What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-10 · 942 added, 1114 removed, 1517 unchanged (58% of the section changed)

3 unchanged sentences

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

September 30, 2022

March 31, 2023

December 31, 2022

9 unchanged sentences

Loans held for sale

Loans receivable (net of allowance for loan losses of $ 16,273 and $ 15,124 )

Loans receivable (net of allowance for credit losses on loans of $ 17,396 and $ 16,116 )

1,562,068  

2 unchanged sentences

15,602  

11,681  

Accrued interest receivable

2 unchanged sentences

18,089  

Servicing rights on sold loans, net

Servicing rights on sold loans, at fair value

4 unchanged sentences

14,392  

14,289  

Goodwill and other intangible assets, net

Deferred tax asset, net

14,211  

14,091  

Prepaid expenses and other assets

19 unchanged sentences

Common stock, $ 0.01 par value, authorized 75,000,000 shares;

issued and outstanding 9,978,041 shares at September 30, 2022, and 9,972,698 shares at December 31, 2021

issued and outstanding 9,674,055 shares at March 31, 2023, and 9,703,581 shares at December 31, 2022

Additional paid-in capital

4 unchanged sentences

114,424  

Accumulated other comprehensive (loss) income, net of tax

Accumulated other comprehensive loss, net of tax

( 38,108 )  

17 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

Interest and fees on loans receivable

$ 19,504  

$ 14,536  

Interest on investment securities

2 unchanged sentences

Total interest income

23,282  

16,901  

INTEREST EXPENSE

1 unchanged sentence

Net interest income

PROVISION FOR LOAN LOSSES

Net interest income after provision for loan losses

16,305  

15,486  

Recapture of credit losses

( 500 )  

Net interest income after recapture of credit losses

16,805  

15,486  

NONINTEREST INCOME

Loan and deposit service fees

Sold loan servicing fees

Sold loan servicing fees and servicing right mark-to-market

Net gain on sale of loans

12 unchanged sentences

Total noninterest expense

14,871  

14,831  

Income before provision for income taxes

2 unchanged sentences

Net income attributable to parent

$ 3,528  

$ 2,806  

Basic and diluted earnings per common share

$ 0.39  

$ 0.30  

See selected notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive (loss) income:

Unrealized holding losses on investments available for sale arising during the period

Income tax benefit related to unrealized holding losses

Unrecognized defined benefit ("DB") plan prior service cost

Income tax benefit related to DB plan prior service cost

$ 3,443  

$ 2,504  

Other comprehensive income (loss):

Unrealized holding gains (losses) on investments available for sale arising during the period

Income tax (provision) benefit related to unrealized holding gains (losses) on investments

( 1,029 )  

Amortization of unrecognized DB plan prior service cost

Income tax provision related to amortization of DB plan prior service cost

Unrealized holding (losses) gains on derivatives

( 1,728 )  

Income tax benefit (provision) related to unrealized holding (losses) gains on derivatives

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

Income tax benefit related to reclassification adjustment on sales of securities

Other comprehensive loss, net of tax

COMPREHENSIVE (LOSS) INCOME

Other comprehensive income (loss), net of tax

Comprehensive income (loss)

Comprehensive loss attributable to noncontrolling interest

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO PARENT

See selected notes to the consolidated financial statements.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Months Ended September 30, 2022 and 2021

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

Additional Paid-in

Unearned ESOP

Accumulated Other Comprehensive Income (Loss),

Noncontrolling

Total Shareholders'

BALANCE, June 30, 2021

( 85 )  

$ 97,463  

$ 96,573  

$ ( 8,901 )  

$ 3,546  

$ ( 190 )  

$ 188,593  

( 120 )  

Common stock repurchased

( 137,953 )  

( 1,378 )  

( 1,084 )  

Restricted stock award forfeitures net of grants

( 5,903 )  

Restricted stock awards canceled

( 11,134 )  

( 199 )  

Other comprehensive loss, net of tax

( 2,612 )  

Share-based compensation expense

ESOP shares committed to be released

Cash dividends declared ($ 0.06 per share)

( 609 )  

BALANCE, September 30, 2021

10,050,877  

$ 96,396  

$ 99,058  

$ ( 8,736 )  

$ ( 310 )  

$ 187,444  

BALANCE, June 30, 2022

9,950,172  

$ 96,479  

$ 107,000  

$ ( 8,242 )  

$ ( 28,447 )  

$ ( 1,736 )  

$ 165,154  

( 696 )  

Common stock issued

115,777  

Common stock repurchased

( 79,054 )  

( 790 )  

( 491 )  

Restricted stock award forfeitures net of grants

( 3,350 )  

Restricted stock awards canceled

( 5,504 )  

( 89 )  

Other comprehensive loss, net of tax

( 12,576 )  

Share-based compensation expense

ESOP shares committed to be released

Cash dividends declared ($ 0.07 per share)

( 693 )  

BALANCE, September 30, 2022

9,978,041  

$ 97,924  

$ 110,107  

$ ( 8,077 )  

$ ( 41,023 )  

$ ( 2,432 )  

Comprehensive income (loss) attributable to parent

$ 5,963  

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Nine Months Ended September 30, 2022 and 2021

