UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the quarterly period ended | |||
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the transition period from _____ to _____ | |||
Commission File Number: 001-36741
FIRST NORTHWEST BANCORP
(Exact name of registrant as specified in its charter)
Washington | 46-1259100 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer I.D. Number) | |
105 West 8th Street, Port Angeles, Washington | 98362 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code: | (360) 457-0461 |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s): | Name of each exchange on which registered: | ||
Common Stock, par value $0.01 per share | FNWB | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | |
Non-accelerated filer | ☒ | Smaller reporting company | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 1, 2017,May 6, 2022, there were 11,839,70710,003,622 shares of common stock, $.01$0.01 par value per share, outstanding.
FORM 10-Q TABLE OF CONTENTS PART 1 - FINANCIAL INFORMATION Page Item 1 - Financial Statements (Unaudited) Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk Item 4 - Controls and Procedures PART II - OTHER INFORMATION Item 1 - Legal Proceedings Item 1A - Risk Factors Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds Item 3 - Defaults Upon Senior Securities Item 4 - Mine Safety Disclosures Item 5 - Other Information Item 6 - Exhibits SIGNATURES As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to First Northwest Bancorp ("First Northwest"), its consolidated subsidiary and its PART I - FINANCIAL INFORMATION FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share information) (Unaudited) March 31, 2022 December 31, 2021 ASSETS Cash and due from banks Interest-earning deposits in banks Investment securities available for sale, at fair value Loans held for sale Loans receivable (net of allowance for loan losses of $15,127 and $15,124) Federal Home Loan Bank (FHLB) stock, at cost Accrued interest receivable Premises and equipment, net Servicing rights on sold loans, net Servicing rights on sold loans, at fair value Bank-owned life insurance, net Goodwill and other intangible assets, net Prepaid expenses and other assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Deposits FHLB advances Subordinated debt, net Accrued interest payable Accrued expenses and other liabilities Advances from borrowers for taxes and insurance Total liabilities Shareholders' Equity Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,003,622 shares at March 31, 2022, and 9,972,698 shares at December 31, 2021 Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) income, net of tax Unearned employee stock ownership plan (ESOP) shares Total parent's shareholders' equity Noncontrolling interest in Quin Ventures, Inc. Total shareholders' equity Total liabilities and shareholders' equity See selected notes to the consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited) Three Months Ended March 31, 2022 2021 INTEREST INCOME Interest and fees on loans receivable Interest on investment securities Interest on deposits and other FHLB dividends Total interest income INTEREST EXPENSE Deposits Borrowings Subordinated debt Total interest expense Net interest income PROVISION FOR LOAN LOSSES Net interest income after provision for loan losses NONINTEREST INCOME Loan and deposit service fees Sold loan servicing fees Net gain on sale of loans Net gain on sale of investment securities Increase in cash surrender value of bank-owned life insurance Other income Total noninterest income NONINTEREST EXPENSE Compensation and benefits Data processing Occupancy and equipment Supplies, postage, and telephone Regulatory assessments and state taxes Advertising Professional fees FDIC insurance premium Other expense Total noninterest expense INCOME BEFORE PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAXES NET INCOME Net loss attributable to noncontrolling interest in Quin Ventures, Inc. NET INCOME ATTRIBUTABLE TO PARENT Basic and diluted earnings per common share See selected notes to the consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE (In thousands) (Unaudited) Three Months Ended March 31, 2022 2021 NET INCOME Other comprehensive loss: Unrealized holding losses on investments available for sale arising during the period Income tax benefit related to unrealized holding losses Unrecognized defined benefit ("DB") plan prior service cost, net of amortization Income tax benefit (provision) related to DB plan prior service cost, net of amortization Reclassification adjustment for net (gains) losses on sales of securities realized in income Income tax benefit related to reclassification adjustment on sales of securities Other comprehensive loss, net of tax COMPREHENSIVE LOSS Comprehensive loss attributable to noncontrolling interest COMPREHENSIVE LOSS ATTRIBUTABLE TO PARENT See selected notes to the consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three Months Ended (Dollars in thousands, except share information) (Unaudited) Common Stock Additional Paid-in Retained Unearned ESOP Accumulated Other Comprehensive Income (Loss), Noncontrolling Total Shareholders' Shares Amount Capital Earnings Shares Net of Tax Interest Equity BALANCE, December 31, 2020 Net income Common stock repurchased Restricted stock award grants net of forfeitures Restricted stock awards canceled Other comprehensive loss, net of tax Share-based compensation expense ESOP shares committed to be released Cash dividends declared and paid ($0.06 per share) BALANCE, March 31, 2021 BALANCE, December 31, 2021 Net income Restricted stock award grants net of forfeitures Restricted stock awards canceled Other comprehensive loss, net of tax Reclassification resulting from change in accounting method Share-based compensation expense ESOP shares committed to be released Cash dividends declared and paid ($0.07 per share) BALANCE, March 31, 2022 See selected notes to the consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income before noncontrolling interest Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization Amortization of core deposit intangible Amortization and accretion of premiums and discounts on investments, net Accretion of deferred loan fees and purchased premiums, net Amortization of debt issuance costs Change in fair value of sold loan servicing rights Additions to servicing rights on sold loans, net Amortization of servicing rights on sold loans, net Net increase in the valuation allowance on servicing rights on sold loans Provision for loan losses Allocation of ESOP shares Share-based compensation expense Gain on sale of loans, net Gain on sale of securities available for sale, net Increase in cash surrender value of life insurance, net Origination of loans held for sale Proceeds from loans held for sale Change in assets and liabilities: (Increase) decrease in accrued interest receivable Increase in prepaid expenses and other assets (Decrease) increase in accrued interest payable Increase in accrued expenses and other liabilities Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available for sale Proceeds from maturities, calls, and principal repayments of securities available for sale Proceeds from sales of securities available for sale (Purchase) redemption of FHLB stock Net increase in loans receivable Purchase of premises and equipment, net Capital contributions to equity investments Capital contributions to historic tax credit partnerships Net cash from investing activities FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2022 2021 CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in deposits Proceeds from long-term FHLB advances Repayment of long-term FHLB advances Net increase (decrease) in short-term FHLB advances Proceeds from issuance of subordinated debt, net Net increase in advances from borrowers for taxes and insurance Dividends paid Restricted stock awards canceled Repurchase of common stock Net cash from financing activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, beginning of period CASH AND CASH EQUIVALENTS, end of period SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest on deposits and borrowings Prior unrecognized service cost of defined benefit plan transferred to single-employer plan NONCASH INVESTING ACTIVITIES Change in unrealized loss on securities available for sale Lease liabilities arising from obtaining right-of-use assets NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation and Critical Accounting Policies Organization and In connection with the Conversion, the Company issued an aggregate of 12,167,000 shares of common stock at an offering price of $10.00 per share for gross proceeds of $121.7 million. An additional 933,360 shares of Company common stock and $400,000 in cash were contributed to the First Federal Community Foundation ("Foundation"), a charitable foundation that was established in connection with the Conversion, resulting in the issuance of a total of 13,100,360 shares. The Company received $117.6 million in net proceeds from the stock offering of which $58.4 million were contributed to the Bank upon Conversion. Pursuant to the Bank's Plan of Conversion (the "Plan") adopted by its Board of Directors, and as approved by its members, the Company established an employee stock ownership plan ("ESOP") In April 2021, First Northwest entered into an Amended and Restated Joint Venture Agreement (the "Joint Venture Agreement") with the Bank, POM Peace of Mind, Inc. ("POM"), and Quin Ventures, Inc. ("Quin" or "Quin Ventures"). First Northwest has partially fulfilled its commitment to extend $15.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $500,000. On October 31, 2021, the Bank converted from a State Savings Bank Charter to a State Commercial Bank Charter and was simultaneously renamed First Fed Bank from First Federal Savings and Loan Association of Port Angeles. First Northwest, the Bank, and Quin Ventures are collectively referred to as the "Company." First Northwest's business activities generally are limited to passive investment activities and oversight of its The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses in Western Washington State with offices in Clallam, Jefferson, Kitsap, King, and Whatcom counties. These services include deposit and lending transactions that are supplemented with Basis of presentation In preparing the unaudited interim 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 in the near term relate to a determination of the allowance for loan losses ("ALLL"), Principles of consolidation Subsequent Recently In FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In January Recently issued accounting pronouncements not yet adopted Credit Losses In Additional updates were issued in ASU No.2019-04,Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging (Topic 825), Financial Instruments. This ASU clarifies and improves guidance related to the previously issued standards on credit losses, hedging and recognition and measurement of financial instruments. The amendments provide entities with various measurement alternatives and policy elections related to accounting for credit losses and accrued interest receivable balances. Entities are also able to elect a practical expedient to separately disclose the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements. The amendments clarify that the estimated allowance for credit losses should include all expected recoveries of financial assets and trade receivables that were previously written off and expected to be written off. The amendments also allow entities to use projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments. In addition, new updates were issued through ASU No.2019-05,Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. This amendment allows entities to elect the fair value option on certain financial instruments. On adoption, an entity is allowed to irrevocably elect the fair value option on an instrument-by-instrument basis. This alternative is available for all instruments in the scope of Subtopic 326-20 except for existing held-to-maturity debt securities. If an entity elects the fair value option, the difference between the instrument’s fair value and carrying amount is recognized as a cumulative-effect adjustment. Other Pronouncements In March 2020, the FASB issued ASU No.2020-04Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is implementing a transition plan to identify and modify its loans and other financial instruments that are either directly or indirectly influenced by LIBOR. The Company is in the process of evaluating ASU No.2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments, with no material expected impact on the Company's financial statements. In March 2022, the FASB issued ASU No.2022-01,Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. ASU 2022-01 expands the portfolio layer method of hedge accounting prescribed in ASU No.2017-12 to allow multiple hedged layers of a single closed portfolio and to include portfolios of both prepayable and non-prepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same accounting method to similar hedging strategies. The ASU also specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on accounting and disclosure of hedge basis adjustments and specifies how hedge basis adjustments should be considered in determining credit losses for assets in the designated closed portfolio. This ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2022. The Company is evaluating the effect that ASU 2022-01 will have on its consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In March 2022, the FASB issued ASU No.2022-02,Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost". ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures. Reclassifications - 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 net income or shareholders' equity. Note 2 - Securities The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale Gross Gross Estimated Amortized Cost Unrealized Gains Unrealized Losses (In thousands) Available for Sale Municipal bonds U.S. Treasury notes International agency issued bonds (Agency bonds) Corporate issued debt securities (Corporate debt) U.S. Small Business Administration securities (SBA) Mortgage-backed securities: U.S. government agency issued mortgage-backed securities (MBS agency) Corporate issued mortgage-backed securities (MBS corporate) Total securities available for sale The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale Gross Gross Estimated Amortized Cost Unrealized Gains Unrealized Losses (In thousands) Available for Sale Municipal bonds Agency bonds Corporate issued asset-backed securities (ABS corporate) Corporate debt SBA Mortgage-backed securities: MBS agency MBS corporate Total securities available for sale There were 0 securities classified as held-to-maturity at March 31, 2022 and December 31, 2021. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of Less Than Twelve Months Twelve Months or Longer Total Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (In thousands) Available for Sale Municipal bonds U.S. Treasury notes Agency bonds Corporate debt Mortgage-backed securities: MBS agency MBS corporate Total available for sale The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of Less Than Twelve Months Twelve Months or Longer Total Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (In thousands) Available for Sale Municipal bonds Agency bonds ABS corporate Corporate debt SBA Mortgage-backed securities: MBS agency MBS corporate Total available for sale The Company may hold certain investment securities in an unrealized loss position that are not considered other than temporarily impaired ("OTTI"). At We believe that the unrealized losses on our investment securities relate principally to the general change in interest rates, market demand, and There were NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; therefore, these securities are shown separately. March 31, 2022 Available-for-Sale Amortized Cost Estimated Fair Value (In thousands) Mortgage-backed securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total mortgage-backed securities All other investment securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total all other investment securities Total investment securities December 31, 2021 Available-for-Sale Amortized Cost Estimated Fair Value (In thousands) Mortgage-backed securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total mortgage-backed securities All other investment securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total all other investment securities Total investment securities FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Sales of securities available-for-sale for the periods shown are summarized as follows: Three Months Ended March 31, 2022 2021 (In thousands) Proceeds from sales Gross realized gains Gross realized losses Note 3 - Loans Receivable Loans receivable consisted of the following at the dates indicated: March 31, 2022 December 31, 2021 (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans Less: Net deferred loan fees Premium on purchased loans, net Allowance for loan losses Total loans receivable, net Allowance for Loan Losses. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following tables summarize changes in the ALLL and loan portfolio by segment and impairment method for the periods shown: At or For the Three Months Ended March 31, 2022 One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Unallocated Total (In thousands) ALLL: Beginning balance (Recapture of) provision for loan losses Charge-offs Recoveries Ending balance At March 31, 2022 One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Unallocated Total (In thousands) Total ALLL General reserve Specific reserve Total loans Loans collectively evaluated (1) Loans individually evaluated (2) (1) Loans collectively evaluated for general reserves. (2) Loans individually evaluated for specific reserves. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) At or For the Three Months Ended March 31, 2021 One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Unallocated Total (In thousands) ALLL: Beginning balance (Recapture of) provision for loan losses Charge-offs Recoveries Ending balance At December 31, 2021 One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Unallocated Total (In thousands) Total ALLL General reserve Specific reserve Total loans Loans collectively evaluated (1) Loans individually evaluated (2) (1) Loans collectively evaluated for general reserves. (2) Loans individually evaluated for specific reserves. Impaired loans. