KBRA Affirms Ratings for First Mutual Holding Co.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Lakewood, Ohio based First Mutual Holding Co. ("FMHC" or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its primary subsidiary, First Federal Savings and Loan Association of Lakewood ("FFL" or "the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by the lower credit risk within FMHC’s balance sheet, driven by its concentration in conventional residential mortgage loans, largely within relatively stable operating markets. This profile is well reflected in the long-term credit performance of FFL, which has reported only nominal credit losses over the past decade, with NPAs consistently managed below peer levels. FMHC has historically managed capital , namely its CET1 ratio, in line with the rated peer average. More recently, however, the company reported a decline in capital ratios stemming from a single fraud event that resulted in a $7.6 million loss recognized in 2Q25. That said, FMHC expects to rebuild capital throughout 2026, with its CET1 ratio returning closer to historical levels in the mid-11% range, benefiting from multiple events favorable towards capital that are expected to occur, including the anticipated resolution of its insurance claim related to the fraud loss.

Earnings remain constrained by the balance sheet’s concentration in low-yielding residential mortgage loans, particularly given that approximately 60% of the 1–4 family loan portfolio consists of 30-year conventional mortgages. While the rate cuts that began in late 2024 have supported a modest uplift, NIM remains meaningfully below the rated peer average, measuring 2.24% in 3Q25. Although FMHC expects NIM to continue improving through 2026, aided by favorable repricing of its sizable CD portfolio (~30% of total deposits at 3Q25), slow runoff in the mortgage portfolio along with the persistently challenging mortgage banking environment are likely to limit upside potential.

Rating Sensitivities

The Stable Outlook reflects KBRA’s view that a rating change is unlikely over the medium term. However, negative rating action could occur if FMHC experiences material credit deterioration, including meaningful credit losses that adversely affect profitability.

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Methodologies