First Northwest Bancorp Income Taxes Disclosure

Note 10 - Income Taxes

 

Income tax expense is substantially due to Federal income taxes. The Company accrues a provision for income tax for certain states in which we have both employees and collateral for loans, thereby creating nexus in those states for income tax purposes. The provision for income taxes for the periods shown is summarized as follows:

		For the Year Ended December 31,
(dollars in thousands)		2025				2024
Current
Federal		$	789			$	437
State and local			(18	)			28
Total current			771				465
Deferred
Federal			(2,057	)			(1,335	)
State and local			43				(74	)
Total deferred			(2,014	)			(1,409	)
Total benefit for income tax		$	(1,243	)		$	(944	)

 

A reconciliation of the tax provision (benefit) based on statutory corporate tax rates, estimated to be 21% for the year ended December 31, 2025, on pre-tax income and the provision (benefit) shown in the accompanying Consolidated Statements of Operations for the periods shown is summarized as follows:

 

		For the Year Ended								For the Year Ended
		December 31, 2025								December 31, 2024
(dollars in thousands)		Amount				Rate				Amount				Rate
Federal income tax computed at statutory rates		$	(1,141	)			21.00	%		$	(1,587	)			21.00	%
State taxes (1)			18				(0.33	)			(37	)			0.49
Nondeductible or nontaxable items:
Tax-exempt income, net of amount disallowed			(9	)			0.17				39				(0.52	)
Bank-owned life insurance income			(609	)			11.20				(568	)			7.52
Bank-owned life insurance early surrender of contract			—				—				1,172				(15.51	)
Bank-owned life insurance penalty for early surrender of contract			266				(4.90	)			261				(3.46	)
Other nondeductible			(28	)			0.52				(44	)			0.58
Other adjustments:
Low-income housing tax credits, net (2)			(69	)			1.26				(43	)			0.57
Other, net			329				(6.05	)			(137	)			1.82
Total benefit for income tax		$	(1,243	)			22.87	%		$	(944	)			12.49	%
(1) California made up the majority of the state tax expense.
(2) Policy election to present all LIHTC components as one item using the proportional amortization method.

 

The following table presents income taxes paid (net of refunds) by jurisdiction for the periods shown:

		For the Year Ended December 31,
(dollars in thousands)		2025				2024
Federal		$	—			$	—
States			12				83
Total taxes paid		$	12			$	83

 

As a result of the bad debt deductions taken in years prior to 1988, retained earnings include accumulated earnings of approximately $6.4 million, on which federal income taxes have not been provided. If, in the future, this portion of retained earnings is used for any purpose other than to absorb losses on loans or on property acquired through foreclosure, federal income taxes may be imposed at the then-prevailing corporate tax rates. The Company does not contemplate that such amounts will be used for any purpose that would create a federal income tax liability; therefore, no provision has been made.

 

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

 

As of December 31, 2025, the Company has a cumulative Federal net operating loss of $19.9 million. This net operating loss is not subject to expiration and is able to offset 80% of taxable income in each future year. We believe there will be sufficient income in future years to utilize the loss and, therefore, a valuation allowance is not necessary. In 2023, the Company wrote off its investment in Quin Ventures. The $8.4 million tax loss as a result of the investment being written off contributed to an overall Federal net operating loss carryforward of $8.0 million which was included in the Company's consolidated tax provision for the year ended  December 31, 2024.

 

The Company applies the provisions of FASB ASC 740 that require the application of a more-likely-than-not recognition criterion for the reporting of uncertain tax positions on its financial statements. The Company had no unrecognized tax assets at December 31, 2025 and 2024. Interest and penalties are recognized in income tax expense. The Company recognized no interest or penalties during the years ended December 31, 2025 and 2024. The Company files consolidated income tax returns in the U.S. federal jurisdiction and is no longer subject to tax examinations for years ending before December 31, 2022.

 

The components of net deferred tax assets and liabilities at the periods shown are summarized as follows:

(dollars in thousands)		December 31, 2025				December 31, 2024
Deferred tax assets
Allowance for credit losses on loans		$	3,755			$	4,517
Unrealized loss on securities available for sale			5,455				7,750
Unrealized loss on defined benefit plan			424				485
Unrealized loss on hedge			209				5
Accrued compensation			166				116
Deferred compensation			350				394
Nonaccrual loans			86				2
ESOP timing differences			174				173
Restricted stock awards			114				302
Deferred lease liabilities			3,511				3,763
Net operating loss carryforward			4,250				1,710
Tax credits carryforward			542				207
Other assets			513				1,103
Total deferred tax assets			19,549				20,527
Deferred tax liabilities
Deferred loan fees			1,116				1,029
Bank-owned life insurance early surrender of contract			—				568
Accumulated depreciation			316				459
Outside basis differences in pass-through entity investments			389				545
Defined benefit plan			489				540
Right of use assets			3,331				3,648
Other liabilities			270				—
Total deferred tax liabilities			5,911				6,789
Deferred tax asset, net		$	13,638			$	13,738