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table presents a summary of loans individually evaluated for impairment by portfolio segment at the dates indicated: March 31, 2022 December 31, 2021 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded: One-to-four family Commercial real estate Construction and land Home equity Auto and other consumer Total With an allowance recorded: One-to-four family Construction and land Home equity Auto and other consumer Total Total impaired loans: One-to-four family Commercial real estate Construction and land Home equity Auto and other consumer Total FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table presents the average recorded investment in loans individually evaluated for impairment and the related interest income recognized for the periods shown: Three Months Ended Three Months Ended March 31, 2022 March 31, 2021 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded: One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Total With an allowance recorded: One-to-four family Commercial real estate Construction and land Home equity Auto and other consumer Total Total impaired loans: One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Total Interest income recognized on a cash basis on impaired loans for the three months ended NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table presents the recorded investment in nonaccrual loans by class of loan at the dates indicated: March 31, 2022 December 31, 2021 (In thousands) One-to-four family Commercial real estate Construction and land Home equity Auto and other consumer Total nonaccrual loans Past due loans. The following table presents the recorded investment in past due loans, 30-59 Days 60-89 Days 90 Days or More Total Past Due Past Due Past Due Past Due Current Total Loans (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table presents the recorded investment in past due loans, 30-59 Days 60-89 Days 90 Days or More Total Past Due Past Due Past Due Past Due Current Total Loans (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans Credit quality indicator. When Additionally, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table represents the internally assigned grade as of Pass Watch Special Mention Substandard Total (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans The following table represents the internally assigned grade as of Pass Watch Special Mention Substandard Total (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table represents the credit risk profile based on payment activity as of Nonperforming Performing Total (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Consumer: Home equity Auto and other consumer Commercial business Total loans The following table represents the credit risk profile based on payment activity as of Nonperforming Performing Total (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Consumer: Home equity Auto and other consumer Commercial business Total loans FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Troubled debt restructuring. A TDR is a loan to a borrower who is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 ("CARES Act"), provided guidance around the modification The following table is a summary of information pertaining to TDR loans included in impaired loans at the dates indicated: March 31, 2022 December 31, 2021 (In thousands) Total TDR loans Allowance for loan losses related to TDR loans Total nonaccrual TDR loans There were There were 0 TDR loans NaN additional funds were committed to be advanced in connection with The following table presents TDR loans by class at the dates indicated by accrual and nonaccrual March 31, 2022 Accrual Nonaccrual Total (In thousands) One-to-four family Home equity Total TDR loansconsolidated subsidiary,joint venture controlling interest, unless the context indicates otherwise. When we refer to “First Federal”Fed” or the “Bank” in this report, we are referring to First Federal Savings and Loan Association of Port Angeles,Fed Bank, the wholly owned subsidiary of First Northwest Bancorp. When we refer to "Quin" or "Quin Ventures" in this report, we are referring to Quin Ventures, Inc., a First Northwest joint venture. First Northwest, the Bank, and Quin Ventures are collectively referred to as the "Company." $ 16,271 $ 13,868 66,257 112,148 377,695 344,212 1,334 760 1,370,589 1,350,260 8,122 5,196 5,696 5,289 21,050 19,830 0 3,282 4,046 0 39,570 39,318 1,180 1,183 32,472 25,735 $ 1,944,282 $ 1,921,081 $ 1,549,414 $ 1,580,580 145,000 80,000 39,250 39,280 13 393 30,691 29,240 2,138 1,108 1,766,506 1,730,601 0 0 100 100 96,473 96,131 105,546 103,014 (15,153 ) 288 (8,407 ) (8,572 ) 178,559 190,961 (783 ) (481 ) 177,776 190,480 $ 1,944,282 $ 1,921,081 ASSETS September 30, 2017 June 30, 2017 Cash and due from banks $ 12,717 $ 14,510 Interest-bearing deposits in banks 12,292 9,782 Investment securities available for sale, at fair value 290,159 228,593 Investment securities held to maturity, at amortized cost 51,012 51,872 Loans receivable (net of allowance for loan losses of $8,608 and $8,523) 726,891 726,786 Federal Home Loan Bank (FHLB) stock, at cost 5,729 4,368 Accrued interest receivable 3,498 3,020 Premises and equipment, net 13,213 13,236 Mortgage servicing rights, net 1,112 986 Bank-owned life insurance, net 28,570 28,413 Real estate owned and repossessed assets 86 104 Prepaid expenses and other assets 5,020 6,006 Total assets $ 1,150,299 $ 1,087,676 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 850,933 $ 823,760 Borrowings 111,657 77,427 Accrued interest payable 217 208 Accrued expenses and other liabilities 7,600 7,417 Advances from borrowers for taxes and insurance 1,964 1,143 Total liabilities 972,371 909,955 Shareholders' Equity Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding — — Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 11,839,707 shares at September 30, 2017, and 11,902,146 shares at June 30, 2017 118 119 Additional paid-in capital 111,175 112,058 Retained earnings 78,725 77,515 Accumulated other comprehensive loss, net of tax (717 ) (434 ) Unearned employee stock ownership plan (ESOP) shares (11,373 ) (11,537 ) Total shareholders' equity 177,928 177,721 Total liabilities and shareholders' equity $ 1,150,299 $ 1,087,676 $ 14,536 $ 12,541 2,275 2,034 38 13 52 45 16,901 14,633 717 934 304 191 394 25 1,415 1,150 15,486 13,483 0 500 15,486 12,983 1,173 837 432 30 253 1,337 126 0 252 244 167 256 2,403 2,704 8,803 7,295 1,772 1,333 1,167 1,029 313 242 361 261 752 445 559 522 223 148 881 819 14,831 12,094 3,058 3,593 554 473 2,504 3,120 302 0 $ 2,806 $ 3,120 $ 0.30 $ 0.33 Three Months Ended September 30, 2017 2016 INTEREST INCOME Interest and fees on loans receivable $ 7,928 $ 6,719 Interest on mortgage-backed securities 1,280 1,124 Interest on investment securities 765 649 Interest on deposits and other 34 13 FHLB dividends 36 35 Total interest income 10,043 8,540 INTEREST EXPENSE Deposits 911 647 Borrowings 669 542 Total interest expense 1,580 1,189 Net interest income 8,463 7,351 PROVISION FOR LOAN LOSSES — 350 Net interest income after provision for loan losses 8,463 7,001 NONINTEREST INCOME Loan and deposit service fees 913 913 Mortgage servicing fees, net of amortization 114 63 Net gain on sale of loans 377 269 Net gain on sale of investment securities 136 — Increase in cash surrender value of bank-owned life insurance 158 170 Other income — 29 Total noninterest income 1,698 1,444 NONINTEREST EXPENSE Compensation and benefits 4,466 4,160 Real estate owned and repossessed assets expense, net 8 39 Data processing 604 764 Occupancy and equipment 1,022 897 Supplies, postage, and telephone 211 150 Regulatory assessments and state taxes 128 134 Advertising 142 129 Professional fees 466 357 FDIC insurance premium 69 119 Other 691 711 Total noninterest expense 7,807 7,460 INCOME BEFORE PROVISION FOR INCOME TAXES 2,354 985 PROVISION FOR INCOME TAXES 581 334 NET INCOME $ 1,773 $ 651 Basic and diluted earnings per share $ 0.17 $ 0.06 INCOME $ 2,504 $ 3,120 (19,454 ) (4,428 ) 4,084 930 37 (2,210 ) (8 ) 465 (126 ) 0 26 0 (15,441 ) (5,243 ) (12,937 ) (2,123 ) (302 ) 0 $ (12,635 ) $ (2,123 ) Three Months Ended September 30, 2017 2016 NET INCOME $ 1,773 $ 651 Other comprehensive loss, net of tax Unrealized loss on securities: Unrealized holding loss, net of tax benefit of $(99) and $(120), respectively (193 ) (236 ) Reclassification adjustment for net gains on sales of securities realized in income, net of taxes of $(46) and $0, respectively (90 ) — Other comprehensive loss, net of tax (283 ) (236 ) COMPREHENSIVE INCOME $ 1,490 $ 415 September 30, 2017March 31, 2022 and 2016 10,247,185 $ 102 $ 97,412 $ 92,657 $ (9,230 ) $ 5,442 $ 0 $ 186,383 0 0 3,120 0 0 0 3,120 (135,837 ) 0 (1,358 ) (805 ) 0 0 0 (2,163 ) 84,896 0 0 0 0 0 0 0 (600 ) 0 (11 ) 0 0 0 0 (11 ) 0 0 0 0 (5,243 ) 0 (5,243 ) 0 404 0 0 0 0 404 0 52 0 165 0 0 217 0 0 (609 ) 0 0 0 (609 ) 10,195,644 $ 102 $ 96,499 $ 94,363 $ (9,065 ) $ 199 $ 0 $ 182,098 9,972,698 $ 100 $ 96,131 $ 103,014 $ (8,572 ) $ 288 $ (481 ) $ 190,480 0 0 2,806 0 0 (302 ) 2,504 39,843 0 0 0 0 0 0 0 (8,919 ) 0 (195 ) 0 0 0 0 (195 ) 0 0 0 0 (15,441 ) 0 (15,441 ) 0 0 424 0 0 0 424 0 411 0 0 0 0 411 0 126 0 165 0 0 291 0 0 (698 ) 0 0 0 (698 ) 10,003,622 $ 100 $ 96,473 $ 105,546 $ (8,407 ) $ (15,153 ) $ (783 ) $ 177,776 Common Stock Accumulated Other Comprehensive Income (Loss), Net of Tax Shares Amount BALANCE, June 30, 2016 12,676,660 $ 127 $ 122,595 $ 77,301 $ (12,177 ) $ 1,895 $ 189,741 Net income 651 651 Common stock repurchased (99,314 ) (1 ) (992 ) (340 ) (1,333 ) Restricted stock awards net of forfeitures 390,000 4 (4 ) — Other comprehensive loss, net of tax (236 ) (236 ) Share-based compensation 256 256 ESOP shares committed to be released 30 165 195 BALANCE, September 30, 2016 12,967,346 $ 130 $ 121,885 $ 77,612 $ (12,012 ) $ 1,659 $ 189,274 BALANCE, June 30, 2017 11,902,146 $ 119 $ 112,058 $ 77,515 $ (11,537 ) $ (434 ) $ 177,721 Net income 1,773 1,773 Common stock repurchased (96,900 ) (1 ) (968 ) (563 ) (1,532 ) Restricted stock awards net of forfeitures 50,000 — — — Restricted stock awards canceled (15,539 ) — (282 ) — (282 ) Other comprehensive loss, net of tax (283 ) (283 ) Share-based compensation 321 321 ESOP shares committed to be released 46 164 210 BALANCE, September 30, 2017 11,839,707 $ 118 $ 111,175 $ 78,725 $ (11,373 ) $ (717 ) $ 177,928 FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended September 30, 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,773 $ 651 Adjustments to reconcile net income to net cash from operating activities: Depreciation 290 304 Amortization and accretion of premiums and discounts on investments, net 414 388 (Accretion) amortization of deferred loan fees, net (45 ) 101 Amortization of mortgage servicing rights, net (1 ) 55 Additions to mortgage servicing rights, net (125 ) (105 ) Provision for loan losses — 350 Loss on sale of real estate owned and repossessed assets, net 4 — Deferred federal income taxes 682 530 Allocation of ESOP shares 210 195 Share-based compensation 321 256 Gain on sale of loans, net (377 ) (269 ) Gain on sale of securities available for sale, net (136 ) — Impairment of real estate owned and repossessed assets — 32 Increase in cash surrender value of life insurance, net (158 ) (170 ) Origination of loans held for sale (5,849 ) (10,339 ) Proceeds from loans held for sale 6,226 11,378 Change in assets and liabilities: Increase in accrued interest receivable (478 ) (75 ) Decrease in prepaid expenses and other assets 450 445 Increase (decrease) in accrued interest payable 9 (5 ) Increase (decrease) in accrued expenses and other liabilities 183 (9,674 ) Net cash from operating activities 3,393 (5,952 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available for sale (89,313 ) — Proceeds from maturities, calls, and principal repayments of securities available for sale 9,868 20,083 Proceeds from sales of securities available for sale 17,239 — Proceeds from maturities, calls, and principal repayments of securities held to maturity 794 1,107 (Purchase) redemption of FHLB stock (1,361 ) 227 Purchase of bank-owned life insurance — (10,000 ) Proceeds from sale of real estate owned and repossessed assets 14 — Loan originations, net of repayments, charge-offs, and recoveries (60 ) (44,748 ) Purchase of premises and equipment, net (267 ) (375 ) Net cash from investing activities (63,086 ) (33,706 ) $ 2,504 $ 3,120 372 338 3 0 472 270 279 160 20 0 (170 ) 0 (169 ) (332 ) 0 124 0 19 0 500 217 154 411 404 (253 ) (1,337 ) (126 ) 0 (252 ) (244 ) (10,878 ) (37,287 ) 10,557 38,340 (407 ) 715 (400 ) (8,326 ) (380 ) 31 1,451 6,138 3,251 2,787 (74,655 ) (53,290 ) 10,718 19,393 10,452 0 (2,926 ) 1,980 (20,608 ) (15,130 ) (1,590 ) (348 ) (272 ) 0 (1,829 ) 0 (80,710 ) (47,395 ) FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended September 30, 2017 2016 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits $ 27,173 $ 53,058 Proceeds from FHLB advances 132,445 47,774 Repayment of FHLB advances (98,215 ) (53,356 ) Net increase in advances from borrowers for taxes and insurance 821 668 Net share settlement of stock awards (282 ) — Common stock repurchased (1,532 ) (1,333 ) �� Net cash from financing activities 60,410 46,811 NET INCREASE IN CASH AND CASH EQUIVALENTS 717 7,153 CASH AND CASH EQUIVALENTS, beginning of period 24,292 22,650 CASH AND CASH EQUIVALENTS, end of period $ 25,009 $ 29,803 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest on deposits and borrowings $ 1,571 $ 1,194 Income taxes $ — $ 1,450 NONCASH INVESTING ACTIVITIES Unrealized loss on securities available for sale $ (428 ) $ (356 ) Loans transferred to real estate owned and repossessed assets, net of deferred loan fees and allowance for loan losses $ — $ 82 $ (31,166 ) $ 101,290 0 10,000 0 (10,000 ) 65,000 (59,977 ) 0 39,310 1,030 884 (698 ) (609 ) (195 ) (11 ) 0 (2,163 ) 33,971 78,724 (43,488 ) 34,116 126,016 65,155 $ 82,528 $ 99,271 $ 1,795 $ 1,119 $ 0 $ 2,718 $ (19,580 ) $ (4,428 ) $ 0 $ 672 (Unaudited)Naturenature of businessFederal Savings and Loan Association of Port Angeles,Fed Bank ("First Fed" or the "Bank") on January 29, 2015, upon completion of the Bank's conversion from a mutual to stock form of organization (the "Conversion"). which purchased in . On December 18, 2015, the ESOP completed its open market purchases, with funds borrowed from the Company, of 8% of the common stock issued in the Conversion for a total of 1,048,029 shares.investmentinvestments in First Federal.Fed and Quin Ventures. Accordingly, the information set forth in this report, including the consolidated unaudited financial statements and related data, relates primarily to the Bank.borrowingborrowing and investing activities.10-K10-K for the fiscal year ended June 30, 2017.December 31, 2021. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements in accordance with GAAP have been included. Operating results for the three months ended September 30, 2017,March 31, 2022, are not necessarily indicative of the results that may be expected for future periods.On July 31, 2017, the Company reported its decision to change its fiscal year end to December 31 from a fiscal year ending on June 30. This change in fiscal year end makes the Company's and the Bank's year-end coincide with the regulatory reporting periods. As a result of the change in fiscal year, the Company will file a transition report on Form 10-KT covering the transition period from July 1, 2017 to December 31, 2017.mortgage servicing rights, fair value of financial instruments, and deferred tax assets and liabilities, and the valuation of impaired loans.Northwest Bancorp andNorthwest; its wholly owned subsidiary, First Federal.Fed, and its controlling interest in Quin Ventures, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.Events determined there are no such events or transactions requiring recognition or disclosure.9FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)issuedadopted accounting pronouncements -August 2015, November 2019, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update ("ASU") No. 2015-14, Revenue from Contracts with Customers (Topic 606),2019-10, which defers the effective date of ASU No. 2014-09 one year. ASU No. 2014-09 created Topic 606the current expected credit loss model (CECL) guidance issued in ASUs 2016-13,2019-04, and supersedes Topic 605, Revenue Recognition.2019-05. The core principle of Topic 606 is that an entity recognizes revenue to depicteffective date for smaller reporting companies was changed from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 2015-14 is effective for public entities for interim and annual periods beginning after December 15, 2017; early2020 to the interim and annual periods beginning after December 15, 2022. Early adoption is permitted for interim and annual periods beginning after December 15, 2016. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. With respect to noninterest income, the Company anticipates completing the review of revenue streams and underlying revenue contracts within the scope of the guidance no later than November 2017. 2018. The Company will develop processesadopted this ASU and procedures as a component of the review project to ensure it is fully compliant with these amendments. To date, the Company has not yet identified any significant changes in the timing of revenue recognition when considering the amended accounting guidance; however, the Company’s implementation efforts are ongoing and such assessments may change prior to the anticipates implementing CECL effective January 1, 2018 implementation date.2023.2016, 2021, the FASB issued ASU 2016-01, Financial Instruments – Overall: RecognitionNo.2021-01,Reference Rate Reform (Topic 848): Scope. ASU No.2021-01 clarifies that certain optional expedients and Measurementexceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No.2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of Financial Assetsthe scope clarification and Financial Liabilities. The main provisions of thisto tailor the existing guidance to derivative instruments affected by the discounting transition. This ASU address the valuationwas effective upon issuance and impairment of equity securities along with enhanced disclosures about those investments. Equity securities with readily determinable fair values willgenerally can be treated in the same manner as other financial instruments. ASU 2016-01 is effective for fiscal years beginning after applied through December 15, 2017, including interim periods within those fiscal years. 31, 2022. The adoption of ASU 2016-01 is 2021-01 did not expected to have a material impact on the Company's consolidatedCompany’s financial statements.FebruaryJune 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 is intended to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The principal change required by this ASU relates to lessee accounting, and is that for operating leases, a lessee is required to (1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (3) classify all cash payments within operating activities in the statement of cash flows. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 also changes disclosure requirements related to leasing activities, and requires certain qualitative disclosures along with specific quantitative disclosures. The amendments in ASU 2016-02 are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of the amendments in ASU 2016-02 is permitted. The Company expects to compile an inventory of all leased assets to determine the impact of ASU 2016-02 on its financial condition and results of operations. Once adopted, we expect to report higher assets and liabilities on our Consolidated Balance Sheets as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, which currently are not reflected in our Consolidated Balance Sheets. We do not expect the guidance to have a material impact on the Consolidated Statements of Income or Consolidated Statements of Changes in Shareholders' Equity.In June No.2016 the FASB issued ASU No. 2016-13, -13,Financial Instruments - Credit Loss, which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model (CECL) will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU No. 2016-132016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Upon adoption, the Company will change processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the10FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
