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FNWB First Northwest Bancorp

Filed: 6 Nov 20, 5:21pm
 
 

Table of Contents

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 September 30, 2020

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.     Yes No ��

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 30, 2020, there were 10,234,204 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

FIRST NORTHWEST BANCORP

FORM 10-Q

TABLE OF CONTENTS

 

 

PART 1 - FINANCIAL INFORMATION

 

 

Page

Item 1 - Financial Statements (Unaudited)

3

 

 

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

35

 

 

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

51

 

 

Item 4 - Controls and Procedures

51

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1 - Legal Proceedings

52

 

 

Item 1A - Risk Factors

52

 

 

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

52

 

 

Item 3 - Defaults Upon Senior Securities

53

 

 

Item 4 - Mine Safety Disclosures

53

 

 

Item 5 - Other Information

53

 

 

Item 6 - Exhibits

54

 

 

SIGNATURES

55

 

 

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

 

Item 1. Financial Statements (Unaudited)

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share information) (Unaudited)

 

  

September 30, 2020

  

December 31, 2019

 

ASSETS

        
         

Cash and due from banks

 $16,776  $13,519 

Interest-bearing deposits in banks

  35,303   35,220 

Investment securities available for sale, at fair value

  369,111   315,580 

Loans held for sale

  4,754   503 

Loans receivable (net of allowance for loan losses of $13,007 and $9,628)

  1,061,417   878,437 

Federal Home Loan Bank (FHLB) stock, at cost

  5,944   6,034 

Accrued interest receivable

  7,367   3,931 

Premises and equipment, net

  14,737   14,342 

Mortgage servicing rights, net

  1,545   871 

Bank-owned life insurance, net

  38,104   30,027 

Prepaid expenses and other assets

  9,612   8,872 
         

Total assets

 $1,564,670  $1,307,336 
         
         

LIABILITIES AND SHAREHOLDERS' EQUITY

        
         

Deposits

 $1,254,456  $1,001,645 

Borrowings

  109,150   112,930 

Accrued interest payable

  51   373 

Accrued expenses and other liabilities

  18,359   14,392 

Advances from borrowers for taxes and insurance

  1,986   1,145 
         

Total liabilities

  1,384,002   1,130,485 
         

Shareholders' Equity

        

Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding

  0   0 

Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,234,204 shares at September 30, 2020, and 10,731,639 shares at December 31, 2019

  102   107 

Additional paid-in capital

  97,229   102,017 

Retained earnings

  89,546   86,156 

Accumulated other comprehensive income (loss), net of tax

  3,186   (1,539)

Unearned employee stock ownership plan (ESOP) shares

  (9,395)  (9,890)
         

Total shareholders' equity

  180,668   176,851 
         

Total liabilities and shareholders' equity

 $1,564,670  $1,307,336 

 

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

 $11,097  $10,096  $31,169  $30,661 

Interest on mortgage-backed securities

  565   1,087   2,264   3,536 

Interest on investment securities

  1,603   921   3,988   2,900 

Interest on deposits and other

  9   65   85   190 

FHLB dividends

  97   92   199   268 
                 

Total interest income

  13,371   12,261   37,705   37,555 

INTEREST EXPENSE

                

Deposits

  1,405   2,141   5,584   6,133 

Borrowings

  205   691   840   2,717 
                 

Total interest expense

  1,610   2,832   6,424   8,850 
                 

Net interest income

  11,761   9,429   31,281   28,705 

PROVISION FOR LOAN LOSSES

  1,350   (170)  4,116   420 
                 

Net interest income after provision for loan losses

  10,411   9,599   27,165   28,285 

NONINTEREST INCOME

                

Loan and deposit service fees

  868   999   2,514   2,899 

Mortgage servicing fees, net of amortization

  148   44   (9)  143 

Net gain on sale of loans

  1,725   655   4,109   830 

Net gain on sale of investment securities

  969   0   2,235   57 

Increase in cash surrender value of bank-owned life insurance

  622   147   1,577   435 

Other income

  449   70   782   225 
                 

Total noninterest income

  4,781   1,915   11,208   4,589 
                 

NONINTEREST EXPENSE

                

Compensation and benefits

  6,070   4,771   17,397   14,097 

Data processing

  640   680   2,099   1,978 

Occupancy and equipment

  1,367   1,161   4,063   3,409 

Supplies, postage, and telephone

  254   208   749   678 

Regulatory assessments and state taxes

  262   209   659   573 

Advertising

  285   197   934   569 

Professional fees

  361   278   1,115   907 

FDIC insurance premium

  86   (72)  156   82 

FHLB prepayment penalty

  0   344   210   344 

Other expense

  756   648   2,363   1,859 
                 

Total noninterest expense

  10,081   8,424   29,745   24,496 
                 

INCOME BEFORE PROVISION FOR INCOME TAXES

  5,111   3,090   8,628   8,378 
                 

PROVISION FOR INCOME TAXES

  1,436   580   2,104   1,582 
                 

NET INCOME

 $3,675  $2,510  $6,524  $6,796 
                 

Basic and diluted earnings per common share

 $0.40  $0.25  $0.69  $0.68 

 

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

 $3,675  $2,510  $6,524  $6,796 
                 

Other comprehensive income:

                
Unrealized holding gains arising during the period  4,094   856   8,215   5,199 

Income tax provision related to unrealized holding gains

  (859)  (181)  (1,724)  (1,095)

Reclassification adjustment for net (gains) losses on sales of securities realized in income

  (969)  0   (2,235)  (57)
Income tax benefit related to reclassification adjustment on sales of securities  203   0   469   12 
                 

Other comprehensive income, net of tax

  2,469   675   4,725   4,059 
                 

COMPREHENSIVE INCOME

 $6,144  $3,185  $11,249  $10,855 

 

See selected notes to the consolidated financial statements.

 

 

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Months Ended September 30, 2020 and 2019

(Dollars in thousands, except share information) (Unaudited)

 

  

Common Stock

  

Additional Paid-in

  

Retained

  

Unearned ESOP

  Accumulated Other Comprehensive (Loss)  

Total Shareholders'

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Shares

  

Income, Net of Tax

  

Equity

 
                             

BALANCE, June 30, 2019

  10,925,181  $109  $104,064  $83,795  $(10,220) $(1,347) $176,401 
                             

Net income

              2,510           2,510 

Common stock repurchased

  (131,400)  (1)  (1,314)  (835)          (2,150)
Restricted stock award grants net of forfeitures  23,400                      
Restricted stock awards canceled  (16,249)  0   (266)           (266)

Other comprehensive income, net of tax

                      675   675 

Share-based compensation

          251               251 

ESOP shares committed to be released

          51       165       216 

Cash dividends declared and paid ($0.03 per share)

              (327)          (327)
                             

BALANCE, September 30, 2019

  10,800,932  $108  $102,786  $85,143  $(10,055) $(672) $177,310 
                             
                             

BALANCE, June 30, 2020

  10,326,226  $103  $98,421  $86,633  $(9,559) $717  $176,315 
                             

Net income

              3,675          ��3,675 

Common stock repurchased

  (141,793)  (1)  (1,418)  (248)          (1,667)

Restricted stock award grants net of forfeitures

  59,859                      
Restricted stock awards canceled  (10,088)  0   (123)           (123)

Other comprehensive income, net of tax

                      2,469   2,469 

Share-based compensation

          362               362 

ESOP shares committed to be released

          (13)      164       151 

Cash dividends declared and paid ($0.05 per share)

              (514)          (514)
                             

BALANCE, September 30, 2020

  10,234,204  $102  $97,229  $89,546  $(9,395) $3,186  $180,668 

 

 

6

 

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

  Accumulated Other Comprehensive (Loss)  

Total Shareholders'

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Shares

  

Income, Net of Tax

  

Equity

 
                             

BALANCE, December 31, 2018

  11,170,018  $112  $105,825  $81,607  $(10,549) $(4,731) $172,264 
                             

Net income

              6,796           6,796 

Common stock repurchased

  (372,237)  (4)  (3,719)  (2,274)          (5,997)
Restricted stock award grants net of forfeitures  19,400                      
Restricted stock awards canceled  (16,249)  0   (266)           (266)

Other comprehensive income, net of tax

                      4,059   4,059 

Share-based compensation

          804               804 

ESOP shares committed to be released

          142       494       636 

Cash dividends declared and paid ($0.09 per share)

              (986)          (986)
                             

BALANCE, September 30, 2019

  10,800,932  $108  $102,786  $85,143  $(10,055) $(672) $177,310 
                             
                             

BALANCE, December 31, 2019

  10,731,639  $107  $102,017  $86,156  $(9,890) $(1,539) $176,851 
                             

Net income

              6,524           6,524 

Common stock repurchased

  (560,306)  (5)  (5,599)  (1,565)          (7,169)

Restricted stock award grants net of forfeitures

  72,959                      
Restricted stock awards canceled  (10,088)  0   (123)           (123)

Other comprehensive income, net of tax

                      4,725   4,725 

Share-based compensation

          917               917 

ESOP shares committed to be released

          17       495       512 

Cash dividends declared and paid ($0.15 per share)

              (1,569)          (1,569)
                             

BALANCE, September 30, 2020

  10,234,204  $102  $97,229  $89,546  $(9,395) $3,186  $180,668 

 

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

 $6,524  $6,796 

Adjustments to reconcile net income to net cash from operating activities:

        

Depreciation and amortization

  1,034   1,000 

Amortization and accretion of premiums and discounts on investments, net

  1,251   1,373 

(Accretion) amortization of deferred loan fees, net

  (1,003)  (822)

Amortization of mortgage servicing rights, net

  315   181 

Additions to mortgage servicing rights, net

  (989)  (60)

