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

Rhea-AI Summary

First Northwest Bancorp (FNWB) reported a significant net income increase of 86.0% to $3.7 million for Q3 2020, translating to $0.40 per diluted share, up from $2.0 million or $0.21 per share in Q2 2020. Year-over-year, net income increased 46.4% from $2.5 million. The bank saw strong growth in loans and deposits, with loan receivables up 7.6% to $1.06 billion. Additionally, the board declared a 20% dividend increase to $0.06 per common share. Asset quality remains solid despite pandemic challenges, with few delinquencies reported.

Positive

• Net income increased 86.0% to $3.7 million in Q3 2020.
• Earnings per share rose to $0.40, up from $0.21 in Q2 2020.
• Loans receivable increased 7.6% to $1.06 billion.
• Deposits grew 7.2% to $1.25 billion in Q3 2020.
• Dividend increased by 20% to $0.06 per share.

Negative

• Loan loss provision of $1.4 million in Q3 2020, signaling potential credit risk.
• Exposure to pandemic-impacted sectors like hospitality at 4.9% of the total loan portfolio.

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. Sav

FAQ

What was First Northwest Bancorp's net income for Q3 2020?

First Northwest Bancorp reported a net income of $3.7 million for Q3 2020.

How much did the earnings per share increase for FNWB in Q3 2020?

Earnings per diluted share increased to $0.40 for Q3 2020.

What was the growth in loans receivable for FNWB in Q3 2020?

Loans receivable increased by 7.6% to $1.06 billion.

What dividend increase did First Northwest Bancorp announce?

The board increased the regular quarterly cash dividend by 20% to $0.06 per share.

What provision for loan losses did FNWB report in Q3 2020?

FNWB reported a provision for loan losses of $1.4 million in Q3 2020.