The Company is evaluating the provisions of ASU No.2016-13, ASU No.2019-04 and ASU No.2019-05, and will closely monitor developments and additional guidance to determine the potential impact on the Company’s consolidated financial statements. At this time, we do not anticipate an increase tocannot reasonably estimate the ALLL as a result ofimpact the implementation of this ASU.these ASUs will have on the Company's consolidated financial statements. The CompanyCompany's internal project management team continues to review the requirements of ASU 2016-13models, work with our third-party vendor, and has reviewed preliminary testing ofdiscuss changes to processes and procedures to ensure itthe Company is fully compliant with the amendments at the adoption date.date, which is anticipated to be January 1,2023.and held-to-maturity at September 30, 2017,March 31, 2022 are summarized as follows: Amortized Cost (In thousands) Available for Sale Municipal bonds $ 16,277 $ 435 $ (3 ) $ 16,709 U.S. government agency issued asset-backed securities (ABS agency) 22,143 19 (343 ) 21,819 Corporate issued asset-backed securities (ABS corporate) 22,589 56 (87 ) 22,558 Corporate issued debt securities (Corporate debt) 19,846 — (184 ) 19,662 U.S. Small Business Administration securities (SBA) 48,221 95 (215 ) 48,101 Mortgage-backed securities: U.S. government agency issued mortgage-backed securities (MBS agency) 138,949 121 (988 ) 138,082 Corporate issued mortgage-backed securities (MBS corporate) 23,262 108 (142 ) 23,228 Total securities available for sale $ 291,287 $ 834 $ (1,962 ) $ 290,159 Held to Maturity Municipal bonds $ 14,042 $ 297 $ — $ 14,339 SBA 411 — (1 ) 410 Mortgage-backed securities: MBS agency 36,559 527 (152 ) 36,934 Total securities held to maturity $ 51,012 $ 824 $ (153 ) $ 51,683 11FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) Fair Value $ 118,135 $ 40 $ (7,927 ) $ 110,248 2,458 0 (8 ) 2,450 1,948 0 (137 ) 1,811 60,857 669 (1,622 ) 59,904 2,695 82 0 2,777 101,227 13 (5,176 ) 96,064 107,247 3 (2,809 ) 104,441 $ 394,567 $ 807 $ (17,679 ) $ 377,695 and held-to-maturity at June 30, 2017,December 31, 2021, are summarized as follows: Fair Value $ 110,497 $ 3,207 $ (340 ) $ 113,364 1,947 0 (27 ) 1,920 14,556 0 (67 ) 14,489 58,906 1,450 (567 ) 59,789 14,404 276 0 14,680 80,877 248 (1,163 ) 79,962 60,317 71 (380 ) 60,008 $ 341,504 $ 5,252 $ (2,544 ) $ 344,212 Amortized Cost (In thousands) Available for Sale Municipal bonds $ 21,540 $ 686 $ (3 ) $ 22,223 Agency bonds 5,050 — (124 ) 4,926 ABS agency 7,883 — (235 ) 7,648 ABS corporate 9,921 — (108 ) 9,813 SBA 14,195 36 (53 ) 14,178 Mortgage-backed securities: MBS agency 144,380 110 (1,054 ) 143,436 MBS corporate 26,324 126 (81 ) 26,369 Total securities available for sale $ 229,293 $ 958 $ (1,658 ) $ 228,593 Held to Maturity Municipal bonds $ 14,120 $ 306 $ — $ 14,426 SBA 443 — (1 ) 442 Mortgage-backed securities: MBS agency 37,309 566 (122 ) 37,753 Total securities held to maturity $ 51,872 $ 872 $ (123 ) $ 52,621 September 30, 2017: Less Than Twelve Months Twelve Months or Longer Total
Unrealized
Unrealized
Unrealized (In thousands) Available for Sale Municipal bonds $ — $ — $ (3 ) $ 116 $ (3 ) $ 116 ABS agency — — (343 ) 7,375 (343 ) 7,375 ABS corporate (87 ) 12,578 — — (87 ) 12,578 Corporate debt (184 ) 14,662 — — (184 ) 14,662 SBA (151 ) 13,731 (64 ) 8,109 (215 ) 21,840 Mortgage-backed securities: MBS agency (64 ) 22,360 (924 ) 82,324 (988 ) 104,684 MBS corporate — — (142 ) 6,595 (142 ) 6,595 Total available for sale $ (486 ) $ 63,331 $ (1,476 ) $ 104,519 $ (1,962 ) $ 167,850 Held to Maturity SBA $ (1 ) $ 252 $ — $ — $ (1 ) $ 252 Mortgage-backed securities: MBS agency — 1,109 (152 ) 18,872 (152 ) 19,981 Total held to maturity $ (1 ) $ 1,361 $ (152 ) $ 18,872 $ (153 ) $ 20,233 12FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) $ (3,612 ) $ 63,789 $ (4,315 ) $ 43,267 $ (7,927 ) $ 107,056 (8 ) 2,450 0 0 (8 ) 2,450 0 0 (137 ) 1,811 (137 ) 1,811 (778 ) 16,465 (844 ) 18,150 (1,622 ) 34,615 (2,445 ) 59,762 (2,731 ) 26,783 (5,176 ) 86,545 (1,733 ) 68,013 (1,076 ) 22,035 (2,809 ) 90,048 $ (8,576 ) $ 210,479 $ (9,103 ) $ 112,046 $ (17,679 ) $ 322,525 June 30, 2017: Less Than Twelve Months Twelve Months or Longer Total
Unrealized
Unrealized
Unrealized (In thousands) Available for Sale Municipal bonds $ (3 ) $ 116 $ — $ — $ (3 ) $ 116 Agency bonds (52 ) 2,498 (72 ) 2,428 (124 ) 4,926 ABS agency — — (235 ) 7,647 (235 ) 7,647 ABS corporate — — (108 ) 9,813 (108 ) 9,813 SBA (53 ) 8,405 — — (53 ) 8,405 Mortgage-backed securities: MBS agency (968 ) 102,738 (86 ) 4,978 (1,054 ) 107,716 MBS corporate (81 ) 6,894 — — (81 ) 6,894 Total available for sale $ (1,157 ) $ 120,651 $ (501 ) $ 24,866 $ (1,658 ) $ 145,517 Held to Maturity SBA $ (1 ) $ 261 $ — $ — $ (1 ) $ 261 Mortgage-backed securities: MBS agency (121 ) 18,522 (1 ) 597 (122 ) 19,119 Total held to maturity $ (122 ) $ 18,783 $ (1 ) $ 597 $ (123 ) $ 19,380 $ (306 ) $ 23,125 $ (34 ) $ 1,475 $ (340 ) $ 24,600 (27 ) 1,920 0 0 (27 ) 1,920 (67 ) 10,976 0 0 (67 ) 10,976 (333 ) 18,890 (234 ) 9,752 (567 ) 28,642 0 0 0 69 0 69 (713 ) 39,029 (450 ) 12,802 (1,163 ) 51,831 (374 ) 32,849 (6 ) 5,505 (380 ) 38,354 $ (1,820 ) $ 126,789 $ (724 ) $ 29,603 $ (2,544 ) $ 156,392 September 30, 2017,March 31, 2022 and December 31, 2021, there were 50155 and 76 investment securities with $2.1 million ofin an unrealized losses and a fair value of approximately $188.1 million. At June 30, 2017, there were 42 investment securities with $1.8 million of unrealized losses and a fair value of approximately $164.9 million.illiquidity, and not credit quality,related volatility that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. We do not believe the unrealized losses on our securities are related to deterioration in credit quality. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend to sell the securities in an unrealized loss position and believes that it is not likely itunlikely that we will be required to sell these investments prior to a market price recovery or maturity.no0 OTTI losses during the three months ended September 30, 2017 or 2016.March 31, 2022 and 2021. $ 7,821 $ 7,746 37,379 36,935 17,995 17,332 145,279 138,492 208,474 200,505 0 0 8,749 8,329 66,822 65,562 110,522 103,299 186,093 177,190 $ 394,567 $ 377,695 $ 7,827 $ 7,832 24,347 24,371 8,466 8,391 100,554 99,376 141,194 139,970 0 0 6,391 6,289 79,679 80,807 114,240 117,146 200,310 204,242 $ 341,504 $ 344,212 September 30, 2017 Available-for-Sale Held-to-Maturity (In thousands) Mortgage-backed securities: Due within one year $ — $ — $ — $ — Due after one through five years — — 2,211 2,243 Due after five through ten years 21,135 21,006 3,035 3,011 Due after ten years 141,076 140,304 31,313 31,680 Total mortgage-backed securities 162,211 161,310 36,559 36,934 All other investment securities: Due within one year — — — — Due after one through five years 4,389 4,412 — — Due after five through ten years 29,536 29,547 9,555 9,733 Due after ten years 95,151 94,890 4,898 5,016 Total all other investment securities 129,076 128,849 14,453 14,749 Total investment securities $ 291,287 $ 290,159 $ 51,012 $ 51,683 June 30, 2017 Available-for-Sale Held-to-Maturity Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value (In thousands) Mortgage-backed securities: Due within one year $ — $ — $ — $ — Due after one through five years — — 2,518 2,550 Due after five through ten years 19,009 18,919 3,260 3,233 Due after ten years 151,695 150,886 31,531 31,970 Total mortgage-backed securities 170,704 169,805 37,309 37,753 All other investment securities: Due within one year — — — — Due after one through five years 6,890 6,848 — — Due after five through ten years 22,042 22,124 9,637 9,817 Due after ten years 29,657 29,816 4,926 5,051 Total all other investment securities 58,589 58,788 14,563 14,868 Total investment securities $ 229,293 $ 228,593 $ 51,872 $ 52,621 14 $ 10,452 $ 0 128 0 (2 ) 0 Three Months Ended September 30, 2017 2016 (In thousands) Proceeds from sales $ 17,239 $ — Gross realized gains 269 — Gross realized losses (133 ) — September 30, 2017 June 30, 2017 (In thousands) Real Estate: One-to-four family $ 323,675 $ 328,243 Multi-family 58,989 58,101 Commercial real estate 194,813 202,038 Construction and land 81,985 71,630 Total real estate loans 659,462 660,012 Consumer: Home equity 35,059 35,869 Other consumer 23,329 21,043 Total consumer loans 58,388 56,912 Commercial business loans 16,385 17,073 Total loans 734,235 733,997 Less: Net deferred loan fees 858 904 Premium on purchased loans, net (2,122 ) (2,216 ) Allowance for loan losses 8,608 8,523 Total loans receivable, net $ 726,891 $ 726,786 $ 291,053 $ 294,965 203,746 172,409 370,346 363,299 209,395 224,709 1,074,540 1,055,382 39,858 39,172 206,140 182,769 245,998 221,941 54,506 79,838 1,375,044 1,357,161 4,144 4,772 (14,816 ) (12,995 ) 15,127 15,124 $ 1,370,589 $ 1,350,260 $ 3,184 $ 1,816 $ 3,996 $ 2,672 $ 407 $ 2,221 $ 470 $ 358 $ 15,124 (177 ) 276 42 (193 ) (19 ) 56 56 (41 ) 0 0 0 0 0 0 (137 ) 0 0 (137 ) 32 0 0 2 17 89 0 0 140 $ 3,039 $ 2,092 $ 4,038 $ 2,481 $ 405 $ 2,229 $ 526 $ 317 $ 15,127 $ 3,039 $ 2,092 $ 4,038 $ 2,481 $ 405 $ 2,229 $ 526 $ 317 $ 15,127 3,015 2,092 4,038 2,481 401 2,181 526 317 15,051 24 0 0 0 4 48 0 0 76 $ 291,053 $ 203,746 $ 370,346 $ 209,395 $ 39,858 $ 206,140 $ 54,506 $ 0 $ 1,375,044 288,822 203,746 370,278 209,373 39,557 205,734 54,506 0 1,372,016 2,231 0 68 22 301 406 0 0 3,028 At or For the Three Months Ended September 30, 2017 Multi-family Unallocated Total (In thousands) ALLL: Beginning balance $ 3,071 $ 511 $ 1,735 $ 683 $ 818 $ 523 $ 1,168 $ 14 $ 8,523 Provision for loan losses (263 ) 8 (93 ) 75 (71 ) 87 (1,043 ) 1,300 — Charge-offs — — — — — (70 ) — (70 ) Recoveries 100 — — — 16 39 — 155 Ending balance $ 2,908 $ 519 $ 1,642 $ 758 $ 763 $ 579 $ 125 $ 1,314 $ 8,608 At September 30, 2017 Multi-family Unallocated Total (In thousands) Total ALLL $ 2,908 $ 519 $ 1,642 $ 758 $ 763 $ 579 $ 125 $ 1,314 $ 8,608 General reserve 2,859 518 1,631 757 752 576 122 1,314 8,529 Specific reserve 49 1 11 1 11 3 3 — 79 Total loans $ 323,675 $ 58,989 $ 194,813 $ 81,985 $ 35,059 $ 23,329 $ 16,385 $ — $ 734,235 319,111 58,873 193,479 81,958 34,372 23,317 16,099 — 727,209 4,564 116 1,334 27 687 12 286 — 7,026 At or For the Three Months Ended September 30, 2016 Multi-family Unallocated Total ALLL: (In thousands) Beginning balance $ 2,992 $ 341 $ 1,268 $ 599 $ 833 $ 310 $ 335 $ 561 $ 7,239 Provision for loan losses (128 ) 14 143 (14 ) (32 ) 23 590 (246 ) 350 Charge-offs — — — — (2 ) (23 ) — — (25 ) Recoveries 85 — — — 11 21 1 — 118 Ending balance $ 2,949 $ 355 $ 1,411 $ 585 $ 810 $ 331 $ 926 $ 315 $ 7,682 16 At June 30, 2017 Multi-family Unallocated Total (In thousands) Total ALLL $ 3,071 $ 511 $ 1,735 $ 683 $ 818 $ 523 $ 1,168 $ 14 $ 8,523 General reserve 2,988 510 1,718 682 797 501 961 14 8,171 Specific reserve 83 1 17 1 21 22 207 — 352 Total loans $ 328,243 $ 58,101 $ 202,038 $ 71,630 $ 35,869 $ 21,043 $ 17,073 $ — $ 733,997 323,592 57,983 200,467 71,602 35,160 21,021 16,784 — 726,609 4,651 118 1,571 28 709 22 289 — 7,388 $ 3,469 $ 1,764 $ 3,420 $ 1,461 $ 368 $ 2,642 $ 429 $ 294 $ 13,847 (59 ) 58 209 426 (6 ) (197 ) 54 15 500 0 0 0 0 0 (229 ) 0 0 (229 ) 6 0 0 3 17 121 0 0 147 $ 3,416 $ 1,822 $ 3,629 $ 1,890 $ 379 $ 2,337 $ 483 $ 309 $ 14,265 $ 3,184 $ 1,816 $ 3,996 $ 2,672 $ 407 $ 2,221 $ 470 $ 358 $ 15,124 3,159 1,816 3,996 2,672 402 2,138 470 358 15,011 25 0 0 0 5 83 0 0 113 $ 294,965 $ 172,409 $ 363,299 $ 224,709 $ 39,172 $ 182,769 $ 79,838 $ 0 $ 1,357,161 292,708 172,409 363,228 224,687 38,839 182,257 79,838 0 1,353,966 2,257 0 71 22 333 512 0 0 3,195 First Federalthe Bank has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan. In the process of identifying loans as impaired, management takes into consideration factors that include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case-by-case basis after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. Impairment is measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying troubled debt restructuring ("TDR") loans. $ 209 $ 244 $ — $ 212 $ 247 $ — 68 176 — 71 177 — 0 23 — 0 24 — 0 0 — 26 59 — 250 302 — 0 77 — 527 745 — 309 584 — 2,022 2,219 24 2,045 2,245 25 22 22 0 22 22 0 301 323 4 307 329 5 156 164 48 512 512 83 2,501 2,728 76 2,886 3,108 113 2,231 2,463 24 2,257 2,492 25 68 176 0 71 177 0 22 45 0 22 46 0 301 323 4 333 388 5 406 466 48 512 589 83 $ 3,028 $ 3,473 $ 76 $ 3,195 $ 3,692 $ 113 September 30, 2017 June 30, 2017 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded: One-to-four family $ 1,010 $ 1,118 $ — $ 646 $ 845 $ — Multi-family — — — — — — Commercial real estate 278 394 — 297 406 — Construction and land — 3 — — — — Home equity 377 526 — 379 410 — Other consumer — 139 — — 124 — Commercial business — 5 — — — — Total 1,665 2,185 — 1,322 1,785 — With an allowance recorded: One-to-four family 3,554 3,834 49 4,005 4,295 83 Multi-family 116 116 1 118 118 1 Commercial real estate 1,056 1,061 11 1,274 1,278 17 Construction and land 27 51 1 28 52 1 Home equity 310 377 11 330 398 21 Other consumer 12 21 3 22 50 22 Commercial business 286 286 3 289 289 207 Total 5,361 5,746 79 6,066 6,480 352 Total impaired loans: One-to-four family 4,564 4,952 49 4,651 5,140 83 Multi-family 116 116 1 118 118 1 Commercial real estate 1,334 1,455 11 1,571 1,684 17 Construction and land 27 54 1 28 52 1 Home equity 687 903 11 709 808 21 Other consumer 12 160 3 22 174 22 Commercial business 286 291 3 289 289 207 Total $ 7,026 $ 7,931 $ 79 $ 7,388 $ 8,265 $ 352 1817 Three Months Ended Three Months Ended September 30, 2017 September 30, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded: One-to-four family $ 778 $ 12 $ 2,274 $ 32 Multi-family — — — — Commercial real estate 318 — 468 2 Construction and land — — — — Home equity 379 5 139 2 Other consumer — 3 — — Commercial business — — — — Total 1,475 20 2,881 36 With an allowance recorded: One-to-four family 3,800 72 3,705 66 Multi-family 117 1 121 2 Commercial real estate 1,061 10 1,177 17 Construction and land 27 2 89 8 Home equity 312 7 370 7 Other consumer 20 — 84 1 Commercial business 288 4 358 5 Total 5,625 96 5,904 106 Total impaired loans: One-to-four family 4,578 84 5,979 98 Multi-family 117 1 121 2 Commercial real estate 1,379 10 1,645 19 Construction and land 27 2 89 8 Home equity 691 12 509 9 Other consumer 20 3 84 1 Commercial business 288 4 358 5 Total $ 7,100 $ 116 $ 8,785 $ 142 $ 210 $ 4 $ 226 $ 4 0 0 282 5 69 0 1,212 18 0 1 0 0 9 17 36 0 252 7 35 8 540 29 1,791 35 2,030 41 2,507 51 0 0 58 1 22 1 26 2 303 4 111 3 217 3 865 12 2,572 49 3,567 69 2,240 45 2,733 55 0 0 282 5 69 0 1,270 19 22 2 26 2 312 21 147 3 469 10 900 20 $ 3,112 $ 78 $ 5,358 $ 104 September 30, 2017March 31, 2022 and 2016,2021, was $80,000$66,000 and $91,000,$76,000, respectively. September 30, 2017 June 30, 2017 (In thousands) One-to-four family $ 975 $ 1,042 Commercial real estate 403 426 Construction and land 27 28 Home equity 377 398 Other consumer 12 21 Total nonaccrual loans $ 1,794 $ 1,915 $ 484 $ 494 68 71 22 22 253 282 406 512 $ 1,233 $ 1,381 no0 loans past due 90 days or more and still accruing interest at September 30, 2017March 31, 2022 and June 30, 2017. net of partial loan charge-offs, by class, as of September 30, 2017:March 31, 2022: $ 240 $ 0 $ 0 $ 240 $ 290,813 $ 291,053 0 0 0 0 203,746 203,746 0 0 0 0 370,346 370,346 2 22 0 24 209,371 209,395 242 22 0 264 1,074,276 1,074,540 3 0 0 3 39,855 39,858 334 0 30 364 205,776 206,140 337 0 30 367 245,631 245,998 0 0 0 0 54,506 54,506 $ 579 $ 22 $ 30 $ 631 $ 1,374,413 $ 1,375,044
Days
Days
or More Current (In thousands) Real Estate: One-to-four family $ — $ 155 $ 45 $ 200 $ 323,475 $ 323,675 Multi-family — — — — 58,989 58,989 Commercial real estate — — — — 194,813 194,813 Construction and land — 34 19 53 81,932 81,985 Total real estate loans — 189 64 253 659,209 659,462 Consumer: Home equity 394 43 — 437 34,622 35,059 Other consumer 83 — — 83 23,246 23,329 Total consumer loans 477 43 — 520 57,868 58,388 Commercial business loans — — — — 16,385 16,385 Total loans $ 477 $ 232 $ 64 $ 773 $ 733,462 $ 734,235 2019 net of partial loan charge-offs, by class, as of June 30, 2017:
Days
Days
or More Current (In thousands) Real Estate: One-to-four family $ — $ 206 $ — $ 206 $ 328,037 $ 328,243 Multi-family — — — — 58,101 58,101 Commercial real estate — — — — 202,038 202,038 Construction and land — 34 20 54 71,576 71,630 Total real estate loans — 240 20 260 659,752 660,012 Consumer: Home equity 21 294 10 325 35,544 35,869 Other consumer 28 73 — 101 20,942 21,043 Total consumer loans 49 367 10 426 56,486 56,912 Commercial business loans — — — — 17,073 17,073 Total loans $ 49 $ 607 $ 30 $ 686 $ 733,311 $ 733,997 $ 786 $ 0 $ 0 $ 786 $ 294,179 $ 294,965 0 0 0 0 172,409 172,409 0 0 0 0 363,299 363,299 293 0 0 293 224,416 224,709 1,079 0 0 1,079 1,054,303 1,055,382 83 0 0 83 39,089 39,172 469 369 99 937 181,832 182,769 552 369 99 1,020 220,921 221,941 7 0 0 7 79,831 79,838 $ 1,638 $ 369 $ 99 $ 2,106 $ 1,355,055 $ 1,357,161 8-point8-point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and paypaying capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that First Federalthe Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.First Federalthe Bank classifies problem assets as either substandard or doubtful, it may establish a specific allowance to address the risk specifically or First Federal may allow the loss to be addressed in the general allowance. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities but that, unlike specific allowances, have not been specifically allocated to particularcertain problem assets. