retain deposits;
•our ability to control operating costs and expenses;
•the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;
•difficulties in reducing risk associated with the loans on our balance sheet;
•staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;
•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;
•our ability to retain key members of our senior management team;
•our ability to implement a branch expansion strategy;
•our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
•our ability to manage loan delinquency rates;
•costs and effects of any litigation that may be instituted against the Company as a result of the P&A Agreement or otherwise, including settlements and judgments;
•increased competitive pressures among financial services companies;
•changes in consumer spending, borrowing and savings habits;
•legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules;
•the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;
•the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets, including market liquidity;
•inability of key third-party providers to perform their obligations to us;
•changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;
•the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest and other external events on our business;
•other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and
•other risks detailed in our Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”) and our other reports filed with and furnished to the U.S. Securities and Exchange Commission (“SEC”).

Any of the forward-looking statements that we make in this Form 10-Q and in the other public reports and statements we make may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Because of these and other uncertainties, our actual future results may be materially different from those expressed in any forward-looking statements made by or on our behalf. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We undertake no responsibility to update or revise any forward-looking statements.

Overview

First Financial Northwest Bank is a wholly-owned subsidiary of First Financial Northwest and, as such, comprises substantially all of the activity for the Company. The Bank was a community-based savings bank until February 4, 2016, when it converted to a Washington chartered commercial bank reflecting the commercial banking services it now provides to its customers. The Bank primarily serves King, Pierce, Snohomish, and Kitsap counties, Washington, through its full-service
38


banking office and headquarters in Renton, Washington, as well as seven retail branches in King County, Washington, five retail branches in Snohomish County, Washington, and two retail branches in Pierce County, Washington.

The Bank’s business consists predominantly of attracting deposits from the general public, combined with borrowing from the FHLB and raising funds in the wholesale market, then utilizing these funds to originate one-to-four family residential, multifamily, commercial real estate, construction/land, business and consumer loans. Additionally, we anticipate that construction/land lending will continue to be a strong element of our total loan portfolio in future periods. We will continue to take a disciplined approach in our construction/land lending by concentrating our efforts on residential loans to builders known to us, including multifamily loans to developers with proven success in this type of construction. These loans typically mature in 12 to 24 months and funding is usually not fully disbursed at origination, therefore the impact to net loans receivable is generally minimal in the short term. We have also geographically expanded our loan portfolio through purchases of consumer classic and collectible car loans that are outside of our primary market area. During the first nine months of 2024, loan repayments outpaced newly funded loans, refinances and purchases, resulting in a decrease of $49.8 million in net loans receivable at September 30, 2024.

Our strategic initiatives seek to diversify our loan portfolio and broaden growth opportunities within our current risk tolerance levels and asset/liability objectives. In this regard, our portfolio at September 30, 2024, included $135.3 million of loans to borrowers or secured by properties in 47 other states and the District of Columbia, with the largest concentrations of loans outside our primary market area located in California, Oregon, Texas, Florida and Alabama totaling $29.3 million, $10.3 million, $10.2 million, $10.0 million and $7.6 million, respectively.

The Bank has affiliated with a Small Business Administration (“SBA”) partner to process our SBA loans while the Bank retains the credit decisions. This enables us to be active in lending to small businesses until our volumes are high enough to support the investment in necessary infrastructure. When volumes support our becoming a SBA preferred lender, we will apply for that status which would provide the Bank with delegated loan approval as well as closing and most servicing and liquidation authority, enabling the Bank to make loan decisions more rapidly. In addition, the Bank is strategically broadening its commercial business lending offerings, encompassing products like business lines of credit, business term loans, and equipment financing. This expansion aims to enhance loan portfolio diversity, draw in business deposits, and bolster revenue generation. Moreover, it seeks to contribute to local economic development and cultivate enduring client relationships.

Our primary source of revenue is interest income, which is the income that we earn on our loans and investments. Interest expense is the interest that we pay on our deposits and borrowings. Net interest income is the difference between interest income and interest expense. Changes in levels of interest rates affect interest income and interest expense differently and, thus, impact our net interest income and net interest margin. The Bank is currently liability-sensitive, meaning our interest-earning liabilities re-price at a faster rate than our interest-bearing assets. For the three months ended September 30, 2024, net interest margin decreased 23 basis points to 2.46%, compared to 2.69% in the same quarter last year. The average yield on interest-earning assets increased, primarily due to an increase in market interest rates. For the same reason, the average cost of interest-bearing liabilities also increased, but at a faster pace than the average yield on interest-earning assets.

Income is also affected by the provision for credit losses, or the recapture of the provision for credit losses, which affects the level of our allowance for credit losses (“ACL”). The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. As our loan portfolio increases, or due to an increase for probable losses inherent in our loan portfolio, our ACL may increase, resulting in a decrease to net interest income after the provision. Improvements in loan risk ratings, increases in property values, or receipt of recoveries of amounts previously charged off may partially or fully offset any required increase to ACL due to loan growth or an increase in probable credit losses.

Noninterest income is generated from various loan and deposit fees, increases in the cash surrender value of BOLI, revenue earned on our wealth management services, and other income. This income is increased or partially offset by any net gain or loss on sales of investment securities.

Our noninterest expenses consist primarily of salaries and employee benefits, professional fees, regulatory assessments, occupancy and equipment, and other general and administrative expenses. Salaries and employee benefits consist primarily of the salaries and wages paid to our employees, including commissions and bonuses, payroll taxes, expenses for retirement, and other employee benefits. Professional fees include legal services, auditing and accounting services, computer
39


support services, and other professional services, including those in support of the proposed Global transaction and other strategic plans. Occupancy and equipment expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease expenses, real estate taxes, depreciation expenses, maintenance, and costs of utilities.

Critical Accounting Estimates

    Our critical accounting estimates are described in detail in the "Critical Accounting Estimates" section within Item 7 of our 2023 Form 10-K. The SEC defines "critical accounting estimates" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. The Company's critical accounting estimates include those related to the calculation of the ACL. There have not been any material changes in the Company’s critical accounting estimates during the nine months ended September 30, 2024.

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

Total assets were $1.45 billion at September 30, 2024, a decrease of $54.0 million or 3.6%, from $1.51 billion at December 31, 2023. The following table details the net change in the composition of our assets at September 30, 2024 from December 31, 2023.
 September 30, 2024December 31, 2023$ Change % Change
 (Dollars in thousands)
Cash on hand and in banks $8,423 $8,391 $32 0.4 %
Interest-earning deposits with banks72,884 22,138 50,746 229.2 
Investments available-for-sale, at fair value156,609 207,915 (51,306)(24.7)
Investments held-to-maturity, at amortized cost2,462 2,456 6 0.2 
Loans receivable, net 1,126,146 1,175,925 (49,779)(4.2)
FHLB stock, at cost                                5,403 6,527 (1,124)(17.2)
Accrued interest receivable6,638 7,359 (721)(9.8)
Deferred tax assets, net2,690 2,648 42 1.6 
Premises and equipment, net18,584 19,667 (1,083)(5.5)
BOLI, net38,661 37,653 1,008 2.7 
Prepaid expenses and other assets8,898 10,478 (1,580)(15.1)
ROU asset, net2,473 2,617 (144)(5.5)
Goodwill889 889 — — 
Core deposit intangible, net326 419 (93)(22.2)
Total assets                                $1,451,086 $1,505,082 $(53,996)(3.6)%

Interest-earning deposits with banks. Interest-earning deposits with banks, consisting primarily of funds held at the FRB, increased $50.7 million to $72.9 million at September 30, 2024, compared to $22.1 million at December 31, 2023. Due to a decline in loan demand and not reinvesting of proceeds from investment maturities, we had excess funds, which were deposited to our interest-earning overnight accounts. These funds are readily available to use for meeting our financial obligations.

Investments available-for-sale. Investments available-for-sale decreased $51.3 million, primarily due to the maturity of $40.0 million of investments during the first nine months of 2024. No investment securities were purchased during the nine months ended September 30, 2024. Proceeds from investment maturities were used to supplement our funding needs, including paying off brokered deposits as they matured.

