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 | |||
For the quarterly period ended | |||
or
☐ | |||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the transition period from _____ to _____ | |||
Commission File Number: 001-36741
FIRST NORTHWEST BANCORP
(Exact name of registrant as specified in its charter)
Washington | 46-1259100 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer I.D. Number) | |
105 West 8th Street, Port Angeles, Washington | 98362 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code: | (360) 457-0461 |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s): | Name of each exchange on which registered: | ||
Common Stock, par value $0.01 per share | FNWB | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesIndicate 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).
YesIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 1,October 30, 2020, there were 10,428,96310,234,204 shares of common stock, $0.01 par value per share, outstanding.
FORM 10-Q TABLE OF CONTENTS PART 1 - FINANCIAL INFORMATION Page Item 1 - Financial Statements (Unaudited) Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk Item 4 - Controls and Procedures PART II - OTHER INFORMATION Item 1 - Legal Proceedings Item 1A - Risk Factors Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds Item 3 - Defaults Upon Senior Securities Item 4 - Mine Safety Disclosures Item 5 - Other Information Item 6 - Exhibits SIGNATURES As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to First Northwest Bancorp ("First Northwest") and its consolidated subsidiary, unless the context indicates otherwise. When we refer to “First Federal” or the “Bank” in this report, we are referring to First Federal Savings and Loan Association of Port Angeles, the wholly owned subsidiary of First Northwest Bancorp. PART I - FINANCIAL INFORMATION FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share information) (Unaudited) September 30, 2020 December 31, 2019 ASSETS Cash and due from banks Interest-bearing deposits in banks Investment securities available for sale, at fair value Loans held for sale Loans receivable (net of allowance for loan losses of $13,007 and $9,628) Federal Home Loan Bank (FHLB) stock, at cost Accrued interest receivable Premises and equipment, net Mortgage servicing rights, net Bank-owned life insurance, net Prepaid expenses and other assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Borrowings Accrued interest payable Accrued expenses and other liabilities Advances from borrowers for taxes and insurance Total liabilities Shareholders' Equity Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,234,204 shares at September 30, 2020, and 10,731,639 shares at December 31, 2019 Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss), net of tax Unearned employee stock ownership plan (ESOP) shares Total shareholders' equity Total liabilities and shareholders' equity See selected notes to the consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 INTEREST INCOME Interest and fees on loans receivable Interest on mortgage-backed securities Interest on investment securities Interest on deposits and other FHLB dividends Total interest income INTEREST EXPENSE Deposits Borrowings Total interest expense Net interest income PROVISION FOR LOAN LOSSES Net interest income after provision for loan losses NONINTEREST INCOME Loan and deposit service fees Mortgage servicing fees, net of amortization Net gain on sale of loans Net gain on sale of investment securities Increase in cash surrender value of bank-owned life insurance Other income Total noninterest income NONINTEREST EXPENSE Compensation and benefits Data processing Occupancy and equipment Supplies, postage, and telephone Regulatory assessments and state taxes Advertising Professional fees FDIC insurance premium FHLB prepayment penalty Other expense Total noninterest expense INCOME BEFORE PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAXES NET INCOME Basic and diluted earnings per common share 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 September 30, September 30, 2020 2019 2020 2019 NET INCOME Other comprehensive income: Income tax provision related to unrealized holding gains Reclassification adjustment for net (gains) losses on sales of securities realized in income Other comprehensive income, net of tax COMPREHENSIVE INCOME See selected notes to the consolidated financial statements. FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three Months Ended (Dollars in thousands, except share information) (Unaudited) Common Stock Additional Paid-in Retained Unearned ESOP Total Shareholders' Shares Amount Capital Earnings Shares Income, Net of Tax Equity BALANCE, June 30, 2019 Net income Common stock repurchased Other comprehensive income, net of tax Share-based compensation ESOP shares committed to be released Cash dividends declared and paid ($0.03 per share) BALANCE, September 30, 2019 BALANCE, June 30, 2020 Net income Common stock repurchased Restricted stock award grants net of forfeitures Other comprehensive income, net of tax Share-based compensation ESOP shares committed to be released Cash dividends declared and paid ($0.05 per share) BALANCE, September 30, 2020 FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Nine Months Ended September 30, 2020 and 2019 (Dollars in thousands, except share information) (Unaudited) Common Stock Additional Paid-in Retained Unearned ESOP Total Shareholders' Shares Amount Capital Earnings Shares Income, Net of Tax Equity BALANCE, December 31, 2018 Net income Common stock repurchased Other comprehensive income, net of tax Share-based compensation ESOP shares committed to be released Cash dividends declared and paid ($0.09 per share) BALANCE, September 30, 2019 BALANCE, December 31, 2019 Net income Common stock repurchased Restricted stock award grants net of forfeitures Other comprehensive income, net of tax Share-based compensation ESOP shares committed to be released Cash dividends declared and paid ($0.15 per share) BALANCE, September 30, 2020 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, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization Amortization and accretion of premiums and discounts on investments, net (Accretion) amortization of deferred loan fees, net Amortization of mortgage servicing rights, net Additions to mortgage servicing rights, net Net increase (decrease) on the valuation allowance on mortgage servicing rights Provision for loan losses Allocation of ESOP shares Share-based compensation Gain on sale of loans, net Gain on sale of securities available for sale, net Increase in cash surrender value of life insurance, net Origination of loans held for sale Proceeds from loans held for sale Change in assets and liabilities: (Increase) decrease in accrued interest receivable Increase in prepaid expenses and other assets Decrease in accrued interest payable Increase in accrued expenses and other liabilities Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available for sale Proceeds from maturities, calls, and principal repayments of securities available for sale Proceeds from sales of securities available for sale Proceeds from maturities, calls, and principal repayments of securities held to maturity Redemption of FHLB stock Net (increase) decrease in loans receivable Purchase of premises and equipment, net Net cash from investing activities 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, 2020 2019 Proceeds from long-term FHLB advances Repayment of long-term FHLB advances Net decrease in short-term FHLB advances Net increase in advances from borrowers for taxes and insurance Income taxes Unrealized gain on securities available for sale Lease liabilities arising from obtaining right-of-use assets See selected notes to the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation and Critical Accounting Policies Organization and Nature of business 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. First Northwest's business activities generally are limited to passive investment activities and oversight of its investment in First Federal. 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 borrowing and investing activities. Basis of presentation In preparing the unaudited interim consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for loan losses ("ALLL"), fair value of financial instruments, and deferred tax assets and liabilities. Principles of consolidation Subsequent Events Recently adopted accounting pronouncements In August 2018, FASB issued ASU No. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In August 2018, FASB issued ASU No. In March 2020, the FASB issued ASU No. Credit Losses In June 2016, the FASB issued ASU No. Additional updates were issued in ASU No. In addition, new updates were issued through ASU No. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In November 2019, the FASB issued ASU The Company is evaluating the provisions of ASU No. Other Pronouncements In December 2019, FASB issued ASU No. In January 2020, the FASB issued ASU No. In March 2020, the FASB issued ASU No. Reclassifications 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 Gross Gross Estimated Amortized Cost Unrealized Gains Unrealized Losses (In thousands) Available for Sale Municipal bonds U.S. government agency issued asset-backed securities (ABS agency) Corporate issued asset-backed securities (ABS corporate) Corporate issued debt securities (Corporate debt) U.S. Small Business Administration securities (SBA) Mortgage-backed securities: U.S. government agency issued mortgage-backed securities (MBS agency) Corporate issued mortgage-backed securities (MBS corporate) Total securities available for sale The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale Gross Gross Estimated Amortized Cost Unrealized Gains Unrealized Losses (In thousands) Available for Sale Municipal bonds ABS agency ABS corporate Corporate debt SBA Mortgage-backed securities: MBS agency MBS corporate Total securities available for sale There were 0 securities classified as held-to-maturity at September 30, 2020 and December 31, 2019. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of Less Than Twelve Months Twelve Months or Longer Total Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (In thousands) Available for Sale Municipal bonds ABS agency ABS corporate Corporate debt SBA Mortgage-backed securities: MBS agency MBS corporate Total available for sale The following shows the unrealized gross losses and fair value of the investment portfolio by length of time that individual securities in each category have been in a continuous loss position as of December 31, Less Than Twelve Months Twelve Months or Longer Total Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (In thousands) Available for Sale Municipal bonds ABS agency ABS corporate Corporate debt SBA Mortgage-backed securities: MBS agency MBS corporate Total available for sale The Company may hold certain investment securities in an unrealized loss position that are not considered other than temporarily impaired ("OTTI"). At We believe that the unrealized losses on our investment securities relate principally to the general change in interest rates, market demand, and 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 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 Available-for-Sale Amortized Cost Estimated Fair Value (In thousands) Mortgage-backed securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total mortgage-backed securities All other investment securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total all other investment securities Total investment securities December 31, 2019 Available-for-Sale Amortized Cost Estimated Fair Value (In thousands) Mortgage-backed securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total mortgage-backed securities All other investment securities: Due within one year Due after one through five years Due after five through ten years Due after ten years Total all other investment securities Total investment securities FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Sales of securities available-for-sale for the periods shown are summarized as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands) (In thousands) Proceeds from sales Gross realized gains Gross realized losses Note 3 - Loans Receivable Loans receivable consisted of the following at the dates indicated: September 30, 2020 December 31, 2019 (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans Less: Net deferred loan fees Premium on purchased loans, net Allowance for loan losses Total loans receivable, net Allowance for Loan Losses. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following tables summarize changes in the ALLL and loan portfolio by segment and impairment method for the periods shown: At or For the Three Months Ended September 30, 2020 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 Provision for (recapture of) loan losses Charge-offs Recoveries Ending balance At or For the Nine Months Ended September 30, 2020 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 Provision for (recapture of) loan losses Charge-offs Recoveries Ending balance At September 30, 2020 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 General reserve Specific reserve Total loans Loans collectively evaluated (1) Loans individually evaluated (2) (1) Loans collectively evaluated for general reserves. (2) Loans individually evaluated for specific reserves. FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) At or For the Three Months Ended 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 ALLL: Beginning balance (Recapture of) provision for loan losses Charge-offs Recoveries Ending balance At or For the Nine 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 ALLL: Beginning balance (Recapture of) provision for loan losses Charge-offs Recoveries Ending balance 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 General reserve Specific reserve Total loans Loans collectively evaluated (1) Loans individually evaluated (2) (1) Loans collectively evaluated for general reserves. (2) Loans individually evaluated for specific reserves. Impaired loans. 