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Note 13 - Fair Value Measurements | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | Note 13 - Fair Value Measurements 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. The Company used the following methods to measure fair value on a recurring and nonrecurring basis. 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. Equity and partnership investments: Management determines fair value using quoted prices of similar investments or discounted cash flows, which are considered Level 2, when available. Where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. The Company believes that the net asset value obtained through financial statements provided by each partnership approximates fair value. Such instruments are classified as Level 3. Sold loan servicing rights, at fair value: The fair value of sold loan servicing rights is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs. Servicing rights are classified as Level 3 due to reliance on assumptions used in the valuation. Loans receivable, net: The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans and leases would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred. Interest rate swap derivative: The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s securities derivatives are traded in an over-the-counter market where quoted market prices are not always available. The Company also entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans. The fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third-party pricing services without adjustment. Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets and liabilities measured at fair value on a recurring basis at the dates indicated:
|  | September 30, 2024 |
|  | Quoted Prices in Active Markets for Identical Assets or Liabilities |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  |  |  |
|  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Financial Assets |  |  | (In thousands) |
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds |  | $ | 5,054 |  |  | $ | 76,309 |  |  | $ | — |  |  | $ | 81,363 |
ABS agency |  |  | — |  |  |  | 13,296 |  |  |  | — |  |  |  | 13,296 |
ABS corporate |  |  | — |  |  |  | 16,391 |  |  |  | — |  |  |  | 16,391 |
Corporate debt |  |  | 1,945 |  |  |  | 52,113 |  |  |  | — |  |  |  | 54,058 |
SBA |  |  | — |  |  |  | 9,317 |  |  |  | — |  |  |  | 9,317 |
MBS agency |  |  | — |  |  |  | 78,549 |  |  |  | — |  |  |  | 78,549 |
MBS non-agency |  |  | — |  |  |  | 40,791 |  |  |  | 17,095 |  |  |  | 57,886 |
Sold loan servicing rights |  |  | — |  |  |  | — |  |  |  | 3,584 |  |  |  | 3,584 |
Equity and partnership investments |  |  | — |  |  |  | 1,762 |  |  |  | 12,650 |  |  |  | 14,412 |
Total assets measured at fair value |  | $ | 6,999 |  |  | $ | 288,528 |  |  | $ | 33,329 |  |  | $ | 328,856 |
Financial Liabilities |  |  |
Interest rate swap derivative |  | $ | — |  |  | $ | 2,749 |  |  | $ | — |  |  | $ | 2,749 |
|  | December 31, 2023 |
|  | Quoted Prices in Active Markets for Identical Assets or Liabilities |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  |  |  |
|  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Financial Assets |  | (In thousands) |
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds |  | $ | 5,118 |  |  | $ | 82,643 |  |  | $ | — |  |  | $ | 87,761 |
ABS agency |  |  | — |  |  |  | 11,782 |  |  |  | — |  |  |  | 11,782 |
ABS corporate |  |  | — |  |  |  | 5,286 |  |  |  | — |  |  |  | 5,286 |
Corporate debt |  |  | 1,883 |  |  |  | 49,571 |  |  |  | — |  |  |  | 51,454 |
MBS agency |  |  | — |  |  |  | 63,247 |  |  |  | — |  |  |  | 63,247 |
MBS non-agency |  |  | — |  |  |  | 48,624 |  |  |  | 27,469 |  |  |  | 76,093 |
Sold loan servicing rights |  |  | — |  |  |  | — |  |  |  | 3,793 |  |  |  | 3,793 |
Partnership investments |  |  | — |  |  |  | — |  |  |  | 13,183 |  |  |  | 13,183 |
Total assets measured at fair value |  | $ | 7,001 |  |  | $ | 261,153 |  |  | $ | 44,445 |  |  | $ | 312,599 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap derivative |  | $ | — |  |  | $ | 1,002 |  |  | $ | — |  |  | $ | 1,002 |
