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 September 30, | |||
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"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ||||
| Emerging growth company | ||||||
Non-accelerated filer | ☒ | Smaller reporting 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, 2017,6, 2023, there were 11,839,7079,618,440 shares of common stock, $.01$0.01 par value per share, outstanding.
FORM 10-Q TABLE OF CONTENTS PART 1 - FINANCIAL INFORMATION Page Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk PART II - OTHER INFORMATION As used in this report, the terms, PART I - FINANCIAL INFORMATION FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share information) (Unaudited) September 30, 2023 December 31, 2022 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 credit losses on loans of $16,945 and $16,116) Federal Home Loan Bank (FHLB) stock, at cost Accrued interest receivable Premises and equipment, net Servicing rights on sold loans, at fair value Bank-owned life insurance, net Equity and partnership investments Goodwill and other intangible assets, net Deferred tax asset, net Prepaid expenses and other assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Borrowings 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 9,630,735 shares at September 30, 2023, and 9,703,581 shares at December 31, 2022 Additional paid-in capital Retained earnings Accumulated other comprehensive loss, 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 Nine Months Ended September 30, September 30, 2023 2022 2023 2022 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 Total interest expense Net interest income PROVISION FOR CREDIT LOSSES Provision for credit losses on loans Recapture of provision for credit losses on unfunded commitments Provision for credit losses Net interest income after provision for credit losses NONINTEREST INCOME Loan and deposit service fees Sold loan servicing fees and servicing rights mark-to-market 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 FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net income Other comprehensive (loss) income: Unrealized holding losses on investments available for sale arising during the period Income tax benefit related to unrealized holding losses on investments Amortization of unrecognized DB plan prior service cost Income tax provision related to amortization of DB plan prior service cost Unrealized holding gains (losses) on derivatives Income tax (provision) benefit related to unrealized holding gains (losses) on derivatives 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) income Comprehensive (loss) income attributable to noncontrolling interest Comprehensive (loss) income 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 September 30, (Dollars in thousands, except share information) (Unaudited) Common Stock Additional Paid-in Retained Unearned ESOP Accumulated Other Comprehensive Loss, Noncontrolling Total Shareholders' Shares Amount Capital Earnings Shares Net of Tax Interest Equity Balance at June 30, 2022 Net income Common stock issued Common stock repurchased Restricted stock award forfeitures net of grants Restricted stock awards canceled Other comprehensive loss, net of tax Share-based compensation expense ESOP shares committed to be released Cash dividends declared ($0.07 per share) Balance at September 30, 2022 Balance at June 30, 2023 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 ($0.07 per share) Balance at September 30, 2023 See selected notes to the consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Nine Months Ended September 30, 2023 and 2022 (Dollars in thousands, except share information) (Unaudited) Common Stock Additional Paid-in Retained Unearned ESOP Accumulated Other Comprehensive Loss, Noncontrolling Total Shareholders' Shares Amount Capital Earnings Shares Net of Tax Interest Equity Balance at December 31, 2021 Net income Common stock issued Common stock repurchased Restricted stock award grants net of forfeitures Restricted stock awards canceled Other comprehensive loss, net of tax Reclassification resulting from change in accounting method, net of tax Share-based compensation expense ESOP shares committed to be released Cash dividends declared ($0.21 per share) Balance at September 30, 2022 Balance at December 31, 2022 Net income Common stock repurchased Restricted stock award grants net of forfeitures Restricted stock awards canceled Other comprehensive loss, net of tax Reclassification resulting from adoption of Accounting Standards Codification 326, net of tax Close out investment in Quin Ventures Share-based compensation expense ESOP shares committed to be released Cash dividends declared ($0.21 per share) Balance at September 30, 2023 FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 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) amortization 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 Provision for credit losses on loans Recapture of provision for credit losses on unfunded commitments 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 sale of loans held for sale Change in assets and liabilities: Increase in accrued interest receivable Decrease (increase) in prepaid expenses and other assets Increase (decrease) in accrued interest payable Increase in accrued expenses and other liabilities Net cash provided by 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 of FHLB stock Early surrender of bank-owned life insurance policy Net increase in loans receivable Purchase of premises and equipment, net Capital contributions to equity and partnership investments Capital disbursements received from equity and partnership investments Capital contributions to low-income housing tax credit partnerships Capital contributions to historic tax credit partnerships Net cash used by investing activities FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 Cash flows from financing activities: Net increase in deposits Proceeds from long-term FHLB advances Repayment of long-term FHLB advances Net increase in short-term FHLB advances Net (decrease) increase in line of credit Net increase in advances from borrowers for taxes and insurance Payment of dividends Restricted stock awards canceled Repurchase of common stock Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosures of cash flow information: Cash paid for interest on deposits and borrowings Cash paid for income taxes Supplemental disclosures of noncash investing activities: Change in unrealized loss on securities available for sale Change in unrealized gain (loss) on fair value hedge Cumulative adjustment to servicing rights asset due to election of fair value option Cumulative effect of adoption of ASU 2016-13 Financial Instruments - Credit Losses on January 1, 2023 Lease liabilities arising from obtaining right-of-use assets Investment in partnership acquired through issuance of shares See selected notes to the consolidated financial statements. 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 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 Ventures"). First Northwest extended $8.0 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. Quin Ventures sold substantially all of its assets in December 2022 to Quil Ventures Inc., at which time POM returned the 29,719 shares previously issued and the Joint Venture Agreement was terminated. As part of the sale transaction, the Company received a 5% ownership stake in Quil Ventures Inc. valued at $225,000 and recorded a $1.5 million commitment receivable. In June 2023, First Northwest determined that Quin Ventures was no longer a going concern. The Company wrote off the remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods. The noncontrolling interest in Quin Ventures balance was moved to retained earnings, with no change to total shareholders' equity as a result of the transaction. 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. On August 5, 2022, First Northwest's election to be treated as a financial holding company became effective, allowing the Company to engage in activities that are financial in nature or incidental to financial activities. First Northwest and the Bank are collectively referred to as the "Company." For periods prior to June 30, 2023, Company references also include Quin Ventures. First Northwest's business activities generally are limited to passive investment activities and oversight of its investment in First The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses in Basis of presentation Principles of consolidation The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and unfunded commitments. This method resulted in recording a cumulative-effect adjustment as of the beginning of 2023 with no change to prior periods. The Company elected not to measure an ACL on accrued interest receivable on loans receivable or accrued interest receivable on investment securities available for sale as Company policy is to reverse interest income for uncollectible accrued interest receivable balances in a timely manner. Results for the reporting period beginning after January 1, 2023, are presented under ASU 2016-13, while prior period amounts were not restated and continue to be reported in accordance with previously applicable GAAP. The accounting policies for prior periods are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The accounting policies for all financial instruments impacted by the CECL adoption are as follows: Investment Securities A debt security is placed on nonaccrual status at the time any principal or payments become more than 90 days delinquent. Interest accrued, but not received for a security placed on nonaccrual, is reversed against interest income during the period that the debt security is placed on nonaccrual status. Allowance for Credit Losses on Investment Securities Management evaluates the need for an ACL on investment securities ("ACLI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For investment securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For investment securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLI is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any decline in fair value that has not been recorded through an ACLI is recognized in other comprehensive income (loss). Changes in the ACLI are recorded as provision, or reversal of provision, for credit losses expense. Losses are charged against the allowance when management believes the uncollectibility of an investment security available for sale is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on investment securities available for sale is excluded from the estimate of credit losses as interest accrued, but not received, is reversed timely in accordance with the policy for investment securities above. Loans Receivable Loans receivable include loans originated and indirect loans purchased by the Bank as well as loans acquired in business combinations. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the outstanding principal balance, net of purchased premiums and discounts, unearned discounts, and net deferred loan origination fees and costs. Accrued interest receivable for loans receivable is reported in prepaid expenses and other assets on the Consolidated Balance Sheets. Allowance for Credit Losses on Loans The ACL on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected. Loans are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance. The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Income. Accrued interest receivable on loans receivable is excluded from the estimate of credit losses. Instead, interest accrued, but not received, is reversed timely in accordance with the policy for loans receivable above. The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies. Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a Remaining Life methodology. The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment. If the present value of cash flows is less than the total recorded investment, a reserve is calculated. For each loan segment collectively measured, the baseline loss rates are calculated using a combination of the Bank's own data and peer institution data from FFIEC Call Report filings. The Bank evaluates the historical period on a quarterly basis. The baseline loss rates are applied to each loan's estimated cash flows over the life of the loan to determine the baseline loss estimate for each loan. Estimated cash flows consider the principal and interest in accordance with the contractual term of the loan and estimated prepayments. Contractual cash flows are based on the amortized cost, as adjusted for balances guaranteed by governmental entities, such as the Small Business Administration ("SBA") or the United States Department of Agriculture ("USDA"), or the unguaranteed amortized cost. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: 1) management has a reasonable expectation at the reporting date that a modification agreement will be executed with an individual borrower or 2) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Prepayments are established for each segment based on historical averages for the segments, which management believes is an accurate representation of future prepayment activity. Management reviews the adequacy of the prepayment period assumption on a quarterly basis. The CECL methodology includes consideration of the forecasted direction of the economic and business environment and its likely impact to the estimated allowance as compared to the historical losses over the reasonable and supportable time frame. Economic forecast models for the current period are uploaded to the model, which targets two forecasted macroeconomic factors, which are national gross domestic product ("GDP") and unemployment figures. Each of the forecasted DCF segments is impacted by these macroeconomic factors. Further, each of the macroeconomic factors is utilized differently by segment, including the application of lagged factors and various transformations such as percent change year over year. The Bank uses the Federal Open Market Committee ("FOMC") forecast via an application programming interface with our CECL software. FOMC provides various forecast scenarios used to determine the loan portfolio’s expected credit loss. Based on known/knowable information at the measurement date, management has determined that the FOMC scenarios and the underlying assumptions most closely align with current and expected conditions. The Bank has elected to forecast the firstfour quarters of the credit loss estimate and revert on a straight-line basis as permitted in ASC 326-20-30-9. The Bank also considers other qualitative risk factors to adjust the estimated ACL calculated by the above-mentioned model. While there are In general, management's estimate of the ACLL uses relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses on loans evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management utilizes its best judgment and information available to recognize losses on loans, future additions to the allowance may be necessary based on further declines in local and national economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s ACLL. Such agencies may require the Bank to make adjustments to the allowance based on their judgments about information available to them at the time of their examinations. The Company believes the ACLL is appropriate given the above considerations. Allowance for Credit Losses on Unfunded Commitments The Bank estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Bank has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit. The allowance methodology is similar to the ACLL, but additionally includes an estimate of the future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class. The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (reversal of provision) for credit losses on the Consolidated Statements of Income. Provision for Credit Losses The provision for credit losses as presented in the Company's Consolidated Statements of Income includes the provision for credit losses on loans and the provision for credit losses on unfunded commitments. Summary of CECL Impact: Investment Securities- As of December 31, 2022, the Company had no historical charge-off or recovery history and did not have any investment securities available for sale outstanding at the adoption date for which an other-than-temporary impairment was previously recorded. At the adoption date of ASU 2016-13, the unrealized losses present in the portfolio of investment securities available for sale were primarily due to higher market interest rates at that time making our lower coupon investments less attractive. The fair value of these securities was expected to recover as the securities approach their maturity dates. The basis of management’s conclusion was that at January 1, 2023, 23.9% of the investment securities were issued by or guaranteed by the United States government or its agencies, 30.0% were issued and guaranteed by State and local governments and the remainder of the portfolio was invested in at least investment-grade securities. As a result of the analysis, no allowance for credit losses on investment securities available for sale was recorded upon adoption. See Note 2 Investment Securities for more information. Loan Receivable- ASU 2016-13 was applied prospectively and replaced the allowance for loan losses with the ACLL on the Consolidated Balance Sheet and replaced the related provision for loan losses with the provision for credit losses on loans as presented on the Consolidated Statements of Income, net of provision for credit losses on unfunded commitments. The Bank recorded a pretax increase to the ACLL of $2.2 million to increase the reserve to the estimated credit losses at January 1, 2023 based on its CECL methodology as part of the cumulative-effect adjustment to beginning retained earnings. Upon adoption, the adjusted beginning balance of the ACLL as a percentage of loans receivable was 1.18% as compared to 1.04% at December 31, 2022 under the prior incurred loss methodology. At September 30, 2023, the ACLL as a percentage of loans receivable was 1.04%. See Note 4 - Allowance for Credit Loss on Loans for more information. Unfunded Commitments -ASU 2016-13 was applied prospectively and replaced the reserve for unfunded commitments with the ACL on unfunded commitments ("ACLUC") as included in accrued liabilities and other expenses on the Consolidated Balance Sheet and replaced the provision for unfunded commitments with the provision for credit losses on unfunded commitments as presented on the Consolidated Statements of Income, net of provision for credit losses on loans. Upon adoption, the Bank recorded a pretax increase in the beginning ACLUC of $1.5 million. Overall CECL Impact - The adoption of ASU 2016-13, included an increase to the ACLL of $2.2 million and an increase to the ACLUC of $1.5 million, which resulted in a pretax cumulative-effect adjustment of $3.7 million. The impact of this adjustment to beginning retained earnings on January 1, 2023 was $3.0 million, net of tax. Troubled Debt Restructurings In March 2022, the FASB issued ASU 2022-02,Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancing and restructuring activity by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write offs by year of origination for financing receivables and net investments in leases. This ASU is effective upon adoption of ASU 2016-13. On January 1, 2023, the Company adopted this ASU at the same time ASU 2016-13 was adopted. The Company recorded gross charge-offs of $2.7 million in the first half of 2023 and recoveries for the same period were $93,000. See table in Note 3 for additional information. As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting. In accordance with the FASB’s fair value measurement guidance in ASU 2011-04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. LIBOR In March 2020, the FASB issued ASU No.2020-04,Reference 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, which 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. On December 31, 2022, FASB issued ASU 2022-06, which deferred the sunset date for Topic 848 to December 31, 2024. The Company implemented a transition plan to identify and modify its loans and other financial instruments that were either directly or indirectly influenced by LIBOR. There was no material impact as a result of transitioning away from LIBOR for its loan and other financial instruments effective July 1, 2023. Recently issued accounting pronouncements not yet adopted Other Pronouncements In June 2022, the FASB issued ASU No.2022-03,Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring fair value, nor should the contractual restriction be recognized and measured separately. Further, this ASU requires disclosure of the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the restriction(s), and the circumstances that could cause a lapse in the restriction(s). ASU 2022-03 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal In Reclassifications 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) Mortgage-backed securities: U.S. government agency issued mortgage-backed securities (MBS agency) Non-agency issued mortgage-backed securities (MBS non-agency) Total securities available for sale The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale Item“we,” “our,”"we," "our," and “us,”"us," and “Company”"Company" refer to First Northwest Bancorp ("First Northwest"), its consolidated subsidiary and its consolidated subsidiary,former joint venture controlling interest, unless the context indicates otherwise. When we refer to “First Federal”"First Fed" or the “Bank”"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 former First Northwest joint venture. First Northwest and the Bank are collectively referred to as the "Company." For periods prior to June 30, 2023, Company references also include Quin Ventures. $ 20,609 $ 17,104 63,277 28,492 309,324 326,569 689 597 1,618,033 1,531,435 12,621 11,681 8,093 6,743 17,954 18,089 3,729 3,887 40,318 39,665 14,623 14,289 1,087 1,089 16,611 14,091 26,577 28,339 $ 2,153,545 $ 2,042,070 $ 1,657,762 $ 1,564,255 300,416 285,358 2,276 455 34,651 32,344 2,375 1,376 1,997,480 1,883,788 — — 96 97 95,658 95,508 113,579 114,424 (45,850 ) (40,543 ) (7,418 ) (7,913 ) 156,065 161,573 — (3,291 ) 156,065 158,282 $ 2,153,545 $ 2,042,070 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 $ 21,728 $ 17,778 $ 62,531 $ 48,395 3,368 2,817 9,886 7,807 524 118 1,545 202 214 142 628 313 25,834 20,855 