For the Three Months Ended March 31, 2023 and 2022

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

1 unchanged sentence

Unearned ESOP

Accumulated Other Comprehensive Income (Loss),

Accumulated Other Comprehensive Loss,

Noncontrolling

Total Shareholders'

BALANCE, December 31, 2020

10,247,185  

$ 97,412  

$ 92,657  

$ ( 9,230 )  

$ 5,442  

$ 186,383  

10,294  

( 265 )  

Balance at December 31, 2021

9,972,698  

Common stock issued and initial investment in Quin Ventures

$ 96,131  

1 unchanged sentence

$ ( 8,572 )  

Common stock repurchased

$ ( 481 )  

8 unchanged sentences

( 15,441 )  

Reclassification resulting from change in accounting method, net of tax

Share-based compensation expense

2 unchanged sentences

( 698 )  

BALANCE, September 30, 2021

Balance at March 31, 2022

10,003,622  

4 unchanged sentences

$ ( 783 )  

BALANCE, December 31, 2021

$ 177,776  

Balance at December 31, 2022

9,703,581  

4 unchanged sentences

$ ( 3,291 )  

Common stock issued

$ 158,282  

( 85 )  

Common stock repurchased

7 unchanged sentences

( 145 )  

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Reclassification resulting from adoption of Accounting Standards Codification 326, net of tax

( 2,951 )  

Reclassification resulting from change in accounting method

Share-based compensation expense

2 unchanged sentences

( 679 )  

BALANCE, September 30, 2022

Balance at March 31, 2023

9,674,055  

9 unchanged sentences

(In thousands) (Unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net income before noncontrolling interest

$ 3,443  

$ 2,504  

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

2 unchanged sentences

Amortization and accretion of premiums and discounts on investments, net

Accretion of deferred loan fees and purchased premiums, net

(Accretion) amortization of deferred loan fees and purchased premiums, net

( 111 )  

Amortization of debt issuance costs

Change in fair value of sold loan servicing rights

( 269 )  

Additions to servicing rights on sold loans, net

Amortization of servicing rights on sold loans, net

Net (decrease) increase in the valuation allowance on servicing rights on sold loans

Provision for loan losses

( 68 )  

Recapture of provision for credit losses

( 500 )  

Allocation of ESOP shares

1 unchanged sentence

Gain on sale of loans, net

( 176 )  

Gain on sale of securities available for sale, net

Increase in cash surrender value of life insurance, net

( 226 )  

Origination of loans held for sale

Proceeds from loans held for sale

( 4,812 )  

Proceeds from sale of loans held for sale

10,557  

Change in assets and liabilities:

(Increase) decrease in accrued interest receivable

Increase in prepaid expenses and other assets

Decrease in accrued interest payable

Increase in accrued interest receivable

( 462 )  

Decrease (increase) in prepaid expenses and other assets

Increase (decrease) in accrued interest payable

Increase in accrued expenses and other liabilities

Net cash from operating activities

Net cash provided by operating activities

Cash flows from investing activities:

1 unchanged sentence

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

10,718  

Proceeds from sales of securities available for sale

(Purchase) redemption of FHLB stock

10,452  

Purchase of FHLB stock

( 3,921 )  

Net increase in loans receivable

( 32,746 )  

Purchase of premises and equipment, net

( 559 )  

Capital contributions to equity and partnership investments

Capital contributions to low-income housing tax credit partnerships

Capital contributions to historic tax credit partnerships

Net cash acquired from branch acquisition

Net cash from investing activities

Net cash used by investing activities

( 35,313 )  

See selected notes to the consolidated financial statements.

2 unchanged sentences

(In thousands) (Unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from financing activities:

Net increase in deposits

Net increase (decrease) in deposits

$ 29,953  

Proceeds from long-term FHLB advances

15,000  

Repayment of long-term FHLB advances

Net increase (decrease) in short-term FHLB advances

Proceeds from issuance of subordinated debt, net

Net increase (decrease) in line of credit

( 10,000 )  

Net increase in short-term FHLB advances

90,000  

65,000  

Net (decrease) increase in line of credit

( 1,000 )  

Net increase in advances from borrowers for taxes and insurance

Dividends paid

Payment of dividends

( 671 )  

Restricted stock awards canceled

( 145 )  

Repurchase of common stock

Net cash from financing activities

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, beginning of period

CASH AND CASH EQUIVALENTS, end of period

( 627 )  

Net cash provided by financing activities

123,544  

33,971  

Net increase (decrease) in cash and cash equivalents

95,021  

Cash and cash equivalents at beginning of period

45,596  

126,016  

Cash and cash equivalents at end of period

$ 140,617  

$ 82,528  

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Interest on deposits and borrowings

Prior unrecognized service cost of defined benefit plan transferred to single-employer plan

NONCASH INVESTING ACTIVITIES

Change in unrealized loss on securities available for sale

Cash paid for interest on deposits and borrowings

$ 6,924  

$ 1,795  

Supplemental disclosures of noncash investing activities:

Change in unrealized gain (loss) on securities available for sale

$ 4,791  

Change in unrealized (loss) gain on cash flow hedges

$ ( 1,728 )  

Cumulative adjustment to servicing right asset due to election of fair value option

Lease liabilities arising from obtaining right-of-use assets

BUSINESS COMBINATION (see Note 12)

Fair value of assets acquired

Fair value of liabilities assumed

Cumulative effect of adoption of ASU 2016-13 Financial Instruments - Credit Losses on January 1, 2023

$ ( 3,735 )  

See selected notes to the consolidated financial statements.