Net increase (decrease) on the valuation allowance on mortgage servicing rights

  0   (3)

Provision for loan losses

  4,116   420 

Allocation of ESOP shares

  512   636 

Share-based compensation

  917   804 

Gain on sale of loans, net

  (4,109)  (830)

Gain on sale of securities available for sale, net

  (2,235)  (57)

Increase in cash surrender value of life insurance, net

  (1,577)  (435)

Origination of loans held for sale

  (129,495)  (25,050)

Proceeds from loans held for sale

  129,353   23,825 

Change in assets and liabilities:

        

(Increase) decrease in accrued interest receivable

  (3,436)  322 

Increase in prepaid expenses and other assets

  (1,500)  (3,294)

Decrease in accrued interest payable

  (322)  (259)

Increase in accrued expenses and other liabilities

  3,967   6,767 
         

Net cash from operating activities

  3,323   11,314 
         

CASH FLOWS FROM INVESTING ACTIVITIES

        

Purchase of securities available for sale

  (234,527)  (9,456)

Proceeds from maturities, calls, and principal repayments of securities available for sale

  45,684   21,592 

Proceeds from sales of securities available for sale

  142,276   3,558 

Proceeds from maturities, calls, and principal repayments of securities held to maturity

  0   5,756 

Redemption of FHLB stock

  90   1,996 
Purchase of bank-owned life insurance, net of surrenders  (6,500)  0 

Net (increase) decrease in loans receivable

  (186,588)  22,837 

Purchase of premises and equipment, net

  (1,429)  (188)
         

Net cash from investing activities

  (240,994)  46,095 

 

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 FINANCING ACTIVITIES

        

Net increase in deposits

 $252,811  $30,440 

Proceeds from long-term FHLB advances

  30,000   15,000 

Repayment of long-term FHLB advances

  (30,000)  (25,000)

Net decrease in short-term FHLB advances

  (3,780)  (41,228)

Net increase in advances from borrowers for taxes and insurance

  841   786 

Dividends paid

  (1,569)  (986)
Net share settlement of stock awards  (123)  (266)

Repurchase of common stock

  (7,169)  (5,997)
         

Net cash from financing activities

  241,011   (27,251)
         

NET INCREASE IN CASH AND CASH EQUIVALENTS

  3,340   30,158 
         

CASH AND CASH EQUIVALENTS, beginning of period

  48,739   26,323 
         

CASH AND CASH EQUIVALENTS, end of period

 $52,079  $56,481 
         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

        

Cash paid during the year for:

        

Interest on deposits and borrowings

 $6,746  $9,109 

Income taxes

 $1,400  $1,210 
         

NONCASH INVESTING ACTIVITIES

        

Unrealized gain on securities available for sale

 $5,980  $5,142 

Loans transferred to real estate owned and repossessed assets, net of deferred loan fees and allowance for loan losses

 $495  $271 

Lease liabilities arising from obtaining right-of-use assets

 $902  $0 

 

See selected notes to the consolidated financial statements.

 

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

Note 1 - Basis of Presentation and Critical Accounting Policies

 

Organization and Nature of business - First Northwest Bancorp, a Washington corporation, became the holding company of First Federal Savings and Loan Association of Port Angeles on January 29, 2015, upon completion of the Bank's conversion from a mutual to stock form of organization (the "Conversion"). In connection with the Conversion, the Company issued an aggregate of 12,167,000 shares of common stock at an offering price of $10.00 per share for gross proceeds of $121.7 million. An additional 933,360 shares of Company common stock and $400,000 in cash were contributed to the First Federal Community Foundation ("Foundation"), a charitable foundation that was established in connection with the Conversion, resulting in the issuance of a total of 13,100,360 shares. The Company received $117.6 million in net proceeds from the stock offering of which $58.4 million were contributed to the Bank upon Conversion.

 

Pursuant to the Bank's Plan of Conversion (the "Plan") adopted by its Board of Directors, and as approved by its members, the Company established an employee stock ownership plan ("ESOP"). On December 18, 2015, the ESOP completed its open market purchases, with funds borrowed from the Company, of 8% of the common stock issued in the Conversion for a total of 1,048,029 shares.

 

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 - The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 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. Operating results for the three and nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for future periods.

 

In preparing the unaudited interim consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for loan losses ("ALLL"), fair value of financial instruments, and deferred tax assets and liabilities.

 

Principles of consolidation - The accompanying consolidated financial statements include the accounts of First Northwest Bancorp and its wholly owned subsidiary, First Federal. All material intercompany accounts and transactions have been eliminated in consolidation.

 

Subsequent Events - The Company has evaluated subsequent events for potential recognition and disclosure and has included additional information where appropriate.

 

Recently adopted accounting pronouncements

 

In August 2018, FASB issued ASU No. 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance eliminates certain disclosure requirements for fair value measurements: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities: changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. Furthermore, this guidance modifies certain requirements which will involve disclosing: transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. This ASU did not have a material impact on the Company's consolidated financial statements.

 

10

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

In August 2018, FASB issued ASU No. 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 350-40 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.

 

In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. The amendments represent clarification and improvements to the codification and correct unintended application. This standard was effective immediately upon issuance and its adoption did not have a material effect on the Company’s financial statements.

 

Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Loss, which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model (CECL) will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Upon adoption, the Company will change processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for other-than-temporary impairment on investment securities available for sale will be replaced with an allowance approach.

 

Additional updates were issued in ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging (Topic 825), Financial Instruments. This ASU clarifies and improves guidance related to the previously issued standards on credit losses, hedging and recognition and measurement of financial instruments. The amendments provide entities with various measurement alternatives and policy elections related to accounting for credit losses and accrued interest receivable balances. Entities are also able to elect a practical expedient to separately disclose the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements. The amendments clarify that the estimated allowance for credit losses should include all expected recoveries of financial assets and trade receivables that were previously written off and expected to be written off. The amendments also allow entities to use projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments.

 

In addition, new updates were issued through ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. This amendment allows entities to elect the fair value option on certain financial instruments. On adoption, an entity is allowed to irrevocably elect the fair value option on an instrument-by-instrument basis. This alternative is available for all instruments in the scope of Subtopic 326-20 except for existing held-to-maturity debt securities. If an entity elects the fair value option, the difference between the instrument’s fair value and carrying amount is recognized as a cumulative-effect adjustment.

 

11

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

In November 2019, the FASB issued ASU 2019-10 which defers the effective date for this guidance for smaller reporting companies from the interim and annual periods beginning after December 15, 2020 to the interim and annual periods beginning after December 15, 2022. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Company plans to defer adoption of CECL until January 1, 2023.

 

The Company is evaluating the provisions of ASU No. 2016-13, ASU No. 2019-04 and ASU No. 2019-05, and will closely monitor developments and additional guidance to determine the potential impact on the Company’s consolidated financial statements. At this time, we cannot reasonably estimate the impact the implementation of these ASUs will have on the Company's consolidated financial statements. The Company's internal project management team continues to review models, work with our third-party vendor, and discuss changes to processes and procedures to ensure the Company is fully compliant with the amendments at the adoption date.

 

Other Pronouncements

In December 2019, FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The standard also clarifies and amends existing guidance to improve consistent application. This ASU, which is effective for fiscal years beginning after December 15, 2020, is not expected to have a material impact on the Company's financial statements. Early adoption is permitted.

 

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The ASU, which is effective for fiscal years beginning after December 15, 2020, is not expected to have a material effect on the Company's financial statements.

 

In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments are effective for the Company as of March 12, 2020 through December 31, 2022. The Company does not believe this standard will have a material impact on its financial statements.

 

Reclassifications - Certain amounts in the unaudited interim consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation with no effect on net income or shareholders' equity.

 

12

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

Note 2 - Securities

 

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at September 30, 2020 are summarized as follows:

 

      

Gross

  

Gross

  

Estimated

 
  

Amortized Cost

  

Unrealized Gains

  

Unrealized Losses

  Fair Value 
  

(In thousands)

 

Available for Sale

                

Municipal bonds

 $94,006  $3,232  $(95) $97,143 

U.S. government agency issued asset-backed securities (ABS agency)

  73,915   1,123   (1,420)  73,618 

Corporate issued asset-backed securities (ABS corporate)

  33,553   7   (813)  32,747 

Corporate issued debt securities (Corporate debt)

  33,401   283   (454)  33,230 

U.S. Small Business Administration securities (SBA)

  23,623   242   (1)  23,864 

Mortgage-backed securities:

                

U.S. government agency issued mortgage-backed securities (MBS agency)

  90,281   2,133   (12)  92,402 

Corporate issued mortgage-backed securities (MBS corporate)

  16,300   2   (195)  16,107 
                 

Total securities available for sale

 $365,079  $7,022  $(2,990) $369,111 

 

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at December 31, 2019, are summarized as follows:

 

      

Gross

  

Gross

  

Estimated

 
  

Amortized Cost

  

Unrealized Gains

  

Unrealized Losses

  Fair Value 
  

(In thousands)

 

Available for Sale

                

Municipal bonds

 $39,524  $125  $(367) $39,282 

ABS agency

  29,796   0   (938)  28,858 

ABS corporate

  41,728   0   (873)  40,855 

Corporate debt

  9,986   0   (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   0   (58)  8,316 
                 

Total securities available for sale

 $317,528  $1,008  $(2,956) $315,580 

 

 

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 September 30, 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

 $(95) $7,757  $0  $0  $(95) $7,757 

ABS agency

  (172)  8,172   (1,248)  25,933   (1,420)  34,105 

ABS corporate

  (85)  3,801   (728)  26,982   (813)  30,783 

Corporate debt

  (90)  6,804   (364)  9,622   (454)  16,426 

SBA

  0   65   (1)  3,775   (1)  3,840 

Mortgage-backed securities:

                        

MBS agency

  (12)  2,221   0   6   (12)  2,227 

MBS corporate

  (31)  1,979   (164)  3,998   (195)  5,977 
                         

Total available for sale

 $(485) $30,799  $(2,505) $70,316  $(2,990) $101,115 

 

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, 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  $0  $0  $(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

  0   0   (36)  15,034   (36)  15,034 

Mortgage-backed securities:

                        

MBS agency

  (166)  18,744   (175)  47,463   (341)  66,207 

MBS corporate

  0   0   (58)  8,316   (58)  8,316 
                         

Total available for sale

 $(640) $61,358  $(2,316) $137,482  $(2,956) $198,840 

 

The Company may hold certain investment securities in an unrealized loss position that are not considered other than temporarily impaired ("OTTI"). At September 30, 2020 and December 31, 2019, there were 30 and 62 investment securities in an unrealized loss position, respectively.