74,590 56,717 7,699 1,251 18,261 2,764 3,185 1,400 9,092 3,020 10,884 2,651 27,353 5,784 14,950 18,204 47,237 50,933 880 750 1,195 1,250 (509 ) — (1,024 ) — 371 750 171 1,250 14,579 17,454 47,066 49,683 1,068 1,302 3,273 3,566 98 206 400 665 171 285 405 769 — — — 118 252 221 668 686 1,315 320 2,203 1,155 2,904 2,334 6,949 6,959 7,795 9,045 23,812 27,583 1,945 1,778 6,063 5,420 1,173 1,499 3,596 4,098 292 322 1,082 1,043 446 365 1,259 1,167 501 645 2,471 2,802 929 695 2,619 1,883 369 219 939 653 926 807 2,623 2,520 14,376 15,375 44,464 47,169 3,107 4,413 9,551 9,473 603 818 1,903 1,839 2,504 3,595 7,648 7,634 — 696 160 1,951 $ 2,504 $ 4,291 $ 7,808 $ 9,585 $ 0.28 $ 0.47 $ 0.87 $ 1.04 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 $ 2,504 $ 3,595 $ 7,648 $ 7,634 (8,327 ) (15,954 ) (7,688 ) (52,283 ) 1,787 3,350 1,873 10,979 37 37 113 110 (8 ) (9 ) (24 ) (24 ) 925 — 533 — (198 ) — (114 ) — — — — (118 ) — — — 25 (5,784 ) (12,576 ) (5,307 ) (41,311 ) (3,280 ) (8,981 ) 2,341 (33,677 ) — (696 ) (160 ) (1,951 ) $ (3,280 ) $ (8,285 ) $ 2,501 $ (31,726 ) 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 20172023 and 2016 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 9,950,172 $ 100 $ 96,479 $ 107,000 $ (8,242 ) $ (28,447 ) $ (1,736 ) $ 165,154 4,291 (696 ) 3,595 115,777 1 1,868 — 1,869 (79,054 ) — (790 ) (491 ) (1,281 ) (3,350 ) (1 ) 1 — (5,504 ) — (89 ) (89 ) (12,576 ) (12,576 ) 404 404 51 165 216 (693 ) (693 ) 9,978,041 $ 100 $ 97,924 $ 110,107 $ (8,077 ) $ (41,023 ) $ (2,432 ) $ 156,599 9,633,496 $ 96 $ 95,360 $ 111,750 $ (7,583 ) $ (40,066 ) $ — $ 159,557 2,504 — 2,504 (1,073 ) — (10 ) (2 ) (12 ) 1,918 — — — (3,606 ) — (43 ) (43 ) (5,784 ) (5,784 ) 349 349 2 165 167 (673 ) (673 ) 9,630,735 $ 96 $ 95,658 $ 113,579 $ (7,418 ) $ (45,850 ) $ — $ 156,065 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 ) 9,972,698 $ 100 $ 96,131 $ 103,014 $ (8,572 ) $ 288 $ (481 ) $ 190,480 9,585 (1,951 ) 7,634 115,777 1 1,868 — 1,869 (131,672 ) (1 ) (1,315 ) (824 ) (2,140 ) 37,068 — — — (15,830 ) — (311 ) (311 ) (41,311 ) (41,311 ) 424 424 1,294 1,294 257 495 752 (2,092 ) (2,092 ) 9,978,041 $ 100 $ 97,924 $ 110,107 $ (8,077 ) $ (41,023 ) $ (2,432 ) $ 156,599 9,703,581 $ 97 $ 95,508 $ 114,424 $ (7,913 ) $ (40,543 ) $ (3,291 ) $ 158,282 7,808 (160 ) 7,648 (75,690 ) (1 ) (755 ) (224 ) (980 ) 18,256 — — — (15,412 ) — (205 ) (205 ) (5,307 ) (5,307 ) (2,951 ) (2,951 ) (3,451 ) 3,451 — 1,098 1,098 12 495 507 (2,027 ) (2,027 ) 9,630,735 $ 96 $ 95,658 $ 113,579 $ (7,418 ) $ (45,850 ) $ — $ 156,065 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 $ 7,648 $ 7,634 1,201 1,547 2 10 1,078 1,280 (451 ) 619 58 58 303 91 (145 ) (143 ) 1,195 1,250 (1,024 ) — 507 546 1,098 1,294 (405 ) (769 ) — (118 ) (668 ) (686 ) (21,351 ) (22,272 ) 21,664 23,538 (1,350 ) (1,366 ) 2,151 (4,191 ) 1,821 (288 ) 1,960 5,680 15,292 13,714 — (78,409 ) 8,480 26,937 — 12,685 (940 ) (6,765 ) 15 — (89,551 ) (172,727 ) (1,066 ) (2,556 ) (335 ) (7,628 ) 99 — — (23 ) — (1,829 ) (83,298 ) (230,315 ) $ 93,507 $ 24,655 15,000 — (15,000 ) — 19,000 161,000 (4,000 ) 12,000 999 1,116 (2,025 ) (2,072 ) (205 ) (311 ) (980 ) (2,140 ) 106,296 194,248 38,290 (22,353 ) 45,596 126,016 $ 83,886 $ 103,663 $ 25,532 $ 6,072 $ 1,859 $ 2,954 $ (7,688 ) $ (52,401 ) $ 533 $ — $ — $ 538 $ (3,735 ) $ — $ 152 $ — $ — $ 1,869 (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").werewas contributed to the Bank upon 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.Federal.Fed and former controlling interest in Quin Ventures. Accordingly, the information set forth in this report, including the consolidated unaudited financial statements and related data, relates primarily to the Bank.Westernwestern Washington State with offices in Clallam, Jefferson, Kitsap, King, and Whatcom counties. These services include deposit and lending transactions that are supplemented with borrowingborrowing and investing activities. of the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K10-K for the fiscal year ended June 30, 2017.December 31, 2022. 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 and nine months ended September 30, 2017,2023, 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 resultloancredit losses ("ALLL"ACL"), mortgage servicing rights, fair value of financial instruments and derivatives, and deferred tax assets and liabilities, and the valuation of impaired loans.liabilities.Northwest Bancorp andNorthwest; its wholly owned subsidiary, First Federal.Fed, and its former controlling interest in Quin Ventures. All material intercompany accounts and transactions have been eliminated in consolidation. Through June 2023, First Northwest and POM shared equal ownership in Quin Ventures; however, it was previously determined that First Northwest had a controlling interest for financial reporting purposes under Accounting Standards Codification 810. The Quin Ventures net loss allocable to POM is shown on the financial statements where applicable through a noncontrolling interest adjustment.Events events - The Company has evaluated subsequent events for potential recognition and disclosure and has included additional information where appropriate.no such eventsmany factors available to incorporate into the quantitative model, the Bank has selected to use the most critical factors. Additional metrics will be included only if internal or transactions requiring recognitionexternal factors outside those considered in its historical losses or disclosure.9FIRST NORTHWEST BANCORP AND SUBSIDIARY(Unaudited)Recently issued accounting pronouncements -In August 2015, On March 28, 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU"(ASU) 2022- 01, Derivatives and Hedging (Topic 815) No. 2015-14, Revenue from Contracts: Fair Value Hedging – Portfolio Layer Method. The purpose of this updated guidance is to further align risk management objectives with Customershedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017- 12, Derivatives and Hedging (Topic 606), which defers the effective date of815): Targeted Improvements to Accounting for Hedging Activities. ASU No. 2014-09 one year. ASU No. 2014-09 created Topic 606 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict 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. 2015-142022- 01 is effective for public business entities for interim and annual periods beginning after December 15, 2017; 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. The Company will develop processes 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 January 1, 2018 implementation date.In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The main provisions of this ASU address the valuation and impairment of equity securities along with enhanced disclosures about those investments. Equity securities with readily determinable fair values will be treated in the same manner as other financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2022, with early adoption in the interim period, permitted. For entities who have already adopted ASU 2017- 12, immediate adoption is allowed. ASU 2022- 01 requires a modified retrospective transition method for basis adjustments in which the entity will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company adopted this ASU on January 1, 2023 on a prospective basis; therefore, there was no impact to the consolidated financial statements.years.years, with early adoption permitted. The adoption ofCompany does not believe this ASU 2016-01 is not expected towill have a material impact on the Company'sits consolidated financial statements.February 2016, March 2023, the FASB issued ASU 2016-02, Leases2023-02,Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. ASU 2016-02 is intended2023-02 allows an entity the option to increase transparency and comparability among organizations by requiringapply the recognitionproportional amortization method of lease assets and lease liabilities onaccounting to other equity investments that are made for the balance sheet and disclosureprimary purpose of key information about leasing arrangements. The principal change required byreceiving tax credits or other income tax benefits if certain conditions are met. Prior to this ASU, relatesthe application of the proportional amortization method of accounting was limited to lesseeinvestments in low-income housing tax credit structures. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the statements of income, income tax expense. Under this ASU, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this ASU require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this ASU, low-income housing tax credit investments for which the proportional amortization method isnot applied can no longer be accounted for using the delayed equity contribution guidance. Further, this ASU specifies that impairment of low-income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10:Investments - Equity Method and Joint Ventures - Overall. This ASU also clarifies that for operating leases, a lessee is required to (1) recognize a right-of-use asset and a lease liability, initially measured atlow-income housing tax credit investments not accounted for under the present value ofproportional amortization method or 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 makeequity method, 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 expenseentity shall account 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.them under Topic 321:Investments - Equity Securities. The amendments in this ASU 2016-02 are effective foralso require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and interim periods within those annual periods, beginning after December 15, 2018. Early application(ii) the effect of tax equity investments and related income tax credits and other income tax benefits on 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 conditionposition 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 expectASU 2023-02 is effective for the guidance to have a material impact on the Consolidated Statements of Income or Consolidated Statements of Changes in Shareholders' Equity.In June 2016, the FASB issued ASU No. 2016-13, 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. 2016-13 is effectiveCompany for fiscal years beginning after December 15, 2019, 2023, including interim periods within those fiscal years. Uponyears, with early 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)current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for other-than-temporary impairment on investment securities available for sale will be replaced with an allowance approach. At this time, we do not anticipate an increase to the ALLL as a result of the implementation of this ASU.permitted. The Company continues to reviewis evaluating the requirements ofeffect that ASU 2016-132023-02 will have on its consolidated financial statements and has reviewed preliminary testing of processes and procedures to ensure it is fully compliant with the amendments at the adoption date.and held-to-maturity at September 30, 2017,2023 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 $ 119,164 $ — $ (25,169 ) $ 93,995 2,479 — (102 ) 2,377 1,962 — (259 ) 1,703 60,543 — (6,208 ) 54,335 83,449 — (16,503 ) 66,946 98,029 — (8,061 ) 89,968 $ 365,626 $ — $ (56,302 ) $ 309,324 and held-to-maturity at June 30, 2017,December 31, 2022, are summarized as follows:
Gross | Gross | Estimated | ||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Available for Sale | ||||||||||||||||
Municipal bonds | $ | 119,990 | $ | — | $ | (21,940 | ) | $ | 98,050 | |||||||
U.S. Treasury notes | 2,469 | — | (105 | ) | 2,364 | |||||||||||
Agency bonds | 1,955 | — | (253 | ) | 1,702 | |||||||||||
Corporate debt | 60,700 | — | (5,201 | ) | 55,499 | |||||||||||
Mortgage-backed securities: | ||||||||||||||||
MBS agency | 88,930 | 1 | (13,283 | ) | 75,648 | |||||||||||
MBS non-agency | 101,139 | — | (7,833 | ) | 93,306 | |||||||||||
Total securities available for sale | $ | 375,183 | $ | 1 | $ | (48,615 | ) | $ | 326,569 | |||||||
There were no securities classified as held-to-maturity at September 30, 2023 and December 31, 2022.
Accrued interest receivable on available-for-sale debt securities totaled $2.2 million and $2.0 million as of September 30, 2023 and December 31, 2022, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Balance Sheets and is excluded from the calculation of the allowance for credit losses on investment securities.
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
| (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 | ||||||
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 September 30, 2017:
| 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 | $ | — | $ | — | $ | (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 | ||||||||
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 | $ | (49 | ) | $ | 396 | $ | (25,120 | ) | $ | 93,299 | $ | (25,169 | ) | $ | 93,695 | |||||||||
U.S. Treasury notes | — | — | (102 | ) | 2,377 | (102 | ) | 2,377 | ||||||||||||||||
Agency bonds | — | — | (259 | ) | 1,703 | (259 | ) | 1,703 | ||||||||||||||||
Corporate debt | — | — | (6,208 | ) | 54,335 | (6,208 | ) | 54,335 | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
MBS agency | (1 | ) | 1,236 | (16,502 | ) | 65,710 | (16,503 | ) | 66,946 | |||||||||||||||
MBS non-agency | — | — | (8,061 | ) | 89,968 | (8,061 | ) | 89,968 | ||||||||||||||||
Total available for sale | $ | (50 | ) | $ | 1,632 | $ | (56,252 | ) | $ | 307,392 | $ | (56,302 | ) | $ | 309,024 | |||||||||
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 June 30, 2017:
| 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 | $ | (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 | ||||||||
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 | $ | (15,749 | ) | $ | 79,129 | $ | (6,191 | ) | $ | 18,621 | $ | (21,940 | ) | $ | 97,750 | |||||||||
U.S. Treasury notes | (105 | ) | 2,364 | — | — | (105 | ) | 2,364 | ||||||||||||||||
Agency bonds | — | — | (253 | ) | 1,702 | (253 | ) | 1,702 | ||||||||||||||||
Corporate debt | (2,570 | ) | 30,555 | (2,631 | ) | 24,944 | (5,201 | ) | 55,499 | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
MBS agency | (5,079 | ) | 40,099 | (8,204 | ) | 33,064 | (13,283 | ) | 73,163 | |||||||||||||||
MBS non-agency | (3,956 | ) | 51,994 | (3,877 | ) | 41,311 | (7,833 | ) | 93,305 | |||||||||||||||
Total available for sale | $ | (27,459 | ) | $ | 204,141 | $ | (21,156 | ) | $ | 119,642 | $ | (48,615 | ) | $ | 323,783 | |||||||||
There were 2 available-for-sale securities inwith unrealized losses of less than one year, and 180 available-for-sale securities with an unrealized loss position that are not considered otherof more than temporarily impaired ("OTTI"). At one year at September 30, 2017, there2023. There were 50 investment113 available-for-sale securities with $2.1 million of unrealized losses of less than one year, and a fair value of approximately $188.1 million. At June 30, 2017, there were 42 investment69 available-for-sale securities with $1.8 millionan unrealized loss of unrealized losses and a fair value of approximately $164.9 million.
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.
September 30, 2023 | ||||||||
Available-for-Sale | ||||||||
Amortized Cost | Estimated Fair Value | |||||||
(In thousands) | ||||||||
Mortgage-backed securities: | ||||||||
Due within one year | $ | 27,154 | $ | 26,742 | ||||
Due after one through five years | 16,184 | 15,475 | ||||||
Due after five through ten years | 10,939 | 9,986 | ||||||
Due after ten years | 127,201 | 104,711 | ||||||
Total mortgage-backed securities | 181,478 | 156,914 | ||||||
All other investment securities: | ||||||||
Due within one year | 300 | 300 | ||||||
Due after one through five years | 22,418 | 21,066 | ||||||
Due after five through ten years | 65,211 | 56,308 | ||||||
Due after ten years | 96,219 | 74,736 | ||||||
Total all other investment securities | 184,148 | 152,410 | ||||||
Total investment securities | $ | 365,626 | $ | 309,324 | ||||
December 31, 2022 | ||||||||
Available-for-Sale | ||||||||
Amortized Cost | Estimated Fair Value | |||||||
(In thousands) | ||||||||
Mortgage-backed securities: | ||||||||
Due within one year | $ | 13,762 | $ | 13,490 | ||||
Due after one through five years | 28,890 | 27,808 | ||||||
Due after five through ten years | 13,436 | 12,165 | ||||||
Due after ten years | 133,981 | 115,491 | ||||||
Total mortgage-backed securities | 190,069 | 168,954 | ||||||
All other investment securities: | ||||||||
Due within one year | — | — | ||||||
Due after one through five years | 20,700 | 18,957 | ||||||
Due after five through ten years | 64,211 | 57,523 | ||||||
Due after ten years | 100,203 | 81,135 | ||||||
Total all other investment securities | 185,114 | 157,615 | ||||||
Total investment securities | $ | 375,183 | $ | 326,569 | ||||
| September 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 | — | — | 2,211 | 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 | |||||||
Sales of securities available-for-sale for the periods shown are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(In thousands) | ||||||||||||||||
Proceeds from sales | $ | — | $ | — | $ | — | $ | 12,685 | ||||||||
Gross realized gains | — | — | — | 128 | ||||||||||||
Gross realized losses | — | — | — | (10 | ) | |||||||||||
| Three Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| (In thousands) | |||||||
| Proceeds from sales | $ | 17,239 | $ | — | |||
| Gross realized gains | 269 | — | |||||
| Gross realized losses | (133 | ) | — | ||||
Note 3 - Loans Receivable
The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality. The three loan portfolio segments are: Real Estate Loans, Consumer Loans and Commercial Business Loans. These segments are further disaggregated into classes based on similar attributes and risk characteristics.
Loan amounts are net of unearned loan fees in excess of unamortized costs and premiums of $14.4 million as of September 30, 2023 and $13.2 million as of December 31, 2022. Net loans do not include accrued interest receivable. Accrued interest receivable on loans was $5.8 million as of September 30, 2023 and $4.7 million as of December 31, 2022, and was reported in accrued interest receivable on the consolidated balance sheets.
The amortized cost of loans receivable, net of ACLL, consisted of the following at the dates indicated:
| 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 | |||
September 30, 2023 | December 31, 2022 | |||||||
(In thousands) | ||||||||
Real Estate: | ||||||||
One-to-four family | $ | 369,950 | $ | 343,559 | ||||
Multi-family | 325,496 | 252,745 | ||||||
Commercial real estate | 381,508 | 388,884 | ||||||
Construction and land | 143,434 | 193,646 | ||||||
Total real estate loans | 1,220,388 | 1,178,834 | ||||||
Consumer: | ||||||||
Home equity | 64,424 | 52,877 | ||||||
Auto and other consumer | 248,786 | 238,913 | ||||||
Total consumer loans | 313,210 | 291,790 | ||||||
Commercial business loans | 101,380 | 76,927 | ||||||
Total loans receivable | 1,634,978 | 1,547,551 | ||||||
Less: | ||||||||
Allowance for credit losses on loans (1) | 16,945 | 16,116 | ||||||
Total loans receivable, net | $ | 1,618,033 | $ | 1,531,435 | ||||
(1) Allowance for Loan Losses.
Nonaccrual Loans. The Company maintains a general allowance for loan losses basedaccrual of interest on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserveloans is an estimate based upon factors and trends identified by managementdiscontinued at the time the financial statements are prepared.
| At or For the Three Months Ended September 30, 2017 | |||||||||||||||||||||||||||||||||||
One-to- four family | Multi-family | Commercial real estate | Construction and land | Home equity | Other consumer | Commercial business | 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 | |||||||||||||||||||||||||||||||||||
One-to- four family | Multi-family | Commercial real estate | Construction and land | Home equity | Other consumer | Commercial business | 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 | |||||||||||||||||
General reserves (1) | 319,111 | 58,873 | 193,479 | 81,958 | 34,372 | 23,317 | 16,099 | — | 727,209 | ||||||||||||||||||||||||||
Specific reserves (2) | 4,564 | 116 | 1,334 | 27 | 687 | 12 | 286 | — | 7,026 | ||||||||||||||||||||||||||
(1) Loans collectively evaluated for general reserves. | |||||||||||||||||||||||||||||||||||
(2) Loans individually evaluated for specific reserves. | |||||||||||||||||||||||||||||||||||
| At or For the Three Months Ended September 30, 2016 | |||||||||||||||||||||||||||||||||||
One-to- four family | Multi-family | Commercial real estate | Construction and land | Home equity | Other consumer | Commercial business | 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 | |||||||||||||||||
| At June 30, 2017 | |||||||||||||||||||||||||||||||||||
One-to- four family | Multi-family | Commercial real estate | Construction and land | Home equity | Other consumer | Commercial business | 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 | |||||||||||||||||
General reserves (1) | 323,592 | 57,983 | 200,467 | 71,602 | 35,160 | 21,021 | 16,784 | — | 726,609 | ||||||||||||||||||||||||||
Specific reserves (2) | 4,651 | 118 | 1,571 | 28 | 709 | 22 | 289 | — | 7,388 | ||||||||||||||||||||||||||
(1) Loans collectively evaluated for general reserves. | |||||||||||||||||||||||||||||||||||
(2) Loans individually evaluated for specific reserves. | |||||||||||||||||||||||||||||||||||
| 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 | |||||||||||
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 | ||||||||||||||
| 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 | |||||||
| 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 | |||
September 30, 2023 | December 31, 2022 | |||||||||||||||
Collateral Dependent Loans | Non-Collateral Dependent Loans | Total Nonaccrual Loans | Total Nonaccrual Loans (1) | |||||||||||||
(In thousands) | ||||||||||||||||
One-to-four family | $ | 1,430 | $ | 360 | $ | 1,790 | $ | 954 | ||||||||
Commercial real estate | — | 34 | 34 | 53 | ||||||||||||
Construction and land | — | 8 | 8 | 15 | ||||||||||||
Home equity | 32 | 134 | 166 | 196 | ||||||||||||
Auto and other consumer | — | 376 | 376 | 575 | ||||||||||||
Total nonaccrual loans | $ | 1,462 | $ | 912 | $ | 2,374 | $ | 1,793 | ||||||||
(1) Presentation of December 31, 2022, balances is in accordance with pre-CECL disclosure requirements. | ||||||||||||||||
Interest income recognized on a cash basis on nonaccrual loans for the three and nine months ended September 30, 2023, was $19,000 and $52,000, respectively.
