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Northwest Bancorporation, Inc. Reports Second Quarter 2015 Financial Results

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SPOKANE, Wash., July 7, 2015 (GLOBE NEWSWIRE) -- Northwest Bancorporation, Inc. (OTCQB: NBCT) (the "Company"), the holding company of Inland Northwest Bank (the "Bank" or "INB"), today reported financial results for the quarter ended June 30, 2015.

Net income for the second quarter of 2015 was $902 thousand, compared to $758 thousand for the corresponding period in 2014, representing an increase of $144 thousand, or 19.0%. Earnings per diluted share increased 16.7%, from $0.18 for the second quarter of 2014, to $0.21 for the second quarter of 2015.

Net income for the first half of 2015 was $1.6 million, compared to $1.3 million for the first half of 2014, representing an increase of $253 thousand, or 18.8%. Earnings per diluted share increased 18.7%, from $0.32 for the first half of 2014, to $0.38 for the first half of 2015.

Financial highlights

  • Achieved fourteenth consecutive quarter of profitability, with net income of $902 thousand.
  • Total revenue for the quarter was $5.3 million, up 14% over the second quarter last year and up 6% over the first quarter this year.
  • Nonperforming assets equaled 0.12% of total assets, a decrease of 86% year over year.
  • Noninterest bearing deposits increased 8% year over year.
  • Loans grew by $46 million, or 14%, year over year.
  • Book value of the Company's stock increased 4.1% during the first half of the year, to $9.69 per share.
  • The market price of the Company's stock increased $0.30 per share, or 3.5%, during the first half of the year, to $8.95 per share. The price is up $1.45, or 19%, over the price on June 30, 2014.

Company President and CEO, Randall Fewel, commented, "The second quarter should go down as one of the busiest and best in Company history. Not only did we achieve excellent profitability and growth, but we also announced the hiring of Russell Lee as my successor as President and CEO of Inland Northwest Bank, and we announced the acquisition of Bank of Fairfield, subject to regulatory approval and other conditions. It is a very exciting time for us at INB."

Balance sheet

As of June 30, 2015, the Company had total assets of $449.2 million, compared to $421.8 million on December 31, 2014 and $408.5 million on June 30, 2014. This represents an increase of $27.3 million, or 6.5%, over year end and an increase of $40.7 million, or 10.0%, year over year.

The investment portfolio was $38.2 million as of June 30, 2015, down $4.0 million, or 9.6%, from $42.2 million at December 31, 2014.  The decrease reflects a shift in the deployment of capital from investments to loans. The net unrealized gain in the portfolio was $1.0 million, 15% lower than the $1.2 million net unrealized gain at year-end 2014.

The net loan portfolio was $363.0 million on June 30, 2015. This was up $26.6 million, or 7.9%, from year end and was up $45.6 million, or 14.4%, from June 30, 2014, when the loan portfolio was $317.4 million. It also represents growth of $12.8 million, or 3.7%, over the first quarter this year. The increase from prior periods primarily reflects increased commercial lending activity spread over all major sectors including commercial and industrial loans and owner-occupied and non-owner occupied commercial real estate loans. "We believe we have one of the best community bank commercial lending teams in the region," Fewel commented, "and they are doing a terrific job of bringing in high-quality business."

Deposits at June 30, 2015 were $384.6 million, an increase of $25.9 million, or 7.2%, compared to December 31, 2014 and an increase of $43.4 million, or 12.7%, compared to June 30, 2014. Core deposits (all deposits except time deposits) ended the quarter at $290.8 million, which is 75.6% of total deposits; this represents an increase of $15.4 million, or 5.6%, since the beginning of the year and an increase of $30.6 million, or 11.8%, over the $260.2 million level on June 30, 2014.

Noninterest bearing deposits, a subset of core deposits, were $94.6 million at quarter end, representing 24.6% of total deposits. This compares to noninterest bearing deposits of $87.5 million, or 25.6% of total deposits, at June 30, 2014, and to $96.4 million, or 26.9% of total deposits, at year-end 2014. The level of noninterest bearing deposits at quarter end represented growth of $7.1 million, or 8.1%, compared to June 30, 2014.

Asset quality, provision and allowance for loan losses

The Bank's nonperforming assets ("NPAs") were $533 thousand at quarter end, representing 0.12% of total assets. NPAs are defined as loans on which the Bank has stopped accruing interest and includes foreclosed real estate. NPAs at the end of 2014 were $1.4 million, representing 0.33% of total assets, and at June 30, 2014, NPAs were $3.8 million, representing 0.93% of total assets. Fewel said, "Our Chief Credit Officer, Scott Southwick, has done a fantastic job of bringing credit quality back to pre-recession levels. An NPA ratio of 0.12% is among the best in the industry today."