The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at the dates indicated:
September 30, 2024 |  | Fair Value (In thousands) |  | Valuation Technique |  | Unobservable Input (1) |  | Range (Weighted Average) |
Sold loan servicing rights |  | $ | 3,584 |  | Discounted cash flow |  | Constant prepayment rate |  |  | 5.21% - 41.27% (7.83%) |
|  |  |  |  |  |  | Discount rate |  |  | 10.25% - 12.53% (10.92%) |
MBS non-agency |  | $ | 17,095 |  | Consensus pricing |  | Offered quotes |  |  | 99 - 100 |
Partnership investments |  | $ | 12,650 |  | Net asset value per share |  | Net asset value |  |  | n/a |
(1) Unobservable inputs were weighted by the relative fair value of the instruments. |
December 31, 2023 |  | Fair Value (In thousands) |  | Valuation Technique |  | Unobservable Input (1) |  | Range (Weighted Average) |
Sold loan servicing rights |  | $ | 3,793 |  | Discounted cash flow |  | Constant prepayment rate |  |  | 4.10% - 47.53% (7.39%) |
|  |  |  |  |  |  | Discount rate |  |  | 11.00% - 13.42% (11.74%) |
MBS non-agency |  | $ | 27,469 |  | Consensus pricing |  | Offered quotes |  |  | 98 - 100 |
Partnership investments |  | $ | 13,183 |  | Net asset value per share |  | Net asset value |  |  | n/a |
(1) Unobservable inputs were weighted by the relative fair value of the instruments. |
The following tables summarize the changes in Level 3 assets measured at fair value on a recurring basis, at the dates indicated:
|  | As of or For the Three Months Ended September 30, |  |  | As of or For the Nine Months Ended September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Sold loan servicing rights: |  | (In thousands) |
Balance at beginning of period |  | $ | 3,740 |  |  | $ | 3,825 |  |  | $ | 3,793 |  |  | $ | 3,887 |
Servicing rights that result from transfers and sale of financial assets |  |  | 5 |  |  |  | 71 |  |  |  | 38 |  |  |  | 145 |
Changes in fair value due to changes in model inputs or assumptions (1) |  |  | (161 | ) |  |  | (167 | ) |  |  | (247 | ) |  |  | (303 | )
Balance at end of period |  | $ | 3,584 |  |  | $ | 3,729 |  |  | $ | 3,584 |  |  | $ | 3,729 |
(1) Represents changes due to collection/realization of expected cash flows and curtailments. |
|  | As of or For the Three Months Ended September 30, |  |  | As of or For the Nine Months Ended September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Securities available for sale: |  | (In thousands) |
MBS non-agency |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 17,231 |  |  | $ | 29,378 |  |  | $ | 27,469 |  |  | $ | 29,599 |
Principal payments received |  |  | (148 | ) |  |  | — |  |  |  | (10,530 | ) |  |  | — |
Unrealized Gains (Losses) |  |  | 12 |  |  |  | (186 | ) |  |  | 156 |  |  |  | (407 | )
Balance at end of period |  | $ | 17,095 |  |  | $ | 29,192 |  |  | $ | 17,095 |  |  | $ | 29,192 |
|  | As of or For the Three Months Ended September 30, |  |  | As of or For the Nine Months Ended September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Partnership investments: |  | (In thousands) |
Balance at beginning of period |  | $ | 12,823 |  |  | $ | 12,733 |  |  | $ | 13,183 |  |  | $ | 12,563 |
Funding contributions (1) |  |  | 80 |  |  |  | 126 |  |  |  | 6,386 |  |  |  | 335 |
Distributions received (1) |  |  | (283 | ) |  |  | (57 | ) |  |  | (6,782 | ) |  |  | (404 | )
Unrealized Gains (Losses) |  |  | 30 |  |  |  | (15 | ) |  |  | (137 | ) |  |  | 293 |
Balance at end of period |  | $ | 12,650 |  |  | $ | 12,787 |  |  | $ | 12,650 |  |  | $ | 12,787 |
(1) In the second quarter of 2024, a redemption of First Northwest's limited partnership investment in Meriwether Group Hero Fund LP was offset by a subsequent limited partnership investment in the same entity by First Fed. 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. The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:
|  | September 30, 2024 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (In thousands) |
Individually evaluated collateral dependent loans |  | $ | — |  |  | $ | — |  |  | $ | 27,181 |  |  | $ | 27,181 |