Prior to the implementation of CECL, the Bank categorized loans as performing or nonperforming based on payment activity. Loans that were more than 90 days past due and nonaccrual loans were considered nonperforming.
The following table represents the credit risk profile based on payment activity by class of loans as of December 31, 2022, in accordance with pre-CECL disclosure requirements:
Nonperforming | Performing | Total | ||||||||||
(In thousands) | ||||||||||||
Real Estate: | ||||||||||||
One-to-four family | $ | 954 | $ | 342,605 | $ | 343,559 | ||||||
Multi-family | — | 252,745 | 252,745 | |||||||||
Commercial real estate | 53 | 388,831 | 388,884 | |||||||||
Construction and land | 15 | 193,631 | 193,646 | |||||||||
Consumer: | ||||||||||||
Home equity | 196 | 52,681 | 52,877 | |||||||||
Auto and other consumer | 575 | 238,338 | 238,913 | |||||||||
Commercial business | — | 76,927 | 76,927 | |||||||||
Total loans | $ | 1,793 | $ | 1,545,758 | $ | 1,547,551 | ||||||
Past due loans.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. There were no loans past due 90 days or more and still accruing interest at September 30,The following table presents the amortized cost of past due loans net of partial loan charge-offs, by segment and class as of September 30, 2017:
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans | ||||||||||||||||||
| (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 | |||||||||||
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 | $ | — | $ | 654 | $ | 591 | $ | 1,245 | $ | 368,705 | $ | 369,950 | ||||||||||||
Multi-family | — | — | — | — | 325,496 | 325,496 | ||||||||||||||||||
Commercial real estate | 8,583 | — | — | 8,583 | 372,925 | 381,508 | ||||||||||||||||||
Construction and land | — | — | — | — | 143,434 | 143,434 | ||||||||||||||||||
Total real estate loans | 8,583 | 654 | 591 | 9,828 | 1,210,560 | 1,220,388 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity | 71 | — | 45 | 116 | 64,308 | 64,424 | ||||||||||||||||||
Auto and other consumer | 1,462 | 392 | 381 | 2,235 | 246,551 | 248,786 | ||||||||||||||||||
Total consumer loans | 1,533 | 392 | 426 | 2,351 | 310,859 | 313,210 | ||||||||||||||||||
Commercial business loans | 769 | — | — | 769 | 100,611 | 101,380 | ||||||||||||||||||
Total loans | $ | 10,885 | $ | 1,046 | $ | 1,017 | $ | 12,948 | $ | 1,622,030 | $ | 1,634,978 | ||||||||||||
The following table presents the amortized cost of past due loans net of partial loan charge-offs, by segment and class as of June 30, 2017:
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans | ||||||||||||||||||
| (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 | |||||||||||
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 | $ | 1,449 | $ | 155 | $ | 652 | $ | 2,256 | $ | 341,303 | $ | 343,559 | ||||||||||||
Multi-family | — | — | — | — | 252,745 | 252,745 | ||||||||||||||||||
Commercial real estate | — | — | — | — | 388,884 | 388,884 | ||||||||||||||||||
Construction and land | — | 18 | — | 18 | 193,628 | 193,646 | ||||||||||||||||||
Total real estate loans | 1,449 | 173 | 652 | 2,274 | 1,176,560 | 1,178,834 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity | 153 | — | 11 | 164 | 52,713 | 52,877 | ||||||||||||||||||
Auto and other consumer | 1,390 | 698 | 557 | 2,645 | 236,268 | 238,913 | ||||||||||||||||||
Total consumer loans | 1,543 | 698 | 568 | 2,809 | 288,981 | 291,790 | ||||||||||||||||||
Commercial business loans | — | — | — | — | 76,927 | 76,927 | ||||||||||||||||||
Total loans | $ | 2,992 | $ | 871 | $ | 1,220 | $ | 5,083 | $ | 1,542,468 | $ | 1,547,551 | ||||||||||||
Credit quality indicator.
Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss; risk ratings 6,7, and 8 in ourWhen 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.
The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as performingof September 30, 2023, as well as gross charge-off activity for the nine months ended September 30, 2023. Term loans that are renewed or nonperformingextended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.
Term Loans by Year of Origination (1) | Revolving | Total | ||||||||||||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | Prior | Loans | Loans | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
One-to-four family | ||||||||||||||||||||||||||||||||
Pass | $ | 1,987 | $ | 93,396 | $ | 118,341 | $ | 70,904 | $ | 13,977 | $ | 66,929 | $ | — | $ | 365,534 | ||||||||||||||||
Watch | — | 276 | — | 589 | — | 1,156 | — | 2,021 | ||||||||||||||||||||||||
Special Mention | — | — | — | 302 | — | 105 | — | 407 | ||||||||||||||||||||||||
Substandard | — | — | — | 328 | 485 | 1,175 | — | 1,988 | ||||||||||||||||||||||||
Total one-to-four family | 1,987 | 93,672 | 118,341 | 72,123 | 14,462 | 69,365 | — | 369,950 | ||||||||||||||||||||||||
Gross charge-offs year-to-date | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Multi-family | ||||||||||||||||||||||||||||||||
Pass | 47,583 | 103,255 | 86,171 | 58,659 | 8,278 | 5,357 | — | 309,303 | ||||||||||||||||||||||||
Watch | — | — | 15,198 | — | — | 995 | — | 16,193 | ||||||||||||||||||||||||
Total multi-family | 47,583 | 103,255 | 101,369 | 58,659 | 8,278 | 6,352 | — | 325,496 | ||||||||||||||||||||||||
Gross charge-offs year-to-date | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Commercial Real Estate | ||||||||||||||||||||||||||||||||
Pass | 32,307 | 89,244 | 104,523 | 82,030 | 13,186 | 23,366 | — | 344,656 | ||||||||||||||||||||||||
Watch | 3,881 | 197 | 3,785 | 6,851 | 3,584 | 1,019 | — | 19,317 | ||||||||||||||||||||||||
Special Mention | — | — | 15,136 | — | — | — | — | 15,136 | ||||||||||||||||||||||||
Substandard | — | 34 | — | 2,365 | — | — | — | 2,399 | ||||||||||||||||||||||||
Total commercial real estate | 36,188 | 89,475 | 123,444 | 91,246 | 16,770 | 24,385 | — | 381,508 | ||||||||||||||||||||||||
Gross charge-offs year-to-date | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Construction and Land | ||||||||||||||||||||||||||||||||
Pass | 13,763 | 61,166 | 39,308 | 764 | 354 | 2,398 | — | 117,753 | ||||||||||||||||||||||||
Watch | 7,109 | 3,493 | — | — | — | — | — | 10,602 | ||||||||||||||||||||||||
Special Mention | — | — | — | — | — | 16 | — | 16 | ||||||||||||||||||||||||
Substandard | 15,055 | — | — | — | — | 8 | — | 15,063 | ||||||||||||||||||||||||
Total construction and land | 35,927 | 64,659 | 39,308 | 764 | 354 | 2,422 | — | 143,434 | ||||||||||||||||||||||||
Gross charge-offs year-to-date | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Home Equity | ||||||||||||||||||||||||||||||||
Pass | 5,534 | 7,438 | 4,737 | 3,169 | 1,444 | 3,638 | 37,810 | 63,770 | ||||||||||||||||||||||||
Watch | — | — | — | — | — | 56 | 322 | 378 | ||||||||||||||||||||||||
Substandard | — | — | 31 | 61 | — | 14 | 170 | 276 | ||||||||||||||||||||||||
Total home equity | 5,534 | 7,438 | 4,768 | 3,230 | 1,444 | 3,708 | 38,302 | 64,424 | ||||||||||||||||||||||||
Gross charge-offs year-to-date | — | — | — | — | — | 11 | — | 11 | ||||||||||||||||||||||||
Other Consumer | ||||||||||||||||||||||||||||||||
Pass | 38,604 | 75,128 | 66,493 | 31,104 | 15,680 | 18,871 | 403 | 246,283 | ||||||||||||||||||||||||
Watch | 47 | 461 | 485 | 217 | 277 | 226 | 3 | 1,716 | ||||||||||||||||||||||||
Special Mention | 64 | 232 | 33 | 30 | — | 51 | — | 410 | ||||||||||||||||||||||||
Substandard | 23 | 300 | — | 28 | 26 | — | — | 377 | ||||||||||||||||||||||||
Total other consumer | 38,738 | 76,121 | 67,011 | 31,379 | 15,983 | 19,148 | 406 | 248,786 | ||||||||||||||||||||||||
Gross charge-offs year-to-date | — | 2,421 | 15 | 27 | 11 | 112 | 71 | 2,657 | ||||||||||||||||||||||||
Commercial business | ||||||||||||||||||||||||||||||||
Pass | 18,818 | 23,987 | 11,368 | 2,791 | 506 | 4,947 | 30,510 | 92,927 | ||||||||||||||||||||||||
Watch | 342 | 66 | 394 | — | — | — | 1 | 803 | ||||||||||||||||||||||||
Special Mention | — | — | — | 1,036 | — | — | 3,754 | 4,790 | ||||||||||||||||||||||||
Substandard | 177 | 52 | — | 144 | — | — | 2,487 | 2,860 | ||||||||||||||||||||||||
Total commercial business | 19,337 | 24,105 | 11,762 | 3,971 | 506 | 4,947 | 36,752 | 101,380 | ||||||||||||||||||||||||
Gross charge-offs year-to-date | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total loans | ||||||||||||||||||||||||||||||||
Pass | 158,596 | 453,614 | 430,941 | 249,421 | 53,425 | 125,506 | 68,723 | 1,540,226 | ||||||||||||||||||||||||
Watch | 11,379 | 4,493 | 19,862 | 7,657 | 3,861 | 3,452 | 326 | 51,030 | ||||||||||||||||||||||||
Special Mention | 64 | 232 | 15,169 | 1,368 | — | 172 | 3,754 | 20,759 | ||||||||||||||||||||||||
Substandard | 15,255 | 386 | 31 | 2,926 | 511 | 1,197 | 2,657 | 22,963 | ||||||||||||||||||||||||
Total loans | $ | 185,294 | $ | 458,725 | $ | 466,003 | $ | 261,372 | $ | 57,797 | $ | 130,327 | $ | 75,460 | $ | 1,634,978 | ||||||||||||||||
Total gross charge-offs year-to-date | $ | — | $ | 2,421 | $ | 15 | $ | 27 | $ | 11 | $ | 123 | $ | 71 | $ | 2,668 | ||||||||||||||||
(1) Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.
The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of December 31, 2022, in accordance with pre-CECL disclosure requirements:
Pass | Watch | Special Mention | Substandard | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
One-to-four family | $ | 339,812 | $ | 2,234 | $ | 27 | $ | 1,486 | $ | 343,559 | ||||||||||
Multi-family | 237,077 | 15,668 | — | — | 252,745 | |||||||||||||||
Commercial real estate | 350,001 | 25,586 | 12,161 | 1,136 | 388,884 | |||||||||||||||
Construction and land | 179,116 | 529 | — | 14,001 | 193,646 | |||||||||||||||
Total real estate loans | 1,106,006 | 44,017 | 12,188 | 16,623 | 1,178,834 | |||||||||||||||
Consumer: | ||||||||||||||||||||
Home equity | 52,295 | 372 | 14 | 196 | 52,877 | |||||||||||||||
Auto and other consumer | 238,522 | 222 | 75 | 94 | 238,913 | |||||||||||||||
Total consumer loans | 290,817 | 594 | 89 | 290 | 291,790 | |||||||||||||||
Commercial business loans | 66,276 | 2,234 | 8,417 | — | 76,927 | |||||||||||||||
Total loans | $ | 1,463,099 | $ | 46,845 | $ | 20,694 | $ | 16,913 | $ | 1,547,551 | ||||||||||
Individually Evaluated Loans. The Company evaluates loans collectively for purposes of determining the ACLL in accordance with ASC 326. Collective evaluation is based on payment activity. aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified loans made to borrowers experiencing financial difficulty, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral.
Loans that are more than 90 days past due and nonaccrualdeemed by management to possess unique risk characteristics are evaluated individually for purposes of determining an appropriate lifetime ACLL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent. Collateral dependent loans are considered nonperforming.
As of September 30, 2023, $4.1 million of loans were individually evaluated with no ACLL attributed to such loans. At September 30, 2023, two individually evaluated loans totaling $2.7 million were evaluated using a discounted cash flow approach and the remaining loans totaling $1.5 million were evaluated based on the underlying value of the collateral. The two loans evaluated using the discounted cash flow method were accruing at quarter end, while the collateral dependent loans were all on nonaccrual status at September 30, 2023.
Collateral Dependent Loans. Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral.
The following table represents the internally assigned gradesummarizes individually evaluated collateral dependent loans by segment and collateral type as of September 30, 2017, by class of loans:
| Pass | Watch | Special Mention | Sub- Standard | 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 | |||||||||
| Pass | Watch | Special Mention | Sub- Standard | 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 | |||||||||
| 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 | |||||
| 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 | |||||
Collateral Type | ||||||||
Single Family Residence | Total | |||||||
(In thousands) | ||||||||
One-to-four family | $ | 1,430 | $ | 1,430 | ||||
Home equity | 32 | 32 | ||||||
Total collateral dependent loans | $ | 1,462 | $ | 1,462 | ||||
Troubled debt restructuring.
The following table is a summary of information pertaining to TDR loans included in impaired loans at the dates indicated:
| 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 | |||||
December 31, 2022 | ||||
(In thousands) | ||||
Total TDR loans | $ | 1,753 | ||
Allowance for credit losses on loans related to TDR loans | 21 | |||
Total nonaccrual TDR loans | 29 | |||
There were no newly restructured, and renewals, or modifications of existing TDR loans that occurred during the three and nine months ended September 30, 2017 and 2016.
There were no TDR loans whichthat incurred a payment default within 12 months of the restructure date during the three and nine months ended September 30, 2017.
Number of Contracts | Rate Modification | Term Modification | Combination Modification | Total Modifications | ||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| TDR loans that subsequently defaulted | ||||||||||||||||||
| One- to four-family | 1 | $ | — | $ | 87 | $ | — | $ | 87 | |||||||||
Number of Contracts | Rate Modification | Term Modification | Combination Modification | Total Modifications | ||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| TDR loans that subsequently defaulted | ||||||||||||||||||
| One- to four-family | 1 | $ | — | $ | — | $ | 86 | $ | 86 | |||||||||
The following table presents TDR loans by class by accrual and nonaccrual status at the date indicated, in accordance with pre-CECL disclosure requirements:
December 31, 2022 | ||||||||||||
Accrual | Nonaccrual | Total | ||||||||||
(In thousands) | ||||||||||||
One-to-four family | $ | 1,697 | $ | 29 | $ | 1,726 | ||||||
Home equity | 27 | — | 27 | |||||||||
Total TDR loans | $ | 1,724 | $ | 29 | $ | 1,753 | ||||||
Modified Loans to Troubled Borrowers. On January 1, 2023, the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. The Company refers to these loans as modified loans to troubled borrowers ("MLTB"). A MLTB arises from a modification made to a loan in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or any combination of the foregoing. The ACLL for a MLTB is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACLL for a MLTB is determined through individual evaluation.
During the three and nine months ended September 30, 2023, there were no MLTB.
Note 4 - Allowance for Credit Losses on Loans
The Company maintains an ACLL and an ACLUC in accordance with ASC 326:Financial Instruments - Credit Losses. ASC 326 requires the Company to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses at origination or acquisition represents the Company’s best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. Determining the ACLL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The reserve is an estimate based upon factors and trends at the time the financial statements are prepared. The Company adopted ASU 2016-13 effective January 1, 2023, which increased the beginning ACLL as discussed in Note 1. The incurred loss methodology presentation is used for periods prior to the adoption of ASU 2016-13.
The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies. The Company uses a DCF methodology for most of its segments to calculate the ACLL. For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a Remaining Life methodology. The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment. If the present value of cash flows is less than the total recorded investment, a reserve is calculated.
The Company estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Company has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit. The allowance methodology is similar to the ACLL, but additionally includes an estimate of the future utilization of the commitment as determined by historical commitment utilization. The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class. The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (reversal of provision) for credit losses on the Consolidated Statements of Income.