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 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded: Total With an allowance recorded: Total Total impaired loans: One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Total 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: Total With an allowance recorded: Total Total impaired loans: One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Total Interest income recognized on a cash basis on impaired loans for the three and nine months ended 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, 2019 September 30, 2019 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (In thousands) (In thousands) With no allowance recorded: One-to-four family Commercial real estate Home equity Auto and other consumer Total With an allowance recorded: One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Total Total impaired loans: One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Total Interest income recognized on a cash basis on impaired loans for the three and nine months ended 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 (In thousands) One-to-four family Multi-family Commercial real estate Construction and land Home equity Auto and other consumer Commercial business Total nonaccrual loans Past due loans. The following table presents past due loans, net of partial loan charge-offs, by class, as of 30-59 Days 60-89 Days 90 Days or More Total Past Due Past Due Past Due Past Due Current Total Loans (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans FIRST NORTHWEST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table presents past due loans, net of partial loan charge-offs, by class, as of December 31, 30-59 Days 60-89 Days 90 Days or More Total Past Due Past Due Past Due Past Due Current Total Loans (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans Credit quality indicator. When First Federal 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 Federal 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 Additionally, First Federal 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) $ 16,776 $ 13,519 35,303 35,220 369,111 315,580 4,754 503 1,061,417 878,437 5,944 6,034 7,367 3,931 14,737 14,342 1,545 871 38,104 30,027 9,612 8,872 $ 1,564,670 $ 1,307,336 $ 1,254,456 $ 1,001,645 109,150 112,930 51 373 18,359 14,392 1,986 1,145 1,384,002 1,130,485 0 0 102 107 97,229 102,017 89,546 86,156 3,186 (1,539 ) (9,395 ) (9,890 ) 180,668 176,851 $ 1,564,670 $ 1,307,336 ASSETS March 31, 2020 December 31, 2019 Cash and due from banks $ 15,531 $ 13,519 Interest-bearing deposits in banks 91,633 35,220 Investment securities available for sale, at fair value 317,520 315,580 Loans held for sale 4,531 503 Loans receivable (net of allowance for loan losses of $10,830 and $9,628) 899,154 878,437 Federal Home Loan Bank (FHLB) stock, at cost 7,581 6,034 Accrued interest receivable 4,124 3,931 Premises and equipment, net 14,231 14,342 Mortgage servicing rights, net 843 871 Bank-owned life insurance, net 30,355 30,027 Prepaid expenses and other assets 11,436 8,872 Total assets $ 1,396,939 $ 1,307,336 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 1,063,905 $ 1,001,645 Borrowings 150,021 112,930 Accrued interest payable 194 373 Accrued expenses and other liabilities 15,225 14,392 Advances from borrowers for taxes and insurance 443 1,145 Total liabilities 1,229,788 1,130,485 Shareholders' Equity Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding — — Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,432,963 shares at March 31, 2020, and 10,731,639 shares at December 31, 2019 104 107 Additional paid-in capital 99,479 102,017 Retained earnings 85,549 86,156 Accumulated other comprehensive loss, net of tax (8,256 ) (1,539 ) Unearned employee stock ownership plan (ESOP) shares (9,725 ) (9,890 ) Total shareholders' equity 167,151 176,851 Total liabilities and shareholders' equity $ 1,396,939 $ 1,307,336 $ 11,097 $ 10,096 $ 31,169 $ 30,661 565 1,087 2,264 3,536 1,603 921 3,988 2,900 9 65 85 190 97 92 199 268 13,371 12,261 37,705 37,555 1,405 2,141 5,584 6,133 205 691 840 2,717 1,610 2,832 6,424 8,850 11,761 9,429 31,281 28,705 1,350 (170 ) 4,116 420 10,411 9,599 27,165 28,285 868 999 2,514 2,899 148 44 (9 ) 143 1,725 655 4,109 830 969 0 2,235 57 622 147 1,577 435 449 70 782 225 4,781 1,915 11,208 4,589 6,070 4,771 17,397 14,097 640 680 2,099 1,978 1,367 1,161 4,063 3,409 254 208 749 678 262 209 659 573 285 197 934 569 361 278 1,115 907 86 (72 ) 156 82 0 344 210 344 756 648 2,363 1,859 10,081 8,424 29,745 24,496 5,111 3,090 8,628 8,378 1,436 580 2,104 1,582 $ 3,675 $ 2,510 $ 6,524 $ 6,796 $ 0.40 $ 0.25 $ 0.69 $ 0.68 Three Months Ended March 31, 2020 2019 INTEREST INCOME Interest and fees on loans receivable $ 9,836 $ 10,092 Interest on mortgage-backed securities 959 1,257 Interest on investment securities 1,069 1,010 Interest on deposits and other 68 67 FHLB dividends 47 88 Total interest income 11,979 12,514 INTEREST EXPENSE Deposits 2,138 1,924 Borrowings 434 990 Total interest expense 2,572 2,914 Net interest income 9,407 9,600 PROVISION FOR LOAN LOSSES 1,266 335 Net interest income after provision for loan losses 8,141 9,265 NONINTEREST INCOME Loan and deposit service fees 881 905 Mortgage servicing fees, net of amortization 15 45 Net gain on sale of loans 383 87 Net gain on sale of investment securities 605 — Increase in cash surrender value of bank-owned life insurance 328 143 Other income 106 71 Total noninterest income 2,318 1,251 NONINTEREST EXPENSE Compensation and benefits 5,361 4,573 Data processing 690 631 Occupancy and equipment 1,351 1,108 Supplies, postage, and telephone 211 228 Regulatory assessments and state taxes 174 169 Advertising 272 143 Professional fees 400 298 FDIC insurance premium — 77 FHLB prepayment penalty 210 — Other 713 573 Total noninterest expense 9,382 7,800 INCOME BEFORE PROVISION FOR INCOME TAX 1,077 2,716 PROVISION FOR INCOME TAX 204 509 NET INCOME $ 873 $ 2,207 Basic and diluted earnings per share $ 0.09 $ 0.22 $ 3,675 $ 2,510 $ 6,524 $ 6,796 Unrealized holding gains arising during the period 4,094 856 8,215 5,199 (859 ) (181 ) (1,724 ) (1,095 ) (969 ) 0 (2,235 ) (57 ) Income tax benefit related to reclassification adjustment on sales of securities 203 0 469 12 2,469 675 4,725 4,059 $ 6,144 $ 3,185 $ 11,249 $ 10,855 Three Months Ended March 31, 2020 2019 NET INCOME $ 873 $ 2,207 Other comprehensive (loss) income, net of tax Unrealized (loss) gain on securities: Unrealized holding (loss) gain, net of tax (benefit) provision of $(1,658) and $427, respectively (6,239 ) 1,603 Reclassification adjustment for net (gain) loss on sales of securities realized in income, net of taxes of $(127) and $0, respectively (478 ) — Other comprehensive (loss) income, net of tax (6,717 ) 1,603 COMPREHENSIVE (LOSS) INCOME $ (5,844 ) $ 3,810 March 31,September 30, 2020 and 2019 Accumulated Other Comprehensive (Loss) 10,925,181 $ 109 $ 104,064 $ 83,795 $ (10,220 ) $ (1,347 ) $ 176,401 2,510 2,510 (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 ) 675 675 251 251 51 165 216 (327 ) (327 ) 10,800,932 $ 108 $ 102,786 $ 85,143 $ (10,055 ) $ (672 ) $ 177,310 10,326,226 $ 103 $ 98,421 $ 86,633 $ (9,559 ) $ 717 $ 176,315 3,675 �� 3,675 (141,793 ) (1 ) (1,418 ) (248 ) (1,667 ) 59,859 — — — Restricted stock awards canceled (10,088 ) 0 (123 ) (123 ) 2,469 2,469 362 362 (13 ) 164 151 (514 ) (514 ) 10,234,204 $ 102 $ 97,229 $ 89,546 $ (9,395 ) $ 3,186 $ 180,668 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive (Loss) Income, Net of Tax Total Shareholders' Equity Shares Amount BALANCE, December 31, 2018 11,170,018 $ 112 $ 105,825 $ 81,607 $ (10,549 ) $ (4,731 ) $ 172,264 Net income 2,207 2,207 Common stock repurchased (177,837 ) (2 ) (1,777 ) (1,047 ) (2,826 ) Other comprehensive income, net of tax 1,603 1,603 Share-based compensation 283 283 ESOP shares committed to be released 43 164 207 Cash dividends declared and paid ($0.03 per share) (331 ) (331 ) BALANCE, March 31, 2019 10,992,181 $ 110 $ 104,374 $ 82,436 $ (10,385 ) $ (3,128 ) $ 173,407 BALANCE, December 31, 2019 10,731,639 $ 107 $ 102,017 $ 86,156 $ (9,890 ) $ (1,539 ) $ 176,851 Net income 873 873 Common stock repurchased (288,276 ) (3 ) (2,880 ) (947 ) (3,830 ) Restricted stock award forfeitures net of grants (10,400 ) — — — Other comprehensive loss, net of tax (6,717 ) (6,717 ) Share-based compensation 304 304 ESOP shares committed to be released 38 165 203 Cash dividends declared and paid ($0.05 per share) (533 ) (533 ) BALANCE, March 31, 2020 10,432,963 $ 104 $ 99,479 $ 85,549 $ (9,725 ) $ (8,256 ) $ 167,151 Accumulated Other Comprehensive (Loss) 11,170,018 $ 112 $ 105,825 $ 81,607 $ (10,549 ) $ (4,731 ) $ 172,264 6,796 6,796 (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 ) 4,059 4,059 804 804 142 494 636 (986 ) (986 ) 10,800,932 $ 108 $ 102,786 $ 85,143 $ (10,055 ) $ (672 ) $ 177,310 10,731,639 $ 107 $ 102,017 $ 86,156 $ (9,890 ) $ (1,539 ) $ 176,851 6,524 6,524 (560,306 ) (5 ) (5,599 ) (1,565 ) (7,169 ) 72,959 — — — Restricted stock awards canceled (10,088 ) 0 (123 ) (123 ) 4,725 4,725 917 917 17 495 512 (1,569 ) (1,569 ) 10,234,204 $ 102 $ 97,229 $ 89,546 $ (9,395 ) $ 3,186 $ 180,668 6FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 873 $ 2,207 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 338 333 Amortization and accretion of premiums and discounts on investments, net 477 458 (Accretion) amortization of deferred loan fees, net (436 ) 167 Amortization of mortgage servicing rights, net 82 66 Additions to mortgage servicing rights, net (54 ) (20 ) Net increase (decrease) on the valuation allowance on mortgage servicing rights — (3 ) Provision for loan losses 1,266 335 Allocation of ESOP shares 203 207 Share-based compensation 304 283 Gain on sale of loans, net (383 ) (87 ) Gain on sale of securities available for sale, net (605 ) — Increase in cash surrender value of life insurance, net (328 ) (143 ) Origination of loans held for sale (20,027 ) (4,420 ) Proceeds from loans held for sale 16,382 3,538 Change in assets and liabilities: Increase in accrued interest receivable (193 ) (66 ) Increase in prepaid expenses and other assets (382 ) (3,916 ) Decrease in accrued interest payable (179 ) (242 ) Increase in accrued expenses and other liabilities 833 6,949 Net cash from operating activities (1,829 ) 5,646 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available for sale (66,372 ) — Proceeds from maturities, calls, and principal repayments of securities available for sale 15,984 6,108 Proceeds from sales of securities available for sale 40,073 — Proceeds from maturities, calls, and principal repayments of securities held to maturity — 434 (Purchase) redemption of FHLB stock (1,547 ) — Net increase in loans receivable (21,943 ) (19,845 ) Purchase of premises and equipment, net (227 ) (33 ) Net cash from investing activities (34,032 ) (13,336 ) $ 6,524 $ 6,796 1,034 1,000 1,251 1,373 (1,003 ) (822 ) 315 181 (989 ) (60 ) 0 (3 ) 4,116 420 512 636 917 804 (4,109 ) (830 ) (2,235 ) (57 ) (1,577 ) (435 ) (129,495 ) (25,050 ) 129,353 23,825 (3,436 ) 322 (1,500 ) (3,294 ) (322 ) (259 ) 3,967 6,767 3,323 11,314 (234,527 ) (9,456 ) 45,684 21,592 142,276 3,558 0 5,756 90 1,996 Purchase of bank-owned life insurance, net of surrenders (6,500 ) 0 (186,588 ) 22,837 (1,429 ) (188 ) (240,994 ) 46,095 FIRST NORTHWEST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2020 2019 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits $ 62,260 $ 12,495 $ 252,811 $ 30,440 Net increase (decrease) in advances from the FHLB 37,091 (1,378 ) Net (decrease) increase in advances from borrowers for taxes and insurance (702 ) 1,064 30,000 15,000 (30,000 ) (25,000 ) (3,780 ) (41,228 ) 841 786 Dividends paid (533 ) (331 ) (1,569 ) (986 ) Net share settlement of stock awards (123 ) (266 ) Repurchase of common stock (3,830 ) (2,826 ) (7,169 ) (5,997 ) Net cash from financing activities 94,286 9,024 241,011 (27,251 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 58,425 1,334 3,340 30,158 CASH AND CASH EQUIVALENTS, beginning of period 48,739 26,323 48,739 26,323 CASH AND CASH EQUIVALENTS, end of period $ 107,164 $ 27,657 $ 52,079 $ 56,481 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest on deposits and borrowings $ 2,751 $ 3,156 $ 6,746 $ 9,109 $ 1,400 $ 1,210 NONCASH INVESTING ACTIVITIES Unrealized (loss) gain on securities available for sale $ (8,502 ) $ 2,030 $ 5,980 $ 5,142 Loans transferred to real estate owned and repossessed assets, net of deferred loan fees and allowance for loan losses $ 396 $ 74 $ 495 $ 271 $ 902 $ 0 8(Unaudited)10-K10-K for the year ended December 31, 2019.2019. 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. The Company changed its fiscal year end from June 30 to December 31 effective December 31, 2017. Operating results for the three and nine months ended March 31,September 30, 2020, are not necessarily indicative of the results that may be expected for future periods. 2018-13, 9FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) 2018-15, 2018-15,Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to provide guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The ASU aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of such arrangements that are service contracts and clarifies that a customer should apply ASC 350-40350-40 to determine which implementation costs should be capitalized. This ASU, which is effective for fiscal years beginning after December 15, 2019, did not have a material impact on the Company’s financial statements. 2020-03, Recently issued accounting pronouncements not yet adopted 2016-13, 2016-132016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Upon adoption, the Company will change processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus 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. 2019-04, 825)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. 2019-05, 326)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 326-20326-20 except for existing held-to-maturity debt securities. If an entity10FIRST NORTHWEST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)2019-102019-10 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. 2016-13,2016-13, ASU No. 2019-042019-04 and ASU No. 2019-05,2019-05, 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-partythird-party vendor, and discuss changes to processes and procedures to ensure the Company is fully compliant with the amendments at the adoption date. 2019-12, 740)740): Simplifying the Accounting for Income Taxes. ASU 2019-122019-12 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. 2020-01, 321)321), Investments-Equity Method and Joint Ventures (Topic 323)323), and Derivatives and Hedging (Topic 815)815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-012020-01 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. 2020-04 848)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-042020-04 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.11(Unaudited)and held-to-maturity at March 31,September 30, 2020 are summarized as follows: Amortized Cost (In thousands) Available for Sale Municipal bonds $ 52,238 $ 708 $ (692 ) $ 52,254 U.S. government agency issued asset-backed securities (ABS agency) 46,495 403 (4,773 ) 42,125 Corporate issued asset-backed securities (ABS corporate) 41,716 — (7,643 ) 34,073 Corporate issued debt securities (Corporate debt) 9,986 49 (596 ) 9,439 U.S. Small Business Administration securities (SBA) 25,185 190 (12 ) 25,363 Mortgage-backed securities: U.S. government agency issued mortgage-backed securities (MBS agency) 142,881 2,806 (548 ) 145,139 Corporate issued mortgage-backed securities (MBS corporate) 9,469 — (342 ) 9,127 Total securities available for sale $ 327,970 $ 4,156 $ (14,606 ) $ 317,520 Fair Value $ 94,006 $ 3,232 $ (95 ) $ 97,143 73,915 1,123 (1,420 ) 73,618 33,553 7 (813 ) 32,747 33,401 283 (454 ) 33,230 23,623 242 (1 ) 23,864 90,281 2,133 (12 ) 92,402 16,300 2 (195 ) 16,107 $ 365,079 $ 7,022 $ (2,990 ) $ 369,111 and held-to-maturity at December 31, 2019, are summarized as follows: Fair Value $ 39,524 $ 125 $ (367 ) $ 39,282 29,796 0 (938 ) 28,858 41,728 0 (873 ) 40,855 9,986 0 (343 ) 9,643 28,423 72 (36 ) 28,459 159,697 811 (341 ) 160,167 8,374 0 (58 ) 8,316 $ 317,528 $ 1,008 $ (2,956 ) $ 315,580 Amortized Cost (In thousands) Available for Sale Municipal bonds $ 39,524 $ 125 $ (367 ) $ 39,282 ABS agency 29,796 — (938 ) 28,858 ABS corporate 41,728 — (873 ) 40,855 Corporate debt 9,986 — (343 ) 9,643 SBA 28,423 72 (36 ) 28,459 Mortgage-backed securities: MBS agency 159,697 811 (341 ) 160,167 MBS corporate 8,374 — (58 ) 8,316 Total securities available for sale $ 317,528 $ 1,008 $ (2,956 ) $ 315,580 1213March 31, 2020: Less Than Twelve Months Twelve Months or Longer Total Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (In thousands) Available for Sale Municipal bonds $ (692 ) $ 20,954 $ — $ — $ (692 ) $ 20,954 ABS agency (450 ) 9,536 (4,323 ) 21,499 (4,773 ) 31,035 ABS corporate (202 ) 3,678 (7,441 ) 30,395 (7,643 ) 34,073 Corporate debt — — (596 ) 4,404 (596 ) 4,404 SBA — — (12 ) 4,101 (12 ) 4,101 Mortgage-backed securities: MBS agency (547 ) 32,889 (1 ) 807 (548 ) 33,696 MBS corporate (62 ) 2,216 (280 ) 6,911 (342 ) 9,127 Total available for sale $ (1,953 ) $ 69,273 $ (12,653 ) $ 68,117 $ (14,606 ) $ 137,390 $ (95 ) $ 7,757 $ 0 $ 0 $ (95 ) $ 7,757 (172 ) 8,172 (1,248 ) 25,933 (1,420 ) 34,105 (85 ) 3,801 (728 ) 26,982 (813 ) 30,783 (90 ) 6,804 (364 ) 9,622 (454 ) 16,426 0 65 (1 ) 3,775 (1 ) 3,840 (12 ) 2,221 0 6 (12 ) 2,227 (31 ) 1,979 (164 ) 3,998 (195 ) 5,977 $ (485 ) $ 30,799 $ (2,505 ) $ 70,316 $ (2,990 ) $ 101,115 2019: Less Than Twelve Months Twelve Months or Longer Total Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (In thousands) Available for Sale Municipal bonds $ (367 ) $ 29,928 $ — $ — $ (367 ) $ 29,928 ABS agency (59 ) 3,855 (879 ) 25,002 (938 ) 28,857 ABS corporate (31 ) 3,848 (842 ) 37,007 (873 ) 40,855 Corporate debt (17 ) 4,983 (326 ) 4,660 (343 ) 9,643 SBA — — (36 ) 15,034 (36 ) 15,034 Mortgage-backed securities: MBS agency (166 ) 18,744 (175 ) 47,463 (341 ) 66,207 MBS corporate — — (58 ) 8,316 (58 ) 8,316 Total available for sale $ (640 ) $ 61,358 $ (2,316 ) $ 137,482 $ (2,956 ) $ 198,840 $ (367 ) $ 29,928 $ 0 $ 0 $ (367 ) $ 29,928 (59 ) 3,855 (879 ) 25,002 (938 ) 28,857 (31 ) 3,848 (842 ) 37,007 (873 ) 40,855 (17 ) 4,983 (326 ) 4,660 (343 ) 9,643 0 0 (36 ) 15,034 (36 ) 15,034 (166 ) 18,744 (175 ) 47,463 (341 ) 66,207 0 0 (58 ) 8,316 (58 ) 8,316 $ (640 ) $ 61,358 $ (2,316 ) $ 137,482 $ (2,956 ) $ 198,840 March 31,September 30, 2020 and December 31, 2019, there were 4130 and 62 investment securities in an unrealized loss position, respectively.no0 OTTI losses during the three and nine months ended March 31,September 30, 2020 and 2019.2019. $ 0 $ 0 11,956 12,175 142 142 94,483 96,192 106,581 108,509 0 0 4,524 4,563 71,563 70,390 182,411 185,649 258,498 260,602 $ 365,079 $ 369,111 $ 0 $ 0 13,360 13,391 6,261 6,257 148,450 148,835 168,071 168,483 0 0 2,043 2,084 58,460 57,680 88,954 87,333 149,457 147,097 $ 317,528 $ 315,580 March 31, 2020 Available-for-Sale Amortized Cost Estimated Fair Value (In thousands) Mortgage-backed securities: Due within one year $ — $ — Due after one through five years 6,179 6,264 Due after five through ten years 7,077 7,404 Due after ten years 139,094 140,598 Total mortgage-backed securities 152,350 154,266 All other investment securities: Due within one year — — Due after one through five years 3,040 3,096 Due after five through ten years 49,249 44,707 Due after ten years 123,331 115,451 Total all other investment securities 175,620 163,254 Total investment securities $ 327,970 $ 317,520 December 31, 2019 Available-for-Sale Amortized Cost Estimated Fair Value (In thousands) Mortgage-backed securities: Due within one year $ — $ — Due after one through five years 13,360 13,391 Due after five through ten years 6,261 6,257 Due after ten years 148,450 148,835 Total mortgage-backed securities 168,071 168,483 All other investment securities: Due within one year — — Due after one through five years 2,043 2,084 Due after five through ten years 58,460 57,680 Due after ten years 88,954 87,333 Total all other investment securities 149,457 147,097 Total investment securities $ 317,528 $ 315,580 14 $ 47,844 $ 0 $ 142,276 $ 3,558 1,593 0 3,097 57 (624 ) 0 (862 ) 0 Three Months Ended March 31, 2020 2019 (In thousands) Proceeds from sales $ 40,073 $ — Gross realized gains 637 — Gross realized losses (32 ) — March 31, 2020 December 31, 2019 (In thousands) Real Estate: One-to-four family $ 302,688 $ 306,014 Multi-family 88,794 96,098 Commercial real estate 260,321 255,722 Construction and land 48,565 37,187 Total real estate loans 700,368 695,021 Consumer: Home equity 35,260 35,046 Auto and other consumer 114,194 112,119 Total consumer loans 149,454 147,165 Commercial business loans 55,853 41,571 Total loans 905,675 883,757 Less: Net deferred loan fees 433 206 Premium on purchased loans, net (4,742 ) (4,514 ) Allowance for loan losses 10,830 9,628 Total loans receivable, net $ 899,154 $ 878,437 $ 317,755 $ 306,014 127,569 96,098 283,390 255,722 75,204 37,187 803,918 695,021 34,120 35,046 111,782 112,119 145,902 147,165 123,036 41,571 1,072,856 883,757 2,628 206 (4,196 ) (4,514 ) 13,007 9,628 $ 1,061,417 $ 878,437 $ 3,780 $ 1,128 $ 3,021 $ 738 $ 429 $ 2,252 $ 463 $ 298 $ 12,109 62 307 319 240 (4 ) 427 0 (1 ) 1,350 0 0 0 0 0 (479 ) 0 0 (479 ) 2 0 0 1 0 24 0 0 27 $ 3,844 $ 1,435 $ 3,340 $ 979 $ 425 $ 2,224 $ 463 $ 297 $ 13,007 $ 3,024 $ 888 $ 2,243 $ 399 $ 454 $ 2,261 $ 208 $ 151 $ 9,628 764 547 1,097 577 (30 ) 760 255 146 4,116 0 0 0 0 0 (853 ) 0 0 (853 ) 56 0 0 3 1 56 0 0 116 $ 3,844 $ 1,435 $ 3,340 $ 979 $ 425 $ 2,224 $ 463 $ 297 $ 13,007 $ 3,844 $ 1,435 $ 3,340 $ 979 $ 425 $ 2,224 $ 463 $ 297 $ 13,007 3,791 1,435 3,339 978 421 2,036 463 297 12,760 53 0 1 1 4 188 0 0 247 $ 317,755 $ 127,569 $ 283,390 $ 75,204 $ 34,120 $ 111,782 $ 123,036 $ 0 $ 1,072,856 313,744 127,282 282,103 75,179 33,983 111,174 123,036 0 1,066,501 4,011 287 1,287 25 137 608 0 0 6,355 At or For the Three Months Ended March 31, 2020 Multi-family Unallocated Total (In thousands) ALLL: Beginning balance $ 3,024 $ 888 $ 2,243 $ 399 $ 454 $ 2,261 $ 208 $ 151 $ 9,628 Provision for loan losses 319 35 479 191 (6 ) 176 42 30 1,266 Charge-offs — — — — — (134 ) — — (134 ) Recoveries 53 — — 2 1 14 — — 70 Ending balance $ 3,396 $ 923 $ 2,722 $ 592 $ 449 $ 2,317 $ 250 $ 181 $ 10,830 At March 31, 2020 Multi-family Unallocated Total (In thousands) Total ALLL $ 3,396 $ 923 $ 2,722 $ 592 $ 449 $ 2,317 $ 250 $ 181 $ 10,830 General reserve 3,363 922 2,713 591 443 2,263 245 181 10,721 Specific reserve 33 1 9 1 6 54 5 — 109 Total loans $ 302,688 $ 88,794 $ 260,321 $ 48,565 $ 35,260 $ 114,194 $ 55,853 $ — $ 905,675 299,947 88,391 258,451 48,537 34,971 113,485 55,590 — 899,372 2,741 403 1,870 28 289 709 263 — 6,303 At or For the Three Months Ended March 31, 2019 Multi-family Unallocated Total ALLL: (In thousands) Beginning balance $ 3,297 $ 762 $ 2,289 $ 585 $ 480 $ 1,611 $ 334 $ 175 $ 9,533 Provision for loan losses 142 7 48 115 (14 ) 177 (141 ) 1 335 Charge-offs — — — — — (186 ) (4 ) — (190 ) Recoveries 2 — — — 1 76 2 — 81 Ending balance $ 3,441 $ 769 $ 2,337 $ 700 $ 467 $ 1,678 $ 191 $ 176 $ 9,759 16 At December 31, 2019 Multi-family 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 — 15 142 5 — 202 Total loans $ 306,014 $ 96,098 $ 255,722 $ 37,187 $ 35,046 $ 112,119 $ 41,571 $ — $ 883,757 303,026 95,991 253,839 37,158 34,775 111,271 41,308 — 877,368 2,988 107 1,883 29 271 848 263 — 6,389 (In thousands) $ 3,417 $ 651 $ 2,357 $ 711 $ 465 $ 1,790 $ 171 $ 169 $ 9,731 (307 ) (64 ) 47 16 (30 ) 192 (13 ) (11 ) (170 ) 0 0 0 0 0 (237 ) 1 0 (236 ) 1 0 0 1 23 93 0 0 118 $ 3,111 $ 587 $ 2,404 $ 728 $ 458 $ 1,838 $ 159 $ 158 $ 9,443 (In thousands) $ 3,297 $ 762 $ 2,289 $ 585 $ 480 $ 1,611 $ 334 $ 175 $ 9,533 (190 ) (175 ) 115 142 (66 ) 785 (174 ) (17 ) 420 0 0 0 0 0 (785 ) (3 ) 0 (788 ) 4 0 0 1 44 227 2 0 278 $ 3,111 $ 587 $ 2,404 $ 728 $ 458 $ 1,838 $ 159 $ 158 $ 9,443 $ 3,024 $ 888 $ 2,243 $ 399 $ 454 $ 2,261 $ 208 $ 151 $ 9,628 2,993 887 2,235 399 439 2,119 203 151 9,426 31 1 8 0 15 142 5 0 202 $ 306,014 $ 96,098 $ 255,722 $ 37,187 $ 35,046 $ 112,119 $ 41,571 $ 0 $ 883,757 303,026 95,991 253,839 37,158 34,775 111,271 41,308 0 877,368 2,988 107 1,883 29 271 848 263 0 6,389 17 One-to-four family $ 202 $ 229 $ — $ 297 $ 332 $ — Multi-family 287 287 — 0 0 — Commercial real estate 1,221 1,310 — 1,240 1,320 — Construction and land 0 0 — 0 33 — Home equity 37 94 — 45 110 — Auto and other consumer 0 299 — 251 548 — Commercial business 0 0 — 0 0 — 1,747 2,219 — 1,833 2,343 — One-to-four family $ 3,809 $ 4,017 $ 53 2,691 2,911 31 Multi-family 0 0 0 107 107 1 Commercial real estate 66 66 1 643 643 8 Construction and land 25 57 1 29 29 0 Home equity 100 159 4 226 286 15 Auto and other consumer 608 780 188 597 690 142 Commercial business 0 0 0 263 263 5 4,608 5,079 247 4,556 4,929 202 4,011 4,246 53 2,988 3,243 31 287 287 0 107 107 1 1,287 1,376 1 1,883 1,963 8 25 57 1 29 62 0 137 253 4 271 396 15 608 1,079 188 848 1,238 142 0 0 0 263 263 5 $ 6,355 $ 7,298 $ 247 $ 6,389 $ 7,272 $ 202 March 31, 2020 December 31, 2019 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded: One-to-four family $ 72 $ 99 $ — $ 297 $ 332 $ — Multi-family 296 296 — — — — Commercial real estate 1,227 1,310 — 1,240 1,320 — Construction and land — 32 — — 33 — Home equity 42 114 — 45 110 — Auto and other consumer — 271 — 251 548 — Commercial business — — — — — — Total 1,637 2,122 — 1,833 2,343 — With an allowance recorded: One-to-four family 2,669 2,884 33 2,691 2,911 31 Multi-family 107 107 1 107 107 1 Commercial real estate 643 643 9 643 643 8 Construction and land 28 28 1 29 29 — Home equity 247 307 6 226 286 15 Auto and other consumer 709 818 54 597 690 142 Commercial business 263 263 5 263 263 5 Total 4,666 5,050 109 4,556 4,929 202 Total impaired loans: One-to-four family 2,741 2,983 33 2,988 3,243 31 Multi-family 403 403 1 107 107 1 Commercial real estate 1,870 1,953 9 1,883 1,963 8 Construction and land 28 60 1 29 62 — Home equity 289 421 6 271 396 15 Auto and other consumer 709 1,089 54 848 1,238 142 Commercial business 263 263 5 263 263 5 Total $ 6,303 $ 7,172 $ 109 $ 6,389 $ 7,272 $ 202 18 Three Months Ended March 31, 2020 Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded: One-to-four family $ 108 $ 1 Multi-family 99 — Commercial real estate 1,231 15 Home equity 42 3 Auto and other consumer — 10 Commercial business — — Total 1,480 29 With an allowance recorded: One-to-four family 2,676 64 Multi-family 305 — Commercial real estate 643 — Construction and land 28 2 Home equity 248 6 Auto and other consumer 689 17 Commercial business 263 — Total 4,852 89 Total impaired loans: One-to-four family 2,784 65 Multi-family 404 — Commercial real estate 1,874 15 Construction and land 28 2 Home equity 290 9 Auto and other consumer 689 27 Commercial business 263 — Total $ 6,332 $ 118 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 1,903 22 1,707 38 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 5,332 122 4,977 203 4,600 97 3,489 164 294 1 355 0 1,267 3 1,591 17 26 2 40 3 178 4 255 8 702 37 718 49 168 0 236 0 $ 7,235 $ 144 $ 6,684 $ 241 March 31,September 30, 2020, was $76,000.19 Three Months Ended March 31, 2019 Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded: One-to-four family $ 304 $ 5 Commercial real estate 1,296 12 Construction and land — — Home equity 324 10 Auto and other consumer — 7 Total 1,924 34 With an allowance recorded: One-to-four family 2,831 68 Multi-family 110 1 Commercial real estate 663 7 Construction and land 53 2 Home equity 300 7 Auto and other consumer 263 7 Commercial business 328 5 Total 4,548 97 Total impaired loans: One-to-four family 3,135 73 Multi-family 110 1 Commercial real estate 1,959 19 Construction and land 53 2 Home equity 624 17 Auto and other consumer 263 14 Commercial business 328 5 Total $ 6,472 $ 131 $ 236 $ 4 $ 243 $ 8 1,260 15 1,278 39 52 14 144 30 0 10 0 14 Commercial business 0 1 0 4 1,548 44 1,665 95 2,891 64 2,850 146 108 1 109 4 651 8 657 23 52 2 57 2 289 6 297 14 394 9 324 16 266 2 299 9 4,651 92 4,593 214 3,127 68 3,093 154 108 1 109 4 1,911 23 1,935 62 52 2 57 2 341 20 441 44 394 19 324 30 266 3 299 13 $ 6,199 $ 136 $ 6,258 $ 309 March 31,September 30, 2019, was $92,000.20 March 31, 2020 December 31, 2019 (In thousands) One-to-four family $ 467 $ 698 Multi-family 297 — Commercial real estate 106 109 Construction and land 28 29 Home equity 133 112 Auto and other consumer 709 848 Commercial business — — Total nonaccrual loans $ 1,740 $ 1,796 $ 1,939 $ 698 287 0 166 109 25 29 74 112 607 848 0 0 $ 3,098 $ 1,796 no0 loans past due 90 days or more and still accruing interest at March 31,September 30, 2020 and December 31, 2019.March 31, 2020: $ 0 $ 685 $ 500 $ 1,185 $ 316,570 $ 317,755 0 0 0 0 127,569 127,569 0 0 0 0 283,390 283,390 0 0 25 25 75,179 75,204 0 685 525 1,210 802,708 803,918 0 12 0 12 34,108 34,120 724 416 180 1,320 110,462 111,782 724 428 180 1,332 144,570 145,902 0 0 0 0 123,036 123,036 $ 724 $ 1,113 $ 705 $ 2,542 $ 1,070,314 $ 1,072,856 30-59 Days
Past Due 60-89 Days
Past Due 90 Days or More
Past Due Total
Past Due Current Total Loans (In thousands) Real Estate: One-to-four family $ 1,791 $ — $ — $ 1,791 $ 300,897 $ 302,688 Multi-family — 107 297 404 88,390 88,794 Commercial real estate — 643 — 643 259,678 260,321 Construction and land 689 — — 689 47,876 48,565 Total real estate loans 2,480 750 297 3,527 696,841 700,368 Consumer: Home equity 13 12 24 49 35,211 35,260 Auto and other consumer 2,157 324 380 2,861 111,333 114,194 Total consumer loans 2,170 336 404 2,910 146,544 149,454 Commercial business loans 417 263 — 680 55,173 55,853 Total loans $ 5,067 $ 1,349 $ 701 $ 7,117 $ 898,558 $ 905,675 212019: 30-59 Days
Past Due 60-89 Days
Past Due 90 Days or More
Past Due Total
Past Due Current Total Loans (In thousands) Real Estate: One-to-four family $ 928 $ 92 $ 116 $ 1,136 $ 304,878 $ 306,014 Multi-family — — — — 96,098 96,098 Commercial real estate — — — — 255,722 255,722 Construction and land 38 — — 38 37,149 37,187 Total real estate loans 966 92 116 1,174 693,847 695,021 Consumer: Home equity 299 24 — 323 34,723 35,046 Auto and other consumer 1,423 370 614 2,407 109,712 112,119 Total consumer loans 1,722 394 614 2,730 144,435 147,165 Commercial business loans — 115 — 115 41,456 41,571 Total loans $ 2,688 $ 601 $ 730 $ 4,019 $ 879,738 $ 883,757 $ 928 $ 92 $ 116 $ 1,136 $ 304,878 $ 306,014 0 0 0 0 96,098 96,098 0 0 0 0 255,722 255,722 38 0 0 38 37,149 37,187 966 92 116 1,174 693,847 695,021 299 24 0 323 34,723 35,046 1,423 370 614 2,407 109,712 112,119 1,722 394 614 2,730 144,435 147,165 0 115 0 115 41,456 41,571 $ 2,688 $ 601 $ 730 $ 4,019 $ 879,738 $ 883,757 8-point8-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 Federal 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.1-31-3 in our risk rating system.22
The following table represents the internally assigned grade as of March 31,September 30, 2020, by class of loans:
| Pass | Watch | Special Mention | Substandard | Total | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Real Estate: | |||||||||||||||||||
| One-to-four family | $ | 297,391 | $ | 3,455 | $ | 1,206 | $ | 636 | $ | 302,688 | |||||||||
| Multi-family | 88,390 | — | 107 | 297 | 88,794 | ||||||||||||||
| Commercial real estate | 256,166 | 94 | 2,782 | 1,279 | 260,321 | ||||||||||||||
| Construction and land | 37,987 | 10,353 | 186 | 39 | 48,565 | ||||||||||||||
| Total real estate loans | 679,934 | 13,902 | 4,281 | 2,251 | 700,368 | ||||||||||||||
| Consumer: | |||||||||||||||||||
| Home equity | 34,196 | 712 | 127 | 225 | 35,260 | ||||||||||||||
| Auto and other consumer | 108,858 | 3,806 | 759 | 771 | 114,194 | ||||||||||||||
| Total consumer loans | 143,054 | 4,518 | 886 | 996 | 149,454 | ||||||||||||||
| Commercial business loans | 53,894 | 60 | 570 | 1,329 | 55,853 | ||||||||||||||
| Total loans | $ | 876,882 | $ | 18,480 | $ | 5,737 | $ | 4,576 | $ | 905,675 | |||||||||
Pass | Watch | Special Mention | Substandard | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
One-to-four family | $ | 310,998 | $ | 2,624 | $ | 2,602 | $ | 1,531 | $ | 317,755 | ||||||||||
Multi-family | 127,282 | 0 | 0 | 287 | 127,569 | |||||||||||||||
Commercial real estate | 270,792 | 9,233 | 2,133 | 1,232 | 283,390 | |||||||||||||||
Construction and land | 61,296 | 13,796 | 77 | 35 | 75,204 | |||||||||||||||
Total real estate loans | 770,368 | 25,653 | 4,812 | 3,085 | 803,918 | |||||||||||||||
Consumer: | ||||||||||||||||||||
Home equity | 33,503 | 394 | 100 | 123 | 34,120 | |||||||||||||||
Auto and other consumer | 107,407 | 2,233 | 1,553 | 589 | 111,782 | |||||||||||||||
Total consumer loans | 140,910 | 2,627 | 1,653 | 712 | 145,902 | |||||||||||||||
Commercial business loans | 122,804 | 0 | 0 | 232 | 123,036 | |||||||||||||||
Total loans | $ | 1,034,082 | $ | 28,280 | $ | 6,465 | $ | 4,029 | $ | 1,072,856 | ||||||||||
The following table represents the internally assigned grade as of December 31, 2019, by class of loans:
Pass | Watch | Special Mention | Substandard | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
One-to-four family | $ | 301,312 | $ | 2,685 | $ | 1,148 | $ | 869 | $ | 306,014 | ||||||||||
Multi-family | 95,694 | 0 | 107 | 297 | 96,098 | |||||||||||||||
Commercial real estate | 251,531 | 97 | 2,800 | 1,294 | 255,722 | |||||||||||||||
Construction and land | 35,897 | 1,184 | 77 | 29 | 37,187 | |||||||||||||||
Total real estate loans | 684,434 | 3,966 | 4,132 | 2,489 | 695,021 | |||||||||||||||
Consumer: | ||||||||||||||||||||
Home equity | 34,260 | 470 | 89 | 227 | 35,046 | |||||||||||||||
Auto and other consumer | 107,327 | 3,243 | 594 | 955 | 112,119 | |||||||||||||||
Total consumer loans | 141,587 | 3,713 | 683 | 1,182 | 147,165 | |||||||||||||||
Commercial business loans | 39,653 | 376 | 263 | 1,279 | 41,571 | |||||||||||||||
Total loans | $ | 865,674 | $ | 8,055 | $ | 5,078 | $ | 4,950 | $ | 883,757 | ||||||||||
| Pass | Watch | Special Mention | Substandard | Total | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Real Estate: | |||||||||||||||||||
| One-to-four family | $ | 301,312 | $ | 2,685 | $ | 1,148 | $ | 869 | $ | 306,014 | |||||||||
| Multi-family | 95,694 | — | 107 | 297 | 96,098 | ||||||||||||||
| Commercial real estate | 251,531 | 97 | 2,800 | 1,294 | 255,722 | ||||||||||||||
| Construction and land | 35,897 | 1,184 | 77 | 29 | 37,187 | ||||||||||||||
| Total real estate loans | 684,434 | 3,966 | 4,132 | 2,489 | 695,021 | ||||||||||||||
| Consumer: | |||||||||||||||||||
| Home equity | 34,260 | 470 | 89 | 227 | 35,046 | ||||||||||||||
| Auto and other consumer | 107,327 | 3,243 | 594 | 955 | 112,119 | ||||||||||||||