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose First Federalthe Bank to sufficientenough risk to warrant classification as substandard or doubtful but do possess identified weaknesses are designated as either watch or special mention assets; risk ratings 4 and 5 in our risk rating system, respectively. At September 30, 2017 and June 30, 2017, First Federal had $3.3 million and $3.3 million, respectively, of loans classified as substandard and no loans classified as doubtful or loss. Loans not otherwise classified are considered pass graded loans and are rated 1-31-3 in our risk rating system.First Federalthe Bank categorizes loans as performing or nonperforming based on payment activity. Loans that are more than 90 days past due and nonaccrual loans are considered nonperforming.September 30, 2017,March 31, 2022, by class of loans: Pass Watch Total (In thousands) Real Estate: One-to-four family $ 316,469 $ 4,340 $ 959 $ 1,907 $ 323,675 Multi-family 56,756 2,117 116 — 58,989 Commercial real estate 182,417 9,611 2,209 576 194,813 Construction and land 74,011 3,460 4,421 93 81,985 Total real estate loans 629,653 19,528 7,705 2,576 659,462 Consumer: Home equity 34,076 318 33 632 35,059 Other consumer 22,805 306 172 46 23,329 Total consumer loans 56,881 624 205 678 58,388 Commercial business loans 14,004 1,410 971 — 16,385 Total loans $ 700,538 $ 21,562 $ 8,881 $ 3,254 $ 734,235 $ 287,218 $ 3,033 $ 49 $ 753 $ 291,053 185,137 18,609 0 0 203,746 342,009 16,339 925 11,073 370,346 181,873 16,844 8,878 1,800 209,395 996,237 54,825 9,852 13,626 1,074,540 39,322 243 0 293 39,858 205,040 670 48 382 206,140 244,362 913 48 675 245,998 53,708 798 0 0 54,506 $ 1,294,307 $ 56,536 $ 9,900 $ 14,301 $ 1,375,044 June 30, 2017,December 31, 2021, by class of loans: $ 291,421 $ 2,727 $ 53 $ 764 $ 294,965 153,704 18,705 0 0 172,409 326,444 22,850 3,057 10,948 363,299 215,262 295 9,130 22 224,709 986,831 44,577 12,240 11,734 1,055,382 38,739 83 0 350 39,172 181,356 835 65 513 182,769 220,095 918 65 863 221,941 79,616 222 0 0 79,838 $ 1,286,542 $ 45,717 $ 12,305 $ 12,597 $ 1,357,161 Pass Watch Total (In thousands) Real Estate: One-to-four family $ 321,596 $ 3,680 $ 1,153 $ 1,814 $ 328,243 Multi-family 56,103 1,880 118 — 58,101 Commercial real estate 188,956 10,243 2,232 607 202,038 Construction and land 65,175 2,197 4,161 97 71,630 Total real estate loans 631,830 18,000 7,664 2,518 660,012 Consumer: Home equity 34,913 215 57 684 35,869 Other consumer 20,676 159 173 35 21,043 Total consumer loans 55,589 374 230 719 56,912 Commercial business loans 14,143 1,464 1,451 15 17,073 Total loans $ 701,562 $ 19,838 $ 9,345 $ 3,252 $ 733,997 2221September 30, 2017,March 31, 2022, by class of loans: Nonperforming Performing Total (In thousands) Real Estate: One-to-four family $ 975 $ 322,700 $ 323,675 Multi-family — 58,989 58,989 Commercial real estate 403 194,410 194,813 Construction and land 27 81,958 81,985 Consumer: Home equity 377 34,682 35,059 Other consumer 12 23,317 23,329 Commercial business — 16,385 16,385 Total loans $ 1,794 $ 732,441 $ 734,235 $ 484 $ 290,569 $ 291,053 0 203,746 203,746 68 370,278 370,346 22 209,373 209,395 253 39,605 39,858 406 205,734 206,140 0 54,506 54,506 $ 1,233 $ 1,373,811 $ 1,375,044 June 30, 2017,December 31, 2021, by class of loans: $ 494 $ 294,471 $ 294,965 0 172,409 172,409 71 363,228 363,299 22 224,687 224,709 282 38,890 39,172 512 182,257 182,769 0 79,838 79,838 $ 1,381 $ 1,355,780 $ 1,357,161 Nonperforming Performing Total (In thousands) Real Estate: One-to-four family $ 1,042 $ 327,201 $ 328,243 Multi-family — 58,101 58,101 Commercial real estate 426 201,612 202,038 Construction and land 28 71,602 71,630 Consumer: Home equity 398 35,471 35,869 Other consumer 21 21,022 21,043 Commercial business — 17,073 17,073 Total loans $ 1,915 $ 732,082 $ 733,997 First Federalthe Bank is granting the borrower a concession of some kind. First FederalFed has granted a variety of concessions to borrowers in the form of loan modifications. The modifications granted canare generally be described inrelated to the following categories:Rate modification - A modification in which theloan's interest rate, is changed.Termterm and payment amount or a combination thereof. - A modification in which the maturity date, timing of payments, or frequency of payments is changed.Payment modification - A modification in which the dollar amountloans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (i.e., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is changed. Interest-onlyimplemented. This relief was extended under the Consolidated Appropriations Act 2021, to the earlier of 60 days after the COVID-19 pandemic national emergency termination date or January 1, 2022. Through March 31, 2022, the Company had granted COVID-19 pandemic related temporary loan modifications on 357 loans totaling $177.6 million, or 12.9% of total loans. Loan modifications in whichaccordance with the CARES Act and related regulatory guidance are still subject to an evaluation to determine whether or not a loan is converteddeemed to interest-only payments for a periodbe impaired. As of time are includedMarch 31, 2022, 0 loans modified in this category.Combination modification - Any other type of modification, includingaccordance with the use of multiple categories above.Upon identifying a receivable as a TDR loan, First Federal classifies the loan as impaired for purposes of determining the allowance for loan losses. This requires the loan to initially be evaluated individually for impairment, generally basedCARES Act remained on the expected cash flows under the new terms discounted at the loan’s original effective interest rates. For TDR loans that23FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)subsequently default, the method of determining impairment is generally the fair value of the collateral less estimated selling costs. Certain qualifying TDR loans are subsequently measured for impairment using the same factor applied to unimpaired loans in the corresponding segment and risk rating.TDR loans may be upgraded in their classification and placed on accrual status once there is a sustained period of repayment performance, usually six months or longer, and there is a reasonable assurance that repayment will continue. First Federal allows reclassification of a troubled debt restructuring back into the general loan pool (as a non-troubled debt restructuring) if the borrower is able to refinance the loan at then-current market rates and meet all of the underwriting criteria of First Federal required of other borrowers. The refinance must be based on the borrower’s ability to repay the debt and no special concessions of rate and/or term are granted to the borrower. September 30, June 30, 2017 2017 (In thousands) Total TDR loans $ 5,790 $ 6,145 Allowance for loan losses related to TDR loans 71 315 Total nonaccrual TDR loans 558 673 $ 1,824 $ 1,843 20 21 29 29 no0 newly restructured, and renewals, or modifications of existing TDR loans that occurred during the three months ended September 30, 2017 and 2016.The following is a summary ofMarch 31, 2022 or 2021.whichthat incurred a payment default within 12 months of the restructure date during the three months ended September 30, 2017. Combination
Modification (Dollars in thousands) TDR loans that subsequently defaulted One- to four-family 1 $ — $ 87 $ — $ 87 The following is a summary of TDR loans which incurred a payment default within 12 months of the restructure date during the three months ended September 30, 2016. Combination
Modification (Dollars in thousands) TDR loans that subsequently defaulted One- to four-family 1 $ — $ — $ 86 $ 86 NoMarch 31, 2022 or 2021.impairedTDR loans at September 30, 2017.24FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)status. $ 1,747 $ 29 $ 1,776 48 0 48 $ 1,795 $ 29 $ 1,824 September 30, 2017 June 30, 2017 Accrual Nonaccrual Total Accrual Nonaccrual Total (In thousands) One-to-four family $ 3,590 $ 323 $ 3,913 $ 3,608 $ 421 $ 4,029 Multi-family 116 — 116 118 — 118 Commercial real estate 931 235 1,166 1,145 252 1,397 Home equity 309 — 309 312 — 312 Commercial business 286 — 286 289 — 289 Total TDR loans $ 5,232 $ 558 $ 5,790 $ 5,472 $ 673 $ 6,145
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Deposits The aggregate amount of time deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limit, currently March 31, 2022 December 31, 2021 Amount Weighted-Average Interest Rate Amount Weighted-Average Interest Rate (Dollars in thousands) Noninterest-bearing demand deposits Interest-bearing demand deposits Money market accounts Savings accounts Certificates of deposit Total deposits Maturities of certificates at the dates indicated are as follows: March 31, 2022 December 31, 2021 (In thousands) Within one year or less After one year through two years After two years through three years After three years through four years After four years through five years Total certificates of deposit Brokered certificates of deposits of $65.7 million and At March 31, 2022 and December 31, 2021, deposits included $106.7 million and $134.1 million, respectively, in public fund deposits. Investment securities with a carrying value of Interest on deposits by type for the periods shown was as follows:$250,000,$250,000, at September 30, 2017March 31, 2022 and June 30, 2017, was $82.3December 31, 2021, were $63.8 million and $68.0$75.1 million, respectively. Deposits and weighted-average interest rates at the dates indicated are as follows: Weighted-Average Interest Rate September 30, 2017 Weighted-Average Interest Rate June 30, 2017 (Dollars in thousands) Savings 0.05% $ 103,108 0.06% $ 98,894 Transaction accounts 0.01% 255,158 0.01% 245,889 Money market accounts 0.31% 261,474 0.31% 267,503 Certificates of deposit and jumbo certificates 1.26% 231,193 1.19% 211,474 $ 850,933 $ 823,760 Weighted-average interest rate 0.45 % 0.42 % $ 326,289 0.00 % $ 343,932 0.00 % 204,949 0.01 % 196,970 0.01 % 581,804 0.20 % 597,815 0.21 % 197,351 0.05 % 194,620 0.05 % 239,021 0.52 % 247,243 0.62 % $ 1,549,414 0.16 % $ 1,580,580 0.19 % September 30, 2017 June 30, 2017 (In thousands) Within one year or less $ 120,708 $ 106,448 After one year through two years 69,269 59,137 After two years through three years 22,457 25,767 After three years through four years 11,153 9,569 After four years through five years 7,585 10,498 After five years 21 55 $ 231,193 $ 211,474 Deposits at September 30, 2017 and June 30, 2017, included $51.6 $ 147,258 $ 153,472 53,927 54,970 17,164 17,620 13,404 14,358 7,268 6,823 $ 239,021 $ 247,243 $54.5$65.7 million are included in the March 31, 2022 and December 31, 2021 certificate of deposits totals above, respectively.$41.3$61.3 million and $41.8$67.9 million were pledged as collateral for these deposits at September 30, 2017March 31, 2022 and June 30, 2017,December 31, 2021, respectively. This exceeds the minimum collateral requirements established by the Washington Public Deposit Protection Commission.25FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
(In thousands) | ||||||||
Demand deposits | $ | 17 | $ | 7 | ||||
Money market accounts | 298 | 286 | ||||||
Savings accounts | 26 | 40 | ||||||
Certificates of deposit | 376 | 601 | ||||||
Total interest expense on deposits | $ | 717 | $ | 934 | ||||
| Three Months Ended | |||||||
| September 30, | |||||||
| 2017 | 2016 | ||||||
| (In thousands) | |||||||
| Savings | $ | 14 | $ | 10 | |||
| Transaction accounts | 4 | 4 | |||||
| Insured money market accounts | 206 | 187 | |||||
| Certificates of deposit and jumbo certificates | 687 | 446 | |||||
| $ | 911 | $ | 647 | ||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Federal Taxes on Income 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. The effective tax rates were Note 6 - Earnings per Common Share The two-class method is used for computing basic and diluted earnings per The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the three months ended Three Months Ended March 31, 2022 2021 Net income: Net income available to common shareholders Earnings allocated to participating securities Earnings allocated to common shareholders Basic: Weighted average common shares outstanding Weighted average unvested restricted stock awards Weighted average unallocated ESOP shares Total basic weighted average common shares outstanding Diluted: Basic weighted average common shares outstanding Dilutive restricted stock awards Total diluted weighted average common shares outstanding Basic earnings per common share Diluted earnings per common share Potentially dilutive shares are excluded from the computation of EPS if their effect is anti-dilutive. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 7 - Employee Benefits Employee Stock Ownership Plan In connection with the Conversion, the Company established an ESOP for eligible employees of the Company and the Bank. Employees of the Company and the Bank who have been credited with at least 1,000 hours of service during a 12-month period are eligible to participate in the ESOP. Pursuant to the Plan, the ESOP purchased shares in the open market with funds borrowed from First Northwest. The Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to First Northwest over a period of 20 years, bearing estimated interest at 2.46%. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP assets. No principal and interest payment was made by the ESOP during the three months ended March 31, 2022. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average daily market prices of the shares and the shares become outstanding for EPS computations. The compensation expense is accrued monthly throughout the year. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. Compensation expense related to the ESOP for the three months ended Shares March 31, 2022 December 31, 2021 (Dollars in thousands) Allocated shares Committed to be released shares Unallocated shares Total ESOP shares issued Fair value of unallocated shares FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 8 - Stock-based Compensation In May 2020, the Company's shareholders approved the First Northwest Bancorp As a result of the There were For the three months ended Included in the above compensation expense for the three months ended The following Under current Federal income tax regulations, charitable contribution deductions are limited to 10% of taxable income. Due to this limitation, the Company currently has a valuation allowance of $1.9 million for financial statement reporting purposes related to its contribution to the Foundation. The contribution carryforward and related valuation allowance will expire in 2020. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates whether its deferred tax assets will be realized and adjusts the amount of its valuation allowance, if necessary.24.7%18.1% and 33.9%13.2% for the three months ended September 30, 2017 March 31, 2022 and 2016,2021, respectively. The Company'seffective tax rate is reducedrates differ from the statutory maximum federal tax rate in part as a resultfor 2022 and 2021 of permanent tax exclusions of noninterest income from21%, largely due to the nontaxable earnings on bank-owned life insurance ("BOLI") and tax-exempt interest.interest income earned on certain investment securities and loans. Additionally, a tax accrual true-up was recorded in the first quarter of 2021, which reduced the prior year provision and resulted in a lower effective tax rate.Basicshareshare. Under the two-class method, EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstandingdetermined for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuanceeach class of common stock that then shared in the earnings of the entity. In addition, nonvested share-based payment awards that contain nonforfeitable rightsand participating security according to dividends or dividend equivalents are considereddeclared and participating securities and are includedrights in the computation of earnings per share. Certain of the Company's nonvestedundistributed earnings. The Company has issued restricted stock awardsshares under share-based compensation plans which qualify as participating securities.September 30, 2017 March 31, 2022 and 2016.26FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) Three Months Ended September 30, 2017 2016 (In thousands, except share data) Numerator: Net income $ 1,773 $ 651 Denominator: Basic weighted average common shares outstanding 10,631,508 11,647,106 Dilutive restricted stock grants 70,753 186,399 Diluted weighted average common shares outstanding 10,702,261 11,833,505 Basic earnings per share $ 0.17 $ 0.06 Diluted earnings per share $ 0.17 $ 0.06 Unallocated ESOP shares are not included as outstanding for either basic or diluted earnings per share calculations. As of September 30, 2017 and 2016, there were 913,113 and 964,461 shares in the ESOP that remain unallocated, respectively.Potential2021. $ 2,806 $ 3,120 (70 ) (102 ) $ 2,736 $ 3,018 10,040,090 10,241,823 (234,953 ) (357,213 ) (674,969 ) (727,786 ) 9,130,168 9,156,824 9,130,168 9,156,824 95,200 91,371 9,225,368 9,248,195 $ 0.30 $ 0.33 $ 0.30 $ 0.33 RestrictedAt March 31, 2022 and December 31, 2021, antidilutive shares as calculated under the treasury stock awardsmethod totaled 17 and 115, respectively.September 30, 2017 March 31, 2022 and 20162021, was $210,000$291,000 and $195,000,$217,000, respectively.held byissued to the ESOP as of the dates indicated are as follows: 333,396 333,396 39,663 26,442 674,970 688,191 1,048,029 1,048,029 $ 14,910 $ 13,901 September 30, 2017 June 30, 2017 (Dollars in thousands) Allocated shares 121,695 121,695 Committed to be released shares 13,221 — Unallocated shares 913,113 926,334 Total ESOP shares 1,048,029 1,048,029 Fair value of unallocated shares $ 15,614 $ 14,608 2726(Unaudited)On November 16, 2015, 20152020 Equity Incentive Plan (the "2015("2020 EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock andshares or restricted stock units, and performance share awards to eligible participants. participants through May 2030. The cost of awards under the 20152020 EIP generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the 20152020 EIP is 1,834,050. The 2015 EIP provides for the use520,000. As of authorized but unissued shares or shares that have been reacquired by First Northwest to fund share-based awards. At September 30, 2017,March 31, 2022, there were 1,394,050302,294 total shares available for grant under the 20152020 EIP, including 84,014 sharesall of which are available to be granted as restricted stock.Duringshares.three months ended September 30, 2017, 50,000approval of the 2020 EIP, the First Northwest Bancorp 2015 Equity Incentive Plan (the "2015 EIP") was frozen and no additional awards will be made. As of March 31, 2022, there were 0 shares of restricted stock were awarded and no stock options were granted. available for grant under the 2015 EIP. At this date, there are 94,900 shares granted under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.402,50042,243 and 84,896 shares of restricted stock awarded, respectively, during the three months ended September 30, 2016.March 31, 2022 and 2021. Awarded shares of restricted stock vest ratably over 5periods ranging from one to five years from the date of grant as long asprovided the eligible participant remains in service to the Company. The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.September 30, 2017 March 31, 2022 and 2016,2021, total compensation expense for the 2015 EIPequity incentive plans was $321,000$411,000 and $256,000,$404,000, respectively.September 30, 2017 March 31, 2022 and 2016,2021, was directors' compensation of $98,000$55,000 and $92,000,$91,000, respectively.table providestables provide a summary of changes in non-vested restricted stock awards for the three months ended September 30, 2017:
For the Three Months Ended | ||||||||
March 31, 2022 | ||||||||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Non-vested at January 1, 2022 | 236,432 | $ | 16.19 | |||||
Granted | 42,243 | 22.35 | ||||||
Vested | (22,727 | ) | 18.17 | |||||
Canceled (1) | (8,919 | ) | 18.17 | |||||
Forfeited | (2,400 | ) | 17.28 | |||||
Non-vested at March 31, 2022 | 244,629 | $ | 16.99 | |||||
(1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the participant's tax obligation on the vested shares. The surrendered shares are canceled and are unavailable for reissue. | ||||||||
| For the Three Months Ended | ||||||
| September 30, 2017 | ||||||
| Weighted-Average | ||||||
| Grant Date | ||||||
| Shares | Fair Value | |||||
| Non-vested at July 1, 2017 | 390,000 | $ | 12.70 | |||
| Granted | 50,000 | 16.07 | ||||
| Vested | (62,461 | ) | 12.70 | |||
| Canceled (1) | (15,539 | ) | 12.70 | |||
| Non-vested at September 30, 2017 | 362,000 | 13.17 | ||||
| —% | 362,000 | |||||
| (1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the total cost of the vested shares. The surrendered shares are canceled and are unavailable for reissue. | ||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Three Months Ended | ||||||
| September 30, 2016 | ||||||
| Weighted-Average | ||||||
| Grant Date | ||||||
| Shares | Fair Value | |||||
| Non-vested at July 1, 2016 | — | $ | — | |||
| Granted | 402,500 | 12.70 | ||||
| Vested | — | — | ||||
| Forfeited | (12,500 | ) | 12.70 | |||
| Non-vested at September 30, 2016 | 390,000 | 12.70 | ||||
| —% | 390,000 | |||||
As of September 30, 2017,March 31, 2022, there was $4.5$3.5 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately 3.92.19 years.
Note 9 - Fair Value Accounting and Measurement
Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-partythird-party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.
Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.
A three-levelthree-level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:
Level 1
- Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2
- Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.Level 3
- Unobservable inputs.The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.
The Company used the following methods to measure fair value on a recurring and nonrecurring basis.
Securities available for sale:sale and Equity investments: where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities.