The following tables detail activity in the allowance for credit losses on loans by class for the periods shown:
At or For the Three Months Ended September 30, 2023 | ||||||||||||||||||||
Adjusted Beginning Balance | Charge-offs | Recoveries | Provision for (Recapture of) Credit Losses | Ending Balance | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
One-to-four family | $ | 3,012 | $ | — | $ | — | $ | 526 | $ | 3,538 | ||||||||||
Multi-family | 1,041 | — | — | 230 | 1,271 | |||||||||||||||
Commercial real estate | 2,924 | — | — | (390 | ) | 2,534 | ||||||||||||||
Construction and land | 2,535 | — | — | (352 | ) | 2,183 | ||||||||||||||
Home equity | 1,125 | — | — | 178 | 1,303 | |||||||||||||||
Auto and other consumer | 4,795 | (731 | ) | (501 | ) | 601 | 4,164 | |||||||||||||
Commercial business | 1,865 | — | — | 87 | 1,952 | |||||||||||||||
Total | $ | 17,297 | $ | (731 | ) | $ | (501 | ) | $ | 880 | $ | 16,945 | ||||||||
At or For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
Beginning Balance | Impact of Day 1 CECL Adoption | Adjusted Beginning Balance | Charge-offs | Recoveries | Provision for (Recapture of) Credit Losses | Ending Balance | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
One-to-four family | $ | 3,343 | $ | (429 | ) | $ | 2,914 | $ | — | $ | 4 | $ | 620 | $ | 3,538 | |||||||||||||
Multi-family | 2,468 | (1,449 | ) | 1,019 | — | — | 252 | 1,271 | ||||||||||||||||||||
Commercial real estate | 4,217 | (604 | ) | 3,613 | — | — | (1,079 | ) | 2,534 | |||||||||||||||||||
Construction and land | 2,344 | 1,555 | 3,899 | — | — | (1,716 | ) | 2,183 | ||||||||||||||||||||
Home equity | 549 | 346 | 895 | (11 | ) | 5 | 414 | 1,303 | ||||||||||||||||||||
Auto and other consumer | 2,024 | 2,381 | 4,405 | (2,657 | ) | 84 | 2,332 | 4,164 | ||||||||||||||||||||
Commercial business | 786 | 794 | 1,580 | — | — | 372 | 1,952 | |||||||||||||||||||||
Unallocated | 385 | (385 | ) | — | — | — | — | — | ||||||||||||||||||||
Total | $ | 16,116 | $ | 2,209 | $ | 18,325 | $ | (2,668 | ) | $ | 93 | $ | 1,195 | $ | 16,945 | |||||||||||||
The ACLL decreased $352,000 during the three months ended September 30, 2023. Charge-offs during the third quarter of 2023 were mainly concentrated in unsecured consumer loans purchased through the Splash program. The recovery adjustment is due to a reclassification of funds received from the Splash program which had been recorded as a recovery in the second quarter of 2023. The provision for ACLL reflects higher loss factors in one-to-four family, commercial business and multi-family loans based on our assumptions.
The post-adoption ACLL decreased $1.4 million during the nine months ended September 30, 2023, with $2.6 million of year-to-date net charge-offs partially offset by the provision for ACLL. The ACLL provision expense during the nine months ended September 30, 2023, was the result of higher loan balances combined with high loss factors due to the impact of changes in U.S. gross domestic product and unemployment on our model assumptions.
The following table details activity in the ALLL by class for the period shown under the incurred loss methodology:
At or For the Three Months Ended September 30, 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 | $ | 3,026 | $ | 2,168 | $ | 4,154 | $ | 2,550 | $ | 486 | $ | 2,367 | $ | 680 | $ | 316 | $ | 15,747 | ||||||||||||||||||
Provision for (recapture of) loan losses | 188 | 164 | (45 | ) | (36 | ) | 9 | 428 | 14 | 28 | 750 | |||||||||||||||||||||||||
Charge-offs | — | — | — | — | — | (265 | ) | — | — | (265 | ) | |||||||||||||||||||||||||
Recoveries | — | — | — | — | 12 | 29 | — | — | 41 | |||||||||||||||||||||||||||
Ending balance | $ | 3,214 | $ | 2,332 | $ | 4,109 | $ | 2,514 | $ | 507 | $ | 2,559 | $ | 694 | $ | 344 | $ | 16,273 | ||||||||||||||||||
At or For the Nine Months Ended September 30, 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 | $ | 3,184 | $ | 1,816 | $ | 3,996 | $ | 2,672 | $ | 407 | $ | 2,221 | $ | 470 | $ | 358 | $ | 15,124 | ||||||||||||||||||
(Recapture of) provision for loan losses | (2 | ) | 516 | 113 | (160 | ) | 71 | 644 | 82 | (14 | ) | 1,250 | ||||||||||||||||||||||||
Charge-offs | — | — | — | — | — | (475 | ) | — | — | (475 | ) | |||||||||||||||||||||||||
Recoveries | 32 | — | — | 2 | 29 | 169 | 142 | — | 374 | |||||||||||||||||||||||||||
Ending balance | $ | 3,214 | $ | 2,332 | $ | 4,109 | $ | 2,514 | $ | 507 | $ | 2,559 | $ | 694 | $ | 344 | $ | 16,273 | ||||||||||||||||||
The following table details the ALLL and loan portfolio by class and impairment method for the period shown under the incurred loss methodology:
At December 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 | $ | 3,343 | $ | 2,468 | $ | 4,217 | $ | 2,344 | $ | 549 | $ | 2,024 | $ | 786 | $ | 385 | $ | 16,116 | ||||||||||||||||||
General reserve | 3,321 | 2,468 | 4,217 | 2,343 | 545 | 2,019 | 786 | 385 | 16,084 | |||||||||||||||||||||||||||
Specific reserve | 22 | — | — | 1 | 4 | 5 | — | — | 32 | |||||||||||||||||||||||||||
Gross loans | $ | 343,825 | $ | 253,551 | $ | 390,246 | $ | 194,646 | $ | 52,322 | $ | 222,794 | $ | 76,996 | $ | — | $ | 1,534,380 | ||||||||||||||||||
Loans collectively evaluated (1) | 341,171 | 253,551 | 390,196 | 194,630 | 52,100 | 222,702 | 76,996 | — | 1,531,346 | |||||||||||||||||||||||||||
Loans individually evaluated (2) | 2,654 | — | 50 | 16 | 222 | 92 | — | — | 3,034 | |||||||||||||||||||||||||||
(1) Loans collectively evaluated for general reserves. | |||||||||||||||||||||||||||||||||||
(2) Loans individually evaluated for specific reserves. |
Impaired loans incurred loss model. Prior to the implementation of CECL on January 1, 2023, a loan was considered impaired when the Bank has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan. Impairment was measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying TDR loans.
The following table provides additional information on loans individually evaluated for impairment by portfolio class at the date indicated under the incurred loss methodology. Recorded investment includes the unpaid principal balance or carrying amount of loans less charge-offs.
December 31, 2022 | ||||||||||||
| Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||||
(In thousands) | ||||||||||||
With no allowance recorded: | ||||||||||||
One-to-four family | $ | 666 | $ | 705 | $ | — | ||||||
Commercial real estate | 50 | 149 | — | |||||||||
Construction and land | — | 14 | — | |||||||||
Auto and other consumer | — | 2 | — | |||||||||
Total | 716 | 870 | — | |||||||||
With an allowance recorded: | ||||||||||||
One-to-four family | 1,988 | 2,129 | 22 | |||||||||
Construction and land | 16 | 19 | 1 | |||||||||
Home equity | 222 | 224 | 4 | |||||||||
Auto and other consumer | 92 | 95 | 5 | |||||||||
Total | 2,318 | 2,467 | 32 | |||||||||
Total impaired loans: | ||||||||||||
One-to-four family | 2,654 | 2,834 | 22 | |||||||||
Commercial real estate | 50 | 149 | — | |||||||||
Construction and land | 16 | 33 | 1 | |||||||||
Home equity | 222 | 224 | 4 | |||||||||
Auto and other consumer | 92 | 97 | 5 | |||||||||
Total | $ | 3,034 | $ | 3,337 | $ | 32 | ||||||
The following table presents the average recorded investment in loans individually evaluated for impairment and the related interest income recognized for the period shown under the incurred loss methodology:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2022 | September 30, 2022 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
(In thousands) | ||||||||||||||||
With no allowance recorded: | ||||||||||||||||
One-to-four family | $ | 211 | $ | 1 | $ | 259 | $ | 1 | ||||||||
Commercial real estate | 56 | — | 63 | — | ||||||||||||
Construction and land | 583 | 1 | 194 | 1 | ||||||||||||
Home equity | — | — | 3 | — | ||||||||||||
Auto and other consumer | 239 | 5 | 246 | 14 | ||||||||||||
Total | 1,089 | 7 | 765 | 16 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
One-to-four family | 2,258 | 51 | 2,138 | 120 | ||||||||||||
Commercial real estate | — | — | 7 | — | ||||||||||||
Construction and land | 18 | — | 21 | — | ||||||||||||
Home equity | 232 | 3 | 273 | 8 | ||||||||||||
Auto and other consumer | 33 | 1 | 104 | 2 | ||||||||||||
Total | 2,541 | 55 | 2,543 | 130 | ||||||||||||
Total impaired loans: | ||||||||||||||||
One-to-four family | 2,469 | 52 | 2,397 | 121 | ||||||||||||
Commercial real estate | 56 | — | 70 | — | ||||||||||||
Construction and land | 601 | 1 | 215 | 1 | ||||||||||||
Home equity | 232 | 3 | 276 | 8 | ||||||||||||
Auto and other consumer | 272 | 6 | 350 | 16 | ||||||||||||
Total | $ | 3,630 | $ | 62 | $ | 3,308 | $ | 146 | ||||||||
Interest income recognized on a cash basis on impaired loans for the three and nine months ended September 30, 2022, was $42,000 and $126,000, respectively, under the incurred loss methodology.
Allowance for Credit Losses on Unfunded Loan Commitments. The Company maintains an ACL for off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities on the consolidated balance sheets. The allowance for unfunded commitments was $828,000 at September 30, 2023, a decrease compared to $1.9 million at the adoption of CECL on January 1, 2023. Included in the year-to-date provision for credit loss expense was a provision recapture for unfunded commitments of $509,000 and $1.0 million for the three and nine months ended September 30, 2023, respectively, primarily attributable to construction loan disbursements resulting in lower unfunded commitments.
Note 5 - Deposits
Deposits and weighted-average interest rates at the dates indicated by accrualare as follows:
September 30, 2023 | December 31, 2022 | |||||||||||||||
Amount | Weighted-Average Interest Rate | Amount | Weighted-Average Interest Rate | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Noninterest-bearing demand deposits | $ | 269,800 | — | % | $ | 315,083 | — | % | ||||||||
Interest-bearing demand deposits | 182,361 | 0.52 | % | 193,558 | 0.01 | % | ||||||||||
Money market accounts | 372,706 | 1.28 | % | 473,009 | 0.58 | % | ||||||||||
Savings accounts | 253,182 | 1.45 | % | 200,920 | 0.26 | % | ||||||||||
Certificates of deposit | 579,713 | 3.93 | % | 381,685 | 2.19 | % | ||||||||||
Total deposits | $ | 1,657,762 | 1.94 | % | $ | 1,564,255 | 0.74 | % | ||||||||
Brokered certificates of deposit of $169.6 million and nonaccrual status.
| 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 | |||||||||||
| 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 | % | |||||||
Maturities of certificates at the dates indicated are as follows:
| 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 | ||||
September 30, 2023 | December 31, 2022 | |||||||
(In thousands) | ||||||||
Within one year or less | $ | 449,211 | $ | 262,189 | ||||
After one year through two years | 105,169 | 69,967 | ||||||
After two years through three years | 9,780 | 37,032 | ||||||
After three years through four years | 10,863 | 7,409 | ||||||
After four years through five years | 4,690 | 5,088 | ||||||
Total certificates of deposit | $ | 579,713 | $ | 381,685 | ||||
At September 30, 20172023 and June 30, 2017,December 31, 2022, deposits included $51.6$109.4 million and $54.5$93.3 million, respectively, in public fund deposits. InvestmentThe Bank had an outstanding letter of credit from the Federal Home Loan Bank of Des Moines ("FHLB") with a notional amount of $60.0 million at September 30, 2023, to secure public deposits and pledged investment securities with a carrying value of $41.3 million and $41.8$57.1 million were pledged as collateral for these deposits at September 30, 2017 and June 30, 2017, respectively.December 31, 2022. This exceeds the minimum collateral requirements established by the Washington Public Deposit Protection Commission.
Interest on deposits by type for the periods shown was as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(In thousands) | ||||||||||||||||
Demand deposits | $ | 204 | $ | 16 | $ | 599 | $ | 58 | ||||||||
Money market accounts | 1,146 | 468 | 2,866 | 1,089 | ||||||||||||
Savings accounts | 918 | 24 | 2,056 | 76 | ||||||||||||
Certificates of deposit | 5,431 | 743 | 12,740 | 1,541 | ||||||||||||
Total interest expense on deposits | $ | 7,699 | $ | 1,251 | $ | 18,261 | $ | 2,764 | ||||||||
| 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 | ||||
Note 56 - Borrowings
First Fed is a member of the FHLB. As a member, First Fed has a committed line of credit of up to 45% of total assets, subject to the amount of FHLB stock ownership and certain collateral requirements.
First Fed maintains borrowing arrangements with the FHLB to borrow funds primarily under long-term, fixed-rate advance agreements. First Fed also has overnight borrowings through FHLB which renew daily until paid. First Fed periodically uses fixed-rate advances maturing in less than one year as an alternative source of funds. All borrowings are secured by collateral consisting of single-family, home equity, commercial real estate, and multi-family loans receivable in the amounts of $885.7 million and $753.7 million at September 30, 2023 and December 31, 2022, respectively. The Bank had outstanding letters of credit from the FHLB with notional amounts of $60.0 million to secure public deposits and $772,000 to secure the Bellevue, Washington branch lease at September 30, 2023.
First Fed also has an established borrowing arrangement with the Federal TaxesReserve Bank of San Francisco ("FRB") to utilize the discount window for short-term borrowing. Available borrowing capacity was $8.58 million and $8.57 million at September 30, 2023 and December 31, 2022, respectively. No funds have been borrowed to date. Investment securities with a carrying value of $9.02 million and $8.99 million were pledged to the FRB at September 30, 2023 and December 31, 2022, respectively.
On March 25, 2021, the Company completed a private placement of $40.0 million of 3.75% fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and institutional accredited investors. The net proceeds to the Company from the sale of the Notes were approximately $39.3 million after deducting placement agent fees and other offering expenses. The Notes have been structured to qualify as Tier 2 capital for the Company for regulatory capital purposes. The Company used the net proceeds of the offering for general corporate purposes.
On May 20, 2022, First Northwest consummated a borrowing arrangement with NexBank for a $20.0 million revolving line of credit. Borrowings are secured by a blanket lien on First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The line of credit matures on May 18, 2024, with the option for one364-day extension.
In June 2023, First Fed established a Bank Term Funding ("BTFP") borrowing arrangement with the FRB as an additional source of liquidity. Available borrowing capacity was $18.3 million at September 30, 2023. No funds have been borrowed to date. Investment securities with a carrying value of $15.0 million were pledged to secure the BTFP at September 30, 2023.
The following table sets forth information regarding our borrowings at the end of and during the nine months ended September 30, 2023. The table includes both long- and short-term borrowings.
FHLB Long-Term Advances | FHLB Overnight Variable-Rate Advances | FHLB Short-Term Fixed-Rate Advances | Line of Credit | Subordinated Debt, net | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance outstanding | $ | 80,000 | $ | 168,000 | $ | 5,000 | $ | 8,000 | $ | 39,416 | ||||||||||
Maximum outstanding at any month-end | 85,000 | 189,000 | 95,000 | 11,000 | 39,416 | |||||||||||||||
Average monthly outstanding during the period | 82,222 | 141,444 | 32,222 | 10,249 | 39,384 | |||||||||||||||
Weighted-average daily interest rates | ||||||||||||||||||||
Annual | 1.96 | % | 5.15 | % | 5.08 | % | 9.06 | % | 4.02 | % | ||||||||||
Period End | 2.09 | % | 5.53 | % | 5.27 | % | 9.00 | % | 4.01 | % | ||||||||||
The amounts by year of maturity and weighted-average interest rate of FHLB long-term, fixed-rate advances at September 30, 2023 are as follows:
Amount | Weighted- Average Interest Rate | |||||||
(Dollars in thousands) | ||||||||
Within one year or less | $ | 25,000 | 2.76 | % | ||||
After one year through two years | 20,000 | 2.12 | ||||||
After two years through three years | 15,000 | 1.49 | ||||||
After three years through four years | 10,000 | 1.63 | ||||||
After four years through five years | 10,000 | 1.76 | ||||||
Total FHLB long-term advances | $ | 80,000 | 2.09 | % | ||||
The following table sets forth information regarding our borrowings at the end of and during the year ended December 31, 2022. The table includes both long- and short-term borrowings.
FHLB Long-Term Advances | FHLB Overnight Variable-Rate Advances | FHLB Short-Term Fixed-Rate Advances | Line of Credit | Subordinated Debt, net | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance outstanding | $ | 80,000 | $ | 144,000 | $ | 10,000 | $ | 12,000 | $ | 39,358 | ||||||||||
Maximum outstanding at any month-end | 80,000 | 206,000 | 42,500 | 12,000 | 39,358 | |||||||||||||||
Average monthly outstanding during the period | 80,000 | 90,983 | 15,208 | 5,770 | 39,312 | |||||||||||||||
Weighted-average daily interest rates | ||||||||||||||||||||
Annual | 1.52 | % | 2.83 | % | 1.82 | % | 6.76 | % | 4.01 | % | ||||||||||
Period End | 1.52 | % | 4.30 | % | 2.12 | % | 8.00 | % | 4.01 | % | ||||||||||
Note 7 - 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 24.7%19.9% and 33.9%19.4% for the threenine months ended September 30, 2017 2023 and 2016,2022, respectively. The Company'seffective tax rate is reducedrates differ from the statutory maximum federal tax rate in part as a resultfor 2023 and 2022 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. In the second quarter of 2022, the Company began accruing a provision for income tax for certain states in which we have both employees and collateral for loans, thereby creating a nexus in those states for income tax purposes.
Note 68 - Earnings per Common Share
The two-class method is used for computing basic and diluted earnings per shareshare. 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.
The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the three and nine months ended September 30, 2017 2023 and 2016.
| 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 | |||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(In thousands, except share data) | ||||||||||||||||
Net income: | ||||||||||||||||
Net income available to common shareholders | $ | 2,504 | $ | 4,291 | $ | 7,808 | $ | 9,585 | ||||||||
Earnings allocated to participating securities | (11 | ) | (35 | ) | (39 | ) | (92 | ) | ||||||||
Earnings allocated to common shareholders | $ | 2,493 | $ | 4,256 | $ | 7,769 | $ | 9,493 | ||||||||
Basic: | ||||||||||||||||
Weighted average common shares outstanding | 9,631,929 | 9,955,322 | 9,666,900 | 9,979,152 | ||||||||||||
Weighted average unvested restricted stock awards | (125,338 | ) | (212,930 | ) | (143,326 | ) | (231,253 | ) | ||||||||
Weighted average unallocated ESOP shares | (600,065 | ) | (648,571 | ) | (613,183 | ) | (661,670 | ) | ||||||||
Total basic weighted average common shares outstanding | 8,906,526 | 9,093,821 | 8,910,391 | 9,086,229 | ||||||||||||
Diluted: | ||||||||||||||||
Basic weighted average common shares outstanding | 8,906,526 | 9,093,821 | 8,910,391 | 9,086,229 | ||||||||||||
Dilutive restricted stock awards | 28,356 | 44,302 | 20,013 | 69,584 | ||||||||||||
Total diluted weighted average common shares outstanding | 8,934,882 | 9,138,123 | 8,930,404 | 9,155,813 | ||||||||||||
Basic earnings per common share | $ | 0.28 | $ | 0.47 | $ | 0.87 | $ | 1.04 | ||||||||
Diluted earnings per common share | $ | 0.28 | $ | 0.47 | $ | 0.87 | $ | 1.04 | ||||||||
Potentially dilutive shares are excluded from the computation of EPS if their effect is anti-dilutive. Restricted stock awards of 2,718 shares were not included in the computation of diluted EPS at At September 30, 2017. There were no anti-dilutive2023 and 2022, antidilutive shares at September 30, 2016.as calculated under the treasury stock method totaled 13,582 and 2,617, respectively.