 

We believe that the unrealized losses on our investment securities relate principally to the general change in interest rates, market demand, and related volatility, rather than credit quality, that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future. Certain investments in a loss position are guaranteed by government entities or government sponsored entities. The Company does not intend to sell the securities in an unrealized loss position and believes it is not likely it will be required to sell these investments prior to a market price recovery or maturity.

 

There were 0 OTTI losses during the three and nine months ended September 30, 2020 and 2019.

 

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; therefore, these securities are shown separately.

 

  

September 30, 2020

 
  

Available-for-Sale

 
  

Amortized Cost

  

Estimated Fair Value

 
  

(In thousands)

 

Mortgage-backed securities:

        

Due within one year

 $0  $0 

Due after one through five years

  11,956   12,175 

Due after five through ten years

  142   142 

Due after ten years

  94,483   96,192 
         

Total mortgage-backed securities

  106,581   108,509 
         

All other investment securities:

        

Due within one year

  0   0 

Due after one through five years

  4,524   4,563 

Due after five through ten years

  71,563   70,390 

Due after ten years

  182,411   185,649 
         

Total all other investment securities

  258,498   260,602 
         

Total investment securities

 $365,079  $369,111 

 

  

December 31, 2019

 
  

Available-for-Sale

 
  

Amortized Cost

  

Estimated Fair Value

 
  

(In thousands)

 

Mortgage-backed securities:

        

Due within one year

 $0  $0 

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

  0   0 

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 

 

15

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Sales of securities available-for-sale for the periods shown are summarized as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(In thousands)

  

(In thousands)

 

Proceeds from sales

 $47,844  $0  $142,276  $3,558 

Gross realized gains

  1,593   0   3,097   57 

Gross realized losses

  (624)  0   (862)  0 

 

 

 

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

 $317,755  $306,014 

Multi-family

  127,569   96,098 

Commercial real estate

  283,390   255,722 

Construction and land

  75,204   37,187 

Total real estate loans

  803,918   695,021 
         

Consumer:

        

Home equity

  34,120   35,046 

Auto and other consumer

  111,782   112,119 

Total consumer loans

  145,902   147,165 
         

Commercial business loans

  123,036   41,571 
         

Total loans

  1,072,856   883,757 
         

Less:

        

Net deferred loan fees

  2,628   206 

Premium on purchased loans, net

  (4,196)  (4,514)

Allowance for loan losses

  13,007   9,628 
         

Total loans receivable, net

 $1,061,417  $878,437 

 

Allowance for Loan Losses. The Company maintains a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.

 

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following tables summarize changes in the ALLL and loan portfolio by segment and impairment method for the periods shown:

 

  

At or For the Three Months Ended September 30, 2020

 
  

One-to-

      

Commercial

  

Construction

  

Home

  

Auto and other

  

Commercial

         
  

four family

  

Multi-family

  

real estate

  

and land

  

equity

  

consumer

  

business

  

Unallocated

  

Total

 
  

(In thousands)

 

ALLL:

                                    

Beginning balance

 $3,780  $1,128  $3,021  $738  $429  $2,252  $463  $298  $12,109 

Provision for (recapture of) loan losses

  62   307   319   240   (4)  427   0   (1)  1,350 

Charge-offs

  0   0   0   0   0   (479)  0   0   (479)

Recoveries

  2   0   0   1   0   24   0   0   27 

Ending balance

 $3,844  $1,435  $3,340  $979  $425  $2,224  $463  $297  $13,007 

 

  

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

 $3,024  $888  $2,243  $399  $454  $2,261  $208  $151  $9,628 

Provision for (recapture of) loan losses

  764   547   1,097   577   (30)  760   255   146   4,116 

Charge-offs

  0   0   0   0   0   (853)  0   0   (853)

Recoveries

  56   0   0   3   1   56   0   0   116 

Ending balance

 $3,844  $1,435  $3,340  $979  $425  $2,224  $463  $297  $13,007 

 

  

At 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

 $3,844  $1,435  $3,340  $979  $425  $2,224  $463  $297  $13,007 

General reserve

  3,791   1,435   3,339   978   421   2,036   463   297   12,760 

Specific reserve

  53   0   1   1   4   188   0   0   247 
                                     

Total loans

 $317,755  $127,569  $283,390  $75,204  $34,120  $111,782  $123,036  $0  $1,072,856 

Loans collectively evaluated (1)

  313,744   127,282   282,103   75,179   33,983   111,174   123,036   0   1,066,501 

Loans individually evaluated (2)

  4,011   287   1,287   25   137   608   0   0   6,355 

 


(1) Loans collectively evaluated for general reserves.

(2) Loans individually evaluated for specific reserves.

 

17

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

  

At or For the Three Months Ended September 30, 2019

 
  

One-to-

      

Commercial

  

Construction

  

Home

  

Auto and other

  

Commercial

         
  

four family

  

Multi-family

  

real estate

  

and land

  

equity

  

consumer

  

business

  

Unallocated

  

Total

 
  (In thousands) 

ALLL:

   

Beginning balance

 $3,417  $651  $2,357  $711  $465  $1,790  $171  $169  $9,731 

(Recapture of) provision for loan losses

  (307)  (64)  47   16   (30)  192   (13)  (11)  (170)

Charge-offs

  0   0   0   0   0   (237)  1   0   (236)

Recoveries

  1   0   0   1   23   93   0   0   118 

Ending balance

 $3,111  $587  $2,404  $728  $458  $1,838  $159  $158  $9,443 

 

  

At or For the Nine Months Ended September 30, 2019

 
  

One-to-

      

Commercial

  

Construction

  

Home

  

Auto and other

  

Commercial

         
  

four family

  

Multi-family

  

real estate

  

and land

  

equity

  

consumer

  

business

  

Unallocated

  

Total

 
  (In thousands) 

ALLL:

   

Beginning balance

 $3,297  $762  $2,289  $585  $480  $1,611  $334  $175  $9,533 

(Recapture of) provision for loan losses

  (190)  (175)  115   142   (66)  785   (174)  (17)  420 

Charge-offs

  0   0   0   0   0   (785)  (3)  0   (788)

Recoveries

  4   0   0   1   44   227   2   0   278 

Ending balance

 $3,111  $587  $2,404  $728  $458  $1,838  $159  $158  $9,443 

 

  

At December 31, 2019

 
  

One-to-

      

Commercial

  

Construction

  

Home

  

Auto and other

  

Commercial

         
  

four family

  

Multi-family

  

real estate

  

and land

  

equity

  

consumer

  

business

  

Unallocated

  

Total

 
  

(In thousands)

 

Total ALLL

 $3,024  $888  $2,243  $399  $454  $2,261  $208  $151  $9,628 

General reserve

  2,993   887   2,235   399   439   2,119   203   151   9,426 

Specific reserve

  31   1   8   0   15   142   5   0   202 
                                     

Total loans

 $306,014  $96,098  $255,722  $37,187  $35,046  $112,119  $41,571  $0  $883,757 

Loans collectively evaluated (1)

  303,026   95,991   253,839   37,158   34,775   111,271   41,308   0   877,368 

Loans individually evaluated (2)

  2,988   107   1,883   29   271   848   263   0   6,389 

 


(1) Loans collectively evaluated for general reserves.

(2) Loans individually evaluated for specific reserves.

 

Impaired loans. A loan is considered impaired when First Federal has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan. Impairment is measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying troubled debt restructuring ("TDR") loans.

 

18

 

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:

                        
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    

Total

  1,747   2,219      1,833   2,343    
                         

With an allowance recorded:

                        
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 

Total

  4,608   5,079   247   4,556   4,929   202 
                         

Total impaired loans:

                        

One-to-four family

  4,011   4,246   53   2,988   3,243   31 

Multi-family

  287   287   0   107   107   1 

Commercial real estate

  1,287   1,376   1   1,883   1,963   8 

Construction and land

  25   57   1   29   62   0 

Home equity

  137   253   4   271   396   15 

Auto and other consumer

  608   1,079   188   848   1,238   142 

Commercial business

  0   0   0   263   263   5 

Total

 $6,355  $7,298  $247  $6,389  $7,272  $202 

 

19

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following table presents a summary of loans individually evaluated for impairment by portfolio segment at the dates indicated:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2020

  

September 30, 2020

 
  

Average Recorded Investment

  

Interest Income Recognized

  

Average Recorded Investment

  

Interest Income Recognized

 
  

(In thousands)

  

(In thousands)

 

With no allowance recorded:

                
One-to-four family $203  $6  $154  $6 
Multi-family  294   1   197   0 
Commercial real estate  1,200   1   1,211   15 
Construction and land  0   0   12   0 
Home equity  38   1   43   1 
Auto and other consumer  0   13   0   16 
Commercial business  168   0   90   0 

Total

  1,903   22   1,707   38 
                 

With an allowance recorded:

                
One-to-four family $4,397  $91  $3,335  $158 
Multi-family  0   0   158   0 
Commercial real estate  67   2   380   2 
Construction and land  26   2   28   3 
Home equity  140   3   212   7 
Auto and other consumer  702   24   718   33 
Commercial business  0   0   146   0 

Total

  5,332   122   4,977   203 
                 

Total impaired loans:

                

One-to-four family

  4,600   97   3,489   164 

Multi-family

  294   1   355   0 

Commercial real estate

  1,267   3   1,591   17 

Construction and land

  26   2   40   3 

Home equity

  178   4   255   8 

Auto and other consumer

  702   37   718   49 

Commercial business

  168   0   236   0 

Total

 $7,235  $144  $6,684  $241 

 

Interest income recognized on a cash basis on impaired loans for the three and nine months ended September 30, 2020, was $84,000 and $181,000, respectively.