5 unchanged sentences

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.

The Company received $ 117.6 million in net proceeds from the stock offering of which $ 58.4 million was 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").

2 unchanged sentences

("POM"), and Quin Ventures, Inc.

("Quin" or "Quin Ventures").

First Northwest has partially fulfilled its commitment to extend $ 15.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $ 500,000 .

("Quin Ventures"). 

First Northwest extended $ 8.0 million to Quin Ventures under a capital financing agreement and related promissory note and issued 29,719 shares of the Company's common stock to POM with a value of $ 500,000 .

Quin Ventures sold substantially all of its assets in December 2022 to Quil Ventures Inc., at which time POM returned the 29,719 shares previously issued and the Joint Venture Agreement was terminated.

As part of the sale transaction, the Company received a 5 % ownership stake in Quil Ventures Inc.

valued at $ 225,000 and recorded a $ 1.5 million commitment receivable.

First Northwest continues to hold a controlling interest in Quin Ventures.

On October 31, 2021, the Bank converted from a State Savings Bank Charter to a State Commercial Bank Charter and was simultaneously renamed First Fed Bank from First Federal Savings and Loan Association of Port Angeles.

11 unchanged sentences

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, 2022 , are not necessarily indicative of the results that may be expected for future periods.

Operating results for the three months ended March 31, 2023 , 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.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Principles of consolidation - The accompanying consolidated financial statements include the accounts of First Northwest; its wholly owned subsidiary, First Fed, and its controlling interest in Quin Ventures, Inc.

Material estimates that are particularly susceptible to significant change in the near term relate to a determination of the allowance for credit losses ("ACL"), fair value of financial instruments and derivatives, and deferred tax assets and liabilities.

All material intercompany accounts and transactions have been eliminated in consolidation.

3 unchanged sentences

Recently adopted accounting pronouncements

November 2019, the FASB issued Accounting Standards Update ("ASU")

10, which defers the effective date of the current expected credit loss model (CECL) guidance issued in ASUs

 The effective date for smaller reporting companies was changed 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 adopted this ASU and anticipates implementing CECL effective

January 1, 2023.

January 2021, the FASB issued ASU

Reference Rate Reform (Topic 848 ):

01 clarifies that certain optional expedients and exceptions in ASC

848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

01 also amends the expedients and exceptions in ASC

848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

This ASU was effective upon issuance and generally can be applied through

Credit Losses

January 1, 2023, the Company adopted FASB ASU

13 Financial Instruments -

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments , as amended, which replaces the incurred loss methodology with a current expected credit loss ("CECL") methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable.

It also applies to off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments.

In addition, the CECL adoption made changes to the accounting for investment securities available for sale.

The Company adopted ASU 2016 - 13 using the modified retrospective method for all financial assets measured at amortized cost and unfunded commitments.

This method resulted in recording a cumulative-effect adjustment as of the beginning of 2023 with no change to prior periods. The Company elected not to measure an ACL on accrued interest receivable on loans receivable or accrued interest receivable on investment securities available for sale as Company policy is to reverse interest income for uncollectible accrued interest receivable balances in a timely manner.

Results for the reporting period beginning after January 1, 2023, are presented under ASU 2016 - 13, while prior period amounts were not restated and continue to be reported in accordance with previously applicable GAAP.

The accounting policies for prior periods are included in the Company's Annual Report on Form 

10 -K for the year ended 

December 31, 2022.

The adoption of ASU

not have a material impact on the Company’s financial statements.

The accounting policies for all financial instruments impacted by the CECL adoption are as follows:

Investment Securities

A debt security is placed on nonaccrual status at the time any principal or payments become more than 90 days delinquent.

Interest accrued, but not received for a security placed on nonaccrual, is reversed against interest income during the period that the debt security is placed on nonaccrual status.

Allowance for Credit Losses on Investment Securities

Management evaluates the need for an ACL on investment securities ("ACLI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For investment securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For investment securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLI is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any decline in fair value that has not been recorded through an ACLI is recognized in other comprehensive income (loss).

Changes in the ACLI are recorded as provision, or reversal of provision, for credit losses expense.

Losses are charged against the allowance when management believes the uncollectibility of an investment security available for sale is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on investment securities available for sale is excluded from the estimate of credit losses as interest accrued, but not received, is reversed timely in accordance with the policy for investment securities above.

Loans Receivable

Loans receivable include loans originated and indirect loans purchased by the Bank as well as loans acquired in business combinations.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the outstanding principal balance, net of purchased premiums and discounts, unearned discounts, and net deferred loan origination fees and costs.

Accrued interest receivable for loans receivable is reported in prepaid expenses and other assets on the Consolidated Balance Sheets.