| Total consumer loans | 141,587 | 3,713 | 683 | 1,182 | 147,165 | ||||||||||||||
| Commercial business loans | 39,653 | 376 | 263 | 1,279 | 41,571 | ||||||||||||||
| Total loans | $ | 865,674 | $ | 8,055 | $ | 5,078 | $ | 4,950 | $ | 883,757 | |||||||||
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 March 31,September 30, 2020, by class of loans:
| Nonperforming | Performing | Total | |||||||||
| (In thousands) | |||||||||||
| Real Estate: | |||||||||||
| One-to-four family | $ | 467 | $ | 302,221 | $ | 302,688 | |||||
| Multi-family | 297 | 88,497 | 88,794 | ||||||||
| Commercial real estate | 106 | 260,215 | 260,321 | ||||||||
| Construction and land | 28 | 48,537 | 48,565 | ||||||||
| Consumer: | |||||||||||
| Home equity | 133 | 35,127 | 35,260 | ||||||||
| Auto and other consumer | 709 | 113,485 | 114,194 | ||||||||
| Commercial business | — | 55,853 | 55,853 | ||||||||
| Total loans | $ | 1,740 | $ | 903,935 | $ | 905,675 | |||||
Nonperforming | Performing | Total | ||||||||||
(In thousands) | ||||||||||||
Real Estate: | ||||||||||||
One-to-four family | $ | 1,939 | $ | 315,816 | $ | 317,755 | ||||||
Multi-family | 287 | 127,282 | 127,569 | |||||||||
Commercial real estate | 166 | 283,224 | 283,390 | |||||||||
Construction and land | 25 | 75,179 | 75,204 | |||||||||
Consumer: | ||||||||||||
Home equity | 74 | 34,046 | 34,120 | |||||||||
Auto and other consumer | 607 | 111,175 | 111,782 | |||||||||
Commercial business | 0 | 123,036 | 123,036 | |||||||||
Total loans | $ | 3,098 | $ | 1,069,758 | $ | 1,072,856 | ||||||
The following table represents the credit risk profile based on payment activity as of December 31, 2019, by class of loans:
| Nonperforming | Performing | Total | |||||||||
| (In thousands) | |||||||||||
| Real Estate: | |||||||||||
| One-to-four family | $ | 698 | $ | 305,316 | $ | 306,014 | |||||
| Multi-family | — | 96,098 | 96,098 | ||||||||
| Commercial real estate | 109 | 255,613 | 255,722 | ||||||||
| Construction and land | 29 | 37,158 | 37,187 | ||||||||
| Consumer: | |||||||||||
| Home equity | 112 | 34,934 | 35,046 | ||||||||
| Auto and other consumer | 848 | 111,271 | 112,119 | ||||||||
| Commercial business | — | 41,571 | 41,571 | ||||||||
| Total loans | $ | 1,796 | $ | 881,961 | $ | 883,757 | |||||
Nonperforming | Performing | Total | ||||||||||
(In thousands) | ||||||||||||
Real Estate: | ||||||||||||
One-to-four family | $ | 698 | $ | 305,316 | $ | 306,014 | ||||||
Multi-family | 0 | 96,098 | 96,098 | |||||||||
Commercial real estate | 109 | 255,613 | 255,722 | |||||||||
Construction and land | 29 | 37,158 | 37,187 | |||||||||
Consumer: | ||||||||||||
Home equity | 112 | 34,934 | 35,046 | |||||||||
Auto and other consumer | 848 | 111,271 | 112,119 | |||||||||
Commercial business | 0 | 41,571 | 41,571 | |||||||||
Total loans | $ | 1,796 | $ | 881,961 | $ | 883,757 | ||||||
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 Federal is granting the borrower a concession of some kind. First Federal 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. Through September 30, 2020, the Company had granted COVID-19 pandemic related temporary loan modifications on a total of 346 loans aggregating to $174.9 million, or 16.3% 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 of September 30, 2020:
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:
| March 31, 2020 | December 31, 2019 | ||||||
| (In thousands) | |||||||
| Total TDR loans | $ | 3,523 | $ | 3,544 | |||
| Allowance for loan losses related to TDR loans | 44 | 41 | |||||
| Total nonaccrual TDR loans | 81 | 81 | |||||
September 30, 2020 | December 31, 2019 | |||||||
(In thousands) | ||||||||
| Total TDR loans | $ | 2,244 | $ | 3,544 | ||||
| Allowance for loan losses related to TDR loans | 28 | 41 | ||||||
Total nonaccrual TDR loans | 108 | 81 | ||||||
There were no0 newly restructured and renewals or modifications of existing TDR loans that occurred during the three and nine months ended March 31,September 30, 2020 or March 31, 2019.
There were no0 TDR loans which incurred a payment default within 12 months of the restructure date during the three and nine months ended March 31, 2020.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 March 31, 2019.
Number of Contracts | Rate Modification | Term Modification | Combination Modification | Total Modifications | ||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| TDR loans that subsequently defaulted | ||||||||||||||||||
| One- to four-family | 1 | $ | — | $ | — | $ | 48 | $ | 48 | |||||||||
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 impaired loans at March 31, 2020.
The following table presents TDR loans by class at the dates indicated by accrual and nonaccrual status.
September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
Accrual | Nonaccrual | Total | Accrual | Nonaccrual | Total | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
One-to-four family | $ | 2,072 | $ | 108 | $ | 2,180 | $ | 2,290 | $ | 81 | $ | 2,371 | ||||||||||||
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 | ||||||||||||||||||
Commercial business | 0 | 0 | 0 | 263 | 0 | 263 | ||||||||||||||||||
Total TDR loans | $ | 2,136 | $ | 108 | $ | 2,244 | $ | 3,463 | $ | 81 | $ | 3,544 | ||||||||||||
| March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Accrual | Nonaccrual | Total | Accrual | Nonaccrual | Total | ||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| One-to-four family | $ | 2,273 | $ | 81 | $ | 2,354 | $ | 2,290 | $ | 81 | $ | 2,371 | |||||||||||
| Multi-family | 107 | — | 107 | 107 | — | 107 | |||||||||||||||||
| Commercial real estate | 642 | — | 642 | 643 | — | 643 | |||||||||||||||||
| Home equity | 157 | — | 157 | 160 | — | 160 | |||||||||||||||||
| Commercial business | 263 | — | 263 | 263 | — | 263 | |||||||||||||||||
| Total TDR loans | $ | 3,442 | $ | 81 | $ | 3,523 | $ | 3,463 | $ | 81 | $ | 3,544 | |||||||||||
Note 4 - Deposits
The aggregate amount of time deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limit, currently $250,000,$250,000, at March 31,September 30, 2020 and December 31, 2019, were $106.1$73.0 million and $93.5 million, respectively. Deposits and weighted-average interest rates at the dates indicated are as follows:
September 30, 2020 | December 31, 2019 | |||||||||||||
Amount | Weighted-Average Interest Rate | Amount | Weighted-Average Interest Rate | |||||||||||
(Dollars in thousands) | ||||||||||||||
Savings | $ 171,905 | 0.17% | $ 168,983 | 0.86% | ||||||||||
Transaction accounts | 390,867 | 0.01% | 276,496 | 0.03% | ||||||||||
Money market accounts | 398,144 | 0.31% | 248,086 | 0.46% | ||||||||||
Certificates of deposit | 293,540 | 1.00% | 308,080 | 1.85% | ||||||||||
| $ 1,254,456 | 0.36% | $ 1,001,645 | 0.84% | |||||||||||
| March 31, 2020 | December 31, 2019 | ||||||||||
| Amount | Weighted-Average Interest Rate | Amount | Weighted-Average Interest Rate | ||||||||
| (Dollars in thousands) | |||||||||||
| Savings | $ | 165,747 | 0.72% | $ | 168,983 | 0.86% | |||||
| Transaction accounts | 286,283 | 0.01% | 276,496 | 0.03% | |||||||
| Money market accounts | 253,198 | 0.48% | 248,086 | 0.46% | |||||||
| Certificates of deposit | 358,677 | 1.67% | 308,080 | 1.85% | |||||||
| $ | 1,063,905 | 0.79% | $ | 1,001,645 | 0.84% | ||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maturities of certificates at the dates indicated are as follows:
| March 31, 2020 | December 31, 2019 | ||||||
| (In thousands) | |||||||
| Within one year or less | $ | 289,742 | $ | 241,127 | |||
| After one year through two years | 44,215 | 42,274 | |||||
| After two years through three years | 9,772 | 11,167 | |||||
| After three years through four years | 7,864 | 6,593 | |||||
| After four years through five years | 7,084 | 6,919 | |||||
| After five years | — | — | |||||
| $ | 358,677 | $ | 308,080 | ||||
September 30, 2020 | December 31, 2019 | |||||||
(In thousands) | ||||||||
Within one year or less | $ | 190,613 | $ | 241,127 | ||||
After one year through two years | 62,920 | 42,274 | ||||||
After two years through three years | 25,020 | 11,167 | ||||||
After three years through four years | 7,769 | 6,593 | ||||||
After four years through five years | 7,218 | 6,919 | ||||||
After five years | 0 | 0 | ||||||
| $ | 293,540 | $ | 308,080 | |||||
Brokered certificates of deposits of $90.4$92.6 million and $51.6 million are included in the March 31,September 30, 2020 and December 31, 2019 certificate of deposits totals above, respectively.
Deposits at March 31,September 30, 2020 and December 31, 2019, included $68.7$79.9 million and $57.4$57.3 million, respectively, in public fund deposits. Investment securities with a carrying value of $32.1$39.0 million and $35.5 million were pledged as collateral for these deposits at March 31,September 30, 2020 and December 31, 2019, 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 | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Savings | $ | 176 | $ | 397 | $ | 785 | $ | 1,085 | ||||||||
Transaction accounts | 5 | 26 | 28 | 98 | ||||||||||||
Money market accounts | 362 | 312 | 1,118 | 945 | ||||||||||||
Certificates of deposit | 862 | 1,406 | 3,653 | 4,005 | ||||||||||||
| $ | 1,405 | $ | 2,141 | $ | 5,584 | $ | 6,133 | |||||||||
| Three Months Ended | |||||||
| March 31, | |||||||
| 2020 | 2019 | ||||||
| (In thousands) | |||||||
| Savings | $ | 340 | $ | 316 | |||
| Transaction accounts | 19 | 36 | |||||
| Insured money market accounts | 356 | 320 | |||||
| Certificates of deposit | 1,423 | 1,252 | |||||
| $ | 2,138 | $ | 1,924 | ||||
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 18.9%24.4% and 18.7%18.9% for the threenine months ended March 31,September 30, 2020 and 2019, respectively. The effective tax rates differ from the statutory maximum federal tax rate for 20192020 and 20182019 of 21%, largely due to the nontaxable earnings on bank owned life insurance and tax-exempt interest income earned on certain investment securities and loans.
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, nonvested 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 March 31,September 30, 2020 and 2019.
| Three Months Ended | |||||||
| March 31, | |||||||
| 2020 | 2019 | ||||||
| (In thousands, except share data) | |||||||
| Numerator: | |||||||
| Net income | $ | 873 | $ | 2,207 | |||
| Denominator: | |||||||
| Basic weighted average common shares outstanding | 9,624,727 | 9,973,125 | |||||
| Dilutive restricted stock grants | 51,650 | 77,143 | |||||
| Diluted weighted average common shares outstanding | 9,676,377 | 10,050,268 | |||||
| Basic earnings per share | $ | 0.09 | $ | 0.22 | |||
| Diluted earnings per share | $ | 0.09 | $ | 0.22 | |||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(In thousands, except share data) | (In thousands, except share data) | |||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 3,675 | $ | 2,510 | $ | 6,524 | $ | 6,796 | ||||||||
Denominator: | ||||||||||||||||
Basic weighted average common shares outstanding | 9,257,252 | 9,854,973 | 9,409,754 | 9,930,069 | ||||||||||||
Dilutive restricted stock grants | 6,723 | 48,368 | 29,484 | 76,738 | ||||||||||||
Diluted weighted average common shares outstanding | 9,263,975 | 9,903,341 | 9,439,238 | 10,006,807 | ||||||||||||
Basic earnings per share | $ | 0.40 | $ | 0.25 | $ | 0.69 | $ | 0.68 | ||||||||
Diluted earnings per share | $ | 0.40 | $ | 0.25 | $ | 0.69 | $ | 0.68 | ||||||||
Unallocated ESOP shares are not included as outstanding for either basic or diluted earnings per share calculations. As of March 31,September 30, 2020 and 2019, there were 780,785754,301 and 833,782794,042 shares in the ESOP that remain unallocated, respectively.
Potential dilutive shares are excluded from the computation of EPS if their effect is anti-dilutive. There were 16,2566,723 and zero5,248 restricted stock award anti-dilutive weighted-average shares for the three months ended March 31,September 30, 2020 and 2019 respectively. There were 29,484 and 17,344 restricted stock award anti-dilutive weighted-average shares for the nine months ended September 30, 2020 and 2019 respectively.
Note 7 - Employee Benefits
Employee Stock Ownership Plan
In connection with the Conversion, the Company established an ESOP for eligible employees of the Company and the Bank. Employees of the Company and the Bank who have been credited with at least 1,000 hours of service during a 12-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. NoAn annual principal orand interest payment of $835,000 was paidmade by the ESOP during the threenine months ended March 31, 2020.
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
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Compensation expense related to the ESOP for the three months ended March 31,September 30, 2020 and 2019, was $151,000$99,000 and $207,000,$185,000, 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 | ||||
| March 31, 2020 | December 31, 2019 | ||||||
| (Dollars in thousands) | |||||||
| Allocated shares | 253,987 | 253,987 | |||||
| Committed to be released shares | 13,257 | — | |||||
| Unallocated shares | 780,785 | 794,042 | |||||
| Total ESOP shares issued | 1,048,029 | 1,048,029 | |||||
| Fair value of unallocated shares | $ | 8,487 | $ | 14,396 | |||
Note 8 - Stock-based Compensation
In May 2020, the Company's shareholders approved the First Northwest Bancorp 20152020 Equity Incentive Plan (the "2015("2020 EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock andshares or restricted stock units, and performance share awards to eligible participants. participants through May 2030. The cost of awards under the 20152020 EIP generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the 20152020 EIP is 1,834,050. The 2015 EIP provides for the use of authorized but unissued shares or shares that have been reacquired by First Northwest to fund share-based awards.520,000. At March 31,September 30, 2020, there were 1,322,050456,541 total shares available for grant under the 20152020 EIP, including 12,014 sharesall of which are available to be granted as restricted stock.
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. At September 30, 2020, there were 0 shares available for grant under the 2015 EIP. At this date, there are 273,800 shares granted under the 2015 EIP that are expected to vest subject to the 2015 EIP plan provisions.
During the three months ended March 31,September 30, 2020 35,100and 2019, 63,459 and 23,400 shares of restricted stock were awarded, respectively, and no0 stock options were granted. There were no126,059 and 23,400 shares of restricted stock awarded, respectively, during the three and threenine months ended March 31, 2019.September 30, 2020 and 2019. Awarded shares of restricted stock vest ratably over periods ranging from three 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 five years.
For the three months ended March 31,September 30, 2020 and 2019, total compensation expense for the 2015 EIPequity incentive plans was $304,000$362,000 and $283,000,$251,000, respectively.
Included in the above compensation expense for the three months ended March 31,September 30, 2020 and 2019, directors' compensation was $85,000$102,000 and $85,000,$86,000, respectively.
The following table 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 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. | ||||||||
| For the Three Months Ended | ||||||
| March 31, 2020 | ||||||
| Shares | Weighted-Average Grant Date Fair Value | |||||
| Non-vested at January 1, 2020 | 264,300 | $ | 14.60 | |||
| Granted | 35,100 | 16.22 | ||||
| Forfeited | (45,500 | ) | 13.31 | |||
| Non-vested at March 31, 2020 | 253,900 | 15.05 | ||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31,September 30, 2020, there was $3.1$3.4 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 3.463.20 years.
Note 9 - Fair Value Accounting and Measurement
Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-partythird-party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.
Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.
A three-levelthree-level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:
Level 1
- Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2
- Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.Level 3
- Unobservable inputs.The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.
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.