 

20

 

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

 $236  $4  $243  $8 

Commercial real estate

  1,260   15   1,278   39 

Home equity

  52   14   144   30 

Auto and other consumer

  0   10   0   14 
Commercial business  0   1   0   4 

Total

  1,548   44   1,665   95 
                 

With an allowance recorded:

                

One-to-four family

  2,891   64   2,850   146 

Multi-family

  108   1   109   4 

Commercial real estate

  651   8   657   23 

Construction and land

  52   2   57   2 

Home equity

  289   6   297   14 

Auto and other consumer

  394   9   324   16 

Commercial business

  266   2   299   9 

Total

  4,651   92   4,593   214 
                 

Total impaired loans:

                

One-to-four family

  3,127   68   3,093   154 

Multi-family

  108   1   109   4 

Commercial real estate

  1,911   23   1,935   62 

Construction and land

  52   2   57   2 

Home equity

  341   20   441   44 

Auto and other consumer

  394   19   324   30 

Commercial business

  266   3   299   13 

Total

 $6,199  $136  $6,258  $309 

 

Interest income recognized on a cash basis on impaired loans for the three and nine months ended September 30, 2019, was $99,000 and $271,000, respectively.

 

21

 

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

 $1,939  $698 

Multi-family

  287   0 

Commercial real estate

  166   109 

Construction and land

  25   29 

Home equity

  74   112 

Auto and other consumer

  607   848 

Commercial business

  0   0 
         

Total nonaccrual loans

 $3,098  $1,796 

 

Past due loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. There were 0 loans past due 90 days or more and still accruing interest at September 30, 2020 and December 31, 2019.

 

The following table presents past due loans, net of partial loan charge-offs, by class, as of September 30, 2020:

 

  

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

 $0  $685  $500  $1,185  $316,570  $317,755 

Multi-family

  0   0   0   0   127,569   127,569 

Commercial real estate

  0   0   0   0   283,390   283,390 

Construction and land

  0   0   25   25   75,179   75,204 

Total real estate loans

  0   685   525   1,210   802,708   803,918 
                         

Consumer:

                        

Home equity

  0   12   0   12   34,108   34,120 

Auto and other consumer

  724   416   180   1,320   110,462   111,782 

Total consumer loans

  724   428   180   1,332   144,570   145,902 
                         

Commercial business loans

  0   0   0   0   123,036   123,036 
                         

Total loans

 $724  $1,113  $705  $2,542  $1,070,314  $1,072,856 

 

22

 

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, 2019:

 

  

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

 $928  $92  $116  $1,136  $304,878  $306,014 

Multi-family

  0   0   0   0   96,098   96,098 

Commercial real estate

  0   0   0   0   255,722   255,722 

Construction and land

  38   0   0   38   37,149   37,187 

Total real estate loans

  966   92   116   1,174   693,847   695,021 
                         

Consumer:

                        

Home equity

  299   24   0   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

  0   115   0   115   41,456   41,571 
                         

Total loans

 $2,688  $601  $730  $4,019  $879,738  $883,757 

 

Credit quality indicator. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss; risk ratings 6, 7, and 8 in our 8-point risk rating system, respectively. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that First 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.

 

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 1-3 in our risk rating system.

 

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.

 

23

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following table represents the internally assigned grade as of September 30, 2020, by class of loans:

 

  

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 

 

24

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following table represents the credit risk profile based on payment activity as of September 30, 2020, by class of loans:

 

  

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

  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.

 

25

 

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:

 

  

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 0 newly restructured and renewals or modifications of existing TDR loans that occurred during the three and nine months ended September 30, 2020 or September 30, 2019.

 

There were 0 TDR loans which incurred a payment default within 12 months of the restructure date during three and nine months ended September 30, 2020.

 

The following table presents newly restructured and renewals or modifications of existing TDR loans by class that occurred during the three and nine months ended September 30, 2019, by type of concession granted.

  

Number

  

Rate

  

Term

  

Combination

  

Total

 
  

of Contracts

  

Modification

  

Modification

  

Modification

  

Modifications

 
      

(Dollars in thousands)

 

Pre-modification outstanding recorded investment

                    

One- to four-family

  1  $0  $50  $0  $50 
                     

Post-modification outstanding recorded investment

                    

One- to four-family

  1  $0  $51  $0  $51 

 

 

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following is a summary of TDR loans which incurred a payment default within 12 months of the restructure date during the three and nine months ended September 30, 2019.

 

  

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 September 30, 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 

 

 

 

Note 4 - Deposits

 

The aggregate amount of time deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limit, currently $250,000, at September 30, 2020 and December 31, 2019, were $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% 

 

27

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Maturities of certificates at the dates indicated are as follows:

 

  

September 30, 2020

  

December 31, 2019

 
  

(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 $92.6 million and $51.6 million are included in the September 30, 2020 and December 31, 2019 certificate of deposits totals above, respectively.

 

Deposits at September 30, 2020 and December 31, 2019, included $79.9 million and $57.3 million, respectively, in public fund deposits. Investment securities with a carrying value of $39.0 million and $35.5 million were pledged as collateral for these deposits at 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 

 

 

 

Note 5 - Federal Taxes on Income

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

 

The effective tax rates were 24.4% and 18.9% for the nine months ended September 30, 2020 and 2019, respectively. The effective tax rates differ from the statutory maximum federal tax rate for 2020 and 2019 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. An estimate for the penalty on the BOLI contract surrendered this year is included in the 2020 tax provision resulting in a higher effective tax rate.

 

28

 

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 September 30, 2020 and 2019.

 

  

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 September 30, 2020 and 2019, there were 754,301 and 794,042 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 6,723 and 5,248 restricted stock award anti-dilutive weighted-average shares for the three months ended 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-month period are eligible to participate in the ESOP.

 

Pursuant to the Plan, the ESOP purchased shares in the open market with funds borrowed from First Northwest. The Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to First Northwest over a period of 20 years, bearing estimated interest at 2.46%. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP assets. An annual principal and interest payment of $835,000 was made by the ESOP during the nine months ended September 30, 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 accrued monthly throughout the year. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.

 

29

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Compensation expense related to the ESOP for the three months ended September 30, 2020 and 2019, was $99,000 and $185,000, respectively. Compensation expense related to the ESOP for the nine months ended September 30, 2020 and 2019, was $359,000 and $512,000, respectively.

 

Shares issued to the ESOP as of the dates indicated are as follows:

  

September 30, 2020

  

December 31, 2019

 
  

(Dollars in thousands)

 

Allocated shares

  280,507   227,473 

Committed to be released shares

  13,221   26,514 

Unallocated shares

  754,301   794,042 
         

Total ESOP shares issued

  1,048,029   1,048,029 
         

Fair value of unallocated shares

 $7,468  $14,396 

 

 

 

Note 8 - Stock-based Compensation

 

In May 2020, the Company's shareholders approved the First Northwest Bancorp 2020 Equity Incentive Plan ("2020 EIP"), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock shares or restricted stock units, and performance share awards to eligible participants through May 2030. The cost of awards under the 2020 EIP generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the 2020 EIP is 520,000. At September 30, 2020, there were 456,541 total shares available for grant under the 2020 EIP, all of which are available to be granted as restricted shares.

 

As a result of the approval of the 2020 EIP, the First Northwest Bancorp 2015 Equity Incentive Plan (the "2015 EIP") was frozen and 0 additional awards will be made. 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 September 30, 2020 and 2019, 63,459 and 23,400 shares of restricted stock were awarded, respectively, and 0 stock options were granted. There were 126,059 and 23,400 shares of restricted stock awarded, respectively, during the nine months ended 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 the stated period.

 

For the three months ended September 30, 2020 and 2019, total compensation expense for the equity incentive plans was $362,000 and $251,000, respectively. For the nine months ended September 30, 2020 and 2019, total compensation expense for the equity incentive plans was $917,000 and $804,000, respectively.

 

Included in the above compensation expense for the three months ended September 30, 2020 and 2019, directors' compensation was $102,000 and $86,000, respectively. For the nine months ended September 30, 2020 and 2019, directors' compensation was $273,000 and $256,000, 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.

 
 

 

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

As of September 30, 2020, there was $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 3.20 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-party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.

 

Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.

 

A three-level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:

 

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 - Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.

 

Level 3 - Unobservable inputs.

 

The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.

 

Qualitative disclosures of valuation techniques - Securities available for sale: where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities.

 

If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.

 

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets measured at fair value on a recurring basis at the dates indicated:

 

  

September 30, 2020

 
  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.