Allowance for Credit Losses on Loans

The ACL on loans ("ACLL") is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected.

Loans are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Bank records the changes in the ACLL through earnings, as a provision for credit losses on the Consolidated Statements of Income.

Accrued interest receivable on loans receivable is excluded from the estimate of credit losses.

Instead, interest accrued, but not received, is reversed timely in accordance with the policy for loans receivable above.

The Company has identified segments of loans with similar risk characteristics for which it then applies one of two loss methodologies.

Management has adopted a discounted cash flow ("DCF") methodology for most of its segments to calculate the ACLL.

For certain segments with smaller portfolios or where data is prohibitive to running a DCF calculation, management has elected to use a Remaining Life methodology.

The Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis.

The allowance for individually evaluated loans is calculated using the collateral value method, which considers the likely source of repayment as the value of the collateral, less estimated costs to sell, or another method such as the cash flow method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt.

When the cash flow method is used, cash flows are discounted back by the effective interest rate and compared to the total recorded investment.

If the present value of cash flows is less than the total recorded investment, a reserve is calculated.

For each loan segment collectively measured, the baseline loss rates are calculated using the Bank's own data and peer institution data from FFIEC Call Report filings.

The Bank evaluates the historical period on a quarterly basis.

The baseline loss rates are applied to each loan's estimated cash flows over the life of the loan to determine the baseline loss estimate for each loan.

Estimated cash flows consider the principal and interest in accordance with the contractual term of the loan and estimated prepayments.

Contractual cash flows are based on the amortized cost, as adjusted for balances guaranteed by governmental entities, such as the Small Business Administration ("SBA") or the United States Department of Agriculture ("USDA"), or the unguaranteed amortized cost.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

1 ) management has a reasonable expectation at the reporting date that a modification agreement will be executed with an individual borrower or 2 ) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Prepayments are established for each segment based on historical averages for the segments, which management believes is an accurate representation of future prepayment activity.

Management reviews the adequacy of the prepayment period assumption on a quarterly basis.

The CECL methodology includes consideration of the forecasted direction of the economic and business environment and its likely impact to the estimated allowance as compared to the historical losses over the reasonable and supportable time frame.

Economic forecast models for the current period are uploaded to the model, which targets two forecasted macroeconomic factors, which are national gross domestic product ("GDP") and unemployment figures.

Each of the forecasted DCF segments is impacted by these macroeconomic factors.

Further, each of the macroeconomic factors is utilized differently by segment, including the application of lagged factors and various transformations such as percent change year over year.

The Bank uses the Federal Open Market Committee ("FOMC") forecast via an application programming interface with our CECL software.

FOMC provides various forecast scenarios used to determine the loan portfolio’s expected credit loss.

Based on known/knowable information at the measurement date, management has determined that the FOMC scenarios and the underlying assumptions most closely align with current and expected conditions.

The Bank has elected to forecast the first four  quarters of the credit loss estimate and revert on a straight-line basis as permitted in ASC 326 - 20 - 30 - 9.

The Bank also considers other qualitative risk factors to adjust the estimated ACL calculated by the above-mentioned model.

While there are many factors available to incorporate into the quantitative model, the Bank has selected to use the most critical factors.

Additional metrics will be included only if internal or external factors outside those considered in its historical losses or macroeconomic forecast indicate otherwise.

The Bank has established metrics to estimate the qualitative risk factor by segment based on the identified risk.

In general, management's estimate of the ACLL uses relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The allowance for loan losses evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

While management utilizes its best judgment and information available to recognize losses on loans, future additions to the allowance may be necessary based on further declines in local and national economic conditions.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s ACLL.

Such agencies may require the Bank to make adjustments to the allowance based on their judgments about information available to them at the time of their examinations.

The Company believes the ACLL is appropriate given the above considerations.

Allowance for Credit Losses on Unfunded Commitments

The Bank estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Bank is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The Bank has determined that no allowance is necessary for its home equity line of credit portfolio as it has the ability to unconditionally cancel the available lines of credit.

The allowance methodology is similar to the ACLL, but additionally includes an estimate of the future utilization of the commitment as determined by historical commitment utilization.

The credit risks associated with the unfunded commitments are consistent with the risks outlined for each loan class.

The allowance is recognized in accrued expenses and other liabilities on the Consolidated Balance Sheets and is adjusted as a provision (reversal of provision) for credit losses on the Consolidated Statements of Income.

Provision for Credit Losses

The provision for credit losses as presented in the Company's Consolidated Statements of Income includes the provision for credit losses on loans and the provision for credit losses on unfunded commitments.

Summary of CECL Impact:

Investment Securities - 

As of December 31, 2022, the Company had no historical charge-off or recovery history and did not have any investment securities available for sale outstanding at the adoption date for which an other-than-temporary impairment was previously recorded.

At the adoption date of ASU 2016 - 13, the unrealized losses present in the portfolio of investment securities available for sale were primarily due to decreases in market interest rates on floating rate investment securities since the purchase of the securities and the fair value of these securities was expected to recover as the securities approach their maturity dates.