|  | December 31, 2023 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (In thousands) |
Individually evaluated collateral dependent loans |  | $ | — |  |  | $ | — |  |  | $ | 17,388 |  |  | $ | 17,388 |
At September 30, 2024 and December 31, 2023, there were no individually evaluated 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, 2024 |
|  |  |  |  |  |  |  |  |  | Fair Value Measurements Using: |
|  | Carrying Amount |  |  | Estimated Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (In thousands) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 82,722 |  |  | $ | 82,722 |  |  | $ | 82,722 |  |  | $ | — |  |  | $ | — |
Investment securities available for sale |  |  | 310,860 |  |  |  | 310,860 |  |  |  | 6,999 |  |  |  | 286,766 |  |  |  | 17,095 |
Loans held for sale |  |  | 378 |  |  |  | 378 |  |  |  | — |  |  |  | 378 |  |  |  | — |
Loans receivable, net |  |  | 1,714,416 |  |  |  | 1,580,047 |  |  |  | — |  |  |  | — |  |  |  | 1,580,047 |
FHLB stock |  |  | 14,435 |  |  |  | 14,435 |  |  |  | — |  |  |  | 14,435 |  |  |  | — |
Accrued interest receivable |  |  | 8,939 |  |  |  | 8,939 |  |  |  | — |  |  |  | 8,939 |  |  |  | — |
Sold loan servicing rights, at fair value |  |  | 3,584 |  |  |  | 3,584 |  |  |  | — |  |  |  | — |  |  |  | 3,584 |
Equity and partnership investments |  |  | 14,412 |  |  |  | 14,412 |  |  |  | — |  |  |  | 1,762 |  |  |  | 12,650 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits |  | $ | 1,066,271 |  |  | $ | 1,066,271 |  |  | $ | 1,066,271 |  |  | $ | — |  |  | $ | — |
Time deposits |  |  | 645,370 |  |  |  | 647,583 |  |  |  | — |  |  |  | — |  |  |  | 647,583 |
FHLB Borrowings |  |  | 290,000 |  |  |  | 290,119 |  |  |  | — |  |  |  | — |  |  |  | 290,119 |
Line of Credit |  |  | 5,500 |  |  |  | 5,525 |  |  |  | — |  |  |  | — |  |  |  | 5,525 |
Subordinated debt, net |  |  | 39,494 |  |  |  | 42,016 |  |  |  | — |  |  |  | — |  |  |  | 42,016 |
Accrued interest payable |  |  | 2,153 |  |  |  | 2,153 |  |  |  | — |  |  |  | 2,153 |  |  |  | — |
Interest rate swap derivative |  |  | 2,749 |  |  |  | 2,749 |  |  |  | — |  |  |  | 2,749 |  |  |  | — |
|  | December 31, 2023 |
|  |  |  |  |  |  |  |  |  | Fair Value Measurements Using: |
|  | Carrying Amount |  |  | Estimated Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (In thousands) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 123,169 |  |  | $ | 123,169 |  |  | $ | 123,169 |  |  | $ | — |  |  | $ | — |
Investment securities available for sale |  |  | 295,623 |  |  |  | 295,623 |  |  |  | 7,001 |  |  |  | 261,153 |  |  |  | 27,469 |
Loans held for sale |  |  | 753 |  |  |  | 753 |  |  |  | — |  |  |  | 753 |  |  |  | — |
Loans receivable, net |  |  | 1,642,518 |  |  |  | 1,506,130 |  |  |  | — |  |  |  | — |  |  |  | 1,506,130 |
FHLB stock |  |  | 13,664 |  |  |  | 13,664 |  |  |  | — |  |  |  | 13,664 |  |  |  | — |
Accrued interest receivable |  |  | 7,894 |  |  |  | 7,894 |  |  |  | — |  |  |  | 7,894 |  |  |  | — |
Sold loan servicing rights, at fair value |  |  | 3,793 |  |  |  | 3,793 |  |  |  | — |  |  |  | — |  |  |  | 3,793 |
Partnership investments |  |  | 13,183 |  |  |  | 13,183 |  |  |  | — |  |  |  | — |  |  |  | 13,183 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits |  |  | 1,025,854 |  |  | $ | 1,025,854 |  |  | $ | 1,025,854 |  |  | $ | — |  |  | $ | — |
Time deposits |  |  | 651,038 |  |  |  | 648,428 |  |  |  | — |  |  |  | — |  |  |  | 648,428 |
FHLB Borrowings |  |  | 275,000 |  |  |  | 271,284 |  |  |  | — |  |  |  | — |  |  |  | 271,284 |
Line of Credit |  |  | 6,500 |  |  |  | 6,524 |  |  |  | — |  |  |  | — |  |  |  | 6,524 |
Subordinated debt, net |  |  | 39,436 |  |  |  | 42,116 |  |  |  | — |  |  |  | — |  |  |  | 42,116 |
Accrued interest payable |  |  | 3,396 |  |  |  | 3,396 |  |  |  | — |  |  |  | 3,396 |  |  |  | — |
Interest rate swap derivative |  |  | 1,002 |  |  |  | 1,002 |  |  |  | — |  |  |  | 1,002 |  |  |  | — |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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