The Bank achieved net loan recoveries of $56 thousand and $62 thousand for the three and six-month periods ending on June 30, 2015, compared to net loan charge offs of $65 thousand and $214 thousand for the comparable periods in 2014. The provision for loan losses was $60 thousand and $120 thousand for the three and six-month periods ending on June 30, 2015, compared to $167 thousand and $417 thousand for the comparable periods in 2014. As of June 30, 2015, the allowance for loan losses was $5.9 million, or 1.60% of gross loans.  This compares to $5.7 million, or 1.67%, of the loan portfolio as of December 31, 2014.

Capital

Shareholders' equity increased $1.6 million during the first half of 2015. The increase primarily reflects retention of earnings. The book value of the Company's common stock was $9.69 per share on June 30, 2015, up $0.38, or 4.1%, over the $9.31 per share on December 31, 2014, and up $0.78, or 8.8%, over the $8.91 per share on June 30, 2014.

The Bank continues to maintain capital levels in excess of the requirements to be categorized as "well-capitalized" under newly implemented Basel III and Dodd Frank regulatory standards. As of June 30, 2015, the Bank's Tier 1 leverage capital to average assets ratio was 11.0%, its common equity Tier 1 ("CET1") capital ratio was 11.6%, and its total capital to risk-weighted assets ratio was 12.8%.

Total revenue

Total revenue was $5.3 million for the second quarter of 2015, compared to $4.7 million for the same period in 2014, representing an increase of $643 thousand, or 13.7%. Total revenue was $10.3 million for the first half of 2015, compared to $9.1 million for the same period in 2014, representing an increase of $1.2 million, or 13.3%. Total revenue is defined as net interest income plus noninterest income. "Top line revenue growth," Fewel said, "is critical for us, and under the leadership of our Chief Revenue Officer, Mark Dresback, we have been successful in growing both components of it: net interest income and noninterest income."

Net interest income

Net interest income was $4.3 million for the quarter ended June 30, 2015, an increase of $464 thousand, or 12.2%, from the comparable period in 2014.  Net interest income was $8.4 million for the six months ended June 30, 2015, an increase of $960 thousand, or 12.9%, from the comparable period in 2014. The net interest margin (the "NIM," defined as interest income minus interest expense, divided by average earning assets) improved from 4.11% in the second quarter of 2014 to 4.18% in the second quarter of 2015. Year-to-date, the NIM is 4.04% this year compared to 4.07% last year through June. The slight decline in year-to-date NIM, despite the increase in net interest income, is due to a $39 million increase in earning assets.

Noninterest income

Noninterest income increased by $179 thousand, or 20.6%, from $870 thousand in the second quarter last year, to $1.05 million in the second quarter this year. Noninterest income for the first six months of 2015 was $1.9 million, compared to $1.6 million for the same period in 2014. This represents an improvement in noninterest income of $249 thousand, or 15.1%. The increase in noninterest income was primarily related to higher gains from sales of residential mortgage loans, which increased by $283 thousand, or 84%. Net gains on sales of investment securities were $0 and $65 thousand for the six months ended June 30, 2015 and 2014, respectively.

Noninterest expense

Noninterest expense for the second quarter increased by $576 thousand, or 16.9%, from $3.4 million last year to $4.0 million this year. Noninterest expense for the six months ending June 30, 2015 was $7.9 million, compared to $6.8 million for the same period in 2014, an increase of $1.1 million or 15.8%. The primary contributors to the rise in noninterest expenses were higher employee-related costs and higher legal fees related to the acquisition of Fairfield Financial Holdings Corp. ("Fairfield"), which was announced on June 23, 2015. "With the consolidation of banks that has been taking place in our region lately," Fewel said, "some quality bankers have become available. INB has hired a number of these individuals to strengthen our bench and enhance our retail banking efforts. While this has caused noninterest expense to increase, it has also helped us grow our loans and core deposits."

Key ratios

Return on average assets ("ROA") for the second quarter this year was 0.82% compared to 0.65% in the first quarter and compared to 0.76% in the second quarter last year. For the six months ended June 30, 2015, ROA was 0.72%, compared to 0.68% for the comparable period in 2014.

