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First Northwest Bancorp Earns $3.7 Million, or $0.40 Per Diluted Share, in Third Quarter 2020; Net Interest Margin Expansion and Improved Efficiency Ratio Generate Record Earnings; Announces Share Repurchase Plan for 10% of Outstanding Shares

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PORT ANGELES, Wash., Oct. 28, 2020 (GLOBE NEWSWIRE) -- First Northwest Bancorp (NASDAQ:FNWB) ("Company"), the holding company for First Federal Savings and Loan Association of Port Angeles ("Bank" or "First Federal"), today reported an increase in net income of 86.0% to $3.7 million, or $0.40 per diluted share, for the third quarter of 2020, compared to net income of $2.0 million, or $0.21 per diluted share, for the second quarter of 2020, and an increase of 46.4% compared to $2.5 million, or $0.25 per diluted share, for the third quarter of 2019. Third quarter results reflected strong loan and deposit growth, net interest margin expansion and improved efficiency. For the first nine months of 2020, net income was $6.5 million, or $0.69 per diluted share, compared to $6.8 million, or $0.68 per diluted share, for the first nine months of 2019. 

The Company also announced that its Board of Directors increased the regular quarterly cash dividend by 20% to $0.06 per common share outstanding, payable on November 27, 2020, to shareholders of record as of the close of business on November 13, 2020. The Board of Directors also approved a share repurchase plan of 10% of outstanding shares.

"In a quarter of pandemic-related economic challenges, we delivered excellent results, as we continue to support customers, communities and our employees. Our third quarter financial performance demonstrates the strength of our franchise, with pre-tax, pre-provision for loan losses income increasing 121% over the third quarter a year ago, led by significant mortgage refinance activity and a meaningful reduction in deposit cost of funds," stated Matthew P. Deines, President and CEO. "Additionally, asset quality at quarter end remained solid, with few delinquencies in the loan portfolio. However, we continued to build our reserves in response to the pandemic and the economic impact on our customers and communities."

The sectors most heavily impacted include hospitality; restaurant and food services; and lessors of commercial real estate to hospitality, restaurant, and retail establishments. At September 30, 2020, the Company's exposure as a percentage of the total loan portfolio to these industries was 4.9%, 0.2%, and 4.6%, respectively.

"Our participation in the Small Business Administration's (SBA) Paycheck Protection Program (PPP) helped serve the needs of our customers and our local communities," Deines continued. "Our role as a community bank not only allowed us to assist approximately 515 customers and originate $32.2 million in loans, but also added new relationships with strong future growth opportunities. The Bank is now processing applications for PPP loan forgiveness for customers. We expect the timing of such forgiveness will positively impact fourth quarter 2020 operating results for us, as well as all participating financial institutions.

"In addition to PPP lending, we implemented additional programs to support our customers experiencing financial hardship as a result of the pandemic. These assistances included payment forbearance agreements with some customers for periods of up to six months. We deferred payment on 346 loans totaling $175.0 million through September 30, 2020. As of October 26, 2020, the deferral period had ended or payments voluntarily resumed for approximately 79% of these loans, of which 99% have resumed normal payments, with only 2% requesting a second deferral period," added Deines.

The table below presents selected information on loans that remained on COVID-19 deferrals at the periods indicated.

  % of Total Loan Portfolio   Deferred Loan Balance   Number of Loans
  (In thousands)
June 30, 2020 12.9 %   $ 128,420   297
September 30, 2020 13.9       149,542   183
October 26, 2020 8.3       87,343   74
               

Third Quarter 2020 Highlights (at or for the quarter ended September 30, 2020)