The effective duration of the investments available-for-sale at September 30, 2024 was 3.88%, compared to 3.43% at December 31, 2023. Effective duration measures the anticipated percentage change in the value of an investment security (or portfolio) in the event of a 100 basis point change in market yields. Since the Bank’s portfolio includes securities with
40


embedded options (including call options on bonds and prepayment options on mortgage-backed securities), management believes that effective duration is an appropriate metric to use as a tool when analyzing the Bank’s investment securities portfolio, as effective duration incorporates assumptions relating to such embedded options, including changes in cash flow assumptions as interest rates change.

Loans receivable. Net loans receivable decreased $49.8 million, or 4.2%, to $1.13 billion at September 30, 2024 from December 31, 2023, reflecting decreases in all loan categories. Decreases in commercial real estate, business, one-to-four family residential, multifamily, consumer and construction/land loans were $14.8 million, $14.7 million, $12.4 million, $5.3 million, $975,000 and $703,000 respectively. The decreases in our balances were attributable to shifts in the interest rate environment, and fewer opportunities for lending activities. Additionally, we spent a significant amount of time during the second quarter of 2024 modifying loans under the P&A Agreement, which had an adverse impact on new loan production.
At September 30, 2024 and December 31, 2023, construction/land loans totaled 36.8% and 38.3% of total capital plus surplus, and non-owner occupied commercial real estate loans totaled 296.2% and 316.8% of total capital plus surplus, respectively. The Bank has set aggregate concentration guidelines for total commercial real estate, residential, non-owner occupied, multifamily and construction/land loans of up to 550% of total capital plus surplus. Our concentration guideline for construction/land loans is to limit these loans to 100% of total capital plus surplus. The concentration of construction/land loans is calculated using the funded balance of these loans and consequently can fluctuate based on the timing of construction draws and loan payoffs. Management reviews estimated construction draws and loan payoffs and adjusts loan originations based on these estimates to achieve compliance with our construction guidelines. Our commercial and multifamily real estate and construction/land loan portfolios are subject to ongoing credit reviews performed by both independent loan review staff, as well as an external third-party review firm to assist with identifying potential adverse trends and risks in the portfolio allowing management to initiate timely corrective action, as necessary. Such reviews also assist with ensuring loan risk grades are accurately assigned and thereby properly accounted for in the ACL. The review places emphasis on large borrowing relationships, stress testing, compliance with loan covenants, as well as other risk factors warranting enhanced review.































41


The following table presents a breakdown of our multifamily residential, commercial real estate and construction/land loans by collateral type at September 30, 2024 and December 31, 2023. Total construction/land loans are net of $59.3 million and $44.6 million of loans-in-process (“LIP”), at September 30, 2024 and December 31, 2023, respectively.
September 30, 2024December 31, 2023
Amount% of Total in PortfolioAmount% of Total in Portfolio
(In thousands)
Multifamily residential$132,811 100.0 %$138,149 100.0 %
Commercial real estate:
Retail$118,840 32.7 %$124,172 32.9 %
Office73,778 20.3 72,778 19.3 
Hotel / motel54,716 15.1 63,597 16.8 
Storage32,443 8.9 33,033 8.7 
Mobile home park22,443 6.2 21,701 5.7 
Warehouse18,743 5.2 19,218 5.1 
Nursing home11,407 3.1 11,610 3.1 
Other non-residential30,719 8.5 31,750 8.4 
Total commercial real estate$363,089 100.0 %$377,859 100.0 %
Construction/land:
One-to-four family residential$42,846 71.1 %$47,149 77.4 %
Multifamily7,227 12.0 4,004 6.6 
Land10,148 16.9 9,771 16.0 
Total construction/land$60,221 100.0 %$60,924 100.0 %
Total multifamily residential, commercial real estate and construction/land loans$556,121 $576,932 

To assist in our strategic initiatives for loan growth and geographic diversification, the Bank originates and purchases loans and utilizes loan participations with the underlying collateral located within areas of Washington State but outside our primary market area as well as in other states. The Bank’s goal with respect to loan participations is to locate a selling bank that is unable to make an entire loan due to legal or lending concentration limitations. Sellers of these loans are reviewed for management/lending experience, financial condition, asset quality metrics, and regulatory matters. Loans acquired through participation or purchase must meet the Bank’s underwriting and risk guidelines. During the nine months ended September 30, 2024, the Bank purchased $11.4 million of loans and loan participations located in Washington and other states, consisting of $11.1 million of consumer loans secured by classic/collectible automobiles, $276,000 of commercial real estate loans and $49,000 of multifamily residential loans.

At September 30, 2024, the majority of our loan portfolio was secured by properties located in our primary market area; however, a significant amount of loans was secured by properties located in areas of Washington outside our primary market area and elsewhere. Specifically, at September 30, 2024, loans secured by properties outside our primary market area accounted for 7.2% of total loans in Washington, 2.6% in California and 9.3% across regions outside of both California and Washington. The following table details geographic concentrations in our loan portfolio:
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At September 30, 2024
One-to-Four Family ResidentialMultifamily ResidentialCommercial Real EstateConstruction/LandBusinessConsumerTotal
(In thousands)
King County$380,972 $81,071 $223,281 $57,855 $7,304 $11,153 $761,636 
Pierce County40,121 10,269 37,767 633 180 918 89,888 
Snohomish County34,016 7,249 12,694 819 3,893 1,374 60,045 
Kitsap County12,178 4 694 — — 252 13,128 
Other Washington Counties24,456 26,433 29,149 914 231 1,218 82,401 
California1,804 6,013 11,026 — 22 10,406 29,271 
Outside Washington
and California (1)
7,324 1,772 48,478 — 2,769 45,699 106,042 
Total loans$500,871 $132,811 $363,089 $60,221 $14,399 $71,020 $1,142,411 
_______________
(1) Includes loans in Oregon, Texas, Florida and Alabama of $10.3 million, $10.2 million, $10.0 million and $7.6 million, respectively, and $67.9 million of loans located in 42 other states and the District of Columbia.

The ACL increased $959,000 to $16.3 million at September 30, 2024, representing 1.42% of total loans receivable, from $15.3 million, representing 1.29% of total loans receivable at December 31, 2023. The increase was primarily the result of a significant decrease in appraised values on two participation commercial loans (one lending relationship) with balances totaling $6.0 million, shifts in the compositions of the loan portfolio, credit rating changes, changes in the unemployment rate forecasts and an increase in balances of the multifamily construction/land and commercial construction/land development loans.

We believe the ACL was adequate to absorb the expected losses in the loan portfolio at September 30, 2024. While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will be proven correct in the future, that the actual amount of future losses will not exceed the amount of past provisions, or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. Future additions to the ACL may become necessary based upon changing economic conditions, the level of problem loans, business conditions, credit concentrations, increased loan balances, or changes in the underlying collateral of the loan portfolio. In addition, the determination of the amount of our ACL is subject to review by bank regulators as part of the routine examination process, which may result in the establishment of additional loss reserves or the charge-off of specific loans against established loss reserves based upon their judgment of information available to them at the time of their examination. Uncertainties relating to our ACL are heightened as a result of the risks surrounding economic forecasts and risks inherent in the business environment as described in further detail in Part II, Item 1A of this Form 10-Q and Part 1, Item 1A of our 2023 Form 10-K.

Asset Quality. Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. Past due loans totaled $2.2 million and $1.4 million, or 0.20% and 0.12% of total loans, at September 30, 2024 and December 31, 2023, respectively. We had no other real estate owned properties or foreclosed assets as of September 30, 2024 and December 31, 2023. Nonaccrual loans totaled $853,000, or 0.07% of total loans, at September 30, 2024, compared to $220,000, or 0.01% of total loans, at December 31, 2023. The increase in nonaccrual loans was due partly to management placing a $279,000 one-to-four family residential loan that was 60 days past due on nonaccrual status and a $352,000 consumer loan that was more than 90 days past due becoming nonaccrual.

We will continue to focus our efforts on working with borrowers to bring any past due loans current. By taking ownership of the underlying collateral if needed, we can generally convert non-earning assets into earning assets on a more timely basis than may otherwise be the case.