Return on average equity ("ROE") was 9.04% for the second quarter this year compared to 7.12% in the first quarter and 8.37% for the second quarter last year. ROE was 8.09% for the first six months this year compared to 7.52%, for the same period last year.

Yield on earning assets was 4.55%, compared to 4.66% for the same period last year, and the cost of funds was 0.70% this year versus 0.81% last year.

Russell A. Lee

On May 22, 2015, the Company announced the hiring of Russell A. Lee as President and CEO of Inland Northwest Bank. Mr. Lee officially joined the Bank on June 29, 2015. He has spent the majority of his thirty-five year banking career with community banks in Washington State. Mr. Lee, 58, has previous experience as President and Chief Operating Officer of Burlington, Washington based Skagit Bank, an $800 million-asset community bank located in the northwest portion of Washington, and also as President and COO of $1.3 billion-asset Peoples Bank, headquartered in Lynden, Washington.

Mr. Fewel is expected to remain as President and CEO of the holding company, Northwest Bancorporation, Inc., until June 30, 2016 and will remain on the Boards of Directors of both the Company and the Bank.

Fairfield Financial Holdings Corp. and Bank of Fairfield

On June 23, 2015, the Company announced the signing of a definitive agreement to acquire Fairfield Financial Holdings Corp., the holding company of Bank of Fairfield, which is headquartered 30 miles south of Spokane, in Fairfield, Washington. This combination will expand the Company's geographic footprint in Eastern Washington and secure its position as the largest community bank solely focused on the Inland Northwest region.

"We are excited about combining these two great community banks to create a stronger, more efficient bank with enhanced products, services and technology," Fewel said. "Inland Northwest Bank is focused on building the premier community banking organization in our region, and we believe that the combined company will be well positioned to grow, serve our customers and create solid returns for our shareholders."

Fewel added, "Bank of Fairfield has served the Palouse Region for over 100 years, and we have deep respect for their organization. It has been a leader in serving farming communities, and we believe that agriculture expertise will be an excellent complement to our commercial banking expertise." Fewel went on to say "We have long felt that diversifying into agriculture would make us a stronger bank, but it isn't easy to break into that business. Fairfield does an outstanding job of serving the farmers in the Palouse, and we are delighted they have agreed to join forces with us."

The combined company will have approximately $600 million in assets and is expected to have better loan portfolio diversification, more liquidity, and a lower cost of funds than INB currently has. The merger transaction is expected to close in the fourth quarter of 2015, subject to, among other conditions, the Company's successful completion of a capital raise, approval of the proposed acquisition by Fairfield's shareholders, regulatory approval and other customary conditions of closing. The capital raise by the Company is subject to market and other conditions. It is anticipated that the Company will offer shares of its common stock (the "Common Stock") to accredited investors in a private placement.

It is expected that Jay Wernz, Chairman, President and Chief Executive Officer of Fairfield Financial Holdings Corp. and Bank of Fairfield, will join the boards of directors of Northwest Bancorporation, Inc. and Inland Northwest Bank upon closing of the proposed acquisition.

Summary

Fewel summarized the quarterly results by saying, "We have generated a great deal of momentum at INB by being laser-focused on the fundamentals of community banking. The addition of Russ Lee will build on that momentum. The Board's long-term strategy is to grow both organically and through acquisition. We believe this is the best path to remain independent and enhance shareholder value. The Fairfield acquisition will be a major step for us on that path." Fewel went on to say, "While much of our attention over the next year will be on integrating the two companies, we will not take our eye off of the importance of continuing to generate solid, profitable organic growth."

About Northwest Bancorporation, Inc.

Northwest Bancorporation, Inc. is the parent company of Inland Northwest Bank, a state-chartered community bank which operates seven branches in Spokane County, Washington, and four branches in Kootenai County, Idaho. INB specializes in meeting the financial needs of individuals and small to medium-sized businesses, including professional corporations, by providing a full line of commercial, retail, mortgage and private banking products and services. More information about INB can be found on its website at www.inb.com. The Company's stock is quoted on the OTC Market's OTCQB Marketplace, www.otcmarkets.com, under the symbol NBCT.

Disclosure Regarding Private Placement

Northwest Bancorporation Inc.'s Common Stock to be issued in the capital raise will not be registered under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws and may not be offered or sold in the United States except pursuant to an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws. The Common Stock will be offered only to accredited investors in accordance with Rule 506(b) under the Securities Act.