Note 79 - 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. A $835,000 principal and interest payment was made by the ESOP during the nine months ended September 30, 2023.
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 September 30, 2017 2023 and 20162022, was $210,000$167,000 and $195,000,$216,000, respectively.
Shares held byissued to the ESOP as of the dates indicated are as follows:
September 30, 2023 | December 31, 2022 | |||||||
(Dollars in thousands) | ||||||||
Allocated shares | 439,174 | 386,285 | ||||||
Committed to be released shares | 13,257 | 26,442 | ||||||
Unallocated shares | 595,598 | 635,302 | ||||||
Total ESOP shares issued | 1,048,029 | 1,048,029 | ||||||
Fair value of unallocated shares | $ | 7,308 | $ | 9,758 | ||||
| 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 | |||
Note 810 - Stock-based Compensation
In May 2020, the Company's shareholders approved the First Northwest Bancorp 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, 2017,2023, there were 1,394,05085,490 total shares available for grant under the 20152020 EIP, including 84,014 sharesall of which are available to be granted as restricted stock.
As a result of the three months ended approval 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 September 30, 2017, 50,0002023, there were no shares of restricted stock were awarded and no stock options were granted. available for grant under the 2015 EIP. At this date, there are 34,920 shares granted under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.
There were 402,50032,449 and 55,443 shares of restricted stock awarded, respectively, during the threenine months ended September 30, 2016.2023 and 2022. 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.
For the three months ended September 30, 2017 2023 and 2016,2022, total compensation expense for the 2015 EIPequity incentive plans was $321,000$349,000 and $256,000,$404,000, respectively.
For the nine months ended September 30, 2023 and 2022, total compensation expense for the equity incentive plans was $1.1 million and $1.3 million, respectively. Included in the compensation expense for the nine months ended September 30, 2023 and 2022, was directors' equity compensation of $190,000 and $189,000, respectively.
The following 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 | ||||||||
September 30, 2023 | ||||||||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Non-vested at July 1, 2023 | 132,918 | $ | 16.50 | |||||
Granted | 3,100 | 12.17 | ||||||
Vested | (10,820 | ) | 14.60 | |||||
Canceled (1) | (3,606 | ) | 14.60 | |||||
Forfeited | (1,182 | ) | 20.02 | |||||
Non-vested at September 30, 2023 | 120,410 | $ | 16.59 | |||||
(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. | ||||||
| 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 | |||||
For the Nine Months Ended | ||||||||
September 30, 2023 | ||||||||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Non-vested at January 1, 2023 | 166,839 | $ | 17.78 | |||||
Granted | 32,449 | 13.90 | ||||||
Vested | (49,273 | ) | 18.11 | |||||
Canceled (1) | (15,412 | ) | 18.11 | |||||
Forfeited | (14,193 | ) | 17.51 | |||||
Non-vested at September 30, 2023 | 120,410 | $ | 16.59 | |||||
(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. | ||||||||
As of September 30, 2017,2023, there was $4.5$1.2 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 3.91.34 years.
Note 911 - 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: wheresale: 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.
Partnership investments: Management determines fair value using quoted prices of similar investments or discounted cash flows, which are considered Level 2, when available. Where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. The Company believes that the net asset value obtained through financial statements provided by each partnership approximates fair value. Such instruments are classified as Level 3.
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.
Loans receivable, net: The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans and leases would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.
Interest rate swap derivative: The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third-party pricing services without adjustment.
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 and liabilities measured at fair value on a recurring basis at the dates indicated:
September 30, 2023 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Financial Assets | (In thousands) | |||||||||||||||
Securities available-for-sale | ||||||||||||||||
Municipal bonds | $ | 4,637 | $ | 89,358 | $ | — | $ | 93,995 | ||||||||
U.S. Treasury notes | 2,377 | — | — | 2,377 | ||||||||||||
Agency bonds | — | 1,703 | — | 1,703 | ||||||||||||
Corporate debt | 5,376 | 48,959 | — | 54,335 | ||||||||||||
MBS agency | — | 66,946 | — | 66,946 | ||||||||||||
MBS non-agency | — | 60,776 | 29,192 | 89,968 | ||||||||||||
Sold loan servicing rights | — | — | 3,729 | 3,729 | ||||||||||||
Partnership investments | — | — | 12,787 | 12,787 | ||||||||||||
Interest rate swap derivative | — | 576 | — | 576 | ||||||||||||
Total assets measured at fair value | $ | 12,390 | $ | 268,318 | $ | 45,708 | $ | 326,416 | ||||||||
December 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 | |||||||||||||
Financial Assets | (In thousands) | |||||||||||||||
Securities available-for-sale | ||||||||||||||||
Municipal bonds | $ | 4,913 | $ | 93,137 | $ | — | $ | 98,050 | ||||||||
U.S. Treasury notes | 2,364 | — | — | 2,364 | ||||||||||||
Agency bonds | — | 1,702 | — | 1,702 | ||||||||||||
Corporate debt | 5,326 | 50,173 | — | 55,499 | ||||||||||||
MBS agency | — | 75,648 | — | 75,648 | ||||||||||||
MBS non-agency | — | 63,707 | 29,599 | 93,306 | ||||||||||||
Sold loan servicing rights | — | — | 3,887 | 3,887 | ||||||||||||
Partnership investments | — | — | 12,563 | 12,563 | ||||||||||||
Total assets measured at fair value | $ | 12,603 | $ | 284,367 | $ | 46,049 | $ | 343,019 | ||||||||
| 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 | ||||||||
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:
September 30, 2023 | Fair Value (In thousands) | Valuation Technique | Unobservable Input (1) | Range (Weighted Average) | |||||||
Sold loan servicing rights | $3,729 | Discounted cash flow | Constant prepayment rate | 5.36% - 34.46% (8.39%) | |||||||
Discount rate | 11.75% - 14.24% (12.56%) | ||||||||||
MBS non-agency | $29,192 | Consensus pricing | Offered quotes | 94.5 - 99.3 | |||||||
Comparability adjustments (%) | -3.97% - 0.87% | ||||||||||
Partnership investments | $12,787 | Net asset value per share | Net asset value | n/a | |||||||
(1) Unobservable inputs were weighted by the relative fair value of the instruments. | |||||||||||
The following table summarizes the changes in sold loan servicing rights, a Level 3 asset measured at fair value on a recurring basis, at the dates indicated:
As of or For the Three Months Ended September 30, | As of or For the Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(In thousands) | ||||||||||||||||
Balance at beginning of period | $ | 3,825 | $ | 3,865 | $ | 3,887 | $ | 3,820 | ||||||||
Servicing rights that result from transfers and sale of financial assets | 71 | 45 | 145 | 143 | ||||||||||||
Changes in fair value due to changes in model inputs or assumptions (1) | (167 | ) | (38 | ) | (303 | ) | (91 | ) | ||||||||
Balance at end of period | $ | 3,729 | $ | 3,872 | $ | 3,729 | $ | 3,872 | ||||||||
(1) Represents changes due to collection/realization of expected cash flows and curtailments. | ||||||||||||||||
The following tables summarize the changes in Level 3 securities available for sale and partnership investments, assets which are measured at fair value on a recurring basis, at the dates indicated:
As of or Three Months Ended September 30, 2023 | ||||||||||||||||||||
Balance at beginning of period | Transfers Into Level 3 | Purchases, net of Distributions | Unrealized (Losses) Gains | Balance at end of period | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
MBS non-agency | $ | 29,378 | $ | — | $ | — | $ | (186 | ) | $ | 29,192 | |||||||||
Partnership investments | 12,733 | — | (82 | ) | 136 | 12,787 | ||||||||||||||
| 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 | ||||||||
As of or For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||
Balance at beginning of period | Transfers Into Level 3 | Purchases, net of Distributions | Unrealized (Losses) Gains | Balance at end of period | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
MBS non-agency | $ | 29,599 | $ | — | $ | — | $ | (407 | ) | $ | 29,192 | |||||||||
Partnership investments | 12,563 | — | (69 | ) | 293 | 12,787 | ||||||||||||||
As of or For the Year Ended December 31, 2022 | ||||||||||||||||||||
Balance at beginning of period | Transfers Into Level 3 (1) | Purchases | Unrealized Gains | Balance at end of period | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
MBS non-agency | $ | — | $ | 29,599 | $ | — | $ | — | $ | 29,599 | ||||||||||
Sold loan servicing rights | — | 12,490 | — | 73 | 12,563 | |||||||||||||||
(1) Transferred from Level 2 to Level 3 in the fourth quarter of 2022 because of a lack of observable market data, resulting from little to no market activity for the investments. | ||||||||||||||||||||
Assets and liabilities measured at fair value on a nonrecurring basis - Assets are considered to be fair valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the consolidated balance sheets. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.
The following tables presenttable presents the Company’s assets measured at fair value on a nonrecurring basis at the datesdate 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 | ||||||||
December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | — | $ | — | $ | 3,034 | $ | 3,034 | ||||||||
At September 30, 20172023 and June 30, 2017,December 31, 2022, there were no 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:
September 30, 2023 | ||||||||||||||||||||
Fair Value Measurements Using: | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 83,886 | $ | 83,886 | $ | 83,886 | $ | — | $ | — | ||||||||||
Investment securities available for sale | 309,324 | 309,324 | 12,390 | 267,742 | 29,192 | |||||||||||||||
Loans held for sale | 689 | 689 | — | 689 | — | |||||||||||||||
Loans receivable, net | 1,618,033 | 1,486,050 | — | — | 1,486,050 | |||||||||||||||
FHLB stock | 12,621 | 12,621 | — | 12,621 | — | |||||||||||||||
Accrued interest receivable | 8,093 | 8,093 | — | 8,093 | — | |||||||||||||||
Sold loan servicing rights, at fair value | 3,729 | 3,729 | — | — | 3,729 | |||||||||||||||
Partnership investments | 12,787 | 12,787 | — | — | 12,787 | |||||||||||||||
Interest rate swap derivative | 576 | 576 | — | 576 | — | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Demand deposits | $ | 1,078,049 | $ | 1,078,049 | $ | 1,078,049 | $ | — | $ | — | ||||||||||
Time deposits | 579,713 | 572,616 | — | — | 572,616 | |||||||||||||||
FHLB Borrowings | 253,000 | 248,031 | — | — | 248,031 | |||||||||||||||
Line of Credit | 8,000 | 8,030 | — | — | 8,030 | |||||||||||||||
Subordinated debt, net | 39,416 | 39,879 | — | — | 39,879 | |||||||||||||||
Accrued interest payable | 2,276 | 2,276 | — | 2,276 | — | |||||||||||||||
December 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 | $ | 45,596 | $ | 45,596 | $ | 45,596 | $ | — | $ | — | ||||||||||
Investment securities available for sale | 326,569 | 326,569 | 12,603 | 284,367 | 29,599 | |||||||||||||||
Loans held for sale | 597 | 597 | — | 597 | — | |||||||||||||||
Loans receivable, net | 1,531,435 | 1,461,470 | — | — | 1,461,470 | |||||||||||||||
FHLB stock | 11,681 | 11,681 | — | 11,681 | — | |||||||||||||||
Accrued interest receivable | 6,743 | 6,743 | — | 6,743 | — | |||||||||||||||
Sold loan servicing rights, at fair value | 3,887 | 3,887 | — | — | 3,887 | |||||||||||||||
Partnership investments | 12,563 | 12,563 | — | — | 12,563 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Demand deposits | 1,182,570 | $ | 1,182,570 | $ | 1,182,570 | $ | — | $ | — | |||||||||||
Time deposits | 381,685 | 372,865 | — | — | 372,865 | |||||||||||||||
FHLB Borrowings | 234,000 | 229,103 | — | — | 229,103 | |||||||||||||||
Line of Credit | 12,000 | 12,034 | — | — | 12,034 | |||||||||||||||
Subordinated debt, net | 39,358 | 38,841 | — | — | 38,841 | |||||||||||||||
Accrued interest payable | 455 | 455 | — | 455 | — | |||||||||||||||
| 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 | — | ||||||||||||||
Note 12- 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 | Unrealized Gains and Losses on Derivatives | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Balance at June 30, 2022 | $ | (26,653 | ) | $ | (1,794 | ) | $ | — | $ | (28,447 | ) | |||||
Other comprehensive loss before reclassification | (12,604 | ) | — | — | (12,604 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 28 | — | 28 | ||||||||||||
Net other comprehensive (loss) income | (12,604 | ) | 28 | — | (12,576 | ) | ||||||||||
Balance at September 30, 2022 | $ | (39,257 | ) | $ | (1,766 | ) | $ | — | $ | (41,023 | ) | |||||
Balance at June 30, 2023 | $ | (37,679 | ) | $ | (2,079 | ) | $ | (308 | ) | $ | (40,066 | ) | ||||
Other comprehensive loss before reclassification | (6,540 | ) | — | 727 | (5,813 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 29 | — | 29 | ||||||||||||
Net other comprehensive (loss) income | (6,540 | ) | 29 | 727 | (5,784 | ) | ||||||||||
Balance at September 30, 2023 | $ | (44,219 | ) | $ | (2,050 | ) | $ | 419 | $ | (45,850 | ) | |||||
Balance at December 31, 2021 | $ | 2,140 | $ | (1,852 | ) | $ | — | $ | 288 | |||||||
Other comprehensive loss before reclassification | (41,304 | ) | — | — | (41,304 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income | (93 | ) | 86 | — | (7 | ) | ||||||||||
Net other comprehensive (loss) income | (41,397 | ) | 86 | — | (41,311 | ) | ||||||||||
Balance at September 30, 2022 | $ | (39,257 | ) | $ | (1,766 | ) | $ | — | $ | (41,023 | ) | |||||
Balance at December 31, 2022 | $ | (38,404 | ) | $ | (2,139 | ) | $ | — | $ | (40,543 | ) | |||||
Other comprehensive loss before reclassification | (5,815 | ) | — | 419 | (5,396 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 89 | — | 89 | ||||||||||||
Net other comprehensive (loss) income | (5,815 | ) | 89 | 419 | (5,307 | ) | ||||||||||
Balance at September 30, 2023 | $ | (44,219 | ) | $ | (2,050 | ) | $ | 419 | $ | (45,850 | ) | |||||
Note 13 - Derivatives and Hedging Activities
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities other than investment securities are not traded in active markets. Estimated fair values require subjective judgments and are approximate. The estimatesthe use of fair valuederivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the previous table are not necessarily representativereceipt or payment of future known and uncertain cash amounts, that could be realized in actual market transactions, or of the underlying value of the Company. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments:
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in high volumes and in a liquid market.
For derivatives designated and that qualify as fair value of mortgage servicing rights is basedhedges, the gain or loss on market pricesthe derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
At September 30, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.
Line item in the income statement in which the hedged item is included | Carrying Amount of the Hedged Assets (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities) | ||||||
| (In thousands) | ||||||||
September 30, 2023 | ||||||||
Investment securities (1) | $ | 49,467 | $ | (533 | ) | |||
Total | $ | 49,467 | $ | (533 | ) | |||
(1) These amounts include the amortized cost basis of depositsa closed portfolio of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At September 30, 2023, the amortized cost basis of the closed portfolio used in this hedging relationship was $59.5 million, the cumulative basis adjustments associated with no stated maturity, suchthis hedging relationship was ($533,000), and the amount of the designated hedged items was $50.0 million.
The following table summarizes the Company’s derivative instruments at the date indicated. The Company has master netting agreements with derivative dealers with which it does business, but reflects gross assets and liabilities as non-interest bearing deposits, savings“Other assets” and interest checking accounts, and money market accounts,“Other liabilities,” respectively, on the Consolidated Balance Sheets, as follows:
Fair Value | ||||||||||||
Notional Amount | Other Assets | Other Liabilities | ||||||||||
| (In thousands) | ||||||||||||
September 30, 2023 | ||||||||||||
Fair value hedges: | ||||||||||||
Interest rate swaps - securities | $ | 50,000 | $ | 576 | $ | — | ||||||
The following table summarizes the effect of fair value accounting on the Consolidated Statements of Income for the periods shown:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(In thousands) | ||||||||||||||||
Total amounts recognized in interest on investment securities | $ | 3,368 | $ | 2,817 | $ | 9,886 | $ | 7,807 | ||||||||
Net gains (losses) on fair value hedging relationships | ||||||||||||||||
Interest rate swaps - securities | ||||||||||||||||
Recognized on hedged items | $ | (925 | ) | $ | — | $ | (533 | ) | $ | — | ||||||
Recognized on derivatives designated as hedging instruments | 1,071 | — | 817 | — | ||||||||||||
Net income recognized on fair value | $ | 146 | $ | — | $ | 284 | $ | — | ||||||||
Credit Risk-related Contingent Features
The Company is equalexposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the amount payable on demandunrealized gains in such contracts should any of these counterparties fail to perform as of contracted.
The Company has an interest rate swap agreement with its derivative counterparty that contains a provision where if the Company either defaults or fails to maintain its status as a well or adequately capitalized institution, then the Company could be required to terminate the contract or post additional collateral. At September 30, 20172023, the Company had no derivatives in a net liability position related to this agreement. The Company has minimum collateral posting thresholds with its derivative counterparty and Junehas posted collateral of securities with par values totaling $55.8 million and cash of $790,000 to secure the interest rate swap agreement at September 30, 2017. The fair value2023. In certain cases, the Company will have posted excess collateral compared to total exposure due to initial margin requirements or day-to-day rate volatility.
As of certificatesSeptember 30, 2023, the Company was in compliance with all credit risk-related contingent features. Given the considerations described above, the Company considers the impact of deposit is based on the discounted valuerisk of contractual cash flows. The discount rate is estimated using the rates currently offered for depositscounterparty default to be immaterial.