The basis of management’s conclusion was that at March 31, 2023, 23.5 % of the investment securities were issued by or guaranteed by the United States government or its agencies, 31.0 % were issued and guaranteed by State and local governments and the remainder of the portfolio was invested in at least investment-grade securities.

As a result of the analysis, no allowance for credit losses on investment securities available for sale was recorded upon adoption.

See Note 2  Investment Securities for more information.

Loan Receivable - 

ASU 2016 - 13 was applied prospectively and replaced the allowance for loan losses with the ACLL on the Consolidated Balance Sheet and replaced the related provision for loan losses with the provision for credit losses on loans as presented on the Consolidated Statements of Income, net of provision for credit losses on unfunded commitments.

The Bank recorded a pretax increase to the ACLL of $ 2.2 million to increase the reserve to the estimated credit losses at January 1, 2023 based on its CECL methodology as part of the cumulative-effect adjustment to beginning retained earnings.

Upon adoption, the adjusted beginning balance of the ACLL as a percentage of loans receivable was 1.18 % as compared to 1.04 % at December 31, 2022 under the prior incurred loss methodology.

At March 31, 2023, the ACLL as a percentage of loans receivable was 1.10 %.

See Note 4  - Allowance for Credit Loss on Loans for more information.

Unfunded Commitments -  

ASU 2016 - 13 was applied prospectively and replaced the reserve for unfunded commitments with the ACL on unfunded commitments ("ACLU") as included in accrued liabilities and other expenses on the Consolidated Balance Sheet and replaced the provision for unfunded commitments with the provision for credit losses on unfunded commitments as presented on the Consolidated Statements of Income, net of provision for credit losses on loans.

Upon adoption, the Bank recorded a pretax increase in the beginning ACLU of $ 1.5 million.

Overall CECL Impact - 

The adoption of ASU 2016 - 13, included an increase to the ACLL of $ 2.2 million and an increase to the ACLU of $ 1.5 million, which resulted in a pretax cumulative-effect adjustment of $ 3.7 million.

The impact of this adjustment to beginning retained earnings on January 1, 2023 was $ 3.0 million, net of tax.

Derivative Instruments and Hedging Activities

March 28, 2022, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)

01, Derivatives and Hedging (Topic

Fair Value Hedging –

Portfolio Layer Method .

The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was

first introduced in ASU

12, Derivatives and Hedging (Topic

Targeted Improvements to Accounting for Hedging Activities.

01 is effective for public business entities for fiscal years beginning after

December 15, 2022, with early adoption in the interim period, permitted.

For entities who have already adopted ASU

12, immediate adoption is allowed.

01 requires a modified retrospective transition method for basis adjustments in which the entity will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company adopted this ASU on

January 1, 2023 on a prospective basis;

therefore, there was

no impact to the consolidated financial statements.

Accounting Policy for Derivative Instruments and Hedging Activities

Derivatives and Hedging ("ASC

815" ), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of:

(a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.

Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation.

Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.

In accordance with the FASB’s fair value measurement guidance in ASU 2011 - 04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Recently issued accounting pronouncements not yet adopted

Credit Losses

In June 2016, the FASB issued ASU No.

2016 - 13, Financial Instruments - Credit Loss , which updates the guidance on recognition and measurement of credit losses for financial assets.

The new requirements, known as the current expected credit loss model (CECL) will require entities to adopt an impairment model based on expected losses rather than incurred losses.

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 credit 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.

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, which is anticipated to be January 

The Bank began running a parallel analysis comparing actual ALLL results to potential CECL results with the June 2022 quarter end and will continue running parallels through the remainder of 2022.

Initial results indicate a moderate increase to the reserve;

however, the modeling effort is ongoing with final decisions regarding valuation criteria for each segment yet to be made.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Pronouncements

3 unchanged sentences

ASU 2020 - 04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

This ASU is effective for all entities as of March 12, 2020 through December 31, 2022.

On December 31, 2022, FASB issued ASU 2022 - 06, which deferred the sunset date for Topic 848 to December 31, 2024.

The Company is implementing a transition plan to identify and modify its loans and other financial instruments that are either directly or indirectly influenced by LIBOR.

The Company is in the process of evaluating ASU No.

2020 - 04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments, with no material expected impact on the Company's financial statements.

In March 2022, the FASB issued ASU No.

2022 - 01, Derivatives and Hedging (Topic 815 ):

Fair Value Hedging—Portfolio Layer Method .

ASU 2022 - 01 expands the portfolio layer method of hedge accounting prescribed in ASU No.

2017 - 12 to allow multiple hedged layers of a single closed portfolio and to include portfolios of both prepayable and non-prepayable financial assets.

This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same accounting method to similar hedging strategies.

The ASU also specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on accounting and disclosure of hedge basis adjustments and specifies how hedge basis adjustments should be considered in determining credit losses for assets in the designated closed portfolio.

This ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2022.

The Company is evaluating the effect that ASU 2022 - 01 will have on its consolidated financial statements.

In March 2022, the FASB issued ASU No.

2022 - 02,  

Financial Instruments—Credit Losses (Topic 326 ):

Troubled Debt Restructurings and Vintage Disclosures .