43


Deposits. Deposit accounts consisted of the following:
 Balance at
September 30, 2024		Balance at
December 31,
2023		$ Change% Change
 (Dollars in thousands)
Noninterest-bearing demand$100,466 $100,899 $(433)(0.4)%
Interest-bearing demand55,506 56,968 (1,462)(2.6)
Savings17,031 18,886 (1,855)(9.8)
Money market495,978 529,411 (33,433)(6.3)
Certificates of deposit, retail447,474 357,153 90,321 25.3 
Brokered deposits(1)
50,900 130,790 (79,890)(61.1)
$1,167,355 $1,194,107 $(26,752)(2.2)
______________
(1) All certificates of deposits at September 30, 2024, compared to $95.3 million of certificates of deposits, $25.1 million of interest-bearing demand deposits and $10.4 million of network money market deposits at December 31, 2023.

Deposits decreased $26.8 million to $1.17 billion as of September 30, 2024, down from $1.19 billion at December 31, 2023. This decline was primarily the result of a $116.7 million decrease in the aggregate of brokered deposits, money market accounts, savings accounts and interest-bearing demand accounts, partially offset by a $90.3 million increase in retail certificates of deposits. During the first nine months of 2024, management chose to reduce the reliance on funds from the wholesale markets due to a decrease in the loan portfolio and overall loan demand.

At September 30, 2024 and December 31, 2023, we held $80.0 million and $85.8 million in public funds, respectively, primarily in retail certificates of deposit and money market accounts.

Advances. We use advances from the FHLB as an alternative funding source to manage interest rate risk, to leverage our balance sheet and to supplement our deposits. FHLB advances totaled $100.0 million and $125.0 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, FHLB advances consisted of $75.0 million of fixed-rate one-month advances that renew monthly and $25.0 million of fixed-rate three-month advances that renew quarterly. These one- and three-month advances are utilized in cash flow hedge agreements as described below. At September 30, 2024, all of our FHLB advances were due to reprice within a month.

Cash Flow Hedge. To assist in our interest rate risk management efforts, the Bank has entered into multiple interest rate swap agreements with qualified institutions. Each interest rate swap agreement qualifies as a cash flow hedge of the variability of future interest payments attributable to the changes in one-month or three-month SOFR. The objective of the cash flow hedge is to offset the variability of cash flows due to the rollover of the Bank’s FHLB, or other advances, for one-month or three-months, respectively, for the term of the agreement.

The following table presents details of the Bank’s interest rate swap agreements as of September 30, 2024. For each interest rate swap agreement listed, the Bank has secured a FHLB advance for the notional amount that matures and is subject to repricing at the same frequency as the corresponding interest rate swap. The Bank pays a fixed interest rate to the counterparty and in return, receives a floating interest rate based on the index noted in the table below. The original terms of these interest rate swap agreements range from two to eight years. These cash flow hedge agreements had a weighted average remaining term of 30.8 months and a weighted average fixed interest rate of 1.93% as of September 30, 2024.
44


 Notional amountStart DateMaturity DateFixed rate paid to counterpartyIndex rate received from counterpartyRepricing Frequency
(Dollars in thousands)
$15,000 3/2/20203/2/20260.911 %1-month SOFRMonthly
15,000 3/2/20203/2/20270.937 1-month SOFRMonthly
15,000 3/2/20203/2/20280.984 1-month SOFRMonthly
15,000 10/25/202110/25/20280.793 3-month SOFRQuarterly
10,000 10/25/202110/25/20290.800 3-month SOFRQuarterly
15,000 7/17/20237/17/20254.565 1-month SOFRMonthly
15,000 7/17/20237/17/20264.149 1-month SOFRMonthly

A change in the net fair value of these cash flow hedges is recognized as an other asset or other liability on the balance sheet with the tax-effected portion of the change included in other comprehensive income. At September 30, 2024 and December 31, 2023, we recognized fair value assets of $5.2 million and $7.6 million, respectively, as a result of the increase in market value of the interest rate swap agreements.

Stockholders’ Equity. Stockholders’ equity decreased to $160.2 million at September 30, 2024, from $161.7 million at December 31, 2023. The decrease in stockholders’ equity resulted from a net loss of $128,000, the payment of $2.4 million of cash dividends to stockholders and a $1.2 million decrease to additional paid-in-capital from the cancellation of 55,714 shares of stock awards during the first nine months of 2024. These decreases were partially offset by a $1.2 million decrease in accumulated other comprehensive loss, net of taxes, resulting from the increase in fair value of our available-for-sale investments, and a $1.1 million increase in additional paid-in-capital resulting from $195,000 in stock-based compensation recognized over the vesting periods of the stock awards and $889,000 from the exercise of 82,500 shares of stock options.

The following table shows cash dividends paid per share and the related dividend payout ratio for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Dividend paid per common share$— $0.13 $0.26 $0.39 
Dividend payout ratio (1)
— %79.3 %(2,600.0)%69.8 %
______________
(1) Dividends paid per common share divided by basic earnings per common share.

45


    
Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023

General. A net loss of $608,000 was reported for the three months ended September 30, 2024, or $(0.07) per diluted share compared to net income of $1.5 million, or $0.16 per diluted share, for the three months ended September 30, 2023. The $2.1 million decrease in net income was due to a $1.2 million decrease in net interest income and a $1.9 million increase in provision for credit losses, partially offset by a $282,000 decrease in noninterest expense and a $733,000 decrease in the federal income tax provision.

Net Interest Income. Net interest income for the three months ended September 30, 2024, decreased $1.2 million to $8.5 million from $9.7 million for the three months ended September 30, 2023. The decrease was primarily due to lower interest income resulting from decreases in average balances of interest-earning assets and higher interest expense on deposits and borrowings, primarily reflecting the higher market interest rates and continued intense competition for deposits. Between March 2022 and January 2024, in response to continuing elevated inflation, the Federal Open Market Committee of the Federal Reserve hiked interest rates a total of 11 times, to a range of 5.25% to 5.50% until September 18, 2024, when the rates were reduced to the range of 4.75% to 5.00%.

Interest income decreased $259,000 for the three months ended September 30, 2024, compared to the same period in 2023. While interest income benefited from the repricing impact of the higher interest rate environment on variable rate asset yields, the reduction in interest income resulting from decreases in average balances of these interest-earning assets outpaced the increase in yields. Interest income on loans decreased $260,000 due to a decrease in the average loan balances, partially offset by an increase in loan yields. The average balance of loans decreased $40.0 million to $1.13 billion for the three months ended September 30, 2024 from $1.17 billion for the same period in 2023. Average loan yield increased to 5.86% for the three months ended September 30, 2024, from 5.73% for the three months ended September 30, 2023, due in large part to increased returns from the repricing of variable rate loans.

Interest income from investment securities decreased $374,000 for the three months ended September 30, 2024, compared to the same period in 2023, due to a $50.1 million decrease in the average balance of these securities, partially offset by a 32 basis point increase in the average yield to 4.30% for the three months ended September 30, 2024, compared to 3.98% for the same period in 2023, as higher market interest rates favorably impacted our variable rate investment securities.

Interest income on interest-earning deposits with banks increased $338,000 for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was due to a $24.9 million increase in the average balance and a nine basis point increase in the average yield to 5.27% on these deposits for the three months ended September 30, 2024, compared to 5.18% for the same period in 2023.

Interest expense increased $990,000 for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, due to interest expense on deposits increasing $543,000 and interest expense on borrowings increasing $447,000. The increase in the interest expense on deposits was primarily due to an increase in the average rate paid on interest-bearing deposits, in particular higher yielding money market accounts and retail certificates of deposit, which increased 68 basis points and 100 basis points, respectively, and, to a lesser extent, the higher average balance of money market accounts and retail certificates of deposits. The average rate paid on money market accounts and retail certificates was 3.71% and 4.37% for the three months ended September 30, 2024, compared to 3.03% and 3.37% for the three months ended September 30, 2023, respectively. For the three months ended September 30, 2024, the average balance of money market accounts and retail certificates of deposit increased $34.2 million and $38.8 million, respectively. These increases were partially offset by decreases in the interest expenses on brokered and interest-bearing demand deposits. The decrease in interest expense on brokered deposits for the three months ended September 30, 2024, compared to the same period in 2023, was primarily due to the average balance of brokered deposits decreasing $124.3 million, as we reduced the use of brokered deposits as a funding source due to lower loan originations and the growth in retail certificates of deposit, partially offset by a 13 basis point increase in average cost to 5.35% for the three months ended September 30, 2024, from 5.22% for the three months ended September 30, 2023. The decrease in interest expense on demand deposits was due primarily to a $22.6 million decrease in average balance combined with a 129 basis point decrease in average cost to 0.19% for the three months ended September 30, 2024, from 1.48% for the three months ended September 30, 2023.

