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First Northwest Bancorp Reports Results of Operations for the Quarter Ended March 31, 2018

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PORT ANGELES, Wash., April 26, 2018 (GLOBE NEWSWIRE) -- First Northwest Bancorp (NASDAQ:FNWB) ("Company"), the holding company for First Federal Savings and Loan Association of Port Angeles ("Bank"), announced its operating results for the quarter ended March 31, 2018. The Company reported net income of $1.5 million, or $0.15 per basic share and $0.14 per diluted share, for the quarter ended March 31, 2018, compared to a loss of $114,000, or $(0.01) per basic and diluted share, for the quarter ended December 31, 2017, an increase of $1.6 million. The current quarter's net income decreased $641,000 compared to net income of $2.2 million for the quarter ended March 31, 2017. The increase in net income as compared to the previous quarter was mainly due to a decrease in the provision for income taxes as the prior quarter included a one-time revaluation adjustment reducing our net deferred tax asset ("DTA revaluation") due to the passage of the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Act"). The decrease as compared to the same quarter last year was mainly due to a decrease in noninterest income and an increase in noninterest expense, partially offset by increases in net interest income after the provision for loan losses.

Larry Hueth, President and CEO, commented, "Net interest income continues to improve quarter over quarter in the face of rising competition and rates for deposits and borrowings. We anticipate margin pressure as we continue to realign our balance sheet with greater emphasis on loans as we deploy excess liquidity and compete for deposits. During the most recent quarter, the net loan portfolio increased by $19.7 million, while deposits declined by $4.4 million due to increased competition. We are also pleased with the growth in net loans and deposits of 13.1% and 9.0%, respectively, year over year and remain committed to further improving our earnings and increasing shareholder value."

Quarter highlights (at or for the quarter ended March 31, 2018)

  • Net income increased $1.6 million, compared to the quarter ended December 31, 2017, primarily due to a decrease in the provision for income taxes and an increase in net interest income;
  • Basic earnings per share increased to $0.15 compared to a loss of $(0.01) for the quarter ended December 31, 2017;
  • Investment securities decreased $34.4 million primarily due to sales of available for sale securities;
  • Loans receivable increased $19.7 million compared to the quarter ended December 31, 2017, primarily due to increases in commercial real estate loans;
  • Short-term Federal Home Loan Bank ("FHLB") advances decreased $21.2 million as proceeds from the sale of securities were partially used to pay down borrowings;
  • The Company repurchased 208,113 shares of common stock at an average price of $16.24 per share during the quarter under the 2017 Stock Repurchase Plan approved in September 2017.

Balance Sheet Review

During the quarter ended March 31, 2018, total assets decreased $26.1 million to $1.2 billion, primarily due to sales of investment securities which were partially used to pay down borrowings. Total assets increased $108.3 million from $1.1 billion at March 31, 2017, primarily due to an increase in net loans receivable funded by additional deposits.

Investment securities decreased $34.4 million during the quarter to $305.9 million at March 31, 2018, and increased $10.4 million as compared to $295.5 million at March 31, 2017. We restructured the investment portfolio and sold investments during the quarter for a net gain on sale, which resulted in a decrease in leverage of our capital position and total assets. We continue to evaluate share repurchases and other capital management strategies and seek investment opportunities to continue to prudently leverage capital and improve earnings. In addition, we continue to focus on growing our loan portfolio and improving our earning asset mix over the long term.

U.S. government agency issued mortgage-backed securities ("MBS agency") comprised the largest portion of our investment portfolio at 57.3%, and totaled $175.4 million at March 31, 2018, a decrease during the quarter of $4.9 million from $180.3 million at December 31, 2017. Other investment securities were $112.3 million at March 31, 2018, a decrease of $27.2 million from $139.5 million at December 31, 2017. Total investment securities increased $10.4 million at March 31, 2018, as compared to $295.5 million at March 31, 2017, which included a $31.7 million increase in other investment securities and a $21.3 million decrease in mortgage-backed securities. The year over year increase was the result of new investment purchases partially offset by sales, prepayment activity, and normal amortization. The estimated average life of the total investment securities portfolio was 5.1 years at March 31, 2018, 5.3 years at December 31, 2017, and 4.9 years at March 31, 2017. The average repricing term of our investment securities portfolio was approximately 4.0 years at March 31, 2018, 3.5 years at December 31, 2017, and 4.5 years at March 31, 2017, based on the interest rate environment at those times. The increase in time for rates to reset in our investment portfolio during the most recent quarter was the result of the sales of certain adjustable rate securities for a net gain on sale, with a portion of the sales proceeds used to pay down FHLB short-term advances.