  • Third quarter net income increased to $3.7 million, compared to $2.0 million in the preceding quarter and $2.5 million in the year ago quarter.
  • Diluted earnings per share was $0.40, up from $0.21 per share in the preceding quarter and $0.25 per share when compared to the third quarter a year ago.
  • Provision for loan losses was $1.4 million in the third quarter, compared to $1.5 million in the second quarter of 2020 and a recapture of loan losses of $170,000 in the third quarter of 2019.
  • Loans receivable increased 7.6% to $1.06 billion at September 30, 2020, compared to $986.4 million at June 30, 2020, and increased 26.2% compared to $841.4 million a year ago, primarily due to growth in real estate and commercial business loans, including PPP loans.
  • Deposits increased 7.2% during the quarter and increased 29.2% from one year prior, to $1.25 billion at September 30, 2020, due to successful organic and wholesale deposit-gathering strategies, including significant growth in noninterest-bearing deposits.
  • The cost of deposits for the third quarter decreased to 0.45% from 0.72% for second quarter 2020 and 0.85% in the third quarter of 2019.
  • Gain on sale of mortgage loans was $1.7 million for the third quarter compared to $2.0 million in the previous quarter and $655,000 in the third quarter of 2019 reflecting strong quarterly mortgage originations, including refinance activity.
  • During the third quarter, the Company repurchased 141,793 shares of common stock at an average price of $11.72 per share for a total of $1.7 million under the 2019 Stock Repurchase Plan approved in December 2019. The 2019 Stock Repurchase Plan was completed in September 2020.
  • The Board of Directors approved a new stock repurchase plan of up to 1,023,420 shares, or approximately 10% of shares outstanding, to commence in November 2020.

Balance Sheet Review

Total assets increased $85.8 million, or 5.8%, to $1.56 billion, at September 30, 2020, compared to $1.48 billion at June 30, 2020, and increased $314.4 million, or 25.1%, compared to $1.25 billion, at September 30, 2019.

Investment securities increased $4.8 million to $369.1 million, at September 30, 2020, and increased $117.9 million compared to $251.2 million, at September 30, 2019. At September 30, 2020, municipal bonds totaled $97.1 million and comprised the largest portion of the investment portfolio at 26.3%. The estimated average life of the total investment securities portfolio was 6.7 years, and the average repricing term was approximately 4.4 years.

Securities consisted of the following at the dates indicated:

    September 30, 2020     June 30, 2020     September 30, 2019     Three Month Change     One Year Change  
    (In thousands)  
Available for Sale at Fair Value                                        
Municipal bonds   $ 97,143     $ 107,610     $ 10,406     $ (10,467 )   $ 86,737  
U.S. government agency issued asset-backed securities (ABS agency)     73,618       60,819       25,266       12,799       48,352  
Corporate issued asset-backed securities (ABS corporate)     32,747       39,804       37,096       (7,057 )     (4,349 )
Corporate issued debt securities (Corporate debt)     33,230       22,428       9,636       10,802       23,594  
U.S. Small Business Administration securities (SBA)     23,864       23,547       29,815       317       (5,951 )
Mortgage-backed securities:                                        
U.S. government agency issued mortgage-backed securities (MBS agency)     92,402       102,647       129,726       (10,245 )     (37,324 )
Corporate issued mortgage-backed securities (MBS corporate)     16,107       7,418       9,251       8,689       6,856  
Total securities available for sale   $ 369,111     $ 364,273     $ 251,196     $ 4,838     $ 117,915  
                                         
Held to Maturity at Amortized Cost                                        
Municipal bonds   $     $     $ 7,041     $     $ (7,041 )
SBA                 138             (138 )
Mortgage-backed securities:                                        
MBS Agency                 30,470             (30,470 )
Total securities held to maturity   $     $     $ 37,649     $     $ (37,649 )
                                         

"The company is focused on growing the loan portfolio and supporting this growth with core deposits and other low-cost funding sources," said Geri Bullard, EVP/Chief Financial Officer. "Additionally, we continue to manage the investment portfolio for liquidity and generation of interest income."

Total loans, excluding loans held for sale, increased $75.1 million, or 7.6%, to $1.06 billion at September 30, 2020, from $986.4 million at June 30, 2020, and increased $220.2 million, or 26.2%, from $841.1 million a year ago. "The collective efforts of our lending team during the quarter resulted in significant increases in loan balances," said Randy Riffle, EVP/Chief Lending Officer. "Additionally, participation in the SBA's Paycheck Protection, up until the end of the program on August 8, 2020, also helped fuel loan production with $1.5 million in new PPP loans this quarter."