Interest expense on borrowings increased $447,000 as a result of a $26.1 million increase in the average balance and a 77 basis point increase in average cost of borrowings for the three months ended September 30, 2024, compared to the same period in 2023.
46


The Company’s net interest margin was 2.46% for the three months ended September 30, 2024, compared to 2.69% for the three months ended September 30, 2023. The decrease was primarily due to the increased cost of interest-bearing liabilities outpacing the increased yields on interest-earning assets, with a 48 basis points increase in our average cost of interest-bearing liabilities to 3.72% from 3.24%, partially offset by a 20 basis point increase in the average yield on interest earning assets to 5.66% from 5.46% between periods, respectively. For more information, see “How We Measure the Interest Rate Changes” in Item 3 of this report.

The following table presents the effects of changing rates and volumes on our net interest income during the periods indicated. Information is provided with respect to: (1) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); and (2) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes in rate/volume are allocated proportionately to the changes in rate and volume.

Three Months Ended September 30, 2024
Compared to September 30, 2023
 Net Change in Interest
RateVolumeTotal
(In thousands)
Interest-earning assets:
Loans receivable, net$318 $(578)$(260)
Investment securities, taxable156 (528)(372)
Investment securities, non-taxable(2)— (2)
Interest-earning deposits with banks12 326 338 
FHLB stock22 15 37 
Total net change in income on interest-earning assets506 (765)(259)
Interest-bearing liabilities:
Interest-bearing demand deposits(179)(84)(263)
Savings deposits1 — 1 
Money market deposits845 261 1,106 
Certificates of deposit, retail988 330 1,318 
Brokered deposits15 (1,634)(1,619)
Borrowings288 159 447 
Total net change in expense on interest-bearing liabilities1,958 (968)990 
Total net change in net interest income$(1,452)$203 $(1,249)

    
    

47


The following table compares detailed average balances, related interest income or interest expense, associated yields and rates, and the resulting net interest margin for the three months ended September 30, 2024 and 2023. Average balances have been calculated using the average daily balances during the period. Interest and dividends are not reported on a tax equivalent basis. Nonaccrual loans are included in the average balance of net loans receivable and are considered to carry a zero yield.
 Three Months Ended September 30,
 20242023
 Average
Balance		Interest Earned / PaidYield /
Cost		Average
Balance		Interest Earned / PaidYield /
Cost
 (Dollars in thousands)
Assets
   Loans receivable, net  $1,131,473 $16,658 5.86 %$1,171,483 $16,918 5.73 %
Investment securities, taxable138,761 1,619 4.64 188,889 1,991 4.18 
Investment securities, non-taxable22,471 125 2.21 22,402 127 2.25 
Interest-earning deposits with bank65,149 863 5.27 40,202 525 5.18 
FHLB stock                      7,719 150 7.73 6,820 113 6.57 
Total interest-earning assets1,365,573 19,415 5.66 1,429,796 19,674 5.46 
Noninterest earning assets87,858 92,428 
Total average assets$1,453,431 $1,522,224 
Liabilities and Stockholders' Equity
Interest-bearing demand deposits$55,131 $26 0.19 %$77,689 $289 1.48 %
Savings deposits17,195 2 0.05 19,653 1 0.02 
Money market deposits500,372 4,668 3.71 466,159 3,562 3.03 
Certificates of deposit, retail396,206 4,351 4.37 357,378 3,033 3.37 
Brokered deposits52,137 701 5.35 176,445 2,320 5.22 
Total interest-bearing deposits1,021,041 9,748 3.80 1,097,324 9,205 3.33 
Borrowings151,478 1,213 3.19 125,402 766 2.42 
Total interest-bearing liabilities1,172,519 10,961 3.72 1,222,726 9,971 3.24 
Noninterest bearing liabilities119,343 139,199 
Average equity161,569 160,299 
Total average liabilities and equity$1,453,431 $1,522,224 
Net interest income$8,454 $9,703 
Net interest margin2.46 %2.69 %

Provision for Credit Losses. Management recognizes that credit losses may occur over the life of a loan and that the ACL must be maintained at a level necessary to absorb management’s estimate of credit losses over the remaining expected life of loans in the portfolio. The methodology for estimating the amount of expected credit losses has two basic components: first, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics and second, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. Management performs individual evaluation for loans that do not share risk characteristics with other loans. Based on this individually evaluated analysis, if the recorded investment in the loan is more than the market value of the collateral less costs to sell (“market value”), a specific allowance is established in the ACL for the loan. The amount of the specific allowance is computed using current appraisals, listed sales prices, and other available information less costs to complete, if any, and costs to sell the property. This analysis is inherently subjective as it relies on estimates that are susceptible to significant revision as more information becomes available or as future events differ from predictions.
48


The Company’s methodology is to build a reserve rate using historical life of loan default rates combined with assessment of current loan portfolio information, forecasted economic environment and business cycle information. The Company uses statistical analysis to determine the life of loan default and loss rates for the quantitative component and analyzes qualitative factors (“Q-Factors”) that assess the current loan portfolio conditions and forecasted economic environment. The Q-Factors adjust the expected loss rates for current and forecasted conditions that are not fully provided for in the historical loss information. The Company has established a methodology for adjusting the previously determined expected loss rates based on the more recent or forecasted changes. The Q-Factor methodology is based on a blend of quantitative analysis and management judgement and reviewed on a quarterly basis.

The Company also records an allowance for credit losses on unfunded loan commitments on a quarterly basis. We estimate expected credit losses on unfunded loan commitments in which we are exposed to credit risk, unless we have the option to unconditionally cancel the obligation.

During the three months ended September 30, 2024, management evaluated the adequacy of the ACL and concluded that a net provision for credit losses of $1.6 million was appropriate, with $1.5 million allocated to loans and $75,000 allocated to unfunded commitments. This provision mainly relates to two participation loans totaling $6.0 million, for which we are not the lead lender. These loans, secured by short-term rehabilitation and assisted living facilities, have been individually evaluated and classified as “substandard” since March 2022 due to a decline in demand for the services provided at such facilities post-COVID. While payments on the loans were current as of September 30, 2024, updated appraisals received during the quarter resulted in an increase in our ACL. The loan guarantors are under contract to sell another property, with the sale expected to close in the fourth quarter of 2024. Proceeds from this sale are expected to be applied to the two loans, which would improve our position. Additionally, the guarantors reported interest from a national real estate developer in purchasing one of the facilities, though no purchase agreement was entered into as of September 30, 2024. The ACL was also impacted by higher forecasted unemployment rates and increased construction and land development loan balances. In comparison, a $300,000 recapture of provision for credit losses was recorded for the three months ended September 30, 2023. The recapture was due to the payoff of a $4.6 million commercial real estate loan that carried a higher credit risk rating, a credit upgrade to an $8.7 million commercial real estate loan and reduction in loans receivable during that quarter. For more information, see Note 5 - Loans Receivable and Allowance for Credit Losses in the Company’s Selected Notes to Consolidated Financial Statements.

Noninterest Income. Noninterest income was $677,000 for both the three months ended September 30, 2024 and September 30, 2023.

The following table provides a summary of the changes in the components of noninterest income:
Three Months Ended September 30,
 20242023$ Change % Change
 (Dollars in thousands)
BOLI income$295 $244 $51 20.9 %
Wealth management revenue42 53 (11)(20.8)
Deposit related fees236 247 (11)(4.5)
Loan related fees96 79 17 21.5 
Other           8 54 (46)(85.2)
Total noninterest income$677 $677 $— — 

    
    For the three months ended September 30, 2024, compared to the three months ended September 30, 2023, BOLI income increased $51,000 primarily as a result of annual premiums and dividends and loan related fees increased $17,000, primarily due to forfeitures collected from loan application deposits. Offsetting these increases was an $11,000 decrease in wealth management revenue primarily due to decreased sales of products and services, an $11,000 decrease in deposit related fees primarily due to lower debit card related fees reflecting decreased usage and a $46,000 decrease in other noninterest income primarily due to a $44,000 distribution received from our investment in a Fintech focused fund in the third quarter of 2023, and no such distribution received in the third quarter of 2024.