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”"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; and | |
| • | estimates of our risks and future costs and benefits. |
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 risks associated with lending and potential adverse changes in the credit quality of loans in our portfolio; | |
| • | legislative or regulatory changes, including expanded consumer protection regulation, responses to recent events in the banking industry, inflation and climate change issues, which could adversely affect the Company's business; | |
• | continued depressed market demand for loans that we originate for sale; | |
• | our ability to control operating costs and expenses; | |
• | whether our management team can succeed in implementing 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, integrate any newly acquired assets, liabilities, customers, systems, and management personnel into our operations and realize related cost savings within expected time frames; | |
• | our ability to successfully execute on growth strategies related to our entry into new markets and delivery channels, including banking as a service; | |
• | 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 monetary policy and fiscal policies, including interest rate policies of the Federal Reserve, and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources; | |
| • | pressures on liquidity, including as a result of withdrawals of deposits or declines in the value of our investment portfolio; | |
• | 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 at a reasonable cost; | |
• | changes in consumer spending, borrowing and savings habits, resulting in reduced demand for banking products and services, particularly in the event of a recession that affects our market areas; | |
• | results of examinations 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; | |
• | 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; | |
| • | risks related to overall economic conditions, including the impact on the economy of a rising interest rate environment, inflationary pressures, and geopolitical instability, including the wars in Ukraine and the Middle East; | |
• | any failure of key third-party vendors to perform their obligations to us; | |
| • | the effects of any reputational damage to the Company resulting from any of the foregoing; 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2022, ("2022 Form 10-K"). |
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 (or the "Company") is a bank holding company which primarily engagesand a financial holding company and is engaged in the business activity ofbanking activities through its wholly owned subsidiary, First Federal SavingsFed Bank, as well as certain non-banking financial activities. Non-financial investments include several limited partnership investments, including a 33.3% interest in The Meriwether Group, LLC ("MWG"). The Company's business activities are generally focused on passive investment activities and Loan Associationoversight of Port Angeles ("the activities of First Federal" or the "Bank"). Fed. The Company also entered into partnerships to strategically invest in fintech-related businesses, which may result in additional investment opportunities.
First FederalFed Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businessesfounded in Western Washington State.1923 in Port Angeles, Washington. We have twelve banking16 locations including 12 full-service branches and four business centers in Washington State, eight of which are located within Clallam, Jefferson, King, Kitsap, and Jefferson counties, one in Kitsap County, two in Whatcom County,counties. 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).
First FederalNorthwest's limited partnership investments include Canapi Ventures Fund, LP; BankTech Ventures, LP; and JAM FINTOP Blockchain, LP. These limited partnerships invest in fintech-related businesses with a focus on developing digital solutions applicable to the banking industry. In 2022, First Northwest acquired a 33% interest in MWG, a boutique investment bank and consulting firm focused on providing entrepreneurs with resources to help them succeed. Also in 2022, the Company acquired a 25% equity interest as a general partner in Meriwether Group Capital, LLC ("MWGC"), which provides financial advice for borrowers and capital for the Meriwether Group Capital Hero Fund LP ("Hero Fund"). The Hero Fund is significantly affecteda private commercial lender focused on lower-middle market businesses, primarily in the Pacific Northwest. First Northwest also has a limited partnership investment in the Hero Fund. MWG also holds a 20% general partner interest in MWGC.
First Northwest is impacted 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 and pricing for loan 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 ofour asset and liability mix, market and portfolio interest rates and cash flows from existing assets and liabilities affect our net interest income. A secondary source of income for the Company is noninterest income, which includes revenue we receiveearned from providing
An offset to net interest income is the provision for loancredit losses, which represents the periodic charge to operations whichthat is required to adequately provide for probable losses inherent in our investment, loan portfolio. As a loan's risk rating improves, property values increase, or recoveries of amounts previously charged off are received, aand unfunded commitment portfolios through the ACL. A recapture of previously recognized provision for loancredit 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 other customer acquisition expenses, legal and other professional fees, expenses related to real estate and personal property owned, and other miscellaneous expenses.
On January 1, 2023, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, referred to as the Current Expected Credit Loss or CECL model. In conjunction with the adoption of CECL, the Company also adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. For additional information on these ASUs, see "Note 1 - Basis of Presentation and Critical Accounting Policies - Recently adopted accounting pronouncements" of the Notes to the Consolidated Financial Statements included in Part I. Item 1 of this report.
Effective with the execution of a hedging agreement in the first quarter of 2023, the Company implemented an accounting policy on derivatives and hedging. For additional information on the hedging policy, see "Note 1 - Basis of Presentation and Critical Accounting Policies - Recently adopted accounting pronouncements" of the Notes to the Consolidated Financial Statements included in Part I. Item 1 of this report.
There arewere no other material changes to the critical accounting policies asfrom those disclosed in the Company's Annual Report on2022 Form 10-K for the fiscal year ended June 30, 2017.10-K.
Comparison of Financial Condition at September 30, 20172023 and June 30, 2017
Assets
. Total assets increasedCash and cash equivalents increased by $38.3 million, or 21.6%84.0%, to $83.9 million as of September 30, 2023, compared to $45.6 million as of December 31, 2022. Cash increased during the current year as the Bank increased balance sheet liquidity in investmentresponse to stresses within the banking industry and related concerns with respect to uncertainty pertaining to deposit costs and retention.
Investment securities decreased $17.3 million, or 5.3%, to $341.2$309.3 million at September 30, 2017,2023, from $280.5$326.6 million at June 30, 2017.December 31, 2022. The increase in investment securitiesdecrease was part of management's strategic plandue to leverage low cost depositsnormal payments and borrowings to generate additional interest income from investments.
| 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 | ||||||||
| 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 | |||
| 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 | % | |||
Included in MBS non-agency are $58.7 million of commercial mortgage-backed securities ("CMBS"), of which 85.6%, or $50.2 million, are in "A" tranches. The majority of the remaining 14.4%, or $8.5 million, are in "B" tranches, with one investment in a "C" tranche. Our largest exposure is to long-term care facilities, which makes up 53.9%, or $31.7 million, of our private label CMBS securities. All of the CMBS bonds have credit enhancements that further reduce risk of loss on these investments.
The investment portfolio was composed of 49.0% in amortizing securities at September 30, 2017, and the2023, compared to 50.8% at December 31, 2022. The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, which is generally affectedimpacted by changingprevailing market interest rates. Management continuesSecurities are bought and sold to focus on improvingmanage liquidity, improve long-term portfolio yields and manage interest rate risk in the mix of earning assets by originating loans and decreasing securities as a percentage of earning assets; however, we may purchase investment securities as a source of additional interest income as part of our leveraging strategy and also in lieu of carrying higher cash
Net loans, excluding loans held for sale, increased $62.4$86.6 million to $1.62 billion at September 30, 2023, from $1.53 billion at December 31, 2022. During the nine months ended September 30, 2023, multi-family loans increased $72.8 million through new originations totaling $40.1 million, and $27.8 million of construction loans converting into permanent amortizing loans, including $17.8 million of acquisition-renovation loans. One-to-four family residential loans increased $26.4 million as a result of $3.3 million in new amortizing loan originations and $48.0 million of residential construction loans that converted to permanent amortizing loans, partially offset by loan prepayments totaling $17.5 million and $7.4 million of scheduled payments received. Commercial business loans increased $24.5 million as a result of $15.2 million of Bankers Healthcare Group loan purchases and $9.2 million of organic originations and draws on existing commitments in excess of payoffs and scheduled payments. Home equity loans increased $11.6 million primarily as a result of $5.7 million in new fixed-rate originations and $7.7 million in new home equity lines of credit, offset by payment activity. Auto and other consumer loans increased $9.9 million, due to a $14.3 million purchase of a pool of manufactured home loans and $2.8 million in individual manufactured home loan purchases, offset by a net decrease in auto loans of $1.3 million and payment activity. Commercial real estate loans decreased $7.3 million, with early payoffs and scheduled payments in excess of the $4.3 million from construction loans that converted into permanent amortizing loans.
Construction and land loans decreased $50.2 million, or 6.9%25.9%, to $972.4$143.4 million at September 30, 2017,2023, from $910.0$193.7 million at JuneDecember 31, 2022, with $77.6 million converting into fully amortizing loans and additional decreases from loans being paid in full, partially offset by draws on new and existing loans. Construction loans in the portfolio are geographically dispersed throughout western Washington with two loans in Oregon and two loans in Idaho. We manage construction lending by utilizing a licensed third-party vendor to assist us in monitoring the progress toward completion of our construction projects. We continue to monitor the impact of supply chain challenges, inflation and consumer demand in a rising interest rate environment on completion of the projects currently in the portfolio. As of the date of this report, we have no reason to believe that any of the projects in process will not be completed. At September 30, 2017,2023, no acquisition-renovation loans were included in the construction loan total compared to $19.3 million at December 31, 2022. These commercial acquisition-renovation loans represent financing primarily for the resultacquisition of an increasemulti-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. At September 30, 2023, 42% of construction commitments were for one-to-four family residential properties, which are anticipated to convert into amortizing loans upon completion.
We monitor real estate values and general economic conditions in FHLB borrowingsour market areas, in addition to assessing the strength of our borrowers, including their equity contributions to a project, to prudently underwrite construction loans. We continually assess our lending strategies across all product lines and customer deposits. FHLB borrowings increased $34.3markets where we do business to improve earnings while also prudently managing credit risk.
The following tables show our construction commitments by type and geographic concentrations at the dates indicated:
September 30, 2023 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Idaho | Total | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Construction Commitment | ||||||||||||||||||||||||
One-to-four family residential | $ | 14,635 | $ | 60,461 | $ | 7,577 | $ | 540 | $ | — | $ | 83,213 | ||||||||||||
Multi-family residential | — | 76,905 | 9,221 | 415 | 3,592 | 90,133 | ||||||||||||||||||
Commercial real estate | — | 24,238 | — | — | — | 24,238 | ||||||||||||||||||
Total commitment | $ | 14,635 | $ | 161,604 | $ | 16,798 | $ | 955 | $ | 3,592 | $ | 197,584 | ||||||||||||
Construction Funds Disbursed | ||||||||||||||||||||||||
One-to-four family residential | $ | 6,277 | $ | 36,418 | $ | 4,866 | $ | 173 | $ | — | $ | 47,734 | ||||||||||||
Multi-family residential | — | 60,643 | 5,679 | 85 | 3,334 | 69,741 | ||||||||||||||||||
Commercial real estate | — | 19,498 | — | — | — | 19,498 | ||||||||||||||||||
Total disbursed | $ | 6,277 | $ | 116,559 | $ | 10,545 | $ | 258 | $ | 3,334 | $ | 136,973 | ||||||||||||
Undisbursed Commitment | ||||||||||||||||||||||||
One-to-four family residential | $ | 8,358 | $ | 24,043 | $ | 2,711 | $ | 367 | $ | — | $ | 35,479 | ||||||||||||
Multi-family residential | — | 16,262 | 3,542 | 330 | 258 | 20,392 | ||||||||||||||||||
Commercial real estate | — | 4,740 | — | — | — | 4,740 | ||||||||||||||||||
Total undisbursed | $ 8,358 | $ 45,045 | $ 6,253 | $ 697 | $ 258 | $ 60,611 | ||||||||||||||||||
Land Funds Disbursed | ||||||||||||||||||||||||
One-to-four family residential | $ | 3,639 | $ | 3,033 | $ | 274 | $ | — | $ | — | $ | 6,946 | ||||||||||||
Total disbursed for land | $ | 3,639 | $ | 3,033 | $ | 274 | $ | — | $ | — | $ | 6,946 | ||||||||||||
(1) Includes Clallam and Jefferson counties. |
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. |
December 31, 2022 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Idaho | Total | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Construction Commitment | ||||||||||||||||||||||||
One-to-four family residential | $ | 39,031 | $ | 75,745 | $ | 12,015 | $ | — | $ | — | $ | 126,791 | ||||||||||||
Multi-family residential | — | 102,429 | 9,296 | 415 | 3,592 | 115,732 | ||||||||||||||||||
Commercial acquisition-renovation | 1,636 | 18,625 | — | — | — | 20,261 | ||||||||||||||||||
Commercial real estate | 349 | 39,845 | — | 540 | — | 40,734 | ||||||||||||||||||
Total commitment | $ | 41,016 | $ | 236,644 | $ | 21,311 | $ | 955 | $ | 3,592 | $ | 303,518 | ||||||||||||
Construction Funds Disbursed | ||||||||||||||||||||||||
One-to-four family residential | $ | 17,557 | $ | 36,902 | $ | 4,280 | $ | — | $ | — | $ | 58,739 | ||||||||||||
Multi-family residential | — | 68,936 | 5,296 | 42 | 2,752 | 77,026 | ||||||||||||||||||
Commercial acquisition-renovation | 1,636 | 17,687 | — | — | — | 19,323 | ||||||||||||||||||
Commercial real estate | 212 | 27,492 | — | 12 | — | 27,716 | ||||||||||||||||||
Total disbursed | $ | 19,405 | $ | 151,017 | $ | 9,576 | $ | 54 | $ | 2,752 | $ | 182,804 | ||||||||||||
Undisbursed Commitment | ||||||||||||||||||||||||
One-to-four family residential | $ | 21,474 | $ | 38,843 | $ | 7,735 | $ | — | $ | — | $ | 68,052 | ||||||||||||
Multi-family residential | — | 33,493 | 4,000 | 373 | 840 | 38,706 | ||||||||||||||||||
Commercial acquisition-renovation | — | 938 | — | — | — | 938 | ||||||||||||||||||
Commercial real estate | 137 | 12,353 | — | 528 | — | 13,018 | ||||||||||||||||||
Total undisbursed | $ | 21,611 | $ | 85,627 | $ | 11,735 | $ | 901 | $ | 840 | $ | 120,714 | ||||||||||||
Land Funds Disbursed | ||||||||||||||||||||||||
One-to-four family residential | $ | 3,552 | $ | 3,370 | $ | 419 | $ | — | $ | — | $ | 7,341 | ||||||||||||
Commercial real estate | 372 | 4,129 | — | — | — | 4,501 | ||||||||||||||||||
Total disbursed for land | $ | 3,924 | $ | 7,499 | $ | 419 | $ | — | $ | — | $ | 11,842 | ||||||||||||
(1) Includes Clallam and Jefferson counties. |
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. |
During the nine months ended September 30, 2023, the Company originated $171.5 million of organic loans, of which $122.8 million, or 44.3%71.6%, were originated in the Puget Sound region, $42.2 million, or 24.5%, in the North Olympic Peninsula, $3.0 million, or 1.8%, in other areas throughout Washington State, and $3.5 million, or 2.1%, in other states. The Company purchased an additional $33.2 million in auto loans, $17.1 million in manufactured home loans, and $15.2 million in commercial business loans with collateral located throughout the United States during the nine months ended September 30, 2023. We will continue to $111.7strategically evaluate opportunities to acquire assets through wholesale channels in order to supplement organic originations and increase net interest income. The Northpointe Mortgage Purchase Program ("Northpointe MPP") also provides a temporary source of additional interest income but is dependent on demand for funding, with repayment of advances to this program typically occurring within 30 days or less. The total loan portfolio was composed of 79.1% organic originations and 20.9% purchased loans at September 30, 2023.
The ACLL increased to $17.0 million at September 30, 2017, from $77.42023, as the Company adopted CECL on January 1, 2023, recording a day-one adjusting entry of $2.2 million. The Company made a $315,000 provision for credit loss on loans for the nine-month period. Net charge-offs were $2.5 million for the nine-month period. The ACLL as a percentage of total loans was 1.0% and 1.1% at JuneSeptember 30, 2017, as we utilized FHLB short-term Fed Funds borrowings during the quarter in order2023 and December 31, 2022, respectively.
Nonperforming loans increased $581,000, or 32.4%, to manage our cash flow needs and partially fund the purchase of investment securities. FHLB short-term Fed Funds borrowings increased to $51.7$2.4 million at September 30, 20172023, from $17.4$1.8 million at June 30, 2017, while long-term FHLB advances remained at $60.0 millionDecember 31, 2022, reflecting the deterioration of three mortgage loans totaling $836,000, partially offset by payments received on other nonperforming loans. Nonperforming loans to total loans was 0.1% at both September 30, 20172023 and JuneDecember 31, 2022. The ACLL as a percentage of nonperforming loans decreased to 714% at September 30, 2017. Customer deposits2023, down from 900% at December 31, 2022.
Classified loans increased $27.2$6.1 million or 3.3%, to $850.9$23.0 million at September 30, 2017,2023, from $823.8$16.9 million at June 30, 2017,December 31, 2022, due to downgrades of $2.9 million in commercial business loans, $1.3 million in commercial real estate loans, $1.1 million of additional funds disbursed on a substandard commercial construction loan, $862,000 for three single-family residential loans, along with delinquent unsecured consumer loans totaling $323,000 and home equity loans totaling $141,000.
Loan charge-offs are concentrated mainly in purchased unsecured consumer and indirect auto loans. The underwriting criteria for future loans purchased from the resultSplash unsecured consumer loan program were adjusted in an effort to minimize future losses. The Splash portfolio had loan balances of an increase of $9.3$8.7 million or 3.8%, in transaction accounts, $19.7 million, or 9.3%, in certificates of deposit, and $4.2 million, or 4.3%, in savings accounts, partially offset by a decrease of $6.0 million, or 2.3%, in money market accounts. Deposit account increases were primarily the result of our continuing efforts to expand commercial and consumer deposit relationships in Silverdale and Bellingham, Washington, as well as within our historic Clallam and Jefferson County, Washington locations.
Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated:
Increase (Decrease) | ||||||||||||||||
September 30, 2023 | December 31, 2022 | Amount | Percent | |||||||||||||
(In thousands) | ||||||||||||||||
Real Estate: | ||||||||||||||||
One-to-four family | $ | 369,950 | $ | 343,559 | $ | 26,391 | 7.7 | % | ||||||||
Multi-family | 325,496 | 252,745 | 72,751 | 28.8 | ||||||||||||
Commercial real estate | 381,508 | 388,884 | (7,376 | ) | (1.9 | ) | ||||||||||
Construction and land | 143,434 | 193,646 | (50,212 | ) | (25.9 | ) | ||||||||||
Total real estate loans | 1,220,388 | 1,178,834 | 41,554 | 3.5 | ||||||||||||
Consumer: | ||||||||||||||||
Home equity | 64,424 | 52,877 | 11,547 | 21.8 | ||||||||||||
Auto and other consumer | 248,786 | 238,913 | 9,873 | 4.1 | ||||||||||||
Total consumer loans | 313,210 | 291,790 | 21,420 | 7.3 | ||||||||||||
Commercial business loans | 101,380 | 76,927 | 24,453 | 31.8 | ||||||||||||
Total loans | 1,634,978 | 1,547,551 | 87,427 | 5.6 | ||||||||||||
Less: | ||||||||||||||||
Allowance for credit losses on loans | 16,945 | 16,116 | 829 | 5.1 | ||||||||||||
Loans receivable, net | $ | 1,618,033 | $ | 1,531,435 | $ | 86,598 | 5.7 | |||||||||
The following table represents nonperforming assets at the dates indicated.