The Company originated $41.1 million in residential mortgages during the quarter and sold $48.0 million, with an average gross margin on sale of mortgage loans of approximately 2.76%. This production compares to residential mortgage originations of $56.6 million in the preceding quarter with sales of $61.1 million. "The activity in the mortgage market continued to exceed historical volumes in the third quarter of 2020, especially for refinances of existing mortgages at incredibly low rates," said Kelly Liske, Chief Banking Officer.

Loans receivable consisted of the following at the dates indicated:

    September 30, 2020     June 30, 2020     September 30, 2019     Three Month Change     One Year Change  
    (In thousands)  
Real Estate:                                        
One to four family   $ 317,755     $ 325,349     $ 302,337     $ (7,594 )   $ 15,418  
Multi-family     127,569       103,279       62,173       24,290       65,396  
Commercial real estate     283,390       267,233       254,058       16,157       29,332  
Construction and land     75,204       58,153       64,954       17,051       10,250  
Total real estate loans     803,918       754,014       683,522       49,904       120,396  
                                         
Consumer:                                        
Home equity     34,120       33,696       36,898       424       (2,778 )
Auto and other consumer     111,782       109,214       111,312       2,568       470  
Total consumer loans     145,902       142,910       148,210       2,992       (2,308 )
                                         
Commercial business     123,036       99,477       14,325       23,559       108,711  
                                         
Total loans     1,072,856       996,401       846,057       76,455       226,799  
Less:                                        
Net deferred loan fees     2,628       1,842       117       786       2,511  
Premium on purchased loans, net     (4,196 )     (3,901 )     (4,649 )     (295 )     453  
Allowance for loan losses     13,007       12,109       9,443       898       3,564  
Total loans receivable, net   $ 1,061,417     $ 986,351     $ 841,146     $ 75,066     $ 220,271  
                                         

The Company continues to monitor the sectors that have been most heavily impacted by the COVID-19 pandemic. The table below presents selected information on loans to these industries as of September 30, 2020.

Industry % of Total Loan Portfolio   Loan Balance   Number of Loans   Average Loan-to-Value
  (In thousands)
Hospitality 4.9 %   $ 48,855   15   61.3 %
Restaurant and food services 0.2       2,026   6   61.8  
Lessors of commercial real estate to hospitality, restaurant, and retail establishments 4.6       46,527   26   53.3  
                     

Total deposits increased $84.1 million, or 7.2%, to $1.25 billion at September 30, 2020, compared to $1.17 billion at June 30, 2020 and increased $283.8 million, or 29.2%, when compared to $970.7 million a year ago. Savings accounts decreased 1.1% compared to a year ago, to $171.9 million at September 30, 2020, and represented 13.7% of total deposits; transaction accounts increased 42.3% compared to a year ago to $390.9 million at September 30, 2020, and account for 31.2% of total deposits; money market accounts increased 63.7% compared to a year ago to $398.1 million, and represented 31.7% of total deposits, and certificates of deposit increased 5.2% compared to a year ago to $293.5 million at quarter-end, and represent 23.4% of total deposits.

"Deposits were up during the quarter due to higher transaction and money market account balances," said Bullard. "We continue to strategically utilize brokered certificates of deposit ("brokered CDs") as an additional funding source to manage overall funding costs and interest rate risk. We held $92.6 million, or 7.4% of total deposits, in brokered CDs included in our balance of certificates of deposit at September 30, 2020, and $86.3, or 7.4% of total deposits in brokered CDs at June 30, 2020. The weighted-average cost of brokered CDs was 0.51% for the third quarter of 2020, compared to 1.12% for the previous quarter. We were able to lower our total cost of funds over the quarter by enhancing our deposit mix toward noninterest-bearing and other core deposits as well as reducing the cost and level of wholesale funding." Total cost of funds improved to 0.50% for the third quarter of 2020 compared to 0.74% for the second quarter of 2020.

