UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the quarterly period ended September 30, |
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the transition period from _____ to _____ |
Commission File Number: 001-36741
FIRST NORTHWEST BANCORP
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(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) |
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105 West 8th Street, Port Angeles, Washington |
| 98362 |
(Address of principal executive offices) |
| (Zip Code) |
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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. Yes ☒ No ��☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer |
| |
Non-accelerated filer |
| Smaller reporting company | ☒ | |
Emerging growth company |
| ☐ |
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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).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 30, 2020,November 5, 2021, there were 10,234,20410,026,076 shares of common stock, $0.01 par value per share, outstanding.
FORM 10-Q
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION |
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Item 1 - Financial Statements (Unaudited) | |
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk | |
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Item 4 - Controls and Procedures | |
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PART II - OTHER INFORMATION |
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Item 1 - Legal Proceedings | |
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Item 1A - Risk Factors | |
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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 3 - Defaults Upon Senior Securities | |
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Item 4 - Mine Safety Disclosures | |
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Item 5 - Other Information | |
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Item 6 - Exhibits | |
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SIGNATURES |
As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to First Northwest Bancorp ("First Northwest"), its consolidated subsidiary and its consolidated subsidiary,joint venture controlling interest, unless the context indicates otherwise. When we refer to “First Federal”Fed” or the “Bank” in this report, we are referring to First Federal Savings and Loan Association of Port Angeles,Fed Bank, the wholly owned subsidiary of First Northwest Bancorp. When we refer to "Quin" or "Quin Ventures" in this report, we are referring to Quin Ventures, Inc., a First Northwest joint venture. First Northwest, the Bank, and Quin Ventures are collectively referred to as the "Company."
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share information) (Unaudited)
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||
ASSETS | ||||||||||||||||
Cash and due from banks | $ | 16,776 | $ | 13,519 | $ | 17,012 | $ | 13,508 | ||||||||
Interest-bearing deposits in banks | 35,303 | 35,220 | 59,108 | 51,647 | ||||||||||||
Investment securities available for sale, at fair value | 369,111 | 315,580 | 325,890 | 364,296 | ||||||||||||
Loans held for sale | 4,754 | 503 | 2,231 | 3,753 | ||||||||||||
Loans receivable (net of allowance for loan losses of $13,007 and $9,628) | 1,061,417 | 878,437 | ||||||||||||||
Loans receivable (net of allowance for loan losses of $15,243 and $13,847) | 1,345,126 | 1,141,969 | ||||||||||||||
Federal Home Loan Bank (FHLB) stock, at cost | 5,944 | 6,034 | 4,397 | 5,977 | ||||||||||||
Accrued interest receivable | 7,367 | 3,931 | 5,775 | 6,966 | ||||||||||||
Premises and equipment, net | 14,737 | 14,342 | 18,188 | 14,785 | ||||||||||||
Mortgage servicing rights, net | 1,545 | 871 | ||||||||||||||
Servicing rights on sold loans, net | 2,934 | 2,120 | ||||||||||||||
Bank-owned life insurance, net | 38,104 | 30,027 | 39,080 | 38,353 | ||||||||||||
Goodwill and other intangible assets | 1,186 | 0 | ||||||||||||||
Prepaid expenses and other assets | 9,612 | 8,872 | 24,210 | 10,975 | ||||||||||||
Total assets | $ | 1,564,670 | $ | 1,307,336 | $ | 1,845,137 | $ | 1,654,349 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Deposits | $ | 1,254,456 | $ | 1,001,645 | $ | 1,522,916 | $ | 1,333,517 | ||||||||
Borrowings | 109,150 | 112,930 | ||||||||||||||
FHLB advances | 60,000 | 109,977 | ||||||||||||||
Subordinated debt, net | 39,261 | 0 | ||||||||||||||
Accrued interest payable | 51 | 373 | 29 | 53 | ||||||||||||
Accrued expenses and other liabilities | 18,359 | 14,392 | 33,369 | 23,303 | ||||||||||||
Advances from borrowers for taxes and insurance | 1,986 | 1,145 | 2,118 | 1,116 | ||||||||||||
Total liabilities | 1,384,002 | 1,130,485 | 1,657,693 | 1,467,966 | ||||||||||||
Shareholders' Equity | ||||||||||||||||
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding | 0 | 0 | ||||||||||||||
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,234,204 shares at September 30, 2020, and 10,731,639 shares at December 31, 2019 | 102 | 107 | ||||||||||||||
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding | 0 | 0 | ||||||||||||||
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,050,877 shares at September 30, 2021, and 10,247,185 shares at December 31, 2020 | 102 | 102 | ||||||||||||||
Additional paid-in capital | 97,229 | 102,017 | 96,396 | 97,412 | ||||||||||||
Retained earnings | 89,546 | 86,156 | 99,058 | 92,657 | ||||||||||||
Accumulated other comprehensive income (loss), net of tax | 3,186 | (1,539 | ) | |||||||||||||
Accumulated other comprehensive income, net of tax | 934 | 5,442 | ||||||||||||||
Unearned employee stock ownership plan (ESOP) shares | (9,395 | ) | (9,890 | ) | (8,736 | ) | (9,230 | ) | ||||||||
Total parent's shareholders' equity | 187,754 | 186,383 | ||||||||||||||
Noncontrolling interest in Quin Ventures, Inc. | (310 | ) | 0 | |||||||||||||
Total shareholders' equity | 180,668 | 176,851 | 187,444 | 186,383 | ||||||||||||
Total liabilities and shareholders' equity | $ | 1,564,670 | $ | 1,307,336 | $ | 1,845,137 | $ | 1,654,349 | ||||||||
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 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
INTEREST INCOME | ||||||||||||||||||||||||||||||||
Interest and fees on loans receivable | $ | 11,097 | $ | 10,096 | $ | 31,169 | $ | 30,661 | $ | 14,581 | $ | 11,097 | $ | 39,988 | $ | 31,169 | ||||||||||||||||
Interest on mortgage-backed securities | 565 | 1,087 | 2,264 | 3,536 | 715 | 565 | 1,823 | 2,264 | ||||||||||||||||||||||||
Interest on investment securities | 1,603 | 921 | 3,988 | 2,900 | 1,423 | 1,603 | 4,473 | 3,988 | ||||||||||||||||||||||||
Interest on deposits and other | 9 | 65 | 85 | 190 | 18 | 9 | 46 | 85 | ||||||||||||||||||||||||
FHLB dividends | 97 | 92 | 199 | 268 | 41 | 97 | 132 | 199 | ||||||||||||||||||||||||
Total interest income | 13,371 | 12,261 | 37,705 | 37,555 | 16,778 | 13,371 | 46,462 | 37,705 | ||||||||||||||||||||||||
INTEREST EXPENSE | ||||||||||||||||||||||||||||||||
Deposits | 1,405 | 2,141 | 5,584 | 6,133 | 850 | 1,405 | 2,609 | 5,584 | ||||||||||||||||||||||||
Borrowings | 205 | 691 | 840 | 2,717 | 186 | 205 | 560 | 840 | ||||||||||||||||||||||||
Subordinated debt | 390 | 0 | 809 | 0 | ||||||||||||||||||||||||||||
Total interest expense | 1,610 | 2,832 | 6,424 | 8,850 | 1,426 | 1,610 | 3,978 | 6,424 | ||||||||||||||||||||||||
Net interest income | 11,761 | 9,429 | 31,281 | 28,705 | 15,352 | 11,761 | 42,484 | 31,281 | ||||||||||||||||||||||||
PROVISION FOR LOAN LOSSES | 1,350 | (170 | ) | 4,116 | 420 | 700 | 1,350 | 1,500 | 4,116 | |||||||||||||||||||||||
Net interest income after provision for loan losses | 10,411 | 9,599 | 27,165 | 28,285 | 14,652 | 10,411 | 40,984 | 27,165 | ||||||||||||||||||||||||
NONINTEREST INCOME | ||||||||||||||||||||||||||||||||
Loan and deposit service fees | 868 | 999 | 2,514 | 2,899 | 1,015 | 868 | 2,853 | 2,514 | ||||||||||||||||||||||||
Mortgage servicing fees, net of amortization | 148 | 44 | (9 | ) | 143 | |||||||||||||||||||||||||||
Sold loan servicing fees, net of amortization | 815 | 148 | 858 | (9 | ) | |||||||||||||||||||||||||||
Net gain on sale of loans | 1,725 | 655 | 4,109 | 830 | 663 | 1,725 | 2,921 | 4,109 | ||||||||||||||||||||||||
Net gain on sale of investment securities | 969 | 0 | 2,235 | 57 | 1,286 | 969 | 2,410 | 2,235 | ||||||||||||||||||||||||
Increase in cash surrender value of bank-owned life insurance | 622 | 147 | 1,577 | 435 | 241 | 622 | 727 | 1,577 | ||||||||||||||||||||||||
Other income | 449 | 70 | 782 | 225 | 266 | 449 | 1,093 | 782 | ||||||||||||||||||||||||
Total noninterest income | 4,781 | 1,915 | 11,208 | 4,589 | 4,286 | 4,781 | 10,862 | 11,208 | ||||||||||||||||||||||||
NONINTEREST EXPENSE | ||||||||||||||||||||||||||||||||
Compensation and benefits | 6,070 | 4,771 | 17,397 | 14,097 | 8,713 | 6,070 | 24,567 | 17,397 | ||||||||||||||||||||||||
Data processing | 640 | 680 | 2,099 | 1,978 | 826 | 640 | 2,291 | 2,099 | ||||||||||||||||||||||||
Occupancy and equipment | 1,367 | 1,161 | 4,063 | 3,409 | 1,848 | 1,367 | 5,274 | 4,063 | ||||||||||||||||||||||||
Supplies, postage, and telephone | 254 | 208 | 749 | 678 | 279 | 254 | 876 | 749 | ||||||||||||||||||||||||
Regulatory assessments and state taxes | 262 | 209 | 659 | 573 | 335 | 262 | 897 | 659 | ||||||||||||||||||||||||
Advertising | 285 | 197 | 934 | 569 | 547 | 285 | 1,484 | 934 | ||||||||||||||||||||||||
Professional fees | 361 | 278 | 1,115 | 907 | 422 | 361 | 1,588 | 1,115 | ||||||||||||||||||||||||
FDIC insurance premium | 86 | (72 | ) | 156 | 82 | 134 | 86 | 450 | 156 | |||||||||||||||||||||||
FHLB prepayment penalty | 0 | 344 | 210 | 344 | 0 | 0 | 0 | 210 | ||||||||||||||||||||||||
Other expense | 756 | 648 | 2,363 | 1,859 | 830 | 756 | 2,308 | 2,363 | ||||||||||||||||||||||||
Total noninterest expense | 10,081 | 8,424 | 29,745 | 24,496 | 13,934 | 10,081 | 39,735 | 29,745 | ||||||||||||||||||||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 5,111 | 3,090 | 8,628 | 8,378 | 5,004 | 5,111 | 12,111 | 8,628 | ||||||||||||||||||||||||
PROVISION FOR INCOME TAXES | 1,436 | 580 | 2,104 | 1,582 | 946 | 1,436 | 2,082 | 2,104 | ||||||||||||||||||||||||
NET INCOME | $ | 3,675 | $ | 2,510 | $ | 6,524 | $ | 6,796 | 4,058 | 3,675 | 10,029 | 6,524 | ||||||||||||||||||||
Net loss attributable to noncontrolling interest in Quin Ventures, Inc. | 120 | 0 | 265 | 0 | ||||||||||||||||||||||||||||
Basic and diluted earnings per common share | $ | 0.40 | $ | 0.25 | $ | 0.69 | $ | 0.68 | ||||||||||||||||||||||||
NET INCOME ATTRIBUTABLE TO PARENT | $ | 4,178 | $ | 3,675 | $ | 10,294 | $ | 6,524 | ||||||||||||||||||||||||
Basic earnings per common share | $ | 0.45 | $ | 0.40 | $ | 1.12 | $ | 0.69 | ||||||||||||||||||||||||
Diluted earnings per common share | $ | 0.45 | $ | 0.40 | $ | 1.11 | $ | 0.69 | ||||||||||||||||||||||||
See selected notes to the consolidated financial statements.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands) (Unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
NET INCOME | $ | 3,675 | $ | 2,510 | $ | 6,524 | $ | 6,796 | $ | 4,058 | $ | 3,675 | $ | 10,029 | $ | 6,524 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||
| Unrealized holding gains arising during the period | 4,094 | 856 | 8,215 | 5,199 | ||||||||||||||||||||||||||||
Income tax provision related to unrealized holding gains | (859 | ) | (181 | ) | (1,724 | ) | (1,095 | ) | ||||||||||||||||||||||||
Reclassification adjustment for net (gains) losses on sales of securities realized in income | (969 | ) | 0 | (2,235 | ) | (57 | ) | |||||||||||||||||||||||||
Unrealized holding (losses) gains on investments available for sale arising during the period | (2,057 | ) | 4,094 | (1,164 | ) | 8,215 | ||||||||||||||||||||||||||
Income tax benefit (provision) related to unrealized holding (losses) gains | 432 | (859 | ) | 245 | (1,724 | ) | ||||||||||||||||||||||||||
Unrecognized defined benefit ("DB") plan prior service cost, net of amortization | 36 | 0 | (2,132 | ) | 0 | |||||||||||||||||||||||||||
Income tax benefit (provision) related to DB plan prior service cost, net of amortization | (7 | ) | 0 | 447 | 0 | |||||||||||||||||||||||||||
Reclassification adjustment for net gains on sales of securities realized in income | (1,286 | ) | (969 | ) | (2,410 | ) | (2,235 | ) | ||||||||||||||||||||||||
| Income tax benefit related to reclassification adjustment on sales of securities | 203 | 0 | 469 | 12 | 270 | 203 | 506 | 469 | ||||||||||||||||||||||||
Other comprehensive income, net of tax | 2,469 | 675 | 4,725 | 4,059 | ||||||||||||||||||||||||||||
Other comprehensive (loss) income, net of tax | (2,612 | ) | 2,469 | (4,508 | ) | 4,725 | ||||||||||||||||||||||||||
COMPREHENSIVE INCOME | $ | 6,144 | $ | 3,185 | $ | 11,249 | $ | 10,855 | 1,446 | 6,144 | 5,521 | 11,249 | ||||||||||||||||||||
Comprehensive loss attributable to noncontrolling interest | (120 | ) | 0 | (265 | ) | 0 | ||||||||||||||||||||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO PARENT | $ | 1,566 | $ | 6,144 | $ | 5,786 | $ | 11,249 | ||||||||||||||||||||||||
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, 20202021 and 20192020
(Dollars in thousands, except share information) (Unaudited)
Common Stock | Additional Paid-in | Retained | Unearned ESOP | Accumulated Other Comprehensive (Loss) | Total Shareholders' | Common Stock | Additional Paid-in | Retained | Unearned ESOP | Accumulated Other Comprehensive Income, | Noncontrolling | Total Shareholders' | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Shares | Income, Net of Tax | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2019 | 10,925,181 | $ | 109 | $ | 104,064 | $ | 83,795 | $ | (10,220 | ) | $ | (1,347 | ) | $ | 176,401 | |||||||||||||||||||||||||||||||||||||||||||||
Net income | 2,510 | 2,510 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (131,400 | ) | (1 | ) | (1,314 | ) | (835 | ) | (2,150 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock award grants net of forfeitures | 23,400 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards canceled | (16,249 | ) | 0 | (266 | ) | (266 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 675 | 675 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 251 | 251 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released | 51 | 165 | 216 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.03 per share) | (327 | ) | (327 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2019 | 10,800,932 | $ | 108 | $ | 102,786 | $ | 85,143 | $ | (10,055 | ) | $ | (672 | ) | $ | 177,310 | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Shares | Net of Tax | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2020 | 10,326,226 | $ | 103 | $ | 98,421 | $ | 86,633 | $ | (9,559 | ) | $ | 717 | $ | 176,315 | 10,326,226 | $ | 103 | $ | 98,421 | $ | 86,633 | $ | (9,559 | ) | $ | 717 | $ | 0 | $ | 176,315 | ||||||||||||||||||||||||||||||
Net income | 3,675 | �� | 3,675 | 0 | 0 | 3,675 | 0 | 0 | 0 | 3,675 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (141,793 | ) | (1 | ) | (1,418 | ) | (248 | ) | (1,667 | ) | (141,793 | ) | (1 | ) | (1,418 | ) | (248 | ) | 0 | 0 | 0 | (1,667 | ) | |||||||||||||||||||||||||||||||||||||
Restricted stock award grants net of forfeitures | 59,859 | — | — | — | 59,859 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards canceled | (10,088 | ) | 0 | (123 | ) | (123 | ) | (10,088 | ) | 0 | (123 | ) | 0 | 0 | 0 | 0 | (123 | ) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 2,469 | 2,469 | 0 | 0 | 0 | 0 | 2,469 | 0 | 2,469 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 362 | 362 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | 0 | 362 | 0 | 0 | 0 | 0 | 362 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released | (13 | ) | 164 | 151 | 0 | (13 | ) | 0 | 164 | 0 | 0 | 151 | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.05 per share) | (514 | ) | (514 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.05 per share) | 0 | 0 | (514 | ) | 0 | 0 | 0 | (514 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2020 | 10,234,204 | $ | 102 | $ | 97,229 | $ | 89,546 | $ | (9,395 | ) | $ | 3,186 | $ | 180,668 | 10,234,204 | $ | 102 | $ | 97,229 | $ | 89,546 | $ | (9,395 | ) | $ | 3,186 | $ | 0 | $ | 180,668 | ||||||||||||||||||||||||||||||
BALANCE, June 30, 2021 | 10,205,867 | $ | 102 | $ | 97,463 | $ | 96,573 | $ | (8,901 | ) | $ | 3,546 | $ | (190 | ) | $ | 188,593 | |||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 4,178 | 0 | 0 | (120 | ) | 4,058 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (137,953 | ) | 0 | (1,378 | ) | (1,084 | ) | 0 | 0 | 0 | (2,462 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock award forfeitures net of grants | (5,903 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards canceled | (11,134 | ) | 0 | (199 | ) | 0 | 0 | 0 | 0 | (199 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | 0 | 0 | 0 | 0 | (2,612 | ) | 0 | (2,612 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | 0 | 433 | 0 | 0 | 0 | 0 | 433 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released | 0 | 77 | 0 | 165 | 0 | 0 | 242 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.06 per share) | 0 | 0 | (609 | ) | 0 | 0 | 0 | (609 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2021 | 10,050,877 | $ | 102 | $ | 96,396 | $ | 99,058 | $ | (8,736 | ) | $ | 934 | $ | (310 | ) | $ | 187,444 | |||||||||||||||||||||||||||||||||||||||||||
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, 20202021 and 20192020
(Dollars in thousands, except share information) (Unaudited)
Common Stock | Additional Paid-in | Retained | Unearned ESOP | Accumulated Other Comprehensive (Loss) | Total Shareholders' | Common Stock | Additional Paid-in | Retained | Unearned ESOP | Accumulated Other Comprehensive Income, | Noncontrolling | Total Shareholders' | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Shares | Income, Net of Tax | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2018 | 11,170,018 | $ | 112 | $ | 105,825 | $ | 81,607 | $ | (10,549 | ) | $ | (4,731 | ) | $ | 172,264 | |||||||||||||||||||||||||||||||||||||||||||||
Net income | 6,796 | 6,796 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (372,237 | ) | (4 | ) | (3,719 | ) | (2,274 | ) | (5,997 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock award grants net of forfeitures | 19,400 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards canceled | (16,249 | ) | 0 | (266 | ) | (266 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 4,059 | 4,059 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 804 | 804 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released | 142 | 494 | 636 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.09 per share) | (986 | ) | (986 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2019 | 10,800,932 | $ | 108 | $ | 102,786 | $ | 85,143 | $ | (10,055 | ) | $ | (672 | ) | $ | 177,310 | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Shares | Net of Tax | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2019 | 10,731,639 | $ | 107 | $ | 102,017 | $ | 86,156 | $ | (9,890 | ) | $ | (1,539 | ) | $ | 176,851 | 10,731,639 | 107 | 102,017 | 86,156 | (9,890 | ) | (1,539 | ) | $ | 0 | $ | 176,851 | |||||||||||||||||||||||||||||||||
Net income | 6,524 | 6,524 | 0 | 0 | 6,524 | 0 | 0 | 0 | 6,524 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (560,306 | ) | (5 | ) | (5,599 | ) | (1,565 | ) | (7,169 | ) | (560,306 | ) | (5 | ) | (5,599 | ) | (1,565 | ) | 0 | 0 | 0 | (7,169 | ) | |||||||||||||||||||||||||||||||||||||
Restricted stock award grants net of forfeitures | 72,959 | — | — | — | 72,959 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards canceled | (10,088 | ) | 0 | (123 | ) | (123 | ) | (10,088 | ) | 0 | (123 | ) | 0 | 0 | 0 | 0 | (123 | ) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 4,725 | 4,725 | 0 | 0 | 0 | 0 | 4,725 | 0 | 4,725 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 917 | 917 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | 0 | 917 | 0 | 0 | 0 | 0 | 917 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released | 17 | 495 | 512 | 0 | 17 | 0 | 495 | 0 | 0 | 512 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.15 per share) | (1,569 | ) | (1,569 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.15 per share) | 0 | 0 | (1,569 | ) | 0 | 0 | 0 | (1,569 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2020 | 10,234,204 | $ | 102 | $ | 97,229 | $ | 89,546 | $ | (9,395 | ) | $ | 3,186 | $ | 180,668 | 10,234,204 | $ | 102 | $ | 97,229 | $ | 89,546 | $ | (9,395 | ) | $ | 3,186 | $ | 0 | $ | 180,668 | ||||||||||||||||||||||||||||||
BALANCE, December 31, 2020 | 10,247,185 | $ | 102 | $ | 97,412 | $ | 92,657 | $ | (9,230 | ) | $ | 5,442 | $ | 0 | $ | 186,383 | ||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 10,294 | 0 | 0 | (265 | ) | 10,029 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued and initial investment in Quin Ventures | 29,719 | 1 | 498 | (44 | ) | 0 | 0 | (45 | ) | 410 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (291,932 | ) | (2 | ) | (2,916 | ) | (2,018 | ) | 0 | 0 | 0 | (4,936 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock award grants net of forfeitures | 78,993 | 1 | (1 | ) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards canceled | (13,088 | ) | 0 | (232 | ) | 0 | 0 | 0 | 0 | (232 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | 0 | 0 | 0 | 0 | (4,508 | ) | 0 | (4,508 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | 0 | 1,443 | 0 | 0 | 0 | 0 | 1,443 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released | 0 | 192 | 0 | 494 | 0 | 0 | 686 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared and paid ($0.18 per share) | 0 | 0 | (1,831 | ) | 0 | 0 | 0 | (1,831 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2021 | 10,050,877 | $ | 102 | $ | 96,396 | $ | 99,058 | $ | (8,736 | ) | $ | 934 | $ | (310 | ) | $ | 187,444 | |||||||||||||||||||||||||||||||||||||||||||
See selected notes to the consolidated financial statements.
FIRST NORTHWEST BANCORP AND SUBSIDIARY | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(In thousands) (Unaudited) |
Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 6,524 | $ | 6,796 | ||||||||||||
Net Income before noncontrolling interest | $ | 10,029 | $ | 6,524 | ||||||||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||||||
Depreciation and amortization | 1,034 | 1,000 | 1,032 | 1,034 | ||||||||||||
Amortization of core deposit intangible | 2 | 0 | ||||||||||||||
Amortization and accretion of premiums and discounts on investments, net | 1,251 | 1,373 | 1,252 | 1,251 | ||||||||||||
(Accretion) amortization of deferred loan fees, net | (1,003 | ) | (822 | ) | ||||||||||||
Amortization (accretion) of deferred loan fees and purchased premiums, net | 754 | (1,003 | ) | |||||||||||||
Amortization of debt issuance costs | 38 | 0 | ||||||||||||||
Amortization of mortgage servicing rights, net | 315 | 181 | (90 | ) | 315 | |||||||||||
Additions to mortgage servicing rights, net | (989 | ) | (60 | ) | (720 | ) | (989 | ) | ||||||||
Net increase (decrease) on the valuation allowance on mortgage servicing rights | 0 | (3 | ) | |||||||||||||
Net (decrease) increase on the valuation allowance on mortgage servicing rights | (4 | ) | 0 | |||||||||||||
Provision for loan losses | 4,116 | 420 | 1,500 | 4,116 | ||||||||||||
Allocation of ESOP shares | 512 | 636 | 503 | 512 | ||||||||||||
Share-based compensation | 917 | 804 | ||||||||||||||
Share-based compensation expense | 1,943 | 917 | ||||||||||||||
Gain on sale of loans, net | (4,109 | ) | (830 | ) | (2,921 | ) | (4,109 | ) | ||||||||
Gain on sale of securities available for sale, net | (2,235 | ) | (57 | ) | (2,410 | ) | (2,235 | ) | ||||||||
Increase in cash surrender value of life insurance, net | (1,577 | ) | (435 | ) | (727 | ) | (1,577 | ) | ||||||||
Origination of loans held for sale | (129,495 | ) | (25,050 | ) | (86,456 | ) | (129,495 | ) | ||||||||
Proceeds from loans held for sale | 129,353 | 23,825 | 90,899 | 129,353 | ||||||||||||
Net loss attributable to noncontrolling interest in Quin Ventures, Inc. | 265 | 0 | ||||||||||||||
Change in assets and liabilities: | ||||||||||||||||
(Increase) decrease in accrued interest receivable | (3,436 | ) | 322 | |||||||||||||
Decrease (increase) in accrued interest receivable | 1,191 | (3,436 | ) | |||||||||||||
Increase in prepaid expenses and other assets | (1,500 | ) | (3,294 | ) | (14,831 | ) | (1,500 | ) | ||||||||
Decrease in accrued interest payable | (322 | ) | (259 | ) | (24 | ) | (322 | ) | ||||||||
Increase in accrued expenses and other liabilities | 3,967 | 6,767 | 10,230 | 3,967 | ||||||||||||
Net cash from operating activities | 3,323 | 11,314 | 11,455 | 3,323 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Purchase of securities available for sale | (234,527 | ) | (9,456 | ) | (125,909 | ) | (234,527 | ) | ||||||||
Proceeds from maturities, calls, and principal repayments of securities available for sale | 45,684 | 21,592 | 52,071 | 45,684 | ||||||||||||
Proceeds from sales of securities available for sale | 142,276 | 3,558 | 109,829 | 142,276 | ||||||||||||
Proceeds from maturities, calls, and principal repayments of securities held to maturity | 0 | 5,756 | ||||||||||||||
Redemption of FHLB stock | 90 | 1,996 | 1,580 | 90 | ||||||||||||
| Purchase of bank-owned life insurance, net of surrenders | (6,500 | ) | 0 | 0 | (6,500 | ) | ||||||||||
Net (increase) decrease in loans receivable | (186,588 | ) | 22,837 | |||||||||||||
Net increase in loans receivable | (205,411 | ) | (186,588 | ) | ||||||||||||
Purchase of premises and equipment, net | (1,429 | ) | (188 | ) | (3,976 | ) | (1,429 | ) | ||||||||
Net cash paid for branch acquisition | 63,545 | 0 | ||||||||||||||
Net cash from investing activities | (240,994 | ) | 46,095 | (108,271 | ) | (240,994 | ) | |||||||||
See selected notes to the consolidated financial statements.