This press release does not and will not constitute an offer to sell or the solicitation of an offer to buy the Common Stock, nor will there be any sale of the Common Stock in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. This press release is being issued pursuant to and in accordance with Rule 135c under the Securities Act.

Forward-Looking Statements

This release contains forward-looking statements that are not historical facts and that are intended to be "forward-looking statements" as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, but are not limited to, statements about the Company's plans, objectives, expectations and intentions and other statements contained in this release that are not historical facts and pertain to the Company's future operating results. When used in this release, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Actual results may differ materially from the results discussed in these forward-looking statements, because such statements are inherently subject to significant assumptions, risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control.  These include but are not limited to: the businesses of the Company and Fairfield may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities or cost savings from the acquisition may not be fully realized or may take longer to realize than expected; operating costs, customer losses and business disruption following the acquisition, including adverse effects on relationships with employees, may be greater than expected; governmental approvals of the acquisition may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the acquisition; the shareholders of Fairfield may fail to approve the acquisition; the possibility of adverse economic developments that may, among other things, increase default and delinquency risks in the Company's loan portfolios; shifts in interest rates; shifts in the rate of inflation; shifts in the demand for the Company's loan and other products; unforeseen increases in costs and expenses; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; and changes in laws, regulations and the competitive environment. Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 
 
Northwest Bancorporation, Inc.
Consolidated Statements of Financial Condition
(Unaudited)
       
       
  Jun. 30, Dec. 31, Jun. 30,
(dollars in thousands) 2015 2014 2014
       
Assets:      
Cash and due from banks  $ 13,502  $ 14,398  $ 17,083
Interest bearing deposits  9,972  3,384  230
Time deposits held for investment  2,185  1,935  2,175
Securities available for sale  35,996  40,287  44,905
Federal Home Loan Bank stock, at cost  890  1,148  1,171
Loans receivable, net  363,039  336,421  317,432
Loans held for sale  1,256  740  1,612
Premises and equipment, net  14,609  14,888  15,195
Accrued interest receivable  1,375  1,322  1,238
Foreclosed real estate  200  1,050  1,250
Bank-owned life insurance  4,255  4,201  4,221
Other assets  1,872  2,033  1,973
Total assets  $ 449,151  $ 421,807  $ 408,485
       
Liabilities:      
Deposits:      
Noninterest bearing deposits  $ 94,584  $ 96,386  $ 87,486
Interest bearing transaction and savings deposits  196,173  179,016  172,669
Time deposits  93,850  83,278  81,074
   384,607  358,680  341,229
Accrued interest payable  128  124  128
Federal funds purchased  --   --   4,680
Borrowed funds  20,637  21,327  22,017
Other liabilities  3,500  2,963  3,741
Total liabilities  408,872  383,094  371,795
       
Shareholders' equity:      
Common stock  33,048  32,960  32,772
Retained earnings  6,546  4,947  3,033
Accumulated other comprehensive income  685  806  885
Total shareholders' equity  40,279  38,713  36,690
Total liabilities and shareholders' equity  $ 449,151  $ 421,807  $ 408,485
 
 
Northwest Bancorporation, Inc.
Consolidated Statements of Operations
(Unaudited)
           
           
  Three Months Ended Six Months Ended
  Jun. 30, Mar. 31, Jun. 30, Jun. 30, Jun. 30,
(dollars in thousands, except per share data) 2015 2015 2014 2015 2014
           
Interest and dividend income:          
Loans receivable  $ 4,544  $ 4,364  $ 3,999  $ 8,908  $ 7,791
Investment securities  275  297  347  572  740
Other  16  12  9  28  19
Total interest and dividend income  4,835  4,673  4,355  9,508  8,550
           
Interest expense:          
Deposits  374  339  352  713  695
Borrowed funds  186  184  192  370  390
Total interest expense  560  523  544  1,083  1,085
           
Net interest income  4,275  4,150  3,811  8,425  7,465
           
Provision for (recovery of) loan losses  60  60  167  120  417
           
Noninterest income:          
Service charges on deposits  229  217  246  446  472
Gains from sale of loans, net  375  244  177  619  336
Gain on investment securities, net  --   --   44  --   65
Other noninterest income  445  389  403  834  777
Total noninterest income  1,049  850  870  1,899  1,650
           
Noninterest expense:          
Salaries and employee benefits  2,159  2,086  1,720  4,245  3,502
Occupancy and equipment  347  316  332  663  673
Depreciation and amortization  279  277  290  556  583
Advertising and promotion  171  116  116  287  218
FDIC assessments  64  61  72  125  138
Loss (gain) on foreclosed real estate, net  (142)  --   (87)  (142)  (150)
Other noninterest expense  1,099  1,026  958  2,125  1,822
Total noninterest expense  3,977  3,882  3,401  7,859  6,786
           