Deposits consisted of the following at the dates indicated:

    September 30, 2020     June 30, 2020     September 30, 2019     Three Month Change     One Year Change  
    (In thousands)  
Savings   $ 171,905     $ 175,749     $ 173,786     $ (3,844 )   $ (1,881 )
Transaction accounts     390,867       339,151       274,660       51,716       116,207  
Money market accounts     398,144       330,261       243,189       67,883       154,955  
Certificates of deposit     293,540       325,164       279,065       (31,624 )     14,475  
Total deposits   $ 1,254,456     $ 1,170,325     $ 970,700     $ 84,131     $ 283,756  
                                         

Total shareholders' equity increased to $180.7 million at September 30, 2020, compared to $176.3 million three months earlier, and $177.3 million a year earlier. The quarter-over-quarter increase in equity was due to earnings of $3.7 million and an increase to other comprehensive income based on the improvement in the market value of the investment portfolio offset by the cost of stock buybacks. Book value per common share increased to $17.65 at September 30, 2020, compared to $17.07 at June 30, 2020 and $16.42 at September 30, 2019.

Operating Results

In the third quarter of 2020, the Company generated a return on average assets ("ROAA") of 0.99%, and a return on average equity ("ROAE") of 8.22%, compared to 0.56% and 4.60%, respectively, in the second quarter of 2020, and 0.81% and 5.65%, respectively, in the third quarter a year ago.

Total interest income increased to $13.4 million for the third quarter of 2020, compared to $12.4 million in the previous quarter and $12.3 million in the third quarter of 2019. The increases are due to an increase in interest and fees on loans given the loan growth which offset a small decrease in investment interest income. Quarter over quarter, the yield on investment securities decreased 7 basis points while the yield on average loans receivable decreased by 5 basis points. Total interest expense was $1.6 million for the third quarter of 2020, compared to $2.2 million in the second quarter of 2020, and $2.8 million in the third quarter a year ago. The decrease in interest expense was due to the decline in the cost of deposits to 45 basis points from 72 basis points in the prior quarter and from 85 basis points the quarter one year ago.

Net interest income, before provision for loan losses, increased 16.3% during the quarter to $11.8 million, compared to $10.1 million for the preceding quarter and increased 24.7% compared to $9.4 million in the third quarter a year ago. For the first nine months of 2020, net interest income, before the provision for loan losses, increased 9.0% to $31.1 million, compared to $28.7 million for the first nine months of 2019. Due to the COVID-19 pandemic and the related impact to the business environment, the Company recorded a $1.4 million provision for loan losses during the third quarter of 2020. This compares to a provision for loan losses of $1.5 million for the preceding quarter, and a credit to the provision for loan losses of $170,000 for the third quarter of 2019. Year-to-date, the provision for loan losses was $4.1 million, compared to $420,000 for the nine-month period one year earlier.

The net interest margin expanded 26 basis point to 3.36% for the third quarter of 2020, compared to 3.10% for the second quarter of 2020, and increased 13 basis points compared to 3.23% for the third quarter in 2019. "Our net interest margin expansion during the quarter is a result of our efforts to improve our earning asset mix by increasing the level of our commercial loans as well as reducing our cost of funds," said Bullard. For the first nine months of 2020, the net interest margin was 3.20% compared to 3.23% in the first nine months of 2019 due to reduced yields on loans and investments.

The yield on earning assets increased 3 basis points to 3.82% for the third quarter of 2020, compared to 3.79% for the second quarter of 2020, and decreased from 4.20% for the third quarter in 2019. The decrease was due to lower yields on the investment portfolio and average loans, which was offset by higher average loan balances. The yield on the loan portfolio increased to 4.45% for the third quarter 2020, from 4.40% for the second quarter 2020, and decreased from 4.68% for the third quarter of 2019. The cost of interest-bearing liabilities decreased 29 basis points to 0.60% for the third quarter of 2020 compared to 0.89% for the second quarter of 2020 and decreased 67 basis points from 1.27% for the third quarter in 2019. "We are actively working on changing the mix of our funding profile and lowering our cost of deposits. As market rates approach zero, we anticipate our non-maturity deposit cost of funds will stabilize, however we do expect a further decrease in the cost of our certificate of deposit portfolio," said Bullard.