Sold loan servicing rights, at fair value: The fair value of sold loan servicing rights is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs. Servicing rights are classified as Level 3 due to reliance on assumptions used in the valuation.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets measured at fair value on a recurring basis at the dates indicated:
March 31, 2022 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Securities available-for-sale | ||||||||||||||||
Municipal bonds | $ | 5,337 | $ | 104,911 | $ | 0 | $ | 110,248 | ||||||||
U.S. Treasury notes | 2,450 | 0 | 0 | 2,450 | ||||||||||||
Agency bonds | 0 | 1,811 | 0 | 1,811 | ||||||||||||
Corporate debt | 5,685 | 54,219 | 0 | 59,904 | ||||||||||||
SBA | 0 | 2,777 | 0 | 2,777 | ||||||||||||
MBS agency | 0 | 96,064 | 0 | 96,064 | ||||||||||||
MBS corporate | 0 | 104,441 | 0 | 104,441 | ||||||||||||
Sold loan servicing rights | 0 | 0 | 4,046 | 4,046 | ||||||||||||
Equity investments | 0 | 3,276 | 0 | 3,276 | ||||||||||||
| $ | 13,472 | $ | 367,499 | $ | 4,046 | $ | 385,017 | |||||||||
December 31, 2021 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Securities available-for-sale | ||||||||||||||||
Municipal bonds | $ | 5,902 | $ | 107,462 | $ | 0 | $ | 113,364 | ||||||||
Agency bonds | 0 | 1,920 | 0 | 1,920 | ||||||||||||
ABS corporate | 0 | 14,489 | 0 | 14,489 | ||||||||||||
Corporate debt | 6,061 | 53,728 | 0 | 59,789 | ||||||||||||
SBA | 0 | 14,680 | 0 | 14,680 | ||||||||||||
MBS agency | 0 | 79,962 | 0 | 79,962 | ||||||||||||
MBS corporate | 0 | 60,008 | 0 | 60,008 | ||||||||||||
Equity investments | 0 | 3,071 | 0 | 3,071 | ||||||||||||
| $ | 11,963 | $ | 335,320 | $ | 0 | $ | 347,283 | |||||||||
| September 30, 2017 | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Securities available-for-sale | |||||||||||||||
| Municipal bonds | $ | — | $ | 16,709 | $ | — | $ | 16,709 | |||||||
| ABS agency | — | 21,819 | — | 21,819 | |||||||||||
| ABS corporate | — | 22,558 | — | 22,558 | |||||||||||
| Corporate debt | — | 19,662 | — | 19,662 | |||||||||||
| SBA | — | 48,101 | — | 48,101 | |||||||||||
| MBS agency | — | 138,082 | — | 138,082 | |||||||||||
| MBS corporate | — | 23,228 | — | 23,228 | |||||||||||
| $ | — | $ | 290,159 | $ | — | $ | 290,159 | ||||||||
| June 30, 2017 | |||||||||||||||
| Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Securities available-for-sale | |||||||||||||||
| Municipal bonds | $ | — | $ | 22,223 | $ | — | $ | 22,223 | |||||||
| Agency bonds | — | 4,926 | — | 4,926 | |||||||||||
| ABS agency | — | 7,648 | — | 7,648 | |||||||||||
| ABS corporate | — | 9,813 | — | 9,813 | |||||||||||
| SBA | — | 14,178 | — | 14,178 | |||||||||||
| MBS agency | — | 143,436 | — | 143,436 | |||||||||||
| MBS corporate | — | 26,369 | — | 26,369 | |||||||||||
| $ | — | $ | 228,593 | $ | — | $ | 228,593 | ||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at the date indicated:
March 31, 2022 | Fair Value | Valuation Technique | Unobservable Input | Range | |||||||
Sold loan servicing rights | $ | 4,046 | Discounted cash flow | Constant prepayment rate | 2.15%-10.55% (7.54%) | ||||||
Discount rate | 9.75%-14.25% (11.45%) | ||||||||||
The following tables summarize the changes in Level 3 assets measured at fair value on a recurring basis at the dates indicated:
March 31, 2022 | ||||||||||||||||
Election of Fair Value Option for Servicing Rights at January 1, 2022 | Servicing rights that result from transfers and sale of financial assets | Changes in fair value due to changes in model inputs or assumptions (1) | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Sold loan servicing rights | $ | 3,820 | $ | 56 | $ | 170 | $ | 4,046 | ||||||||
(1) Represents changes due to collection/realization of expected cash flows and curtailments. | ||||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Balance at January 1, 2021 | Transfers Out of Level 3 (1) | Purchases | Unrealized | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||
Corporate debt | $ | 2,540 | $ | (2,540 | ) | $ | 0 | $ | 0 | $ | 0 | |||||||||
MBS corporate | 6,372 | (6,372 | ) | 0 | 0 | 0 | ||||||||||||||
| $ | 8,912 | $ | (8,912 | ) | $ | 0 | $ | 0 | $ | 0 | ||||||||||
(1) Transferred from Level 3 to Level 2 after obtaining observable market data. | ||||||||||||||||||||
Assets and liabilities measured at fair value on a nonrecurring basis
- Assets are considered to beNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:
| September 30, 2017 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Impaired loans | $ | — | $ | — | $ | 7,026 | $ | 7,026 | |||||||
| Real estate owned and repossessed assets | — | — | 86 | 86 | |||||||||||
| $ | — | $ | — | $ | 7,112 | $ | 7,112 | ||||||||
| June 30, 2017 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Impaired loans | $ | — | $ | — | $ | 7,388 | $ | 7,388 | |||||||
| Real estate owned and repossessed assets | — | — | 104 | 104 | |||||||||||
| $ | — | $ | — | $ | 7,492 | $ | 7,492 | ||||||||
March 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 3,028 | $ | 3,028 | ||||||||
December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 3,195 | $ | 3,195 | ||||||||
At September 30, 2017March 31, 2022 and June 30, 2017,December 31, 2021, there were no0 impaired loans with discounts to appraisal disposition value or other unobservable inputs. The following tables present the techniques used to value assets measured at fair value on a nonrecurring basis at the dates indicated:
| September 30, 2017 | |||||||||
| Fair Value | Valuation Technique | Unobservable Input | Range (Weighted-Average)1 | ||||||
| (In thousands) | |||||||||
| Real estate owned and repossessed assets | $ | 86 | Market comparable | Discount to appraisal | 0% - 10% (10%) | ||||
1 Discount to appraisal disposition value. | |||||||||
| June 30, 2017 | |||||||||
| Fair Value | Valuation Technique | Unobservable Input | Range (Weighted-Average)1 | ||||||
| (In thousands) | |||||||||
| Real estate owned and repossessed assets | $ | 104 | Market comparable | Discount to appraisal | 0% - 10% (5%) | ||||
1 Discount to appraisal disposition value. | |||||||||
The following tables present the carrying value and estimated fair value of financial instruments at the dates indicated:
March 31, 2022 | ||||||||||||||||||||
Fair Value Measurements Using: | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 82,528 | $ | 82,528 | $ | 82,528 | $ | 0 | $ | 0 | ||||||||||
Investment securities available for sale | 377,695 | 377,695 | 13,472 | 364,223 | 0 | |||||||||||||||
Loans held for sale | 1,334 | 1,334 | 0 | 1,334 | 0 | |||||||||||||||
Loans receivable, net | 1,370,589 | 1,344,070 | 0 | 0 | 1,344,070 | |||||||||||||||
FHLB stock | 8,122 | 8,122 | 0 | 8,122 | 0 | |||||||||||||||
Accrued interest receivable | 5,696 | 5,696 | 0 | 5,696 | 0 | |||||||||||||||
Sold loan servicing rights, at fair value | 4,046 | 4,046 | 0 | 0 | 4,046 | |||||||||||||||
Equity investments | 3,276 | 3,276 | 0 | 3,276 | 0 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Demand deposits | $ | 1,310,393 | $ | 1,310,393 | $ | 1,310,393 | $ | 0 | $ | 0 | ||||||||||
Time deposits | 239,021 | 235,609 | 0 | 0 | 235,609 | |||||||||||||||
FHLB Borrowings | 145,000 | 141,962 | 0 | 0 | 141,962 | |||||||||||||||
Subordinated debt | 39,250 | 37,670 | 0 | 0 | 37,670 | |||||||||||||||
Accrued interest payable | 13 | 13 | 0 | 13 | 0 | |||||||||||||||
| September 30, 2017 | ||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Fair Value Measurements Using: | ||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 25,009 | $ | 25,009 | $ | 25,009 | $ | — | $ | — | ||||||||||
| Investment securities available for sale | 290,159 | 290,159 | — | 290,159 | — | |||||||||||||||
| Investment securities held to maturity | 51,012 | 51,683 | — | 51,683 | — | |||||||||||||||
| Loans receivable, net | 726,891 | 723,089 | — | — | 723,089 | |||||||||||||||
| FHLB stock | 5,729 | 5,729 | — | 5,729 | — | |||||||||||||||
| Accrued interest receivable | 3,498 | 3,498 | — | 3,498 | — | |||||||||||||||
| Mortgage servicing rights, net | 1,112 | 1,692 | — | — | 1,692 | |||||||||||||||
| Financial liabilities | ||||||||||||||||||||
| Demand deposits | $ | 619,740 | $ | 619,740 | $ | 619,740 | $ | — | $ | — | ||||||||||
| Time deposits | 231,193 | 230,731 | — | 230,731 | — | |||||||||||||||
| Borrowings | 111,657 | 114,247 | — | 114,247 | — | |||||||||||||||
| Accrued interest payable | 217 | 217 | — | 217 | — | — | ||||||||||||||
| June 30, 2017 | |||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Fair Value Measurements Using: | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||||
| (In thousands) | |||||||||||||||||||
| Financial assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 24,292 | $ | 24,292 | $ | 24,292 | $ | — | $ | — | |||||||||
| Investment securities available for sale | 228,593 | 228,593 | — | 228,593 | — | ||||||||||||||
| Investment securities held to maturity | 51,872 | 52,621 | — | 52,621 | — | ||||||||||||||
| Loans receivable, net | 726,786 | 723,848 | — | — | 723,848 | ||||||||||||||
| FHLB stock | 4,368 | 4,368 | — | 4,368 | — | ||||||||||||||
| Accrued interest receivable | 3,020 | 3,020 | — | 3,020 | — | ||||||||||||||
| Mortgage servicing rights, net | 986 | 1,600 | — | — | 1,600 | ||||||||||||||
| Financial liabilities | |||||||||||||||||||
| Demand deposits | $ | 612,286 | $ | 612,286 | $ | 612,286 | $ | — | $ | — | |||||||||
| Time deposits | 211,474 | 211,072 | — | 211,072 | — | ||||||||||||||
| Borrowings | 77,427 | 80,338 | — | 80,338 | — | ||||||||||||||
| Accrued interest payable | 208 | 208 | — | 208 | — | ||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2021 | ||||||||||||||||||||
Fair Value Measurements Using: | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 126,016 | $ | 126,016 | $ | 126,016 | $ | 0 | $ | 0 | ||||||||||
Investment securities available for sale | 344,212 | 344,212 | 11,963 | 332,249 | 0 | |||||||||||||||
Loans held for sale | 760 | 760 | 0 | 760 | 0 | |||||||||||||||
Loans receivable, net | 1,350,260 | 1,328,589 | 0 | 0 | 1,328,589 | |||||||||||||||
FHLB stock | 5,196 | 5,196 | 0 | 5,196 | 0 | |||||||||||||||
Accrued interest receivable | 5,289 | 5,289 | 0 | 5,289 | 0 | |||||||||||||||
Sold loan servicing rights, net | 3,282 | 3,820 | 0 | 0 | 3,820 | |||||||||||||||
Equity investments | 3,071 | 3,071 | 0 | 3,071 | 0 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Demand deposits | 1,333,337 | $ | 1,333,337 | $ | 1,333,337 | $ | 0 | $ | 0 | |||||||||||
Time deposits | 247,243 | 247,217 | 0 | 0 | 247,217 | |||||||||||||||
FHLB Borrowings | 80,000 | 80,192 | 0 | 0 | 80,192 | |||||||||||||||
Subordinated debt | 39,280 | 39,144 | 0 | 0 | 39,144 | |||||||||||||||
Accrued interest payable | 393 | 393 | 0 | 393 | 0 | |||||||||||||||
Financial assets and liabilities other than investment securities are not traded in active markets. Estimated fair values require subjective judgments and are approximate. The estimates of fair value in the previous table are not necessarily representative of amounts that could be realized in actual market transactions, or of the underlying value of the Company. Fair value estimates,The methods and assumptions areused by the Company in estimating fair values of financial instruments as set forth below forin accordance with ASC Topic 825,Financial Instruments, as amended by ASU 2016-01 requiring public entities to use the Company's financial instruments:
Securities
- Fair values for investment securities are primarily measured using information from aLoans held for sale
Sold loan servicing rights, net
- The estimated fair value ofNote 10- Change in Accumulated Other Comprehensive Income ("AOCI")
Our AOCI includes unrealized gain (loss) on available-for-sale securities and an unrecognized defined benefit plan prior service cost. The following table presents changes to accumulated other comprehensive income after-tax for the periods shown:
Unrealized Gains and Losses on Available-for-Sale Securities | Unrecognized Defined Benefit Plan Prior Service Cost, Net of Amortization | Total | ||||||||||
| (In thousands) | ||||||||||||
BALANCE, December 31, 2020 | $ | 5,442 | $ | 0 | $ | 5,442 | ||||||
Other comprehensive loss before reclassification | (3,498 | ) | (1,745 | ) | (5,243 | ) | ||||||
Net other comprehensive loss | (3,498 | ) | (1,745 | ) | (5,243 | ) | ||||||
BALANCE, March 31, 2021 | $ | 1,944 | $ | (1,745 | ) | $ | 199 | |||||
BALANCE, December 31, 2021 | $ | 2,140 | $ | (1,852 | ) | $ | 288 | |||||
Other comprehensive loss before reclassification | (15,370 | ) | 0 | (15,370 | ) | |||||||
Amounts reclassified from accumulated other comprehensive income | (100 | ) | 29 | (71 | ) | |||||||
Net other comprehensive (loss) income | (15,470 | ) | 29 | (15,441 | ) | |||||||
BALANCE, March 31, 2022 | $ | (13,330 | ) | $ | (1,823 | ) | $ | (15,153 | ) | |||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11- Business Combination
On July 23, 2021, the Bank acquired certain assets and assumed liabilities of the Sterling Bank and Trust of Southfield, Michigan ("Sterling") upon purchasing their sole branch located in Washington State. As a result of the Sterling transaction, the Bank has established a presence in Bellevue, Washington, and expanded its deposit base. Total consideration paid under the Sterling transaction consisted of $63.5 million in cash. There were no transfers of common stock or other equity instruments in connection with the transaction, and the Bank did not obtain any equity interests in Sterling.
The acquired assets and assumed liabilities were recorded in the Company's consolidated balance sheets at their estimated fair value as of the July 23, 2021, transaction date. The excess of the consideration transferred over the fair value of deposits with no stated maturity,the identifiable net assets acquired was recorded as goodwill. The goodwill arising from the transaction consists largely of a premium paid for the deposit accounts.
In most instances, determining the estimated fair values of the acquired assets and assumed liabilities required the Bank to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at the appropriate rate of interest. Differences may arise between contractually required payments and the expected cash flows at the acquisition date due to items such as non-interest bearing deposits, savingsprepayments or early withdrawals, and interest checking accounts,other factors. Goodwill is expected to be fully deductible for income tax purposes as, under the terms of the transaction, the Bank purchased certain assets and money market accounts, is equal toassumed certain liabilities of Sterling but did not acquire any equity or other ownership interests.
The following table summarizes the amount payable on demand as of September 30, 2017 and June 30, 2017. The fair value of certificatesconsideration transferred, the estimated fair values of depositassets acquired and liabilities assumed as of the acquisition date, and the resulting goodwill relating to the transaction (in thousands):
At July 23, 2021 | ||||||||||||
Book Value | Fair Value Adjustment | Estimated Fair Value | ||||||||||
(In thousands) | ||||||||||||
Cash consideration transferred | $ | 63,545 | ||||||||||
Recognized amounts of identifiable assets acquired and liabilities assumed | ||||||||||||
Identifiable assets acquired | ||||||||||||
Core deposit intangible ("CDI") | $ | 0 | $ | 126 | $ | 126 | ||||||
Premises and equipment | 459 | — | 459 | |||||||||
Accrued interest receivable and other assets | 755 | — | 755 | |||||||||
Total identifiable assets acquired | 1,214 | 126 | 1,340 | |||||||||
Liabilities assumed | ||||||||||||
Deposits | $ | 65,096 | $ | (229 | ) | $ | 64,867 | |||||
Accrued expenses and other liabilities | 1,080 | — | 1,080 | |||||||||
Total liabilities assumed | 66,176 | (229 | ) | 65,947 | ||||||||
Total identifiable net liabilities assumed | (64,962 | ) | 355 | (64,607 | ) | |||||||
Goodwill recognized | $ | 1,062 | ||||||||||
CDI represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of an acquisition. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the discounted valuerevised remaining life.
Forward-Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-Q constitute forward‑lookingforward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward‑lookingForward-looking statements include, but are not limited to:
| • | statements of our goals, intentions and expectations; | |
| • | statements regarding our business plans, prospects, growth and operating strategies; | |
| • | statements regarding the quality of our loan and investment portfolios; | |
| • | estimates of our risks and future costs and benefits; and | |
• | statements concerning the continuing effects of the COVID-19 pandemic on the Bank's business and financial results and conditions. |
These forward‑lookingforward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant risksbusiness, economic and uncertainties.competitive uncertainties and contingencies, many of which are beyond the Company’s control. Actual results may differ materially from those contemplated by the forward‑lookingforward-looking statements due to, among others, the following factors:
• | the effects of the COVID-19 pandemic, including on our credit quality and operations, as well as its impact on general economic conditions; | |
• | legislative or regulatory changes, including actions taken by governmental authorities in response to inflationary pressures, the COVID-19 pandemic, and climate change; | |
• | the risks associated with lending and potential adverse changes in the credit quality of loans in our portfolio, particularly with respect to borrowers affected by the COVID-19 pandemic, natural disasters, or climate change; | |
• | a decrease in the market demand for loans that we originate for sale; | |
• | our ability to control operating costs and expenses; | |
• | whether our management team can implement our operational strategy, including but not limited to our efforts to achieve loan and revenue growth; | |
• | our ability to successfully execute on merger and/or acquisition strategies and integrate any newly acquired assets, liabilities, customers, systems, and management personnel into our operations and our ability to realize related cost savings within expected time frames; | |
• | our ability to successfully execute on growth strategies related to our entry into new markets; | |
• | our ability to develop user-friendly digital applications to serve existing customers and attract new customers; | |
• | the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; | |
• | 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; | |
• | increased competitive pressures among financial services companies, particularly from non-traditional banking entities such as challenger banks, fintech, and mega technology companies; | |
• | our ability to attract and retain deposits; | |
• | changes in consumer spending, borrowing and savings habits, resulting in reduced demand for banking products and services; | |
• | results of examinations of us by the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, Federal Reserve Bank of San Francisco, or other regulatory authorities, which could result in restrictions that may adversely affect our liquidity and earnings; | |
• | legislative or regulatory changes that adversely affect our business; | |
• | 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; | |
• | any failure of key third-party vendors to perform their obligations to us; and | |
• | other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. |
Further, statements about the credit risks of our lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets;
Any of the forward lookingforward-looking statements that we make in this report and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee.anticipate or predict. Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light ofDue to these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.
First Northwest Bancorp, (ora Washington corporation, is the "Company") is a bank holding company which primarily engagesfor First Fed Bank. The Company also has a controlling interest in theQuin Ventures, Inc. and limited partnership investments. First Northwest's business activityactivities are generally limited to passive investment activities and oversight of its subsidiary,investments in First Federal SavingsFed and Loan Association of Port Angeles ("Quin Ventures.
First Federal" or the "Bank"). First FederalFed Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses inserving Western Washington State.with offices in Clallam, Jefferson, King, Kitsap, and Whatcom counties. We have twelve banking locations in Washington State, eight of which are located within Clallamfull-service branches and Jefferson counties, one in Kitsap County, two in Whatcom County,business centers. First Fed’s business and a home lending center ("HLC") in King County. Our HLC is located in Seattle, Washington andoperating strategy is focused on the originationbuilding sustainable earnings by delivering a fully array of loans secured by one- to four-family residential properties, which may be sold into the secondary market or retained in our loan portfolio, subject to management's growth and investment objectives. Our business plan includes the intent to extend our operations further throughout the Puget Sound Region in order to diversify our loan portfolio and increase our net interest margin. The Puget Sound region extends from Whatcom County in the north on the Canadian border to Thurston and Pierce counties to the south. Other key metropolitan areas within the Puget Sound region include Bellingham (Whatcom County), Burlington (Skagit County), Everett (Snohomish County), Seattle (King County), Tacoma (Pierce County) and Olympia, the state capital (Thurston County).
Quin Ventures is a fintech focused on financial wellness and lifestyle protection for consumers nationwide. First FederalNorthwest's limited partnership investments include Canapi Ventures Fund, L.P., BankTech Ventures, L.P., and JAM FINTOP Blockchain, L.P., which invest in fintech-related business with a focus on developing digital solutions applicable to the banking industry.
First Northwest is significantly affected by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by a number ofseveral factors, including interest rates paid on competing time deposits, alternative investment options available alternative investments,to our customers, account maturities, the number and quality of our deposit originators, digital delivery systems, branding and customer acquisition, and the overall level of personal income and savings.savings in the markets where we do business. Lending activities are influenced by the demand for funds, our credit policies, the number and quality of our lenders and credit underwriters, digital delivery systems, branding and customer acquisition, and regional economic cycles.
Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income which is the income that we earnearned on our loans and investments and interest expense which is the interest that we paypaid on our deposits and borrowings. Changes in levels of interest rates and cash flows from existing assets and liabilities affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing
An offset to net interest income is the provision for loan losses, which represents the periodic charge to operations whichthat is required to adequately provide for probable losses inherent in our loan portfolio. As a loan's risk rating improves, property values increase, or recoveries of amounts previously charged off are received, aportfolio through our allowance for loan losses. A recapture of previously recognized provision for loan losses may be added to net interest income.
Noninterest expenses we incur in operating our business consist of salaries and employee benefits and expenses,benefit costs, occupancy and equipment expenses, federal deposit insurance premiums and regulatory assessments, data processing expenses, marketing and customer acquisition expenses, professional fees, expenses related to real estate and personal property owned, and other miscellaneous expenses.
Impact of COVID-19 Pandemic. The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. We anticipate continued improvements in commercial and consumer activity and the U.S. economy. As of September 30, 2021, the governor of Washington removed restrictions initially set in place, allowing businesses to return to full capacity.
We recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue through the remainder of 2022, as new COVID-19 variant infections increase and new restrictions are mandated. Commercial activity has improved but has not returned to the levels existing prior to the outbreak of the pandemic, which may result in our customers’ inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic and resulting supply chain issues have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Our borrowing base includes customers in industries such as hospitality; restaurant and food services; and lessors of commercial real estate to hospitality, restaurant, and retail establishments, all of which have been significantly impacted by the COVID-19 pandemic. At March 31, 2022, the Company’s exposure as a percent of the total loan portfolio to these industries was 4.0%, 0.3%, and 4.0%, respectively. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic. We continue to monitor these customers closely.
We have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities, including increases in liquidity and managing our assets and liabilities in order to maintain a strong capital position; however, future economic conditions are subject to significant uncertainty. Uncertainties associated with the pandemic include the duration of the COVID-19 outbreak and any related variant infections, the availability and effectiveness of COVID-19 vaccines, and the impact on our customers, employees, vendors and the economy. While uncertainty still exists, we believe we are well-positioned to operate effectively through the present economic environment.