FIRST NORTHWEST BANCORP AND SUBSIDIARY | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(In thousands) (Unaudited) |
Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Net increase in deposits | $ | 252,811 | $ | 30,440 | $ | 124,532 | $ | 252,811 | ||||||||
Proceeds from long-term FHLB advances | 30,000 | 15,000 | 10,000 | 30,000 | ||||||||||||
Repayment of long-term FHLB advances | (30,000 | ) | (25,000 | ) | (10,000 | ) | (30,000 | ) | ||||||||
Net decrease in short-term FHLB advances | (3,780 | ) | (41,228 | ) | (49,977 | ) | (3,780 | ) | ||||||||
Proceeds from issuance of subordinated debt, net | 39,223 | 0 | ||||||||||||||
Net increase in advances from borrowers for taxes and insurance | 841 | 786 | 1,002 | 841 | ||||||||||||
Dividends paid | (1,569 | ) | (986 | ) | (1,831 | ) | (1,569 | ) | ||||||||
| Net share settlement of stock awards | (123 | ) | (266 | ) | ||||||||||||
Restricted stock awards canceled | (232 | ) | (123 | ) | ||||||||||||
Repurchase of common stock | (7,169 | ) | (5,997 | ) | (4,936 | ) | (7,169 | ) | ||||||||
Net cash from financing activities | 241,011 | (27,251 | ) | 107,781 | 241,011 | |||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 3,340 | 30,158 | 10,965 | 3,340 | ||||||||||||
CASH AND CASH EQUIVALENTS, beginning of period | 48,739 | 26,323 | 65,155 | 48,739 | ||||||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 52,079 | $ | 56,481 | $ | 76,120 | $ | 52,079 | ||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||||||||||
Cash paid during the year for: | ||||||||||||||||
Interest on deposits and borrowings | $ | 6,746 | $ | 9,109 | $ | 4,002 | $ | 6,746 | ||||||||
Income taxes | $ | 1,400 | $ | 1,210 | $ | 2,890 | $ | 1,400 | ||||||||
Prior unrecognized service cost of defined benefit plan transferred to single-employer plan | $ | 2,718 | $ | 0 | ||||||||||||
NONCASH INVESTING ACTIVITIES | ||||||||||||||||
Unrealized gain on securities available for sale | $ | 5,980 | $ | 5,142 | ||||||||||||
Unrealized (loss) gain on securities available for sale | $ | (3,573 | ) | $ | 5,980 | |||||||||||
Loans transferred to real estate owned and repossessed assets, net of deferred loan fees and allowance for loan losses | $ | 495 | $ | 271 | $ | 0 | $ | 495 | ||||||||
Lease liabilities arising from obtaining right-of-use assets | $ | 902 | $ | 0 | $ | 1,412 | $ | 902 | ||||||||
BUSINESS COMBINATION (see Note 11) | ||||||||||||||||
Fair value of assets acquired | $ | 1,340 | $ | 0 | ||||||||||||
Fair value of liabilities assumed | $ | 65,947 | $ | 0 | ||||||||||||
See selected notes to the consolidated financial statements.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation and Critical Accounting Policies
Organization and Nature of business - First Northwest Bancorp, a Washington corporation ("First Northwest"), became the holding company of First Federal Savings and Loan Association of Port AngelesFed 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").
In connection with the Conversion, the Company issued an aggregate of 12,167,000 shares of common stock at an offering price of $10.00 per share for gross proceeds of $121.7 million. An additional 933,360 shares of Company common stock and $400,000 in cash were contributed to the First Federal Community Foundation ("Foundation"), a charitable foundation that was established in connection with the Conversion, resulting in the issuance of a total of 13,100,360 shares. The Company received $117.6 million in net proceeds from the stock offering of which $58.4 million were contributed to the Bank upon Conversion.
Pursuant to the Bank's Plan of Conversion (the "Plan") adopted by its Board of Directors, and as approved by its members, the Company established an employee stock ownership plan ("ESOP"). 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.
In April 2021, First Northwest entered into an Amended and Restated Joint Venture Agreement (the "Joint Venture Agreement") with the Bank, POM Peace of Mind, Inc. ("POM"), and Quin Ventures, Inc. ("Quin" or "Quin Ventures"). First Northwest has partially fulfilled its commitment to extend $15.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $500,000.
On October 31, 2021, the Bank converted from a State Savings Bank Charter to a State Commercial Bank Charter and was simultaneously renamed First Fed Bank from First Federal Savings and Loan Association of Port Angeles.
First Northwest, the Bank, and Quin Ventures are collectively referred to as the "Company."
First Northwest's business activities generally are limited to passive investment activities and oversight of its investmentinvestments in First Federal.Fed and Quin Ventures. Accordingly, the information set forth in this report, including the consolidated unaudited financial statements and related data, relates primarily to the Bank.
The Bank is a community-oriented financial institution providing commercial and consumer banking services to individuals and businesses in Western Washington State with offices in Clallam, Jefferson, Kitsap, King, and Whatcom counties. These services include deposit and lending transactions that are supplemented with borrowingborrowing and investing activities.
Basis of presentation - The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all 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-K for the year ended December 31, 20192020. 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, 20202021, are not necessarily indicative of the results that may be expected for future periods.
In preparing the unaudited interim consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for loan losses ("ALLL"), fair value of financial instruments, and deferred tax assets and liabilities.
Principles of consolidation - The accompanying consolidated financial statements include the accounts of First Northwest Bancorp andNorthwest; its wholly owned subsidiary, First Federal.Fed, and its controlling interest in Quin Ventures, Inc. All material intercompany accounts and transactions have been eliminated in consolidation. While First Northwest and POM share equal ownership in Quin Ventures, it has been determined that First Northwest has 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.
Subsequent Events - The Company has evaluated subsequent events for potential recognition and disclosure and has included additional information where appropriate. See Note 10 for additional information.
Recently adopted accounting pronouncements
In August 2018,November 2019, the FASB issued ASUAccounting Standards Update ("ASU") No.2019-10 which defers the effective date of the current expected credit loss model (CECL) guidance issued in ASUs 20182016-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820.2019 This guidance eliminates certain disclosure requirements for fair value measurements: the amount of and reasons for transfers between Level -104, and Level 22019-05. ofThe effective date for smaller reporting companies was changed from the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchyinterim and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities: changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. Furthermore, this guidance modifies certain requirements which will involve disclosing: transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. This guidance is effective for public companies in fiscal yearsannual periods beginning after December 15, 2019,2020 with earlyto the interim and annual periods beginning after December 15, 2022. Early adoption permitted. Thisis permitted for interim and annual periods beginning after December 15, 2018. The Company adopted this ASU didand anticipates implementing CECL effective notJanuary 1, 2023. have a material impact on the Company's consolidated financial statements.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 2018,December 2019, FASB issued ASU No. 20182019-15,12, Customer’sIncome Taxes (Topic 740): Simplifying the Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service ContractIncome Taxes, to provide guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The. ASU aligns the2019-12 simplifies various aspects related to accounting for such costs withincome taxes by removing certain exceptions to the general principles in Topic 740. The standard also clarifies and amends existing guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350to include in its scope implementation costs of such arrangements that are service contracts and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized.improve consistent application. This ASU, which is effective for fiscal years beginning after December 15, 2019,2020, did not have a material impact on the Company’sCompany's financial statements.
In MarchJanuary 2020, the FASB issued ASU No. 2020-03,01, Codification ImprovementsInvestments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to Financial Instruments.equity securities, equity method investments, and certain derivatives including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments represent clarification and improvements to the codification and correct unintended application. This standard wasASU, which is effective immediately upon issuance and its adoption for fiscal years beginning after December 15, 2020, did not have a material effect on the Company’sCompany's financial statements.
Recently issued accounting pronouncements not yet adopted
Credit Losses
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 effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Upon adoption, the Company will change processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the 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.
Additional updates were issued in ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging (Topic 825), Financial Instruments. This ASU clarifies and improves guidance related to the previously issued standards on credit losses, hedging and recognition and measurement of financial instruments. The amendments provide entities with various measurement alternatives and policy elections related to accounting for credit losses and accrued interest receivable balances. Entities are also able to elect a practical expedient to separately disclose the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements. The amendments clarify that the estimated allowance for credit losses should include all expected recoveries of financial assets and trade receivables that were previously written off and expected to be written off. The amendments also allow entities to use projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments.
In addition, new updates were issued through ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. This amendment allows entities to elect the fair value option on certain financial instruments. On adoption, an entity is allowed to irrevocably elect the fair value option on an instrument-by-instrument basis. This alternative is available for all instruments in the scope of Subtopic 326-20 except for existing held-to-maturity debt securities. If an entity elects the fair value option, the difference between the instrument’s fair value and carrying amount is recognized as a cumulative-effect adjustment.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In November 2019, the FASB issued ASU 2019-10 which defers the effective date for this guidance for smaller reporting companies from the interim and annual periods beginning after December 15, 2020 to the interim and annual periods beginning after December 15, 2022. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Company plans to defer adoption of CECL until January 1, 2023.
The Company is evaluating the provisions of ASU No. 2016-13, ASU No. 2019-04 and ASU No. 2019-05, and will closely monitor developments and additional guidance to determine the potential impact on the Company’s consolidated financial statements. At this time, we cannot reasonably estimate the impact the implementation of these ASUs will have on the Company's consolidated financial statements. The Company's internal project management team continues to review models, work with our third-party vendor, and discuss changes to processes and procedures to ensure the Company is fully compliant with the amendments at the adoption date.date, which is anticipated to be January 1,2023.
Other Pronouncements
In December 2019, FASB issued ASU No.2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The standard also clarifies and amends existing guidance to improve consistent application. This ASU, which is effective for fiscal years beginning after December 15, 2020, is not expected to have a material impact on the Company's financial statements. Early adoption is permitted.
In January 2020, the FASB issued ASU No.2020-01,Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The ASU, which is effective for fiscal years beginning after December 15, 2020, is not expected to have a material effect on the Company's financial statements.
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 optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments are effective for the Company as of March 12, 2020 through December 31, 2022. The Company does not believe this standard will have a material impact on its financial statements.
Reclassifications - Certain amounts in the unaudited interim consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation with no effect on net income or shareholders' equity.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Securities
The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at September 30, 20202021 are summarized as follows:
Gross | Gross | Estimated | Gross | Gross | Estimated | |||||||||||||||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Available for Sale | ||||||||||||||||||||||||||||||||
Municipal bonds | $ | 94,006 | $ | 3,232 | $ | (95 | ) | $ | 97,143 | $ | 107,964 | $ | 2,697 | $ | (396 | ) | $ | 110,265 | ||||||||||||||
U.S. government agency issued asset-backed securities (ABS agency) | 73,915 | 1,123 | (1,420 | ) | 73,618 | |||||||||||||||||||||||||||
U.S. government and agency issued bonds (Agency bonds) | 1,945 | 0 | (5 | ) | 1,940 | |||||||||||||||||||||||||||
Corporate issued asset-backed securities (ABS corporate) | 33,553 | 7 | (813 | ) | 32,747 | 11,047 | 0 | (31 | ) | 11,016 | ||||||||||||||||||||||
Corporate issued debt securities (Corporate debt) | 33,401 | 283 | (454 | ) | 33,230 | 54,876 | 1,536 | (466 | ) | 55,946 | ||||||||||||||||||||||
U.S. Small Business Administration securities (SBA) | 23,623 | 242 | (1 | ) | 23,864 | 15,545 | 297 | 0 | 15,842 | |||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||
U.S. government agency issued mortgage-backed securities (MBS agency) | 90,281 | 2,133 | (12 | ) | 92,402 | 75,394 | 406 | (709 | ) | 75,091 | ||||||||||||||||||||||
Corporate issued mortgage-backed securities (MBS corporate) | 16,300 | 2 | (195 | ) | 16,107 | 55,804 | 146 | (160 | ) | 55,790 | ||||||||||||||||||||||
Total securities available for sale | $ | 365,079 | $ | 7,022 | $ | (2,990 | ) | $ | 369,111 | $ | 322,575 | $ | 5,082 | $ | (1,767 | ) | $ | 325,890 | ||||||||||||||
The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at December 31, 20192020, are summarized as follows:
Gross | Gross | Estimated | Gross | Gross | Estimated | |||||||||||||||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Available for Sale | ||||||||||||||||||||||||||||||||
Municipal bonds | $ | 39,524 | $ | 125 | $ | (367 | ) | $ | 39,282 | $ | 122,667 | $ | 5,212 | $ | (17 | ) | $ | 127,862 | ||||||||||||||
ABS agency | 29,796 | 0 | (938 | ) | 28,858 | |||||||||||||||||||||||||||
U.S. government agency issued asset-backed securities (ABS agency) | 62,934 | 1,240 | (354 | ) | 63,820 | |||||||||||||||||||||||||||
ABS corporate | 41,728 | 0 | (873 | ) | 40,855 | 29,661 | 37 | (418 | ) | 29,280 | ||||||||||||||||||||||
Corporate debt | 9,986 | 0 | (343 | ) | 9,643 | 35,408 | 687 | (585 | ) | 35,510 | ||||||||||||||||||||||
SBA | 28,423 | 72 | (36 | ) | 28,459 | 18,420 | 144 | 0 | 18,564 | |||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||
MBS agency | 159,697 | 811 | (341 | ) | 160,167 | 61,859 | 876 | (52 | ) | 62,683 | ||||||||||||||||||||||
MBS corporate | 8,374 | 0 | (58 | ) | 8,316 | 26,458 | 162 | (43 | ) | 26,577 | ||||||||||||||||||||||
Total securities available for sale | $ | 317,528 | $ | 1,008 | $ | (2,956 | ) | $ | 315,580 | $ | 357,407 | $ | 8,358 | $ | (1,469 | ) | $ | 364,296 | ||||||||||||||
There were 0 securities classified as held-to-maturity at September 30, 20202021 and December 31, 20192020.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of September 30, 20202021:
Less Than Twelve Months | Twelve Months or Longer | Total | Less Than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||||||||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Available for Sale | ||||||||||||||||||||||||||||||||||||||||||||||||
Municipal bonds | $ | (95 | ) | $ | 7,757 | $ | 0 | $ | 0 | $ | (95 | ) | $ | 7,757 | $ | (336 | ) | $ | 24,237 | $ | (60 | ) | $ | 6,375 | $ | (396 | ) | $ | 30,612 | |||||||||||||||||||
ABS agency | (172 | ) | 8,172 | (1,248 | ) | 25,933 | (1,420 | ) | 34,105 | |||||||||||||||||||||||||||||||||||||||
Agency bonds | (5 | ) | 1,939 | 0 | 0 | (5 | ) | 1,939 | ||||||||||||||||||||||||||||||||||||||||
ABS corporate | (85 | ) | 3,801 | (728 | ) | 26,982 | (813 | ) | 30,783 | (31 | ) | 11,016 | 0 | 0 | (31 | ) | 11,016 | |||||||||||||||||||||||||||||||
Corporate debt | (90 | ) | 6,804 | (364 | ) | 9,622 | (454 | ) | 16,426 | (238 | ) | 16,197 | (228 | ) | 9,758 | (466 | ) | 25,955 | ||||||||||||||||||||||||||||||
SBA | 0 | 65 | (1 | ) | 3,775 | (1 | ) | 3,840 | 0 | 0 | 0 | 85 | 0 | 85 | ||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
MBS agency | (12 | ) | 2,221 | 0 | 6 | (12 | ) | 2,227 | (709 | ) | 42,690 | 0 | 4 | (709 | ) | 42,694 | ||||||||||||||||||||||||||||||||
MBS corporate | (31 | ) | 1,979 | (164 | ) | 3,998 | (195 | ) | 5,977 | (160 | ) | 20,282 | 0 | 0 | (160 | ) | 20,282 | |||||||||||||||||||||||||||||||
Total available for sale | $ | (485 | ) | $ | 30,799 | $ | (2,505 | ) | $ | 70,316 | $ | (2,990 | ) | $ | 101,115 | $ | (1,479 | ) | $ | 116,361 | $ | (288 | ) | $ | 16,222 | $ | (1,767 | ) | $ | 132,583 | ||||||||||||||||||
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 December 31, 20192020:
Less Than Twelve Months | Twelve Months or Longer | Total | Less Than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||||||||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Available for Sale | ||||||||||||||||||||||||||||||||||||||||||||||||
Municipal bonds | $ | (367 | ) | $ | 29,928 | $ | 0 | $ | 0 | $ | (367 | ) | $ | 29,928 | $ | (15 | ) | $ | 5,214 | $ | (2 | ) | $ | 1,319 | $ | (17 | ) | $ | 6,533 | |||||||||||||||||||
ABS agency | (59 | ) | 3,855 | (879 | ) | 25,002 | (938 | ) | 28,857 | 0 | 0 | (354 | ) | 21,430 | (354 | ) | 21,430 | |||||||||||||||||||||||||||||||
ABS corporate | (31 | ) | 3,848 | (842 | ) | 37,007 | (873 | ) | 40,855 | 0 | 0 | (418 | ) | 27,283 | (418 | ) | 27,283 | |||||||||||||||||||||||||||||||
Corporate debt | (17 | ) | 4,983 | (326 | ) | 4,660 | (343 | ) | 9,643 | (8 | ) | 5,892 | (577 | ) | 9,409 | (585 | ) | 15,301 | ||||||||||||||||||||||||||||||
SBA | 0 | 0 | (36 | ) | 15,034 | (36 | ) | 15,034 | 0 | 63 | 0 | 47 | 0 | 110 | ||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
MBS agency | (166 | ) | 18,744 | (175 | ) | 47,463 | (341 | ) | 66,207 | (52 | ) | 18,516 | 0 | 261 | (52 | ) | 18,777 | |||||||||||||||||||||||||||||||
MBS corporate | 0 | 0 | (58 | ) | 8,316 | (58 | ) | 8,316 | (43 | ) | 10,003 | 0 | 0 | (43 | ) | 10,003 | ||||||||||||||||||||||||||||||||
Total available for sale | $ | (640 | ) | $ | 61,358 | $ | (2,316 | ) | $ | 137,482 | $ | (2,956 | ) | $ | 198,840 | $ | (118 | ) | $ | 39,688 | $ | (1,351 | ) | $ | 59,749 | $ | (1,469 | ) | $ | 99,437 | ||||||||||||||||||
The Company may hold certain investment securities in an unrealized loss position that are not considered other than temporarily impaired ("OTTI"). At September 30, 20202021 and December 31, 20192020, there were 3062 and 6236 investment securities in an unrealized loss position, respectively.
We believe that the unrealized losses on our investment securities relate principally to the general change in interest rates, market demand, and related volatility, rather than credit quality, that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend to sell the securities in an unrealized loss position and believes it is not likely it will be required to sell these investments prior to a market price recovery or maturity.
There were 0 OTTI losses during the three and nine months ended September 30, 20202021 and 20192020.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; therefore, these securities are shown separately.
September 30, 2020 | September 30, 2021 | |||||||||||||||
Available-for-Sale | Available-for-Sale | |||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Due within one year | $ | 0 | $ | 0 | $ | 3,512 | $ | 3,517 | ||||||||
Due after one through five years | 11,956 | 12,175 | 28,689 | 28,782 | ||||||||||||
Due after five through ten years | 142 | 142 | 6,476 | 6,463 | ||||||||||||
Due after ten years | 94,483 | 96,192 | 92,521 | 92,119 | ||||||||||||
Total mortgage-backed securities | 106,581 | 108,509 | 131,198 | 130,881 | ||||||||||||
All other investment securities: | ||||||||||||||||
Due within one year | 0 | 0 | 0 | 0 | ||||||||||||
Due after one through five years | 4,524 | 4,563 | 5,362 | 5,266 | ||||||||||||
Due after five through ten years | 71,563 | 70,390 | 74,584 | 76,013 | ||||||||||||
Due after ten years | 182,411 | 185,649 | 111,431 | 113,730 | ||||||||||||
Total all other investment securities | 258,498 | 260,602 | 191,377 | 195,009 | ||||||||||||
Total investment securities | $ | 365,079 | $ | 369,111 | $ | 322,575 | $ | 325,890 | ||||||||
December 31, 2019 | December 31, 2020 | |||||||||||||||
Available-for-Sale | Available-for-Sale | |||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Due within one year | $ | 0 | $ | 0 | $ | 80 | $ | 84 | ||||||||
Due after one through five years | 13,360 | 13,391 | 12,446 | 12,402 | ||||||||||||
Due after five through ten years | 6,261 | 6,257 | 0 | 0 | ||||||||||||
Due after ten years | 148,450 | 148,835 | 75,791 | 76,774 | ||||||||||||
Total mortgage-backed securities | 168,071 | 168,483 | 88,317 | 89,260 | ||||||||||||
All other investment securities: | ||||||||||||||||
Due within one year | 0 | 0 | 0 | 0 | ||||||||||||
Due after one through five years | 2,043 | 2,084 | 2,210 | 2,328 | ||||||||||||
Due after five through ten years | 58,460 | 57,680 | 74,568 | 74,351 | ||||||||||||
Due after ten years | 88,954 | 87,333 | 192,312 | 198,357 | ||||||||||||
Total all other investment securities | 149,457 | 147,097 | 269,090 | 275,036 | ||||||||||||
Total investment securities | $ | 317,528 | $ | 315,580 | $ | 357,407 | $ | 364,296 | ||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Sales of securities available-for-sale for the periods shown are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Proceeds from sales | $ | 47,844 | $ | 0 | $ | 142,276 | $ | 3,558 | ||||||||
Gross realized gains | 1,593 | 0 | 3,097 | 57 | ||||||||||||
Gross realized losses | (624 | ) | 0 | (862 | ) | 0 | ||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Proceeds from sales | $ | 64,394 | $ | 47,844 | $ | 109,829 | $ | 142,276 | ||||||||
Gross realized gains | 1,627 | 1,593 | 2,827 | 3,097 | ||||||||||||
Gross realized losses | (341 | ) | (624 | ) | (417 | ) | (862 | ) | ||||||||
Note 3 - Loans Receivable
Loans receivable consisted of the following at the dates indicated:
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Real Estate: | ||||||||||||||||
One-to-four family | $ | 317,755 | $ | 306,014 | $ | 294,432 | $ | 309,828 | ||||||||
Multi-family | 127,569 | 96,098 | 177,560 | 162,467 | ||||||||||||
Commercial real estate | 283,390 | 255,722 | 353,356 | 296,574 | ||||||||||||
Construction and land | 75,204 | 37,187 | 214,472 | 123,627 | ||||||||||||
Total real estate loans | 803,918 | 695,021 | 1,039,820 | 892,496 | ||||||||||||
Consumer: | ||||||||||||||||
Home equity | 34,120 | 35,046 | 38,881 | 33,103 | ||||||||||||
Auto and other consumer | 111,782 | 112,119 | 182,238 | 128,233 | ||||||||||||
Total consumer loans | 145,902 | 147,165 | 221,119 | 161,336 | ||||||||||||
Commercial business loans | 123,036 | 41,571 | 91,939 | 100,201 | ||||||||||||
Total loans | 1,072,856 | 883,757 | 1,352,878 | 1,154,033 | ||||||||||||
Less: | ||||||||||||||||
Net deferred loan fees | 2,628 | 206 | 5,274 | 4,346 | ||||||||||||
Premium on purchased loans, net | (4,196 | ) | (4,514 | ) | (12,765 | ) | (6,129 | ) | ||||||||
Allowance for loan losses | 13,007 | 9,628 | 15,243 | 13,847 | ||||||||||||
Total loans receivable, net | $ | 1,061,417 | $ | 878,437 | $ | 1,345,126 | $ | 1,141,969 | ||||||||
Allowance for Loan Losses. The Company maintains a general allowance for loan losses based 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 reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables summarize changes in the ALLL and loan portfolio by segment and impairment method for the periods shown:
At or For the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One-to- | Commercial | Construction | Home | Auto and other | Commercial | At or For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