 

32

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:

 

  

September 30, 2020

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 
  

(In thousands)

 

Impaired loans

 $0  $0  $6,355  $6,355 

 

  

December 31, 2019

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 
  

(In thousands)

 

Impaired loans

 $0  $0  $6,389  $6,389 

 

At September 30, 2020 and December 31, 2019, there were 0 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    

 

33

 

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

  

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 ASU 2016-01 requiring public entities to use the exit price notion effective January 1, 2018, are as follows:

 

Securities - Fair values for investment securities are primarily measured using information from a third-party pricing service. The pricing service uses pricing models based on market data. In the event that limited or less transparent information is provided by the third-party pricing service, fair value is estimated using secondary pricing services or non-binding third-party broker quotes.

 

Loans receivable, net - At September 30, 2020, the fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans and leases would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.

 

Mortgage servicing rights, net - The estimated fair value of mortgage servicing rights is based on market prices for comparable mortgage servicing contracts when available. If no comparable contract is available, the estimated fair value is based on a valuation model that calculates the present value of estimated future net servicing income.

 

34

 
 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

 

Certain matters discussed in this Quarterly Report on Form 10-Q constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include, but are not limited to:

 

 

statements of our goals, intentions and expectations;

 

statements regarding our business plans, prospects, growth and operating strategies;

 

statements regarding the quality of our loan and investment portfolios;

 

estimates of our risks and future costs and benefits; and

 

statements concerning the potential effects of the COVID-19 pandemic on the Bank's business and financial results and conditions.

 

These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

 

 

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. These developments could have an adverse impact on our financial position and our results of operations.

 

Any of the forward-looking statements that we make in this report and in other statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot anticipate or predict. Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. Due to these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.

 

General

 

First Northwest is a bank holding company which primarily engages in the business activity of its subsidiary, First Federal. First Federal is a community 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 product mix, expanding our deposit product offerings that deliver value-added solutions, enhancing existing services and digital service delivery channels, and enhancing our infrastructure to support the changing needs and expectations of our customers.

 

We offer a wide range of products and services focused on the lending and depository needs of Western Washington. While we have a concentration of first lien one- to four-family mortgage loans, we continue to increase our origination and portfolio balances of commercial real estate and multi-family real estate. We have also increased our auto and consumer loans, through indirect 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 manage interest rate risk. We also retain one- to four-family first and second lien loans in our portfolio to generate interest income. We offer consumer and business deposit products, including transaction accounts, savings and money market accounts, and certificates of deposit for individuals, businesses, and nonprofit organizations. Deposits are our primary source of funds for lending and investing activities. We also borrow funds, typically from the Federal Home Loan Bank of Des Moines, as a way to provide cost effective liquidity and manage interest rate risk.

 

 

First Northwest is affected by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by several factors, including interest rates paid on competing time deposits, alternative investment options available to our customers, account maturities, the number and quality of our deposit originators, digital delivery systems, branding and customer acquisition, and the overall level of personal income and savings in the markets where we do business. Lending activities are influenced by the demand for funds, our credit policies, the number and quality of our lenders and credit underwriters, digital delivery systems, branding and customer acquisition, and regional economic cycles.

 

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income earned on our loans and investments and interest expense paid on our deposits and borrowings. Changes in levels of interest rates and cash flows from existing assets and liabilities affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, mortgage banking income, 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, increased property values, or recoveries of amounts previously charged off are received, a recapture of previously recognized provision for loan losses may be added to net income.

 

Noninterest expenses we incur in operating our business consist of salaries and employee benefit costs, occupancy and equipment expenses, federal deposit insurance premiums and regulatory assessments, data processing expenses, marketing and customer acquisition expenses, expenses related to real estate and personal property owned, and other expenses.

 

COVID-19 Pandemic. In late 2019 and early 2020, the COVID-19 pandemic manifested its impact on individuals, companies, and governmental entities around the world. It significantly impacted the global economy and created a challenging operating environment. As economic conditions deteriorated in mid-March 2020 as a result of the COVID-19 pandemic, we responded in several ways. Some of the key adjustments and developments include the following:

 

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. Many borrowers requested and received temporary forbearance from obligations to assist them with the expected shortage in their near-term cash flow.

 

Facilitating government programs like the Small Business Administration's Paycheck Protection Program ("SBA PPP") and Main Street Lending Program ("MSLP") established by the Federal Reserve.

 

Investing in our communities. We contributed to and will continue to support non-profit organizations in the communities we serve.

For our shareholders and regulators:

 

Maintained our capital ratios at strong levels and materially increased our provision for loan losses to $4.1 million for the first nine months of 2020, compared to $669,000 for all of 2019.

 Increased on balance sheet liquidity, specifically Cash and Cash Equivalents increased by $3.3 million, a 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.

 

On March 23, 2020, the State of Washington announced the Stay Home, Stay Healthy order for all residents, resulting in the closing of businesses or a substantial reduction in business activity. Conditions have since improved in most of the counties within our footprint allowing many businesses to expand services or reopen under current guidelines. The sectors that continue to be most heavily impacted include hospitality; restaurant and food services; and lessors of commercial real estate to hospitality, restaurant, and retail establishments. At September 30, 2020, the Company’s exposure as a percent of the total loan portfolio to these industries was 4.9%, 0.2%, and 4.6%, respectively.

 

 

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 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."

 

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. On June 5, 2020, the Paycheck Protection Program Flexibility Act ("PPPFA") was enacted. Main provisions of the PPPFA extended the repayment period from two to five years, extended the covered expense period from eight to 24 weeks, and lowered the percent of forgiveness amount required to be used for eligible payroll costs to 60%. The PPPFA also extends the repayment start date until after the SBA finalizes the application process for loan forgiveness.

 

We processed $32.2 million of loans for 515 customers through the SBA PPP program as of September 30, 2020. The average loan amount approved was approximately $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). We partnered with a third-party financial technology provider to assist our borrowers with the loan forgiveness application process.

 

Loan processing fees paid to the Bank from the SBA of 5% on loans of $350,000 or less, 3% on loans of more than $350,000 but less than $2.0 million, and 1% for loans of $2.0 million or more are accounted for as loan origination fees. Net deferred fees are recognized over the life of the loan, or two years, as a yield adjustment on the loans. As of September 30, 2020, 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.

 

 

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 September 30, 2020 and December 31, 2019

 

Assets. Total assets increased to $1.56 billion at September 30, 2020 from $1.30 billion at December 31, 2019.

 

Total loans, excluding loans held for sale, increased $182.9 million to $1.06 billion at September 30, 2020, from $878.4 million at December 31, 2019. During the nine months ended September 30, 2020, one- to four-family residential loans increased $11.7 million, as we sold 65.6% of one- to four-family residential loans originated during the year. Multi-family loans increased $31.4 million as we continued to build this part of the loan portfolio. Commercial real estate loans increased by $27.6 million as we continue to build our lending presence in King and Whatcom Counties as well as continued lending in our legacy markets. 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 loans decreased $337,000. Competition for quality commercial credits remains; however, impacts of the COVID-19 pandemic effect both the supply and demand for credit. Refinance activity of one- to-four family residential loans was robust during the nine-month period.

 

Construction and land loans increased $38.0 million, or 102.2%, to $75.2 million at 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, 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 June 30, 2020, most projects were able to restart under specific criteria. We continue to monitor the projects currently in our portfolio to determine the impact of COVID-19 on completion. As of this point in time, we have no reason to believe that any of the projects in process will not be completed.

 

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 2018. In the fourth quarter of 2019 and the first nine months of 2020, we increased production in construction lending and our commitments increased accordingly. We continually assess our lending strategies across all product lines and markets within which we do business in order to improve earnings while also prudently managing credit risk.

 

 

The following tables show our construction commitments by type and geographic concentrations at the dates indicated:

 

September 30, 2020

 

North Olympic Peninsula (1)

  

Puget Sound Region (2)

  

Other Washington

  

Oregon

  

Total

 
  

(In thousands)

 

Construction Commitment

                    

One- to four-family residential

 $16,090  $25,865  $1,478  $  $43,433 

Multi-family residential

     67,620      8,020   75,640 

Commercial real estate

  8,897   33,833   2,807      45,537 

Total commitment

 $24,987  $127,318  $4,285  $8,020  $164,610 
                     

Construction Funds Disbursed

                    

One- to four-family residential

 $7,762  $14,579  $565  $  $22,906 

Multi-family residential

     25,634         25,634 

Commercial real estate

  7,877   10,313   55      18,245 

Total disbursed

 $15,639  $50,526  $620  $  $66,785 
                     

Undisbursed Commitment

                    

One- to four-family residential

 $8,328  $11,286  $913  $  $20,527 

Multi-family residential

     41,986      8,020   50,006 

Commercial real estate

  1,020   23,520   2,752      27,292 

Total undisbursed

 $9,348  $76,792  $3,665  $8,020  $97,825 
                     

Land Funds Disbursed

                    

One- to four-family residential

 $4,588  $2,133  $349  $  $7,070 

Commercial real estate

     1,350         1,350 

Total disbursed for land

 $4,588  $3,483  $349  $  $8,420 

 

(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

 $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 

 

 

During the nine months ended September 30, 2020, the Company originated $498.5 million of loans, of which $308.3 million, or 61.8%, were originated in the Puget Sound region, $159.1 million, or 31.9%, in the North Olympic Peninsula, $12.8 million, or 2.6%, in other areas throughout Washington State, and $18.3 million, or 3.7%, in Oregon. The Company purchased an additional $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 nine months ended September 30, 2020. We will continue to evaluate opportunities to acquire assets through wholesale channels in order to supplement our organic originations and increase net interest income.