Noninterest Expense. Noninterest expense decreased $282,000 to $8.5 million for the three months ended September 30, 2024, from $8.8 million for the three months ended September 30, 2023.

49


The following table provides a summary of the changes in the components of noninterest expense:

Three Months Ended September 30,
 20242023$ Change % Change
 (Dollars in thousands)
Salaries and employee benefits$4,606 $5,018 $(412)(8.2)%
Occupancy and equipment1,183 1,193 (10)(0.8)
Professional fees                                585 553 32 5.8 
Data processing                                838 742 96 12.9 
Regulatory assessments165 200 (35)(17.5)
Insurance and bond premiums113 111 2 1.8 
Marketing46 97 (51)(52.6)
Other general and administrative952 856 96 11.2 
Total noninterest expense$8,488 $8,770 $(282)(3.2)%

The decrease in noninterest expense for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was primarily due to a $412,000 decrease in salaries and employee benefits, resulting primarily from the receipt of a $411,000 refund related to the defined benefit plan buyout following a census review of remaining plan participants, a $51,000 decrease in marketing expense, a $35,000 decrease in regulatory assessments and a $10,000 decrease in occupancy and equipment expense. Offsetting these decreases was a $32,000 increase in professional fees and a $96,000 increase in both data processing and other general and administrative expense. The increase in data processing fees was primarily due to a $66,000 vendor credit received during the third quarter of 2023, with no similar vendor credit in the third quarter of 2024. The increase in other general and administrative expense was primarily attributed to the $115,000 higher administrative fees of some deposit products, partially offset by a $23,000 decrease in state and local taxes.

Federal Income Tax Expense. A federal income tax benefit of $324,000 was recorded for the three months ended September 30, 2024, a result of a pretax loss for the quarter, compared to a federal income tax provision of $409,000 for the same period in 2023.

Comparison of Operating Results for the Nine Months Ended September 30, 2024 and 2023

General. Net loss of $128,000 was recorded for the nine months ended September 30, 2024, or ($0.01) per diluted share, compared to net income of $5.1 million, or $0.56 per diluted share for the nine months ended September 30, 2023. The $5.2 million decrease in net income was primarily the result of a $4.9 million decrease in net interest income, a $1.4 million increase in provision for credit losses and a $531,000 increase in noninterest expense, partially offset by a $1.6 million decrease in federal income tax provision.

Net Interest Income. Net interest income for the nine months ended September 30, 2024 was $26.3 million, compared to $31.3 million for the same period in 2023. The decrease was due to the increase in interest expense outpacing the increase in interest income between these comparative periods.

Interest income increased by $503,000 for the nine months ended September 30, 2024 compared to the same period in 2023, due to a $634,000 increase in interest income on loans, a $450,000 increase in interest-earning deposits with banks and a $56,000 increase in dividends on FHLB stock, partially offset by a $637,000 decrease in interest income on investment securities. The increase in interest income on loans was due to an increase in loan yields, partially offset by a decrease in average loan balance. The average yield on loans increased to 5.89% in the nine months ended September 30. 2024, compared to 5.67% in the nine months ended September 30, 2023. The increase in the average loan yield was primarily the result of variable rate loans repricing at higher interest rates and the modification of over $130 million of loans in accordance with terms in the P&A Agreement with Global, which positively impacted the yield on loans in the current period. The average balance of loans decreased $30.8 million to $1.14 billion for the nine months ended September 30, 2024, from $1.17 billion for the same period in 2023.

The $637,000 decrease in interest income on investment securities was a result of a $36.7 million decrease in the average balance of the securities primarily due to maturities that were not reinvested, partially offset by a 33 basis point
50


increase in the average yield of investment to 4.26% for the nine months ended September 30, 2024, from 3.93% for the same period in 2023. The $450,000 increase in interest income on interest-earning deposits with was due to a 36 basis point increase in the average yield to 5.27% and $8.8 million increase in the average balance on these deposits for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023

Interest expense increased $5.4 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2323, due to the increase in rates paid on money market accounts and retail certificates of deposit and to a less extent, an increase in the average balances of such deposit accounts. Interest expense on money market accounts increased $4.4 million due to a 98 basis point increase in average cost and a $30.1 million increase in average balance between periods. Similarly, interest expense on retail certificates of deposit increased $4.4 million, due to increases in both average balance and average yield. The average yield of these deposits increased 128 basis points to 4.20% and the average balance increased $34.4 million between the comparable periods. Partially offsetting these increases was a $2.8 million decrease in interest expense on brokered deposits and a $877,000 decrease in interest expense on interest-bearing demand deposits. The decrease in interest expense on brokered deposits was due to an $83.4 million decrease in average balance, partially offset by a 43 basis point increase to average cost to 5.37% on these deposits for the nine months ended September 30, 2024, from 4.94% for the same period in 2023. During the nine months ended September 30, 2024, the Bank reduced the use of higher cost brokered deposits due to the increase in the balance of retail certificates of deposit, decline in loans receivable and lower loan originations. The decrease in interest expense on interest-bearing demand deposits was due to decreases in both the average cost and average balance of these deposits. The average cost of interest-bearing demand deposits decreased to 0.20% for the nine months ended September 30, 2024, from 1.48% for the same period in 2023 and the average balance decreased $30.6 million between the comparable periods.

Interest expense on borrowings increased $413,000 for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was a combined result of a $6.1 million increase in average balance between comparable periods and a 29 basis point increase to the average cost to 2.85% for the nine months ended September 30, 2024, from 2.56% for the same period in 2023.

The Company’s net interest margin decreased to 2.56% for the nine months ended September 30, 2024, from 2.91% for the nine months ended September 30, 2023. The decrease was due primarily to the increase in interest expense outpacing the increase in interest income, as outlined above. For more information on this, see “How We Measure the Risk of Interest Rate Changes” in Item 3 of this Form 10-Q.



























51


The following table details the change in net interest income due to changes in yield or cost, or changes in the average balance of the related asset or liability:
Nine Months Ended September 30, 2024
Compared to September 30, 2023
Net Change in Interest
Rate
Volume
Total
(In thousands)
Interest-earning assets:
Loans receivable, net
$1,941 $(1,307)$634 
Investment securities, taxable
496 (1,128)(632)
Investment securities, non-taxable
(3)(2)(5)
Interest-earning deposits with banks
125 325 450 
FHLB stock
53 3 56 
Total net change in income on interest-earning assets
2,612  (2,109)503 
Interest-bearing liabilities:
Interest-bearing demand deposits
(537)(340)(877)
Savings deposits3 (1)2 
Money market deposits
3,771 602 4,373 
Certificates of deposit, retail
3,604 750 4,354 
Brokered deposits
262 (3,079)(2,817)
Borrowings
297 116 413 
Total net change in expense on interest-bearing liabilities
7,400 (1,952)5,448 
Total change in net interest income
$(4,788)$(157)$(4,945)




























52


The following table compares detailed average balances, associated yields and rates, and the resulting changes in interest and dividend income or expense for the nine months ended September 30, 2024 and 2023. Average balances have been calculated using the average daily balances during the period. Interest and dividends are not reported on a tax equivalent basis. Nonaccrual loans are included in the average balance of net loans receivable and are considered to carry a zero yield.