Noninterest income increased 16.4% to $4.8 million for the third quarter 2020 from $4.1 million for the second quarter 2020 and increased 149.7% compared to $1.9 million for the third quarter in 2019. Third quarter of 2020 included a $1.7 million gain on sale of loans compared to a $2.0 million gain on sale of loans in the preceding quarter and a $655,000 gain on sale of loans in the third quarter a year ago. Noninterest income growth during the third quarter of 2020 was driven by increased mortgage refinance activity, which resulted in strong loan sale activity, as well as a gain on sale of investment securities of $969,000. Loan and deposit service fees totaled $868,000 for the third quarter 2020, compared to $765,000 for the preceding quarter and $999,000 for the third quarter a year ago. For the first nine months of 2020, noninterest income increased 144.2% to $11.2 million, compared to $4.6 million in the first nine months of 2019, reflecting increases in gain on sale of investment securities, gain on sale of loans. Noninterest income also increased due to an increase in the cash surrender value of bank owned life insurance (BOLI) as a result of increased investment in BOLI, as well as a restructure of the existing BOLI policies into superior products.

Noninterest expense totaled $10.1 million for the third quarter of 2020, compared to $10.3 million for the preceding quarter and $8.4 million for the third quarter a year ago. The quarterly decrease is attributable to lower data processing expense and training expense which was partially offset by higher compensation expense, including salaries, commissions and benefits. For the first nine months of 2020, noninterest expense increased to $29.7 million, compared to $24.5 million in the first nine months of 2019, due to higher salary and benefit expenses, including employee commission payments, increased advertising spending and increases in operational expenses associated with overall asset growth.

Capital Ratios and Credit Quality

Capital levels for both the Company and its operating bank, First Federal, remain in excess of applicable regulatory requirements and the Bank was categorized as "well-capitalized" at September 30, 2020. Common Equity Tier 1 and Total Risk-Based Capital Ratios at September 30, 2020 were 14.3% and 15.5%, respectively.

Nonperforming loans decreased to $3.1 million at September 30, 2020, from $3.4 million at June 30, 2020. The percentage of the allowance for loan losses to nonperforming loans increased to 419.9%, at September 30, 2020, from 360.8% at June 30, 2020, and 714.3% at September 30, 2019. Classified loans decreased $1.1 million during the current quarter to $4.0 million at September 30, 2020, reflecting improvement in commercial business loans. The allowance for loan losses as a percentage of total loans was 1.2% at September 30, 2020, compared to 1.2% at June 30, 2020, and 1.1% at September 30, 2019. The ratio, excluding PPP loans was 1.25%.

About the Company

First Northwest is a bank holding company which primarily engages in the business activity of its subsidiary, First Federal. First Federal is a community-oriented financial institution serving Clallam, Jefferson, Kitsap, Whatcom, and King counties in Washington, through its Seattle lending center and ten full-service branches. Our business and operating strategy is focused on building sustainable earnings through hiring experienced bankers, geographic expansion, and diversifying our loan product mix, expanding our deposit product offerings that deliver value-added solutions, enhancing existing services and digital service delivery channels, and enhancing our infrastructure to support the changing needs and expectations of our customers.

Forward-Looking Statements

Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, expectations of the business environment in which we operate, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to: increased competitive pressures; changes in the interest rate environment; the credit risks of lending activities; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and other factors described in the Company's latest Annual Report on Form 10-K and other filings with the Securities and Exchange Commission ("SEC")-which are available on our website at www.ourfirstfed.com and on the SEC's website at www.sec.gov.

Any of the forward-looking statements that we make in this Press Release and in the other public statements we make may turn out to be incorrect because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Because of these and other uncertainties, our actual future results may be materially different from those expressed or implied in any forward-looking statements made by or on our behalf and the Company's operating and stock price performance may be negatively affected. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2020 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect the Company's operations and stock price performance.

FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data) (Unaudited)

    September 30, 2020     June 30, 2020     September 30, 2019     Three Month Change   One Year Change
Assets                                    
                                     
Cash and due from banks   $ 16,776     $ 16,346     $ 15,659       2.6 %     7.1 %
Interest-bearing deposits in banks     35,303       33,242       40,822       6.2       (13.5 )
Investment securities available for sale, at fair value     369,111       364,273       251,196       1.3       46.9  
Investment securities held to maturity, at amortized cost                 37,649       n/a       (100.0 )
Loans held for sale     4,754       3,111       2,055       52.8       131.3  
Loans receivable (net of allowance for loan losses of $13,007, $12,109, and $9,443)     1,061,417       986,351       841,146       7.6       26.2  
Federal Home Loan Bank (FHLB) stock, at cost     5,944       6,074       4,931       (2.1 )     20.5  
Accrued interest receivable     7,367       5,360       3,726       37.4       97.7  
Premises and equipment, net     14,737       14,188       14,443       3.9       2.0  
Mortgage servicing rights, net     1,545       1,098       926       40.7       66.8  
Bank-owned life insurance, net     38,104       37,482       29,754       1.7       28.1  
Prepaid expenses and other assets     9,612       11,334       8,003       (15.2 )     20.1  
                                         