 

Our allowance for loan losses increased $3.3 million, or 35.1%, to $13.0 million at September 30, 2020, from $9.6 million at December 31, 2019. The increase was due to a $4.1 million loan loss provision, offset by net charge-offs of $737,000 for the nine-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 September 30, 2020 and December 31, 2019 was 1.2% and 1.1%, respectively.

 

Nonperforming loans increased $1.3 million, or 72.5%, to $3.0 million at September 30, 2020, from $1.7 million at December 31, 2019, mainly attributable to an increase in nonperforming one- to four-family loans of $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 $241,000. Nonperforming loans to total loans increased to 0.3% at September 30, 2020, from 0.2% at December 31, 2019. The allowance for loan losses as a percentage of nonperforming loans decreased to 419.9% at September 30, 2020, from 536.1% at December 31, 2019.

 

At September 30, 2020, there were $2.2 million in restructured loans, of which $2.1 million were performing in accordance with their modified payment terms and returned to accrual status. Classified loans decreased $921,000 to $4.0 million at September 30, 2020, from $5.0 million at December 31, 2019.

 

Net loan charge-offs are concentrated mainly in our indirect auto loan portfolio. We recently removed one of our indirect auto loan product offerings to effectively eliminate new production and reduce future charge-off activity. We continue to monitor the 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 September 30, 2020. As the ultimate impact of the COVID-19 pandemic and response from Federal and State government remains to be seen, we increased the qualitative factor related to the economy this quarter.

 

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

 $317,755  $306,014  $11,741   3.8%

Multi-family

  127,569   96,098   31,471   32.7 

Commercial real estate

  283,390   255,722   27,668   10.8 

Construction and land

  75,204   37,187   38,017   102.2 

Total real estate loans

  803,918   695,021   108,897   15.7 
                 

Consumer:

                

Home equity

  34,120   35,046   (926)  (2.6)

Auto and other consumer

  111,782   112,119   (337)  (0.3)

Total consumer loans

  145,902   147,165   (1,263)  (0.9)
                 

Commercial business loans

  123,036   41,571   81,465   196.0 
                 

Total loans

  1,072,856   883,757   189,099   21.4 

Less:

                

Net deferred loan fees

  2,628   206   2,422   1,175.7 

Premium on purchased loans, net

  (4,196)  (4,514)  318   (7.0)

Allowance for loan losses

  13,007   9,628   3,379   35.1 

Loans receivable, net

 $1,061,417  $878,437  $182,980   20.8 

 

 

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

 $1,939  $698  $1,241   177.8%

Multi-family

  287      287   100.0 

Commercial real estate

  166   109   57   52.3 

Construction and land

  25   29   (4)  (13.8)

Total real estate loans

  2,417   836   1,581   189.1 
                 

Consumer loans:

                

Home equity

  74   112   (38)  (33.9)

Auto and other consumer

  607   848   (241)  (28.4)

Total consumer loans

  681   960   (279)  (29.1)
                 

Commercial business

           100.0 
                 

Total nonperforming loans

  3,098   1,796   1,302   72.5 
                 

Real estate owned:

                

Land

     62   (62)  (100.0)

Total real estate owned

     62   (62)  (100.0)
                 

Repossessed assets

  170   92   78   84.8 
                 

Total nonperforming assets

 $3,268  $1,950  $1,318   67.6 
                 

Nonaccrual and 90 days or more past due loans as a percentage of total loans

  0.3%  0.2%  0.1%  50.0 

 

Investment securities increased $53.5 million, or 17.0%, to $369.1 million at September 30, 2020, from $315.6 million at December 31, 2019, due to the purchase and sale of securities, normal payments and prepayment activity, and an increase in the market value of the portfolio. Mortgage-backed securities represent the largest portion of our investment securities portfolio and totaled $108.5 million at September 30, 2020, or 29.4% of the investment securities portfolio, a decrease during the year of $60.0 million, or 35.6%, from $168.5 million at December 31, 2019. Other investment securities, including municipal bonds and other asset-backed securities, were $260.6 million at September 30, 2020, or 70.6% of the investment securities portfolio, an increase of $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 6.7 years as of September 30, 2020, and 5.0 years as of December 31, 2019, and had an estimated average repricing term of 4.4 years as of September 30, 2020, and 3.7 years as of December 31, 2019, based on the interest rate environment at those times.

 

The investment portfolio was comprised of 59.8% in amortizing securities at September 30, 2020 and 81.8% at December 31, 2019. The projected average life of our securities may vary due to prepayment activity, which, particularly in the mortgage-backed securities portfolio, is impacted by prevailing mortgage interest rates. Management maintains a focus on enhancing the mix of earning assets by originating loans as a percentage of earning assets; however, we continue to purchase investment securities as a source of additional interest income. For additional information, see Note 2 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

 

 

Liabilities. Total liabilities increased to $1.38 billion at September 30, 2020, from $1.13 billion at December 31, 2019, primarily due to an increase in deposits of $252.8 million.

 

Deposit balances increased 25.2%, to $1.25 billion at September 30, 2020, from $1.00 billion at December 31, 2019. There was a $150.0 million increase in money market accounts, a $114.3 million increase in transaction accounts, and a $2.9 million increase in savings accounts during the 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, reduce our reliance on public funds deposits, and allow flexibility when competing on retail rates. At September 30, 2020, we had $92.6 million in brokered CDs included in the $293.5 million balance of certificates of deposit.

 

Equity. Total shareholders' equity increased $3.8 million to $180.6 million for the nine months ended September 30, 2020. The increase was due to an after-tax increase in other comprehensive income of $4.7 million due to the increased value of our available-for-sale securities portfolio offset by realized sales, as well as year-to-date net income of $6.5 million, partially offset by $7.2 million in repurchases of shares of common stock.

 

 

 

Comparison of Results of Operations for the Three Months Ended September 30, 2020 and 2019

 

General. Net income increased $1.2 million, or 46.4%, to $3.7 million for the three months ended September 30, 2020, compared to net income of $2.5 million for the three months ended September 30, 2019. The increase is mainly due to an increase in net interest income, 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 compensation expenses.

 

Net Interest Income. Net interest income increased $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 September 30, 2019 The yield on average interest-earning assets decreased 38 basis points to 3.82% for the three months ended September 30, 2020, compared to 4.20% for the same period in the prior year. The decrease was due to a lower market interest rates offset by a small increase in the ratio of total loans to assets in the current period compared to one year ago from 67.7% to 68.6%.

 

The average cost of interest-bearing liabilities decreased 67 basis points to 0.60% for the three months ended September 30, 2020, compared to 1.27% for the same period last year. The decrease was due in part to the management of deposit rates reflecting the low rate environment as well as a reduction in the level and cost of borrowings given the prepayment of higher costing FHLB borrowings in the fourth quarter of 2019 and the first quarter of 2020. Our average cost of FHLB borrowings for the three months ended September 30, 2020 decreased to 1.34% in the third quarter of 2020 compared to 3.16% for the same period one year prior. The cost of interest-bearing deposits decreased by 50 basis points to 0.56% compared to 1.06% for the three months ended September 30, 2019, given decreasing market rates.

 

Due to the average yield on interest-bearing liabilities decreasing at a faster pace than our interest-earning assets, the net interest margin increased 13 basis points to 3.36% for the three months ended September 30, 2020, from 3.23% for the same period in 2019. For additional information, see Rate/Volume Analysis contained in Item 2 of this Form 10-Q.

 

Interest Income. Total interest income increased $1.1 million, or 9.1%, to $13.3 million for the three months ended September 30, 2020, from $12.2 million for the comparable period in 2019. Interest and fees on loans receivable increased $1.0 million, to $11.0 million for the three months ended September 30, 2020, from $10.0 million for the three months ended September 30, 2019, due primarily to an increase in the volume of average loans. Average loan yields decreased 23 basis points to 4.45% for the three months ended September 30, 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.

 

Interest income on investment securities increased $682,000 to $1.6 million for the three months ended September 30, 2020, compared to $921,000 for the three months ended September 30, 2019, due to a $156.2 million increase in average balances partially offset by an 91 basis point decrease in average yield related to a decrease in the yield on variable rate securities and lower reinvestment market rates. The change in average yield on investment securities does not include the benefit of nontaxable income from municipal bonds. Interest income on mortgage-backed and related securities for the three months ended September 30, 2020 decreased $522,000, or 48.0%, compared to the three months ended September 30, 2019, the result of a decrease of $61.8 million in the average balance and a 48 basis point decrease in the average yield in the 2020 period.

 

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

 $998,586   4.45% $862,587   4.68% $1,001 

Investment securities

  267,911   2.39   111,695   3.30   682 

Mortgage-backed securities

  110,863   2.04   172,639   2.52   (522)

FHLB stock

  4,028   9.63   5,019   7.33   5 

Interest-bearing deposits in banks

  19,702   0.18   15,413   1.69   (56)

Total interest-earning assets

 $1,401,090   3.82% $1,167,353   4.20% $1,110 

 

 

Interest Expense. Total interest expense decreased $1.2 million, or 43.1%, to $1.6 million for the three months ended September 30, 2020, compared to $2.8 million for the three months ended September 30, 2019, mainly due to an $736,000, or 34.0% decrease in interest paid on deposits. Interest on borrowings decreased $486,000 or 70.3%. Interest expense on deposits decreased for the three months ended September 30, 2020, due to lower rates offsetting the impact of increased balances. The average balance of interest-bearing deposits increased $202.3 million, or 25.1%, to $1.01 billion for the three months ended September 30, 2020, from $806.7 million for the three months ended September 30, 2019, as we continued to target deposit growth in new and existing market areas as well as the industry-wide impact of stimulus related deposits during the pandemic. During the three months ended September 30, 2020, the average balance of savings accounts increased $6.0 million and the related weighted-average cost decreased 54 basis points compared to the same period in 2019. The average balance of certificates of deposit balances grew $43.1 million and the weighed-average cost decreased by 96 basis points, mainly as a result of the utilization of brokered CDs. During the three months ended September 30, 2020, the average balance of money market accounts increased $125.7 million compared to the same period in the prior year. The average cost of deposits decreased by 50 basis points to 0.56% for the three months ended September 30, 2020, from 1.06% for the three months ended 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 reduction in the average rate paid during the most recent quarter compared to the same period in 2019.