ASU 2022 - 02 eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310 - 40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss model introduced by ASU 2016 - 13, “Financial Instruments –

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments”.

ASU 2022 - 02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326 - 20, "Financial Instruments—Credit Losses—Measured at Amortized Cost".

ASU 2022 - 02 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The Company is evaluating the effect that ASU 2022 - 02 will have on its consolidated financial statements and related disclosures.

2020 - 04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments, with no expected material impact on the Company's financial statements.

In June 2022, the FASB issued ASU No.

2022 - 03, Fair Value Measurement (Topic 820 )—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

2022 - 03, Fair Value Measurement (Topic 820 ):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

ASU 2022 - 03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring fair value, nor should the contractual restriction be recognized and measured separately.

2 unchanged sentences

The Company is evaluating the effect that ASU 2022 - 03  will have on its consolidated financial statements and related disclosures.

In March 2023, the FASB issued ASU 2023 - 02, Investments - Equity Method and Joint Ventures (Topic 323 ): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force .

ASU 2023 - 02 allows an entity the option to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits if certain conditions are met.

Prior to this ASU, the application of the proportional amortization method of accounting was limited to investments in low-income housing tax credit structures.

The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the statements of income, income tax expense.

Under this ASU, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis.

In addition, the amendments in this ASU require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323 - 740 - 25 - 3, requiring a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable.

Under this ASU, low-income housing tax credit investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance.

Further, this ASU specifies that impairment of low-income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323 - 10:

Investments - Equity Method and Joint Ventures - Overall .

This ASU also clarifies that for low-income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321:

Investments - Equity Securities .

The amendments in this ASU also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations.

ASU 2023 - 02  is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

The Company is evaluating the effect that ASU 2023 - 02  will have on its consolidated financial statements and related disclosures.

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

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022 are summarized as follows:

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale at March 31, 2023 are summarized as follows:

Amortized Cost

40 unchanged sentences

$ 98,050  

$ 113,364  

( 27 )  

Corporate issued asset-backed securities (ABS corporate)

14,556  

Treasury notes

( 105 )  

4 unchanged sentences

55,499  

Small Business Administration securities (SBA)

14,404  

14,680  

Mortgage-backed securities:

10 unchanged sentences

$ 326,569  

$ 344,212  

There were no securities classified as held-to-maturity at 

September 30, 2022  and 

March 31, 2023  and 

December 31, 2022 .

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022 :

Accrued interest receivable on available-for-sale debt securities totaled $ 2.2 million and $ 2.0 million as of March 31, 2023  and 

December 31, 2022 , respectively.

Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Balance Sheets and is excluded from the calculation of the allowance for credit losses on investment securities.

Less Than Twelve Months

30 unchanged sentences

74,946  

75,434  

MBS non-agency

27 unchanged sentences

$ 97,750  

( 27 )  

ABS corporate

Treasury notes

( 105 )  

8 unchanged sentences

( 5,201 )  

55,499  

Mortgage-backed securities:

10 unchanged sentences

41,311  

( 7,833 )  

93,305  

Total available for sale

5 unchanged sentences

$ 323,783  

The Company may hold certain investment securities in an unrealized loss position that are not considered other than temporarily impaired ("OTTI").

At September 30, 2022 and December 31, 2021 , there were 

183 and 

76 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 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.

There were 32 available-for-sale securities with unrealized losses of less than one year, and 151  available-for-sale securities with an unrealized loss of more than one year at March 31, 2023 .

There were 113 available-for-sale securities with unrealized losses of less than one year, and 69  available-for-sale securities with an unrealized loss of more than one year at December 31, 2022 .

Management believes that the unrealized losses on our investment securities relate principally to the general change in interest rates, market liquidity and demand, and market volatility that has occurred since the initial purchase, and such unrecognized losses or gains will continue to vary with general interest rate level and market fluctuations in the future.

We do not believe the unrealized losses on our securities are related to deterioration in credit quality. Certain investments in a loss position are guaranteed by government entities or government sponsored entities.

There were no OTTI losses during the three and nine months ended September 30, 2022 and 2021 .

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company does not intend to sell the securities in an unrealized loss position and believes that it is unlikely that we will be required to sell these investments prior to a market price recovery or maturity. Based on the Company’s evaluation of these securities, no credit impairment was recorded at March 31, 2023 , or December 31, 2022 .

The amortized cost and estimated fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated.

1 unchanged sentence

therefore, these securities are shown separately.

September 30, 2022

March 31, 2023

Available-for-Sale

48 unchanged sentences

Due after five through ten years

13,436  

12,165  

Due after ten years

7 unchanged sentences

Due after one through five years

20,700  

18,957  

Due after five through ten years

10 unchanged sentences

$ 326,569  

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

1 unchanged sentence

$ 10,452  

$ 12,685  

$ 109,829  

Gross realized gains

Gross realized losses

( 341 )  

( 10 )  

Note 3 - Loans Receivable

Loans receivable consisted of the following at the dates indicated:

September 30, 2022

The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company's strategic plan and the manner in which management monitors performance and credit quality.