Nine Months Ended September 30,
20242023
Average Balance
Interest and Dividends
Yield/Cost
Average Balance
Interest and Dividends
Yield/Cost
(Dollars in thousands)
Assets
Loans receivable, net
$1,143,505 $50,430 5.89 %$1,174,331 $49,796 5.67 %
Investments securities, taxable
156,252 5,317 4.55192,825 5,949 4.12
Investments securities, non-taxable
22,497 377 2.2422,601 382 2.26
Interest-earning deposits with banks
46,449 1,831 5.2737,608 1,381 4.91
FHLB stock
6,998 420 8.026,950 364 7.00
Total interest-earning assets
1,375,701 58,375 5.671,434,315 57,872 5.39
Noninterest earning assets
89,387 92,013 
Total average assets
$1,465,088 $1,526,328 
Liabilities and Stockholders' Equity
Interest-bearing demand deposits
$56,141 $86 0.20 %$86,766 $963 1.48 %
Savings deposits
18,163 7 0.0521,188 5 0.03
Money market deposits
514,537 14,052 3.65484,415 9,679 2.67
Certificates of deposit, retail
374,462 11,768 4.20340,046 7,414 2.92
Brokered deposits
80,884 3,249 5.37164,283 6,066 4.94
Total interest-bearing deposits
1,044,187 29,162 3.731,096,698 24,127 2.94
Borrowings
135,462 2,889 2.85129,381 2,476 2.56
Total interest-bearing liabilities
1,179,649 32,051 3.631,226,079 26,603 2.90
Noninterest bearing liabilities
123,956 139,562 
Average equity
161,483 160,687 
Total average liabilities and equity
$1,465,088 $1,526,328 
Net interest income
$26,324 $31,269 
Net interest margin
2.56 %2.91 %

Provision for Credit Losses. During the nine months ended September 30, 2024, management evaluated the adequacy of the ACL and concluded that a $1.2 million provision for credit losses was appropriate, reflecting a $1.0 million provision for credit losses for loans and a $200,000 provision for credit losses for unfunded commitments. This provision mainly relates to two participation loans totaling $6.0 million, for which we are not the lead lender, as discussed under “Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023 - Provision for Credit Losses” above. The $200,000 provision for credit losses for unfunded commitments was primarily due to the increased construction and land development loan balances. In comparison, a $208,000 recapture of provision for credit losses was recognized in the nine months ended September 30, 2023, reflecting a $400,000 recapture of the provision for credit losses for loans and a $192,000 provision for credit losses for unfunded commitments. The recapture was due in part to changes in the balances and mix of portfolio loans during the period, credit upgrades to $10.8 million of commercial real estate loans, the payoff of a $4.6 million commercial real estate loan that carried a higher credit risk rating, and changes in the economic forecasts used for loans and unfunded commitments in the ACL model. For more information, see Note 5 - Loans Receivable and Allowance for Credit Losses in the Company’s Notes to Selected Consolidated Financial Statements.


53


The following table shows certain credit ratios at and for the periods indicated and each component of the ratio’s calculations.

At or For the Nine Months Ended September 30,
20242023
(Dollars in thousands)
ACL as a percent of total loans
1.42 %1.29 %
ACL at period end
$16,265 $15,306 
Total loans outstanding
1,142,411 1,183,385 
Nonaccrual loans as a percentage of total loans outstanding at period end
0.07 %0.02 %
Total nonaccrual loans
$853 $201 
Total loans outstanding
1,142,411 1,183,385 
ACL as a percent of nonaccrual loans at period end
1,906.80 %7,614.93 %
ACL at period end
$16,265 $15,306 
Total nonaccrual loans
853 201 
Net (charge-offs) recoveries during period to average loans outstanding:
One-to-four family residential:
— %— %
Net recoveries during period
$— $1 
Average loans receivable, net (1)
502,350 478,297 
Multifamily:
— %— %
Net charge-offs during period
$— $— 
Average loans receivable, net (1)
133,297 140,235 
Commercial:
— %— %
Net charge-offs during period
$— $— 
Average loans receivable, net (1)
363,955 398,358 
Construction/land development:
— %— %
Net charge-offs during period
$— $— 
Average loans receivable, net (1)
55,248 59,738 
Business:
— %— %
Net charge-offs during period
$— $— 
Average loans receivable, net (1)
19,517 29,052 
Consumer:
(0.06)%(0.03)%
Net charge-offs during period
$(41)$(22)
Average loans receivable, net (1)
69,138 68,651 
Total loans:
— %— %
Net charge-offs during period
$(41)$(21)
Average loans receivable, net (1)
1,143,505 1,174,331 
_______________

(1) The average loans receivable, net balances include nonaccrual loans and deferred fees (costs).



54


Noninterest Income. Total noninterest income was $2.1 million for both the nine months ended September 30, 2024 and 2023. The following table provides a detailed analysis of the changes in the components of noninterest income:


Nine Months Ended September 30,
20242023$ Change% Change
(Dollars in thousands)
BOLI income
$956 $826 $130 15.7 %
Wealth management revenue
190 193(3)(1.6)
Deposit related fees
697 722(25)(3.5)
Loan related fees
251 21536 16.7 
Other
43 184(141)(76.6)
Total noninterest income
$2,137 $2,140 $(3)(0.1)%

During the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, other noninterest income decreased $141,000, primarily due to $152,000 of lower unrealized gains recorded for our investment in a Fintech focused fund. Additionally, deposit related fees decreased $25,000, primarily due to lower card service fees attributed to decreased debit card usage. These decreases were partially offset by a $130,000 increase in BOLI income due to timing differences in the recognition of the cash value of the policies and a $36,000 increase in loan related fees. The increase in loan related fees was primarily due to $121,000 in miscellaneous loan fees largely the result of forfeitures collected for loan application deposits, partially offset by a $70,000 decrease in prepayment fees collected on certain loans paid off prior to maturity and a $12,000 decrease in line of credit annual fees.

Noninterest Expense. Noninterest expense increased $531,000 to $27.8 million for the nine months ended September 30, 2024, from $27.2 million for the same period in 2023.

The following table provides a detailed analysis of the changes in the components of noninterest expense:


Nine Months Ended September 30,
20242023$ Change% Change
(Dollars in thousands)
Salaries and employee benefits
$15,186 $15,543 $(357)(2.3)%
Occupancy and equipment
3,634 3,517 117 3.3 
Professional fees
2,635 1,857 778 41.9 
Data processing
2,480 2,139 341 15.9 
Regulatory assessments
502 568 (66)(11.6)
Insurance and bond premiums
363 356 7 2.0 
Marketing
155 273 (118)(43.2)
Other general and administrative
2,804 2,975 (171)(5.7)
Total noninterest expense
$27,759 $27,228 $531 2.0 %

The largest increase in noninterest expense was in professional fees, which increased by $778,000. This was primarily driven by acquisition-related expenses from the Global transaction, which totaled $815,000 more than the acquisition expenses for a terminated business combination during the same period in 2023. Additionally, audit and examination fees increased by $25,000 due to a one-time loan portfolio review, but this was partially offset by a $78,000 reduction in other legal fees.

Data processing expense increased by $341,000, primarily due to the reclassification of certain processing costs that were previously categorized under other general and administrative expenses. Starting in March 2024, we also became ineligible for certain vendor credits, which contributed to higher data processing costs. For the nine months ended
55


September 30, 2024, total credits received were $22,000, compared to $106,000 for the same period in 2023. Occupancy and equipment expenses increased by $117,000, largely due to the outsourcing of facility management duties.

Offsetting these increases, salaries and employee benefits decreased by $357,000. This reduction was primarily driven by an $873,000 decline in deferred loan origination costs, related to the modification of one-to-four family residential loans under the P&A Agreement with Global, a $320,000 reduction in compensation from restricted stock awards, and a $256,000 decrease in salaries and wages due to a reduction in staffing in 2024. These decreases were partially offset by a $918,000 increase in defined benefit expenses, primarily due to the purchase of a single premium group annuity to fulfill obligations to plan participants and a $152,000 increase in director compensation. Additionally, regulatory assessments decreased $66,000, marketing expense decreased $118,000 and other general and administrative expenses decreased by $171,000, largely due to the absence of a $190,000 one-time expense related to the Bank’s 100-year celebration in the second quarter of 2023, as well as the reclassification of core processing costs.

Federal Income Tax Expense. The federal income tax provision decreased $1.6 million for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to a $6.9 million decrease in pretax income as a net loss of $128,000 was reported for the nine months ended September 30, 2024.