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:| March 31, 2020 | |||||||||||||||
| Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Securities available-for-sale | |||||||||||||||
| Municipal bonds | $ | — | $ | 52,254 | $ | — | $ | 52,254 | |||||||
| ABS agency | — | 42,125 | — | 42,125 | |||||||||||
| ABS corporate | — | 34,073 | — | 34,073 | |||||||||||
| Corporate debt | — | 9,439 | — | 9,439 | |||||||||||
| SBA | — | 25,363 | — | 25,363 | |||||||||||
| MBS agency | — | 145,139 | — | 145,139 | |||||||||||
| MBS corporate | — | 9,127 | — | 9,127 | |||||||||||
| $ | — | $ | 317,520 | $ | — | $ | 317,520 | ||||||||
| December 31, 2019 | |||||||||||||||
| Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Securities available-for-sale | |||||||||||||||
| Municipal bonds | $ | — | $ | 39,282 | $ | — | $ | 39,282 | |||||||
| ABS agency | — | 28,858 | — | 28,858 | |||||||||||
| ABS corporate | — | 40,855 | — | 40,855 | |||||||||||
| Corporate debt | — | 9,643 | — | 9,643 | |||||||||||
| SBA | — | 28,459 | — | 28,459 | |||||||||||
| MBS agency | — | 160,167 | — | 160,167 | |||||||||||
| MBS corporate | — | 8,316 | — | 8,316 | |||||||||||
| $ | — | $ | 315,580 | $ | — | $ | 315,580 | ||||||||
September 30, 2020 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Securities available-for-sale | ||||||||||||||||
Municipal bonds | $ | 0 | $ | 97,143 | $ | 0 | $ | 97,143 | ||||||||
ABS agency | 0 | 73,618 | 0 | 73,618 | ||||||||||||
ABS corporate | 0 | 32,747 | 0 | 32,747 | ||||||||||||
Corporate debt | 0 | 33,230 | 0 | 33,230 | ||||||||||||
SBA | 0 | 23,864 | 0 | 23,864 | ||||||||||||
MBS agency | 0 | 92,402 | 0 | 92,402 | ||||||||||||
MBS corporate | 0 | 16,107 | 0 | 16,107 | ||||||||||||
| $ | 0 | $ | 369,111 | $ | 0 | $ | 369,111 | |||||||||
December 31, 2019 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Securities available-for-sale | ||||||||||||||||
Municipal bonds | $ | 0 | $ | 39,282 | $ | 0 | $ | 39,282 | ||||||||
ABS agency | 0 | 28,858 | 0 | 28,858 | ||||||||||||
ABS corporate | 0 | 40,855 | 0 | 40,855 | ||||||||||||
Corporate debt | 0 | 9,643 | 0 | 9,643 | ||||||||||||
SBA | 0 | 28,459 | 0 | 28,459 | ||||||||||||
MBS agency | 0 | 160,167 | 0 | 160,167 | ||||||||||||
MBS corporate | 0 | 8,316 | 0 | 8,316 | ||||||||||||
| $ | 0 | $ | 315,580 | $ | 0 | $ | 315,580 | |||||||||
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:
| March 31, 2020 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Impaired loans | $ | — | $ | — | $ | 6,303 | $ | 6,303 | |||||||
| December 31, 2019 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In thousands) | |||||||||||||||
| Impaired loans | $ | — | $ | — | $ | 6,389 | $ | 6,389 | |||||||
September 30, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 6,355 | $ | 6,355 | ||||||||
December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Impaired loans | $ | 0 | $ | 0 | $ | 6,389 | $ | 6,389 | ||||||||
At March 31,September 30, 2020 and December 31, 2019, there were no0 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 | ||||||||||||||||||||
Fair Value Measurements Using: | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 16,776 | $ | 16,776 | $ | 16,776 | $ | — | $ | — | ||||||||||
Investment securities available for sale | 369,111 | 369,111 | — | 369,111 | — | |||||||||||||||
Loans held for sale | 4,754 | 4,754 | — | 4,754 | — | |||||||||||||||
| Loans receivable, net | 1,061,417 | 1,055,850 | — | — | 1,055,850 | |||||||||||||||
FHLB stock | 5,944 | 5,944 | — | 5,944 | — | |||||||||||||||
Accrued interest receivable | 7,367 | 7,367 | — | 7,367 | — | |||||||||||||||
Mortgage servicing rights, net | 1,545 | 1,710 | — | — | 1,710 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Demand deposits | $ | 960,916 | $ | 960,916 | $ | 960,916 | $ | — | $ | — | ||||||||||
| Time deposits | 293,540 | 296,123 | — | 296,123 | — | |||||||||||||||
| Borrowings | 109,150 | 110,744 | — | 110,744 | — | |||||||||||||||
Accrued interest payable | 51 | 51 | — | 51 | — | |||||||||||||||
| March 31, 2020 | |||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Fair Value Measurements Using: | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||||
| (In thousands) | |||||||||||||||||||
| Financial assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 107,164 | $ | 107,164 | $ | 107,164 | $ | — | $ | — | |||||||||
| Investment securities available for sale | 317,520 | 317,520 | — | 317,520 | — | ||||||||||||||
| Loans held for sale | 4,531 | 4,531 | — | 4,531 | — | ||||||||||||||
| Loans receivable, net | 899,154 | 894,671 | — | — | 894,671 | ||||||||||||||
| FHLB stock | 7,581 | 7,581 | — | 7,581 | — | ||||||||||||||
| Accrued interest receivable | 4,124 | 4,124 | — | 4,124 | — | ||||||||||||||
| Mortgage servicing rights, net | 843 | 1,160 | — | — | 1,160 | ||||||||||||||
| Financial liabilities | |||||||||||||||||||
| Demand deposits | $ | 705,228 | $ | 705,228 | $ | 705,228 | $ | — | $ | — | |||||||||
| Time deposits | 358,677 | 361,726 | — | 361,726 | — | ||||||||||||||
| Borrowings | 150,021 | 151,073 | — | 151,073 | — | ||||||||||||||
| Accrued interest payable | 194 | 194 | — | 194 | — | ||||||||||||||
FIRST NORTHWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| December 31, 2019 | |||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Fair Value Measurements Using: | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||||
| (In thousands) | |||||||||||||||||||
| Financial assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 48,739 | $ | 48,739 | $ | 48,739 | $ | — | $ | — | |||||||||
| Investment securities available for sale | 315,580 | 315,580 | — | 315,580 | — | ||||||||||||||
| Loans held for sale | 503 | 503 | — | 503 | — | ||||||||||||||
| Loans receivable, net | 878,437 | 858,101 | — | — | 858,101 | ||||||||||||||
| FHLB stock | 6,034 | 6,034 | — | 6,034 | — | ||||||||||||||
| Accrued interest receivable | 3,931 | 3,931 | — | 3,931 | — | ||||||||||||||
| Mortgage servicing rights, net | 871 | 1,486 | — | — | 1,486 | ||||||||||||||
| Financial liabilities | |||||||||||||||||||
| Demand deposits | $ | 693,565 | $ | 693,565 | $ | 693,565 | $ | — | $ | — | |||||||||
| Time deposits | 308,080 | 308,819 | — | 308,819 | — | ||||||||||||||
| Borrowings | 112,930 | 113,076 | — | 113,076 | — | ||||||||||||||
| Accrued interest payable | 373 | 373 | — | 373 | — | ||||||||||||||
December 31, 2019 | ||||||||||||||||||||
Fair Value Measurements Using: | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 48,739 | $ | 48,739 | $ | 48,739 | $ | 0 | $ | 0 | ||||||||||
Investment securities available for sale | 315,580 | 315,580 | 0 | 315,580 | 0 | |||||||||||||||
Loans held for sale | 503 | 503 | 0 | 503 | 0 | |||||||||||||||
Loans receivable, net | 878,437 | 858,101 | 0 | 0 | 858,101 | |||||||||||||||
FHLB stock | 6,034 | 6,034 | 0 | 6,034 | 0 | |||||||||||||||
Accrued interest receivable | 3,931 | 3,931 | 0 | 3,931 | 0 | |||||||||||||||
Mortgage servicing rights, net | 871 | 1,486 | 0 | 0 | 1,486 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Demand deposits | $ | 693,565 | $ | 693,565 | $ | 693,565 | $ | 0 | $ | 0 | ||||||||||
Time deposits | 308,080 | 308,819 | 0 | 308,819 | 0 | |||||||||||||||
Borrowings | 112,930 | 113,076 | 0 | 113,076 | 0 | |||||||||||||||
Accrued interest payable | 373 | 373 | 0 | 373 | 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 ASUSecurities
- Fair values for investment securities are primarily measured using information from aLoans receivable, net
- AtMortgage 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.Forward-Looking Statements Certain matters discussed in this Quarterly Report on Form 10-Q constitute • 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: • developments and changes in Federal and state laws and regulations, such as the recently enacted Coronavirus Aid Relief and Economic Security Act (“CARES Act”) addressing the economic effects of the COVID-19 pandemic and increased regulation of the banking industry through legislative action and revised rules and standards applied by the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Washington Department of Financial Institutions; • changes in general economic conditions, either nationally or in our market area, that are worse than expected; • changes in policy and regulation as it pertains to the Small Business Administration’s Paycheck Protection Program (“PPP”) and the bank’s participation as a lender in the PPP and similar program and its effect on the Bank’s liquidity, financial results, business and customers, including the availability of program funds and the ability of customers to comply with the requirements and otherwise perform with respect to loans obtained under such programs. • the credit risks of our lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; • fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area; • a decrease in the secondary market demand for loans that we originate for sale; • management’s assumptions in determining the adequacy of the allowance for loan losses; • our ability to control operating costs and expenses; • whether our management team can implement our operational strategy, including but not limited to our loan 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 revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; • staffing needs and associated expenses in response to product demand or the implementation of corporate strategies, including our growth strategies related to the home lending center and new branches; • 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; • our ability to attract and retain deposits; • our ability to retain key members of our senior management team; • changes in consumer spending, borrowing and savings habits; • our ability to successfully manage our growth in compliance with regulatory requirements; • results of examinations of us by the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, the Federal Reserve Bank of San Francisco, or other regulatory authorities, which could result in restrictions that may adversely affect our liquidity and earnings; • changes in accounting policies and practices, as may be adopted by the financial institutions regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; • 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; • inability of key third-party vendors to perform their obligations to us; and • other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019. 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. 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 which primarily engages in the business activity of its subsidiary, First Federal. First Federal is a We offer a wide range of products and services focused on the lending and depository needs of First 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, 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 which 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, 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, COVID-19 Pandemic. • For our employees: ◦ Enhanced the ability of our employees to work remotely, adjusting branch operating hours and restricting lobby access in most cases. ◦ Provided significant support to employees by granting an increase in flexibility with paid leave, temporarily adjusting vacation policies, and increasing the cleaning of facilities to enable a safer environment for those employees that are not able to work from home. ◦ Increased compensation for hourly employees and providing additional compensation for exempt employees below the level of Senior Vice President. • For our customers and communities: ◦ Offering short-term loan payment and fee forbearance programs. ◦ Facilitating government programs like the Small Business Administration's Paycheck Protection Program ("SBA PPP") ◦ Investing in our communities. We • For our shareholders and regulators: ◦ Maintained our capital ratios at strong levels and materially 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 The Company worked with 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 compared to During the quarter ended September 30, 2020, we provided assistance to many small businesses through the SBA's Paycheck Protection Program. This program provides small businesses with funds to pay up to eight weeks of payroll costs including benefits. A portion of the funds can also be used to pay interest on mortgages, rent, and utilities. We processed 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. 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. Comparison of Financial Condition at Assets Total loans, excluding loans held for sale, increased Construction and land loans increased We monitor real estate values and general economic conditions in our market areas, in addition to assessing the strength of our borrowers, in order 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 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 (In thousands) Construction Commitment One- to four-family residential Multi-family residential Commercial real estate Total commitment Construction Funds Disbursed One- to four-family residential Multi-family residential Commercial real estate Total disbursed Undisbursed Commitment One- to four-family residential Multi-family residential Commercial real estate Total undisbursed Land Funds Disbursed One- to four-family residential Commercial real estate Total disbursed for land (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 (In thousands) Construction Commitment One- to four-family residential Multi-family residential Commercial real estate Total Commitment Construction Funds Disbursed One- to four-family residential Multi-family residential Commercial real estate Total disbursed Undisbursed Commitment One- to four-family residential Multi-family residential Commercial real estate Total undisbursed Land Funds Disbursed One- to four-family residential Commercial real estate Total disbursed for land During the Our allowance for loan losses increased Nonperforming loans At Net loan charge-offs are concentrated mainly in our indirect auto loan portfolio. We recently Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated Increase (Decrease) September 30, 2020 December 31, 2019 Amount Percent (In thousands) Real Estate: One-to-four family Multi-family Commercial real estate Construction and land Total real estate loans Consumer: Home equity Auto and other consumer Total consumer loans Commercial business loans Total loans Less: Net deferred loan fees Premium on purchased loans, net Allowance for loan losses Loans receivable, net The following table represents nonperforming assets at the dates indicated. Increase (Decrease) September 30, 2020 December 31, 2019 Amount Percent (In thousands) Nonperforming loans: Real estate loans: One- to four-family Multi-family Commercial real estate Construction and land Total real estate loans Consumer loans: Home equity Auto and other consumer Total consumer loans Commercial business Total nonperforming loans Real estate owned: Land Total real estate owned Repossessed assets Total nonperforming assets Nonaccrual and 90 days or more past due loans as a percentage of total loans Investment securities increased The investment portfolio was comprised of Liabilities. Total liabilities increased Deposit balances increased Equity Comparison of Results of Operations for the Three Months Ended General. Net Interest Income. The average cost of interest-bearing liabilities decreased Due to the average yield on Interest Income. 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 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, 2020 2019 Average Balance Outstanding Yield Average Balance Outstanding Yield Increase (Decrease) in Interest Income (Dollars in thousands) Loans receivable, net Investment securities Mortgage-backed securities FHLB stock Interest-bearing deposits in banks Total interest-earning assets Interest Expense. Total interest expense decreased The following table details average balances, cost of funds and the change in interest expense for the periods shown: Three Months Ended September 30, 2020 2019 Average Balance Outstanding Rate Average Balance Outstanding Rate Increase (Decrease) in Interest Expense (Dollars in thousands) Savings accounts Transaction accounts Money market accounts Certificates of deposit Borrowings Total interest-bearing liabilities Provision for Loan Losses. The following table details activity and information related to the allowance for loan losses for the periods shown: Three Months Ended September 30, 2020 2019 (Dollars in thousands) Net charge-offs Allowance for loan losses Total nonaccrual loans Total loans Noninterest Income. 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) 2020 2019 Amount Percent (Dollars in thousands) Loan and deposit service fees Mortgage servicing fees, net of amortization Net gain on sale of loans Increase in cash surrender value of bank-owned life insurance Other income Total noninterest income Noninterest Expense. Noninterest expense increased $1.6 million, or 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) 2020 2019 Amount Percent (Dollars in thousands) Compensation and benefits Data processing Occupancy and equipment Supplies, postage, and telephone Regulatory assessments and state taxes Advertising Professional fees FDIC insurance premium Other expense Total Provision for Income Tax. Comparison of Results of Operations for the Nine Months Ended September 30, 2020 and 2019 General. Net income decreased $272,000, or 4.0%, to $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 provision for loan losses and noninterest expense partially offset by an increase in noninterest income. Net Interest Income. Net interest income increased $2.5 million to $31.2 million for the nine months ended September 30, 2020, from $28.7 million for the nine months ended September 30, 2019. This increase was mainly the result of an increase in average earning assets of $118.7 million. The yield on average interest-earning assets decreased 37 basis points to 3.85% for the nine months ended September 30, 2020, compared to 4.22% 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. The average cost of interest-bearing liabilities decreased to 0.85% for the nine months ended September 30, 2020, compared to 1.28% for the same period last year, due primarily to decreases in borrowing volume of $1.1 million and decreases attributable to rates of $760,000. Interest Income. Totalinterest income increased $150,000, or 0.4%, to $37.7 million for the nine months ended September 30, 2020, from $37.5 million for the comparable period in 2019, primarily due to a decrease in the average yields on interest-earning assets. Interest and fees on loans receivable increased $508,000, to $31.1 million for the nine months ended September 30, 2020, from $30.6 million for the nine months ended September 30, 2019, related to an increase in the average balance of net loans receivable of $61.6 million compared to the prior year. Average loan yields decreased 24 basis points to 4.45% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. 