The three loan portfolio segments are:

Real Estate Loans, Consumer Loans and Commercial Business Loans.

These segments are further disaggregated into classes based on similar attributes and risk characteristics.

Loan amounts are net of unearned loan fees in excess of unamortized costs and premiums of $ 13.8 million as of 

March 31, 2023 and $ 13.2 million as of 

December 31, 2022 .

Net loans does not include accrued interest receivable.

Accrued interest receivable on loans was $ 4.9 million as of 

March 31, 2023 and $ 4.7 million as of 

December 31, 2022 , and was reported in accrued interest receivable on the consolidated balance sheets.

The amortized cost of loans receivable, net of ACLL, consisted of the following at the dates indicated:

March 31, 2023

December 31, 2022

(In thousands)

24 unchanged sentences

76,927  

1,525,205  

Total loans receivable

1,579,464  

Net deferred loan fees

Premium on purchased loans, net

1,547,551  

Allowance for loan losses

Allowance for credit losses on loans (1)

17,396  

3 unchanged sentences

$ 1,531,435  

Allowance for Loan Losses.

The Company maintains a general ALLL 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

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, 2022

( 1 ) Allowance for credit losses on loans in 2023 reported using the CECL method and in 2022 reported using the incurred loss method.

Nonaccrual Loans.

 The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in process of collection.

In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income.

The interest on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

For those loans placed on non-accrual status due to payment delinquency, return to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less than six months.

The following table presents the amortized cost of nonaccrual loans by class of loan at the dates indicated:

March 31, 2023

December 31, 2022

Collateral Dependent Loans

Non-Collateral Dependent Loans

Total Nonaccrual Loans

Nonaccrual (1)

(In thousands)

One-to-four family

$ 1,154  

$ 1,486  

Commercial real estate

1 unchanged sentence

Auto and other consumer

Commercial business

(In thousands)

Beginning balance

$ 3,026  

Total nonaccrual loans

$ 1,232  

2 unchanged sentences

$ 1,793  

(1) Presentation of December 31, 2022, balances is in accordance with pre-CECL disclosure requirements.

Interest income recognized on a cash basis on nonaccrual loans for the 

three months ended March 31, 2023 , was $ 9,000 .

Prior to the implementation of CECL, the Bank categorized loans as performing or nonperforming based on payment activity.

Loans that were more than 90 days past due and nonaccrual loans were considered nonperforming.

The following table represents the credit risk profile based on payment activity by class of loans as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:

Nonperforming

(In thousands)

One-to-four family

$ 342,605  

Provision for (recapture of) loan losses

$ 343,559  

1 unchanged sentence

252,745  

Ending balance

Commercial real estate

388,831  

388,884  

Construction and land

193,631  

2 unchanged sentences

52,877  

At or For the Nine Months Ended September 30, 2022

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Commercial business

(In thousands)

Beginning balance

238,338  

238,913  

$ 3,996  

Commercial business

76,927  

1 unchanged sentence

$ 1,793  

(Recapture of) provision for loan losses

$ 1,545,758  

$ 1,547,551  

Past due loans.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

There were no loans past due 90 days or more and still accruing interest at 

March 31, 2023  or 

December 31, 2022 .

The following table presents the amortized cost of past due loans by segment and class as of March 31, 2023 :

90 Days or More

(In thousands)

One-to-four family

$ 1,515  

Ending balance

$ 353,007  

2 unchanged sentences

284,863  

Commercial real estate

373,013  

At September 30, 2022

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Commercial business

(In thousands)

161,626  

161,662  

Total real estate loans

1,172,509  

2 unchanged sentences

54,116  

General reserve

Auto and other consumer

249,118  

Specific reserve

251,302  

Total consumer loans

303,079  

305,418  

Commercial business loans

99,986  

3 unchanged sentences

$ 3,890  

Loans collectively evaluated (1)

$ 1,575,574  

$ 1,579,464  

The following table presents the amortized cost of past due loans by segment and class as of December 31, 2022 , in accordance with pre-CECL disclosure requirements:

90 Days or More

(In thousands)

One-to-four family

$ 1,449  

4 unchanged sentences

252,745  

Loans individually evaluated (2)

( 1 )  Loans collectively evaluated for general reserves.

( 2 )  Loans individually evaluated for specific reserves.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At or For the Three Months Ended September 30, 2021

One-to-four family

Commercial real estate

388,884  

Construction and land

Auto and other consumer

Commercial business

(In thousands)

Beginning balance

193,628  

193,646  

Total real estate loans

1,176,560  

2 unchanged sentences

52,877  

(Recapture of) provision for loan losses

Auto and other consumer

236,268  

238,913  

Ending balance

Total consumer loans

288,981  

291,790  

Commercial business loans

76,927  

2 unchanged sentences

$ 1,220  

At or For the Nine Months Ended September 30, 2021

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Commercial business

(In thousands)

Beginning balance

$ 5,083  

1 unchanged sentence

$ 1,547,551  

Credit quality indicator.

Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful, or loss;

risk ratings 6, 7, and 8 in our 8 -point risk rating system, respectively.

An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the borrower or of any collateral pledged.

Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.

Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When the Bank classifies problem assets as either substandard or doubtful, it may establish a specific allowance to address the risk specifically or allow the loss to be addressed in the general allowance.

General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities but that, unlike specific allowances, have not been specifically allocated to certain problem assets.

When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible.

Assets that do not currently expose the Bank to enough risk to warrant classification as substandard or doubtful but do possess identified weaknesses are designated as either watch or special mention assets;

risk ratings 4 and 5 in our risk rating system, respectively.

Loans not otherwise classified are considered pass graded loans and are rated 1 - 3 in our risk rating system.

The following table presents the amortized cost of loans receivable by internally assigned risk grade and class of loans as of 

March 31, 2023 . Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of most recent renewal or extension.

Term Loans by Year of Origination (1)  

Revolving  

(In thousands)

One-to-four family

$ 1,093  

1 unchanged sentence

$ 112,627  

(Recapture of) provision for loan losses

$ 76,012  

2 unchanged sentences

$ 350,370  

Ending balance

Special Mention

Total one-to-four family

71,982  

4 unchanged sentences

354,522  

At December 31, 2021

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Commercial business

(In thousands)

Gross charge-offs during the period

103,424  

4 unchanged sentences

21,725  

General reserve

Total multi-family

103,424  

Specific reserve

98,001  

1 unchanged sentence

284,863  

Gross charge-offs during the period

Commercial Real Estate

90,446  

3 unchanged sentences

31,640  

Loans collectively evaluated (1)

339,375  

1 unchanged sentence

25,890  

Special Mention

Total commercial real estate

90,492  

3 unchanged sentences

32,674  

Loans individually evaluated (2)

( 1 )  Loans collectively evaluated for general reserves.

( 2 )  Loans individually evaluated for specific reserves.

Impaired loans.

A loan is considered impaired when the Bank has determined that it may be unable to collect payments of principal or interest when due under the contractual terms of the loan.

Impairment is measured on a loan-by-loan basis for all loans in the portfolio except smaller balance homogeneous loans and certain qualifying troubled debt restructuring ("TDR") loans.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2022

December 31, 2021

Recorded Investment

Unpaid Principal Balance

Related Allowance

Recorded Investment

Unpaid Principal Balance

Related Allowance

(In thousands)

With no allowance recorded:

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

With an allowance recorded:

One-to-four family

Construction and land

Auto and other consumer

Total impaired loans:

One-to-four family

Commercial real estate

373,013  

Gross charge-offs during the period

Construction and Land

Auto and other consumer

60,673  

2 unchanged sentences

13,986  

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

(In thousands)

With no allowance recorded:

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

With an allowance recorded:

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Total impaired loans:

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

14,000  

Total construction and land

23,829  

Interest income recognized on a cash basis on impaired loans for the three and nine months ended September 30, 2022 , was $ 42,000 and $ 126,000 , respectively.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2021

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

(In thousands)

With no allowance recorded:

One-to-four family

Commercial real estate

Auto and other consumer

With an allowance recorded:

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

Total impaired loans:

One-to-four family

Commercial real estate

Construction and land

Auto and other consumer

60,673  

72,087  

Interest income recognized on a cash basis on impaired loans for the 

three and nine months ended September 30, 2021 , was $ 65,000  and $ 183,000 , respectively.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the recorded investment in nonaccrual loans by class of loan at the dates indicated:

September 30, 2022

December 31, 2021

(In thousands)

One-to-four family

161,662  

Commercial real estate

Construction and land

Auto and other consumer

Total nonaccrual loans

Gross charge-offs during the period

29,844  

53,720  

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.

At September 30, 2022 , $ 154,000 of purchased loans serviced by others were past due 90 days or more and still accruing interest.

There were no loans past due 90 days or more and still accruing interest at December 31, 2021 .

The following table presents the recorded investment in past due loans, by class, as of September 30, 2022 :

90 Days or More

(In thousands)

One-to-four family

Special Mention

Total home equity

30,000  

54,116  

Gross charge-offs during the period

Other Consumer

14,479  

2 unchanged sentences

34,458  

Commercial real estate

18,091  

21,028  

Construction and land

248,943  

Special Mention

Total other consumer

14,479  

Total real estate loans

87,981  

2 unchanged sentences

18,305  

Auto and other consumer

21,297  

251,302  

Total consumer loans

Gross charge-offs during the period

Commercial business

10,681  

31,913  

Commercial business loans

12,301  

1 unchanged sentence

91,396  

Special Mention

Total commercial business

10,681  

2 unchanged sentences

31,318  

FIRST NORTHWEST BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the recorded investment in past due loans, by class, as of December 31, 2021 :

90 Days or More

(In thousands)

One-to-four family

99,986  

Gross charge-offs during the period

50,784  

1 unchanged sentence

466,968  

Commercial real estate

268,897  

51,507  

Construction and land

144,530  

57,791  

Total real estate loans

1,493,767  

2 unchanged sentences

53,020  

Auto and other consumer

Special Mention

14,452  

13,986  

Total consumer loans

18,225  

$ 69,523  

Commercial business loans

$ 454,408  

4 unchanged sentences

$ 61,736  