We continue to provide banking and financial services to our customers, having returned to regular lobby and drive-thru access at all our branch locations in May 2021. In addition, we continue to provide access to banking and financial services through online banking, Interactive Teller Machines ("ITMs"), Automated Teller Machines ("ATMs"), and by telephone. We continue to take additional precautions within all our locations, including providing personal protection equipment and enhanced cleaning procedures, to ensure the safety of our customers and our employees.
We provided assistance to many small businesses applying for the SBA's Paycheck Protection Program ("PPP") funding. We processed $32.2 million of loans for 515 customers through the initial round of SBA PPP funding during 2020 with an average loan amount of $63,000. We processed $35.0 million of loans for 427 customers during the second round of SBA PPP funding with an average loan amount of $82,000. Payments by borrowers on these loans can be deferred up to sixteen months after the note date, and interest, at 1%, will continue to accrue during the deferment period. Loans can be forgiven in whole or part (up to full principal and any accrued interest). We partnered with a third-party financial technology provider to assist our borrowers with the loan forgiveness application process. As of March 31, 2022, $32.1 million, or 99.7%, of the first-round loans were forgiven and $27.9 million, or 79.7%, of second-round loans were forgiven.
Critical Accounting Policies
Effective January 1, 2022, the Bank elected to measure servicing rights using the fair value method of accounting. We record servicing rights on loans originated and subsequently sold into the secondary market. We stratify our capitalized servicing rights based on the type, term and interest rates of the underlying loans. Servicing rights are measured at fair value at each reporting date with the change reported in earnings. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. If our assumptions prove to be incorrect, the value of our mortgage servicing rights could be negatively affected.
There arewere no other material changes to the critical accounting policies as disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017.December 31, 2021.
Comparison of Financial Condition at September 30, 2017March 31, 2022 and June 30, 2017
Assets
. Total assets increasedCash and cash equivalents decreased by $43.5 million, or 5.8%34.5%, to $1.2 billion at September 30, 2017, from $1.1 billion at June 30, 2017, primarily due$82.5 million as of March 31, 2022, compared to an increase$126.0 million as of $60.7 million, or 21.6%, inDecember 31, 2021. Excess cash was deployed into the investment securitiesand loan portfolios as the Bank continued to $341.2 million at September 30, 2017, from $280.5 million at June 30, 2017. The increase in investment securities was part of management's strategic plan to leverage low cost deposits and borrowings to generate additional interest income from investments.
Net loans, excluding loans held for sale, remained relatively stable, increasing $238,000increased $20.3 million to $734.2$1.37 billion at March 31, 2022, from $1.35 billion at December 31, 2021. During the three months ended March 31, 2022, multi-family loans increased $31.3 million at September 30, 2017 from $734.0as $16.6 million at June 30, 2017, a result of new loan originations partially offset by normal amortization, prepayment activity, and one- to four-family residential sales and commercial real estate loan participations. One- to four-family residential, commercial real estate, home equity, and commercial business loans decreased $4.6 million, $7.2 million, $810,000, and $688,000, respectively, while multi-family,acquisition-renovation construction and land,$13.6 million of commercial construction loans transitioned into amortizing loans. Auto and other consumer loans increased $888,000, $10.4$23.4 million, as a result of a $16.0 million purchase of a pool of manufactured home loans, $5.9 million in individual manufactured home loan purchases, and a net increase in auto loans of $2.4 million offset by payment activity. One- to four-family residential loans decreased $3.9 million as payment of loans exceeded originations during the current quarter. Commercial business loans decreased $25.3 million, mainly as the result of a decrease in Northpointe Mortgage Participation Program of $26.3 million and $2.3 million, respectively,Paycheck Protection Program (“PPP”) loans paid off during the quarter.
Construction and land loans increased $10.4decreased $15.3 million, or 14.5%6.8%, to $82.0$209.4 million at September 30, 2017March 31, 2022, from $71.6$224.7 million at June 30, 2017, asDecember 31, 2021. Our construction loans are geographically dispersed throughout Western Washington with one loan in Oregon and two loans in Idaho. We manage our construction lending by utilizing a resultlicensed third-party vendor to assist us in monitoring our construction projects. We continue to monitor the projects currently in our portfolio to determine the impact of our strategic decisionCOVID-19 on completion. As of the date of this report, we have no reason to focus on increasingbelieve that any of the projects in process will not be completed. At March 31, 2022, acquisition-renovation loans of $31.2 million were included in the construction loan origination activitytotal compared to $51.1 million at December 31, 2021. These commercial acquisition-renovation loans represent financing primarily for the acquisition of multi-family properties with a construction component used for the renovation of common areas and specific units of the building. Given the construction component of these loans we are required to report them as construction under regulatory guidelines; however, we consider these loans to be lower risk than typical ground-up construction projects.
We monitor real estate values and general economic conditions in our market areas, continuedin addition to improve. Our construction loans are geographically disbursed throughoutassessing the State of Washington and, as a result, these loans are susceptible to risks that may be different than the risks of construction lending in our primary market area. We manage allstrength of our borrowers, including their equity contributions to a project, to prudently underwrite construction loans. We continually assess our lending by utilizing a licensed third party vendorstrategies across all product lines and markets within which we do business to assist us in monitoring our construction projects throughout the Stateimprove earnings while also prudently managing credit risk.
The following tables show our construction commitments by type and geographic concentrations at the dates indicated:
March 31, 2022 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Idaho | Total | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Construction Commitment | ||||||||||||||||||||||||
One- to four-family residential | $ | 36,886 | $ | 65,326 | $ | 4,983 | $ | — | $ | — | $ | 107,195 | ||||||||||||
Multi-family residential | — | 154,503 | 5,798 | 415 | 3,592 | 164,308 | ||||||||||||||||||
Commercial acquisition-renovation | 2,934 | 31,304 | — | — | — | 34,238 | ||||||||||||||||||
Commercial real estate | 9,078 | 45,054 | — | — | — | 54,132 | ||||||||||||||||||
Total commitment | $ | 48,898 | $ | 296,187 | $ | 10,781 | $ | 415 | $ | 3,592 | $ | 359,873 | ||||||||||||
Construction Funds Disbursed | ||||||||||||||||||||||||
One- to four-family residential | $ | 13,600 | $ | 31,015 | $ | 1,052 | $ | — | $ | — | $ | 45,667 | ||||||||||||
Multi-family residential | — | 80,953 | 2,438 | 8 | 1,805 | 85,204 | ||||||||||||||||||
Commercial acquisition-renovation | 2,445 | 28,742 | — | — | — | 31,187 | ||||||||||||||||||
Commercial real estate | 5,883 | 30,682 | — | — | — | 36,565 | ||||||||||||||||||
Total disbursed | $ | 21,928 | $ | 171,392 | $ | 3,490 | $ | 8 | $ | 1,805 | $ | 198,623 | ||||||||||||
Undisbursed Commitment | ||||||||||||||||||||||||
One- to four-family residential | $ | 23,286 | $ | 34,311 | $ | 3,931 | $ | — | $ | — | $ | 61,528 | ||||||||||||
Multi-family residential | — | 73,550 | 3,360 | 407 | 1,787 | 79,104 | ||||||||||||||||||
Commercial acquisition-renovation | 489 | 2,562 | — | — | — | 3,051 | ||||||||||||||||||
Commercial real estate | 3,195 | 14,372 | — | — | — | 17,567 | ||||||||||||||||||
Total undisbursed | $ | 26,970 | $ | 124,795 | $ | 7,291 | $ | 407 | $ | 1,787 | $ | 161,250 | ||||||||||||
Land Funds Disbursed | ||||||||||||||||||||||||
One- to four-family residential | $ | 3,870 | $ | 3,609 | $ | 190 | $ | — | $ | — | $ | 7,669 | ||||||||||||
Commercial real estate | — | 3,103 | — | — | — | 3,103 | ||||||||||||||||||
Total disbursed for land | $ | 3,870 | $ | 6,712 | $ | 190 | $ | — | $ | — | $ | 10,772 | ||||||||||||
(1) Includes Clallam and Jefferson counties. |
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. |
December 31, 2021 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Total | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Construction Commitment | ||||||||||||||||||||
One- to four-family residential | $ | 32,785 | $ | 57,050 | $ | 4,430 | $ | — | $ | 94,265 | ||||||||||
Multi-family residential | — | 182,151 | 4,095 | 8,435 | 194,681 | |||||||||||||||
Commercial acquisition-renovation | 2,938 | 36,536 | 16,638 | — | 56,112 | |||||||||||||||
Commercial real estate | 12,489 | 50,372 | 2,535 | — | 65,396 | |||||||||||||||
Total commitment | $ | 48,212 | $ | 326,109 | $ | 27,698 | $ | 8,435 | $ | 410,454 | ||||||||||
Construction Funds Disbursed | ||||||||||||||||||||
One- to four-family residential | $ | 10,242 | $ | 28,929 | $ | 562 | $ | — | $ | 39,733 | ||||||||||
Multi-family residential | — | 79,707 | 2,414 | 7,534 | 89,655 | |||||||||||||||
Commercial acquisition-renovation | 2,449 | 32,789 | 15,861 | — | 51,099 | |||||||||||||||
Commercial real estate | 3,486 | 29,484 | 2,701 | — | 35,671 | |||||||||||||||
Total disbursed | $ | 16,177 | $ | 170,909 | $ | 21,538 | $ | 7,534 | $ | 216,158 | ||||||||||
Undisbursed Commitment | ||||||||||||||||||||
One- to four-family residential | $ | 22,543 | $ | 28,121 | $ | 3,868 | $ | — | $ | 54,532 | ||||||||||
Multi-family residential | — | 102,444 | 1,681 | 901 | 105,026 | |||||||||||||||
Commercial acquisition-renovation | 489 | 3,747 | 777 | — | 5,013 | |||||||||||||||
Commercial real estate | 9,003 | 20,888 | (166 | ) | — | 29,725 | ||||||||||||||
Total undisbursed | $ | 32,035 | $ | 155,200 | $ | 6,160 | $ | 901 | $ | 194,296 | ||||||||||
Land Funds Disbursed | ||||||||||||||||||||
One- to four-family residential | $ | 3,502 | $ | 3,556 | $ | 191 | $ | — | $ | 7,249 | ||||||||||
Commercial real estate | — | 1,302 | — | — | 1,302 | |||||||||||||||
Total disbursed for land | $ | 3,502 | $ | 4,858 | $ | 191 | $ | — | $ | 8,551 | ||||||||||
| September 30, 2017 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Total | ||||||||||||
| (In thousands) | ||||||||||||||||
| Construction Commitment | ||||||||||||||||
| One- to four-family residential | $ | 18,581 | $ | 13,849 | $ | — | $ | 32,430 | ||||||||
| Multi-family residential | — | 56,932 | — | 56,932 | ||||||||||||
| Commercial real estate | 1,146 | 17,945 | 9,720 | 28,811 | ||||||||||||
| Total commitment | $ | 19,727 | $ | 88,726 | $ | 9,720 | $ | 118,173 | ||||||||
| Construction Funds Disbursed | ||||||||||||||||
| One- to four-family residential | $ | 11,131 | $ | 6,478 | $ | — | $ | 17,609 | ||||||||
| Multi-family residential | — | 30,467 | — | 30,467 | ||||||||||||
| Commercial real estate | 701 | 12,458 | 6,188 | 19,347 | ||||||||||||
| Total disbursed | $ | 11,832 | $ | 49,403 | $ | 6,188 | $ | 67,423 | ||||||||
| Undisbursed Commitment | ||||||||||||||||
| One- to four-family residential | $ | 7,450 | $ | 7,371 | $ | — | $ | 14,821 | ||||||||
| Multi-family residential | — | 26,465 | — | 26,465 | ||||||||||||
| Commercial real estate | 445 | 5,487 | 3,532 | 9,464 | ||||||||||||
| Total undisbursed | $ | 7,895 | $ | 39,323 | $ | 3,532 | $ | 50,750 | ||||||||
| Land Funds Disbursed | ||||||||||||||||
| One- to four-family residential | $ | 6,812 | $ | 874 | $ | — | $ | 7,686 | ||||||||
| Commercial real estate | — | 6,876 | — | 6,876 | ||||||||||||
| Total disbursed for land | $ | 6,812 | $ | 7,750 | $ | — | $ | 14,562 | ||||||||
| (1) Includes Clallam and Jefferson counties. | ||||||||||||||||
| (2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. | ||||||||||||||||
| June 30, 2017 | North Olympic Peninsula | Puget Sound Region | Other Washington | Total | ||||||||||||
| (In thousands) | ||||||||||||||||
| Construction Commitment | ||||||||||||||||
| One- to four-family residential | $ | 17,200 | $ | 9,794 | $ | — | $ | 26,994 | ||||||||
| Multi-family residential | — | 35,643 | — | 35,643 | ||||||||||||
| Commercial real estate | 1,449 | 14,935 | 9,646 | 26,030 | ||||||||||||
| Total Commitment | $ | 18,649 | $ | 60,372 | $ | 9,646 | $ | 88,667 | ||||||||
| Construction Funds Disbursed | ||||||||||||||||
| One- to four-family residential | $ | 9,744 | $ | 3,682 | $ | — | $ | 13,426 | ||||||||
| Multi-family residential | — | 26,105 | — | 26,105 | ||||||||||||
| Commercial real estate | 1,068 | 9,957 | 6,114 | 17,139 | ||||||||||||
| Total disbursed | $ | 10,812 | $ | 39,744 | $ | 6,114 | $ | 56,670 | ||||||||
| Undisbursed Commitment | ||||||||||||||||
| One- to four-family residential | $ | 7,456 | $ | 6,112 | $ | — | $ | 13,568 | ||||||||
| Multi-family residential | — | 9,538 | — | 9,538 | ||||||||||||
| Commercial real estate | 381 | 4,978 | 3,532 | 8,891 | ||||||||||||
| Total undisbursed | $ | 7,837 | $ | 20,628 | $ | 3,532 | $ | 31,997 | ||||||||
| Land Funds Disbursed | ||||||||||||||||
| One- to four-family residential | $ | 7,111 | $ | 936 | $ | — | $ | 8,047 | ||||||||
| Commercial real estate | — | 6,913 | — | 6,913 | ||||||||||||
| Total disbursed for land | $ | 7,111 | $ | 7,849 | $ | — | $ | 14,960 | ||||||||
During the three months ended September 30, 2017,March 31, 2022, the Company originated $73.3$139.8 million of loans, of which $21.6$92.3 million, or 29.5%66.1%, were originated in the Puget Sound region, $27.2 million, or 19.4%, in the North Olympic Peninsula, $51.2$9.4 million, or 69.7%, in the Puget Sound region of Washington, and $133,000, or 0.2%6.7%, in other areas throughout Washington State, and $10.9 million, or 7.8%, in Washington. Duringother states. The Company purchased an additional $16.0 million in auto loans and $21.5 million in manufactured home loans during the same period, we originated $19.4 million of one- to four-family residential loans, of which $5.8 million were sold into the secondary market.three months ended March 31, 2022. We will continue to focus on increasing lending activities from our HLC with the objective of retaining in our portfolio originations of one-evaluate opportunities to four-family residential loansacquire assets through wholesale channels in order to meetsupplement our loan growth objectives while selling off excess production into the secondary market, which we anticipate would allow us to rely less on the purchase of one- to four-family residential loan pools.
Our allowance for loan losses increased $85,000, or 1.0%, to $8.6remained $15.1 million at September 30, 2017, from $8.5 million at June 30, 2017.March 31, 2022, as no loan loss provision was recorded for the three months ended March 31, 2022. Net recoveries were $3,000 for the three-month period. The loan loss provision is made to account for growth in the loan portfolio adjusted for qualitative factors. We continue to monitor the economic impact of the COVID-19 pandemic, which is reflected in the qualitative factor adjustments. The allowance for loan losses as a percentage of total loans remained the samewas 1.1% at 1.2%both March 31, 2022 and December 31, 2021.
Nonperforming loans decreased $148,000, or 10.7%, to $1.2 million at March 31, 2022, from $1.4 million at December 31, 2021, reflecting improvements in nonperforming auto and other consumer loans of $106,000, home equity loans of $29,000, one- to four-family loans of $10,000, and commercial real estate loans of $3,000. Nonperforming loans to total loans was 0.1% at both September 30, 2017March 31, 2022 and June 30, 2017
At March 31, 2022, there were $1.8 million in restructured loans, of which $1.79 million were performing in accordance with their modified payment terms and are accruing loans. Classified loans increased $1.7 million to $14.3 million at March 31, 2022, from $12.6 million at December 31, 2021, due to the period as o
Loan charge-offs are concentrated mainly in our indirect auto loan portfolio. We stopped originating loans from one of our indirect auto loan product offerings in 2020 to reduce credit risk and future charge-off activity. We continue to monitor the program in order to prudently manage risk within the portfolio. The balance of totalindirect auto loans has remained relatively stable.decreased to $8.8 million at March 31, 2022 from $10.6 million at December 31, 2021. We believe our allowance for loan losses is adequate with normal fluctuationsto absorb the known and inherent risks of loss in the balanceoverall loan portfolio as of nonperforming assets and other credit quality measures expected as we increase our loan portfolio.
Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated
:Increase (Decrease) | ||||||||||||||||
March 31, 2022 | December 31, 2021 | Amount | Percent | |||||||||||||
(In thousands) | ||||||||||||||||
Real Estate: | ||||||||||||||||
One-to-four family | $ | 291,053 | $ | 294,965 | $ | (3,912 | ) | (1.3 | )% | |||||||
Multi-family | 203,746 | 172,409 | 31,337 | 18.2 | ||||||||||||
Commercial real estate | 370,346 | 363,299 | 7,047 | 1.9 | ||||||||||||
Construction and land | 209,395 | 224,709 | (15,314 | ) | (6.8 | ) | ||||||||||
Total real estate loans | 1,074,540 | 1,055,382 | 19,158 | 1.8 | ||||||||||||
Consumer: | ||||||||||||||||
Home equity | 39,858 | 39,172 | 686 | 1.8 | ||||||||||||
Auto and other consumer | 206,140 | 182,769 | 23,371 | 12.8 | ||||||||||||
Total consumer loans | 245,998 | 221,941 | 24,057 | 10.8 | ||||||||||||
Commercial business loans | 54,506 | 79,838 | (25,332 | ) | (31.7 | ) | ||||||||||
Total loans | 1,375,044 | 1,357,161 | 17,883 | 1.3 | ||||||||||||
Less: | ||||||||||||||||
Net deferred loan fees | 4,144 | 4,772 | (628 | ) | (13.2 | ) | ||||||||||
Premium on purchased loans, net | (14,816 | ) | (12,995 | ) | (1,821 | ) | 14.0 | |||||||||
Allowance for loan losses | 15,127 | 15,124 | 3 | — | ||||||||||||
Loans receivable, net | $ | 1,370,589 | $ | 1,350,260 | $ | 20,329 | 1.5 | |||||||||
| September 30, 2017 | June 30, 2017 | ||||||
| (In thousands) | |||||||
| Real Estate: | |||||||
| One-to-four family | $ | 323,675 | $ | 328,243 | |||
| Multi-family | 58,989 | 58,101 | |||||
| Commercial real estate | 194,813 | 202,038 | |||||
| Construction and land | 81,985 | 71,630 | |||||
| Total real estate loans | 659,462 | 660,012 | |||||
| Consumer: | |||||||
| Home equity | 35,059 | 35,869 | |||||
| Other consumer | 23,329 | 21,043 | |||||
| Total consumer loans | 58,388 | 56,912 | |||||
| Commercial business loans | 16,385 | 17,073 | |||||
| Total loans | 734,235 | 733,997 | |||||
| Less: | |||||||
| Net deferred loan fees | 858 | 904 | |||||
| Premium on purchased loans, net | (2,122 | ) | (2,216 | ) | |||
| Allowance for loan losses | 8,608 | 8,523 | |||||
| Loans receivable, net | $ | 726,891 | $ | 726,786 | |||
The following table represents nonperforming assets at the dates indicated.
| September 30, 2017 | June 30, 2017 | ||||||
| (In thousands) | |||||||
| Nonperforming loans: | |||||||
| Real estate loans: | |||||||
| One- to four-family | $ | 975 | $ | 1,042 | |||
| Commercial real estate | 403 | 426 | |||||
| Construction and land | 27 | 28 | |||||
| Total real estate loans | 1,405 | 1,496 | |||||
| Consumer loans: | |||||||
| Home equity | 377 | 398 | |||||
| Other | 12 | 21 | |||||
| Total consumer loans | 389 | 419 | |||||
| Total nonperforming loans | 1,794 | 1,915 | |||||
| Real estate owned: | |||||||
| One- to four-family | 86 | 86 | |||||
| Total real estate owned | 86 | 86 | |||||
| Repossessed assets | — | 18 | |||||
| Total nonperforming assets | $ | 1,880 | $ | 2,019 | |||
| Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.2 | % | 0.3 | % | |||
Increase (Decrease) | ||||||||||||||||
March 31, 2022 | December 31, 2021 | Amount | Percent | |||||||||||||
(In thousands) | ||||||||||||||||
Nonperforming loans: | ||||||||||||||||
Real estate loans: | ||||||||||||||||
One- to four-family | $ | 484 | $ | 494 | $ | (10 | ) | (2.0 | )% | |||||||
Commercial real estate | 68 | 71 | (3 | ) | (4.2 | ) | ||||||||||
Construction and land | 22 | 22 | — | — | ||||||||||||
Total real estate loans | 574 | 587 | (13 | ) | (2.2 | ) | ||||||||||
Consumer loans: | ||||||||||||||||
Home equity | 253 | 282 | (29 | ) | (10.3 | ) | ||||||||||
Auto and other consumer | 406 | 512 | (106 | ) | (20.7 | ) | ||||||||||
Total consumer loans | 659 | 794 | (135 | ) | (17.0 | ) | ||||||||||
Total nonperforming assets | $ | 1,233 | $ | 1,381 | $ | (148 | ) | (10.7 | ) | |||||||
Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.1 | % | 0.1 | % | 0.0 | % | — | |||||||||
Investment securities increased $60.7$33.5 million, or 21.6%9.7%, to $341.2$377.7 million at September 30, 2017,March 31, 2022, from $280.5$344.2 million at June 30, 2017, primarilyDecember 31, 2021, due to purchases, prepayments, and amortization. Our management made a strategic decision during the quarter ended September 30, 2017 to leverage our capital using a combination of cash received from our growth in customer deposits and additional borrowings from the Federal Home Loan Bank ("FHLB") to purchase various liquid investment securities to generate additional net interest income. The majority of investments purchased during the quarter have variable rates, generally resetting quarterly based on a specified index and margin, and are expected to closely match changes in short-term borrowing rates. The average repricing term of our investment securities portfolio was estimated at 3.5 years as of
The investment portfolio contains 84.1%was composed of 45.0% in amortizing securities at September 30, 2017,March 31, 2022 and the43.0% at December 31, 2021. The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is generally affectedimpacted by changingprevailing mortgage interest rates. Management continues tomaintains a focus on improvingenhancing the mix of earning assets by originating loans and decreasing securities as a percentage of earning assets; however, we maycontinue to purchase investment securities as a source of additional interest income as part of our leveraging strategyincome. Securities are sold to provide liquidity, improve long-term portfolio yields, reduce LIBOR risk, and alsomanage duration in lieu of carrying higher cash
Liabilities. Total liabilities increased $62.4 million, or 6.9%, to $972.4 million$1.77 billion at September 30, 2017,March 31, 2022, from $910.0 million$1.73 billion at June 30, 2017,December 31, 2021, primarily the result ofdue to an increase in FHLB borrowings and customer deposits. FHLB borrowings increased $34.3borrowing of $65.0 million, or 44.3%offset by a decrease in deposits of $31.2 million.
Deposit balances decreased 2.0%, to $111.7$1.55 billion at March 31, 2022, from $1.58 billion at December 31, 2021. There was a $2.7 million at September 30, 2017, from $77.4increase in savings accounts offset by a $16.0 million at June 30, 2017, as we utilized FHLB short-term Fed Funds borrowingsdecrease in money market accounts and a $9.7 million decrease in demand deposit accounts, and certificates of deposits decreased $8.2 million during the quarterperiod. A runoff in commercial and public fund account balances of $44.1 million was partially offset by an increase in consumer account balances of $13.0 million. We also utilize brokered certificates of deposit ("brokered CDs") as an additional funding source in order to manage our cash flow needscost of funds, reduce our reliance on public funds deposits, and partially fundmanage interest rate risk. Brokered CDs totaling $65.7 million were included in the purchase$239.0 million balance of investment securities. FHLB short-term Fed Funds borrowings increased to $51.7 million at September 30, 2017 from $17.4 million at June 30, 2017, while long-term FHLB advances remained at $60.0 million at both September 30, 2017 and June 30, 2017. Customer deposits increased $27.2 million, or 3.3%, to $850.9 million at September 30, 2017, from $823.8 million at June 30, 2017, the result of an increase of $9.3 million, or 3.8%, in transaction accounts, $19.7 million, or 9.3%, in certificates of deposit and $4.2at March 31, 2022.
FHLB advances increased 81.3% to $145.0 million or 4.3%, in savings accounts, partially offset by a decrease of $6.0at March 31, 2022, from $80.0 million or 2.3%, in money market accounts. Deposit account increases were primarily the result of our continuing effortsat December 31, 2021. We increased short-term advances to expand commercial and consumerreplace liquidity lost with deposit relationships in Silverdale and Bellingham, Washington, as well as within our historic Clallam and Jefferson County, Washington locations.
Equity
. Total shareholders' equityComparison of Results of Operations for the Three Months Ended September 30, 2017March 31, 2022 and 2016
General.
Net incomeNet Interest Income. Net interest income increased $2.0 million to $15.5 million for the three months ended September 30, 2016, primarilyMarch 31, 2022, from $13.5 million for the three months ended March 31, 2021. This increase was mainly the result of an increase in interest income related to an increase in the average volumeearning assets of loans receivable.
The average balance of loans receivable. The cost of average interest-bearing liabilities increased 11 basis points to 0.79%0.43% for the three months ended September 30, 2017,March 31, 2022, compared to 0.68%0.40% for the same period in the priorlast year, due primarily to an increase in deposit costsborrowing rates of 85 basis points related to 0.52%the issuance of subordinated debt offset by a decrease in rates on interest-bearing deposits of 10 basis points. Total cost of funds increased 2 basis points to 0.34% for the three months ended September 30, 2017 compared to 0.41%March 31, 2022, from 0.32% for the same period in 2016.
Interest Income.
Totalinterest income increasedThe following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:
| Three Months Ended September 30, | |||||||||||||||||
| 2017 | 2016 | ||||||||||||||||
Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase/ (Decrease) in Interest Income | |||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Loans receivable, net | $ | 727,879 | 4.36 | % | $ | 629,261 | 4.27 | % | $ | 1,209 | |||||||
| Investment securities | 109,420 | 2.80 | 95,778 | 2.71 | 116 | ||||||||||||
| Mortgage-backed securities | 205,941 | 2.49 | 215,991 | 2.08 | 156 | ||||||||||||
| FHLB stock | 5,324 | 2.70 | 3,891 | 3.60 | 1 | ||||||||||||
| Interest-bearing deposits in banks | 10,104 | 1.35 | 15,148 | 0.34 | 21 | ||||||||||||
| Total interest-earning assets | $ | 1,058,668 | 3.79 | $ | 960,069 | 3.56 | $ | 1,503 | |||||||||
Three Months Ended March 31, | ||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||
Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase (Decrease) in Interest Income | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Loans receivable, net | $ | 1,330,177 | 4.43 | % | $ | 1,132,194 | 4.43 | % | $ | 1,995 | ||||||||||
Investment securities | 359,436 | 2.57 | 368,737 | 2.21 | 241 | |||||||||||||||
FHLB stock | 5,311 | 3.97 | 3,809 | 4.73 | 7 | |||||||||||||||
Interest-earning deposits in banks | 82,780 | 0.19 | 44,576 | 0.12 | 25 | |||||||||||||||
Total interest-earning assets | $ | 1,777,704 | 3.86 | % | $ | 1,549,316 | 3.78 | % | $ | 2,268 | ||||||||||
Interest Expense.
Total interest expense increasedDuring the three months ended March 31, 2022, interest expense decreased on certificates of deposit due to a decrease in the average balancebalances of $53.4 million, along with a decrease in the average rates paid of 18 basis points, compared to the three months ended March 31, 2021. During the same period, the average balances of money market and savings accounts increased $126.7 million and $21.1 million, respectively, while the average rate paid decreased 4 basis points for both categories, resulting in comparatively minor changes to interest expense. Interest-bearing demand account average balances increased $34.8 million and the average rate paid on, certificates of deposit.increased 2 basis points, resulting in a minor increase to interest expense. The average balancecost of certificates ofinterest-bearing deposit increased $59.4 millionproducts decreased to $223.3 million0.24% for the three months ended September 30, 2017March 31, 2022, from $163.8 million0.34% for the three months ended September 30, 2016,March 31, 2021, due in large part to the expiration of promotional rates and a shift in deposit mix to higher levels of transaction accounts. Borrowing costs increased due to the issuance of subordinated debt in March 2021 and increases in both the average balance and cost increased 14 bps to 1.23% for the three months ended September 30, 2017 asof FHLB advances compared to 1.09% for the same period in 2016. Comparing those same periods, the average balance of money market accounts decreased $4.2 million, while the average balances of both transaction and savings accounts increased $5.3 million and $6.2 million, respectively. Increases in the average cost and balances of deposits were primarily the result of pricing promotions and the development of consumer and commercial customer relationships as we continue to focus on increasing our customer deposit base in new and existing markets.
The following table details average balances, cost of funds and the change in interest expense for the periods shown:
| Three Months Ended September 30, | |||||||||||||||||
| 2017 | 2016 | Increase/ (Decrease) in Interest Expense | |||||||||||||||
Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Savings accounts | $ | 100,718 | 0.06 | % | $ | 94,493 | 0.04 | % | $ | 4 | |||||||
| Transaction accounts | 111,675 | 0.01 | 106,412 | 0.02 | — | ||||||||||||
| Money market accounts | 262,779 | 0.31 | 267,027 | 0.28 | 19 | ||||||||||||
| Certificates of deposit | 223,253 | 1.23 | 163,819 | 1.09 | 241 | ||||||||||||
| Borrowings | 101,476 | 2.64 | 67,921 | 3.19 | 127 | ||||||||||||
| Total interest-bearing liabilities | $ | 799,901 | 0.79 | $ | 699,672 | 0.68 | $ | 391 | |||||||||
Three Months Ended March 31, | ||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||
Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | Increase (Decrease) in Interest Expense | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Transaction accounts | $ | 196,154 | 0.04 | % | $ | 161,398 | 0.02 | % | $ | 10 | ||||||||||
Money market accounts | 587,806 | 0.21 | 461,080 | 0.25 | 12 | |||||||||||||||
Savings accounts | 194,721 | 0.05 | 173,647 | 0.09 | (14 | ) | ||||||||||||||
Certificates of deposit | 242,642 | 0.63 | 295,989 | 0.81 | (225 | ) | ||||||||||||||
FHLB advances | 82,611 | 1.49 | 55,437 | 1.38 | 113 | |||||||||||||||
Subordinated debt | 39,282 | 4.07 | 3,192 | 3.13 | 369 | |||||||||||||||
Total interest-bearing liabilities | $ | 1,343,216 | 0.43 | % | $ | 1,150,743 | 0.40 | % | $ | 265 | ||||||||||
Provision for Loan Losses.
The following table details activity and information related to the allowance for loan losses for the periods shown:
| Three Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| (Dollars in thousands) | |||||||
| Net charge-offs | $ | 85 | $ | 93 | |||
| Allowance for loan losses | 8,608 | 7,682 | |||||
| Allowance for losses as a percentage of total gross loans receivable at the end of this period | 1.2 | % | 1.2 | % | |||
| Total nonaccruing loans | 1,794 | 2,865 | |||||
| Allowance for loan losses as a percentage of nonaccrual loans at end of period | 479.8 | % | 268.1 | % | |||
| Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.2 | % | 0.4 | % | |||
| Total loans | $ | 734,235 | $ | 670,175 | |||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
(Dollars in thousands) | ||||||||
Provision for loan losses | $ | — | $ | 500 | ||||
Net recoveries (charge-offs) | 3 | (82 | ) | |||||
Allowance for loan losses | 15,127 | 14,265 | ||||||
Allowance for losses as a percentage of total gross loans receivable at period end | 1.1 | % | 1.2 | % | ||||
Total nonaccrual loans | 1,233 | 2,135 | ||||||
Allowance for loan losses as a percentage of nonaccrual loans at period end | 1226.8 | % | 668.1 | % | ||||
Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.1 | % | 0.2 | % | ||||
Total loans | $ | 1,375,044 | $ | 1,168,340 | ||||
Noninterest Income.
Noninterest incomeThe following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:
| Three Months Ended September 30, | Increase (Decrease) | |||||||||||||
| 2017 | 2016 | Amount | Percent | |||||||||||
| (Dollars in thousands) | ||||||||||||||
| Loan and deposit service fees | $ | 913 | $ | 913 | $ | — | — | % | ||||||
| Mortgage servicing fees, net of amortization | 114 | 63 | 51 | 81.0 | ||||||||||
| Net gain on sale of loans | 377 | 269 | 108 | 40.1 | ||||||||||
| Net gain on sale of investment securities | 136 | — | 136 | 100.0 | ||||||||||
| Increase in cash surrender value of bank-owned life insurance | 158 | 170 | (12 | ) | (7.1 | ) | ||||||||
| Other income | — | 29 | (29 | ) | (100.0 | ) | ||||||||
| Total noninterest income | $ | 1,698 | $ | 1,444 | $ | 254 | 17.6 | % | ||||||
Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||
2022 | 2021 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Loan and deposit service fees | $ | 1,173 | $ | 837 | $ | 336 | 40.1 | % | ||||||||
Sold loan servicing fees | 432 | 30 | 402 | 1,340.0 | ||||||||||||
Net gain on sale of loans | 253 | 1,337 | (1,084 | ) | (81.1 | ) | ||||||||||
Net gain on sale of investment securities | 126 | — | 126 | 100.0 | ||||||||||||
Increase in cash surrender value of bank-owned life insurance | 252 | 244 | 8 | 3.3 | ||||||||||||
Other income | 167 | 256 | (89 | ) | (34.8 | ) | ||||||||||
Total noninterest income | $ | 2,403 | $ | 2,704 | $ | (301 | ) | (11.1 | )% | |||||||
Noninterest Expense.
Noninterest expense increasedThe following table provides an analysis of the changes in the components of noninterest expense for the periods shown:
| Three Months Ended September 30, | Increase (Decrease) | |||||||||||||
| 2017 | 2016 | Amount | Percent | |||||||||||
| (Dollars in thousands) | ||||||||||||||
| Compensation and benefits | $ | 4,466 | $ | 4,160 | $ | 306 | 7.4 | % | ||||||
| Real estate owned and repossessed assets expense (income), net | 8 | 39 | (31 | ) | (79.5 | ) | ||||||||
| Data processing | 604 | 764 | (160 | ) | (20.9 | ) | ||||||||
| Occupancy and equipment | 1,022 | 897 | 125 | 13.9 | ||||||||||
| Supplies, postage, and telephone | 211 | 150 | 61 | 40.7 | ||||||||||
| Regulatory assessments and state taxes | 128 | 134 | (6 | ) | (4.5 | ) | ||||||||
| Advertising | 142 | 129 | 13 | 10.1 | ||||||||||
| Professional fees | 466 | 357 | 109 | 30.5 | ||||||||||
| FDIC insurance premium | 69 | 119 | (50 | ) | (42.0 | ) | ||||||||
| Other | 691 | 711 | (20 | ) | (2.8 | ) | ||||||||
| Total | $ | 7,807 | $ | 7,460 | $ | 347 | 4.7 | % | ||||||
Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||
2022 | 2021 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Compensation and benefits | $ | 8,803 | $ | 7,295 | $ | 1,508 | 20.7 | % | ||||||||
Data processing | 1,772 | 1,333 | 439 | 32.9 | ||||||||||||
Occupancy and equipment | 1,167 | 1,029 | 138 | 13.4 | ||||||||||||
Supplies, postage, and telephone | 313 | 242 | 71 | 29.3 | ||||||||||||
Regulatory assessments and state taxes | 361 | 261 | 100 | 38.3 | ||||||||||||
Advertising | 752 | 445 | 307 | 69.0 | ||||||||||||
Professional fees | 559 | 522 | 37 | 7.1 | ||||||||||||
FDIC insurance premium | 223 | 148 | 75 | 50.7 | ||||||||||||
Other expense | 881 | 819 | 62 | 7.6 | ||||||||||||
Total noninterest expense | $ | 14,831 | $ | 12,094 | $ | 2,737 | 22.6 | % | ||||||||
Provision for Income Tax.
An income tax expense ofAverage Balances, Interest and Average Yields/Cost
The following table setstables set forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest‑earninginterest-earning assets and interest expense on average interest‑bearinginterest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest‑earninginterest-earning assets), and the ratio of average interest‑earninginterest-earning assets to average interest-bearing liabilities. Also presented areis the weighted average yieldsyield on interest-earning assets, rates paid on interest-bearing liabilities and the resultantnet spread at September 30, 2017as of March 31, 2022 and 2016.2021. Income and all average balances are monthly average balances, which management deems to be not materially different than daily averages. NonaccruingNonaccrual loans have been included in the table as loans carrying a zero yield.