four family | Multi-family | real estate | and land | equity | consumer | business | Unallocated | Total | One-to-four family | Multi-family | Commercial real estate | Construction and land | Home equity | Auto and other consumer | Commercial business | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ALLL: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,780 | $ | 1,128 | $ | 3,021 | $ | 738 | $ | 429 | $ | 2,252 | $ | 463 | $ | 298 | $ | 12,109 | $ | 3,356 | $ | 1,816 | $ | 3,674 | $ | 2,221 | $ | 393 | $ | 2,368 | $ | 464 | $ | 296 | $ | 14,588 | ||||||||||||||||||||||||||||||||||||
Provision for (recapture of) loan losses | 62 | 307 | 319 | 240 | (4 | ) | 427 | 0 | (1 | ) | 1,350 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Recapture of) provision for loan losses | (117 | ) | 101 | 278 | 260 | 24 | 58 | 26 | 70 | 700 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charge-offs | 0 | 0 | 0 | 0 | 0 | (479 | ) | 0 | 0 | (479 | ) | 0 | 0 | 0 | 0 | 0 | (421 | ) | 0 | 0 | (421 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Recoveries | 2 | 0 | 0 | 1 | 0 | 24 | 0 | 0 | 27 | 0 | 0 | 0 | 2 | 0 | 374 | 0 | 0 | 376 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 3,844 | $ | 1,435 | $ | 3,340 | $ | 979 | $ | 425 | $ | 2,224 | $ | 463 | $ | 297 | $ | 13,007 | $ | 3,239 | $ | 1,917 | $ | 3,952 | $ | 2,483 | $ | 417 | $ | 2,379 | $ | 490 | $ | 366 | $ | 15,243 | ||||||||||||||||||||||||||||||||||||
At or For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One-to- | Commercial | Construction | Home | Auto and other | Commercial | At or For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
four family | Multi-family | real estate | and land | equity | consumer | business | Unallocated | Total | One-to-four family | Multi-family | Commercial real estate | Construction and land | Home equity | Auto and other consumer | Commercial business | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ALLL: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,024 | $ | 888 | $ | 2,243 | $ | 399 | $ | 454 | $ | 2,261 | $ | 208 | $ | 151 | $ | 9,628 | $ | 3,469 | $ | 1,764 | $ | 3,420 | $ | 1,461 | $ | 368 | $ | 2,642 | $ | 429 | $ | 294 | $ | 13,847 | ||||||||||||||||||||||||||||||||||||
Provision for (recapture of) loan losses | 764 | 547 | 1,097 | 577 | (30 | ) | 760 | 255 | 146 | 4,116 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Recapture of) provision for loan losses | (236 | ) | 153 | 532 | 1,016 | 44 | (142 | ) | 61 | 72 | 1,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charge-offs | 0 | 0 | 0 | 0 | 0 | (853 | ) | 0 | 0 | (853 | ) | 0 | 0 | 0 | 0 | (12 | ) | (801 | ) | 0 | 0 | (813 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Recoveries | 56 | 0 | 0 | 3 | 1 | 56 | 0 | 0 | 116 | 6 | 0 | 0 | 6 | 17 | 680 | 0 | 0 | 709 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 3,844 | $ | 1,435 | $ | 3,340 | $ | 979 | $ | 425 | $ | 2,224 | $ | 463 | $ | 297 | $ | 13,007 | $ | 3,239 | $ | 1,917 | $ | 3,952 | $ | 2,483 | $ | 417 | $ | 2,379 | $ | 490 | $ | 366 | $ | 15,243 | ||||||||||||||||||||||||||||||||||||
At September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One-to- | Commercial | Construction | Home | Auto and other | Commercial | At September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
four family | Multi-family | real estate | and land | equity | consumer | business | Unallocated | Total | One-to-four family | Multi-family | Commercial real estate | Construction and land | Home equity | Auto and other consumer | Commercial business | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total ALLL | $ | 3,844 | $ | 1,435 | $ | 3,340 | $ | 979 | $ | 425 | $ | 2,224 | $ | 463 | $ | 297 | $ | 13,007 | $ | 3,239 | $ | 1,917 | $ | 3,952 | $ | 2,483 | $ | 417 | $ | 2,379 | $ | 490 | $ | 366 | $ | 15,243 | ||||||||||||||||||||||||||||||||||||
General reserve | 3,791 | 1,435 | 3,339 | 978 | 421 | 2,036 | 463 | 297 | 12,760 | 3,212 | 1,917 | 3,952 | 2,483 | 414 | 2,272 | 490 | 366 | 15,106 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Specific reserve | 53 | 0 | 1 | 1 | 4 | 188 | 0 | 0 | 247 | 27 | 0 | 0 | 0 | 3 | 107 | 0 | 0 | 137 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 317,755 | $ | 127,569 | $ | 283,390 | $ | 75,204 | $ | 34,120 | $ | 111,782 | $ | 123,036 | $ | 0 | $ | 1,072,856 | $ | 294,432 | $ | 177,560 | $ | 353,356 | $ | 214,472 | $ | 38,881 | $ | 182,238 | $ | 91,939 | $ | 0 | $ | 1,352,878 | ||||||||||||||||||||||||||||||||||||
Loans collectively evaluated (1) | 313,744 | 127,282 | 282,103 | 75,179 | 33,983 | 111,174 | 123,036 | 0 | 1,066,501 | 292,094 | 177,560 | 352,158 | 214,448 | 38,699 | 181,846 | 91,939 | 0 | 1,348,744 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans individually evaluated (2) | 4,011 | 287 | 1,287 | 25 | 137 | 608 | 0 | 0 | 6,355 | 2,338 | 0 | 1,198 | 24 | 182 | 392 | 0 | 0 | 4,134 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Loans collectively evaluated for general reserves. | |||||||||||||||||||||||||||||||||||
(2) Loans individually evaluated for specific reserves. |
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At or For the Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||
One-to- | Commercial | Construction | Home | Auto and other | Commercial | |||||||||||||||||||||||||||||||
four family | Multi-family | real estate | and land | equity | consumer | business | Unallocated | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||
ALLL: | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,417 | $ | 651 | $ | 2,357 | $ | 711 | $ | 465 | $ | 1,790 | $ | 171 | $ | 169 | $ | 9,731 | ||||||||||||||||||
(Recapture of) provision for loan losses | (307 | ) | (64 | ) | 47 | 16 | (30 | ) | 192 | (13 | ) | (11 | ) | (170 | ) | |||||||||||||||||||||
Charge-offs | 0 | 0 | 0 | 0 | 0 | (237 | ) | 1 | 0 | (236 | ) | |||||||||||||||||||||||||
Recoveries | 1 | 0 | 0 | 1 | 23 | 93 | 0 | 0 | 118 | |||||||||||||||||||||||||||
Ending balance | $ | 3,111 | $ | 587 | $ | 2,404 | $ | 728 | $ | 458 | $ | 1,838 | $ | 159 | $ | 158 | $ | 9,443 | ||||||||||||||||||
At or For the Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One-to- | Commercial | Construction | Home | Auto and other | Commercial | At or For the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
four family | Multi-family | real estate | and land | equity | consumer | business | Unallocated | Total | One-to-four family | Multi-family | Commercial real estate | Construction and land | Home equity | Auto and other consumer | Commercial business | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ALLL: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,297 | $ | 762 | $ | 2,289 | $ | 585 | $ | 480 | $ | 1,611 | $ | 334 | $ | 175 | $ | 9,533 | $ | 3,780 | $ | 1,128 | $ | 3,021 | $ | 738 | $ | 429 | $ | 2,252 | $ | 463 | $ | 298 | $ | 12,109 | ||||||||||||||||||||||||||||||||||||
(Recapture of) provision for loan losses | (190 | ) | (175 | ) | 115 | 142 | (66 | ) | 785 | (174 | ) | (17 | ) | 420 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for (recapture of) loan losses | 62 | 307 | 319 | 240 | (4 | ) | 427 | 0 | (1 | ) | 1,350 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charge-offs | 0 | 0 | 0 | 0 | 0 | (785 | ) | (3 | ) | 0 | (788 | ) | 0 | 0 | 0 | 0 | 0 | (479 | ) | 0 | 0 | (479 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Recoveries | 4 | 0 | 0 | 1 | 44 | 227 | 2 | 0 | 278 | 2 | 0 | 0 | 1 | 0 | 24 | 0 | 0 | 27 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 3,111 | $ | 587 | $ | 2,404 | $ | 728 | $ | 458 | $ | 1,838 | $ | 159 | $ | 158 | $ | 9,443 | $ | 3,844 | $ | 1,435 | $ | 3,340 | $ | 979 | $ | 425 | $ | 2,224 | $ | 463 | $ | 297 | $ | 13,007 | ||||||||||||||||||||||||||||||||||||
At December 31, 2019 | ||||||||||||||||||||||||||||||||||||
One-to- | Commercial | Construction | Home | Auto and other | Commercial | |||||||||||||||||||||||||||||||
four family | Multi-family | real estate | and land | equity | consumer | business | Unallocated | Total | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Total ALLL | $ | 3,024 | $ | 888 | $ | 2,243 | $ | 399 | $ | 454 | $ | 2,261 | $ | 208 | $ | 151 | $ | 9,628 | ||||||||||||||||||
General reserve | 2,993 | 887 | 2,235 | 399 | 439 | 2,119 | 203 | 151 | 9,426 | |||||||||||||||||||||||||||
Specific reserve | 31 | 1 | 8 | 0 | 15 | 142 | 5 | 0 | 202 | |||||||||||||||||||||||||||
Total loans | $ | 306,014 | $ | 96,098 | $ | 255,722 | $ | 37,187 | $ | 35,046 | $ | 112,119 | $ | 41,571 | $ | 0 | $ | 883,757 | ||||||||||||||||||
Loans collectively evaluated (1) | 303,026 | 95,991 | 253,839 | 37,158 | 34,775 | 111,271 | 41,308 | 0 | 877,368 | |||||||||||||||||||||||||||
Loans individually evaluated (2) | 2,988 | 107 | 1,883 | 29 | 271 | 848 | 263 | 0 | 6,389 | |||||||||||||||||||||||||||
At or For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||
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 | $ | 3,024 | $ | 888 | $ | 2,243 | $ | 399 | $ | 454 | $ | 2,261 | $ | 208 | $ | 151 | $ | 9,628 | ||||||||||||||||||
Provision for (recapture of) loan losses | 764 | 547 | 1,097 | 577 | (30 | ) | 760 | 255 | 146 | 4,116 | ||||||||||||||||||||||||||
Charge-offs | 0 | 0 | 0 | 0 | 0 | (853 | ) | 0 | 0 | (853 | ) | |||||||||||||||||||||||||
Recoveries | 56 | 0 | 0 | 3 | 1 | 56 | 0 | 0 | 116 | |||||||||||||||||||||||||||
Ending balance | $ | 3,844 | $ | 1,435 | $ | 3,340 | $ | 979 | $ | 425 | $ | 2,224 | $ | 463 | $ | 297 | $ | 13,007 | ||||||||||||||||||
At December 31, 2020 | ||||||||||||||||||||||||||||||||||||
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 | $ | 3,469 | $ | 1,764 | $ | 3,420 | $ | 1,461 | $ | 368 | $ | 2,642 | $ | 429 | $ | 294 | $ | 13,847 | ||||||||||||||||||
General reserve | 3,433 | 1,764 | 3,419 | 1,461 | 364 | 2,366 | 429 | 294 | 13,530 | |||||||||||||||||||||||||||
Specific reserve | 36 | 0 | 1 | 0 | 4 | 276 | 0 | 0 | 317 | |||||||||||||||||||||||||||
Total loans | $ | 309,828 | $ | 162,467 | $ | 296,574 | $ | 123,627 | $ | 33,103 | $ | 128,233 | $ | 100,201 | $ | 0 | $ | 1,154,033 | ||||||||||||||||||
Loans collectively evaluated (1) | 306,862 | 162,183 | 295,296 | 123,601 | 32,968 | 127,411 | 100,201 | 0 | 1,148,522 | |||||||||||||||||||||||||||
Loans individually evaluated (2) | 2,966 | 284 | 1,278 | 26 | 135 | 822 | 0 | 0 | 5,511 | |||||||||||||||||||||||||||
(1) Loans collectively evaluated for general reserves. | |||||||||||||||||||||||||||||||||||
(2) Loans individually evaluated for specific reserves. |
Impaired loans. A loan is considered impaired when First Federalthe Bank has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan. Impairment is measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying troubled debt restructuring ("TDR") loans.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of loans individually evaluated for impairment by portfolio segment at the dates indicated:
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
With no allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
| One-to-four family | $ | 202 | $ | 229 | $ | — | $ | 297 | $ | 332 | $ | — | $ | 215 | $ | 249 | $ | — | $ | 227 | $ | 257 | $ | — | ||||||||||||||||||||||||
| Multi-family | 287 | 287 | — | 0 | 0 | — | 0 | 0 | — | 284 | 284 | — | ||||||||||||||||||||||||||||||||||||
| Commercial real estate | 1,221 | 1,310 | — | 1,240 | 1,320 | — | 1,198 | 1,300 | — | 1,216 | 1,308 | — | ||||||||||||||||||||||||||||||||||||
| Construction and land | 0 | 0 | — | 0 | 33 | — | 0 | 0 | — | 0 | 29 | — | ||||||||||||||||||||||||||||||||||||
| Home equity | 37 | 94 | — | 45 | 110 | — | 30 | 64 | — | 37 | 94 | — | ||||||||||||||||||||||||||||||||||||
| Auto and other consumer | 0 | 299 | — | 251 | 548 | — | 0 | 84 | — | 0 | 224 | — | ||||||||||||||||||||||||||||||||||||
| Commercial business | 0 | 0 | — | 0 | 0 | — | ||||||||||||||||||||||||||||||||||||||||||
Total | 1,747 | 2,219 | — | 1,833 | 2,343 | — | 1,443 | 1,697 | — | 1,764 | 2,196 | — | ||||||||||||||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
| One-to-four family | $ | 3,809 | $ | 4,017 | $ | 53 | 2,691 | 2,911 | 31 | 2,123 | 2,326 | 27 | 2,739 | 2,941 | 36 | |||||||||||||||||||||||||||||||||
| Multi-family | 0 | 0 | 0 | 107 | 107 | 1 | ||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | 66 | 66 | 1 | 643 | 643 | 8 | 0 | 0 | 0 | 62 | 62 | 1 | ||||||||||||||||||||||||||||||||||||
| Construction and land | 25 | 57 | 1 | 29 | 29 | 0 | 24 | 24 | 0 | 26 | 26 | 0 | ||||||||||||||||||||||||||||||||||||
| Home equity | 100 | 159 | 4 | 226 | 286 | 15 | 152 | 175 | 3 | 98 | 157 | 4 | ||||||||||||||||||||||||||||||||||||
| Auto and other consumer | 608 | 780 | 188 | 597 | 690 | 142 | 392 | 406 | 107 | 822 | 953 | 276 | ||||||||||||||||||||||||||||||||||||
| Commercial business | 0 | 0 | 0 | 263 | 263 | 5 | ||||||||||||||||||||||||||||||||||||||||||
Total | 4,608 | 5,079 | 247 | 4,556 | 4,929 | 202 | 2,691 | 2,931 | 137 | 3,747 | 4,139 | 317 | ||||||||||||||||||||||||||||||||||||
Total impaired loans: | ||||||||||||||||||||||||||||||||||||||||||||||||
One-to-four family | 4,011 | 4,246 | 53 | 2,988 | 3,243 | 31 | 2,338 | 2,575 | 27 | 2,966 | 3,198 | 36 | ||||||||||||||||||||||||||||||||||||
Multi-family | 287 | 287 | 0 | 107 | 107 | 1 | 0 | 0 | 0 | 284 | 284 | 0 | ||||||||||||||||||||||||||||||||||||
Commercial real estate | 1,287 | 1,376 | 1 | 1,883 | 1,963 | 8 | 1,198 | 1,300 | 0 | 1,278 | 1,370 | 1 | ||||||||||||||||||||||||||||||||||||
Construction and land | 25 | 57 | 1 | 29 | 62 | 0 | 24 | 24 | 0 | 26 | 55 | 0 | ||||||||||||||||||||||||||||||||||||
Home equity | 137 | 253 | 4 | 271 | 396 | 15 | 182 | 239 | 3 | 135 | 251 | 4 | ||||||||||||||||||||||||||||||||||||
Auto and other consumer | 608 | 1,079 | 188 | 848 | 1,238 | 142 | 392 | 490 | 107 | 822 | 1,177 | 276 | ||||||||||||||||||||||||||||||||||||
Commercial business | 0 | 0 | 0 | 263 | 263 | 5 | ||||||||||||||||||||||||||||||||||||||||||
Total | $ | 6,355 | $ | 7,298 | $ | 247 | $ | 6,389 | $ | 7,272 | $ | 202 | $ | 4,134 | $ | 4,628 | $ | 137 | $ | 5,511 | $ | 6,335 | $ | 317 | ||||||||||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of loans individually evaluated for impairment by portfolio segment at the dates indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2020 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
With no allowance recorded: | ||||||||||||||||
| One-to-four family | $ | 203 | $ | 6 | $ | 154 | $ | 6 | ||||||||
| Multi-family | 294 | 1 | 197 | 0 | ||||||||||||
| Commercial real estate | 1,200 | 1 | 1,211 | 15 | ||||||||||||
| Construction and land | 0 | 0 | 12 | 0 | ||||||||||||
| Home equity | 38 | 1 | 43 | 1 | ||||||||||||
| Auto and other consumer | 0 | 13 | 0 | 16 | ||||||||||||
| Commercial business | 168 | 0 | 90 | 0 | ||||||||||||
Total | 1,903 | 22 | 1,707 | 38 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
| One-to-four family | $ | 4,397 | $ | 91 | $ | 3,335 | $ | 158 | ||||||||
| Multi-family | 0 | 0 | 158 | 0 | ||||||||||||
| Commercial real estate | 67 | 2 | 380 | 2 | ||||||||||||
| Construction and land | 26 | 2 | 28 | 3 | ||||||||||||
| Home equity | 140 | 3 | 212 | 7 | ||||||||||||
| Auto and other consumer | 702 | 24 | 718 | 33 | ||||||||||||
| Commercial business | 0 | 0 | 146 | 0 | ||||||||||||
Total | 5,332 | 122 | 4,977 | 203 | ||||||||||||
Total impaired loans: | ||||||||||||||||
One-to-four family | 4,600 | 97 | 3,489 | 164 | ||||||||||||
Multi-family | 294 | 1 | 355 | 0 | ||||||||||||
Commercial real estate | 1,267 | 3 | 1,591 | 17 | ||||||||||||
Construction and land | 26 | 2 | 40 | 3 | ||||||||||||
Home equity | 178 | 4 | 255 | 8 | ||||||||||||
Auto and other consumer | 702 | 37 | 718 | 49 | ||||||||||||
Commercial business | 168 | 0 | 236 | 0 | ||||||||||||
Total | $ | 7,235 | $ | 144 | $ | 6,684 | $ | 241 | ||||||||
Interest income recognized on a cash basis on impaired loans for the three and nine months ended September 30, 2020, was $84,000 and $181,000, respectively.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the average recorded investment in loans individually evaluated for impairment and the related interest income recognized for the periods shown:
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, 2019 | September 30, 2019 | September 30, 2021 | September 30, 2021 | |||||||||||||||||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||
With no allowance recorded: | ||||||||||||||||||||||||||||||||
One-to-four family | $ | 236 | $ | 4 | $ | 243 | $ | 8 | $ | 217 | $ | 3 | $ | 221 | $ | 9 | ||||||||||||||||
Multi-family | 0 | 0 | 125 | 0 | ||||||||||||||||||||||||||||
Commercial real estate | 1,260 | 15 | 1,278 | 39 | 1,200 | 18 | 1,081 | 55 | ||||||||||||||||||||||||
Home equity | 52 | 14 | 144 | 30 | 31 | 0 | 34 | 1 | ||||||||||||||||||||||||
Auto and other consumer | 0 | 10 | 0 | 14 | 47 | 3 | 39 | 5 | ||||||||||||||||||||||||
| Commercial business | 0 | 1 | 0 | 4 | ||||||||||||||||||||||||||||
Total | 1,548 | 44 | 1,665 | 95 | 1,495 | 24 | 1,500 | 70 | ||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||
One-to-four family | 2,891 | 64 | 2,850 | 146 | 2,199 | 46 | 2,357 | 110 | ||||||||||||||||||||||||
Multi-family | 108 | 1 | 109 | 4 | ||||||||||||||||||||||||||||
Commercial real estate | 651 | 8 | 657 | 23 | 17 | 0 | 162 | 0 | ||||||||||||||||||||||||
Construction and land | 52 | 2 | 57 | 2 | 24 | 2 | 25 | 3 | ||||||||||||||||||||||||
Home equity | 289 | 6 | 297 | 14 | 122 | 3 | 117 | 0 | ||||||||||||||||||||||||
Auto and other consumer | 394 | 9 | 324 | 16 | 464 | 6 | 715 | 17 | ||||||||||||||||||||||||
Commercial business | 266 | 2 | 299 | 9 | ||||||||||||||||||||||||||||
Total | 4,651 | 92 | 4,593 | 214 | 2,826 | 57 | 3,376 | 130 | ||||||||||||||||||||||||
Total impaired loans: | ||||||||||||||||||||||||||||||||
One-to-four family | 3,127 | 68 | 3,093 | 154 | 2,416 | 49 | 2,578 | 119 | ||||||||||||||||||||||||
Multi-family | 108 | 1 | 109 | 4 | 0 | 0 | 125 | 0 | ||||||||||||||||||||||||
Commercial real estate | 1,911 | 23 | 1,935 | 62 | 1,217 | 18 | 1,243 | 55 | ||||||||||||||||||||||||
Construction and land | 52 | 2 | 57 | 2 | 24 | 2 | 25 | 3 | ||||||||||||||||||||||||
Home equity | 341 | 20 | 441 | 44 | 153 | 3 | 151 | 1 | ||||||||||||||||||||||||
Auto and other consumer | 394 | 19 | 324 | 30 | 511 | 9 | 754 | 22 | ||||||||||||||||||||||||
Commercial business | 266 | 3 | 299 | 13 | ||||||||||||||||||||||||||||
Total | $ | 6,199 | $ | 136 | $ | 6,258 | $ | 309 | $ | 4,321 | $ | 81 | $ | 4,876 | $ | 200 | ||||||||||||||||
Interest income recognized on a cash basis on impaired loans for the three and nine months ended September 30, 20192021, was $99,000$65,000 and $271,000,$183,000, respectively.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the average recorded investment in loans individually evaluated for impairment and the related interest income recognized for the periods shown:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2020 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
(In thousands) | ||||||||||||||||
With no allowance recorded: | ||||||||||||||||
One-to-four family | $ | 203 | $ | 6 | $ | 154 | $ | 6 | ||||||||
Multi-family | 294 | 1 | 197 | 0 | ||||||||||||
Commercial real estate | 1,200 | 1 | 1,211 | 15 | ||||||||||||
Construction and land | 0 | 0 | 12 | 0 | ||||||||||||
Home equity | 38 | 1 | 43 | 1 | ||||||||||||
Auto and other consumer | 0 | 13 | 0 | 16 | ||||||||||||
Commercial business | 168 | 0 | 90 | 0 | ||||||||||||
Total | 1,903 | 22 | 1,707 | 38 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
One-to-four family | 4,397 | 91 | 3,335 | 158 | ||||||||||||
Multi-family | 0 | 0 | 158 | 0 | ||||||||||||
Commercial real estate | 67 | 2 | 380 | 2 | ||||||||||||
Construction and land | 26 | 2 | 28 | 3 | ||||||||||||
Home equity | 140 | 3 | 212 | 7 | ||||||||||||
Auto and other consumer | 702 | 24 | 718 | 33 | ||||||||||||
Commercial business | 0 | 0 | 146 | 0 | ||||||||||||
Total | 5,332 | 122 | 4,977 | 203 | ||||||||||||
Total impaired loans: | ||||||||||||||||
One-to-four family | 4,600 | 97 | 3,489 | 164 | ||||||||||||
Multi-family | 294 | 1 | 355 | 0 | ||||||||||||
Commercial real estate | 1,267 | 3 | 1,591 | 17 | ||||||||||||
Construction and land | 26 | 2 | 40 | 3 | ||||||||||||
Home equity | 178 | 4 | 255 | 8 | ||||||||||||
Auto and other consumer | 702 | 37 | 718 | 49 | ||||||||||||
Commercial business | 168 | 0 | 236 | 0 | ||||||||||||
Total | $ | 7,235 | $ | 144 | $ | 6,684 | $ | 241 | ||||||||
Interest income recognized on a cash basis on impaired loans for the three and nine months ended September 30, 2020, was $84,000. and $181,000, respectively.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the recorded investment in nonaccrual loans by class of loan at the dates indicated:
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
One-to-four family | $ | 1,939 | $ | 698 | $ | 561 | $ | 912 | ||||||||
Multi-family | 287 | 0 | 0 | 284 | ||||||||||||
Commercial real estate | 166 | 109 | 76 | 157 | ||||||||||||
Construction and land | 25 | 29 | 24 | 26 | ||||||||||||
Home equity | 74 | 112 | 130 | 73 | ||||||||||||
Auto and other consumer | 607 | 848 | 392 | 821 | ||||||||||||
Commercial business | 0 | 0 | 0 | 0 | ||||||||||||
Total nonaccrual loans | $ | 3,098 | $ | 1,796 | $ | 1,183 | $ | 2,273 | ||||||||
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 0 loans past due 90 days or more and still accruing interest at September 30, 20202021 and December 31, 20192020.
The following table presents the recorded investment in past due loans, net of partial loan charge-offs, by class, as of September 30, 20202021:
30-59 Days | 60-89 Days | 90 Days or More | Total | 30-59 Days | 60-89 Days | 90 Days or More | Total | |||||||||||||||||||||||||||||||||||||||||
Past Due | Past Due | Past Due | Past Due | Current | Total Loans | Past Due | Past Due | Past Due | Past Due | Current | Total Loans | |||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
One-to-four family | $ | 0 | $ | 685 | $ | 500 | $ | 1,185 | $ | 316,570 | $ | 317,755 | $ | 0 | $ | 60 | $ | 0 | $ | 60 | $ | 294,372 | $ | 294,432 | ||||||||||||||||||||||||
Multi-family | 0 | 0 | 0 | 0 | 127,569 | 127,569 | 0 | 0 | 0 | 0 | 177,560 | 177,560 | ||||||||||||||||||||||||||||||||||||
Commercial real estate | 0 | 0 | 0 | 0 | 283,390 | 283,390 | 0 | 0 | 0 | 0 | 353,356 | 353,356 | ||||||||||||||||||||||||||||||||||||
Construction and land | 0 | 0 | 25 | 25 | 75,179 | 75,204 | 0 | 0 | 0 | 0 | 214,472 | 214,472 | ||||||||||||||||||||||||||||||||||||
Total real estate loans | 0 | 685 | 525 | 1,210 | 802,708 | 803,918 | 0 | 60 | 0 | 60 | 1,039,760 | 1,039,820 | ||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||
Home equity | 0 | 12 | 0 | 12 | 34,108 | 34,120 | 53 | 29 | 0 | 82 | 38,799 | 38,881 | ||||||||||||||||||||||||||||||||||||
Auto and other consumer | 724 | 416 | 180 | 1,320 | 110,462 | 111,782 | 283 | 69 | 32 | 384 | 181,854 | 182,238 | ||||||||||||||||||||||||||||||||||||
Total consumer loans | 724 | 428 | 180 | 1,332 | 144,570 | 145,902 | 336 | 98 | 32 | 466 | 220,653 | 221,119 | ||||||||||||||||||||||||||||||||||||
Commercial business loans | 0 | 0 | 0 | 0 | 123,036 | 123,036 | 17 | 0 | 0 | 17 | 91,922 | 91,939 | ||||||||||||||||||||||||||||||||||||
Total loans | $ | 724 | $ | 1,113 | $ | 705 | $ | 2,542 | $ | 1,070,314 | $ | 1,072,856 | $ | 353 | $ | 158 | $ | 32 | $ | 543 | $ | 1,352,335 | $ | 1,352,878 | ||||||||||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the recorded investment in past due loans, net of partial loan charge-offs, by class, as of December 31, 20192020:
30-59 Days | 60-89 Days | 90 Days or More | Total | 30-59 Days | 60-89 Days | 90 Days or More | Total | |||||||||||||||||||||||||||||||||||||||||
Past Due | Past Due | Past Due | Past Due | Current | Total Loans | Past Due | Past Due | Past Due | Past Due | Current | Total Loans | |||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
One-to-four family | $ | 928 | $ | 92 | $ | 116 | $ | 1,136 | $ | 304,878 | $ | 306,014 | $ | 406 | $ | 132 | $ | 29 | $ | 567 | $ | 309,261 | $ | 309,828 | ||||||||||||||||||||||||
Multi-family | 0 | 0 | 0 | 0 | 96,098 | 96,098 | 0 | 0 | 0 | 0 | 162,467 | 162,467 | ||||||||||||||||||||||||||||||||||||
Commercial real estate | 0 | 0 | 0 | 0 | 255,722 | 255,722 | 0 | 0 | 0 | 0 | 296,574 | 296,574 | ||||||||||||||||||||||||||||||||||||
Construction and land | 38 | 0 | 0 | 38 | 37,149 | 37,187 | 56 | 0 | 26 | 82 | 123,545 | 123,627 | ||||||||||||||||||||||||||||||||||||
Total real estate loans | 966 | 92 | 116 | 1,174 | 693,847 | 695,021 | 462 | 132 | 55 | 649 | 891,847 | 892,496 | ||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||
Home equity | 299 | 24 | 0 | 323 | 34,723 | 35,046 | 94 | 0 | 0 | 94 | 33,009 | 33,103 | ||||||||||||||||||||||||||||||||||||
Auto and other consumer | 1,423 | 370 | 614 | 2,407 | 109,712 | 112,119 | 815 | 138 | 137 | 1,090 | 127,143 | 128,233 | ||||||||||||||||||||||||||||||||||||
Total consumer loans | 1,722 | 394 | 614 | 2,730 | 144,435 | 147,165 | 909 | 138 | 137 | 1,184 | 160,152 | 161,336 | ||||||||||||||||||||||||||||||||||||
Commercial business loans | 0 | 115 | 0 | 115 | 41,456 | 41,571 | 0 | 0 | 0 | 0 | 100,201 | 100,201 | ||||||||||||||||||||||||||||||||||||
Total loans | $ | 2,688 | $ | 601 | $ | 730 | $ | 4,019 | $ | 879,738 | $ | 883,757 | $ | 1,371 | $ | 270 | $ | 192 | $ | 1,833 | $ | 1,152,200 | $ | 1,154,033 | ||||||||||||||||||||||||
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 our 8-point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that First Federalthe Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
When First Federalthe Bank classifies problem assets as either substandard or doubtful, it may establish a specific allowance to address the risk specifically or 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 certain 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 enough 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. Loans not otherwise classified are considered pass graded loans and are rated 1-3 in our risk rating system.