 

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

 $174,475   0.40% $168,495   0.94% $(221)

Transaction accounts

  143,890   0.01   116,328   0.09   (21)

Money market accounts

  371,335   0.39   245,640   0.51   50 

Certificates of deposit

  319,341   1.08   276,247   2.04   (544)

Borrowings

  61,244   1.34   87,492   3.16   (486)

Total interest-bearing liabilities

 $1,070,285   0.60% $894,202   1.27% $(1,222)

 

Provision for Loan Losses. The provision for loan losses was $1.3 million during the three months ended September 30, 2020, compared to a $170,000 recovery of loan losses for the three months ended September 30, 2019. This was mainly due to an increase to the economic qualitative factor resulting from the uncertainty surrounding COVID-19 and its potential impact on the loans in our portfolio.

 

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)

 
Provision for (recovery of) loan losses $1,350  $(170)

Net charge-offs

  (452)  (118)

Allowance for loan losses

  13,007   9,443 
Allowance for losses as a percentage of total gross loans receivable at the end of this period  1.2%  1.1%

Total nonaccrual loans

  3,098   1,322 
Allowance for loan losses as a percentage of nonaccrual loans at end of period  419.9%  714.3%
Nonaccrual and 90 days or more past due loans as a percentage of total loans  0.3%  0.2%

Total loans

 $1,072,856  $846,057 

 

Noninterest Income. Noninterest income increased $2.8 million or 149.7%, to $4.7 million for the three months ended September 30, 2020, from $1.9 million for the three months ended 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 $969,000, and an increase in the cash surrender value of bank owned life insurance (BOLI) of $475,000. The increase in the cash surrender of BOLI in the third quarter of was due to a surrender of an underperforming policy and the subsequent reinvestment of the proceeds into a different policy. A yield enhancement on the new policy was captured up front which resulted in recognition of $406,000 in cash surrender value. Fees received from participation in a loan swap program generated $396,000. Loan and deposit fees decreased by $131,000 due to fewer non-sufficient funds fees as transaction volume reduced during the quarter as well as customers generally carrying higher balances in their deposit accounts.

 

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

 $868  $999  $(131)  (13.1)%

Mortgage servicing fees, net of amortization

  148   44   104   236.4 

Net gain on sale of loans

  1,725   655   1,070   163.4 
Net gain on sale of investment securities  969      969   100.0 

Increase in cash surrender value of bank-owned life insurance

  622   147   475   323.1 

Other income

  449   70   379   541.4 

Total noninterest income

 $4,781  $1,915  $2,866   149.7%

 

 

Noninterest Expense. Noninterest expense increased $1.6 million, or 19.7%, during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, mainly due to a 27.2% increase in compensation and benefits driven by additional staffing and a 366.3% increase in commissions paid on loan production. Occupancy and equipment increased 17.7% due to increased spending on infrastructure to support growth and advertising increased 44.7%

 

The following table provides an analysis of the changes in the components of noninterest expense for the periods shown:

 

  

Three Months Ended September 30,

  

Increase (Decrease)

 
  

2020

  

2019

  

Amount

  

Percent

 
  

(Dollars in thousands)

 

Compensation and benefits

 $6,070  $4,771  $1,299   27.2%

Data processing

  640   680   (40)  (5.9)

Occupancy and equipment

  1,367   1,161   206   17.7 

Supplies, postage, and telephone

  254   208   46   22.1 

Regulatory assessments and state taxes

  262   209   53   25.4 

Advertising

  285   197   88   44.7 

Professional fees

  361   278   83   29.9 

FDIC insurance premium

  86   (72)  158   (219.4)
FHLB prepayment penalty     344   (344)  (100.0)

Other expense

  756   648   108   16.7 

Total

 $10,081  $8,424  $1,657   19.7%

 

Provision for Income Tax. Income tax expense of $1.4 million was recorded for the three months ended September 30, 2020, compared to $580,000 for the three months ended September 30, 2019, generally due to a decrease in income before taxes of $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.

 

 

 

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. Total interest 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

 $933,843   4.45% $872,259   4.69% $508 

Investment securities

  210,571   2.53   116,180   3.33   1,088 

Mortgage-backed securities

  135,925   2.22   178,411   2.64   (1,272)

FHLB stock

  4,390   6.04   6,310   5.66   (69)

Interest-bearing deposits in banks

  20,637   0.55   13,468   1.88   (105)

Total interest-earning assets

 $1,305,366   3.85% $1,186,628   4.22% $150 

 

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

 $171,085   0.61% $161,764   0.89% $(300)

Transaction accounts

  127,333   0.03   115,681   0.11   (70)

Money market accounts

  305,373   0.49   257,045   0.49   173 

Certificates of deposit

  328,197   1.48   264,573   2.02   (352)

Borrowings

  70,763   1.58   120,194   3.01   (1,877)

Total interest-bearing liabilities

 $1,002,751   0.85% $919,257   1.28% $(2,426)

 

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)

 
Provision for loan losses $4,116  $420 

Net charge-offs

  (737)  (510)

Allowance for loan losses

  13,007   9,443 
Allowance for losses as a percentage of total gross loans receivable at the end of this period  1.2%  1.1%

Total nonaccrual loans

  3,098   1,322 
Allowance for loan losses as a percentage of nonaccrual loans at end of period  419.9%  714.3%
Nonaccrual and 90 days or more past due loans as a percentage of total loans  0.3%  0.2%

Total loans

 $1,072,856  $846,057 

 

 

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

 $2,514  $2,899  $(385)  (13.3)%

Mortgage servicing fees, net of amortization

  (9)  143   (152)  (106.3)

Net gain on sale of loans

  4,109   830   3,279   395.1 

Net gain on sale of investment securities

  2,235   57   2,178   3,821.1 

Increase in cash surrender value of bank-owned life insurance

  1,577   435   1,142   262.5 

Other income

  782   225   557   247.6 

Total noninterest income

 $11,208  $4,589  $6,619   144.2%

 

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

 $17,397  $14,097  $3,300   23.4%

Data processing

  2,099   1,978   121   6.1 

Occupancy and equipment

  4,063   3,409   654   19.2 

Supplies, postage, and telephone

  749   678   71   10.5 

Regulatory assessments and state taxes

  659   573   86   15.0 

Advertising

  934   569   365   64.1 

Professional fees

  1,115   907   208   22.9 

FDIC insurance premium

  156   82   74   90.2 

FHLB prepayment penalty

  210   344   (134)  (39.0)

Other expense

  2,363   1,859   504   27.1 

Total

 $29,745  $24,496  $5,249   21.4%

 

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 interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at 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.

 

     

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  At September 30, 2020  

2020

  

2019

  

2020

  

2019

 
     

Average

  

Interest

     

Average

  

Interest

     

Average

  

Interest

     

Average

  

Interest

    
  

Yield/

  

Balance

  

Earned/

  

Yield/

  

Balance

  

Earned/

  

Yield/

  

Balance

  

Earned/

  

Yield/

  

Balance

  

Earned/

  

Yield/

 
  

Rate

  

Outstanding

  

Paid

  

Rate

  

Outstanding

  

Paid

  

Rate

  

Outstanding

  

Paid

  

Rate

  

Outstanding

  

Paid

  

Rate

 
  (Dollars in thousands)  (Dollars in thousands) 
Interest-earning assets:                                               

Loans receivable, net (1)

 4.28% $998,586  $11,097  4.45% $862,587  $10,096  4.68% $933,843  $31,169  4.45% $872,259  $30,661  4.69%

Investment securities

 2.61   267,911   1,603  2.39   111,695   921  3.30   210,571   3,988  2.53   116,180   2,900  3.33 

Mortgage-backed securities

 2.07   110,863   565  2.04   172,639   1,087  2.52   135,925   2,264  2.22   178,411   3,536  2.64 

FHLB dividends

 4.85   4,028   97  9.63   5,019   92  7.33   4,390   199  6.04   6,310   268  5.66 

Interest-bearing deposits in banks

 0.10   19,702   9  0.18   15,413   65  1.69   20,637   85  0.55   13,468   190  1.88 

Total interest-earning assets (2)

 3.72   1,401,090   13,371  3.82   1,167,353   12,261  4.20   1,305,366   37,705  3.85   1,186,628   37,555  4.22 
                                                

Interest-bearing liabilities:

                                               

Savings accounts

 0.17  $174,475  $176  0.40  $168,495  $397  0.94  $171,085  $785  0.61  $161,764  $1,085  0.89 

Transaction accounts

 0.01   143,890   5  0.01   116,328   26  0.09   127,333   28  0.03   115,681   98  0.11 

Money market accounts

 0.31   371,335   362  0.39   245,640   312  0.51   305,373   1,118  0.49   257,045   945  0.49 

Certificates of deposit

 1.00   319,341   862  1.08   276,247   1,406  2.04   328,197   3,653  1.48   264,573   4,005  2.02 

Total deposits

 0.36   1,009,041   1,405  0.56   806,710   2,141  1.06   931,988   5,584  0.80   799,063   6,133  1.02 
Borrowings 0.75   61,244   205  1.34   87,492   691  3.16   70,763   840  1.58   120,194   2,717  3.01 

Total interest-bearing liabilities

 0.39   1,070,285   1,610  0.60   894,202   2,832  1.27   1,002,751   6,424  0.85   919,257   8,850  1.28 
                                                

Net interest income

        $11,761         $9,429         $31,281         $28,705    

Net interest rate spread

 3.33          3.22          2.93          3.00          2.94 

Net earning assets

    $330,805         $273,151         $302,615         $267,371        

Net interest margin (3)

            3.36          3.23          3.20          3.23 

Average interest-earning assets to average interest-bearing liabilities

     130.9%         130.5%         130.2%         129.1%       

 

(1) The average loans receivable, net balances include nonaccrual loans.