Liquidity and Capital Resources

We are required to have sufficient sources of cash in order to maintain proper liquidity to ensure a safe and sound operation. We maintain liquidity above the minimum level that we believe to be adequate to meet the requirements of normal operations, including potential deposit outflows. On a daily basis, we review and update cash flow projections to ensure that adequate liquidity is maintained.    

Our primary sources of funds are customer deposits, scheduled loan and investment repayments, including interest payments, maturing loans and investment securities, advances from the FHLB, brokered deposits and deposits obtained in the national CD and internet markets. These funds, together with equity, are used to fund loans, acquire investment securities and other assets, and fund continuing operations. While maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by the level of interest rates, economic conditions and competition. We believe that our current liquidity position, and our forecasted operating results are sufficient to fund all of our existing commitments.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or other short-term investment securities. On a longer-term basis, we maintain a strategy of investing in various lending products and investment securities. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and withdrawals on other deposit accounts, to fund loan commitments, and to maintain our portfolio of investment securities. At September 30, 2024, the undisbursed portion of construction LIP and unused portion of lines of credit totaled $59.3 million and $51.5 million, respectively. Certificates of deposit scheduled to mature in one year or less at September 30, 2024, totaled $381.8 million. Management’s policy is generally to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing certificates of deposit will remain with the Bank.

We measure our liquidity based on our ability to fund our assets and to meet liability obligations when they come due. Liquidity (and funding) risk occurs when funds cannot be raised at reasonable prices or in a reasonable time frame to meet our normal or unanticipated obligations. We regularly monitor the mix between our assets and our liabilities to manage effectively our liquidity and funding requirements.

When retail deposits are not sufficient to provide the funds for our assets, or if other sources are available with more favorable rates or structure, we use alternative funding sources. These sources include, but are not limited to, advances from the FHLB, wholesale funding, brokered deposits, national CD markets, internet deposit gathering sources, federal funds purchased, and dealer repurchase agreements, as well as other short-term alternatives. We may also liquidate assets to meet our funding needs. During the first nine months of 2024, management reduced its reliance in the wholesale markets due to a decline in the loan portfolio balances and an increase in the balance of retail certificates of deposit. At September 30, 2024, we had $50.9 million in brokered deposits, all of which were certificates of deposit, down from $130.8 million in brokered deposits at December 31, 2023. At September 30, 2024, the Bank maintained credit facilities with the FHLB totaling $506.5 million, subject to qualifying collateral limits that reduced our pledged collateral borrowing capacity to $418.6 million, with an outstanding balance of $100.0 million. As further funding sources, we also had the ability to borrow $54.9 million from the
56


FRB, and $75.0 million from unused lines of credit with other financial institutions, with no balance outstanding from these sources at September 30, 2024. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this report.

On a monthly basis we estimate our liquidity sources and needs for the next twelve months. Also, we determine funding concentrations and our need for sources of funds other than deposits. This information is used by our Asset/Liability Management Committee in forecasting funding needs and investing opportunities.

We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. Based on our current capital allocation objectives, during the remainder of fiscal 2024 we expect cash expenditures of approximately $145,000 for capital investment in property, plant and equipment.

At September 30, 2024, we project that our fixed commitments for the remainder of the fiscal year ending December 31, 2024, will include (i) $230,000 of operating lease payments and (ii) other future obligations and accrued expenses of $20.8 million. At September 30, 2024, we had $100.0 million in FHLB advances, consisting of $75.0 million of fixed-rate one-month advances that renew monthly and $25.0 million of fixed-rate three-month advances that renew quarterly. At September 30, 2024, all of our FHLB advances were tied to interest rate swap agreements and these advances are expected to be renewed as they mature during 2024. We believe that our liquid assets combined with the available lines of credit provide adequate liquidity to meet our current financial obligations for at least the next 12 months.

Total stockholders’ equity was $160.2 million at September 30, 2024. Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain the Bank as a “well capitalized” institution in accordance with regulatory standards. As of September 30, 2024, the Bank exceeded all regulatory capital requirements. Regulatory capital ratios for the Bank as of September 30, 2024 were as follows: Total capital to risk-weighted assets was 16.68%; Tier 1 capital and Common equity tier 1 capital to risk-weighted assets was 15.43%; and Tier 1 capital to total assets was 10.86%. At September 30, 2024, the Bank met the financial ratios to be considered well-capitalized under the regulatory guidelines. In addition, the Bank is required to maintain a capital conservation buffer consisting of additional Common equity Tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum regulatory capital levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. At September 30, 2024, the Bank’s capital conservation buffer was 8.68%. See Item 1. “Business – How We Are Regulated – Regulation and Supervision of First Financial Northwest Bank – Capital Requirements” included in the 2023 Form 10-K for additional information regarding regulatory capital requirements for the Bank.

The Accumulated Other Comprehensive Income (“AOCI”) component of capital includes a variety of items, including the value of our available-for-sale investment securities portfolio and the value of our derivative instruments, net of tax. We model various interest rate scenarios that could impact these elements of AOCI and believe that we have sufficient capital to withstand the estimated potential fluctuations in a variety of interest rate environments.    

Item 3. Quantitative and Qualitative Disclosures about Market Risk

General. Our Board of Directors has approved an asset/liability management policy to guide management in maximizing interest rate spread by managing the differences in terms between interest-earning assets and interest-bearing liabilities while maintaining acceptable levels of liquidity, capital adequacy, interest rate risk, credit risk, and profitability. The policy established the Investment, Asset/Liability Committee (“ALCO”), which is comprised of certain members of senior management and the Board of Directors. The Committee’s purpose is to communicate, coordinate and manage our asset/liability position consistent with our business plan and Board-approved policies. The ALCO meets quarterly to review various areas including:
•economic conditions;
•interest rate outlook;
57


•asset/liability mix;
•interest rate risk sensitivity;
•current market opportunities to promote specific products;
•historical financial results;
•projected financial results; and
•capital position.
    The ALCO also reviews current and projected liquidity needs. As part of its procedures, the ALCO regularly reviews interest rate risk by forecasting the impact that changes in interest rates may have on net interest income and the market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments and evaluating such impacts against the maximum potential change in the market value of portfolio equity that is authorized by the Board of Directors.
Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

We have utilized the following strategies in our efforts to manage interest rate risk:
•we are originating shorter term higher yielding loans, whenever possible;
•we have attempted, where possible, to increase balances of non-maturity deposits that are less interest rate sensitive;    
•we invest in securities with relatively short average lives, generally less than eight years;
•we have added adjustable-rate loans to our loan portfolio;
•we utilize brokered certificates of deposit with a call option as a funding source; and
•we utilize interest rate swaps to effectively fix the rate on certain FHLB advances.
    We have evaluated the use of derivative instruments to limit the impact of interest rate changes on earnings and cash flows and to lower our cost of borrowing while considering various elements of interest rate risk. We use interest rate swaps which qualify as a cash flow hedge as a tool to lower the cost of certain FHLB advances as compared to the fixed rates offered by the FHLB for its longer-term advances. At September 30, 2024, the Bank held seven interest rate swap agreements with a total notional amount of $100.0 million, a weighted-average fixed interest rate of 1.93%, and weighted average remaining maturity of 31 months. Under the interest rate agreements, the Bank pays a fixed interest rate while it receives a floating rate tied to either the 1-month or 3-month SOFR, aligning with each agreement’s reset frequency over an original term of two to eight years. At the commencement of each interest rate agreement, the Bank secures a fixed rate FHLB advance which resets to market rate on the same cycle as the corresponding interest rate swap agreement. Entering into these agreements has allowed the Bank to secure fixed rate funding at a lower cost than a traditional fixed rate FHLB advance for comparable terms. We will continue to review similar instruments and may continue to utilize them for interest rate risk management in the future.

    Interest rate contracts, however, may expose us to the risk of loss associated with variations in the spread between the interest rate contract and the hedged item. In addition, these contracts carry volatility risk that the expected uncertainty relating to the price of the underlying asset differs from what is anticipated. If any interest rate swap we enter into proves ineffective, it could result in volatility in our operating results, including potential losses, which could have a material adverse effect on our results of operations and cash flows. In addition, we may determine that it is appropriate to unwind some or all of our derivative instruments, based on our assessments of the continued appropriateness of our balance sheet risks and derivative positions.