Additionally, First Federalthe Bank categorizes loans as performing or nonperforming based on payment activity. Loans that are more than 90 days past due and nonaccrual loans are considered nonperforming.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table represents the internally assigned grade as of September 30, 20202021, by class of loans:
Pass | Watch | Special Mention | Substandard | Total | Pass | Watch | Special Mention | Substandard | Total | |||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||||||||||||||
One-to-four family | $ | 310,998 | $ | 2,624 | $ | 2,602 | $ | 1,531 | $ | 317,755 | $ | 290,889 | $ | 2,653 | $ | 57 | $ | 833 | $ | 294,432 | ||||||||||||||||||||
Multi-family | 127,282 | 0 | 0 | 287 | 127,569 | 161,525 | 16,035 | 0 | 0 | 177,560 | ||||||||||||||||||||||||||||||
Commercial real estate | 270,792 | 9,233 | 2,133 | 1,232 | 283,390 | 307,347 | 21,534 | 13,464 | 11,011 | 353,356 | ||||||||||||||||||||||||||||||
Construction and land | 61,296 | 13,796 | 77 | 35 | 75,204 | 203,512 | 2,058 | 8,878 | 24 | 214,472 | ||||||||||||||||||||||||||||||
Total real estate loans | 770,368 | 25,653 | 4,812 | 3,085 | 803,918 | 963,273 | 42,280 | 22,399 | 11,868 | 1,039,820 | ||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||
Home equity | 33,503 | 394 | 100 | 123 | 34,120 | 38,486 | 136 | 61 | 198 | 38,881 | ||||||||||||||||||||||||||||||
Auto and other consumer | 107,407 | 2,233 | 1,553 | 589 | 111,782 | 180,486 | 1,245 | 115 | 392 | 182,238 | ||||||||||||||||||||||||||||||
Total consumer loans | 140,910 | 2,627 | 1,653 | 712 | 145,902 | 218,972 | 1,381 | 176 | 590 | 221,119 | ||||||||||||||||||||||||||||||
Commercial business loans | 122,804 | 0 | 0 | 232 | 123,036 | 90,795 | 912 | 0 | 232 | 91,939 | ||||||||||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 1,034,082 | $ | 28,280 | $ | 6,465 | $ | 4,029 | $ | 1,072,856 | $ | 1,273,040 | $ | 44,573 | $ | 22,575 | $ | 12,690 | $ | 1,352,878 | ||||||||||||||||||||
The following table represents the internally assigned grade as of December 31, 20192020, by class of loans:
Pass | Watch | Special Mention | Substandard | Total | Pass | Watch | Special Mention | Substandard | Total | |||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||||||||||||||
One-to-four family | $ | 301,312 | $ | 2,685 | $ | 1,148 | $ | 869 | $ | 306,014 | $ | 303,840 | $ | 2,487 | $ | 1,730 | $ | 1,771 | $ | 309,828 | ||||||||||||||||||||
Multi-family | 95,694 | 0 | 107 | 297 | 96,098 | 146,536 | 15,647 | 0 | 284 | 162,467 | ||||||||||||||||||||||||||||||
Commercial real estate | 251,531 | 97 | 2,800 | 1,294 | 255,722 | 250,970 | 20,759 | 20,690 | 4,155 | 296,574 | ||||||||||||||||||||||||||||||
Construction and land | 35,897 | 1,184 | 77 | 29 | 37,187 | 114,575 | 8,914 | 74 | 64 | 123,627 | ||||||||||||||||||||||||||||||
Total real estate loans | 684,434 | 3,966 | 4,132 | 2,489 | 695,021 | 815,921 | 47,807 | 22,494 | 6,274 | 892,496 | ||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||
Home equity | 34,260 | 470 | 89 | 227 | 35,046 | 32,500 | 349 | 100 | 154 | 33,103 | ||||||||||||||||||||||||||||||
Auto and other consumer | 107,327 | 3,243 | 594 | 955 | 112,119 | 124,115 | 2,034 | 1,216 | 868 | 128,233 | ||||||||||||||||||||||||||||||
Total consumer loans | 141,587 | 3,713 | 683 | 1,182 | 147,165 | 156,615 | 2,383 | 1,316 | 1,022 | 161,336 | ||||||||||||||||||||||||||||||
Commercial business loans | 39,653 | 376 | 263 | 1,279 | 41,571 | 92,010 | 7,791 | 168 | 232 | 100,201 | ||||||||||||||||||||||||||||||
Total loans | $ | 865,674 | $ | 8,055 | $ | 5,078 | $ | 4,950 | $ | 883,757 | $ | 1,064,546 | $ | 57,981 | $ | 23,978 | $ | 7,528 | $ | 1,154,033 | ||||||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table represents the credit risk profile based on payment activity as of September 30, 20202021, by class of loans:
Nonperforming | Performing | Total | Nonperforming | Performing | Total | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||
One-to-four family | $ | 1,939 | $ | 315,816 | $ | 317,755 | $ | 561 | $ | 293,871 | $ | 294,432 | ||||||||||||
Multi-family | 287 | 127,282 | 127,569 | 0 | 177,560 | 177,560 | ||||||||||||||||||
Commercial real estate | 166 | 283,224 | 283,390 | 76 | 353,280 | 353,356 | ||||||||||||||||||
Construction and land | 25 | 75,179 | 75,204 | 24 | 214,448 | 214,472 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity | 74 | 34,046 | 34,120 | 130 | 38,751 | 38,881 | ||||||||||||||||||
Auto and other consumer | 607 | 111,175 | 111,782 | 392 | 181,846 | 182,238 | ||||||||||||||||||
Commercial business | 0 | 123,036 | 123,036 | 0 | 91,939 | 91,939 | ||||||||||||||||||
Total loans | $ | 3,098 | $ | 1,069,758 | $ | 1,072,856 | $ | 1,183 | $ | 1,351,695 | $ | 1,352,878 | ||||||||||||
The following table represents the credit risk profile based on payment activity as of December 31, 20192020, by class of loans:
Nonperforming | Performing | Total | Nonperforming | Performing | Total | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||
One-to-four family | $ | 698 | $ | 305,316 | $ | 306,014 | $ | 912 | $ | 308,916 | $ | 309,828 | ||||||||||||
Multi-family | 0 | 96,098 | 96,098 | 284 | 162,183 | 162,467 | ||||||||||||||||||
Commercial real estate | 109 | 255,613 | 255,722 | 157 | 296,417 | 296,574 | ||||||||||||||||||
Construction and land | 29 | 37,158 | 37,187 | 26 | 123,601 | 123,627 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity | 112 | 34,934 | 35,046 | 73 | 33,030 | 33,103 | ||||||||||||||||||
Auto and other consumer | 848 | 111,271 | 112,119 | 821 | 127,412 | 128,233 | ||||||||||||||||||
Commercial business | 0 | 41,571 | 41,571 | 0 | 100,201 | 100,201 | ||||||||||||||||||
Total loans | $ | 1,796 | $ | 881,961 | $ | 883,757 | $ | 2,273 | $ | 1,151,760 | $ | 1,154,033 | ||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Troubled debt restructuring. A TDR is a loan to a borrower who is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that First Federalthe Bank is granting the borrower a concession of some kind. First FederalFed has granted a variety of concessions to borrowers in the form of loan modifications. The modifications are generally related to the loan's interest rate, term and payment amount or a combination thereof.
The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 ("CARES Act"), provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (i.e., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. This relief was extended under the Consolidated Appropriations Act 2021, to the earlier of 60 days after the COVID-19 pandemic national emergency termination date or January 1, 2022. Through September 30, 20202021, the Company had granted COVID-19 pandemic related temporary loan modifications on a total of 346357 loans aggregating to $174.9$175.0 million, or 16.3%12.9% of total loans. Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table is a summary of COVID-19 modified loans that remain on deferral as As of September 30, 20202021:, 0 loans remained on deferral.
Count | Balance | Percent | ||||||||||
| (Dollars in Thousands) | ||||||||||||
Real Estate: | ||||||||||||
One-to-four family | 16 | $ | 5,097 | 3.4 | % | |||||||
Multi-family | 10 | 29,587 | 19.8 | |||||||||
Commercial real estate | 44 | 98,895 | 66.1 | |||||||||
Construction and land | 6 | 5,987 | 4.0 | |||||||||
Total real estate loans | 76 | 139,566 | 93.3 | |||||||||
Consumer: | ||||||||||||
Home equity | 6 | 707 | 0.5 | |||||||||
Auto and other consumer | 88 | 4,741 | 3.2 | |||||||||
Total consumer loans | 94 | 5,448 | 3.7 | |||||||||
Commercial business loans | 13 | 4,528 | 3.0 | |||||||||
Total loans | 183 | $ | 149,542 | 100.0 | % | |||||||
The following table is a summary of information pertaining to TDR loans included in impaired loans at the dates indicated:
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
| Total TDR loans | $ | 2,244 | $ | 3,544 | $ | 1,858 | $ | 2,224 | ||||||||
| Allowance for loan losses related to TDR loans | 28 | 41 | 21 | 26 | ||||||||||||
Total nonaccrual TDR loans | 108 | 81 | 29 | 108 | ||||||||||||
There were 0 newly restructured and renewals or modifications of existing TDR loans that occurred during the three and nine months ended September 30, 20202021 or September 30, 20192020.
There were 0 TDR loans which incurred a payment default within 12 months of the restructure date during three and nine months ended September 30, 2020.
The following table presents newly restructured and renewals or modifications of existing TDR loans by class that occurred during the three and nine months ended September 30, 2019, by type of concession granted.
Number | Rate | Term | Combination | Total | ||||||||||||||||
of Contracts | Modification | Modification | Modification | Modifications | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Pre-modification outstanding recorded investment | ||||||||||||||||||||
One- to four-family | 1 | $ | 0 | $ | 50 | $ | 0 | $ | 50 | |||||||||||
Post-modification outstanding recorded investment | ||||||||||||||||||||
One- to four-family | 1 | $ | 0 | $ | 51 | $ | 0 | $ | 51 | |||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of TDR loans which incurred a payment default within 12 months of the restructure date during the three and nine months ended September 30, 20192021 or 2020.
Number | Rate | Term | Combination | Total | ||||||||||||||||
of Contracts | Modification | Modification | Modification | Modifications | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
TDR loans that subsequently defaulted | ||||||||||||||||||||
One- to four-family | 1 | $ | 0 | $ | 0 | $ | 48 | $ | 48 | |||||||||||
NaN additional funds were committed to be advanced in connection with impairedTDR loans at September 30, 20202021.
The following table presents TDR loans by class at the dates indicated by accrual and nonaccrual status.status:
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Accrual | Nonaccrual | Total | Accrual | Nonaccrual | Total | Accrual | Nonaccrual | Total | Accrual | Nonaccrual | Total | |||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
One-to-four family | $ | 2,072 | $ | 108 | $ | 2,180 | $ | 2,290 | $ | 81 | $ | 2,371 | $ | 1,777 | $ | 29 | $ | 1,806 | $ | 2,054 | $ | 108 | $ | 2,162 | ||||||||||||||||||||||||
Multi-family | 0 | 0 | 0 | 107 | 0 | 107 | ||||||||||||||||||||||||||||||||||||||||||
Commercial real estate | 0 | 0 | 0 | 643 | 0 | 643 | ||||||||||||||||||||||||||||||||||||||||||
Home equity | 64 | 0 | 64 | 160 | 0 | 160 | 52 | 0 | 52 | 62 | 0 | 62 | ||||||||||||||||||||||||||||||||||||
Commercial business | 0 | 0 | 0 | 263 | 0 | 263 | ||||||||||||||||||||||||||||||||||||||||||
Total TDR loans | $ | 2,136 | $ | 108 | $ | 2,244 | $ | 3,463 | $ | 81 | $ | 3,544 | $ | 1,829 | $ | 29 | $ | 1,858 | $ | 2,116 | $ | 108 | $ | 2,224 | ||||||||||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Deposits
The aggregate amount of time deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limit, currently $250,000, at September 30, 20202021 and December 31, 20192020, were $73.0$75.4 million and $93.5$91.7 million, respectively. Deposits and weighted-average interest rates at the dates indicated are as follows:
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||
Amount | Weighted-Average Interest Rate | Amount | Weighted-Average Interest Rate | Amount | Weighted-Average Interest Rate | Amount | Weighted-Average Interest Rate | |||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||
Savings | $ 171,905 | 0.17% | $ 168,983 | 0.86% | ||||||||||||||||||||||||||
Transaction accounts | 390,867 | 0.01% | 276,496 | 0.03% | ||||||||||||||||||||||||||
Noninterest-bearing demand deposits | $ | 328,463 | 0.00 | % | $ | 274,930 | 0.00 | % | ||||||||||||||||||||||
Interest-bearing demand deposits | 182,181 | 0.01 | % | 156,241 | 0.01 | % | ||||||||||||||||||||||||
Money market accounts | 398,144 | 0.31% | 248,086 | 0.46% | 573,713 | 0.21 | % | 429,143 | 0.31 | % | ||||||||||||||||||||
Savings accounts | 193,479 | 0.06 | % | 164,434 | 0.17 | % | ||||||||||||||||||||||||
Certificates of deposit | 293,540 | 1.00% | 308,080 | 1.85% | 245,080 | 0.70 | % | 308,769 | 1.00 | % | ||||||||||||||||||||
| $ 1,254,456 | 0.36% | $ 1,001,645 | 0.84% | |||||||||||||||||||||||||||
Total deposits | $ | 1,522,916 | 0.20 | % | $ | 1,333,517 | 0.36 | % | ||||||||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maturities of certificates at the dates indicated are as follows:
September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Within one year or less | $ | 190,613 | $ | 241,127 | $ | 156,988 | $ | 185,804 | ||||||||
After one year through two years | 62,920 | 42,274 | 50,169 | 70,705 | ||||||||||||
After two years through three years | 25,020 | 11,167 | 23,815 | 37,417 | ||||||||||||
After three years through four years | 7,769 | 6,593 | 7,616 | 6,938 | ||||||||||||
After four years through five years | 7,218 | 6,919 | 6,492 | 7,905 | ||||||||||||
After five years | 0 | 0 | ||||||||||||||
| $ | 293,540 | $ | 308,080 | |||||||||||||
Total certificates of deposit | $ | 245,080 | $ | 308,769 | ||||||||||||
Brokered certificates of deposits of $92.6$55.1 million and $51.6$89.6 million are included in the September 30, 20202021 and December 31, 20192020 certificate of deposits totals above, respectively.
Deposits atAt September 30, 20202021 and December 31, 20192020, deposits included $79.9$117.7 million and $57.3$80.9 million, respectively, in public fund deposits. Investment securities with a carrying value of $39.0$60.5 million and $35.5$48.1 million were pledged as collateral for these deposits at September 30, 20202021 and December 31, 20192020, respectively. 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 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
Savings | $ | 176 | $ | 397 | $ | 785 | $ | 1,085 | ||||||||||||||||||||||||
Transaction accounts | 5 | 26 | 28 | 98 | ||||||||||||||||||||||||||||
Demand deposits | $ | 11 | $ | 5 | $ | 28 | $ | 28 | ||||||||||||||||||||||||
Money market accounts | 362 | 312 | 1,118 | 945 | 291 | 362 | 852 | 1,118 | ||||||||||||||||||||||||
Savings accounts | 28 | 176 | 102 | 785 | ||||||||||||||||||||||||||||
Certificates of deposit | 862 | 1,406 | 3,653 | 4,005 | 520 | 862 | 1,627 | 3,653 | ||||||||||||||||||||||||
| $ | 1,405 | $ | 2,141 | $ | 5,584 | $ | 6,133 | |||||||||||||||||||||||||
Total interest expense on deposits | $ | 850 | $ | 1,405 | $ | 2,609 | $ | 5,584 | ||||||||||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Federal Taxes on Income
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.
The effective tax rates were 24.4%17.2% and 18.9%24.3% for the nine months ended September 30, 20202021 and 20192020, respectively. The effective tax rates differ from the statutory maximum federal tax rate for 20202021 and 20192020 of 21%, largely due to the nontaxable earnings on bank ownedbank-owned life insurance ("BOLI") and tax-exempt interest income earned on certain investment securities and loans. AnAdditionally, a cumulative adjustment was recorded in the first quarter of 2021, which reduced the current year provision, and an estimate for the penalty on the BOLI contract surrendered this year isin 2020 was included in the 2020 taxyear-to-date provision, resultingwhich resulted in a higher effective tax rate.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Earnings per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding 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 issuance of common stock that then shared in the earnings of the entity. In addition, nonvestedunvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share.
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, 20202021 and 20192020.
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
(In thousands, except share data) | (In thousands, except share data) | (In thousands, except share data) | ||||||||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||||||||||
Net income | $ | 3,675 | $ | 2,510 | $ | 6,524 | $ | 6,796 | ||||||||||||||||||||||||
Net Income Attributable to Parent | $ | 4,178 | $ | 3,675 | $ | 10,294 | $ | 6,524 | ||||||||||||||||||||||||
Denominator: | ||||||||||||||||||||||||||||||||
Basic weighted average common shares outstanding | 9,257,252 | 9,854,973 | 9,409,754 | 9,930,069 | 9,184,568 | 9,257,252 | 9,196,729 | 9,409,754 | ||||||||||||||||||||||||
Dilutive restricted stock grants | 6,723 | 48,368 | 29,484 | 76,738 | 83,508 | 6,723 | 97,527 | 29,484 | ||||||||||||||||||||||||
Diluted weighted average common shares outstanding | 9,263,975 | 9,903,341 | 9,439,238 | 10,006,807 | 9,268,076 | 9,263,975 | 9,294,256 | 9,439,238 | ||||||||||||||||||||||||
Basic earnings per share | $ | 0.40 | $ | 0.25 | $ | 0.69 | $ | 0.68 | $ | 0.45 | $ | 0.40 | $ | 1.12 | $ | 0.69 | ||||||||||||||||
Diluted earnings per share | $ | 0.40 | $ | 0.25 | $ | 0.69 | $ | 0.68 | $ | 0.45 | $ | 0.40 | $ | 1.11 | $ | 0.69 | ||||||||||||||||
Unallocated ESOP shares are not included as outstanding for either basic or diluted earnings per share calculations. As of September 30, 20202021 and 20192020, there were 754,301701,412 and 794,042754,301 shares in the ESOP that remain unallocated, respectively.
Potential dilutive shares are excluded from the computation
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Employee Benefits
Change from Multi-employer to Single-employer Pension Plan
Effective March 23, 2021, the Company withdrew from the Pentegra Defined Benefit Plan for Financial Institutions ("Pentegra DB Plan") and established the First Federal Defined Benefit Plan ("Bank DB Plan"), a single-employer plan. On March 23, 2021, all assets and liabilities were transferred from the Pentegra DB Plan to the newly established Bank DB Plan.
The Bank DB Plan is a defined benefit pension plan covering current and former employees. Benefits available under the plan are frozen. The plan provides defined benefits based on years of service and final average salary prior to the freeze. The Company uses December 31 as the measurement date for this plan. The initial measurement period will be March 23, 2021 – December 31, 2021.
The fair value of plan assets and projected benefit obligation on the March 23, 2021, Bank DB Plan adoption date were $14,705,000 and $14,197,000, respectively. A $2,717,599 cash contribution was made to the Pentegra DB Plan in March 2021 prior to the transition. A prior service cost of $1.7 million, net of tax, was included in accumulated other comprehensive loss on the Company's balance sheet at September 30, 2021. The prior service cost is expected to be amortized over 15 years.
Weighted-average assumptions used to determine pension benefit obligations at year-end include a 2.95% discount rate and a 0% rate of compensation increase. The weighted average assumptions used to determine net periodic pension cost include 2.95% discount rate, 5.75% expected return on plan assets and a 0% rate of compensation increase. The 5.75% weighted average expected long-term rate of return is estimated based on current trends in similar plan assets, as well as projected future rates of returns on similar assets.
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-month12-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. An annual$835,000 principal and interest payment of $835,000 was made by the ESOP during the nine months ended September 30, 20202021.
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, 2021 and 2020, was $179,000 and $99,000, respectively. Compensation expense related to the ESOP for the nine months ended September 30, 2021 and 2020, was $503,000 and $359,000, respectively.
Shares issued to the ESOP as of the dates indicated are as follows:
September 30, 2021 | December 31, 2020 | |||||||
(Dollars in thousands) | ||||||||
Allocated shares | 333,396 | 306,949 | ||||||
Committed to be released shares | 13,221 | 0 | ||||||
Unallocated shares | 701,412 | 741,080 | ||||||
Total ESOP shares issued | 1,048,029 | 1,048,029 | ||||||
Fair value of unallocated shares | $ | 12,317 | $ | 11,561 | ||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Compensation expense related to the ESOP for the three months ended September 30, 2020 and 2019, was $99,000 and $185,000, respectively. Compensation expense related to the ESOP for the nine months ended September 30, 2020 and 2019, was $359,000 and $512,000, respectively.
Shares issued to the ESOP as of the dates indicated are as follows:
September 30, 2020 | December 31, 2019 | |||||||
(Dollars in thousands) | ||||||||
Allocated shares | 280,507 | 227,473 | ||||||
Committed to be released shares | 13,221 | 26,514 | ||||||
Unallocated shares | 754,301 | 794,042 | ||||||
Total ESOP shares issued | 1,048,029 | 1,048,029 | ||||||
Fair value of unallocated shares | $ | 7,468 | $ | 14,396 | ||||
Note 8 - Stock-based Compensation
In May 2020, the Company's shareholders approved the First Northwest Bancorp 2020 Equity Incentive Plan ("2020 EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock shares or restricted stock units, and performance share awards to eligible participants through May 2030. The cost of awards under the 2020 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 2020 EIP is 520,000. AtAs of September 30, 20202021, there were 456,541336,383 total shares available for grant under the 2020 EIP, all of which are available to be granted as restricted shares.
As a result of the approval of the 2020 EIP, the First Northwest Bancorp 2015 Equity Incentive Plan (the "2015 EIP") was frozen and 0 additional awards will be made. AtAs of September 30, 20202021, there were 0 shares available for grant under the 2015 EIP. At this date, there are 273,800125,720 shares granted under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.
During the three months ended September 30, 2020 and 2019, 63,459 and 23,400 shares of restricted stock were awarded, respectively, and 0 stock options were granted. There were 126,05996,205 and 23,400126,059 shares of restricted stock awarded, respectively, during the nine months ended September 30, 20202021 and 20192020. Awarded shares of restricted stock vest ratably over periods ranging from threeone to five years from the date of grant provided 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 grant date amortized over the statedvesting period.
For the three months ended September 30, 20202021 and 20192020, total compensation expense for the equity incentive plans was $362,000$433,000 and $251,000,$362,000, respectively. For the nine months ended September 30, 20202021 and 20192020, total compensation expense for the equity incentive plans was $917,000$1.4 million and $804,000,$917,000, respectively.
Included in the above compensation expense for the three months ended September 30, 20202021 and 20192020, was directors' compensation wasof $64,000 and $102,000, and $86,000, respectively. ForIncluded in the above compensation expense for the nine months ended September 30, 20202021 and 20192020, was directors' compensation wasof $324,000 and $273,000, and $256,000, respectively.
The following tabletables provide a summary of changes in non-vested restricted stock awards for the period shown:
For the Three Months Ended | ||||||||
September 30, 2020 | ||||||||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Non-vested at July 1, 2020 | 277,400 | $ | 14.68 | |||||
Granted | 63,459 | 11.93 | ||||||
Vested | (50,244 | ) | 13.58 | |||||
Canceled (1) | (10,088 | ) | 13.58 | |||||
Forfeited | (3,600 | ) | 12.70 | |||||
Non-vested at September 30, 2020 | 276,927 | $ | 14.32 | |||||
(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, 2021 | ||||||||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Non-vested at July 1, 2021 | 366,068 | $ | 15.03 | |||||
Granted | 11,309 | 17.76 | ||||||
Vested | (71,049 | ) | 13.27 | |||||
Canceled (1) | (11,134 | ) | 13.27 | |||||
Forfeited | (17,212 | ) | 12.89 | |||||
Non-vested at September 30, 2021 | 277,982 | $ | 15.80 | |||||
(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 share of tax on the vested shares. The surrendered shares are canceled and are unavailable for reissue. | ||||||||
For the Nine Months Ended | ||||||||
September 30, 2020 | ||||||||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Non-vested at January 1, 2020 | 264,300 | $ | 14.60 | |||||
Granted | 126,059 | 12.97 | ||||||
Vested | (50,244 | ) | 13.58 | |||||
Canceled (1) | (10,088 | ) | 13.58 | |||||
Forfeited | (53,100 | ) | 13.36 | |||||
Non-vested at September 30, 2020 | 276,927 | $ | 14.32 | |||||
(1) A surrender of vested stock awards by a participant surrendering the number of shares valued at the current stock price at the vesting date to cover the total cost of the vested shares. The surrendered shares are canceled and are unavailable for reissue. | ||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, 2021 | ||||||||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Non-vested at January 1, 2021 | 292,892 | $ | 13.96 | |||||
Granted | 96,205 | 18.50 | ||||||
Vested | (80,815 | ) | 13.36 | |||||
Canceled (1) | (13,088 | ) | 13.36 | |||||
Forfeited | (17,212 | ) | 12.89 | |||||
Non-vested at September 30, 2021 | 277,982 | $ | 15.80 | |||||
(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 share of tax on the vested shares. The surrendered shares are canceled and are unavailable for reissue. | ||||||||
As of September 30, 20202021, there was $3.4$3.6 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 3.202.46 years.
Note 9 - Fair Value Accounting and Measurement
Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-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-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.
Qualitative disclosures of valuation techniques - Securities available for sale: 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.
If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets measured at fair value on a recurring basis at the dates indicated:
September 30, 2020 | September 30, 2021 | |||||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Securities available-for-sale | ||||||||||||||||||||||||||||||||
Municipal bonds | $ | 0 | $ | 97,143 | $ | 0 | $ | 97,143 | $ | 0 | $ | 110,265 | $ | 0 | $ | 110,265 | ||||||||||||||||
ABS agency | 0 | 73,618 | 0 | 73,618 | ||||||||||||||||||||||||||||
Agency bonds | 0 | 1,940 | 0 | 1,940 | ||||||||||||||||||||||||||||
ABS corporate | 0 | 32,747 | 0 | 32,747 | 0 | 11,016 | 0 | 11,016 | ||||||||||||||||||||||||
Corporate debt | 0 | 33,230 | 0 | 33,230 | 0 | 55,946 | 0 | 55,946 | ||||||||||||||||||||||||
SBA | 0 | 23,864 | 0 | 23,864 | 0 | 15,842 | 0 | 15,842 | ||||||||||||||||||||||||
MBS agency | 0 | 92,402 | 0 | 92,402 | 0 | 75,091 | 0 | 75,091 | ||||||||||||||||||||||||
MBS corporate | 0 | 16,107 | 0 | 16,107 | 0 | 55,790 | 0 | 55,790 | ||||||||||||||||||||||||
| $ | 0 | $ | 369,111 | $ | 0 | $ | 369,111 | $ | 0 | $ | 325,890 | $ | 0 | $ | 325,890 | |||||||||||||||||
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Securities available-for-sale | ||||||||||||||||||||||||||||||||
Municipal bonds | $ | 0 | $ | 39,282 | $ | 0 | $ | 39,282 | $ | 0 | $ | 127,862 | $ | 0 | $ | 127,862 | ||||||||||||||||
ABS agency | 0 | 28,858 | 0 | 28,858 | 0 | 63,820 | 0 | 63,820 | ||||||||||||||||||||||||
ABS corporate | 0 | 40,855 | 0 | 40,855 | 0 | 29,280 | 0 | 29,280 | ||||||||||||||||||||||||
Corporate debt | 0 | 9,643 | 0 | 9,643 | 0 | 32,970 | 2,540 | 35,510 | ||||||||||||||||||||||||
SBA | 0 | 28,459 | 0 | 28,459 | 0 | 18,564 | 0 | 18,564 | ||||||||||||||||||||||||
MBS agency | 0 | 160,167 | 0 | 160,167 | 0 | 62,683 | 0 | 62,683 | ||||||||||||||||||||||||
MBS corporate | 0 | 8,316 | 0 | 8,316 | 0 | 20,205 | 6,372 | 26,577 | ||||||||||||||||||||||||
| $ | 0 | $ | 315,580 | $ | 0 | $ | 315,580 | $ | 0 | $ | 355,384 | $ | 8,912 | $ | 364,296 | |||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The significant unobservable inputs in the fair value measurement of the Company's Level 3 securities are noted below. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.