(2) Includes interest-bearing deposits (cash) at other financial institutions.

(3) Net interest income divided by average interest-earning assets.

 

 

 

Rate/Volume Analysis

 

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

 

  

Three Months Ended

      

Nine Months Ended

     
  

September 30, 2020 vs. 2019

      

September 30, 2020 vs. 2019

     
  

Increase (Decrease) Due to

      

Increase (Decrease) Due to

     
  

Volume

  

Rate

  

Total Increase (Decrease)

  

Volume

  

Rate

  

Total Increase (Decrease)

 
  

(In thousands)

  

(In thousands)

 

Interest earning assets:

                        

Loans receivable, net

 $1,583  $(582) $1,001  $2,177  $(1,669) $508 

Investments

  899   (739)  160   1,514   (1,698)  (184)

FHLB stock

  (18)  23   5   (82)  13   (69)

Other(1)

  18   (74)  (56)  101   (206)  (105)

Total interest-earning assets

 $2,482  $(1,372) $1,110  $3,710  $(3,560) $150 
                         

Interest-bearing liabilities:

                        

Savings accounts

 $14  $(235) $(221) $63  $(363) $(300)

Interest-bearing transaction accounts

  6   (27)  (21)  10   (80)  (70)

Money market accounts

  160   (110)  50   178   (5)  173 

Certificates of deposit

  219   (763)  (544)  963   (1,315)  (352)

Borrowings

  (207)  (279)  (486)  (1,117)  (760)  (1,877)

Total interest-bearing liabilities

 $192  $(1,414) $(1,222) $97  $(2,523) $(2,426)
                         

Net change in interest income

 $2,290  $42  $2,332  $3,613  $(1,037) $2,576 

 

(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 nine months ended 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.

 

 

Contractual Obligations

 

At September 30, 2020, our scheduled maturities of contractual obligations were as follows:

 

  

Within

  

After 1 Year Through

  

After 3 Years Through

  

Beyond

  

Total

 
  

1 Year

  

3 Years

  

5 Years

  

5 Years

  

Balance

 
  

(In thousands)

 
                     
Certificates of deposit $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 

Borrower taxes and insurance

  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 

 

Commitments and Off-Balance Sheet Arrangements

 

The following table summarizes our commitments and contingent liabilities with off-balance sheet risks as of September 30, 2020:

 

  

Amount of Commitment Expiration

 
  Within  After 1 Year Through  After 3 Years Through  Beyond  Total Amounts 
  

1 Year

  

3 Years

  

5 Years

  

5 Years

  

Committed

 
  

(In thousands)

 

Commitments to originate loans:

                    

Fixed-rate

 $2,918  $  $  $  $2,918 
Variable-rate  7,600            7,600 

Unfunded commitments under lines of credit or existing loans

  38,366   37,919      72,484   148,769 

Standby letters of credit

  182            182 

Total commitments

 $49,066  $37,919  $  $72,484  $159,469 
 

 

Liquidity Management

 

Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are usually predictable sources of funds, deposit flows, calls of investment securities and borrowed funds, and prepayments on loans and investment securities are greatly influenced by general interest rates, economic conditions and competition, which can cause those sources of funds to fluctuate.

 

Management regularly adjusts our investments in liquid assets based upon an assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our interest-rate risk and investment policies.

 

Our most liquid assets are cash and cash equivalents followed by available for sale securities. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2020, cash and cash equivalents totaled $52.1 million, and unpledged securities classified as available-for-sale with a market value of $281.9 million provided additional sources of liquidity. We pledged collateral to support borrowings from the FHLB of $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 $29.4 million were pledged as of September 30, 2020.

 

At September 30, 2020, we had $10.5 million in loan commitments outstanding, $149.0 million in undisbursed loans and standby letters of credit, including $97.8 million in undisbursed construction loan commitments.

 

 

Certificates of deposit due within one year as of September 30, 2020 totaled $190.6 million, or 64.9% of certificates of deposit with a weighted-average rate of 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 recently declined. If these maturing deposits are not renewed, however, we will be required to seek other sources of funds, including other certificates of deposit, non-maturity deposits, and borrowings. We have the ability to attract and retain deposits by adjusting the interest rates offered as well as through sales and marketing efforts in the markets we serve. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on certificates of deposit. In addition, we believe that our branch network, and the general cash flows from our existing lending and investment activities, will provide us more than adequate long-term liquidity. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.

 

The Company is a separate legal entity from the Bank and provides for its own liquidity to pay its operating expenses and other financial obligations. At September 30, 2020, the Company (on an unconsolidated basis) had liquid assets of $9.6 million.

 

Capital Resources

 

At September 30, 2020, shareholders' equity totaled $180.7 million, or 11.5% of total assets. Our book value per share of common stock was $17.65 at September 30, 2020, compared to $16.48 at December 31, 2019.

 

At September 30, 2020, the Bank exceeded all regulatory capital requirements and was considered "well capitalized" under FDIC regulatory capital guidelines.

 

The following table provides the capital requirements and actual results for First Federal at September 30, 2020.

 

  

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)

 $156,405   10.5% $59,428   4.0% $74,285   5.0%

Common equity tier I (to risk-weighted assets)

  156,405   14.7   47,826   4.5   69,083   6.5 

Tier I risk-based capital (to risk-weighted assets)

  156,405   14.7   63,769   6.0   85,025   8.0 

Total risk-based capital (to risk-weighted assets)

  169,690   16.0   85,025   8.0   106,281   10.0 

 

In order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses, the Bank must maintain common equity tier 1 capital ("CET1") at an amount greater than the required minimum levels plus a capital conservation buffer of 2.5%.

 

Effect of Inflation and Changing Prices

 

The consolidated financial statements and related financial data presented in this report have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that general inflation may have on both short-term and long-term interest rates. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

There has not been any material change in the market risk disclosures contained in First Northwest Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures.

 

An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of the Company's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial and Accounting Officer), and other members of the Company's management team as of the end of the period covered by this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2020, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

 

(b) Changes in Internal Controls.

 

There have been no changes in the Company's internal control over financial reporting (as defined in 13a-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent every error or instance of fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

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.

 

Item 1A. Risk Factors

 

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 stock.

 

The Company continues to manage through uncertainties and complexities created by the pandemic. As an essential business, our employees have been able to work safely in our branch locations and over 70% of our workforce has the ability to work from home. However, the economic downturn in local markets we serve could result in increased credit risk associated with the loan portfolio 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.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)

Not applicable.

 

(b)

Not applicable.

 

(c)

The following table summarizes common stock repurchases during the three months ended September 30, 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

  74,005  $11.90   64,237   77,556 

August 1, 2020 - August 31, 2020

  41,717   11.38   41,717   35,839 

September 1, 2020 - September 30, 2020

  39,759   11.80   35,839    

Total

  155,481  $11.72   141,793     
                 

(1) Shares repurchased by the Company during the quarter include shares acquired from participants in connection with cancellation of restricted stock to pay withholding taxes totaling 9,768 shares, 0 shares, and 320 shares, respectively, for the periods indicated. The Company also repurchased 0, 0, and 3,600 of unvested restricted stock awards, respectively, upon a participant's separation from service.

 

(2) On December 5, 2019, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 535,097 shares of its common stock, or approximately 5% of its shares of common stock issued and outstanding as of December 2, 2019. As of September 30, 2020, a total of 535,097 shares, or 100.0% percent of the shares authorized in the December 2019 stock repurchase plan, have been purchased at an average cost of $12.58 per share, leaving 0 shares available for future purchases.

 

 

 

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

COVID-19 Legislation and Regulation.

 

General. Governments at the federal, state, and local levels continue to take steps to address the impact of the COVID-19 emergency. 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 included $350 billion in stimulus for small businesses under the so-called “Paycheck Protection Program,” along with direct stimulus payments (i.e., “economic impact payments” or “stimulus checks”) for many eligible Americans. The initial amounts available under the Paycheck Protection Program were quickly exhausted in less than two weeks, which prompted Congress to negotiate additional funding. On April 24, 2020, the Paycheck Protection Program and Health Care Enforcement Act was signed into law to replenish funding to the Paycheck Protection Program and to provide other spending for hospitals and virus testing. Further, on July 3, 2020 the President extended the deadline for potential borrowers to apply for Paycheck Protection Program funds 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.

 

 

Item 6. Exhibits

 

Exhibit

No.

Exhibit Description

Filed

Herewith

Form

Original Exhibit No.

Filing Date

SEC File No.

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

X

 

 

 

 

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

X

 

 

 

 

32

Certification pursuant to Section 906 of the Sarbanes-Oxley Act

X

 

 

 

 

101

The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline Extensible Business Reporting Language (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 Statements

104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

FIRST NORTHWEST BANCORP

 

 

Date: November 6, 2020

/s/ Matthew P. Deines

 

 

 

Matthew P. Deines

 

President, Chief Executive Officer and Director

 

(Principal Executive Officer)

 

 

 

 

Date: November 6, 2020

/s/ Geraldine L. Bullard

 

 

 

Geraldine L. Bullard

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

 

 

55