How We Measure the Risk of Interest Rate Changes. We monitor our interest rate sensitivity on a quarterly basis by measuring the impact of changes to net interest income in multiple rate environments. Management retains the services of a third-party consultant with over 30 years of experience in asset-liability management to assist in its interest rate risk and asset-liability management. Management uses various assumptions to evaluate the sensitivity of our operations to changes in interest rates. Although management believes these assumptions are reasonable, the interest rate sensitivity of our assets and liabilities on net interest income and the market value of portfolio equity could vary substantially if different assumptions were used or actual results differ from these assumptions. Although certain assets and liabilities may have similar maturities or periods of
58


repricing, they may react differently to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities lag behind changes in market interest rates. Non-uniform changes and fluctuations in market interest rates across various maturities will also affect the results presented. In addition, certain assets, such as adjustable-rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, a portion of our adjustable-rate loans have interest rate floors below which the loan’s contractual interest rate may not adjust. Approximately 62.1% of our net loans were adjustable-rate loans at September 30, 2024. At that date, $396.1 million, or 55.9%, of these loans, with a weighted-average rate of 4.96%, were at their floor interest rate.

    The inability of our loans to adjust downward with the presence of floors can contribute to increased income in periods of declining interest rates, although this result is subject to the risk that borrowers may refinance these loans during periods of declining interest rates. Also, when loans are at their respective floors, there is a further risk that our interest income may not increase as rapidly as our cost of funds during periods of increasing interest rates and could have a material adverse effect on our results of operations. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all these factors in monitoring our interest rate exposure.

The assumptions we use to monitor interest rate risk are based upon a combination of proprietary and market data that reflect historical results and current market conditions. These assumptions relate to interest rates, loan prepayments, deposit decay rates and the market value of certain assets under the various interest rate scenarios. We use market data to determine prepayments and maturities of loans, investments and borrowings and use our own assumptions on deposit decay rates except for time deposits. Time deposits are modeled to reprice to market rates upon their stated maturities. We also assume that non-maturity deposit rates can be maintained with rate adjustments proportionate to the change in market interest rates, based upon our historical deposit decay rates, which are lower than market decay rates. When interest rates rise, we assume we will not have to raise interest rates proportionately on less rate sensitive accounts to retain these deposits. These assumptions are based upon our analysis of our customer base, competitive factors and historical experience. In the event of a significant change in interest rates, however, prepayment and early withdrawal levels might deviate from those assumed.

Our income simulation model examines changes in net interest income in which interest rates were assumed to remain at their base level, with instantaneous increases and decreases of 100, 200, 300, and 400 basis points.

The following table illustrates the estimated change in our net interest income over the next 12 months from September 30, 2024, that would occur in the event of an immediate change in interest rates equally across all maturities, with no effect given to any steps that the Bank might take to counter the effect of that interest rate movement.
         
Net Interest Income Change at September 30, 2024
Basis Point Change in RatesNet Interest Income% Change
(Dollars in thousands)
400$33,891 (7.36)%
30034,586 (5.46)
20035,247 (3.66)
10035,969 (1.68)
Base36,585 — 
(100)37,034 1.23 
(200)39,416 7.74 
(300)37,847 3.45 
(400)38,195 4.40 

The net interest income table presented above is predicated upon a static balance sheet with no growth or material change in asset or liability mix. The effects of changes in interest rates are based upon a cash flow simulation of our existing assets and liabilities and assuming that delinquency rates would not change as a result of changes in interest rates, although there can be no assurance that this will be the case. Delinquency rates may change when interest rates change as a result of changes in the loan portfolio mix, underwriting conditions, loan terms or changes in economic conditions that have a delayed
59


effect on the portfolio. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities will perform as assumed. Also, a change in U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the Treasury yield curve would cause changes to the net interest income other than those indicated above.

At September 30, 2024, other than the interest rate swap agreements we have entered into, we did not have any derivative financial instruments or trading accounts for any class of financial instruments, nor have we engaged in any other hedging activities or purchased off-balance sheet derivative instruments. However, we continue to review such instruments and may utilize them for interest rate risk management in the future. Interest rate risk continues to be one of our primary risks, as other types of risks, such as foreign currency exchange risk and commodity pricing risk do not arise in the normal course of our business activities and operations.

Item 4. Controls and Procedures

    The management of First Financial Northwest, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (“Exchange Act”). A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

(a)Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) was carried out under the supervision and with the participation of our Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and several other members of our senior management as of the end of the period covered by this report. Our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)Changes in Internal Controls: In the quarter ended September 30, 2024, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II


Item 1. Legal Proceedings

From time to time, we are engaged in various legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on our financial position or results of operations.

Item 1A. Risk Factors

There have been no material changes to the risk factors that were previously disclosed in Part 1, Item 1A of the 2023 Form 10-K.





60



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)     Not applicable
(b)     Not applicable
(c)     The following table summarizes First Financial Northwest’s common stock repurchases during the three months ended
September 30, 2024:

Period
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Repurchased as Part of Publicly Announced Plan
Maximum Number of Shares that May Yet Be Repurchased Under the Plan(2)
July 1 - July 31, 2024
—
$— 
—
—
August 1 – August 31, 2024
40,856 21.85 
—
—
September 1 – September 30, 2024
— — 
—
—
40,856 21.85 
—

(1) Represents shares of Company common stock otherwise issuable upon an option exercise withheld by the Company to satisfy the exercise price of such shares, which were not deemed to be repurchased pursuant to a publicly announced stock repurchase program.

(2) As of the three months ended September 30, 2024, the Company did not have any publicly announced stock repurchase program in place.

First Federal Northwest is an entity separate and distinct from its principal subsidiary, the Bank, and derives substantially all of its revenue at the holding company level in the form of dividends from the Bank. Accordingly, First Federal Northwest is, and will be, dependent upon dividends from the Bank, among other things, to pay dividends on its common stock. The P&A Agreement between the Company and Global provides for a downward adjustment to the purchase price for amount of any dividends paid by the Bank to the Company from the effective date of the P&A Agreement through the closing date of the asset sale, except for the dividend paid by the Bank to the Company during the first calendar quarter of 2024 in the amount of $762,000, representing 50% of the Bank’s net income for the period beginning October 1, 2023 and ending on December 31, 2023.


Item 3. Defaults Upon Senior Securities

    Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)     Not applicable
(b)     Not applicable
(c)    During the three months ended September 30, 2024, none of the Company’s directors or officers (as defined in Rule
16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
61


Item 6. Exhibits and Financial Statement Schedules
 (a)       Exhibits

2.1 
3.1 
3.2 
4.1 
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
31.1
31.2
32
101The following materials from First Financial Northwest’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Income Statements; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Selected Notes to Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
____________
(1)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated January 11, 2024.
(2)Filed as an exhibit to First Financial Northwest’s Registration Statement on Form S-1 on June 6, 2007 (333-143539)
(3)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated April 6, 2023.
(4)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated December 5, 2013.
(5)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated September 9, 2014.
(6)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated January 15, 2020.
(7)Filed as Appendix A to First Financial Northwest’s definitive proxy statement dated April 15, 2008.
(8)Filed as Appendix A to First Financial Northwest’s definitive proxy statement dated April 28, 2016.
(9)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated July 1, 2008.
(10)Filed as an exhibit to First Financial Northwest’s Quarterly Report on Form 10-Q for March 31, 2018 filed on May 8, 2018.
(11)Filed as an exhibit to First Financial Northwest’s Registration Statement on Form S-8 on June 15, 2016 (333-212029)
(12)Filed as an exhibit to First Financial Northwest’s Quarterly Report on Form 10-Q for September 30, 2018 filed November 7, 2018.
(13)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated December 21, 2020.
(14)Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated May 16, 2023.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 FIRST FINANCIAL NORTHWEST, INC. 
  
Date: November 7, 2024By:/s/Joseph W. Kiley III
  Joseph W. Kiley III
  President and Chief Executive Officer (Principal Executive Officer)
Date: November 7, 2024By:/s/Richard P. Jacobson
  Richard P. Jacobson
  Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date: November 7, 2024By:/s/Eva Q. Ngu
Eva Q. Ngu
Vice President and Controller (Principal Accounting Officer)
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