The following table presents quantitative information about recurring Level 3 fair value measurements at the date indicated:
December 31, 2020 | Fair Value (In thousands) | Valuation Technique | Unobservable Input | Range (a) | ||||
Corporate debt | $ 1,540 | Consensus pricing | Offered quotes | 89 - 91 | ||||
Comparability adjustments (%) | -0.7% - +1.3% | |||||||
1,000 | Consensus pricing | Offered quotes | 92 - 100 | |||||
Comparability adjustments (%) | -7.4% - 0% | |||||||
MBS corporate | 6,372 | Consensus pricing | Offered quotes | 104 - 107 | ||||
Comparability adjustments (%) | -1.5% - +1.5% | |||||||
(a) Unobservable inputs were weighted by the relative fair value of the instruments. | ||||||||
The following tables summarize the changes in Level 3 assets measured at fair value on a recurring basis at the dates indicated:
September 30, 2021 | ||||||||||||||||||||
Balance at January 1, 2021 | Transfers Out of Level 3 (1) | Purchases | Unrealized | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||
Corporate debt | $ | 2,540 | $ | (2,540 | ) | $ | 0 | $ | 0 | $ | 0 | |||||||||
MBS corporate | 6,372 | (6,372 | ) | 0 | 0 | 0 | ||||||||||||||
| $ | 8,912 | $ | (8,912 | ) | $ | 0 | $ | 0 | $ | 0 | ||||||||||
(1) Transferred from Level 3 to Level 2 after obtaining observable market data. | ||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Balance at January 1, 2020 | Transfers Into Level 3 (1) | Purchases | Unrealized | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||
Corporate debt | $ | 0 | $ | 1,540 | $ | 1,000 | $ | 0 | $ | 2,540 | ||||||||||
MBS corporate | 0 | 0 | 6,372 | 0 | 6,372 | |||||||||||||||
| $ | 0 | $ | 1,540 | $ | 7,372 | $ | 0 | $ | 8,912 | |||||||||||
(1) Transferred from Level 2 to Level 3 because of a lack of observable market data, resulting from little to no market activity for the securities. | ||||||||||||||||||||
Assets and liabilities measured at fair value on a nonrecurring basis - Assets are considered to be 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.
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:
September 30, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 6,355 | $ | 6,355 | ||||||||
September 30, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 4,134 | $ | 4,134 | ||||||||
December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 6,389 | $ | 6,389 | ||||||||
December 31, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 5,511 | $ | 5,511 | ||||||||
At September 30, 20202021 and December 31, 20192020, there were 0no impaired loans with discounts to appraisal disposition value or other unobservable inputs.
The following tables present the carrying value and estimated fair value of financial instruments at the dates indicated:
September 30, 2020 | September 30, 2021 | |||||||||||||||||||||||||||||||||||||||
Fair Value Measurements Using: | Fair Value Measurements Using: | |||||||||||||||||||||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 16,776 | $ | 16,776 | $ | 16,776 | $ | — | $ | — | $ | 76,120 | $ | 76,120 | $ | 76,120 | $ | 0 | $ | 0 | ||||||||||||||||||||
Investment securities available for sale | 369,111 | 369,111 | — | 369,111 | — | 325,890 | 325,890 | 0 | 325,890 | 0 | ||||||||||||||||||||||||||||||
Loans held for sale | 4,754 | 4,754 | — | 4,754 | — | 2,231 | 2,231 | 0 | 2,231 | 0 | ||||||||||||||||||||||||||||||
| Loans receivable, net | 1,061,417 | 1,055,850 | — | — | 1,055,850 | 1,345,126 | 1,326,567 | 0 | 0 | 1,326,567 | ||||||||||||||||||||||||||||||
FHLB stock | 5,944 | 5,944 | — | 5,944 | — | 4,397 | 4,397 | 0 | 4,397 | 0 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 7,367 | 7,367 | — | 7,367 | — | 5,775 | 5,775 | 0 | 5,775 | 0 | ||||||||||||||||||||||||||||||
Mortgage servicing rights, net | 1,545 | 1,710 | — | — | 1,710 | 2,934 | 3,270 | 0 | 0 | 3,270 | ||||||||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||||||||||
Demand deposits | $ | 960,916 | $ | 960,916 | $ | 960,916 | $ | — | $ | — | $ | 1,277,836 | $ | 1,277,836 | $ | 1,277,836 | $ | 0 | $ | 0 | ||||||||||||||||||||
| Time deposits | 293,540 | 296,123 | — | 296,123 | — | 245,080 | 245,937 | 0 | 245,937 | 0 | ||||||||||||||||||||||||||||||
| Borrowings | 109,150 | 110,744 | — | 110,744 | — | |||||||||||||||||||||||||||||||||||
FHLB Borrowings | 60,000 | 60,882 | 0 | 60,882 | 0 | |||||||||||||||||||||||||||||||||||
Subordinated debt | 39,261 | 39,493 | 0 | 39,493 | 0 | |||||||||||||||||||||||||||||||||||
Accrued interest payable | 51 | 51 | — | 51 | — | 29 | 29 | 0 | 29 | 0 | ||||||||||||||||||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||
Fair Value Measurements Using: | Fair Value Measurements Using: | |||||||||||||||||||||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 48,739 | $ | 48,739 | $ | 48,739 | $ | 0 | $ | 0 | $ | 65,155 | $ | 65,155 | $ | 65,155 | $ | 0 | $ | 0 | ||||||||||||||||||||
Investment securities available for sale | 315,580 | 315,580 | 0 | 315,580 | 0 | 364,296 | 364,296 | 0 | 355,384 | 8,912 | ||||||||||||||||||||||||||||||
Loans held for sale | 503 | 503 | 0 | 503 | 0 | 3,753 | 3,753 | 0 | 3,753 | 0 | ||||||||||||||||||||||||||||||
Loans receivable, net | 878,437 | 858,101 | 0 | 0 | 858,101 | 1,141,969 | 1,129,570 | 0 | 0 | 1,129,570 | ||||||||||||||||||||||||||||||
FHLB stock | 6,034 | 6,034 | 0 | 6,034 | 0 | 5,977 | 5,977 | 0 | 5,977 | 0 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 3,931 | 3,931 | 0 | 3,931 | 0 | 6,966 | 6,966 | 0 | 6,966 | 0 | ||||||||||||||||||||||||||||||
Mortgage servicing rights, net | 871 | 1,486 | 0 | 0 | 1,486 | 2,120 | 2,189 | 0 | 0 | 2,189 | ||||||||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||||||||||
Demand deposits | $ | 693,565 | $ | 693,565 | $ | 693,565 | $ | 0 | $ | 0 | $ | 1,024,748 | $ | 1,024,748 | $ | 1,024,748 | $ | 0 | $ | 0 | ||||||||||||||||||||
Time deposits | 308,080 | 308,819 | 0 | 308,819 | 0 | 308,769 | 310,992 | 0 | 310,992 | 0 | ||||||||||||||||||||||||||||||
Borrowings | 112,930 | 113,076 | 0 | 113,076 | 0 | |||||||||||||||||||||||||||||||||||
FHLB Borrowings | 109,977 | 111,462 | 0 | 111,462 | 0 | |||||||||||||||||||||||||||||||||||
Accrued interest payable | 373 | 373 | 0 | 373 | 0 | 53 | 53 | 0 | 53 | 0 | ||||||||||||||||||||||||||||||
Financial assets and liabilities other than investment securities are not traded in active markets. Estimated fair values require subjective judgments and are approximate. The estimates of fair value in the previous table are not necessarily representative of amounts that could be realized in actual market transactions, or of the underlying value of the Company. The methods and assumptions used by the Company in estimating fair values of financial instruments as set forth below in accordance with ASC Topic 825, Financial Instruments, as amended by ASU 2016-01 requiring public entities to use the exit price notion effective January 1, 2018, are as follows:
Securities - Fair values for investment securities are primarily measured using information from a third-party pricing service. The pricing service uses pricing models based on market data. In the event that limited or less transparent information is provided by the third-party pricing service, fair value is estimated using secondary pricing services or non-binding third-party broker quotes.
Loans receivable, net - At September 30, 20202021, 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.
Mortgage servicing rights, net - The estimated fair value of mortgage servicing rights is based on market prices for comparable mortgage servicing contracts when available. If no comparable contract is available, the estimated fair value is based on a valuation model that calculates the present value of estimated future net servicing income.
Note 10- Change in Accumulated Other Comprehensive Income ("AOCI")
Our AOCI includes unrealized gain (loss) on available-for-sale securities and an unrecognized defined benefit plan prior service cost. The following table presents changes to accumulated other comprehensive income after-tax for the periods shown:
Unrealized Gains and Losses on Available-for-Sale Securities | Unrecognized Defined Benefit Plan Prior Service Cost, Net of Amortization | Total | ||||||||||
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BALANCE, June 30, 2020 | $ | 717 | $ | 0 | $ | 717 | ||||||
Other comprehensive income before reclassification | 3,235 | 0 | 3,235 | |||||||||
Amounts reclassified from accumulated other comprehensive income | (766 | ) | 0 | (766 | ) | |||||||
Net other comprehensive income | 2,469 | 0 | 2,469 | |||||||||
BALANCE, September 30, 2020 | $ | 3,186 | $ | 0 | $ | 3,186 | ||||||
BALANCE, June 30, 2021 | $ | 5,260 | $ | (1,714 | ) | $ | 3,546 | |||||
Other comprehensive (loss) income before reclassification | (1,625 | ) | 29 | (1,596 | ) | |||||||
Amounts reclassified from accumulated other comprehensive income | (1,016 | ) | 0 | (1,016 | ) | |||||||
Net other comprehensive (loss) income | (2,641 | ) | 29 | (2,612 | ) | |||||||
BALANCE, September 30, 2021 | $ | 2,619 | $ | (1,685 | ) | $ | 934 | |||||
BALANCE, December 31, 2019 | $ | (1,539 | ) | $ | 0 | $ | (1,539 | ) | ||||
Other comprehensive income before reclassification | 6,491 | 0 | 6,491 | |||||||||
Amounts reclassified from accumulated other comprehensive income | (1,766 | ) | 0 | (1,766 | ) | |||||||
Net other comprehensive income | 4,725 | 0 | 4,725 | |||||||||
BALANCE, September 30, 2020 | $ | 3,186 | $ | 0 | $ | 3,186 | ||||||
BALANCE, December 31, 2020 | $ | 5,442 | $ | 0 | $ | 5,442 | ||||||
Other comprehensive loss before reclassification | (919 | ) | (1,685 | ) | (2,604 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income | (1,904 | ) | 0 | (1,904 | ) | |||||||
Net other comprehensive loss | (2,823 | ) | (1,685 | ) | (4,508 | ) | ||||||
BALANCE, September 30, 2021 | $ | 2,619 | $ | (1,685 | ) | $ | 934 | |||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11- Business Combination
On July 23, 2021, the Bank acquired certain assets and assumed liabilities of the Sterling Bank and Trust of Southfield, Michigan ("Sterling") upon purchasing their sole branch located in Washington State. As a result of the Sterling transaction, the Bank has established a presence in Bellevue, Washington, and expanded its deposit base. Total consideration paid under the Sterling transaction consisted of $63.5 million in cash. There were no transfers of common stock or other equity instruments in connection with the transaction, and the Bank did not obtain any equity interests in Sterling.
The acquired assets and assumed liabilities were recorded in the Company's consolidated balance sheets at their estimated fair value as of the July 23, 2021, transaction date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired was recorded as goodwill. The goodwill arising from the transaction consists largely of a premium paid for the deposit accounts.
In most instances, determining the estimated fair values of the acquired assets and assumed liabilities required the Bank to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at the appropriate rate of interest. Differences may arise between contractually required payments and the expected cash flows at the acquisition date due to items such as prepayments or early withdrawals, and other factors. Goodwill is expected to be fully deductible for income tax purposes as, under the terms of the transaction, the Bank purchased certain assets and assumed certain liabilities of Sterling but did not acquire any equity or other ownership interests.
The following table summarizes the fair value of consideration transferred, the estimated fair values of assets acquired and liabilities assumed as of the acquisition date, and the resulting goodwill relating to the transaction (in thousands):
At July 23, 2021 | ||||||||||||
Book Value | Fair Value Adjustment | Estimated Fair Value | ||||||||||
(In thousands) | ||||||||||||
Cash consideration transferred | $ | 63,545 | ||||||||||
Recognized amounts of identifiable assets acquired and liabilities assumed | ||||||||||||
Identifiable assets acquired | ||||||||||||
Core deposit intangible ("CDI") | $ | 0 | $ | 126 | $ | 126 | ||||||
Premises and equipment | 459 | — | 459 | |||||||||
Accrued interest receivable and other assets | 755 | — | 755 | |||||||||
Total identifiable assets acquired | 1,214 | 126 | 1,340 | |||||||||
Liabilities assumed | ||||||||||||
Deposits | $ | 65,096 | $ | (229 | ) | $ | 64,867 | |||||
Accrued expenses and other liabilities | 1,080 | — | 1,080 | |||||||||
Total liabilities assumed | 66,176 | (229 | ) | 65,947 | ||||||||
Total identifiable net liabilities assumed | (64,962 | ) | 355 | (64,607 | ) | |||||||
Goodwill recognized | $ | 1,062 | ||||||||||
CDI represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of an acquisition. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life.
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-Q constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include, but are not limited to:
• | statements of our goals, intentions and expectations; |
• | statements regarding our business plans, prospects, growth and operating strategies; |
• | statements regarding the quality of our loan and investment portfolios; |
• | estimates of our risks and future costs and benefits; and |
• | statements concerning the potential effects of the COVID-19 pandemic on the Bank's business and financial results and conditions. |
These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
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• | the effects of the COVID-19 pandemic, including on our credit |
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• | our ability to control operating costs and expenses; |
• | whether our management team can implement our operational strategy, including but not limited to our efforts to achieve loan and revenue growth; |
• | our ability to successfully execute on merger and/or acquisition strategies and integrate any newly acquired assets, liabilities, customers, systems, and management personnel into our operations and our ability to realize related |
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• | our ability to develop user-friendly digital applications to serve existing customers and attract new |
• | the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; |
• | changes in the levels of general interest rates, and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources; |
• | increased competitive pressures among financial services companies, particularly from non-traditional banking entities such as challenger banks, fintech, and mega technology companies; |
• | our ability to attract and retain deposits; |
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• | results of examinations of us by the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, |
• | legislative or regulatory changes |
• | 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; |
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• | other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, |
Further, statements about the potential effects of the COVID-19 pandemic on the Bank’s businesses and financial results and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Bank’s control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on the Bank, its customers and third parties. These developments could have an adverse impact on our financial position and our results of operations.
Any of the forward-looking statements that we make in this report and in other 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 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. Due 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.
General
First Northwest is a bank holding company whichthat primarily engages in the business activity of its subsidiary, First Federal.Fed. First FederalFed is a communitycommunity-oriented financial institution which has served customers and communities since 1923. Currently, First Fed has 12 full-service branches and two business centers serving Clallam, Jefferson, Kitsap, Whatcom, and King counties in Washington through its Seattle lending center and ten full-service branches.State. Our business and operating strategy is focused on building sustainable earnings through employinghiring experienced bankers, geographic expansion, diversifying our loan product mix, expanding our deposit product offerings that deliver value-added solutions, enhancing existing services and digital service delivery channels, and enhancing our infrastructure to support the changing needs and expectations of our customers.
We offer a wide range of products and services focused on the lendingfinancial security and depositorypayment needs of Western Washington. Whilethe communities we have a concentrationserve. Lending activities include the origination of first lien one- to four-family mortgage loans, wecommercial and multi-family real estate loans, construction and land loans (including lot loans), commercial business loans, and consumer loans, consisting primarily of automobile loans as well as home equity loans and lines of credit. We continue to increase ourthe origination and portfolio balances of commercial real estate, and multi-family real estate. Weestate, acquisition/renovation, construction, and commercial business loans. More recently we have also increased our autoconsumer loan portfolio through our manufactured home and consumer loans, through indirect and purchased auto loan purchase programs, in order to diversify our asset portfolio and increase interest income. We continue to originate one- to four-family residential mortgage loans and regularly sell conforming loans into the secondary market to increase noninterest income and manage interest rate risk. We also retain one- to four-family first and second lien loans in our portfolio to generate interest income. We offer traditional consumer and business deposit products, including transaction accounts, savings and money market accounts, and certificates of deposit for individuals, businesses, and nonprofit organizations. Deposits are our primary source of funds for lending and investing activities. We also borrow funds, typically from the Federal Home Loan Bank of Des Moines, as a way to provide cost effective liquidity and manage interest rate risk.
First Northwest is affected by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by several factors, including interest rates paid on competing time deposits, alternative investment options available 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 in the markets where we do business. Lending activities are influenced by the demand for funds, our credit policies, the number and quality of our lenders and credit underwriters, digital delivery systems, branding and customer acquisition, and regional economic cycles.
Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income earned on our loans and investments and interest expense paid on our deposits and borrowings. Changes in levels of interest rates and cash flows from existing assets and liabilities affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, mortgage banking income, loan sales, interest rate swap fee income, earnings from bank-owned life insurance, investment services income, and gains and losses from sales of securities.
An offset to net interest income is the provision for loan losses, which represents the periodic charge to operations whichthat is required to adequately provide for losses inherent in our loan portfolio through our allowance for loan losses. As credit metrics improve, such as a loan's risk rating, increased property values, or recoveries of amounts previously charged off are received, aA recapture of previously recognized provision for loan losses may be added to net income.income as credit metrics improve, such as a loan's risk rating, increased property values, improvements in the economic environment, or receipt of recoveries of amounts previously charged off.
Noninterest expenses we incur in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, federal deposit insurance premiums and regulatory assessments, data processing expenses, marketing and customer acquisition expenses, professional fees, expenses related to real estate and personal property owned, and other expenses.
Impact of COVID-19 Pandemic. The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. As initial restrictive measures were eased during 2020 and into 2021, the U.S. economy started to recover and, with the availability and distribution of a COVID-19 vaccine, we anticipate continued improvements in commercial and consumer activity and the U.S. economy. As of September 30, 2021, the governor of Washington removed restrictions initially set in place, allowing businesses to return to full capacity.
We recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue through the remainder of 2021, especially if new COVID-19 variant infections increase and new restrictions are mandated. Commercial activity has improved but has not returned to the levels existing prior to the outbreak of the pandemic, which may result in our customers’ inability to meet their loan obligations to us. In late 2019addition, the economic pressures and early 2020,uncertainties related to the COVID-19 pandemic manifested itsand resulting supply chain issues have resulted in changes in consumer spending behaviors, which may negatively impact on individuals, companies,the demand for loans and governmental entities around the world. It significantly impacted the global economy and created a challenging operating environment. As economic conditions deterioratedother services we offer. Our borrowing base includes customers in mid-March 2020industries such as a result of the COVID-19 pandemic, we responded in several ways. Some of the key adjustments and developments include the following:
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On March 23, 2020, the State of Washington announced the Stay Home, Stay Healthy order for all residents, resulting in the closing of businesses or a substantial reduction in business activity. Conditions have since improved in most of the counties within our footprint allowing many businesses to expand services or reopen under current guidelines. The sectors that continue to be most heavily impacted include hospitality; restaurant and food services; and lessors of commercial real estate to hospitality, restaurant, and retail establishments.establishments, all of which have been significantly impacted by the COVID-19 pandemic. At September 30, 2020,2021, the Company’s exposure as a percent of the total loan portfolio to these industries was 4.9%was 3.6%, 0.2%0.1%, and 4.6%4.2%, respectively.respectively. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic. We continue to monitor these customers closely.
The Company worked withWe have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities, including increases in liquidity and managing our assets and liabilities in order to maintain a number of loan customers on loan deferral and forbearance plans. As of September 30, 2020, the Company had granted payment deferral plans on 346 loans totaling $174.9 million comparedstrong capital position; however, future economic conditions are subject to 297 loans totaling $128.4 million as of June 30, 2020. These modifications were not classified as TDRs at September 30, 2020, in accordancesignificant uncertainty. Uncertainties associated with the guidancepandemic include the duration of the CARES ActCOVID-19 outbreak and any related regulatory guidance. The Company is continuingvariant infections, the availability and effectiveness of COVID-19 vaccines, and the impact on our customers, employees, vendors and the economy. While uncertainty still exists, we believe we are well-positioned to work on forbearance plans with customers impacted byoperate effectively through the COVID-19 pandemic. For additional information on COVID-19 deferrals, see Note 3 of the Notes to Consolidated Financial Statements contained in "Item 1, Financial Statements."present economic environment.
DuringWe continue to provide banking and financial services to our customers, with drive-thru access available at all our branch locations and in-person services available to walk-in customers or by appointment. Our branch locations are currently open and operating, having returned to normal business hours at the quarter ended September 30, 2020,beginning of May 2021. In addition, we continue to provide access to banking and financial services through online banking, Interactive Teller Machines ("ITMs"), Automated Teller Machines ("ATMs"), and by telephone. We continue to take additional precautions within all our locations, including providing personal protection equipment and enhanced cleaning procedures, to ensure the safety of our customers and our employees.
We provided assistance to many small businesses throughapplying for the SBA's Paycheck Protection Program. This program provides small businessesProgram ("PPP") funding. As of September 30, 2021, we processed $35.0 million of loans for 427 customers during the second round of SBA PPP funding with funds to pay up to eight weeksan average loan amount of payroll costs including benefits. A portion of the funds can also be used to pay interest on mortgages, rent, and utilities. On June 5, 2020, the Paycheck Protection Program Flexibility Act ("PPPFA") was enacted. Main provisions of the PPPFA extended the repayment period from two to five years, extended the covered expense period from eight to 24 weeks, and lowered the percent of forgiveness amount required to be used for eligible payroll costs to 60%. The PPPFA also extends the repayment start date until after the SBA finalizes the application process for loan forgiveness.
$82,000. We processed $32.2 million of loans for 515 customers through the initial round of SBA PPP program as of September 30, 2020. Thefunding during 2020 with an average loan amount approved was approximatelyof $63,000. Payments by borrowers on these loans begin sixcan be deferred up to sixteen months after the note date, and interest, at 1%, will continue to accrue during the six-month deferment.deferment period. Loans can be forgiven in whole or part (up to full principal and any accrued interest). We partnered with a third-party financial technology provider to assist our borrowers with the loan forgiveness application process.
Loan processing fees paid to the Bank from the SBA of 5% on loans of $350,000 or less, 3% on loans of more than $350,000 but less than $2.0 million, and 1% for loans of $2.0 million or more are accounted for as loan origination fees. Net deferred fees are recognized over the life of the loan, or two years, as a yield adjustment on the loans. As of September 30, 2020,2021, $28.2 million, or 87.5%, of the Company had received $1.4first-round loans were forgiven and $11.5 million, in processing fees. When a loan is paid off or forgiven by the SBA prior to its maturity date, the remaining unamortized deferred fees will be recognized in interest income at that time. At such time that any33.0%, of thesesecond-round loans are forgiven or repaid before the scheduled maturity, we expect an increase in interest income and the net interest margin during that period.were forgiven.
Critical Accounting Policies
There are no material changes to the critical accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Comparison of Financial Condition at September 30, 20202021 and December 31, 20192020
Assets. Total assets increased to $1.56$1.85 billion at September 30, 20202021 from $1.30$1.65 billion at December 31, 2019.2020.
TotalNet loans, excluding loans held for sale, increased $182.9$203.2 million to $1.06$1.35 billion at September 30, 2020,2021, from $878.4 million$1.14 billion at December 31, 2019.2020. During the nine months ended September 30, 2020, one-2021, auto and other consumer loans increased $54.0 million, as a result of $20.1 million in purchases of manufactured home loans and $49.9 million in purchases of auto loans offset by payment activity. One- to four-family residential loans increased $11.7decreased $15.4 million as we sold 65.6%payment of one- to four-family residential loans originatedexceeded originations during the year. Multi-family loans increased $31.4 million as we continued to build this part of the loan portfolio. Commercial real estate loans increased by $27.6 million as we continue to build our lending presence in King and Whatcom Counties as well as continued lending in our legacy markets.period. Commercial business loans increased $81.4decreased $8.3 million as we funded PPP loans and increased balances generated throughour participation in the Northpointe Bank Mortgage Participation Program (NBMPP) during 2020. The NBMPP provides interim financingdecreased to mortgage originators based on the contractual sale agreement of$27.5 million at September 30, 2021, from $47.3 million at December 31, 2020, partially offset by a mortgage loan. We are also attracting new commercial business clients due to our hiring efforts and investment into customer focused, experienced commercial bankers. Auto and other consumer$3.6 million increase in PPP loans, decreased $337,000. Competition for quality commercial credits remains; however, impacts of the COVID-19 pandemic effect both the supply and demand for credit. Refinance activity of one- to-four family residential loans was robust during the nine-month period.as originations exceeded forgiveness payments.
Construction and land loans increased $38.0$90.9 million, or 102.2%73.5%, to $75.2$214.5 million at September 30, 2020,2021, from $37.2$123.6 million at December 31, 2019. The majority of our2020. Our construction loans are geographically dispersed throughout the Puget Sound region and, as a result, are susceptible to risks that may vary depending on the nature and location of the project.Western Washington (with one loan in Oregon). We manage our construction lending by utilizing a licensed third-party vendor to assist us in monitoring our construction projects and intend to begin utilizing internal staffing to monitor certain projects, which we expect will enhance fee income related to these loans. In March 2020, the vast majority of construction projects in Washington State were put on hold as a result of Governor Jay Inslee’s “Stay Home, Stay Safe” order. By June 30, 2020, most projects were able to restart under specific criteria.projects. We continue to monitor the projects currently in our portfolio to determine the impact of COVID-19 on completion. As of this point in time, we have no reason to believe that any of the projects in process will not be completed. At September 30, 2021, acquisition-renovation loans of $53.7 million were included in the construction loan total compared to $39.3 million at December 31, 2020. These commercial acquisition-renovation loans represent financing primarily for the acquisition of multi-family properties with a construction component used for the renovation of common areas and specific units of the building. Given the construction component of these loans we are required to report them as construction under regulatory guidelines; however, we consider these loans to be lower risk than typical ground-up construction projects. By investing in one- to four-family, multi-family and acquisition-renovation construction projects which increase the supply of housing in our market, we are doing our small part to address housing affordability.