Total assets   $ 1,564,670     $ 1,478,859     $ 1,250,310       5.8 %     25.1 %
                                         
Liabilities and Shareholders' Equity                                    
                                     
Deposits   $ 1,254,456     $ 1,170,325     $ 970,700       7.2 %     29.2 %
Borrowings     109,150       112,379       85,324       -(2.9 )     27.9  
Accrued interest payable     51       253       262       (79.8 )     (80.5 )
Accrued expenses and other liabilities     18,359       18,184       14,838       1.0       23.7  
Advances from borrowers for taxes and insurance     1,986       1,403       1,876       41.6       5.9  
                                         
Total liabilities     1,384,002       1,302,544       1,073,000       6.3       29.0  
                                         
Shareholders' Equity                                    
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding                       n/a       n/a  
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,234,204 at September 30, 2020; issued and outstanding 10,326,226 at June 30, 2020; and issued and outstanding 10,800,932 at September 30, 2019     102       103       108       (1.0 )     (5.6 )
Additional paid-in capital     97,229       98,421       102,786       (1.2 )     (5.4 )
Retained earnings     89,546       86,633       85,143       3.4       5.2  
Accumulated other comprehensive loss, net of tax     3,186       717       (672 )     344.4       574.1  
Unearned employee stock ownership plan (ESOP) shares     (9,395 )     (9,559 )     (10,055 )     1.7       6.6  
                                         
Total shareholders' equity     180,668       176,315       177,310       2.5       1.9  
                                         
Total liabilities and shareholders' equity   $ 1,564,670     $ 1,478,859     $ 1,250,310       5.8 %     25.1 %
                                         

FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) (Unaudited)

    Quarter Ended                
    September 30, 2020     June 30, 2020     September 30, 2019     Three Month Change     One Year Change
INTEREST INCOME                                      
Interest and fees on loans receivable   $ 11,097     $ 10,236     $ 10,096       8.4 %     9.9 %
Interest on mortgage-backed and related securities     565       740       1,087       (23.6 )     (48.0 )
Interest on investment securities     1,603       1,316       921       21.8       74.0  
Interest on deposits in banks     9       8       65       12.5       (86.2 )
FHLB dividends     97       55       92       76.4       5.4  
Total interest income     13,371       12,355       12,261       8.2       9.1  
                                       
INTEREST EXPENSE                                      
Deposits     1,405       2,041       2,141       (31.2 )     -(34.4 )
Borrowings     205       201       691       2.0       -(70.3 )
Total interest expense     1,610       2,242       2,832       (28.2 )     -(43.1 )
                                       
Net interest income     11,761       10,113       9,429       16.3       24.7  
                                       
PROVISION FOR LOAN LOSSES     1,350       1,500       (170 )     (10.0 )     894.1  
                                       
Net interest income after provision for loan losses     10,411       8,613       9,599       20.9       8.5  
                                         
NONINTEREST INCOME                                      
Loan and deposit service fees     868       765       999       13.5       (13.1 )
Mortgage servicing fees, net of amortization     148       (172 )     44       186.0       236.4  
Net gain on sale of loans     1,725       2,001       655       (13.8 )     163.4  
Net gain on sale of investment securities     969       661       0       46.6       100.0  
Increase in cash surrender value of bank-owned life insurance     622       627       147       (0.8 )     323.1  
Other income     449       227       70       97.8       541.4  
Total noninterest income     4,781       4,109       1,915       16.4       149.7  
                                         