Income before income taxes  1,287  1,058  1,113  2,345  1,912
Income tax expense  385  361  355  746  566
           
NET INCOME  $ 902  $ 697  $ 758  $ 1,599  $ 1,346
           
Earnings per common share - basic  $ 0.22  $ 0.17  $ 0.18  $ 0.38  $ 0.33
Earnings per common share - diluted  $ 0.21  $ 0.16  $ 0.18  $ 0.38  $ 0.32
Weighted average common shares outstanding - basic  4,157,632  4,157,632  4,117,673  4,157,632  4,117,673
Weighted average common shares outstanding - diluted  4,255,889  4,250,854  4,195,568  4,251,179  4,192,448
 
 
Northwest Bancorporation, Inc.
Key Financial Ratios and Data
(Unaudited)
           
           
  Three Months Ended Six Months Ended
  Jun. 30, Mar. 31, Jun. 30, Jun. 30, Jun. 30,
(dollars in thousands, except per share data) 2015 2015 2014 2015 2014
           
PERFORMANCE RATIOS (annualized)          
Return on average assets 0.82% 0.65% 0.76% 0.72% 0.68%
Return on average equity 9.04% 7.12% 8.37% 8.09% 7.52%
Yield on earning assets 4.72% 4.66% 4.70% 4.55% 4.66%
Cost of funds 0.74% 0.71% 0.80% 0.70% 0.81%
Net interest margin 4.18% 4.14% 4.11% 4.04% 4.07%
Noninterest income to average assets 0.96% 0.79% 0.87% 0.85% 0.83%
Noninterest expense to average assets 3.62% 3.61% 3.40% 3.52% 3.42%
Provision expense to average assets 0.05% 0.06% 0.17% 0.05% 0.21%
Efficiency ratio (1) 74.7% 77.6% 72.7% 76.1% 74.5%
           
           
  Jun. 30, Dec. 31, Jun. 30,    
  2015 2014 2014    
ASSET QUALITY RATIOS AND DATA          
Nonaccrual loans $333 $354 $2,563    
Foreclosed real estate $200 $1,050 $1,250    
Nonperforming assets $533 $1,404 $3,813    
Loans 30-89 days past due and on accrual $2,369 $3,421 $4,120    
Restructured loans $5,791 $5,023 $7,228    
Allowance for loan losses $5,910 $5,728 $6,006    
Nonperforming assets to total assets 0.12% 0.33% 0.93%    
Allowance for loan losses to total loans 1.60% 1.67% 1.85%    
Allowance for loan losses to nonaccrual loans 1774.77% 1618.08% 234.33%    
Net charge-offs ($56)(2)   $65(2) ($62)(3) $214(3)
Net charge-offs to average loans (annualized) -0.06%(2)   0.80%(2) -0.03%(3) 0.14%(3)
           
           
CAPITAL RATIOS AND DATA          
Common shares outstanding at period end  4,157,632  4,157,632  4,117,673    
Book value per common share $9.69 $9.31 $8.91    
Tangible common equity $40,279 $38,713 $36,690    
Shareholders' equity to total assets 9.0% 9.2% 9.0%    
Total capital to risk-weighted assets (3) 12.8% 12.6% 13.3%    
Tier 1 capital to risk-weighted assets (3) 11.6% 11.4% 12.1%    
Tier 1 common equity ratio (3) 11.6% 11.4% 12.1%    
Tier 1 leverage capital ratio (3) 11.0% 11.2% 11.3%    
           
           
DEPOSIT RATIOS AND DATA          
Core deposits (4) $290,757 $275,402 $260,155    
Core deposits to total deposits 75.6% 76.8% 76.2%    
Noninterest bearing deposits to total deposits 24.6% 26.9% 25.6%    
Net loan to deposit ratio 94.4% 93.8% 93.0%    
           
           
Notes:          
(1) Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).
(2) Net charge-offs for the three-month period.
(3) Regulatory capital ratios are reported for Inland Northwest Bank.
(4) Core deposits include all deposits except time deposits.
CONTACT: For more information contact: Randall L. Fewel, President and CEO Holly Poquette, Chief Financial Officer 509.456.8888 nbct@inb.com

Northwest Bancorporation, Inc.

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