We monitor real estate values and general economic conditions in our market areas, in addition to assessing the strength of our borrowers, in orderincluding their equity contributions to a project, to prudently underwrite construction loans. For the majority of 2019, we decreased our construction lending, which resulted in a decline in construction balances at the end of the year compared to 2018. In the fourth quarter of 2019 and the first nine months of 2020, we increased production in construction lending and our commitments increased accordingly. We continually assess our lending strategies across all product lines and markets within which we do business in order 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, 2020 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Total | |||||||||||||||||||||||||||||||||||
September 30, 2021 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Total | |||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Construction Commitment | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 16,090 | $ | 25,865 | $ | 1,478 | $ | — | $ | 43,433 | $ | 32,437 | $ | 55,220 | $ | 3,906 | $ | — | $ | 91,563 | ||||||||||||||||||||
Multi-family residential | — | 67,620 | — | 8,020 | 75,640 | — | 172,985 | — | 8,020 | 181,005 | ||||||||||||||||||||||||||||||
Commercial acquisition-renovation | 2,938 | 40,770 | 16,638 | — | 60,346 | |||||||||||||||||||||||||||||||||||
Commercial real estate | 8,897 | 33,833 | 2,807 | — | 45,537 | 4,888 | 45,564 | 2,626 | — | 53,078 | ||||||||||||||||||||||||||||||
Total commitment | $ | 24,987 | $ | 127,318 | $ | 4,285 | $ | 8,020 | $ | 164,610 | $ | 40,263 | $ | 314,539 | $ | 23,170 | $ | 8,020 | $ | 385,992 | ||||||||||||||||||||
Construction Funds Disbursed | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 7,762 | $ | 14,579 | $ | 565 | $ | — | $ | 22,906 | $ | 10,875 | $ | 30,436 | $ | 570 | $ | — | $ | 41,881 | ||||||||||||||||||||
Multi-family residential | — | 25,634 | — | — | 25,634 | — | 73,925 | — | 6,221 | 80,146 | ||||||||||||||||||||||||||||||
Commercial acquisition-renovation | 2,368 | 35,535 | 15,767 | — | 53,670 | |||||||||||||||||||||||||||||||||||
Commercial real estate | 7,877 | 10,313 | 55 | — | 18,245 | 4,102 | 23,978 | 1,794 | — | 29,874 | ||||||||||||||||||||||||||||||
Total disbursed | $ | 15,639 | $ | 50,526 | $ | 620 | $ | — | $ | 66,785 | $ | 17,345 | $ | 163,874 | $ | 18,131 | $ | 6,221 | $ | 205,571 | ||||||||||||||||||||
Undisbursed Commitment | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 8,328 | $ | 11,286 | $ | 913 | $ | — | $ | 20,527 | $ | 21,562 | $ | 24,784 | $ | 3,336 | $ | — | $ | 49,682 | ||||||||||||||||||||
Multi-family residential | — | 41,986 | — | 8,020 | 50,006 | — | 99,060 | — | 1,799 | 100,859 | ||||||||||||||||||||||||||||||
Commercial acquisition-renovation | 570 | 5,235 | 871 | — | 6,676 | |||||||||||||||||||||||||||||||||||
Commercial real estate | 1,020 | 23,520 | 2,752 | — | 27,292 | 786 | 21,586 | 832 | — | 23,204 | ||||||||||||||||||||||||||||||
Total undisbursed | $ | 9,348 | $ | 76,792 | $ | 3,665 | $ | 8,020 | $ | 97,825 | $ | 22,918 | $ | 150,665 | $ | 5,039 | $ | 1,799 | $ | 180,421 | ||||||||||||||||||||
Land Funds Disbursed | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 4,588 | $ | 2,133 | $ | 349 | $ | — | $ | 7,070 | $ | 4,138 | $ | 2,502 | $ | 358 | $ | — | $ | 6,998 | ||||||||||||||||||||
Commercial real estate | — | 1,350 | — | — | 1,350 | — | 1,903 | — | — | 1,903 | ||||||||||||||||||||||||||||||
Total disbursed for land | $ | 4,588 | $ | 3,483 | $ | 349 | $ | — | $ | 8,420 | $ | 4,138 | $ | 4,405 | $ | 358 | $ | — | $ | 8,901 | ||||||||||||||||||||
(1) Includes Clallam and Jefferson counties. | ||||||||||||
(2) Includes Kitsap, Mason, Thurston, Pierce, King, Snohomish, Skagit, Whatcom, and Island counties. | ||||||||||||
December 31, 2019 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Total | |||||||||||||||||||||||||||||||||||
December 31, 2020 | North Olympic Peninsula (1) | Puget Sound Region (2) | Other Washington | Oregon | Total | |||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Construction Commitment | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 14,915 | $ | 23,969 | $ | 496 | $ | — | $ | 39,380 | $ | 15,473 | $ | 29,827 | $ | 1,477 | $ | — | $ | 46,777 | ||||||||||||||||||||
Multi-family residential | — | 27,241 | — | — | 27,241 | — | 117,524 | — | 8,020 | 125,544 | ||||||||||||||||||||||||||||||
Commercial acquisition-renovation | 1,644 | 28,177 | 16,637 | — | 46,458 | |||||||||||||||||||||||||||||||||||
Commercial real estate | 6,381 | 563 | 3,120 | — | 10,064 | 2,282 | 46,103 | 2,755 | — | 51,140 | ||||||||||||||||||||||||||||||
Total Commitment | $ | 21,296 | $ | 51,773 | $ | 3,616 | $ | — | $ | 76,685 | ||||||||||||||||||||||||||||||
Total commitment | $ | 19,399 | $ | 221,631 | $ | 20,869 | $ | 8,020 | $ | 269,919 | ||||||||||||||||||||||||||||||
Construction Funds Disbursed | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 5,242 | $ | 10,734 | $ | 151 | $ | — | $ | 16,127 | $ | 7,208 | $ | 15,976 | $ | 845 | $ | — | $ | 24,029 | ||||||||||||||||||||
Multi-family residential | — | 10,465 | — | — | 10,465 | — | 33,217 | — | — | 33,217 | ||||||||||||||||||||||||||||||
Commercial acquisition-renovation | 1,297 | 24,045 | 15,300 | — | 40,642 | |||||||||||||||||||||||||||||||||||
Commercial real estate | 2,704 | 563 | 58 | — | 3,325 | 1,677 | 14,812 | 429 | — | 16,918 | ||||||||||||||||||||||||||||||
Total disbursed | $ | 7,946 | $ | 21,762 | $ | 209 | $ | — | $ | 29,917 | $ | 10,182 | $ | 88,050 | $ | 16,574 | $ | — | $ | 114,806 | ||||||||||||||||||||
Undisbursed Commitment | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 9,673 | $ | 13,235 | $ | 345 | $ | — | $ | 23,253 | $ | 8,265 | $ | 13,851 | $ | 632 | $ | — | $ | 22,748 | ||||||||||||||||||||
Multi-family residential | — | 16,776 | — | — | 16,776 | — | 84,307 | — | 8,020 | 92,327 | ||||||||||||||||||||||||||||||
Commercial acquisition-renovation | 347 | 4,132 | 1,337 | — | 5,816 | |||||||||||||||||||||||||||||||||||
Commercial real estate | 3,677 | — | 3,062 | — | 6,739 | 605 | 31,291 | 2,326 | — | 34,222 | ||||||||||||||||||||||||||||||
Total undisbursed | $ | 13,350 | $ | 30,011 | $ | 3,407 | $ | — | $ | 46,768 | $ | 9,217 | $ | 133,581 | $ | 4,295 | $ | 8,020 | $ | 155,113 | ||||||||||||||||||||
Land Funds Disbursed | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | $ | 4,904 | $ | 1,343 | $ | — | $ | — | $ | 6,247 | $ | 4,350 | $ | 2,728 | $ | 347 | $ | 53 | $ | 7,478 | ||||||||||||||||||||
Commercial real estate | 1,023 | — | — | — | 1,023 | — | 1,343 | — | — | 1,343 | ||||||||||||||||||||||||||||||
Total disbursed for land | $ | 5,927 | $ | 1,343 | $ | — | $ | — | $ | 7,270 | $ | 4,350 | $ | 4,071 | $ | 347 | $ | 53 | $ | 8,821 | ||||||||||||||||||||
During the nine months ended September 30, 2020,2021, the Company originated $498.5$281.5 million of loans, of which $308.3$175.8 million, or 61.8%62.4%, were originated in the Puget Sound region, $159.1$92.5 million, or 31.9%32.9%, in the North Olympic Peninsula, $12.8$6.7 million, or 2.6%2.4%, in other areas throughout Washington State, and $18.3$6.5 million, or 3.7%2.3%, in Oregon. The Company purchased an additional $28.7$49.9 million in one- to four-familyauto loans $26.1and $20.1 million in specialty auto loans, $2.1 million in other consumer loans, and $2.0 million in multifamilymanufactured home loans during the nine months ended September 30, 2020.2021. We will continue to evaluate opportunities to acquire assets through wholesale channels in order to supplement our organic originations and increase net interest income.
Our allowance for loan losses increased $3.3$1.4 million, or 35.1%10.1%, to $13.0$15.2 million at September 30, 2020,2021, from $9.6$13.9 million at December 31, 2019.2020. The increase was due to a $4.1 million loan loss provision of $1.5 million, offset by net charge-offs of $737,000$104,000 for the nine-month period. The loan loss provision is largely attributedmade to account for growth in the loan portfolio adjusted for qualitative factor adjustments made in responsefactors. We continue to monitor the economic impact of the COVID-19 pandemic as well as to account for growthwhich is reflected in the loan portfolio.qualitative factor adjustments. The allowance for loan losses as a percentage of total loans at September 30, 20202021 and December 31, 20192020 was 1.2%1.1% and 1.1%1.2%, respectively.
Nonperforming loans increased $1.3decreased $1.1 million, or 72.5%48.0%, to $3.0$1.2 million at September 30, 2020,2021, from $1.7$2.3 million at December 31, 2019,2020, mainly attributable to an increaseimprovements in nonperforming one- to four-family loans of $1.2 million,$351,000, multi-family loans of $287,000,$284,000, commercial real estate loans of $57,000, offset by decreases in construction and land loans of $4,000, home equity loans of $38,000,$81,000 and auto and other consumer loans of $241,000.$429,000. Nonperforming loans to total loans increased to 0.3%was 0.1% at September 30, 2020, from2021 and 0.2% at December 31, 2019.2020. The allowance for loan losses as a percentage of nonperforming loans decreasedincreased to 419.9%1,288.5% at September 30, 2020,2021, from 536.1%609.2% at December 31, 2019.2020.
At September 30, 2020,2021, there were $2.2$1.9 million in restructured loans, of which $2.1$1.8 million were performing in accordance with their modified payment terms and returned to accrual status. Classified loans decreased $921,000increased $5.2 million to $4.0$12.7 million at September 30, 2020,2021, from $5.0$7.5 million at December 31, 2019.2020, due to the addition of a single commercial real estate loan that was downgraded in 2021.
Net loan charge-offs are concentrated mainly in our indirect auto loan portfolio. We recently removedstopped originating loans from one of our indirect auto loan product offerings in 2020 to effectively eliminate new productionreduce credit risk and reduce future charge-off activity. We continue to monitor the program in order to prudently balancemanage risk and return within the portfolio. The balance of indirect auto loans decreased to $12.6 million at September 30, 2021 from $20.5 million at December 31, 2020. We believe our allowance for loan losses is adequate to absorb the known and inherent risks of loss in the overall loan portfolio as of September 30, 2020. As the ultimate impact of the COVID-19 pandemic and response from Federal and State government remains to be seen, we increased the qualitative factor related to the economy this quarter.2021.
Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated:
Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||||||||||
September 30, 2020 | December 31, 2019 | Amount | Percent | September 30, 2021 | December 31, 2020 | Amount | Percent | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||||||
One-to-four family | $ | 317,755 | $ | 306,014 | $ | 11,741 | 3.8 | % | $ | 294,432 | $ | 309,828 | $ | (15,396 | ) | (5.0 | )% | |||||||||||||||
Multi-family | 127,569 | 96,098 | 31,471 | 32.7 | 177,560 | 162,467 | 15,093 | 9.3 | ||||||||||||||||||||||||
Commercial real estate | 283,390 | 255,722 | 27,668 | 10.8 | 353,356 | 296,574 | 56,782 | 19.1 | ||||||||||||||||||||||||
Construction and land | 75,204 | 37,187 | 38,017 | 102.2 | 214,472 | 123,627 | 90,845 | 73.5 | ||||||||||||||||||||||||
Total real estate loans | 803,918 | 695,021 | 108,897 | 15.7 | 1,039,820 | 892,496 | 147,324 | 16.5 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Home equity | 34,120 | 35,046 | (926 | ) | (2.6 | ) | 38,881 | 33,103 | 5,778 | 17.5 | ||||||||||||||||||||||
Auto and other consumer | 111,782 | 112,119 | (337 | ) | (0.3 | ) | 182,238 | 128,233 | 54,005 | 42.1 | ||||||||||||||||||||||
Total consumer loans | 145,902 | 147,165 | (1,263 | ) | (0.9 | ) | 221,119 | 161,336 | 59,783 | 37.1 | ||||||||||||||||||||||
Commercial business loans | 123,036 | 41,571 | 81,465 | 196.0 | 91,939 | 100,201 | (8,262 | ) | (8.2 | ) | ||||||||||||||||||||||
Total loans | 1,072,856 | 883,757 | 189,099 | 21.4 | 1,352,878 | 1,154,033 | 198,845 | 17.2 | ||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||
Net deferred loan fees | 2,628 | 206 | 2,422 | 1,175.7 | 5,274 | 4,346 | 928 | 21.4 | ||||||||||||||||||||||||
Premium on purchased loans, net | (4,196 | ) | (4,514 | ) | 318 | (7.0 | ) | (12,765 | ) | (6,129 | ) | (6,636 | ) | 108.3 | ||||||||||||||||||
Allowance for loan losses | 13,007 | 9,628 | 3,379 | 35.1 | 15,243 | 13,847 | 1,396 | 10.1 | ||||||||||||||||||||||||
Loans receivable, net | $ | 1,061,417 | $ | 878,437 | $ | 182,980 | 20.8 | $ | 1,345,126 | $ | 1,141,969 | $ | 203,157 | 17.8 | ||||||||||||||||||
The following table represents nonperforming assets at the dates indicated.
Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||||||||||
September 30, 2020 | December 31, 2019 | Amount | Percent | September 30, 2021 | December 31, 2020 | Amount | Percent | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Nonperforming loans: | ||||||||||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||||||||||
One- to four-family | $ | 1,939 | $ | 698 | $ | 1,241 | 177.8 | % | $ | 561 | $ | 912 | $ | (351 | ) | (38.5 | )% | |||||||||||||||
Multi-family | 287 | — | 287 | 100.0 | — | 284 | (284 | ) | (100.0 | ) | ||||||||||||||||||||||
Commercial real estate | 166 | 109 | 57 | 52.3 | 76 | 157 | (81 | ) | (51.6 | ) | ||||||||||||||||||||||
Construction and land | 25 | 29 | (4 | ) | (13.8 | ) | 24 | 26 | (2 | ) | (7.7 | ) | ||||||||||||||||||||
Total real estate loans | 2,417 | 836 | 1,581 | 189.1 | 661 | 1,379 | (718 | ) | (52.1 | ) | ||||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||||||
Home equity | 74 | 112 | (38 | ) | (33.9 | ) | 130 | 73 | 57 | 78.1 | ||||||||||||||||||||||
Auto and other consumer | 607 | 848 | (241 | ) | (28.4 | ) | 392 | 821 | (429 | ) | (52.3 | ) | ||||||||||||||||||||
Total consumer loans | 681 | 960 | (279 | ) | (29.1 | ) | 522 | 894 | (372 | ) | (41.6 | ) | ||||||||||||||||||||
Commercial business | — | — | — | 100.0 | — | — | — | 100.0 | ||||||||||||||||||||||||
Total nonperforming loans | 3,098 | 1,796 | 1,302 | 72.5 | 1,183 | 2,273 | (1,090 | ) | (48.0 | ) | ||||||||||||||||||||||
Real estate owned: | ||||||||||||||||||||||||||||||||
Land | — | 62 | (62 | ) | (100.0 | ) | ��� | 2 | (2 | ) | (100.0 | ) | ||||||||||||||||||||
Total real estate owned | — | 62 | (62 | ) | (100.0 | ) | — | 2 | (2 | ) | (100.0 | ) | ||||||||||||||||||||
Repossessed assets | 170 | 92 | 78 | 84.8 | — | — | — | 100.0 | ||||||||||||||||||||||||
Total nonperforming assets | $ | 3,268 | $ | 1,950 | $ | 1,318 | 67.6 | $ | 1,183 | $ | 2,275 | $ | (1,092 | ) | (48.0 | ) | ||||||||||||||||
Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.3 | % | 0.2 | % | 0.1 | % | 50.0 | 0.1 | % | 0.2 | % | (0.1 | )% | (50.0 | ) | |||||||||||||||||
Investment securities increased $53.5decreased $38.4 million, or 17.0%10.5%, to $369.1$325.9 million at September 30, 2020,2021, from $315.6$364.3 million at December 31, 2019,2020, due to the purchase and sale of securities, normal payments and prepayment activity and an increase in the market value of the portfolio. Mortgage-backed securities represent the largest portion of our investment securities portfolio and totaled $108.5 million at September 30, 2020, or 29.4% of the investment securities portfolio, a decrease during the year of $60.0 million, or 35.6%, from $168.5 million at December 31, 2019.offset by purchases. Other investment securities, including municipal bonds and other asset-backed securities, were $260.6$195.0 million at September 30, 2020,2021, or 70.6%59.8% of the total investment securities portfolio, a decrease of $80.0 million from $275.0 million at December 31, 2020. Mortgage-backed securities totaled $130.9 million at September 30, 2021, or 40.2% of the investment securities portfolio, an increase during the year of $113.5$41.6 million, or 46.6%, from $147.1$89.3 million at December 31, 2019.2020. The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 6.75.8 years as of September 30, 2020,2021, and 5.07.3 years as of December 31, 2019,2020, and had an estimated average repricing term of 4.45.6 years as of September 30, 2020,2021, and 3.75.0 years as of December 31, 2019,2020, based on the interest rate environment at those times.
The investment portfolio was comprisedcomposed of 59.8%42.0% in amortizing securities at September 30, 20202021 and 81.8%48.0% at December 31, 2019.2020. The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is impacted by prevailing mortgage interest rates. Management maintains a focus on enhancing the mix of earning assets by originating loans as a percentage of earning assets; however, we continue to purchase investment securities as a source of additional interest income. Securities are sold to provide liquidity, improve long-term portfolio yields, reduce LIBOR risk, and manage duration in the portfolio. For additional information, see Note 2 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.
Liabilities. Total liabilities increased to $1.38$1.66 billion at September 30, 2020,2021, from $1.13$1.47 billion at December 31, 2019,2020, primarily due to an increase in deposits of $252.8 million.$189.4 million and the issuance of subordinated debt of $40.0 million in March 2021.
Deposit balances increased 25.2%14.2%, to $1.25$1.52 billion at September 30, 2020,2021, from $1.00$1.33 billion at December 31, 2019.2020. There was a $150.0$144.5 million increase in money market accounts, a $114.3$79.5 million increase in transactiondemand deposit accounts, and a $2.9$29.0 million increase in savings accounts during the year.period, while the balance of certificates of deposits decreased $63.7 million. The increase in deposits is in large part due to organic growth, deposits added through the purchase of the Bellevue branch, the Federal government's continued response to the pandemic including stimulus payments, and deposits of additional unemployment benefits,PPP and deferralsMSLP funding. We strategically increased noninterest-bearing and other core deposits, while reducing the level of Federal tax payment due dates. These actions, coupled with decreased spending by consumers and business, resulted in higher deposit balances.certificates of deposits, to manage overall funding costs. In addition to collecting customer deposits, we utilize brokered certificates of deposit ("brokered CDs") as an additional funding source in order to manage our cost of funds, reduce our reliance on public funds deposits, and allow flexibility when competing on retail rates.manage interest rate risk. At September 30, 2020,2021, we had $92.6$55.1 million in brokered CDs included in the $293.5$245.0 million balance of certificates of deposit.deposit compared to $89.6 million in brokered CDs at December 31, 2020.
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 intends to use the net proceeds of the offering for general corporate purposes and provided $20.0 million to the Bank as Tier 1 capital.
Equity. Total shareholders' equity increased $3.8$1.4 million to $180.6$187.8 million for the nine months ended September 30, 2020.2021. The increase was due to an after-tax increase in other comprehensive income of $4.7 million due to the increased value of our available-for-sale securities portfolio offset by realized sales, as well asCompany recorded year-to-date net income of $6.5 million,$10.2 million. The increase due to year-to-date net income was partially offset by $7.2$4.9 million in repurchases of shares of common stock.stock, an after-tax decrease in unrealized gain on available-for-sale investments of $2.8 million, a $1.7 million adjustment in other comprehensive income reflecting the recognition of prior service cost related to the transfer out of participation in a multiemployer pension plan into a single employer plan, and a $1.9 million decrease related to realized gains on securities sold.
Comparison of Results of Operations for the Three Months Ended September 30, 20202021 and 20192020
General. Net income increased $1.2$503,000, or 13.7%, to $4.2 million or 46.4%,for the three months ended September 30, 2021, compared to net income of $3.7 million for the three months ended September 30, 2020, compared to net income of $2.5 million for the three months ended September 30, 2019. The increase is mainly due to an increase in net interest income after provision for loan losses compared to the same period in 2020 and a modest increase in noninterest income, driven by mortgage revenue, gain on sale of investments, and swap fee program fees which waspartially offset by an increase in noninterest expense due primarily to higher compensation expenses.expense.
Net Interest Income. Net interest income increased $2.3$3.6 million to $11.7$15.4 million for the three months ended September 30, 2020, compared to $9.42021, from $11.8 million for the three months ended September 30, 20192020. This increase was mainly the result of an increase in average earning assets of $301.7 million. The yield on average interest-earning assets decreased 38increased 9 basis points to 3.82%3.91% for the three months ended September 30, 2020,2021, compared to 4.20%3.82% for the same period in the prior year. The decrease wasyear due to a lower market interest rates offset by a smallan increase in the ratio of total loans to assets in the current period compared to one year ago from 67.7% to 68.6%.loan fee recognition and investment securities rates.
The average cost of interest-bearing liabilities decreased 67 basis points to 0.60%0.45% for the three months ended September 30, 2020,2021, compared to 1.27%0.60% for the same period last year. Theyear, due primarily to a decrease wasin rates on interest-bearing deposits of 27 basis points combined with an increase in borrowing volume of $29.6 million and higher borrowing rates due in part to the managementissuance of deposit rates reflecting the low rate environment as well as a reduction in the level andsubordinated debt. Total cost of borrowings given the prepayment of higher costing FHLB borrowings in the fourth quarter of 2019 and the first quarter of 2020. Our average cost of FHLB borrowings for the three months ended September 30, 2020funds decreased to 1.34% in the third quarter of 2020 compared to 3.16% for the same period one year prior. The cost of interest-bearing deposits decreased by 5015 basis points to 0.56% compared to 1.06% for the three months ended September 30, 2019, given decreasing market rates.
Due to the average yield on interest-bearing liabilities decreasing at a faster pace than our interest-earning assets, the net interest margin increased 1336 basis points to 3.36% for the three months ended September 30, 2020, from 3.23%51 basis points for the same period in 2019. For additional information, see Rate/Volume Analysis contained2020. The net interest margin increased 22 basis points to 3.58% for the three months ended September 30, 2021, from 3.36% for the same period in Item 2 of this Form 10-Q.2020.
Interest Income. Total interest income increased $1.1$3.4 million, or 9.1%25.5%, to $13.3$16.8 million for the three months ended September 30, 2021, from $13.4 million for the comparable period in 2020, primarily due to an increase in the average balances on interest-earning assets. Interest and fees on loans receivable increased $3.5 million, to $14.6 million for the three months ended September 30, 2021, from $11.1 million for the three months ended September 30, 2020, from $12.2 million forrelated to an increase in the comparable period in 2019. Interest and fees onaverage balance of net loans receivable of $296.3 million compared to the prior year, along with recognition of deferred fee income from PPP and Main Street Lending Program ("MSLP") loan payoffs. Average loan yields increased $1.0 million,2 basis points to $11.0 million4.47% for the three months ended September 30, 2020, from $10.0 million for the three months ended September 30, 2019, due primarily to an increase in the volume of average loans. Average loan yields decreased 23 basis points to 4.45% for the three months ended September 30, 20202021, compared to the three months ended September 30, 2019 due to a decrease in market rates and an increase in the amount of lower yielding loans as a percentage of loans, including Northpointe and PPP loans.
Interest income on investment securities increased $682,000 to $1.6 million for the three months ended September 30, 2020, compared to $921,000 for the three months ended September 30, 2019, due to a $156.2 million increase in average balances partially offset by an 91 basis point decrease in average yield related to a decrease in the yield on variable rate securities and lower reinvestment market rates. The change in average yield on investment securities does not include the benefit of nontaxable income from municipal bonds. Interest income on mortgage-backed and related securities for the three months ended September 30, 2020 decreased $522,000, or 48.0%, compared to the three months ended September 30, 2019, the result of a decrease of $61.8 million in the average balance and a 48 basis point decrease in the average yield in the 2020 period.2020.
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, | ||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||
Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase (Decrease) in Interest Income | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Loans receivable, net | $ | 1,294,877 | 4.47 | % | $ | 998,586 | 4.45 | % | $ | 3,484 | ||||||||||
Investment securities | 230,158 | 2.45 | 267,911 | 2.39 | (180 | ) | ||||||||||||||
Mortgage-backed securities | 134,856 | 2.10 | 110,863 | 2.04 | 150 | |||||||||||||||
FHLB stock | 4,061 | 4.01 | 4,028 | 9.63 | (56 | ) | ||||||||||||||
Interest-bearing deposits in banks | 38,810 | 0.18 | 19,702 | 0.18 | 9 | |||||||||||||||
Total interest-earning assets | $ | 1,702,762 | 3.91 | % | $ | 1,401,090 | 3.82 | % | $ | 3,407 | ||||||||||
Three Months Ended September 30, | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase (Decrease) in Interest Income | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Loans receivable, net | $ | 998,586 | 4.45 | % | $ | 862,587 | 4.68 | % | $ | 1,001 | ||||||||||
Investment securities | 267,911 | 2.39 | 111,695 | 3.30 | 682 | |||||||||||||||
Mortgage-backed securities | 110,863 | 2.04 | 172,639 | 2.52 | (522 | ) | ||||||||||||||
FHLB stock | 4,028 | 9.63 | 5,019 | 7.33 | 5 | |||||||||||||||
Interest-bearing deposits in banks | 19,702 | 0.18 | 15,413 | 1.69 | (56 | ) | ||||||||||||||
Total interest-earning assets | $ | 1,401,090 | 3.82 | % | $ | 1,167,353 | 4.20 | % | $ | 1,110 | ||||||||||
Interest Expense. Total interest expense decreased $1.2$184,000, or 11.4%, to $1.4 million or 43.1%,for the three months ended September 30, 2021, compared to $1.6 million for the three months ended September 30, 2020, compareddue to $2.8a decrease in interest expense on deposits of $555,000 resulting from a 27 basis point decrease in the average cost of interest-bearing deposits, offset by interest expense on subordinated debt issued in 2021 of $390,000. The average balance of interest-bearing deposits increased $170.1 million, or 16.9%, to $1.18 billion for the three months ended September 30, 2019, mainly due to an $736,000, or 34.0% decrease in interest paid on deposits. Interest on borrowings decreased $486,000 or 70.3%. Interest expense on deposits decreased for the three months ended September 30, 2020, due to lower rates offsetting the impact of increased balances. The average balance of interest-bearing deposits increased $202.3 million, or 25.1%, to2021, from $1.01 billion for the three months ended September 30, 2020, from $806.7as we grew deposits in new and existing market areas. Additionally, the purchase of the Bellevue branch added $55.3 million in average deposit balances, mainly in money market and CD accounts.