Increase (Decrease) | ||||||||||||||||
September 30, 2023 | December 31, 2022 | Amount | Percent | |||||||||||||
(In thousands) | ||||||||||||||||
Nonperforming loans: | ||||||||||||||||
Real estate loans: | ||||||||||||||||
One-to-four family | $ | 1,790 | $ | 954 | $ | 836 | 87.6 | % | ||||||||
Commercial real estate | 34 | 53 | (19 | ) | (35.8 | ) | ||||||||||
Construction and land | 8 | 15 | (7 | ) | (46.7 | ) | ||||||||||
Total real estate loans | 1,832 | 1,022 | 810 | 79.3 | ||||||||||||
Consumer loans: | ||||||||||||||||
Home equity | 166 | 196 | (30 | ) | (15.3 | ) | ||||||||||
Auto and other consumer | 376 | 575 | (199 | ) | (34.6 | ) | ||||||||||
Total consumer loans | 542 | 771 | (229 | ) | (29.7 | ) | ||||||||||
Total nonperforming assets | $ | 2,374 | $ | 1,793 | $ | 581 | 32.4 | |||||||||
Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.1 | % | 0.1 | % | 0.0 | % | — | |||||||||
Liabilities. Total liabilities increased to $2.0 billion at September 30, 2023, from $1.88 billion at December 31, 2022, due to an increase in deposits of $93.5 million and borrowings of $15.0 million.
Deposit balances increased $93.5 million to $1.66 billion at September 30, 2023 from $1.56 billion at December 31, 2022. During the nine-month period ended September 30, 2023, CDs increased $198.0 million and savings accounts increased $52.3 million, offset by money market account decreases of $100.3 million and demand deposit account decreases of $56.5 million. We believe the shift between categories was driven by customers seeking higher rates and spending excess savings accumulated in 2020 and 2021. We utilize brokered CDs as an additional funding source to provide liquidity, manage cost of funds, reduce reliance on FHLB advances, and manage interest rate risk. Brokered CDs totaling $169.6 million were included in the $579.7 million balance of CDs at September 30, 2023. Brokered CD balances increased $35.7 million, business and public fund account balances increased $33.7 million, and consumer account balances increased $23.4 million during the nine-month period ended September 30, 2023.
FHLB advances increased $29.0 million, or 12.9% to $253.0 million at September 30, 2023, from $224.0 million at December 31, 2022. We increased short-term advances to provide additional balance sheet liquidity, fund loan growth and keep the duration of liabilities shorter relative to taking on longer term advances.
Equity. Total shareholders' equity decreased $2.2 million to $156.1 million for the nine months ended September 30, 2023. The Company recorded year-to-date net income of $1.8$7.8 million partiallyand a $419,000 increase in the fair market value of derivatives, net of taxes. Increases were offset by decreasesan increase in additional paid-in capitalthe after-tax unrealized loss on available-for-sale investments of $883,000 as$5.8 million, a result$3.0 million decrease for the cumulative CECL adjustment, $2.0 million of dividends declared and the cost of repurchased shares. Year-to-date, we repurchased 75,690 shares of common stock under the October 2020 stock repurchase plan at an average price of $12.91 per share repurchases duringfor a total of $980,000, leaving 226,337 shares remaining in the quarter.
Comparison of Results of Operations for the Three Months Ended September 30, 20172023 and 2016
General.
Net incomeNet Interest Income. Net interest income decreased $3.3 million to $15.0 million for the three months ended September 30, 2016, primarily the result of an increase in interest income related to an increase in the average volume of loans receivable.
Total cost of funds increased 164 basis points to 2.23% for the three months ended September 30, 2023, from 0.59% for the same period in 2022. The net interest margin decreased 91 basis points to 2.97% for the three months ended September 30, 2023, from 3.88% for the same period in 2022. While increases in the cost of funding are currently outpacing the growth of the yield on interest-earning assets, the Company has taken measures to reverse interest rate margin compression. The Bank augments organic loan production with higher yielding purchased loans receivablethrough relationships with loan originators. A fair value hedging agreement provides additional interest income and new loan originations are priced to $727.9current market rates.
Interest Income. Totalinterest income increased $5.0 million, or 23.9%, to $25.8 million for the three months ended September 30, 20172023, from $629.3$20.9 million for the comparable period in 2022, primarily due to higher yields on interest-earning assets. Interest and fees on loans receivable increased $4.0 million, to $21.7 million for the three months ended September 30, 2016, combined with a higher average yield of 4.36% for the three months ended September 30, 20172023, from 4.27% for the three months ended September 30, 2016.
The 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 September 30, | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||
Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase in Interest Income | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Loans receivable, net | $ | 1,624,722 | 5.31 | % | $ | 1,484,615 | 4.75 | % | $ | 3,950 | ||||||||||
Investment securities | 319,508 | 4.18 | 348,281 | 3.21 | 551 | |||||||||||||||
FHLB stock | 11,922 | 7.12 | 9,269 | 6.08 | 72 | |||||||||||||||
Interest-earning deposits in banks | 38,099 | 5.46 | 17,231 | 2.72 | 406 | |||||||||||||||
Total interest-earning assets | $ | 1,994,251 | 5.14 | % | $ | 1,859,396 | 4.45 | % | $ | 4,979 | ||||||||||
Interest Expense.
Total interest expense increasedAverage deposit account balances were composed of 83% in interest-bearing deposits and 17% in noninterest-bearing deposits at September 30, 2023, compared to 78% and 22%, respectively, at September 30, 2022. During the three months ended September 30, 2023, interest expense increased on CDs due to an increase in the average balances of $292.7 million, along with an increase in the average rates paid of 89 basis points, compared to the three months ended September 30, 2022. During the same period, the average balances of money market areas.
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 September 30, | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||
Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | Increase (Decrease) in Interest Expense | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Interest-bearing demand deposits | $ | 176,503 | 0.46 | % | $ | 190,542 | 0.03 | % | $ | 188 | ||||||||||
Money market accounts | 373,408 | 1.22 | 556,434 | 0.33 | 678 | |||||||||||||||
Savings accounts | 255,956 | 1.42 | 198,403 | 0.05 | 894 | |||||||||||||||
Certificates of deposit | 571,867 | 3.77 | 279,169 | 1.06 | 4,688 | |||||||||||||||
Advances | 244,859 | 4.52 | 182,554 | 2.18 | 1,786 | |||||||||||||||
Subordinated debt | 39,403 | 3.97 | 39,326 | 3.98 | (1 | ) | ||||||||||||||
Total interest-bearing liabilities | $ | 1,661,996 | 2.60 | % | $ | 1,446,428 | 0.73 | % | $ | 8,233 | ||||||||||
Provision for LoanCredit Losses.
The following table details activity and information related to the allowance for loan lossesACLL 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 September 30, | ||||||||
2023 | 2022 | |||||||
(Dollars in thousands) | ||||||||
Provision for credit losses on loans | $ | 880 | $ | 782 | ||||
Net charge-offs | (1,232 | ) | (224 | ) | ||||
Allowance for credit losses on loans | 16,945 | 16,273 | ||||||
Allowance for losses as a percentage of gross loans receivable at period end | 1.0 | % | 1.1 | % | ||||
Total nonaccrual loans | 2,374 | 3,517 | ||||||
Allowance for credit losses on loans as a percentage of nonaccrual loans at period end | 713.8 | % | 462.7 | % | ||||
Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.1 | % | 0.2 | % | ||||
Total loans | $ | 1,634,978 | $ | 1,537,391 | ||||
Noninterest Income.
Noninterest income increasedThe 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 September 30, | Increase (Decrease) | |||||||||||||||
2023 | 2022 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Loan and deposit service fees | $ | 1,068 | $ | 1,302 | $ | (234 | ) | (18.0 | )% | |||||||
Sold loan servicing fees and servicing rights mark-to-market | 98 | 206 | (108 | ) | (52.4 | ) | ||||||||||
Net gain on sale of loans | 171 | 285 | (114 | ) | (40.0 | ) | ||||||||||
Increase in cash surrender value of bank-owned life insurance | 252 | 221 | 31 | 14.0 | ||||||||||||
Other income | 1,315 | 320 | 995 | 310.9 | ||||||||||||
Total noninterest income | $ | 2,904 | $ | 2,334 | $ | 570 | 24.4 | % | ||||||||
Noninterest Expense.
Noninterest expenseThe 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) | |||||||||||||||
2023 | 2022 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Compensation and benefits | $ | 7,795 | $ | 9,045 | $ | (1,250 | ) | (13.8 | )% | |||||||
Data processing | 1,945 | 1,778 | 167 | 9.4 | ||||||||||||
Occupancy and equipment | 1,173 | 1,499 | (326 | ) | (21.7 | ) | ||||||||||
Supplies, postage, and telephone | 292 | 322 | (30 | ) | (9.3 | ) | ||||||||||
Regulatory assessments and state taxes | 446 | 365 | 81 | 22.2 | ||||||||||||
Advertising | 501 | 645 | (144 | ) | (22.3 | ) | ||||||||||
Professional fees | 929 | 695 | 234 | 33.7 | ||||||||||||
FDIC insurance premium | 369 | 219 | 150 | 68.5 | ||||||||||||
Other expense | 926 | 807 | 119 | 14.7 | ||||||||||||
Total noninterest expense | $ | 14,376 | $ | 15,375 | $ | (999 | ) | (6.5 | )% | |||||||
| 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 | % | ||||||
Provision for Income Tax. An income tax expense of $581,000$603,000 was recorded for the three months ended September 30, 20172023, compared to $334,000$818,000 for the three months ended September 30, 2016, generally2022, due to an increasea year-over-year decrease in income before taxes of $1.4$1.3 million. The provision includes accruals for both federal and state income taxes. The provision for state income tax began in the second quarter of 2022 with respect to certain states in which we have employees and collateral for loans, thereby creating nexus in those states for income tax purposes. For additional information, see Note 57 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.
Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and 2022
General. Net income attributable to the Company was $7.81 million for the nine months ended September 30, 2023, compared to $9.59 million for the nine months ended September 30, 2022. A $2.6 million decrease in net interest income after provision for credit losses and a $1.8 million decrease in the net loss attributable to the noncontrolling interest in Quin Ventures were offset by a $2.7 million decrease in noninterest expense. Noninterest income was flat period over period.
Net Interest Income. Net interest income decreased $3.7 million to $47.2 million for the nine months ended September 30, 2023, from $50.9 million for the nine months ended September 30, 2022, as higher funding costs outpaced increased loan, investment and interest-earning deposit income.
Average earning assets increased $135.2 million year-over-year. The yield on average interest-earning assets increased 93 basis points to 5.09% for the nine months ended September 30, 2023, compared to 4.16% for the same period in the prior year, due to an increase in the average net loans receivable balance, higher loan yields, and an increase in yields earned on investment securities and interest-earning deposit accounts.
The average cost of interest-bearing liabilities increased to 2.26% for the nine months ended September 30, 2023, compared to 0.55% for the same period last year, due primarily to higher rates paid on all interest-bearing deposits and advances along with increases in the average balances of CDs and FHLB advances. Total cost of funds increased 148 basis points to 1.92% for the nine months ended September 30, 2023, from 0.44% for the same period in 2022. The net interest margin decreased 51 basis points to 3.22% for the nine months ended September 30, 2023, from 3.73% for the same period in 2022.
Interest Income. Totalinterest income increased $17.9 million, or 31.5%, to $74.6 million for the nine months ended September 30, 2023, from $56.7 million for the comparable period in 2022, primarily due to an increase in yields on interest-earning assets and an increase in average net loans receivable balances. Interest and fees on loans receivable increased $14.1 million, to $62.5 million for the nine months ended September 30, 2023, from $48.4 million for the nine months ended September 30, 2022, primarily due to an increase in the average balance of net loans receivable of $163.9 million compared to the prior year, coupled with an increase in average loan yields to 5.28% for the nine months ended September 30, 2023, from 4.56% for the same period in 2022. The loan portfolio saw increases in multi-family and commercial real estate balances, renewed short-term participation in Northpointe MPP, as well as additional purchased auto, manufactured home, and Bankers Healthcare Group commercial loans. Loan yields increased over the prior year due to higher rates on new originations as well as the repricing of variable rate loans tied to the Prime Rate or other variable-rate indices. The yield earned on investment securities also increased 116 basis points to 4.07% compared to the same period in 2022, as the purchase of higher-yielding investments occurred late in the first quarter of 2022 with the related increase only impacting income for the second and third quarters of 2022. An increase in rates on floating bonds and a slowdown in prepayment speeds, which reduces amortization of premium costs, also positively impacted investment securities income.
The following table compares average earning asset balances, associated yields, and resulting changes in interest income for the periods shown:
Nine Months Ended September 30, | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||
Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase in Interest Income | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Loans receivable, net | $ | 1,582,658 | 5.28 | % | $ | 1,418,734 | 4.56 | % | $ | 14,136 | ||||||||||
Investment securities | 324,968 | 4.07 | 358,419 | 2.91 | 2,079 | |||||||||||||||
FHLB stock | 11,873 | 7.07 | 7,605 | 5.50 | 315 | |||||||||||||||
Interest-earning deposits in banks | 40,447 | 5.11 | 39,976 | 0.68 | 1,343 | |||||||||||||||
Total interest-earning assets | $ | 1,959,946 | 5.09 | % | $ | 1,824,734 | 4.16 | % | $ | 17,873 | ||||||||||
Interest Expense. Total interest expense increased $21.6 million, or 372.9%, to $27.4 million for the nine months ended September 30, 2023, compared to $5.8 million for the nine months ended September 30, 2022. The increase over the first nine months of 2022 was the result of a 127 basis point increase in the cost of deposits from 0.24% one year prior along with a higher volume of CD balances. A shift in the deposit mix from no or low-cost transaction and money market accounts to a higher volume of CDs and savings accounts resulted in higher costs of funds on deposits. Interest expense on borrowings increased due to a $62.3 million increase in the average balance and a 234 basis point increase in the cost of advances, primarily FHLB advances, compared to the same period in 2022.
During the nine months ended September 30, 2023, interest expense on CDs increased due to higher average balances of $257.5 million, along with a 251 basis point increase in the average rates paid, compared to the nine months ended September 30, 2022. During the same period, the average balances of money market accounts decreased $179.0 million, with a 72 basis point average rate increase, resulting in an overall increase to interest expense. The average cost of interest-bearing deposit accounts increased to 1.83% for the nine months ended September 30, 2023, from 0.30% for the nine months ended September 30, 2022, due to the use of promotional products designed to retain existing deposits and generate new deposits. The mix of customer deposit balances shifted from non-maturity accounts towards higher cost CD and savings products. Customer CDs represented 27.7% and 14.0% of total deposits at September 30, 2023 and 2022, respectively. Brokered CDs represented 10.2% and 8.1% of total deposits at September 30, 2023 and 2022, respectively.
The following table details average balances, cost of funds and the change in interest expense for the periods shown:
Nine Months Ended September 30, | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||
Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | Increase in Interest Expense | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Interest-bearing demand deposits | $ | 180,789 | 0.44 | % | $ | 194,568 | 0.04 | % | $ | 541 | ||||||||||
Money market accounts | 397,023 | 0.97 | 576,019 | 0.25 | 1,777 | |||||||||||||||
Savings accounts | 241,802 | 1.14 | 196,170 | 0.05 | 1,980 | |||||||||||||||
Certificates of deposit | 514,082 | 3.31 | 256,508 | 0.80 | 11,199 | |||||||||||||||
Advances | 246,683 | 4.29 | 138,470 | 1.77 | 6,072 | |||||||||||||||
Subordinated debt | 39,384 | 4.02 | 39,301 | 4.02 | — | |||||||||||||||
Total interest-bearing liabilities | $ | 1,619,763 | 2.26 | % | $ | 1,401,036 | 0.55 | % | $ | 21,569 | ||||||||||
Provision for Credit Losses. The Company recorded a $171,000 provision for credit losses for the nine months ended September 30, 2023, reflecting year-to-date increases in loan balances offset by a decrease in unfunded commitments primarily due to construction loan disbursements. The provision expense related to higher outstanding loan balances from new funding and disbursements on prior commitments was partially offset by a recapture attributable to the decrease in unfunded commitments. Charged-off loan balances also contributed to the loan-related provision. This compares to a $1.3 million loan loss provision for the nine months ended September 30, 2022, which was estimated using the incurred loss method based on historical loss trends combined with qualitative adjustments.
The following table details activity and information related to the ACLL for the periods shown:
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
(Dollars in thousands) | ||||||||
Provision for credit losses on loans | $ | 1,195 | $ | 1,321 | ||||
Net charge-offs | (2,575 | ) | (101 | ) | ||||
Allowance for credit losses on loans | 16,945 | 16,273 | ||||||
Allowance for losses as a percentage of total gross loans receivable at period end | 1.0 | % | 1.1 | % | ||||
Total nonaccrual loans | 2,374 | 3,517 | ||||||
Allowance for credit losses on loans as a percentage of nonaccrual loans at period end | 713.8 | % | 462.7 | % | ||||
Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.1 | % | 0.2 | % | ||||
Total loans | $ | 1,634,978 | $ | 1,537,391 | ||||
Noninterest Income. Noninterest income decreased $10,000, or 0.1%, to $6.95 million for the nine months ended September 30, 2023, from $6.96 million for the nine months ended September 30, 2022. Other income increased due to the $750,000 Splash payment reclassification and a year-over-year increase of $271,000 in the recorded value of our equity and partnership fintech investments. Saleable mortgage loan production continues to be hindered by the rise in market rates on mortgage loans and a lack of single-family home inventory compared to the prior year which, when combined with a significant decrease in SBA loan sale activity, resulted in a $364,000 year-over-year decrease in net gain on sale of loans. A decline in the fair value of servicing rights compared to the same period in the prior year decreased that category by $212,000. No investment securities sales were recorded during the current year compared to sales in the same period of 2022 which generated $118,000 in gains.