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, 2020 2019 Average Balance Outstanding Yield Average Balance Outstanding Yield Increase (Decrease) in Interest Income (Dollars in thousands) Loans receivable, net Investment securities Mortgage-backed securities FHLB stock Interest-bearing deposits in banks Total interest-earning assets Interest Expense. Total interest expense decreased $2.4 million, or 27.4%, to $6.4 million for the nine months ended September 30, 2020, compared to $8.9 million 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%, to $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 in deposits in new and existing market areas and stimulus deposits related to the pandemic. During the nine months ended September 30, 2020, interest expense on cost of certificates of deposit increased due to an increase in average balance of $63.6 million partially offset by a decrease in the average rate paid of 54 basis points, compared to the nine months ended September 30, 2019. During the same period, the average balances of savings, transaction, and money market accounts increased $9.3 million, $11.7 million and $48.3 million, respectively. The average cost of all deposit products decreased to 0.80% for the nine months ended September 30, 2020, from 1.02% for the nine months ended September 30, 2019. Borrowing costs decreased as higher rate long term advances were prepaid during the six months. The following table details average balances, cost of funds and the change in interest expense for the periods shown: Nine Months Ended September 30, 2020 2019 Average Balance Outstanding Rate Average Balance Outstanding Rate Increase (Decrease) in Interest Expense (Dollars in thousands) Savings accounts Transaction accounts Money market accounts Certificates of deposit Borrowings Total interest-bearing liabilities Provision for Loan Losses. The provision for loan losses was $4.1 million during the nine months ended September 30, 2020, primarily due to the uncertainty in economic conditions created by the ongoing COVID-19 pandemic and 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) Net charge-offs Allowance for loan losses Total nonaccrual loans Total loans Noninterest Income. Noninterest income increased $6.6 million, or 144.2%, to $11.2 million for the nine months ended September 30, 2020, from $4.6 million for the nine months ended September 30, 2019, mainly due to an increase in gain on sale of mortgage loans of $3.3 million. Gain on sale of investments for the nine months ended September 30, 2020, totaled $2.2 million compared to $57,000 recognized in the first nine months of 2019. The cash surrender value of bank-owned life insurance increased $1.1 million in the first nine months of 2020 due to a BOLI restructure that resulted in recognition of market gains as well as additional investment in BOLI. 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) 2020 2019 Amount Percent (Dollars in thousands) Loan and deposit service fees Mortgage servicing fees, net of amortization Net gain on sale of loans Net gain on sale of investment securities Increase in cash surrender value of bank-owned life insurance Other income Total noninterest income Noninterest Expense. Noninterest expense increased $5.2 million, or 21.4%, to $29.7 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 generate revenue. Compensation and benefits also increased due to an $1.6 million increase in commissions paid on increased mortgage and commercial loan production as well as one-time pandemic related payments made to staff. We also incurred a one-time FHLB prepayment penalty of $210,000 as we retired long term debt to reduced interest expense. 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) 2020 2019 Amount Percent (Dollars in thousands) Compensation and benefits Data processing Occupancy and equipment Supplies, postage, and telephone Regulatory assessments and state taxes Advertising Professional fees FDIC insurance premium FHLB prepayment penalty Other expense Total Provision for Income Tax. An income tax expense of $2.1 million was recorded for the nine months ended September 30, 2020, compared to $1.6 million for the nine months ended September 30, 2019, due to an increase in income before taxes of $250,000 and recognition of a tax penalty for early surrender of a BOLI investment. 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 table 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 Three Months Ended September 30, Nine Months Ended September 30, 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 Loans receivable, net (1) Investment securities Mortgage-backed securities FHLB dividends Interest-bearing deposits in banks Total interest-earning assets (2) Interest-bearing liabilities: Savings accounts Transaction accounts Money market accounts Certificates of deposit Total deposits Total interest-bearing liabilities Net interest income Net interest rate spread Net earning assets Net interest margin (3) Average interest-earning assets to average interest-bearing liabilities (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. 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 Investments FHLB stock Other(1) Total interest-earning assets Interest-bearing liabilities: Savings accounts Interest-bearing transaction accounts Money market accounts Certificates of deposit Borrowings Total interest-bearing liabilities Net change in interest income (1) Includes interest-bearing deposits (cash) at other financial institutions. Off-Balance Sheet Activities In the normal course of operations, First Federal 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 At Within After 1 Year Through After 3 Years Through Beyond Total 1 Year 3 Years 5 Years 5 Years Balance (In thousands) Borrower taxes and insurance Commitments and Off-Balance Sheet Arrangements The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of Amount of Commitment Expiration 1 Year 3 Years 5 Years 5 Years Committed (In thousands) Commitments to originate loans: Fixed-rate Unfunded commitments under lines of credit or existing loans Standby letters of credit Total commitments 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 At Certificates of deposit due within one year as of 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. At Capital Resources At At The following table provides the capital requirements and actual results for First Federal at Actual Minimum Capital Requirements Minimum Required to be Well-Capitalized Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tier I leverage capital (to average assets) Common equity tier I (to risk-weighted assets) Tier I risk-based capital (to risk-weighted assets) Total risk-based capital (to risk-weighted assets) 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, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. There has not been any material change in the market risk disclosures contained in First Northwest Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019. (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 (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 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. The effects of the COVID-19 pandemic could adversely affect our customers future results of operations 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 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 as customers are unable to repay loans and meet their obligations, as well as adversely impact our earnings. We believe our strong capital position will be important in managing through the unknown impact of the pandemic. (a) Not applicable. (b) Not applicable. (c) The following table summarizes common stock repurchases during the three months ended September 30, 2020: 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 August 1, 2020 - August 31, 2020 September 1, 2020 - September 30, 2020 Total (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. Not applicable. Not applicable. COVID-19 Legislation and Regulation. General. Governments at Exhibit No. Exhibit Description Filed Herewith Form Original Exhibit No. Filing Date SEC File No. 31.1 X 31.2 X 32 X 101 The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST NORTHWEST BANCORP Date: /s/ Matthew P. Deines Matthew P. Deines President, Chief Executive Officer and Director (Principal Executive Officer) Date: /s/ Geraldine L. Bullard Geraldine L. Bullard Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
FINANCIAL CONDITION AND RESULTS OF OPERATIONSforward‑lookingforward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward‑lookingForward-looking statements include, but are not limited to:statements of our goals, intentions and expectations;statements regarding our business plans, prospects, growth and operating strategies;statements regarding the quality of our loan and investment portfolios;estimates of our risks and future costs and benefits; andstatements concerning the potential effects of the COVID-19 pandemic on the Bank's business and financial results and conditions.changes in general economic conditions, either nationally or in our market area, that are worse than expected;changes in policy and regulation as it pertains to the Small Business Administration’s Paycheck Protection Program (“PPP”) and the bank’s participation as a lender in the PPP and similar program and its effect on the Bank’s liquidity, financial results, business and customers, including the availability of program funds and the ability of customers to comply with the requirements and otherwise perform with respect to loans obtained under such programs.the credit risks of our lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets;fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area;Contentsa decrease in the secondary market demand for loans that we originate for sale;management’s assumptions in determining the adequacy of the allowance for loan losses;our ability to control operating costs and expenses;whether our management team can implement our operational strategy, including but not limited to our loan 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 revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;staffing needs and associated expenses in response to product demand or the implementation of corporate strategies, including our growth strategies related to the home lending center and new branches;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;our ability to attract and retain deposits;our ability to retain key members of our senior management team;changes in consumer spending, borrowing and savings habits;our ability to successfully manage our growth in compliance with regulatory requirements;results of examinations of us by the Washington State Department of Financial Institutions, Department of Banks, the Federal Deposit Insurance Corporation, the Federal Reserve Bank of San Francisco, or other regulatory authorities, which could result in restrictions that may adversely affect our liquidity and earnings;changes in accounting policies and practices, as may be adopted by the financial institutions regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board;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;inability of key third-party vendors to perform their obligations to us; andother 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, 2019.community-orientedcommunity financial institution serving Clallam, Jefferson, Kitsap, Whatcom, and King counties in Washington, through its Seattle lending center and ten full-service branches. Our business and operating strategy is focused on building sustainable earnings through employing experienced bankers, diversifying our loan portfolio through geographic expansion and loan product mix, expanding our deposit product offerings by adding additionalthat deliver value-added products,solutions, enhancing existing services and digital service delivery channels, and enhancing our infrastructure to support the changing needs and expectations of our customers.the communities we serve.Western Washington. While we have a concentration of first lien one- to four-family mortgage loans, over the past five years, we increasedcontinue to increase our origination and portfolio balances of commercial real estate and multi-family real estate, andestate. We have also increased our auto and consumer loans, through indirect auto lending and purchased auto loan 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 improve ourmanage interest rate risk. We also retain one- to four-family first and second lien loans in our portfolio to enhancegenerate 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 our lending and investing activities. We alsowhich provides additional fundingas a way to provide cost effective liquidity and manage interest rate risk tools to the Bank.risk.FederalNorthwest is significantly affected by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by 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, marketingbranding and promotion,customer acquisition, and the overall level of personal income and savings.savings in the markets where we do business. Lending activities are influenced by the demand for funds, our credit policies, the number and quality of our lenders and credit underwriters, digital delivery systems, branding and customer acquisition, and regional economic cycles.improves,increased property values, increase, or recoveries of amounts previously charged off are received, a recapture of previously recognized provision for loan losses may be added to net income.The noninterestadvertising and promotion expenses, marketing and promotioncustomer acquisition expenses, expenses related to real estate and personal property owned, and other miscellaneous expenses.For our employees:◦EnhancingProvidingIncreasingFor our customers and communities:◦MayMany borrowers requested and received temporary forbearance from obligations to assist them with the expected shortage in their near-term cash flow.. and Main Street Lending Program ("MSLP") established by the Federal Reserve.plancontributed to use a portion of the proceeds received from the SBA PPP loans and investwill continue to support non-profit organizations in the communities we serve.For our shareholders and regulators:◦Maintainingincreasingincreased our provision for loan losses to $1.3$4.1 million for the first quarternine months of 2020, compared to $669,000 for all of 2019.◦ IncreasingIncreased on balance sheet liquidity, specifically Cash and Cash Equivalents increased by $58.4$3.3 million, a 120%6.9% increase over December 31, 2019. The investment portfolio, a secondary source of liquidity, increased by $53.5 million, or 17.0%, as well.have beencontinue to be most heavily impacted include hospitality; restaurant and food services; and lessors of commercial real estate to hospitality, restaurant, and retail establishments; and professional services.establishments. At March 31,September 30, 2020, the Company’s exposure as a percent of the total loan portfolio to these industries was 5.6%4.9%, 0.2%, 5.3%, and 1.6%4.6%, respectively.March 31,297 loans totaling $128.4 million as of June 30, 2020. These modifications were not classified as TDRs at September 30, 2020, in accordance with the guidance of the CARES Act and related regulatory guidance. The Company is continuing to work on forbearance plans with customers impacted by 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."approximately $29.1$32.2 million of PPP loans for more than 377515 customers inthrough the SBA PPP loan fundingsprogram as of May 7,September 30, 2020. The average loan amount approved was approximately $77,000.$63,000. Payments by borrowers on these loans begin six months after the note date, and interest, at 1%, will continue to accrue during the six-month deferment. Loans can be forgiven in whole or part (up to full principal and any accrued interest).IfAs of September 30, 2020, the Company had received $1.4 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 any of these loans are forgiven or repaid before the scheduled maturity, we expect an increase in interest income and the net interest margin during that period.March 31,September 30, 2020 and December 31, 2019$1.40$1.56 billion at March 31,September 30, 2020 from $1.31$1.30 billion at December 31, 2019.$21.9$182.9 million to $905.7 million$1.06 billion at March 31,September 30, 2020, from $883.8$878.4 million at December 31, 2019. During the threenine months ended March 31,September 30, 2020, one- to four-family residential loans declined $3.3increased $11.7 million, dueas we sold 65.6% of one- to repayment and secondary market sale activity exceeding new originations held in portfolio.four-family residential loans originated during the year. Multi-family loans decreased $7.3increased $31.4 million dueas we continued to prepayment activity outpacing newbuild this part of the loan originations.portfolio. Commercial real estate loans increased by $4.6$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. Commercial business loans increased $81.4 million as we funded PPP loans and increased balances generated through the Northpointe Bank Mortgage Participation Program (NBMPP) during 2020. The NBMPP provides interim financing to mortgage originators based on the contractual sale agreement of 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 and construction and land loans increased $2.1 million and $11.4 million, respectively, as we maintain our specialty auto loan portfolio and fund construction loan commitments.decreased $337,000. Competition for quality commercial credits remains; however, impacts of the COVID-19 pandemic is impactingeffect both the supply and demand for credit. An increase in refinanceRefinance activity of one- to-four family residential loans also occurredwas robust during the nine-month period.30.6%$38.0 million, or 102.2%, to $48.6$75.2 million at March 31,September 30, 2020, from $37.2 million at December 31, 2019. The majority of our construction loans are geographically dispersed throughout the Puget Sound region and, as a result, these loans are susceptible to risks that may vary depending on the nature and location of the project. 