During the three months ended September 30, 2021, interest expense decreased due to a decrease in the average balances on savings accounts of $14.2 million and certificates of deposit of $61.9 million, respectively, coupled with decreases in the average rate paid of 34 and 28 basis points, respectively, compared to the three months ended September 30, 2020. During the same period, the average balances of money market and demand deposit accounts increased $181.5 million and $36.3 million, respectively. The average cost of interest-bearing deposit products decreased to 0.29% for the three months ended September 30, 2019, as we continued to target deposit growth in new and existing market areas as well as the industry-wide impact of stimulus related deposits during the pandemic. During the three months ended September 30, 2020, the average balance of savings accounts increased $6.0 million and the related weighted-average cost decreased 54 basis points compared to the same period in 2019. The average balance of certificates of deposit balances grew $43.1 million and the weighed-average cost decreased by 96 basis points, mainly as a result of the utilization of brokered CDs. During the three months ended September 30, 2020, the average balance of money market accounts increased $125.7 million compared to the same period in the prior year. The average cost of deposits decreased by 50 basis points to2021, from 0.56% for the three months ended September 30, 2020, from 1.06% fordue in large part to the three months ended September 30, 2019.expiration of promotional rates and a shift in balances to lower-yielding demand deposit accounts. Borrowing costs decreasedincreased due to the prepayment of higher cost term borrowingssubordinated debt issued in the fourth quarter of 2019 and the first quarter of 2020and a reduction in the average rate paid during the most recent quarter compared to the same period in 2019.March 2021.
The following table details average balances, cost of funds and the change in interest expense for the periods shown:
Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||
Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | Increase (Decrease) in Interest Expense | Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | Increase (Decrease) in Interest Expense | |||||||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||
Savings accounts | $ | 174,475 | 0.40 | % | $ | 168,495 | 0.94 | % | $ | (221 | ) | $ | 188,664 | 0.06 | % | $ | 174,475 | 0.40 | % | $ | (148 | ) | ||||||||||||||||||
Transaction accounts | 143,890 | 0.01 | 116,328 | 0.09 | (21 | ) | 180,162 | 0.02 | 143,890 | 0.01 | 6 | |||||||||||||||||||||||||||||
Money market accounts | 371,335 | 0.39 | 245,640 | 0.51 | 50 | 552,811 | 0.21 | 371,335 | 0.39 | (71 | ) | |||||||||||||||||||||||||||||
Certificates of deposit | 319,341 | 1.08 | 276,247 | 2.04 | (544 | ) | 257,459 | 0.80 | 319,341 | 1.08 | (342 | ) | ||||||||||||||||||||||||||||
Borrowings | 61,244 | 1.34 | 87,492 | 3.16 | (486 | ) | ||||||||||||||||||||||||||||||||||
FHLB advances | 51,613 | 1.43 | 61,244 | 1.34 | (19 | ) | ||||||||||||||||||||||||||||||||||
Subordinated debt | 39,249 | 3.94 | — | — | 390 | |||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | $ | 1,070,285 | 0.60 | % | $ | 894,202 | 1.27 | % | $ | (1,222 | ) | $ | 1,269,958 | 0.45 | % | $ | 1,070,285 | 0.60 | % | $ | (184 | ) | ||||||||||||||||||
Provision for Loan Losses. The provision for loan losses was $1.3$700,000 for the three months ended September 30, 2021, primarily due to growth in the loan portfolio, and was $1.4 million duringfor the three months ended September 30, 2020, compared to a $170,000 recovery of loan losses for the three months ended September 30, 2019. Thiswhich was mainlyelevated due to an increase to the economic qualitative factor resulting from the uncertainty surroundingin economic conditions created by the COVID-19 pandemic and its potential impact ongrowth in the loans in ourloan portfolio.
The following table details activity and information related to the allowance for loan losses for the periods shown:
Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
| Provision for (recovery of) loan losses | $ | 1,350 | $ | (170 | ) | |||||||||||
Provision for loan losses | $ | 700 | $ | 1,350 | ||||||||||||
Net charge-offs | (452 | ) | (118 | ) | (45 | ) | (452 | ) | ||||||||
Allowance for loan losses | 13,007 | 9,443 | 15,243 | 13,007 | ||||||||||||
| Allowance for losses as a percentage of total gross loans receivable at the end of this period | 1.2 | % | 1.1 | % | ||||||||||||
Allowance for losses as a percentage of total gross loans receivable at period end | 1.1 | % | 1.2 | % | ||||||||||||
Total nonaccrual loans | 3,098 | 1,322 | 1,183 | 3,098 | ||||||||||||
| Allowance for loan losses as a percentage of nonaccrual loans at end of period | 419.9 | % | 714.3 | % | ||||||||||||
Allowance for loan losses as a percentage of nonaccrual loans at period end | 1288.5 | % | 419.9 | % | ||||||||||||
| Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.3 | % | 0.2 | % | 0.1 | % | 0.3 | % | ||||||||
Total loans | $ | 1,072,856 | $ | 846,057 | $ | 1,352,878 | $ | 1,072,856 | ||||||||
Noninterest Income. Noninterest income increased $2.8 milliondecreased $495,000, or 149.7%10.4%, to $4.7$4.3 million for the three months ended September 30, 2021, from $4.8 million for the three months ended September 30, 2020, from $1.9 million for the three months ended September 30, 2019, primarilymainly due to thea decrease in gain on salessale of mortgage loans of $1.7$1.1 million due to less saleable inventory and a decrease in loan refinancing activity. Gain on sale of investments was $1.3 million for the third quarter of 2021, compared to gain on sale of investment securitiesinvestments of $969,000 andfor the same period in 2020. Servicing fee income on sold loans increased $667,000 due to an increase into record the cash surrenderservicing right value of bank owned life insurance (BOLI) of $475,000. The increase in the cash surrender of BOLI in the third quarter of was due to a surrender of an underperforming policy and the subsequent reinvestment of the proceeds into a different policy. A yield enhancement on the new policy was captured up front which resulted in recognition of $406,000 in cash surrender value. Fees received from participation in a loan swap program generated $396,000. Loan and deposit fees decreased by $131,000 due to fewer non-sufficient funds fees as transaction volume reduced during the quarter as well as customers generally carrying higher balances in their deposit accounts.an adjustment to recognize servicing fee income on MSLP loans.
The 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) | |||||||||||||||
2021 | 2020 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Loan and deposit service fees | $ | 1,015 | $ | 868 | $ | 147 | 16.9 | % | ||||||||
Sold loan servicing fees, net of amortization | 815 | 148 | 667 | 450.7 | ||||||||||||
Net gain on sale of loans | 663 | 1,725 | (1,062 | ) | (61.6 | ) | ||||||||||
Net gain on sale of investment securities | 1,286 | 969 | 317 | 32.7 | ||||||||||||
Increase in cash surrender value of bank-owned life insurance | 241 | 622 | (381 | ) | (61.3 | ) | ||||||||||
Other income | 266 | 449 | (183 | ) | (40.8 | ) | ||||||||||
Total noninterest income | $ | 4,286 | $ | 4,781 | $ | (495 | ) | (10.4 | )% | |||||||
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||||
2020 | 2019 | Amount | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Loan and deposit service fees | $ | 868 | $ | 999 | $ | (131 | ) | (13.1 | )% | |||||||
Mortgage servicing fees, net of amortization | 148 | 44 | 104 | 236.4 | ||||||||||||
Net gain on sale of loans | 1,725 | 655 | 1,070 | 163.4 | ||||||||||||
| Net gain on sale of investment securities | 969 | — | 969 | 100.0 | ||||||||||||
Increase in cash surrender value of bank-owned life insurance | 622 | 147 | 475 | 323.1 | ||||||||||||
Other income | 449 | 70 | 379 | 541.4 | ||||||||||||
Total noninterest income | $ | 4,781 | $ | 1,915 | $ | 2,866 | 149.7 | % | ||||||||
Noninterest Expense. Noninterest expense increased $1.6$3.9 million, or 19.7%38.2%, duringto $13.9 million for the three months ended September 30, 2021, compared to $10.1 million for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, mainly due toprimarily as a 27.2%result of an increase in compensation and benefits driven byas we added employees to manage the company and staff new digital and fintech endeavors and generate additional staffingrevenue. Compensation and benefits was also higher due to a 366.3%$620,000 increase in incentive accrual and $226,000 in commissions paid on increased mortgage and commercial loan production. Occupancy and equipment increased 17.7% due to increased spending on infrastructure to support growth and advertising increased 44.7%
The 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) | Three Months Ended September 30, | Increase (Decrease) | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | Percent | 2021 | 2020 | Amount | Percent | |||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
Compensation and benefits | $ | 6,070 | $ | 4,771 | $ | 1,299 | 27.2 | % | $ | 8,713 | $ | 6,070 | $ | 2,643 | 43.5 | % | ||||||||||||||||
Data processing | 640 | 680 | (40 | ) | (5.9 | ) | 826 | 640 | 186 | 29.1 | ||||||||||||||||||||||
Occupancy and equipment | 1,367 | 1,161 | 206 | 17.7 | 1,848 | 1,367 | 481 | 35.2 | ||||||||||||||||||||||||
Supplies, postage, and telephone | 254 | 208 | 46 | 22.1 | 279 | 254 | 25 | 9.8 | ||||||||||||||||||||||||
Regulatory assessments and state taxes | 262 | 209 | 53 | 25.4 | 335 | 262 | 73 | 27.9 | ||||||||||||||||||||||||
Advertising | 285 | 197 | 88 | 44.7 | 547 | 285 | 262 | 91.9 | ||||||||||||||||||||||||
Professional fees | 361 | 278 | 83 | 29.9 | 422 | 361 | 61 | 16.9 | ||||||||||||||||||||||||
FDIC insurance premium | 86 | (72 | ) | 158 | (219.4 | ) | 134 | 86 | 48 | 55.8 | ||||||||||||||||||||||
| FHLB prepayment penalty | — | 344 | (344 | ) | (100.0 | ) | ||||||||||||||||||||||||||
Other expense | 756 | 648 | 108 | 16.7 | 830 | 756 | 74 | 9.8 | ||||||||||||||||||||||||
Total | $ | 10,081 | $ | 8,424 | $ | 1,657 | 19.7 | % | $ | 13,934 | $ | 10,081 | $ | 3,853 | 38.2 | % | ||||||||||||||||
Provision for Income Tax. IncomeAn income tax expense of $1.4 million$946,000 was recorded for the three months ended September 30, 2020,2021, compared to $580,000$1.4 million for the three months ended September 30, 2019, generally due to2020. There was a decreaseperiod-over-period increase in income before taxes of $2.0 million and$107,000; however, the expense recorded for the three months ended September 30, 2020, included a BOLI restructure related penalty, recorded related toresulting in a higher expense for the surrenderthird quarter of the bank owned life insurance policy.2020. For additional information, see Note 5 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, 20202021 and 20192020
General. Net income decreased $272,000,increased $3.8 million, or 4.0%57.8%, to $10.3 million for the nine months ended September 30, 2021, compared to net income of $6.5 million for the nine months ended September 30, 2020, compared to net income of $6.7 million for the nine months ended September 30, 2019, due to an increase in net interest income after provision for loan losses and noninterest expense partiallycompared to the same period in 2020 offset by an increase in noninterest income.expense.
Net Interest Income. Net interest income increased $2.5$11.2 million to $31.2$42.5 million for the nine months ended September 30, 2020,2021, from $28.7$31.3 million for the nine months ended September 30, 2019.2020. This increase was mainly the result of an increase in average earning assets of $118.7$325.8 million. The yield on average interest-earning assets decreased 374 basis points to 3.85%3.81% for the nine months ended September 30, 2020,2021, compared to 4.22%3.85% for the same period in the prior year due to the decrease in market rates. The net interest margin decreased 3 basis points to 3.20% for the nine months ended September 30, 2020, from 3.23% for the same period in 2019.
The $2.5 million increase in net interest income during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was the result of a $2.4 million decrease in interest expense driven by an improvement in the cost of interest-bearing liabilities which was partially offset by a decrease in interest income. The decrease in interest expense of borrowings of $1.8 million was the main contributor to the increase in net interest income.reinvestment loan and investment securities rates.
The average cost of interest-bearing liabilities decreased to 0.85%0.44% for the nine months ended September 30, 2020,2021, compared to 1.28%0.85% for the same period last year, due primarily to decreasesa decrease in rates on interest-bearing deposits of 49 basis points offset by an increase in borrowing volume of $1.1 million and decreases attributable to rates of $760,000.70 basis points related to the issuance of subordinated debt. Total cost of funds decreased 37 basis points to 35 basis points for the nine months ended September 30, 2021, from 73 basis points for the same period in 2020. The net interest margin increased 28 basis points to 3.48% for the nine months ended September 30, 2021, from 3.20% for the same period in 2020.
Interest Income. Total interest income increased $150,000,$8.8 million, or 0.4%23.2%, to $37.7$46.5 million for the nine months ended September 30, 2020,2021, from $37.5$37.7 million for the comparable period in 2019,2020, primarily due to a decreasean increase in the average yieldsbalances on interest-earning assets. Interest and fees on loans receivable increased $508,000,$8.8 million, to $31.1$40.0 million for the nine months ended September 30, 2020,2021, from $30.6$31.2 million for the nine months ended September 30, 2019,2020, related to an increase in the average balance of net loans receivable of $61.6$275.9 million compared to the prior year.year and the recognition of deferred fee income on PPP and MSLP loan payoffs. Average loan yields decreased 243 basis points to 4.45%4.42% for the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019.2020.
Interest income from total securities decreased $184,000 to $6.3 million for the nine months ended September 30, 2020 from $6.4 million for the same period in 2019. While the average balance of total securities increased $51.9 million, the average yield decreased 50 basis points. Interest income on investment securities increased $1.1 million, or 37.5%, to $4.0 million for the nine months ended September 30, 2020, compared to $2.9 million for the nine months ended September 30, 2019, due to an increase in the average balance of $94.4 million partially offset by a decrease in average yield of 80 basis points compared to the same period in 2019. The change in average yields on investment securities does not include the benefit of nontaxable income from municipal bonds. Interest income on mortgage-backed securities for the nine months ended September 30, 2020 decreased $1.3 million, or 36.0%, to $2.3 million compared to $3.5 million for the nine months ended September 30, 2019, reflecting a $42.5 million decrease in the average balance and a decrease in yield of 42 basis points.
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, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||
Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase (Decrease) in Interest Income | Average Balance Outstanding | Yield | Average Balance Outstanding | Yield | Increase (Decrease) in Interest Income | |||||||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||
Loans receivable, net | $ | 933,843 | 4.45 | % | $ | 872,259 | 4.69 | % | $ | 508 | $ | 1,209,710 | 4.42 | % | $ | 933,843 | 4.45 | % | $ | 8,819 | ||||||||||||||||||||
Investment securities | 210,571 | 2.53 | 116,180 | 3.33 | 1,088 | 259,630 | 2.30 | 210,571 | 2.53 | 485 | ||||||||||||||||||||||||||||||
Mortgage-backed securities | 135,925 | 2.22 | 178,411 | 2.64 | (1,272 | ) | 116,833 | 2.09 | 135,925 | 2.22 | (441 | ) | ||||||||||||||||||||||||||||
FHLB stock | 4,390 | 6.04 | 6,310 | 5.66 | (69 | ) | 3,982 | 4.43 | 4,390 | 6.04 | (67 | ) | ||||||||||||||||||||||||||||
Interest-bearing deposits in banks | 20,637 | 0.55 | 13,468 | 1.88 | (105 | ) | 41,024 | 0.15 | 20,637 | 0.55 | (39 | ) | ||||||||||||||||||||||||||||
Total interest-earning assets | $ | 1,305,366 | 3.85 | % | $ | 1,186,628 | 4.22 | % | $ | 150 | $ | 1,631,179 | 3.81 | % | $ | 1,305,366 | 3.85 | % | $ | 8,757 | ||||||||||||||||||||
Interest Expense. Total interest expense decreased $2.4$2.5 million, or 27.4%38.1%, to $4.0 million for the nine months ended September 30, 2021, compared to $6.4 million for the nine months ended September 30, 2020, compareddue to $8.9a decrease in interest expense on deposits of $3.0 million resulting from a 49 basis point decrease in the average cost of interest-bearing deposits, offset by an increase in borrowing costs of $529,000 related to the subordinated debt issued in 2021. The average balance of interest-bearing deposits increased $203.2 million, or 21.8%, to $1.14 billion for the nine months ended September 30, 2019, due to a decrease in borrowing costs of $1.9 million, or 69.1%. Interest expense on deposit costs decreased for the nine months ended September 30, 2020, by $549,000 due to a 22 basis point decrease in the average cost. The average balance of interest-bearing deposits increased $132.9 million, or 16.6%, to2021, from $932.0 million for the nine months ended September 30, 2020, from $799.1 million for the nine months ended September 30, 2019, as we continued to target growth ingrew deposits in new and existing market areas and stimulus deposits related toas well as purchasing the pandemic.Bellevue branch.
During the nine months ended September 30, 2020,2021, interest expense decreased on cost ofsavings accounts, certificates of deposit increasedand transaction accounts due to an increase in average balance of $63.6 million partially offset by a decreasedecreases in the average ratebalances of $11.5 million, $51.5 million and $43.2 million, respectively, along with decreases in the average rates paid of 54 basis points, 69 basis points and 1 basis point, respectively, compared to the nine months ended September 30, 2019.2020. During the same period, the average balancesbalance of savings, transaction, and money market accounts increased $9.3 million, $11.7$200.0 million and $48.3 million, respectively.the average rate paid decreased 26 basis points. The average cost of allinterest-bearing deposit products decreased to 0.31% for the nine months ended September 30, 2021, from 0.80% for the nine months ended September 30, 2020, from 1.02% fordue in large part to the nine months ended September 30, 2019.expiration of promotional rates and a shift in balances to transaction accounts. Borrowing costs decreased as higher rate long termincreased due to the issuance of subordinated debt in March 2021, partially offset by a decrease in the average balance and cost of FHLB advances were prepaid duringcompared to the six months.same period in 2020.
The following table details average balances, cost of funds and the change in interest expense for the periods shown:
Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||
Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | Increase (Decrease) in Interest Expense | Average Balance Outstanding | Rate | Average Balance Outstanding | Rate | Increase (Decrease) in Interest Expense | |||||||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||
Savings accounts | $ | 171,085 | 0.61 | % | $ | 161,764 | 0.89 | % | $ | (300 | ) | $ | 182,604 | 0.07 | % | $ | 171,085 | 0.61 | % | $ | (683 | ) | ||||||||||||||||||
Transaction accounts | 127,333 | 0.03 | 115,681 | 0.11 | (70 | ) | 170,482 | 0.02 | 127,333 | 0.03 | — | |||||||||||||||||||||||||||||
Money market accounts | 305,373 | 0.49 | 257,045 | 0.49 | 173 | 505,379 | 0.23 | 305,373 | 0.49 | (266 | ) | |||||||||||||||||||||||||||||
Certificates of deposit | 328,197 | 1.48 | 264,573 | 2.02 | (352 | ) | 276,748 | 0.79 | 328,197 | 1.48 | (2,026 | ) | ||||||||||||||||||||||||||||
Borrowings | 70,763 | 1.58 | 120,194 | 3.01 | (1,877 | ) | ||||||||||||||||||||||||||||||||||
FHLB advances | 52,975 | 1.41 | 70,763 | 1.58 | (280 | ) | ||||||||||||||||||||||||||||||||||
Subordinated debt | 27,371 | 3.95 | — | — | 809 | |||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | $ | 1,002,751 | 0.85 | % | $ | 919,257 | 1.28 | % | $ | (2,426 | ) | $ | 1,215,559 | 0.44 | % | $ | 1,002,751 | 0.85 | % | $ | (2,446 | ) | ||||||||||||||||||
Provision for Loan Losses. The provision for loan losses was $4.1$1.5 million duringfor the nine months ended September 30, 2021, primarily due to growth in the loan portfolio, and was $4.1 million for the nine months ended September 30, 2020, primarily due to the uncertainty in economic conditions created by the ongoing COVID-19 pandemic andas well as growth in the loan portfolio, and was $420,000 for the nine months ended September 30, 2019, primarily due to charge-off activity in our indirect auto loan portfolio.
The following table details activity and information related to the allowance for loan losses for the periods shown:
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
| Provision for loan losses | $ | 4,116 | $ | 420 | ||||
Net charge-offs | (737 | ) | (510 | ) | ||||
Allowance for loan losses | 13,007 | 9,443 | ||||||
| Allowance for losses as a percentage of total gross loans receivable at the end of this period | 1.2 | % | 1.1 | % | ||||
Total nonaccrual loans | 3,098 | 1,322 | ||||||
| Allowance for loan losses as a percentage of nonaccrual loans at end of period | 419.9 | % | 714.3 | % | ||||
| Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.3 | % | 0.2 | % | ||||
Total loans | $ | 1,072,856 | $ | 846,057 | ||||
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
(Dollars in thousands) | ||||||||
Provision for loan losses | $ | 1,500 | $ | 4,116 | ||||
Net charge-offs | (104 | ) | (737 | ) | ||||
Allowance for loan losses | 15,243 | 13,007 | ||||||
Allowance for losses as a percentage of total gross loans receivable at period end | 1.1 | % | 1.2 | % | ||||
Total nonaccrual loans | 1,183 | 3,098 | ||||||
Allowance for loan losses as a percentage of nonaccrual loans at period end | 1288.5 | % | 419.9 | % | ||||
Nonaccrual and 90 days or more past due loans as a percentage of total loans | 0.1 | % | 0.3 | % | ||||
Total loans | $ | 1,352,878 | $ | 1,072,856 | ||||
Noninterest Income. Noninterest income increased $6.6decreased $346,000, or 3.1%, to $10.9 million or 144.2%, tofor the nine months ended September 30, 2021, from $11.2 million for the nine months ended September 30, 2020, from $4.6 million for the nine months ended September 30, 2019, mainly2020. Servicing fee income on sold loans increased $624,000 due to an increasethe recognition of the servicing right value and servicing fee income on MSLP loans and $218,000 related to mortgage servicing fee income, other fintech-related investments increased $370,000, and interchange fee income on deposit accounts increased $326,000. These increases were offset by a decline in gain on salesales of mortgage loans of $3.3 million. Gain on sale of investments for$1.2 million over the nine months ended September 30, 2020, totaled $2.2 million compared to $57,000 recognizedsame period in the first nine months of 2019.2020. The cash surrender value of bank-owned life insurance increased $1.1 million in the first nine months of 2020(BOLI) decreased $850,000 due to a BOLI restructure that occurred during the nine months ended September 30, 2020, which resulted in the recognition of additional market gains as well as additional investment in BOLI.2020.
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) | Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | Percent | 2021 | 2020 | Amount | Percent | |||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
Loan and deposit service fees | $ | 2,514 | $ | 2,899 | $ | (385 | ) | (13.3 | )% | $ | 2,853 | $ | 2,514 | $ | 339 | 13.5 | % | |||||||||||||||
Mortgage servicing fees, net of amortization | (9 | ) | 143 | (152 | ) | (106.3 | ) | |||||||||||||||||||||||||
Sold loan servicing fees, net of amortization | 858 | (9 | ) | 867 | (9,633.3 | ) | ||||||||||||||||||||||||||
Net gain on sale of loans | 4,109 | 830 | 3,279 | 395.1 | 2,921 | 4,109 | (1,188 | ) | (28.9 | ) | ||||||||||||||||||||||
Net gain on sale of investment securities | 2,235 | 57 | 2,178 | 3,821.1 | 2,410 | 2,235 | 175 | 7.8 | ||||||||||||||||||||||||
Increase in cash surrender value of bank-owned life insurance | 1,577 | 435 | 1,142 | 262.5 | 727 | 1,577 | (850 | ) | (53.9 | ) | ||||||||||||||||||||||
Other income | 782 | 225 | 557 | 247.6 | 1,093 | 782 | 311 | 39.8 | ||||||||||||||||||||||||
Total noninterest income | $ | 11,208 | $ | 4,589 | $ | 6,619 | 144.2 | % | $ | 10,862 | $ | 11,208 | $ | (346 | ) | (3.1 | )% | |||||||||||||||
Noninterest Expense. Noninterest expense increased $5.2$10.0 million, or 21.4%33.6%, to $29.7$39.7 million for the nine months ended September 30, 2021, compared to $29.8 million for the nine months ended September 30, 2020, compared to $24.5 million for the nine months ended September 30, 2019, primarily as a result of an increase in compensation and benefits as well as occupancy and equipment as we added staff to manage the company and generate additional revenue. Compensation and benefits was also increasedhigher due to an $1.6 milliona $898,000 increase in commissions paid on increased mortgage and commercial loan production, a $748,000 increase in incentive accrual, and a $500,000 increase related to equity awarded to the principal owners of POM as well as one-time pandemicpart of the Quin joint venture agreement. Costs related payments made to staff. We also incurred a one-time FHLB prepayment penalty of $210,000software increased $898,000 as we retired long term debtimplemented more robust systems to reduced interest expense.support digital initiatives and Company growth. Increases in advertising and professional fees were related to the purchase of the Bellevue branch, Quin Ventures expenditures, the relocation of our Fairhaven branch, and the opening of the Ferndale branch. The increase in FDIC insurance over the prior year was due to a combination of a small bank assessment credit issued in September 2019 that resulted in no FDIC insurance payment during the first quarter of 2020 and an increase in average assets which resulted in a higher assessment base.