Total loans, excluding loans held for sale, increased $19.8 million to $806.0 million at March 31, 2018, from $786.1 million at December 31, 2017, a result of new loan originations partially offset by normal amortization and prepayment activity. Commercial real estate, other consumer, and construction and land loans increased $17.6 million, $11.4 million, $4.5 million, respectively, while one- to four-family residential and multi-family loans decreased $7.9 million and $5.7 million, respectively. We continued to focus on commercial real estate and construction loan origination activity during the quarter. There were $62.2 million in undisbursed construction loan commitments at March 31, 2018, as compared to $59.4 million at December 31, 2017, an increase of $2.8 million as we continued to originate loans for new construction projects as completed projects converted to permanent financing. In addition to our indirect lending program, we began purchasing newly originated auto loans from a company specializing in classic car lending to qualified borrowers throughout the United States. As a result of our indirect lending and purchase programs, we added $11.4 million of newly originated auto loans to our portfolio during the quarter, which was the main contributor to the increase in other consumer loans. Compared to March 31, 2017, total loans, excluding loans held for sale, increased $92.5 million attributable to increases in one- to four-family residential loans of $24.3 million, commercial real estate loans of $22.3 million, other consumer loans of $21.9 million, multi-family loans of $11.2 million, construction and land loans of $9.2 million, and home equity loans of $4.3 million, partially offset by a decrease in commercial business loans of $688,000.

Loans receivable consisted of the following at the dates indicated:

  March 31,
2018
  December 31,
2017
  March 31,
2017
  Three
Month
Change
  One
Year
Change
                               
  (In thousands)        
Real Estate:                  
One to four family $ 347,453     $ 355,391     $ 323,166     (2.2 )%   7.5 %
Multi-family 68,095     73,767     56,932     (7.7 )   19.6  
Commercial real estate 220,542     202,956     198,262     8.7     11.2  
Construction and land 75,684     71,145     66,448     6.4     13.9  
Total real estate loans 711,774     703,259     644,808     1.2     10.4  
                       
Consumer:                      
Home equity 38,538     38,473     34,193     0.2     12.7  
Other consumer 39,478     28,106     17,603     40.5     124.3  
Total consumer loans 78,016     66,579     51,796     17.2     50.6  
                       
Commercial business 16,163     16,303     16,851     (0.9 )   (4.1 )
                       
Total loans 805,953     786,141     713,455     2.5     13.0  
Less:                      
Net deferred loan fees 501     724     1,114     (30.8 )   (55.0 )
Premium on purchased loans, net (2,360 )   (2,454 )   (2,218 )   (3.8 )   6.4  
Allowance for loan losses 8,984     8,760     8,328     2.6     7.9  
Total loans receivable, net $ 798,828     $ 779,111     $ 706,231     2.5 %   13.1 %
                   

During the quarter ended March 31, 2018, total liabilities decreased $22.5 million to $1.0 billion primarily the result of a decrease in borrowings of $21.2 million to $122.9 million at March 31, 2018, from $144.1 million at December 31, 2017, and a decrease in deposits of $4.4 million to $880.6 million at March 31, 2018, from $885.0 million at December 31, 2017. The decrease in borrowings was mainly due to the repayment of short-term FHLB advances during the quarter. Deposits decreased as the result of a decrease of $11.5 million in transaction accounts, partially offset by increases of $4.5 million in savings accounts, $1.7 million in money market accounts and $881,000 in certificates of deposit.

Total liabilities increased $113.3 million over the last year, mainly attributable to an increase in deposits of $72.9 million and an increase in borrowings of $36.4 million. Borrowings declined during the quarter, however, we continue to leverage our balance sheet in advance of anticipated continued deposit and loan growth as part of our expansion efforts. Deposit increases were primarily the result of our continuing efforts to expand commercial and consumer deposit relationships in our new Kitsap and Whatcom County, Washington locations, as well as within our historic Clallam and Jefferson County, Washington locations.

Total shareholders' equity decreased $3.5 million during the quarter to $173.5 million at March 31, 2018, mainly the result of a $2.2 million decrease in value of our available for sale securities portfolio resulting in additional unrealized losses and decreases in additional paid-in capital of $3.4 million from the repurchase of shares of common stock, partially offset by net income of $1.5 million.

Operating Results

Net income increased $1.6 million to $1.5 million for the quarter ended March 31, 2018, as compared to a loss of $114,000 for the quarter ended December 31, 2017, and decreased $641,000 as compared to the quarter ended March 31, 2017. The increase during the quarter was mainly due to a decrease of $1.1 million in the provision for income taxes as a result of the DTA revaluation related to the Tax Act during the prior quarter. The $641,000 decrease in net income compared to the quarter ended March 31, 2017, was primarily due to a $777,000 increase in noninterest expense coupled with the absence of a $768,000 death benefit received from bank-owned life insurance ("BOLI") in 2017, partially offset by an $867,000 increase in net interest income.

Net interest income after the provision for loan losses increased to $8.7 million for the quarter ended March 31, 2018, from $8.3 million for the preceding quarter due to an increase in interest income of $603,000, partially offset by an increase in interest expense of $161,000 and an increase in the provision for loan losses of $110,000. Net interest income after the provision for loan losses increased $772,000 as compared to $7.9 million for the quarter ended March 31, 2017, due to an increase in net interest income of $867,000, partially offset by a $95,000 increase in the provision for loan losses. The increase in the provision for loan losses during the most recent quarter as compared to the prior quarters ended December 31, 2017 a

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