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 May 5,June 30, 2020, certainmost projects were able to restart under specific criteria. We do not believe any ofcontinue 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 due to the order and subsequent impacts of COVID-19.2019.2018. In the fourth quarter of 2019 and the first quarternine 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. $ 16,090 $ 25,865 $ 1,478 $ — $ 43,433 — 67,620 — 8,020 75,640 8,897 33,833 2,807 — 45,537 $ 24,987 $ 127,318 $ 4,285 $ 8,020 $ 164,610 $ 7,762 $ 14,579 $ 565 $ — $ 22,906 — 25,634 — — 25,634 7,877 10,313 55 — 18,245 $ 15,639 $ 50,526 $ 620 $ — $ 66,785 $ 8,328 $ 11,286 $ 913 $ — $ 20,527 — 41,986 — 8,020 50,006 1,020 23,520 2,752 — 27,292 $ 9,348 $ 76,792 $ 3,665 $ 8,020 $ 97,825 $ 4,588 $ 2,133 $ 349 $ — $ 7,070 — 1,350 — — 1,350 $ 4,588 $ 3,483 $ 349 $ — $ 8,420 $ 14,915 $ 23,969 $ 496 $ — $ 39,380 — 27,241 — — 27,241 6,381 563 3,120 — 10,064 $ 21,296 $ 51,773 $ 3,616 $ — $ 76,685 $ 5,242 $ 10,734 $ 151 $ — $ 16,127 — 10,465 — — 10,465 2,704 563 58 — 3,325 $ 7,946 $ 21,762 $ 209 $ — $ 29,917 $ 9,673 $ 13,235 $ 345 $ — $ 23,253 — 16,776 — — 16,776 3,677 — 3,062 — 6,739 $ 13,350 $ 30,011 $ 3,407 $ — $ 46,768 $ 4,904 $ 1,343 $ — $ — $ 6,247 1,023 — — — 1,023 $ 5,927 $ 1,343 $ — $ — $ 7,270 March 31, 2020 Other Washington Total (In thousands) Construction Commitment One- to four-family residential $ 14,371 $ 23,550 $ 496 $ 38,417 Multi-family residential — 44,947 — 44,947 Commercial real estate 7,514 17,484 2,795 27,793 Total commitment $ 21,885 $ 85,981 $ 3,291 $ 111,157 Construction Funds Disbursed One- to four-family residential $ 5,777 $ 11,088 $ 189 $ 17,054 Multi-family residential — 17,382 — 17,382 Commercial real estate 5,422 1,543 52 7,017 Total disbursed $ 11,199 $ 30,013 $ 241 $ 41,453 Undisbursed Commitment One- to four-family residential $ 8,594 $ 12,462 $ 307 $ 21,363 Multi-family residential — 27,565 — 27,565 Commercial real estate 2,092 15,941 2,743 20,776 Total undisbursed $ 10,686 $ 55,968 $ 3,050 $ 69,704 Land Funds Disbursed One- to four-family residential $ 4,867 $ 2,074 $ 171 $ 7,112 Commercial real estate — — — — Total disbursed for land $ 4,867 $ 2,074 $ 171 $ 7,112 (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 Puget Sound Region Other Washington Total (In thousands) Construction Commitment One- to four-family residential $ 14,915 $ 23,969 $ 496 $ 39,380 Multi-family residential — 27,241 — 27,241 Commercial real estate 6,381 563 3,120 10,064 Total Commitment $ 21,296 $ 51,773 $ 3,616 $ 76,685 Construction Funds Disbursed One- to four-family residential $ 5,242 $ 10,734 $ 151 $ 16,127 Multi-family residential — 10,465 — 10,465 Commercial real estate 2,704 563 58 3,325 Total disbursed $ 7,946 $ 21,762 $ 209 $ 29,917 Undisbursed Commitment One- to four-family residential $ 9,673 $ 13,235 $ 345 $ 23,253 Multi-family residential — 16,776 — 16,776 Commercial real estate 3,677 — 3,062 6,739 Total undisbursed $ 13,350 $ 30,011 $ 3,407 $ 46,768 Land Funds Disbursed One- to four-family residential $ 4,904 $ 1,343 $ — $ 6,247 Commercial real estate 1,023 — — 1,023 Total disbursed for land $ 5,927 $ 1,343 $ — $ 7,270 threenine months ended March 31,September 30, 2020, the Company originated $98.8$498.5 million of loans, of which $69.0$308.3 million, or 69.9%61.8%, were originated in the Puget Sound region, $29.5$159.1 million, or 29.9%31.9%, in the North Olympic Peninsula, and $0.2$12.8 million, or 0.2%2.6%, in other areas throughout Washington State.State, and $18.3 million, or 3.7%, in Oregon. The Company purchased an additional $11.6$28.7 million in one- to four-family loans, $26.1 million in specialty auto loans, $2.1 million in other consumer loans, and $2.0 million in multifamily loans, during the threenine months ended March 31,September 30, 2020. We will continue to evaluate opportunities to grow loansacquire assets through wholesale channels in order to supplement our organic originations and improveincrease net interest income, if the credit risk profile of such loans appears appropriate.$1.2$3.3 million, or 12.5%35.1%, to $10.8$13.0 million at March 31,September 30, 2020, from $9.6 million at December 31, 2019. The increase was due to a $1.3$4.1 million loan loss provision, made inoffset by net charge-offs of $737,000 for the first quarter duenine-month period. The provision is largely attributed to qualitative factor adjustments made in response to the economic impact of the COVID-19 pandemic, as well as to account for growth in the loan portfolio. The allowance for loan losses as a percentage of total loans at March 31,September 30, 2020 and December 31, 2019 was 1.2% and 1.1%, respectively.decreased $56,000,increased $1.3 million, or 3.1%72.5%, to $1.7$3.0 million at March 31,September 30, 2020, from $1.8$1.7 million at December 31, 2019, mainly attributable to a decreasean increase in nonperforming one- to four-family loans of $231,000$1.2 million, multi-family loans of $287,000, commercial real estate loans of $57,000, offset by decreases in construction and land loans of $4,000, home equity loans of $38,000, and auto and other consumer loans of $139,000, partially offset by an increase multi-family loans of $297,000.$241,000. Nonperforming loans to total loans remained the sameincreased to 0.3% at September 30, 2020, from 0.2% at both March 31, 2020 and December 31, 2019. The allowance for loan losses as a percentage of nonperforming loans increaseddecreased to 622.4%419.9% at March 31,September 30, 2020, from 536.1% at December 31, 2019, and classified loans decreased $374,000 to $4.6 million at March 31, 2020, from $5.0 million at December 31, 2019.March 31,September 30, 2020, there were $3.5$2.2 million in restructured loans, of which $3.4$2.1 million were performing in accordance with their modified payment terms and returned to accrual status.Asset quality remains consistent with Classified loans decreased $921,000 to $4.0 million at September 30, 2020, from $5.0 million at December 31, 2019.adjustedremoved one of our indirect auto loan product offerings and underwriting criteria to improve credit qualityeffectively eliminate new production and reduce future charge-off activity. We continue to monitor the indirect auto loan program in order to prudently balance risk and return within the portfolio. We believe our allowance for loan losses is adequate to absorb the known and inherent risks of loss in the loan portfolio as of March 31,September 30, 2020. WhileAs the ultimate impact of the COVID-19the Federal and State governmentsgovernment remains to be seen, we increased the qualitative factor related to the economy this quarter to account for losses inherent in the loan portfolio. $ 317,755 $ 306,014 $ 11,741 3.8 % 127,569 96,098 31,471 32.7 283,390 255,722 27,668 10.8 75,204 37,187 38,017 102.2 803,918 695,021 108,897 15.7 34,120 35,046 (926 ) (2.6 ) 111,782 112,119 (337 ) (0.3 ) 145,902 147,165 (1,263 ) (0.9 ) 123,036 41,571 81,465 196.0 1,072,856 883,757 189,099 21.4 2,628 206 2,422 1,175.7 (4,196 ) (4,514 ) 318 (7.0 ) 13,007 9,628 3,379 35.1 $ 1,061,417 $ 878,437 $ 182,980 20.8 March 31, 2020 December 31, 2019 (In thousands) Real Estate: One-to-four family $ 302,688 $ 306,014 Multi-family 88,794 96,098 Commercial real estate 260,321 255,722 Construction and land 48,565 37,187 Total real estate loans 700,368 695,021 Consumer: Home equity 35,260 35,046 Auto and other consumer 114,194 112,119 Total consumer loans 149,454 147,165 Commercial business loans 55,853 41,571 Total loans 905,675 883,757 Less: Net deferred loan fees 433 206 Premium on purchased loans, net (4,742 ) (4,514 ) Allowance for loan losses 10,830 9,628 Loans receivable, net $ 899,154 $ 878,437 March 31, 2020 December 31, 2019 (In thousands) Nonperforming loans: Real estate loans: One- to four-family $ 467 $ 698 Multi-family 297 — Commercial real estate 106 109 Construction and land 28 29 Total real estate loans 898 836 Consumer loans: Home equity 133 112 Other 709 848 Total consumer loans 842 960 Commercial business — — Total nonperforming loans 1,740 1,796 Real estate owned: Land 62 62 Total real estate owned 62 62 Repossessed assets 422 92 Total nonperforming assets $ 2,224 $ 1,950 Nonaccrual and 90 days or more past due loans as a percentage of total loans 0.2 % 0.2 % Total investment $ 1,939 $ 698 $ 1,241 177.8 % 287 — 287 100.0 166 109 57 52.3 25 29 (4 ) (13.8 ) 2,417 836 1,581 189.1 74 112 (38 ) (33.9 ) 607 848 (241 ) (28.4 ) 681 960 (279 ) (29.1 ) — — — 100.0 3,098 1,796 1,302 72.5 — 62 (62 ) (100.0 ) — 62 (62 ) (100.0 ) 170 92 78 84.8 $ 3,268 $ 1,950 $ 1,318 67.6 0.3 % 0.2 % 0.1 % 50.0 $1.9$53.5 million, or 0.6%17.0%, to $317.5$369.1 million at March 31,September 30, 2020, from $315.6 million at December 31, 2019, due to a net increasethe purchase and sale of purchases and sales of certain securities, and normal repaymentpayments and prepayment activity, which were partially offset by a decreaseand an increase in the market value of the portfolio. As of March 31, 2020, corporate collateralized loan obligations and agency student loan market values decreased by $10.5 million. We believe the impact to the valuations on these securities is temporary and was driven by market liquidity disruptions related to the COVID-19 pandemic. Mortgage-backed securities represent the largest portion of our investment securities portfolio and totaled $154.3$108.5 million at March 31,September 30, 2020, or 48.6%29.4% of the investment securities portfolio, a decrease during the year of $14.2$60.0 million, or 8.4%35.6%, from $168.5 million at December 31, 2019. Other investment securities, including municipal bonds and other asset-backed securities, were $163.3$260.6 million at March 31,September 30, 2020, or 51.4%70.6% of the investment securities portfolio, an increase of $16.2$113.5 million from $147.1 million at December 31, 2019. The investment portfolio, including mortgage-backed securities, had an estimated projected average life of 5.36.7 years as of March 31,September 30, 2020, and 5.0 years as of December 31, 2019, and had an estimated average repricing term of 3.64.4 years as of March 31,September 30, 2020, and 3.7 years as of December 31, 2019, based on the interest rate environment at those times.77.9%59.8% in amortizing securities at March 31,September 30, 2020 and 81.8% at December 31, 2019. As a result, theThe projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is affectedimpacted by prevailing mortgage interest rates. Management maintains a focus on improvingenhancing 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. For additional information, see $99.3 million to $1.23$1.38 billion at March 31,September 30, 2020, from $1.13 billion at December 31, 2019, primarily due to an increase in borrowingsdeposits of $37.1 million and an increase in deposit account balances of $62.3$252.8 million.6.2%25.2%, to $1.1$1.25 billion at March 31,September 30, 2020, from $1.0$1.00 billion at December 31, 2019. There was a $5.1$150.0 million increase in money market accounts, offset by a $3.2$114.3 million decreaseincrease in transaction accounts, and a $2.9 million increase in savings accounts during the quarter.year. The increase in deposits is in large part due to the Federal government's response to the pandemic including stimulus payments, additional unemployment benefits, and deferrals of Federal tax payment due dates. These actions, coupled with decreased spending by consumers and business, resulted in higher deposit balances. 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, more effectively, reduce our reliance on public funds deposits, and become more selectiveallow flexibility when competing on rate.retail rates. At March 31,September 30, 2020, we had $90.4$92.6 million in brokered CDs included in ourthe $293.5 million balance of certificates of deposit.decreased $9.7increased $3.8 million duringto $180.6 million for the year to $167.2 million at March 31,nine months ended September 30, 2020. The decreaseincrease was due to an after-tax increase in other comprehensive income of $4.7 million due to the decline in theincreased value of our available-for-sale securities portfolio which resulted in a $6.7 million decrease in our accumulated other comprehensive loss, net of tax,offset by realized sales, as well as a $3.8year-to-date net income of $6.5 million, partially offset by $7.2 million in repurchases of shares of common stock during the quarter. The decrease was partially offset by net income of $873,000 in net income.stock.March 31,September 30, 2020 and 2019decreased $1.3increased $1.2 million, or 60.4%46.4%, to $873,000$3.7 million for the three months ended March 31,September 30, 2020, compared to net income of $2.2$2.5 million for the three months ended March 31,September 30, 2019. The decreaseincrease is mainly due to a combination of a decreasean increase in net interest income, noninterest income driven by mortgage revenue, gain on sale of investments, and swap fee program fees which was offset by an increase in noninterest expense due primarily to higher operating expenses, and a larger loan loss provision in the current period compared to the same period one year ago.decreased $193,000increased $2.3 million to $11.7 million for the three months ended September 30, 2020, compared to $9.4 million for the three months ended March 31, 2020.September 30, 2019 The yield on average interest-earning assets decreased twenty-two38 basis points to 3.97%3.82% for the three months ended March 31,September 30, 2020, compared to 4.19%4.20% for the same period in the prior year. ThisThe decrease was due to a decrease inlower market interest rates andoffset by a decreasesmall increase in the ratio of total loans to assets in the current period compared to one year ago.1467 basis points to 1.11%0.60% for the three months ended March 31,September 30, 2020, compared to 1.25%1.27% for the same period last year,year. The decrease was due primarilyin part to the management of deposit rates reflecting the low rate environment as well as a decreasereduction in market depositthe level and borrowing rates. This was partially due tocost of borrowings given the prepayment of higher costing FHLB borrowings in the fourth quarter of 2019 and the first quarter of 2020. As a result, ourOur average cost of FHLB borrowings for the three months ended September 30, 2020 decreased to 2.18%1.34% in the firstthird quarter of 2020 compared to 2.95%3.16% for the same period one year prior.interest-earning assetsinterest-bearing liabilities decreasing at a faster pace than our interest-bearing liabilities,interest-earning assets, the net interest margin decreased elevenincreased 13 basis points to 3.11%3.36% for the three months ended March 31,September 30, 2020, from 3.22%3.23% for the same period in 2019. For additional information, see Rate/Volume Analysis contained in Item 2 of this Form 10-Q.decreased $535,000,increased $1.1 million, or 4.3%9.1%, to $12.0$13.3 million for the three months ended March 31,September 30, 2020, from $12.5$12.2 million for the comparable period in 2019. Interest and fees on loans receivable decreased $256,000,increased $1.0 million, to $9.8$11.0 million for the three months ended March 31,September 30, 2020, from $10.1$10.0 million for the three months ended March 31,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, 2020 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.loansvariable rate securities and securities. Average loan yields decreased 12 basis points to 4.52% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.Interest income on investment securities increased $59,000 to $1.1 million for the three months ended March 31, 2020, compared to $1.0 million for the three months ended March 31, 2019, due to a $29.6 million increase in average balance partially offset by a 51 basis point decrease in average yield.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 March 31,September 30, 2020 decreased $298,000,$522,000, or 23.7%48.0%, compared to the three months ended March 31,September 30, 2019, the result of a decrease of $22.0$61.8 million in the average balance and a 3748 basis point decrease in the average yield in the 2020 period. $ 998,586 4.45 % $ 862,587 4.68 % $ 1,001 267,911 2.39 111,695 3.30 682 110,863 2.04 172,639 2.52 (522 ) 4,028 9.63 5,019 7.33 5 19,702 0.18 15,413 1.69 (56 ) $ 1,401,090 3.82 % $ 1,167,353 4.20 % $ 1,110 Three Months Ended March 31, 2020 2019 Increase (Decrease) in Interest Income Average Balance Outstanding Yield Average Balance Outstanding Yield (Dollars in thousands) Loans receivable, net $ 870,739 4.52 % $ 870,901 4.64 % $ (256 ) Investment securities 149,954 2.85 120,350 3.36 59 Mortgage-backed securities 161,666 2.37 183,716 2.74 (298 ) FHLB stock 4,707 3.99 6,844 5.14 (41 ) Interest-bearing deposits in banks 21,248 1.28 11,873 2.26 1 Total interest-earning assets $ 1,208,314 3.97 $ 1,193,684 4.19 $ (535 ) $342,000,$1.2 million, or 11.7%43.1%, to $2.6$1.6 million for the three months ended March 31,September 30, 2020, compared to $2.9$2.8 million for the three months ended March 31,September 30, 2019, mainly due to an 11.1% increase in deposit costs, which was offset by a 56.2%$736,000, or 34.0% decrease in borrowing costs.interest paid on deposits. Interest on borrowings decreased $486,000 or 70.3%. Interest expense on deposits increaseddecreased for the three months ended March 31,September 30, 2020, due to lower rates offsetting the impact of increased balances and a reallocation of non-maturity deposits into higher-yielding accounts.balances. The average balance of interest-bearing deposits increased $54.5$202.3 million, or 6.9%25.1%, to $849.2$1.01 billion for the three months ended September 30, 2020, from $806.7 million for the three months ended March 31, 2020, from $794.7 million for the three months ended March 31,September 30, 2019, as we continued to target deposit growth in new and existing market areas.areas as well as the industry-wide impact of stimulus related deposits during the pandemic. During the three months ended March 31,September 30, 2020, the average balance of savings accounts increased $12.2$6.0 million and the related weighted-average cost remained flat,decreased 54 basis points compared to the same period in 2019. The average balance of certificates of deposit balances grew $57.5$43.1 million and the weighed-average cost increaseddecreased by 1496 basis points, mainly as a result of the utilization of brokered CDs. During the three months ended March 31,September 30, 2020, the average balance of money market accounts decreased $15.4increased $125.7 million compared to the same period in the prior year, as customers moved money into higher-yielding certificates of deposit and savings accounts at First Federal.year. The average cost of deposits increaseddecreased by 450 basis points to 1.01%0.56% for the three months ended March 31,September 30, 2020, from 0.97%1.06% for the three months ended March 31,September 30, 2019. Borrowing costs decreased due to the prepayment of higher cost term borrowings in the fourth quarter of 2019 and the first quarter of 2020and a