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) | Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | Percent | 2021 | 2020 | Amount | Percent | |||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
Compensation and benefits | $ | 17,397 | $ | 14,097 | $ | 3,300 | 23.4 | % | $ | 24,567 | $ | 17,397 | $ | 7,170 | 41.2 | % | ||||||||||||||||
Data processing | 2,099 | 1,978 | 121 | 6.1 | 2,291 | 2,099 | 192 | 9.1 | ||||||||||||||||||||||||
Occupancy and equipment | 4,063 | 3,409 | 654 | 19.2 | 5,274 | 4,063 | 1,211 | 29.8 | ||||||||||||||||||||||||
Supplies, postage, and telephone | 749 | 678 | 71 | 10.5 | 876 | 749 | 127 | 17.0 | ||||||||||||||||||||||||
Regulatory assessments and state taxes | 659 | 573 | 86 | 15.0 | 897 | 659 | 238 | 36.1 | ||||||||||||||||||||||||
Advertising | 934 | 569 | 365 | 64.1 | 1,484 | 934 | 550 | 58.9 | ||||||||||||||||||||||||
Professional fees | 1,115 | 907 | 208 | 22.9 | 1,588 | 1,115 | 473 | 42.4 | ||||||||||||||||||||||||
FDIC insurance premium | 156 | 82 | 74 | 90.2 | 450 | 156 | 294 | 188.5 | ||||||||||||||||||||||||
FHLB prepayment penalty | 210 | 344 | (134 | ) | (39.0 | ) | — | 210 | (210 | ) | (100.0 | ) | ||||||||||||||||||||
Other expense | 2,363 | 1,859 | 504 | 27.1 | 2,308 | 2,363 | (55 | ) | (2.3 | ) | ||||||||||||||||||||||
Total | $ | 29,745 | $ | 24,496 | $ | 5,249 | 21.4 | % | $ | 39,735 | $ | 29,745 | $ | 9,990 | 33.6 | % | ||||||||||||||||
Provision for Income Tax. An income tax expense of $2.1 million was recorded for the nine months ended September 30, 2020,2021, compared to $1.6$2.1 million for the nine months ended September 30, 2019, due to an2020. There was a year-over-year increase in income before taxes of $250,000 and recognition of$3.5 million; however, the expense recorded for the nine months ended September 30, 2020, included a tax penalty, resulting in a similar expense for early surrender of a BOLI investment.both periods. For additional information, see Note 5 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 tabletables 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-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultantnet spread atas of September 30, 20202021 and 2019.2020. Income and all average balances are monthly average balances, which management deems to be not materially different than daily averages. Nonaccrual loans have been included in the table as loans carrying a zero yield.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| At September 30, 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | Average | Interest | ||||||||||||||||||||||||||||||||||||||||
Yield/ | Balance | Earned/ | Yield/ | Balance | Earned/ | Yield/ | Balance | Earned/ | Yield/ | Balance | Earned/ | Yield/ | |||||||||||||||||||||||||||||||||||
Rate | Outstanding | Paid | Rate | Outstanding | Paid | Rate | Outstanding | Paid | Rate | Outstanding | Paid | Rate | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||
Loans receivable, net (1) | 4.28 | % | $ | 998,586 | $ | 11,097 | 4.45 | % | $ | 862,587 | $ | 10,096 | 4.68 | % | $ | 933,843 | $ | 31,169 | 4.45 | % | $ | 872,259 | $ | 30,661 | 4.69 | % | |||||||||||||||||||||
Investment securities | 2.61 | 267,911 | 1,603 | 2.39 | 111,695 | 921 | 3.30 | 210,571 | 3,988 | 2.53 | 116,180 | 2,900 | 3.33 | ||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 2.07 | 110,863 | 565 | 2.04 | 172,639 | 1,087 | 2.52 | 135,925 | 2,264 | 2.22 | 178,411 | 3,536 | 2.64 | ||||||||||||||||||||||||||||||||||
FHLB dividends | 4.85 | 4,028 | 97 | 9.63 | 5,019 | 92 | 7.33 | 4,390 | 199 | 6.04 | 6,310 | 268 | 5.66 | ||||||||||||||||||||||||||||||||||
Interest-bearing deposits in banks | 0.10 | 19,702 | 9 | 0.18 | 15,413 | 65 | 1.69 | 20,637 | 85 | 0.55 | 13,468 | 190 | 1.88 | ||||||||||||||||||||||||||||||||||
Total interest-earning assets (2) | 3.72 | 1,401,090 | 13,371 | 3.82 | 1,167,353 | 12,261 | 4.20 | 1,305,366 | 37,705 | 3.85 | 1,186,628 | 37,555 | 4.22 | ||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
Savings accounts | 0.17 | $ | 174,475 | $ | 176 | 0.40 | $ | 168,495 | $ | 397 | 0.94 | $ | 171,085 | $ | 785 | 0.61 | $ | 161,764 | $ | 1,085 | 0.89 | ||||||||||||||||||||||||||
Transaction accounts | 0.01 | 143,890 | 5 | 0.01 | 116,328 | 26 | 0.09 | 127,333 | 28 | 0.03 | 115,681 | 98 | 0.11 | ||||||||||||||||||||||||||||||||||
Money market accounts | 0.31 | 371,335 | 362 | 0.39 | 245,640 | 312 | 0.51 | 305,373 | 1,118 | 0.49 | 257,045 | 945 | 0.49 | ||||||||||||||||||||||||||||||||||
Certificates of deposit | 1.00 | 319,341 | 862 | 1.08 | 276,247 | 1,406 | 2.04 | 328,197 | 3,653 | 1.48 | 264,573 | 4,005 | 2.02 | ||||||||||||||||||||||||||||||||||
Total deposits | 0.36 | 1,009,041 | 1,405 | 0.56 | 806,710 | 2,141 | 1.06 | 931,988 | 5,584 | 0.80 | 799,063 | 6,133 | 1.02 | ||||||||||||||||||||||||||||||||||
| Borrowings | 0.75 | 61,244 | 205 | 1.34 | 87,492 | 691 | 3.16 | 70,763 | 840 | 1.58 | 120,194 | 2,717 | 3.01 | ||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 0.39 | 1,070,285 | 1,610 | 0.60 | 894,202 | 2,832 | 1.27 | 1,002,751 | 6,424 | 0.85 | 919,257 | 8,850 | 1.28 | ||||||||||||||||||||||||||||||||||
Net interest income | $ | 11,761 | $ | 9,429 | $ | 31,281 | $ | 28,705 | |||||||||||||||||||||||||||||||||||||||
Net interest rate spread | 3.33 | 3.22 | 2.93 | 3.00 | 2.94 | ||||||||||||||||||||||||||||||||||||||||||
Net earning assets | $ | 330,805 | $ | 273,151 | $ | 302,615 | $ | 267,371 | |||||||||||||||||||||||||||||||||||||||
Net interest margin (3) | 3.36 | 3.23 | 3.20 | 3.23 | |||||||||||||||||||||||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 130.9 | % | 130.5 | % | 130.2 | % | 129.1 | % | |||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Average | Interest | Average | Interest | |||||||||||||||||||||
Balance | Earned/ | Yield/ | Balance | Earned/ | Yield/ | |||||||||||||||||||
Outstanding | Paid | Rate | Outstanding | Paid | Rate | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans receivable, net (1) | $ | 1,294,877 | $ | 14,581 | 4.47 | % | $ | 998,586 | $ | 11,097 | 4.45 | % | ||||||||||||
Investment securities | 230,158 | 1,423 | 2.45 | 267,911 | 1,603 | 2.39 | ||||||||||||||||||
Mortgage-backed securities | 134,856 | 715 | 2.10 | 110,863 | 565 | 2.04 | ||||||||||||||||||
FHLB dividends | 4,061 | 41 | 4.01 | 4,028 | 97 | 9.63 | ||||||||||||||||||
Interest-bearing deposits in banks | 38,810 | 18 | 0.18 | 19,702 | 9 | 0.18 | ||||||||||||||||||
Total interest-earning assets (2) | 1,702,762 | 16,778 | 3.91 | 1,401,090 | 13,371 | 3.82 | ||||||||||||||||||
Noninterest-earning assets | 107,781 | 87,633 | ||||||||||||||||||||||
Total average assets | $ | 1,810,543 | $ | 1,488,723 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 180,162 | $ | 11 | 0.02 | $ | 143,890 | $ | 5 | 0.01 | ||||||||||||||
Money market accounts | 552,811 | 291 | 0.21 | 371,335 | 362 | 0.39 | ||||||||||||||||||
Savings accounts | 188,664 | 28 | 0.06 | 174,475 | 176 | 0.40 | ||||||||||||||||||
Certificates of deposit | 257,459 | 520 | 0.80 | 319,341 | 862 | 1.08 | ||||||||||||||||||
Total deposits | 1,179,096 | 850 | 0.29 | 1,009,041 | 1,405 | 0.56 | ||||||||||||||||||
FHLB borrowings | 51,613 | 186 | 1.43 | 61,244 | 205 | 1.34 | ||||||||||||||||||
Subordinated debt | 39,249 | 390 | 3.94 | — | — | — | ||||||||||||||||||
Total interest-bearing liabilities | 1,269,958 | 1,426 | 0.45 | 1,070,285 | 1,610 | 0.60 | ||||||||||||||||||
Noninterest-bearing liabilities | 349,821 | 239,551 | ||||||||||||||||||||||
Average equity | 190,764 | 178,887 | ||||||||||||||||||||||
Total interest-bearing liabilities | $ | 1,810,543 | $ | 1,488,723 | ||||||||||||||||||||
Net interest income | $ | 15,352 | $ | 11,761 | ||||||||||||||||||||
Net interest rate spread | 3.46 | 3.22 | ||||||||||||||||||||||
Net earning assets | $ | 432,804 | $ | 330,805 | ||||||||||||||||||||
Net interest margin (3) | 3.58 | 3.36 | ||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 134.1 | % | 130.9 | % | ||||||||||||||||||||
(1) The average loans receivable, net balances include nonaccrual 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, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
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) | $ | 1,209,710 | $ | 39,988 | 4.42 | % | $ | 933,843 | $ | 31,169 | 4.45 | % | ||||||||||||
Investment securities | 259,630 | 4,473 | 2.30 | 210,571 | 3,988 | 2.53 | ||||||||||||||||||
Mortgage-backed securities | 116,833 | 1,823 | 2.09 | 135,925 | 2,264 | 2.22 | ||||||||||||||||||
FHLB dividends | 3,982 | 132 | 4.43 | 4,390 | 199 | 6.04 | ||||||||||||||||||
Interest-bearing deposits in banks | 41,024 | 46 | 0.15 | 20,637 | 85 | 0.55 | ||||||||||||||||||
Total interest-earning assets (2) | 1,631,179 | 46,462 | 3.81 | 1,305,366 | 37,705 | 3.85 | ||||||||||||||||||
Noninterest-earning assets | 100,662 | 87,670 | ||||||||||||||||||||||
Total average assets | $ | 1,731,841 | $ | 1,393,036 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 170,482 | $ | 28 | 0.02 | $ | 127,333 | $ | 28 | 0.03 | ||||||||||||||
Money market accounts | 505,379 | 852 | 0.23 | 305,373 | 1,118 | 0.49 | ||||||||||||||||||
Savings accounts | 182,604 | 102 | 0.07 | 171,085 | 785 | 0.61 | ||||||||||||||||||
Certificates of deposit | 276,748 | 1,627 | 0.79 | 328,197 | 3,653 | 1.48 | ||||||||||||||||||
Total deposits | 1,135,213 | 2,609 | 0.31 | 931,988 | 5,584 | 0.80 | ||||||||||||||||||
FHLB borrowings | 52,975 | 560 | 1.41 | 70,763 | 840 | 1.58 | ||||||||||||||||||
Subordinated debt | 27,371 | 809 | 3.95 | — | — | — | ||||||||||||||||||
Total interest-bearing liabilities | 1,215,559 | 3,978 | 0.44 | 1,002,751 | 6,424 | 0.85 | ||||||||||||||||||
Noninterest-bearing liabilities | 328,569 | 213,441 | ||||||||||||||||||||||
Average equity | 187,713 | 176,844 | ||||||||||||||||||||||
Total interest-bearing liabilities | $ | 1,731,841 | $ | 1,393,036 | ||||||||||||||||||||
Net interest income | $ | 42,484 | $ | 31,281 | ||||||||||||||||||||
Net interest rate spread | 3.37 | 3.00 | ||||||||||||||||||||||
Net earning assets | $ | 415,620 | $ | 302,615 | ||||||||||||||||||||
Net interest margin (3) | 3.48 | 3.20 | ||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 134.2 | % | 130.2 | % | ||||||||||||||||||||
(1) The average loans receivable, net balances include nonaccrual loans. (2) Includes interest-bearing deposits (cash) at other financial institutions. (3) 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 | Nine Months Ended | |||||||||||||||||||||||
September 30, 2020 vs. 2019 | September 30, 2020 vs. 2019 | |||||||||||||||||||||||
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 | $ | 1,583 | $ | (582 | ) | $ | 1,001 | $ | 2,177 | $ | (1,669 | ) | $ | 508 | ||||||||||
Investments | 899 | (739 | ) | 160 | 1,514 | (1,698 | ) | (184 | ) | |||||||||||||||
FHLB stock | (18 | ) | 23 | 5 | (82 | ) | 13 | (69 | ) | |||||||||||||||
Other(1) | 18 | (74 | ) | (56 | ) | 101 | (206 | ) | (105 | ) | ||||||||||||||
Total interest-earning assets | $ | 2,482 | $ | (1,372 | ) | $ | 1,110 | $ | 3,710 | $ | (3,560 | ) | $ | 150 | ||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings accounts | $ | 14 | $ | (235 | ) | $ | (221 | ) | $ | 63 | $ | (363 | ) | $ | (300 | ) | ||||||||
Interest-bearing transaction accounts | 6 | (27 | ) | (21 | ) | 10 | (80 | ) | (70 | ) | ||||||||||||||
Money market accounts | 160 | (110 | ) | 50 | 178 | (5 | ) | 173 | ||||||||||||||||
Certificates of deposit | 219 | (763 | ) | (544 | ) | 963 | (1,315 | ) | (352 | ) | ||||||||||||||
Borrowings | (207 | ) | (279 | ) | (486 | ) | (1,117 | ) | (760 | ) | (1,877 | ) | ||||||||||||
Total interest-bearing liabilities | $ | 192 | $ | (1,414 | ) | $ | (1,222 | ) | $ | 97 | $ | (2,523 | ) | $ | (2,426 | ) | ||||||||
Net change in interest income | $ | 2,290 | $ | 42 | $ | 2,332 | $ | 3,613 | $ | (1,037 | ) | $ | 2,576 | |||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, 2021 vs. 2020 | September 30, 2021 vs. 2020 | |||||||||||||||||||||||
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 | $ | 3,371 | $ | 113 | $ | 3,484 | $ | 9,136 | $ | (317 | ) | $ | 8,819 | |||||||||||
Investments | (96 | ) | 66 | (30 | ) | 601 | (557 | ) | 44 | |||||||||||||||
FHLB stock | 1 | (57 | ) | (56 | ) | (19 | ) | (48 | ) | (67 | ) | |||||||||||||
Other(1) | 9 | — | 9 | 84 | (123 | ) | (39 | ) | ||||||||||||||||
Total interest-earning assets | $ | 3,285 | $ | 122 | $ | 3,407 | $ | 9,802 | $ | (1,045 | ) | $ | 8,757 | |||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 1 | $ | 5 | $ | 6 | $ | 9 | $ | (9 | ) | $ | — | |||||||||||
Money market accounts | 179 | (250 | ) | (71 | ) | 728 | (994 | ) | (266 | ) | ||||||||||||||
Savings accounts | 15 | (163 | ) | (148 | ) | 52 | (735 | ) | (683 | ) | ||||||||||||||
Certificates of deposit | (165 | ) | (177 | ) | (342 | ) | (576 | ) | (1,450 | ) | (2,026 | ) | ||||||||||||
FHLB advances | (32 | ) | 13 | (19 | ) | (212 | ) | (68 | ) | (280 | ) | |||||||||||||
Subordinated debt | — | 390 | 390 | — | 809 | 809 | ||||||||||||||||||
Total interest-bearing liabilities | $ | (2 | ) | $ | (182 | ) | $ | (184 | ) | $ | 1 | $ | (2,447 | ) | $ | (2,446 | ) | |||||||
Net change in interest income | $ | 3,287 | $ | 304 | $ | 3,591 | $ | 9,801 | $ | 1,402 | $ | 11,203 | ||||||||||||
(1) Includes interest-bearing 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 nine months ended September 30, 20202021 and the year ended December 31, 2019,2020, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.
Contractual Obligations
At September 30, 2020,2021, our scheduled maturities of contractual obligations were as follows:
Within | After 1 Year Through | After 3 Years Through | Beyond | Total | Within | After 1 Year Through | After 3 Years Through | Beyond | Total | |||||||||||||||||||||||||||||||
1 Year | 3 Years | 5 Years | 5 Years | Balance | 1 Year | 3 Years | 5 Years | 5 Years | Balance | |||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | $ | 190,613 | $ | 87,940 | $ | 14,987 | $ | — | $ | 293,540 | $ | 156,988 | $ | 73,984 | $ | 14,108 | $ | — | $ | 245,080 | ||||||||||||||||||||
| FHLB advances | 59,150 | 25,000 | 25,000 | — | 109,150 | 10,000 | 30,000 | 20,000 | — | 60,000 | ||||||||||||||||||||||||||||||
Subordinated debt obligation | — | — | — | 39,261 | 39,261 | |||||||||||||||||||||||||||||||||||
| Operating leases | 461 | 766 | 782 | 2,241 | 4,250 | 810 | 1,721 | 1,832 | 5,049 | 9,412 | ||||||||||||||||||||||||||||||
Borrower taxes and insurance | 1,986 | — | — | — | 1,986 | 2,118 | — | — | — | 2,118 | ||||||||||||||||||||||||||||||
| Deferred compensation | 389 | 230 | 64 | 356 | 1,039 | 159 | 463 | 79 | 512 | 1,213 | ||||||||||||||||||||||||||||||
| Total contractual obligations | $ | 252,599 | $ | 113,936 | $ | 40,833 | $ | 2,597 | $ | 409,965 | $ | 170,075 | $ | 106,168 | $ | 36,019 | $ | 44,822 | $ | 357,084 | ||||||||||||||||||||
Commitments and Off-Balance Sheet Arrangements
The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of September 30, 2020:2021:
Amount of Commitment Expiration | Amount of Commitment Expiration | |||||||||||||||||||||||||||||||||||||||
| Within | After 1 Year Through | After 3 Years Through | Beyond | Total Amounts | Within | After 1 Year Through | After 3 Years Through | Beyond | Total Amounts | |||||||||||||||||||||||||||||||
1 Year | 3 Years | 5 Years | 5 Years | Committed | 1 Year | 3 Years | 5 Years | 5 Years | Committed | |||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Commitments to originate loans: | ||||||||||||||||||||||||||||||||||||||||
Fixed-rate | $ | 2,918 | $ | — | $ | — | $ | — | $ | 2,918 | $ | 2,914 | $ | — | $ | — | $ | — | $ | 2,914 | ||||||||||||||||||||
| Variable-rate | 7,600 | — | — | — | 7,600 | 100 | — | — | — | 100 | ||||||||||||||||||||||||||||||
Unfunded commitments under lines of credit or existing loans | 38,366 | 37,919 | — | 72,484 | 148,769 | 73,120 | 54,281 | 9,905 | 118,826 | 256,132 | ||||||||||||||||||||||||||||||
Standby letters of credit | 182 | — | — | — | 182 | 212 | — | — | — | 212 | ||||||||||||||||||||||||||||||
Total commitments | $ | 49,066 | $ | 37,919 | $ | — | $ | 72,484 | $ | 159,469 | $ | 76,346 | $ | 54,281 | $ | 9,905 | $ | 118,826 | $ | 259,358 | ||||||||||||||||||||
Liquidity Management
Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are usually predictable sources of funds, deposit flows, calls of investment securities and borrowed funds, and prepayments on loans and investment securities are greatly influenced by general interest rates, economic conditions and competition, which can cause those sources of funds to fluctuate.
Management regularly adjusts our investments in liquid assets based upon an assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our interest-rate risk and investment policies.
Our most liquid assets are cash and cash equivalents followed by available for sale securities. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2020,2021, cash and cash equivalents totaled $52.1$76.1 million, and unpledged securities classified as available-for-sale with a market value of $281.9$200.0 million provided additional sources of liquidity. We pledged collateral to support borrowings from the FHLB of $267.4$446.8 million and have an established borrowing arrangement with the Federal Reserve Bank of San Francisco, for which available-for-sale securities with a market value of $29.4$23.5 million were pledged as of September 30, 2020.2021.
At September 30, 2020,2021, we had $10.5$3.0 million in loan commitments outstanding $149.0and $256.3 million in undisbursed loans and standby letters of credit, including $97.8$180.4 million in undisbursed construction loan commitments.
Certificates of deposit due within one year as of September 30, 20202021 totaled $190.6$157.0 million, or 64.9%64.1% of certificates of deposit with a weighted-average rate of 0.73%0.67%. We believe the large percentage of certificates of deposit that mature within one year reflects customers' hesitancy to invest their funds for longer periods as market interest rates have recently declined. If these maturing deposits are not renewed, however, we will be required to seek other sources of funds, including other certificates of deposit, non-maturity deposits, and borrowings. We have the ability to attract and retain deposits by adjusting the interest rates offered as well as through sales and marketing efforts in the markets we serve. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on certificates of deposit. In addition, we believe that our branch network, and the general cash flows from our existing lending and investment activities, will provide us more than adequate long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.
The Company is a separate legal entity from the Bank and provides for its own liquidity to pay its operating expenses and other financial obligations.liquidity. At September 30, 2020,2021, the Company, (onon an unconsolidated basis)basis, had liquid assets of $9.6$16.6 million. In addition to its operating expenses, the Company is responsible for paying dividends declared, if any, to its shareholders, funds paid for Company stock repurchases, and payments on subordinated notes held at the Company level. The Company has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. First Northwest has partially fulfilled its commitment to extend $15.0 million to Quin Ventures, Inc. under a capital financing agreement and related promissory note.
Capital Resources
At September 30, 2020,2021, shareholders' equity totaled $180.7$187.8 million, or 11.5%10.2% of total assets. Our book value per share of common stock was $17.65$18.65 at September 30, 2020,2021, compared to $16.48$18.19 at December 31, 2019.2020.
At September 30, 2020,2021, the Bank exceeded all regulatory capital requirements and was considered "well capitalized" under FDIC regulatory capital guidelines.
The following table provides the capital requirements and actual results for First FederalFed at September 30, 2020.2021.
Actual | Minimum Capital Requirements | Minimum Required to be Well-Capitalized | Actual | Minimum Capital Requirements | Minimum Required to be Well-Capitalized | |||||||||||||||||||||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Tier I leverage capital (to average assets) | $ | 156,405 | 10.5 | % | $ | 59,428 | 4.0 | % | $ | 74,285 | 5.0 | % | $ | 191,064 | 10.6 | % | $ | 71,903 | 4.0 | % | $ | 89,878 | 5.0 | % | ||||||||||||||||||||||||
Common equity tier I (to risk-weighted assets) | 156,405 | 14.7 | 47,826 | 4.5 | 69,083 | 6.5 | 191,064 | 13.4 | 64,412 | 4.5 | 93,040 | 6.5 | ||||||||||||||||||||||||||||||||||||
Tier I risk-based capital (to risk-weighted assets) | 156,405 | 14.7 | 63,769 | 6.0 | 85,025 | 8.0 | 191,064 | 13.4 | 85,883 | 6.0 | 114,511 | 8.0 | ||||||||||||||||||||||||||||||||||||
Total risk-based capital (to risk-weighted assets) | 169,690 | 16.0 | 85,025 | 8.0 | 106,281 | 10.0 | 206,675 | 14.4 | 114,511 | 8.0 | 143,138 | 10.0 | ||||||||||||||||||||||||||||||||||||
In order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses, the Bank must maintain common equity tier 1 capital ("CET1") at an amount greater than the required minimum levels plus a capital conservation buffer of 2.5%.
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, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has not been any material change in the market risk disclosures contained in First Northwest Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of the Company's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial and Accounting Officer), and other members of the Company's management team as of the end of the period covered by this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2020,2021, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(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, 2020,2021, 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 conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
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.
The disclosures below supplement the risk factors previously disclosed under Part I. Item 1A of the Company's Form 10-K for the year ended December 31, 2019.2020.
The effects of the COVID-19 pandemic could adversely affect our customersthe future results of operations of our customers and/or the market price of our stock.
The COVID-19 pandemic continues to rapidly evolve, as do federal, state and local efforts to address it. Both the direct effects of the pandemic and the resulting United States governmental responses are of an unprecedented scope as it impacts both the health and the economy of our country and the world at large. No one can predict the extent or duration of the pandemic, or its effect on the markets that we serve. Further, the ongoing efforts and impact of the government in mitigating the health and the economic effects of the pandemic cannot currently be predicted, whether on our business or as to the economy as a whole. The pandemic has thus far resulted in significant volatility in international and United States markets, which could adversely affect the market price of our stock. To date, the pandemic has resulted in significant business disruption and volatility in the international and domestic markets, which has adversely affected the market price of our stock.
The Company continues to manage through uncertainties and complexities created by the pandemic. As an essential business, our employees have been able to work safely in our branch locations and over 70% of our workforce has the ability to work from home. However, the economic downturn in local markets we serve could result in increased credit risk associated with the loan portfolio asto the extent that customers are unable to repay loans and meet their obligations, as well as adversely impactimpacting our earnings. We believe our strong capital position will be important in managing through the unknown impacteffects of the pandemic.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) | Not applicable. |
(b) | Not applicable. |
(c) | The following table summarizes common stock repurchases during the three months ended September 30, |
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, 2020 - July 31, 2020 | 74,005 | $ | 11.90 | 64,237 | 77,556 | |||||||||||
August 1, 2020 - August 31, 2020 | 41,717 | 11.38 | 41,717 | 35,839 | ||||||||||||
September 1, 2020 - September 30, 2020 | 39,759 | 11.80 | 35,839 | — | ||||||||||||
Total | 155,481 | $ | 11.72 | 141,793 | ||||||||||||
(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 9,768 shares, 0 shares, and 320 shares, respectively, for the periods indicated. The Company also repurchased 0, 0, and 3,600 of unvested restricted stock awards, respectively, upon a participant's separation from service. | ||||||||||||||||
(2) On December 5, 2019, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 535,097 shares of its common stock, or approximately 5% of its shares of common stock issued and outstanding as of December 2, 2019. As of September 30, 2020, a total of 535,097 shares, or 100.0% percent of the shares authorized in the December 2019 stock repurchase plan, have been purchased at an average cost of $12.58 per share, leaving 0 shares available for future purchases. | ||||||||||||||||
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, 2021 - July 31, 2021 | 50,226 | $ | 17.83 | 41,512 | 812,376 | |||||||||||
August 1, 2021 - August 31, 2021 | 3,233 | 18.77 | 2,629 | 809,747 | ||||||||||||
September 1, 2021 - September 30, 2021 | 95,628 | 17.84 | 93,812 | 715,935 | ||||||||||||
Total | 149,087 | $ | 17.85 | 137,953 | ||||||||||||
(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 8,714 shares, 604 shares, and 1,816 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, 2021, a total of 307,485 shares, or 30.0% percent of the shares authorized in the October 2020 stock repurchase plan, have been purchased at an average cost of $16.85 per share, leaving 715,935 shares available for future purchases. | ||||||||||||||||
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
COVID-19 Legislation and Regulation.
General. Governments at the federal, state, and local levels continue to take steps to address the impact of the COVID-19 emergency.pandemic. On March 27, 2020, the PresidentCARES Act was signed into law, the historic $2 which included $350 billion in stimulus for small businesses under the
trillion federal stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),so-called “Paycheck Protection Program,”SBA PPP, along with direct stimulus payments (i.e., “economic"economic impact payments”payments" or “stimulus checks”"stimulus checks") for many eligible Americans. The initial amounts available under the Paycheck Protection Program were quickly exhausted in less than two weeks, which prompted Congress to negotiate additional funding. On April 24, 2020,Shortly thereafter, the Paycheck Protection Program and Health Care Enforcement Act was signed into law to replenishand replenished funding to the Paycheck Protection ProgramSBA PPP and to provideprovided other spending for hospitals and virus testing. Further, on July 3,On June 5, 2020, the President extended the deadline for potential borrowers to apply for Paycheck Protection Program fundsFlexibility Act ("PPPFA") was enacted. Main provisions of the PPPFA extended the PPP loan repayment period from two to five years, extended the covered expense period from eight to 24 weeks, and lowered the percentage of forgiveness amount required to be used for eligible payroll costs to 60%. The PPPFA also extended the repayment start date until August 8, 2020.after the SBA finalized the application process for loan forgiveness. The legislativeConsolidated Appropriations Act, enacted in December 2020, included another $284 billion to fund an expansion of the SBA PPP, subject to certain changes in eligibility requirements and regulatory landscape surrounding COVID-19 is rapidly changing,program design. Most recently, the American Rescue Plan Act of 2021 became law in March 2021 and neither the Company nor the Bank can predictprovides for a $1.9 billion stimulus package that, among other financial aid measures, included a new round of PPP funding with certainty the impact it will have on our operations or business.
Exhibit No. | Exhibit Description | Filed Herewith | Form | Original Exhibit No. | Filing Date |
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31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | X |
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31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | X |
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32 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act | X |
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101 | The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, | |||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and 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 |
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Date: November | /s/ Matthew P. Deines |
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| Matthew P. Deines |
| President, Chief Executive Officer and Director |
| (Principal Executive Officer) |
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Date: November | /s/ Geraldine L. Bullard |
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| Geraldine L. Bullard |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial and Accounting Officer) |