The following table provides a detailed analysis of the changes in the components of noninterest income for the periods shown:
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||
2023 | 2022 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Loan and deposit service fees | $ | 3,273 | $ | 3,566 | $ | (293 | ) | (8.2 | )% | |||||||
Sold loan servicing fees and servicing rights mark-to-market | 400 | 665 | (265 | ) | (39.8 | ) | ||||||||||
Net gain on sale of loans | 405 | 769 | (364 | ) | (47.3 | ) | ||||||||||
Net gain on sale of investment securities | — | 118 | (118 | ) | (100.0 | ) | ||||||||||
Increase in cash surrender value of bank-owned life insurance | 668 | 686 | (18 | ) | (2.6 | ) | ||||||||||
Other income | 2,203 | 1,155 | 1,048 | 90.7 | ||||||||||||
Total noninterest income | $ | 6,949 | $ | 6,959 | $ | (10 | ) | (0.1 | )% | |||||||
Noninterest Expense. Noninterest expense decreased $2.7 million, or 5.7%, to $44.5 million for the nine months ended September 30, 2023, compared to $47.2 million for the nine months ended September 30, 2022. Quin Ventures expenses decreased $3.6 million compared to the first nine months of 2022, mainly due to no Quin Ventures expense recorded for compensation, marketing and occupancy during the first nine months of 2023. Bank compensation and benefits decreased due to lower commissions and incentives paid as well as a decrease in medical insurance and payroll tax expense. The Bank received a medical insurance premium refund of $436,000 in the first quarter of 2023 and transitioned to a self-insured medical plan in 2023. Payroll tax expense was reduced in 2023 by the recognition of a portion of the Employee Retention Credit received in March 2023. These decreases were partially offset by increases in legal fees, consulting fees, data processing expenses associated with building enhanced technological infrastructure and FDIC insurance premiums.
The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||
2023 | 2022 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Compensation and benefits | $ | 23,812 | $ | 27,583 | $ | (3,771 | ) | (13.7 | )% | |||||||
Data processing | 6,063 | 5,420 | 643 | 11.9 | ||||||||||||
Occupancy and equipment | 3,596 | 4,098 | (502 | ) | (12.2 | ) | ||||||||||
Supplies, postage, and telephone | 1,082 | 1,043 | 39 | 3.7 | ||||||||||||
Regulatory assessments and state taxes | 1,259 | 1,167 | 92 | 7.9 | ||||||||||||
Advertising | 2,471 | 2,802 | (331 | ) | (11.8 | ) | ||||||||||
Professional fees | 2,619 | 1,883 | 736 | 39.1 | ||||||||||||
FDIC insurance premium | 939 | 653 | 286 | 43.8 | ||||||||||||
Other expense | 2,623 | 2,520 | 103 | 4.1 | ||||||||||||
Total noninterest expense | $ | 44,464 | $ | 47,169 | $ | (2,705 | ) | (5.7 | )% | |||||||
Provision for Income Tax. An income tax expense of $1.9 million was recorded for the nine months ended September 30, 2023, compared to $1.8 million for the nine months ended September 30, 2022, due to a year-over-year increase in income before taxes of $78,000. The year-over-year provision was also impacted by a higher tax-exempt interest exclusion in 2023 due to a larger interest expense disallowance that impacted the effective tax rate. The provision includes accruals for both federal and state income taxes. The provision for state income tax began in the second quarter of 2022 with respect to certain states in which we have employees and collateral for loans, thereby creating nexus in those states for income tax purposes. For additional information, see Note 7 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.
Average 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 atas of September 30, 20172023 and 2016.2022. 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 September 30, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
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) | $ | 1,624,722 | $ | 21,728 | 5.31 | % | $ | 1,484,615 | $ | 17,778 | 4.75 | % | ||||||||||||
Investment securities | 319,508 | 3,368 | 4.18 | 348,281 | 2,817 | 3.21 | ||||||||||||||||||
FHLB dividends | 11,922 | 214 | 7.12 | 9,269 | 142 | 6.08 | ||||||||||||||||||
Interest-earning deposits in banks | 38,099 | 524 | 5.46 | 17,231 | 118 | 2.72 | ||||||||||||||||||
Total interest-earning assets (2) | 1,994,251 | 25,834 | 5.14 | 1,859,396 | 20,855 | 4.45 | ||||||||||||||||||
Noninterest-earning assets | 145,483 | 137,369 | ||||||||||||||||||||||
Total average assets | $ | 2,139,734 | $ | 1,996,765 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 176,503 | $ | 204 | 0.46 | $ | 190,542 | $ | 16 | 0.03 | ||||||||||||||
Money market accounts | 373,408 | 1,146 | 1.22 | 556,434 | 468 | 0.33 | ||||||||||||||||||
Savings accounts | 255,956 | 918 | 1.42 | 198,403 | 24 | 0.05 | ||||||||||||||||||
Certificates of deposit | 571,867 | 5,431 | 3.77 | 279,169 | 743 | 1.06 | ||||||||||||||||||
Total interest-bearing deposits (3) | 1,377,734 | 7,699 | 2.22 | 1,224,548 | 1,251 | 0.41 | ||||||||||||||||||
Advances | 244,859 | 2,791 | 4.52 | 182,554 | 1,005 | 2.18 | ||||||||||||||||||
Subordinated debt | 39,403 | 394 | 3.97 | 39,326 | 395 | 3.98 | ||||||||||||||||||
Total interest-bearing liabilities | 1,661,996 | 10,884 | 2.60 | 1,446,428 | 2,651 | 0.73 | ||||||||||||||||||
Noninterest-bearing deposits (3) | 276,294 | 342,944 | ||||||||||||||||||||||
Other noninterest-bearing liabilities | 40,450 | 39,129 | ||||||||||||||||||||||
Total average liabilities | 1,978,740 | 1,828,501 | ||||||||||||||||||||||
Average equity | 160,994 | 168,264 | ||||||||||||||||||||||
Total average liabilities and equity | $ | 2,139,734 | $ | 1,996,765 | ||||||||||||||||||||
Net interest income | $ | 14,950 | $ | 18,204 | ||||||||||||||||||||
Net interest rate spread | 2.54 | 3.72 | ||||||||||||||||||||||
Net earning assets | $ | 332,255 | $ | 412,968 | ||||||||||||||||||||
Net interest margin (4) | 2.97 | 3.88 | ||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 120.0 | % | 128.6 | % | ||||||||||||||||||||
(1) The average loans receivable, net balances include nonaccrual loans. (2) Includes interest-earning deposits (cash) at other financial institutions. (3) Cost of all deposits, including noninterest-bearing demand deposits, was 1.85% and 0.32% for the three months ended September 30, 2023 and 2022, respectively. (4) 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. | ||||||||||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
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) | $ | 1,582,658 | $ | 62,531 | 5.28 | % | $ | 1,418,734 | $ | 48,395 | 4.56 | % | ||||||||||||
Total investment securities | 324,968 | 9,886 | 4.07 | 358,419 | 7,807 | 2.91 | ||||||||||||||||||
FHLB dividends | 11,873 | 628 | 7.07 | 7,605 | 313 | 5.50 | ||||||||||||||||||
Interest-earning deposits in banks | 40,447 | 1,545 | 5.11 | 39,976 | 202 | 0.68 | ||||||||||||||||||
Total interest-earning assets (2) | 1,959,946 | 74,590 | 5.09 | 1,824,734 | 56,717 | 4.16 | ||||||||||||||||||
Noninterest-earning assets | 143,034 | 129,004 | ||||||||||||||||||||||
Total average assets | $ | 2,102,980 | $ | 1,953,738 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits (3) | $ | 180,789 | $ | 599 | 0.44 | $ | 194,568 | $ | 58 | 0.04 | ||||||||||||||
Money market accounts | 397,023 | 2,866 | 0.97 | 576,019 | 1,089 | 0.25 | ||||||||||||||||||
Savings accounts | 241,802 | 2,056 | 1.14 | 196,170 | 76 | 0.05 | ||||||||||||||||||
Certificates of deposit | 514,082 | 12,740 | 3.31 | 256,508 | 1,541 | 0.80 | ||||||||||||||||||
Total interest-bearing deposits | 1,333,696 | 18,261 | 1.83 | 1,223,265 | 2,764 | 0.30 | ||||||||||||||||||
Advances | 246,683 | 7,909 | 4.29 | 138,470 | 1,837 | 1.77 | ||||||||||||||||||
Subordinated debt | 39,384 | 1,183 | 4.02 | 39,301 | 1,183 | 4.02 | ||||||||||||||||||
Total interest-bearing liabilities | 1,619,763 | 27,353 | 2.26 | 1,401,036 | 5,784 | 0.55 | ||||||||||||||||||
Noninterest-bearing deposits (3) | 284,282 | 338,745 | ||||||||||||||||||||||
Other noninterest-bearing liabilities | 38,362 | 36,934 | ||||||||||||||||||||||
Total average liabilities | 1,942,407 | 1,776,715 | ||||||||||||||||||||||
Average equity | 160,573 | 177,023 | ||||||||||||||||||||||
Total average liabilities and equity | $ | 2,102,980 | $ | 1,953,738 | ||||||||||||||||||||
Net interest income | $ | 47,237 | $ | 50,933 | ||||||||||||||||||||
Net interest rate spread | 2.83 | 3.61 | ||||||||||||||||||||||
Net earning assets | $ | 340,183 | $ | 423,698 | ||||||||||||||||||||
Net interest margin (4) | 3.22 | 3.73 | ||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 121.0 | % | 130.2 | % | ||||||||||||||||||||
(1) The average loans receivable, net balances include nonaccrual loans. (2) Includes interest-earning deposits (cash) at other financial institutions. (3) Cost of all deposits, including noninterest-bearing demand deposits, was 1.51% and 0.24% for the nine months ended September 30, 2023 and 2022, respectively. (4) Net interest income divided by average interest-earning assets. | |||||||||||||||||||||
Rate/Volume Analysis
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 | Nine Months Ended | |||||||||||||||||||||||
September 30, 2023 vs. 2022 | September 30, 2023 vs. 2022 | |||||||||||||||||||||||
Increase (Decrease) Due to | Increase (Decrease) Due to | |||||||||||||||||||||||
Volume | Rate | Total Increase (Decrease) | Volume | Rate | Total Increase (Decrease) | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans receivable, net | $ | 1,667 | $ | 2,283 | $ | 3,950 | $ | 5,602 | $ | 8,534 | $ | 14,136 | ||||||||||||
Investments | (232 | ) | 783 | 551 | (734 | ) | 2,813 | 2,079 | ||||||||||||||||
FHLB stock | 41 | 31 | 72 | 176 | 139 | 315 | ||||||||||||||||||
Other (1) | 143 | 263 | 406 | 2 | 1,341 | 1,343 | ||||||||||||||||||
Total interest-earning assets | $ | 1,619 | $ | 3,360 | $ | 4,979 | $ | 5,046 | $ | 12,827 | $ | 17,873 | ||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | (2 | ) | $ | 190 | $ | 188 | $ | (2 | ) | $ | 543 | $ | 541 | ||||||||||
Money market accounts | (156 | ) | 834 | 678 | (348 | ) | 2,125 | 1,777 | ||||||||||||||||
Savings accounts | 10 | 884 | 894 | 13 | 1,967 | 1,980 | ||||||||||||||||||
Certificates of deposit | 782 | 3,906 | 4,688 | 1,544 | 9,655 | 11,199 | ||||||||||||||||||
Advances | 342 | 1,444 | 1,786 | 1,428 | 4,644 | 6,072 | ||||||||||||||||||
Subordinated debt | — | (1 | ) | (1 | ) | — | — | — | ||||||||||||||||
Total interest-bearing liabilities | $ | 976 | $ | 7,257 | $ | 8,233 | $ | 2,635 | $ | 18,934 | $ | 21,569 | ||||||||||||
Change in net interest income | $ | 643 | $ | (3,897 | ) | $ | (3,254 | ) | $ | 2,411 | $ | (6,107 | ) | $ | (3,696 | ) | ||||||||
(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 threenine months ended September 30, 20172023 and the year ended June 30, 2017,December 31, 2022, 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, 2017,2023, 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 | $ | 449,211 | $ | 114,949 | $ | 15,553 | $ | — | $ | 579,713 | ||||||||||
FHLB advances | 198,000 | 35,000 | 20,000 | — | 253,000 | |||||||||||||||
Line of credit | 8,000 | — | — | — | 8,000 | |||||||||||||||
Subordinated debt obligation | — | — | — | 39,416 | 39,416 | |||||||||||||||
Operating leases | 892 | 1,880 | 1,652 | 3,396 | 7,820 | |||||||||||||||
Borrower taxes and insurance | 2,375 | — | — | — | 2,375 | |||||||||||||||
Deferred compensation | 113 | 243 | 186 | 667 | 1,209 | |||||||||||||||
Total contractual obligations | $ | 658,591 | $ | 152,072 | $ | 37,391 | $ | 43,479 | $ | 891,533 | ||||||||||
Commitments and Off-Balance Sheet Arrangements
The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of September 30, 2017:2023:
Amount of Commitment by 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 | $ | 183 | $ | — | $ | — | $ | — | $ | 183 | ||||||||||
Variable-rate | 497 | — | — | — | 497 | |||||||||||||||
Unfunded commitments under lines of credit or existing loans | 54,347 | 7,373 | 3,628 | 89,374 | 154,722 | |||||||||||||||
Standby letters of credit | 58 | — | — | 200 | 258 | |||||||||||||||
Total commitments | $ | 55,085 | $ | 7,373 | $ | 3,628 | $ | 89,574 | $ | 155,660 | ||||||||||
| 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 liquidity management, 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, 2017,2023, cash and cash equivalents totaled $25.0 million. Securities$83.9 million and unpledged securities classified as available-for-sale provide additional sources of liquidity and had a market value of $290.2 million at September 30, 2017. In addition, at September 30, 2017, we had FHLB stock of $5.7 million and have$279.1 million. The Bank pledged collateral of $582.8 million to support borrowings from the FHLB, with a remaining borrowing capacity of $111.7 million. We have$269.0 million at September 30, 2023. The Bank also has an established adiscount window borrowing arrangement with the Federal Reserve BankFRB, for which available-for-sale securities with a market value of San Francisco; however, since no collateral has been$9.0 million were pledged as of September 30, 2017, we are currently unable to borrow funds under that2023, with a remaining borrowing arrangement.capacity of $8.5 million. The Bank has established an additional arrangement with the FRB through the BTFP, for which available-for-sale securities with a market value of $15.1 million were pledged as of September 30, 2023, with a remaining borrowing capacity of $18.3 million. First Northwest has a $20.0 million borrowing arrangement with NexBank which is secured by First Northwest's personal property assets (with certain exclusions), including all the outstanding shares of First Fed, cash, loans receivable, and limited partnership investments. The remaining borrowing capacity of the NexBank line of credit was $12.0 million at September 30, 2023.
At September 30, 2017,2023, we had $135,000$680,000 in loan commitments outstanding and an additional $90.9$155.0 million in undisbursed loans and standby letters of credit, including $50.8$60.6 million in undisbursed construction loan commitments.
CDs due within one year as of September 30, 20172023, totaled $120.7$449.2 million, or 52.2%77.5% of certificatesCDs with a weighted-average rate of deposit. The large percentage of certificates of deposit that mature within one year reflects customers' hesitancy to invest their funds for longer periods at historically low 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.4.21%. If these maturing deposits are not renewed, however, we will be required to seek other sources of funds, including other certificates of depositCDs, 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.CDs. 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 afford us sufficientprovide adequate long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.
First Fed has a diversified deposit base with approximately 61% of deposit account balances held by consumers, 29% held by business and public fund depositors, and 10% in brokered deposits. The average deposit account balance, excluding brokered and public fund accounts, was $28,000 at September 30, 2023. We estimate that 80-85% of our customer deposit balances are below the $250,000 FDIC insurance limit or fully collateralized. The remaining uninsured deposits represent less than 5% of depositors. Management believes that maintaining a diversified deposit base is an important factor in managing and maintaining adequate levels of liquidity.
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, 2017,2023, the Company, (onon an unconsolidated basis)basis, had liquid assets of $24.0 million.
Capital Resources
At September 30, 2017,2023, shareholders' equity totaled $177.9$156.1 million, or 15.5%7.2% of total assets. Our book value per share of common stock was $15.03$16.20 at September 30, 2017,2023, compared to $14.93$16.31 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, 2017,2023, 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 1 leverage capital (to average assets) | $ | 219,326 | 10.1 | % | $ | 86,654 | 4.0 | % | $ | 108,318 | 5.0 | % | ||||||||||||
Common equity tier 1 (to risk-weighted assets) | $ | 219,326 | 13.4 | 73,482 | 4.5 | 106,141 | 6.5 | |||||||||||||||||
Tier 1 risk-based capital (to risk-weighted assets) | $ | 219,326 | 13.4 | 97,976 | 6.0 | 130,635 | 8.0 | |||||||||||||||||
Total risk-based capital (to risk-weighted assets) | $ | 234,841 | 14.4 | 130,635 | 8.0 | 163,294 | 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 assets2.5%.
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,GAAP, 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 onthe 2022 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”"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, 2017,2023, 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, 2017,2023, 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 risk factors set forth in Part I. Item 1A of the Company have not changed materially from those disclosed in theCompany's 2022 Form 10-K.
(a) | Not applicable. |
(b) | Not applicable. |
(c) | The following table summarizes common stock repurchases during the three months ended September 30, 2023: |
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 | ||||||||||||
July 1, 2023 - July 31, 2023 | 2,814 | $ | 11.10 | 1,073 | 226,337 | |||||||||||
August 1, 2023 - August 31, 2023 | 604 | — | — | 226,337 | ||||||||||||
September 1, 2023 - September 30, 2023 | 1,261 | — | — | 226,337 | ||||||||||||
Total | 4,679 | $ | 11.10 | 1,073 | ||||||||||||
(1) Shares repurchased by the Company during the quarter include shares acquired from participants in connection with cancellation of restricted stock to pay withholding taxes totaling 1,741 shares, 604 shares, and 1,261 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 September 30, 2023, a total of 797,083 shares, or 77.9% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $15.86 per share, leaving 226,337 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 |
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 September 30, | ||||
| contained in Exhibit 101) | |
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: November /s/ Matthew P. Deines President, Chief Executive Officer and Director (Principal Executive Officer) Date: November /s/ Geraldine Bullard Executive Vice President, (Principal Financial and Accounting Officer) 8, 201713, 2023Laurence J. HuethMatthew P. DeinesLaurence J. Hueth 8, 201713, 2023Regina M. WoodGeraldine BullardRegina M. Woodand Chief Financial Officer and Chief Operating OfficerEXHIBIT INDEX