NONINTEREST EXPENSE                                      
Compensation and benefits     6,070       5,966       4,771       1.7       27.2  
Data processing     640       769       680       (16.8 )     (5.9 )
Occupancy and equipment     1,367       1,345       1,161       1.6       17.7  
Supplies, postage, and telephone     254       284       208       (10.6 )     22.1  
Regulatory assessments and state taxes     262       223       209       17.5       25.4  
Advertising     285       377       197       (24.4 )     44.7  
Professional fees     361       354       278       2.0       29.9  
FDIC insurance premium     86       70       (72 )     22.9       219.4  
FHLB prepayment penalty                 344       n/a       (100.0 )
Other     756       894       648       (15.4 )     16.7  
Total noninterest expense     10,081       10,282       8,424       (2.0 )     19.7  
                                         
INCOME BEFORE PROVISION FOR INCOME TAXES     5,111       2,440       3,090       109.5       65.4  
                                       
PROVISION FOR INCOME TAXES     1,436       464       580       209.5       147.6  
                                         
NET INCOME   $ 3,675     $ 1,976     $ 2,510       86.0 %     46.4 %
                                         
                                       
Basic and diluted earnings per common share   $ 0.40     $ 0.21     $ 0.25       90.5 %     60.0 %
                                         

FIRST NORTHWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) (Unaudited)

    Nine Months Ended September 30,     Percent  
    2020     2019     Change  
INTEREST INCOME                        
Interest and fees on loans receivable   $ 31,169     $ 30,661       1.7 %
Interest on mortgage-backed and related securities     2,264       3,536       (36.0 )
Interest on investment securities     3,988       2,900       37.5  
Interest on deposits in banks     85       190       (55.3 )
FHLB dividends     199       268       (25.7 )
Total interest income     37,705       37,555       0.4  
                         
INTEREST EXPENSE                        
Deposits     5,584       6,133       (9.0 )
Borrowings     840       2,717       (69.1 )
Total interest expense     6,424       8,850       (27.4 )
                         
Net interest income     31,281       28,705       9.0  
                         
PROVISION FOR LOAN LOSSES     4,116       420       880.0  
                         
Net interest income after provision for loan losses     27,165       28,285       (4.0 )
                         
NONINTEREST INCOME                        
Loan and deposit service fees     2,514       2,899       (13.3 )
Mortgage servicing fees, net of amortization     (9 )     143       (106.3 )
Net gain on sale of loans     4,109       830       395.1  
Net gain on sale of investment securities     2,235       57       3,821.1  
Increase in cash surrender value of bank-owned life insurance     1,577       435       262.5  
Other income     782       225       247.6  
Total noninterest income     11,208       4,589       144.2  
                         
NONINTEREST EXPENSE                        
Compensation and benefits     17,397       14,097       23.4  
Data processing     2,099       1,978       6.1  
Occupancy and equipment     4,063       3,409       19.2  
Supplies, postage, and telephone     749       678       10.5  
Regulatory assessments and state taxes     659       573       15.0  
Advertising     934       569       64.1  
Professional fees     1,115       907       22.9  
FDIC insurance premium     156       82       90.2  
FHLB prepayment penalty     210       344       (39.0 )
Other     2,363       1,859       27.1  
Total noninterest expense     29,745       24,496       21.4  
                         
INCOME BEFORE PROVISION FOR INCOME TAXES     8,628       8,378       3.0  
                         
PROVISION FOR INCOME TAXES     2,104       1,582       33.0  
                         
NET INCOME   $ 6,524     $ 6,796       (4.0 )%
                         
                         
Basic and diluted earnings per common share   $ 0.69     $ 0.68       1.5 %
                         

FIRST NORTHWEST BANCORP AND SUBSIDIARY
Selected Financial Ratios and Other Data
(Unaudited)

    As of or For the Quarter Ended  
    September 30, 2020     June 30, 2020     March 31, 2020     December 31, 2019     September 30, 2019  
Performance ratios: (1)                                        
Return on average assets     0.99 %     0.56 %     0.27 %     0.71 %     0.81 %
Return on average equity     8.22       4.60       1.94       4.99       5.65  
Average interest rate spread     3.22       2.90       2.86       2.86       2.93  
Net interest margin (2)     3.36       3.10       3.11       3.14       3.23  
Efficiency ratio (3)     60.9       72.3       80.0       74.4       74.3  
Average interest-earning assets to average interest-bearing liabilities     130.9       129.5       130.1       131.8       130.5  
Book value per common share   $ 17.65     $ 17.07     $ 16.02     $ 16.48     $ 16.42  
                                         