decreasereduction in balances and the average rate paid during the most recent quarter compared to the same period in 2019. We prepaid $25.0 million in FHLB advances during the most recent quarter that had an average rate of 3.81%, which better positions us to align our funding costs more closely with earning asset yields going forward. The prepayment penalty for this transaction was $210,000. Three Months Ended March 31, 2020 2019 Increase (Decrease) in Interest Expense Average Balance Outstanding Rate Average Balance Outstanding Rate (Dollars in thousands) Savings accounts $ 165,911 0.82 % $ 153,689 0.82 % $ 24 Transaction accounts 114,970 0.07 114,801 0.13 (17 ) Money market accounts 252,537 0.56 267,947 0.48 36 Certificates of deposit 315,778 1.80 258,272 1.94 171 Borrowings 79,659 2.18 134,447 2.95 (556 ) Total interest-bearing liabilities $ 928,855 1.11 $ 929,156 1.25 $ (342 ) $ 174,475 0.40 % $ 168,495 0.94 % $ (221 ) 143,890 0.01 116,328 0.09 (21 ) 371,335 0.39 245,640 0.51 50 319,341 1.08 276,247 2.04 (544 ) 61,244 1.34 87,492 3.16 (486 ) $ 1,070,285 0.60 % $ 894,202 1.27 % $ (1,222 ) There was a The provision for loan losses ofwas $1.3 million during the three months ended March 31,September 30, 2020, compared to a $335,000 provision for$170,000 recovery of loan losses for the three months ended March 31,September 30, 2019. This was mainly due to an increase to the economic qualitative factor resulting from the uncertainty surrounding COVID-19 and its economic impact. Three Months Ended March 31, 2020 2019 (Dollars in thousands) Provision for loan losses $ 1,266 $ 335 Net charge-offs (64 ) (109 ) Allowance for loan losses 10,830 9,759 Allowance for losses as a percentage of total gross loans receivable at the end of this period 1.2 % 1.1 % Total nonaccrual loans 1,740 1,606 Allowance for loan losses as a percentage of nonaccrual loans at end of period 622.4 % 607.7 % Nonaccrual and 90 days or more past due loans as a percentage of total loans 0.2 % 0.2 % Total loans $ 905,675 $ 888,926 Provision for (recovery of) loan losses $ 1,350 $ (170 ) (452 ) (118 ) 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 % 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 % $ 1,072,856 $ 846,057 $1.1$2.8 million or 85.3%149.7%, to $2.3$4.7 million for the three months ended March 31,September 30, 2020, from $1.3$1.9 million for the three months ended March 31,September 30, 2019, primarily due to the gain on sales of mortgage loans of $1.7 million, the gain on sale of investment securities of $605,000, the net gain on sale of loans,$969,000, and an increase in the cash surrender value of bank owned life insurance. $ 868 $ 999 $ (131 ) (13.1 )% 148 44 104 236.4 1,725 655 1,070 163.4 Net gain on sale of investment securities 969 — 969 100.0 622 147 475 323.1 449 70 379 541.4 $ 4,781 $ 1,915 $ 2,866 149.7 % Three Months Ended March 31, Increase (Decrease) 2020 2019 Amount Percent (Dollars in thousands) Loan and deposit service fees $ 881 $ 905 $ (24 ) (2.7 )% Mortgage servicing fees, net of amortization 15 45 (30 ) (66.7 ) Net gain on sale of loans 383 87 296 340.2 Net gain (loss) on sale of investment securities 605 — 605 100.0 Increase in cash surrender value of bank-owned life insurance 328 143 185 129.4 Other income 106 71 35 49.3 Total noninterest income $ 2,318 $ 1,251 $ 1,067 85.3 % 20.3%19.7%, during the three months ended March 31,September 30, 2020, compared to the three months ended March 31,September 30, 2019, mainly due to a 17.2%27.2% increase in compensation and benefits as we hireddriven by additional bankers, a 90.2% increase to advertising expense,staffing and a one-time FHLB prepayment penalty of $210,000. Three Months Ended March 31, Increase (Decrease) 2020 2019 Amount Percent (Dollars in thousands) Compensation and benefits $ 5,361 $ 4,573 $ 788 17.2 % Data processing 690 631 59 9.4 Occupancy and equipment 1,351 1,108 243 21.9 Supplies, postage, and telephone 211 228 (17 ) (7.5 ) Regulatory assessments and state taxes 174 169 5 3.0 Advertising 272 143 129 90.2 Professional fees 400 298 102 34.2 FDIC insurance premium — 77 (77 ) (100.0 ) FHLB prepayment penalty 210 — 210 100.0 Other 713 573 140 24.4 Total $ 9,382 $ 7,800 $ 1,582 20.3 % $ 6,070 $ 4,771 $ 1,299 27.2 % 640 680 (40 ) (5.9 ) 1,367 1,161 206 17.7 254 208 46 22.1 262 209 53 25.4 285 197 88 44.7 361 278 83 29.9 86 (72 ) 158 (219.4 ) FHLB prepayment penalty — 344 (344 ) (100.0 ) 756 648 108 16.7 $ 10,081 $ 8,424 $ 1,657 19.7 % An income Income tax expense of $204,000$1.4 million was recorded for the three months ended March 31,September 30, 2020, compared to $509,000$580,000 for the three months ended March 31,September 30, 2019, generally due to a decrease in income before taxes of $1.6 million.$2.0 million and a penalty recorded related to the surrender of the bank owned life insurance policy. For additional information, see Note 5 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q. $ 933,843 4.45 % $ 872,259 4.69 % $ 508 210,571 2.53 116,180 3.33 1,088 135,925 2.22 178,411 2.64 (1,272 ) 4,390 6.04 6,310 5.66 (69 ) 20,637 0.55 13,468 1.88 (105 ) $ 1,305,366 3.85 % $ 1,186,628 4.22 % $ 150 $ 171,085 0.61 % $ 161,764 0.89 % $ (300 ) 127,333 0.03 115,681 0.11 (70 ) 305,373 0.49 257,045 0.49 173 328,197 1.48 264,573 2.02 (352 ) 70,763 1.58 120,194 3.01 (1,877 ) $ 1,002,751 0.85 % $ 919,257 1.28 % $ (2,426 ) Provision for loan losses $ 4,116 $ 420 (737 ) (510 ) 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 % 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 % $ 1,072,856 $ 846,057 $ 2,514 $ 2,899 $ (385 ) (13.3 )% (9 ) 143 (152 ) (106.3 ) 4,109 830 3,279 395.1 2,235 57 2,178 3,821.1 1,577 435 1,142 262.5 782 225 557 247.6 $ 11,208 $ 4,589 $ 6,619 144.2 % $ 17,397 $ 14,097 $ 3,300 23.4 % 2,099 1,978 121 6.1 4,063 3,409 654 19.2 749 678 71 10.5 659 573 86 15.0 934 569 365 64.1 1,115 907 208 22.9 156 82 74 90.2 210 344 (134 ) (39.0 ) 2,363 1,859 504 27.1 $ 29,745 $ 24,496 $ 5,249 21.4 % interest‑earninginterest-earning assets and interest expense on average interest‑bearinginterest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest‑earninginterest-earning assets), and the ratio of average interest‑earninginterest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at March 31,September 30, 2020 and 2019. 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. At September 30, 2020 (Dollars in thousands) (Dollars in thousands) Interest-earning assets: 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 % 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 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 4.85 4,028 97 9.63 5,019 92 7.33 4,390 199 6.04 6,310 268 5.66 0.10 19,702 9 0.18 15,413 65 1.69 20,637 85 0.55 13,468 190 1.88 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 0.17 $ 174,475 $ 176 0.40 $ 168,495 $ 397 0.94 $ 171,085 $ 785 0.61 $ 161,764 $ 1,085 0.89 0.01 143,890 5 0.01 116,328 26 0.09 127,333 28 0.03 115,681 98 0.11 0.31 371,335 362 0.39 245,640 312 0.51 305,373 1,118 0.49 257,045 945 0.49 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 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 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 $ 11,761 $ 9,429 $ 31,281 $ 28,705 3.33 3.22 2.93 3.00 2.94 $ 330,805 $ 273,151 $ 302,615 $ 267,371 3.36 3.23 3.20 3.23 130.9 % 130.5 % 130.2 % 129.1 % At March 31, 2020 Three Months Ended March 31, 2020 2019 Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate Interest-earning assets: (Dollars in thousands) 4.56 % $ 870,739 $ 9,836 4.52 % $ 870,901 $ 10,092 4.64 % Investment securities 3.32 149,954 1,069 2.85 120,350 1,010 3.36 Mortgage-backed securities 2.09 161,666 959 2.37 183,716 1,257 2.74 FHLB dividends 5.25 4,707 47 3.99 6,844 88 5.14 Interest-bearing deposits in banks 0.21 21,248 68 1.28 11,873 67 2.26 3.80 1,208,314 11,979 3.97 1,193,684 12,514 4.19 Interest-bearing liabilities: Savings accounts 0.72 $ 165,911 $ 340 0.82 $ 153,689 316 0.82 Transaction accounts 0.01 114,970 19 0.07 114,801 36 0.13 Money market accounts 0.48 252,537 356 0.56 267,947 320 0.48 Certificates of deposit 1.67 315,778 1,423 1.80 258,272 1,252 1.94 Total deposits 0.79 849,196 2,138 1.01 794,709 1,924 0.97 Borrowings 1.01 79,659 434 2.18 134,447 990 2.95 Total interest-bearing liabilities 0.82 928,855 2,572 1.11 929,156 2,914 1.25 Net interest income $ 9,407 $ 9,600 Net interest rate spread 2.98 2.86 2.94 Net earning assets $ 279,459 $ 264,528 3.11 3.22 Average interest-earning assets to average interest-bearing liabilities 130.1 % 128.5 % Three Months Ended March 31, 2020 vs. 2019 Increase (Decrease) Due to Total Increase (Decrease) Volume Rate (In thousands) Interest earning assets: Loans receivable, net $ (2 ) $ (254 ) $ (256 ) Investments 100 (339 ) (239 ) FHLB stock (27 ) (14 ) (41 ) 53 (52 ) 1 Total interest-earning assets $ 124 $ (659 ) $ (535 ) Interest-bearing liabilities: Savings accounts $ 24 $ — $ 24 Interest-bearing transaction accounts — (17 ) (17 ) Money market accounts (17 ) 53 36 Certificates of deposit 281 (110 ) 171 Borrowings (403 ) (153 ) (556 ) Total interest-bearing liabilities $ (115 ) $ (227 ) $ (342 ) Net change in interest income $ 239 $ (432 ) $ (193 ) (1) Includes interest-bearing deposits (cash) at other financial institutions. $ 1,583 $ (582 ) $ 1,001 $ 2,177 $ (1,669 ) $ 508 899 (739 ) 160 1,514 (1,698 ) (184 ) (18 ) 23 5 (82 ) 13 (69 ) 18 (74 ) (56 ) 101 (206 ) (105 ) $ 2,482 $ (1,372 ) $ 1,110 $ 3,710 $ (3,560 ) $ 150 $ 14 $ (235 ) $ (221 ) $ 63 $ (363 ) $ (300 ) 6 (27 ) (21 ) 10 (80 ) (70 ) 160 (110 ) 50 178 (5 ) 173 219 (763 ) (544 ) 963 (1,315 ) (352 ) (207 ) (279 ) (486 ) (1,117 ) (760 ) (1,877 ) $ 192 $ (1,414 ) $ (1,222 ) $ 97 $ (2,523 ) $ (2,426 ) $ 2,290 $ 42 $ 2,332 $ 3,613 $ (1,037 ) $ 2,576 threenine months ended March 31,September 30, 2020 and the year ended December 31, 2019, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.March 31,September 30, 2020, our scheduled maturities of contractual obligations were as follows: Within
1 Year After 1 Year Through
3 Years After 3 Years Through
5 Years Beyond
5 Years (In thousands) Certificates of deposit $ 289,742 $ 53,987 $ 14,948 $ — $ 358,677 FHLB advances 100,021 20,000 30,000 — 150,021 Operating leases 356 584 543 2,085 3,568 Borrower taxes and insurance 443 — — — 443 Deferred compensation 152 362 49 261 824 Total contractual obligations $ 390,714 $ 74,933 $ 45,540 $ 2,346 $ 513,533 Certificates of deposit $ 190,613 $ 87,940 $ 14,987 $ — $ 293,540 FHLB advances 59,150 25,000 25,000 — 109,150 Operating leases 461 766 782 2,241 4,250 1,986 — — — 1,986 Deferred compensation 389 230 64 356 1,039 Total contractual obligations $ 252,599 $ 113,936 $ 40,833 $ 2,597 $ 409,965 March 31,September 30, 2020: Within After 1 Year Through After 3 Years Through Beyond Total Amounts $ 2,918 $ — $ — $ — $ 2,918 Variable-rate 7,600 — — — 7,600 38,366 37,919 — 72,484 148,769 182 — — — 182 $ 49,066 $ 37,919 $ — $ 72,484 $ 159,469 Amount of Commitment Expiration Within
1 Year After 1 Year Through
3 Years After 3 Years Through
5 Years Beyond
5 Years Total Amounts Committed (In thousands) Commitments to originate loans: Fixed-rate $ 630 $ — $ — $ — $ 630 Unfunded commitments under lines of credit or existing loans 27,833 20,346 — 62,448 110,627 Standby letters of credit 182 — — — 182 Total commitments $ 28,645 $ 20,346 $ — $ 62,448 $ 111,439 March 31,September 30, 2020, cash and cash equivalents totaled $107.2$52.1 million, and unpledged securities classified as available-for-sale with a market value of $212.8$281.9 million provided additional sources of liquidity. We pledged collateral to support borrowings from the FHLB of $150.0$267.4 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 $50.9$29.4 million were pledged as of March 31,September 30, 2020.March 31,September 30, 2020, we had $630,000$10.5 million in loan commitments outstanding, $110.8$149.0 million in undisbursed loans and standby letters of credit, including $69.7$97.8 million in undisbursed construction loan commitments.March 31,September 30, 2020 totaled $289.7$190.6 million, or 80.8%64.9% of certificates of deposit with a weighted-average rate of 1.60%0.73%. 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 dropped.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 affordprovide 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.March 31,September 30, 2020, the Company (on an unconsolidated basis) had liquid assets of $14.0$9.6 million.March 31,September 30, 2020, shareholders' equity totaled $167.2$180.7 million, or 12.0%11.5% of total assets. Our book value per share of common stock was $16.02$17.65 at March 31,September 30, 2020, compared to $16.48 at December 31, 2019.March 31,September 30, 2020, the Bank exceeded all regulatory capital requirements and was considered "well capitalized" under FDIC regulatory capital guidelines.March 31,September 30, 2020. Minimum Capital Requirements Minimum Required to be Well-Capitalized Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Tier I leverage capital (to average assets) $ 149,708 11.8 % $ 50,968 4.0 % $ 63,710 5.0 % Common equity tier I (to risk-weighted assets) 149,708 16.8 40,064 4.5 57,871 6.5 Tier I risk-based capital (to risk-weighted assets) 149,708 16.8 53,419 6.0 71,225 8.0 Total risk-based capital (to risk-weighted assets) 160,800 18.1 71,225 8.0 89,032 10.0 $ 156,405 10.5 % $ 59,428 4.0 % $ 74,285 5.0 % 156,405 14.7 47,826 4.5 69,083 6.5 156,405 14.7 63,769 6.0 85,025 8.0 169,690 16.0 85,025 8.0 106,281 10.0 March 31,September 30, 2020, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company inMarch 31,September 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.stock and stocks in general(a)(b)(c) The following table summarizes common stock repurchases during the three months ended March 31, 2020: 74,005 $ 11.90 64,237 77,556 41,717 11.38 41,717 35,839 39,759 11.80 35,839 — 155,481 $ 11.72 141,793 Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans (1) Maximum Number of Shares that May Yet Be Repurchased Under the Plans January 1, 2020 - January 31, 2020 30,509 $ 17.17 30,509 (5,300 ) February 1, 2020 - February 29, 2020 61,200 16.61 61,200 (66,500 ) March 1, 2020 - March 31, 2020 196,567 11.65 196,567 (263,067 ) Total 288,276 $ 13.29 288,276 (1) On September 26, 2017, the BoardOn 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 March 31, 2020, a total of 263,067 shares, or 49.2% percent of the shares authorized in the December 2019 stock repurchase plan, have been purchased at an average cost of $12.90 per share, leaving 272,030 shares available for future purchases.First Northwest Bancorp 2020 Equity Incentive PlanOn May 5, 2020, the shareholders of the Company approved the adoption of the First Northwest Bancorp 2020 Equity Incentive Plan (the "2020 Plan"). The 2020 Plan replaces the Company's 2015 Equity Incentive Plan. Under the 2020 Plan, the Company may grant awards of stock options, stock appreciation rights, restricted awards and performance share awards to the Company's employees and non-employee directors. The Company may grant stock-based awards for up to 520,000 shares of the Company's common stock under the 2020 Plan.For more details regarding the 2020 Plan, please see the Company's Proxy Statement filed with the Securities and Exchange Commission under cover of Schedule 14A on March 20, 2020, under the caption "Proposal 2 – Approval of First Northwest Bancorp 2020 Equity Incentive Plan." The above description of the 2020 Plan does not purport to be complete and is qualified in its entirety by reference to the complete text of the 2020 Plan, which is attached to this report as Exhibit 10.2 and is incorporated herein by reference.allthe federal, state, and local levels are rapidly takingcontinue to take steps to address and remediatethe impact of the COVID-19 emergency. On March 27, 2020 the President signed into law the historic $2
trillion federal stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which includes many provisions that will impact us and our customers. For example, the CARES Act includesincluded $350 billion in stimulus for small businesses under the so-called “Paycheck Protection Program” of the U.S. Small Business Administration and an additional $500 billion for the U.S. Department of Treasury to make loans to distressed American businesses. The various banking agencies have strongly encouraged banks to workProgram,” along with borrowers impacted by COVID-19, and the CARES Act authorizes banks to elect to suspend GAAP for certain loan modifications that would otherwise be classified as a troubled debt restructure (which, in part, allows banks to provide immediate relief to their impacted borrowers). To ease the financial impacts of COVID-19, these agencies have further encouraged banks to consider offering responsible small-dollar loans to their consumers and small businesses affected by the pandemic.The CARES Act also provides for direct stimulus payments (i.e.(i.e., “economic impact payments” or “stimulus checks”) for many eligible Americans, subject to certain income thresholds. These economic impact payments will typically range from $1,200 to $3,400 and are designed to provide a level of financial relief to those most impacted by COVID-19. We anticipate that many of our customers will receive these economic impact payments, which the IRS intends to distribute via direct deposit to their accounts or by mailing paper checks. Overall, the legislative and regulatory landscape surrounding COVID-19 is rapidly changing, and we cannot predict with certainty the impact it will have on our operations or business.leaving many pending loan applications in limbo aswhich prompted Congress negotiatedto negotiate additional funding. On April 24, 2020, the Paycheck Protection Program and Health Care EnhancementEnforcement Act was signed into law to replenish funding to the Paycheck Protection Program and to provide other spending for hospitals and virus testing. In part,Further, on July 3, 2020 the bill includes an additional $320 billionPresident extended the deadline for potential borrowers to make new loans under theapply for Paycheck Protection Program set aside $30funds until August 8, 2020. The legislative and regulatory landscape surrounding COVID-19 is rapidly changing, and neither the Company nor the Bank can predict with certainty the impact it will have on our operations or business.billionExhibitNo.10.1*10-K10.43/15/201910.2*X10.3*X10.4*X31.1March 31,September 30, 2020, formatted in Inline Extensible Business Reporting Language (XBRL)(iXBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Cash Flows; and (5) Selected Notes to Consolidated Financial Statements104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Denotes a management contract or compensatory plan or arrangement.May 11,November 6, 2020May 11,November 6, 202054