Three Months Ended March 31, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Average | Interest | Average | Interest | |||||||||||||||||||||
Balance | Earned/ | Yield/ | Balance | Earned/ | Yield/ | |||||||||||||||||||
Outstanding | Paid | Rate | Outstanding | Paid | Rate | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans receivable, net (1) | $ | 1,330,177 | $ | 14,536 | 4.43 | % | $ | 1,132,194 | $ | 12,541 | 4.43 | % | ||||||||||||
Investment securities | 359,436 | 2,275 | 2.57 | 368,737 | 2,034 | 2.21 | ||||||||||||||||||
FHLB dividends | 5,311 | 52 | 3.97 | 3,809 | 45 | 4.73 | ||||||||||||||||||
Interest-earning deposits in banks | 82,780 | 38 | 0.19 | 44,576 | 13 | 0.12 | ||||||||||||||||||
Total interest-earning assets (2) | 1,777,704 | 16,901 | 3.86 | 1,549,316 | 14,633 | 3.78 | ||||||||||||||||||
Noninterest-earning assets | 122,013 | 96,490 | ||||||||||||||||||||||
Total average assets | $ | 1,899,717 | $ | 1,645,806 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 196,154 | $ | 17 | 0.04 | $ | 161,398 | $ | 7 | 0.02 | ||||||||||||||
Money market accounts | 587,806 | 298 | 0.21 | 461,080 | 286 | 0.25 | ||||||||||||||||||
Savings accounts | 194,721 | 26 | 0.05 | 173,647 | 40 | 0.09 | ||||||||||||||||||
Certificates of deposit | 242,642 | 376 | 0.63 | 295,989 | 601 | 0.81 | ||||||||||||||||||
Total deposits | 1,221,323 | 717 | 0.24 | 1,092,114 | 934 | 0.34 | ||||||||||||||||||
FHLB borrowings | 82,611 | 304 | 1.49 | 55,437 | 191 | 1.38 | ||||||||||||||||||
Subordinated debt | 39,282 | 394 | 4.07 | 3,192 | 25 | 3.13 | ||||||||||||||||||
Total interest-bearing liabilities | 1,343,216 | 1,415 | 0.43 | 1,150,743 | 1,150 | 0.40 | ||||||||||||||||||
Noninterest-bearing deposits | 328,304 | 283,204 | ||||||||||||||||||||||
Other noninterest-bearing liabilities | 38,742 | 25,688 | ||||||||||||||||||||||
Total average liabilities | 1,710,262 | 1,459,635 | ||||||||||||||||||||||
Average equity | 189,455 | 186,171 | ||||||||||||||||||||||
Total average liabilities and equity | $ | 1,899,717 | $ | 1,645,806 | ||||||||||||||||||||
Net interest income | $ | 15,486 | $ | 13,483 | ||||||||||||||||||||
Net interest rate spread | 3.43 | 3.38 | ||||||||||||||||||||||
Net earning assets | $ | 434,488 | $ | 398,573 | ||||||||||||||||||||
Net interest margin (3) | 3.53 | 3.48 | ||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 132.3 | % | 134.6 | % | ||||||||||||||||||||
(1) The average loans receivable, net balances include nonaccrual loans. (2) Includes interest-earning deposits (cash) at other financial institutions. (3) Net interest income divided by average interest-earning assets. | |||||||||||||||||||||
| At September 30, 2017 | Three Months Ended September 30, | |||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
Yield/ Rate | Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | ||||||||||||||||||
| Interest-earning assets: | (Dollars in thousands) | |||||||||||||||||||||||
Loans receivable, net (1) | 4.35 | % | $ | 727,879 | $ | 7,928 | 4.36 | % | $ | 629,261 | $ | 6,719 | 4.27 | % | ||||||||||
| Investment securities | 2.29 | 109,420 | 765 | 2.80 | 95,778 | 649 | 2.71 | |||||||||||||||||
| Mortgage-backed securities | 2.66 | 205,941 | 1,280 | 2.49 | 215,991 | 1,124 | 2.08 | |||||||||||||||||
| FHLB dividends | 2.50 | 5,324 | 36 | 2.70 | 3,891 | 35 | 3.60 | |||||||||||||||||
| Interest-bearing deposits in banks | 0.99 | 10,104 | 34 | 1.35 | 15,148 | 13 | 0.34 | |||||||||||||||||
Total interest-earning assets (2) | 3.72 | 1,058,668 | 10,043 | 3.79 | 960,069 | 8,540 | 3.56 | |||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings accounts | 0.05 | $ | 100,718 | $ | 14 | 0.06 | $ | 94,493 | 10 | 0.04 | ||||||||||||||
| Transaction accounts | 0.01 | 111,675 | 4 | 0.01 | 106,412 | 4 | 0.02 | |||||||||||||||||
| Money market accounts | 0.31 | 262,779 | 206 | 0.31 | 267,027 | 187 | 0.28 | |||||||||||||||||
| Certificates of deposit | 1.26 | 223,253 | 687 | 1.23 | 163,819 | 446 | 1.09 | |||||||||||||||||
| Total deposits | 0.45 | 698,425 | 911 | 0.52 | 631,751 | 647 | 0.41 | |||||||||||||||||
| Borrowings | 2.57 | 101,476 | 669 | 2.64 | 67,921 | 542 | 3.19 | |||||||||||||||||
| Total interest-bearing liabilities | 0.70 | 799,901 | 1,580 | 0.79 | 699,672 | 1,189 | 0.68 | |||||||||||||||||
| Net interest income | $ | 8,463 | $ | 7,351 | ||||||||||||||||||||
| Net interest rate spread | 3.02 | 3.00 | 2.88 | |||||||||||||||||||||
| Net earning assets | $ | 258,767 | $ | 260,397 | ||||||||||||||||||||
Net interest margin (3) | 3.20 | 3.06 | ||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 132.3 | % | 137.2 | % | ||||||||||||||||||||
(1) The average loans receivable, net balances include nonaccruing loans. (2) Includes interest-bearing deposits (cash) at other financial institutions. (3) Net interest income divided by average interest-earning assets. | ||||||||||||||||||||||||
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
| Three Months Ended | |||||||||||
| September 30, 2017 vs. 2016 | |||||||||||
| Increase (Decrease) Due to | Total Increase | ||||||||||
| Volume | Rate | (Decrease) | |||||||||
| (In thousands) | |||||||||||
| Interest earning assets: | |||||||||||
| Loans receivable, net | $ | 1,049 | $ | 160 | $ | 1,209 | |||||
| Investments | 39 | 233 | 272 | ||||||||
| FHLB stock | 13 | (12 | ) | 1 | |||||||
Other(1) | (4 | ) | 25 | 21 | |||||||
| Total interest-earning assets | $ | 1,097 | $ | 406 | $ | 1,503 | |||||
| Interest-bearing liabilities: | |||||||||||
| Savings accounts | $ | 1 | $ | 3 | $ | 4 | |||||
| Interest-bearing transaction accounts | 1 | (1 | ) | — | |||||||
| Money market accounts | (3 | ) | 22 | 19 | |||||||
| Certificates of deposit | 162 | 79 | 241 | ||||||||
| Borrowings | 267 | (140 | ) | 127 | |||||||
| Total interest-bearing liabilities | $ | 428 | $ | (37 | ) | $ | 391 | ||||
| Net change in interest income | $ | 669 | $ | 443 | $ | 1,112 | |||||
| (1) Includes interest-bearing deposits (cash) at other financial institutions. | |||||||||||
Three Months Ended | ||||||||||||
March 31, 2022 vs. 2021 | ||||||||||||
Increase (Decrease) Due to | ||||||||||||
Volume | Rate | Total Increase (Decrease) | ||||||||||
(In thousands) | ||||||||||||
Interest-earning assets: | ||||||||||||
Loans receivable, net | $ | 1,995 | $ | — | $ | 1,995 | ||||||
Investments | (64 | ) | 305 | 241 | ||||||||
FHLB stock | 17 | (10 | ) | 7 | ||||||||
Other (1) | 11 | 14 | 25 | |||||||||
Total interest-earning assets | $ | 1,959 | $ | 309 | $ | 2,268 | ||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing demand deposits | $ | 1 | $ | 9 | $ | 10 | ||||||
Money market accounts | 76 | (64 | ) | 12 | ||||||||
Savings accounts | 4 | (18 | ) | (14 | ) | |||||||
Certificates of deposit | (111 | ) | (114 | ) | (225 | ) | ||||||
FHLB advances | 91 | 22 | 113 | |||||||||
Subordinated debt | 278 | 91 | 369 | |||||||||
Total interest-bearing liabilities | $ | 339 | $ | (74 | ) | $ | 265 | |||||
Net change in interest income | $ | 1,620 | $ | 383 | $ | 2,003 | ||||||
(1) Includes interest-earning deposits (cash) at other financial institutions. | |||||||||
Off-Balance Sheet Activities
In the normal course of operations, First FederalFed engages in a variety of financial transactions that are not recorded in the financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For the three months ended September 30, 2017March 31, 2022 and the year ended June 30, 2017,December 31, 2021, we engaged in no off-balance sheet transactions likely to have a material effect on theour financial condition, results of operations or cash flows.
At September 30, 2017,March 31, 2022, our scheduled maturities of contractual obligations were as follows:
Within 1 Year | After 1 Year Through 3 Years | After 3 Years Through 5 Years | Beyond 5 Years | Total Balance | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Certificates of deposit | $ | 120,708 | $ | 91,726 | $ | 18,738 | $ | 21 | $ | 231,193 | |||||||||
| FHLB advances | 51,657 | 40,000 | 20,000 | 111,657 | |||||||||||||||
| Operating leases | 310 | 510 | 428 | 1,695 | 2,943 | ||||||||||||||
| Borrower taxes and insurance | 1,964 | — | — | — | 1,964 | ||||||||||||||
| Deferred compensation | 91 | 74 | 29 | 431 | 625 | ||||||||||||||
| Total contractual obligations | $ | 174,730 | $ | 132,310 | $ | 39,195 | $ | 2,147 | $ | 348,382 | |||||||||
Within | After 1 Year Through | After 3 Years Through | Beyond | Total | ||||||||||||||||
1 Year | 3 Years | 5 Years | 5 Years | Balance | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Certificates of deposit | $ | 147,258 | $ | 71,091 | $ | 20,672 | $ | — | $ | 239,021 | ||||||||||
FHLB advances | 75,000 | 35,000 | 25,000 | 10,000 | 145,000 | |||||||||||||||
Subordinated debt obligation | — | — | — | 39,250 | 39,250 | |||||||||||||||
Operating leases | 803 | 1,691 | 1,777 | 4,601 | 8,872 | |||||||||||||||
Borrower taxes and insurance | 2,138 | — | — | — | 2,138 | |||||||||||||||
Deferred compensation | 123 | 383 | 78 | 497 | 1,081 | |||||||||||||||
Total contractual obligations | $ | 225,322 | $ | 108,165 | $ | 47,527 | $ | 54,348 | $ | 435,362 | ||||||||||
Commitments and Off-Balance Sheet Arrangements
The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of September 30, 2017:March 31, 2022:
Amount of Commitment Expiration | ||||||||||||||||||||
| Within | After 1 Year Through | After 3 Years Through | Beyond | Total Amounts | ||||||||||||||||
1 Year | 3 Years | 5 Years | 5 Years | Committed | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Commitments to originate loans: | ||||||||||||||||||||
Fixed-rate | $ | 3,028 | $ | — | $ | — | $ | — | $ | 3,028 | ||||||||||
Variable-rate | 9,795 | — | — | — | 9,795 | |||||||||||||||
Unfunded commitments under lines of credit or existing loans | 95,067 | 30,986 | 10,666 | 123,672 | 260,391 | |||||||||||||||
Standby letters of credit | 212 | — | — | — | 212 | |||||||||||||||
Total commitments | $ | 108,102 | $ | 30,986 | $ | 10,666 | $ | 123,672 | $ | 273,426 | ||||||||||
| Amount of Commitment Expiration | |||||||||||||||||||
| Within 1 Year | After 1 Year Through 3 Years | After 3 Years Through 5 Years | Beyond 5 Years | Total Amounts Committed | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Commitments to originate loans: | |||||||||||||||||||
| Fixed-rate | $ | 110 | $ | — | $ | — | $ | — | $ | 110 | |||||||||
| Adjustable-rate | 25 | — | — | — | 25 | ||||||||||||||
| Unfunded commitments under lines of credit or existing loans | 31,884 | 12,363 | 3,849 | 42,608 | 90,704 | ||||||||||||||
| Standby letters of credit | 124 | 59 | — | — | 183 | ||||||||||||||
| Total commitments | $ | 32,143 | $ | 12,422 | $ | 3,849 | $ | 42,608 | $ | 91,022 | |||||||||
Liquidity Management
Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are usually predictable sources of funds, deposit flows, calls of investment securities and borrowed funds, and prepayments on loans and investment securities are greatly influenced by general interest rates, economic conditions and competition, which can cause those sources of funds to fluctuate.
Management regularly adjusts our investments in liquid assets based upon an assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our interest-rate risk and investment policies.
Our most liquid assets are cash and cash equivalents followed by available for saleavailable-for-sale securities. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2017,March 31, 2022, cash and cash equivalents totaled $25.0 million. Securities$82.5 million, and unpledged securities classified as available-for-sale provide additional sources of liquidity and hadwith a market value of $290.2$272.0 million at September 30, 2017. In addition, at September 30, 2017, we had FHLB stockprovided additional sources of $5.7 million and haveliquidity. We pledged collateral of $475.7 million to support borrowings from the FHLB of $111.7 million. Weand have alsoan established a borrowing arrangement with the Federal Reserve Bank of San Francisco; however, since no collateral has beenFrancisco, for which available-for-sale securities with a market value of $9.7 million were pledged as of September 30, 2017, we are currently unable to borrow funds under that borrowing arrangement.
At September 30, 2017,March 31, 2022, we had $135,000$12.8 million in loan commitments outstanding and an additional $90.9$260.6 million in undisbursed loans and standby letters of credit, including $50.8$161.3 million in undisbursed construction loan commitments.
Certificates of deposit due within one year as of September 30, 2017March 31, 2022 totaled $120.7$147.3 million, or 52.2%61.6% of certificates of deposit. Thedeposit with a weighted-average rate of 0.40%. We believe the large percentage of certificates of deposit that mature within one year reflects customers' hesitancy to invest their funds for longer periods at historically lowas market interest rates. Management believes, based on past experience, that a significant portion of our certificates of deposit will be renewed or rolled into money market accounts.rates were in decline. If these maturing deposits are not renewed, however, we will be required to seek other sources of funds, including other certificates of deposit, non-maturity deposits, and borrowings. We have the ability to attract and retain deposits by adjusting the interest rates offered.offered as well as through sales and marketing efforts in the markets we serve. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on certificates of deposit. In addition, we believe that our branch network, which is presently comprised of 12 banking locations, including our HLC, located throughout our market area, and the general cash flows from our existing lending and investment activities, will affordprovide us sufficientmore than adequate long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.
The Company is a separate legal entity from the Bank and provides for its own liquidity to pay its operating expenses and other financial obligations.liquidity. At September 30, 2017,March 31, 2022, the Company, (onon an unconsolidated basis)basis, had liquid assets of $24.0$7.8 million.
Capital Resources
At September 30, 2017,March 31, 2022, shareholders' equity totaled $177.9$177.8 million, or 15.5%9.1% of total assets. Our book value per share of common stock was $15.03$17.77 at September 30, 2017,March 31, 2022, compared to $14.93$19.10 at June 30, 2017. Consistent with our goals to operate a sound and profitable organization, our policy for First Federal is to maintain its “well-capitalized” status in accordance with regulatory standards.
At September 30, 2017,March 31, 2022, the Bank and consolidated Company exceeded all regulatory capital requirements and the Bank was considered "well capitalized" under FDIC regulatory capital guidelines.
The following table provides the capital requirements and actual results for First Fed at September 30, 2017.
Actual | Minimum Capital Requirements | Minimum Required to be Well-Capitalized | ||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Tier I leverage capital (to average assets) | ||||||||||||||||||||
| Bank only | $ | 141,724 | 12.8 | % | $ | 44,169 | 4.0 | % | $ | 55,211 | 5.0 | % | ||||||||
| Consolidated company | 178,602 | 15.8 | 45,199 | 4.0 | 56,498 | 5.0 | ||||||||||||||
| Common equity tier I (to risk-weighted assets) | ||||||||||||||||||||
| Bank only | 141,724 | 18.8 | 33,907 | 4.5 | 48,976 | 6.5 | ||||||||||||||
| Consolidated company | 178,602 | 23.6 | 34,058 | 4.5 | 49,195 | 6.5 | ||||||||||||||
| Tier I risk-based capital (to risk-weighted assets) | ||||||||||||||||||||
| Bank only | 141,724 | 18.8 | 45,209 | 6.0 | 60,278 | 8.0 | ||||||||||||||
| Consolidated company | 178,602 | 23.6 | 45,411 | 6.0 | 60,548 | 8.0 | ||||||||||||||
| Total risk-based capital (to risk-weighted assets) | ||||||||||||||||||||
| Bank only | 150,552 | 20.0 | 60,278 | 8.0 | 75,348 | 10.0 | ||||||||||||||
| Consolidated company | 187,430 | 24.8 | 60,548 | 8.0 | 75,685 | 10.0 | ||||||||||||||
Actual | Minimum Capital Requirements | Minimum Required to be Well-Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Tier I leverage capital (to average assets) | $ | 200,865 | 10.6 | % | $ | 75,735 | 4.0 | % | $ | 94,669 | 5.0 | % | ||||||||||||
Common equity tier I (to risk-weighted assets) | 200,865 | 13.1 | 69,014 | 4.5 | 99,687 | 6.5 | ||||||||||||||||||
Tier I risk-based capital (to risk-weighted assets) | 200,865 | 13.1 | 92,019 | 6.0 | 122,692 | 8.0 | ||||||||||||||||||
Total risk-based capital (to risk-weighted assets) | 216,321 | 14.1 | 122,692 | 8.0 | 153,365 | 10.0 | ||||||||||||||||||
In addition to the minimum common equity Tier 1 ("CET1"), Tier 1 and total capital ratios, the Bank now has to maintain a capital conservation buffer consisting of additional CET1 capital above the required minimum 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. This newthe Bank must maintain common equity tier 1 capital ("CET1") at an amount greater than the required minimum levels plus a capital conservation buffer requirement began to be phased in starting in January 2016 at 0.625% of risk-weighted assets
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented in this report have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that general inflation may have on both short-term and long-term interest rates. Unlike most industrial companies in many other industries, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
There has not been any material change in the market risk disclosures contained in First Northwest Bancorp’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017.
(a) Evaluation of Disclosure Controls and Procedures.
An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of the Company's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial and Accounting Officer), and other members of the Company's management team as of the end of the period covered by this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2017,March 31, 2022, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in
(b) Changes in Internal Controls.
There have been no changes in the Company's internal control over financial reporting (as defined in 13a-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2017,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent every error or instance of fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. 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. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is 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; over time, controls become inadequate because of changes in
PART II - OTHER INFORMATION
From time to time, the Company is engaged in legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on the Company’s financial position or results of operations.
There have been no material changes to the Company’s risk factors see “Risk Factors”set forth in Part I. Item 1A of the Company’s Annual Report onCompany's Form 10-K for the fiscal year ended June 30, 2017. As of September 30, 2017, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.
(a) | |
Not applicable. |
(b) | |
Not applicable. |
(c) | The following table summarizes common stock repurchases during the three months ended March 31, 2022: |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans (2) | Maximum Number of Shares that May Yet Be Repurchased Under the Plans | ||||||||||||
January 1, 2022 - January 31, 2022 | 1,572 | $ | — | — | 658,370 | |||||||||||
February 1, 2022 - March 1, 2022 | — | — | — | 658,370 | ||||||||||||
March 2, 2022 - April 1, 2022 | 7,347 | — | — | 658,370 | ||||||||||||
Total | 8,919 | $ | — | — | ||||||||||||
(1) Shares repurchased by the Company during the quarter represent shares acquired from participants in connection with cancellation of restricted stock to pay withholding taxes totaling 1,572 shares, 0 shares, and 7,347 shares, respectively, for the periods indicated. | ||||||||||||||||
(2) On October 28, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 1,023,420 shares of its common stock, or approximately 10% of its shares of common stock issued and outstanding as of October 27, 2020. As of March 31, 2022, a total of 365,050 shares, or 35.7% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $17.05 per share, leaving 658,370 shares available for future purchases. | ||||||||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans | Maximum Number of Shares that May Yet Be Repurchased Under the Plans | |||||||||
| July 1, 2017 - July 31, 2017 | — | $ | — | — | 235,556 | ||||||||
| August 1, 2017 - August 31, 2017 | 54,700 | 15.87 | 54,700 | 180,856 | |||||||||
| September 1, 2017 - September 30, 2017 | 42,200 | 15.72 | 42,200 | 1,166,659 | |||||||||
| Total | 96,900 | $ | 15.81 | 96,900 | |||||||||
Not applicable.
Not applicable.
Not applicable.
Exhibit No. | Exhibit Description | Filed Herewith | Form | Original Exhibit No. | Filing Date |
| 10.1* | |||||
| X | |||||
31.1 | |||||
X | |||||
31.2 | X | ||||
32 | X | ||||
101 | The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended | ||||
| contained in Exhibit 101) | |||||
| Denotes a management contract or compensatory plan or arrangement. | |
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 NORTHWEST BANCORP Date: /s/ Matthew P. Deines President, Chief Executive Officer and Director (Principal Executive Officer) Date: /s/ Geraldine L. Bullard Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)November 8, 2017May 13, 2022Laurence J. HuethMatthew P. DeinesLaurence J. Hueth November 8, 2017May 13, 2022Regina M. WoodGeraldine L. BullardRegina M. WoodEXHIBIT INDEX