Asset quality ratios:                                        
Nonperforming assets to total assets at end of period (4)     0.2 %     0.2 %     0.2 %     0.2 %     0.1 %
Nonperforming loans to total loans (5)     0.3       0.3       0.2       0.2       0.2  
Allowance for loan losses to nonperforming loans (5)     419.9       360.8       622.4       536.1       714.3  
                                         
Allowance for loan losses to total loans     1.2       1.2       1.2       1.1       1.1  
Net charge-offs to average outstanding loans                              
                                         
Capital ratios (First Federal):                                        
Tier 1 leverage   10.5 %     10.9 %     11.8 %     12.2 %     12.0 %
Common equity Tier 1 capital   14.3       15.1       16.8       17.5       18.0  
                                       
Tier 1 risk-based   14.3       15.1       16.8       17.5       18.0  
Total risk-based   15.5       16.4       18.1       18.7       19.1  
                                         
Other Information:                                        
Average total assets   $ 1,488,723     $ 1,401,500     $ 1,287,529     $ 1,242,780     $ 1,241,014  
Average interest-earning assets     1,401,090       1,305,437       1,208,314       1,167,805       1,167,353  
Average total loans     1,009,210       938,646       876,135       849,741       867,647  
Average equity     178,887       172,009       179,614       177,759       177,671  
Average deposits     1,227,656       1,133,665       1,008,410       985,788       957,736  


(1 ) Performance ratios are annualized, where appropriate.
(2 ) Net interest income divided by average interest-earning assets.
(3 ) Total noninterest expense as a percentage of net interest income and total noninterest income.
(4 ) Nonperforming assets consists of nonperforming loans (which include nonaccruing loans and accruing loans more than 90 days past due), real estate owned and repossessed assets.
(5 ) Nonperforming loans consists of nonaccruing loans and accruing loans more than 90 days past due.
     

FIRST NORTHWEST BANCORP AND SUBSIDIARY
Selected Financial Ratios and Other Data
(Unaudited) (continued)

    As of or For the Nine Months Ended
September 30,
 
    2020     2019  
Performance ratios: (1)                
Return on average assets     0.62 %     0.72 %
Return on average equity     4.92       5.18  
Average interest rate spread     3.00       2.94  
Net interest margin (2)     3.20       3.23  
Efficiency ratio (3)     70.0       73.6  
Average interest-earning assets to average interest-bearing liabilities     130.2       129.1  
Book value per common share   $ 17.65     $ 16.42  
                 
Asset quality ratios:                
Nonperforming assets to total assets at end of period (4)     0.2 %     0.1 %
Nonperforming loans to total loans (5)     0.3       0.2  
Allowance for loan losses to nonperforming loans (5)     419.9       714.3  
Allowance for loan losses to total loans     1.2       1.1  
Net charge-offs to average outstanding loans     (0.1 )     0.1  
                 
Capital ratios (First Federal):                
Tier 1 leverage   10.5 %     12.0 %
Common equity Tier 1 capital   14.3       18.0  
Tier 1 risk-based   14.3       18.0  
Total risk-based   15.5     19.1  
                 
Other Information:                
Average total assets   $ 1,393,036     $ 1,259,847  
Average interest-earning assets     1,305,366       1,186,628  
Average total loans     941,627       877,681  
Average equity     176,844       174,852  
Average deposits     1,123,606       948,146  


(1 ) Performance ratios are annualized, where appropriate.
(2 ) Net interest income divided by average interest-earning assets.
(3 ) Total noninterest expense as a percentage of net interest income and total noninterest income.
(4 ) Nonperforming assets consists of nonperforming loans (which include nonaccruing loans and accruing loans more than 90 days past due), real estate owned and repossessed assets.
(5 ) Nonperforming loans consists of nonaccruing loans and accruing loans more than 90 days past due.
     

Contact:
Matthew P. Deines, President and Chief Executive Officer
Geri Bullard, EVP and Chief Financial Officer
First Northwest Bancorp
360-457-0461

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