PORT ANGELES, Wash., July 27, 2023 (GLOBE NEWSWIRE) --
Matthew P. Deines, President and CEO, comments on financial results:
"We grew deposits this quarter and are cautiously optimistic that funding costs have begun to stabilize," said Matthew P. Deines, President and CEO of First Northwest Bancorp. "We continue to focus on the blocking and tackling of community banking and expect actions we took in the second quarter will result in lower expenses in future quarters. Loan growth continues to moderate as we focus on liquidity and pricing loans based on the marginal cost of deposits. Credit quality remains strong and continues to serve as a defining characteristic of our credit culture."
The Board of Directors of First Northwest Bancorp declared a quarterly cash dividend of $0.07 per common share. The dividend will be payable on August 25, 2023, to shareholders of record as of the close of business on August 11, 2023.
| FINANCIAL HIGHLIGHTS | 2Q 23 | 1Q 23 | 2Q 22 | YTD Highlights | |||||||||||
| OPERATING RESULTS (in millions) | ● | Deposit growth year-to-date of $88.9 million | |||||||||||||
| Operating revenue (1) | $ | 17.7 | $ | 18.6 | $ | 19.5 | – | Retail growth $43.1 million, or 3.0% | |||||||
| Noninterest expense | 15.2 | 14.9 | 17.0 | – | Brokered growth $45.7 million, or 34.2% | ||||||||||
| Pre-provision net interest income | 16.0 | 16.3 | 17.2 | ||||||||||||
| Net income | 1.8 | 3.5 | 2.5 | ● | Loan growth year-to-date of $90.6 million, | ||||||||||
| PER SHARE DATA | or 6% | ||||||||||||||
| Basic and diluted earnings | $ | 0.20 | $ | 0.39 | $ | 0.27 | |||||||||
| Book value | 16.56 | 16.57 | 16.60 | ● | Deposit insurance coverage update: | ||||||||||
| Tangible book value * | 16.39 | 16.38 | 16.40 | – | Estimated uninsured business and | ||||||||||
| BALANCE SHEET (in millions) | consumer deposits totaling $271.5 million, | ||||||||||||||
| Total loans | $ | 1,638 | $ | 1,579 | $ | 1,477 | or approximately 16% of total deposits | ||||||||
| Total deposits | 1,653 | 1,594 | 1,581 | 42% of uninsured in urban areas | |||||||||||
| Total shareholders' equity | 160 | 160 | 165 | 58% of uninsured in rural areas | |||||||||||
| ASSET QUALITY | – | Estimated uninsured public fund deposits | |||||||||||||
| Net charge-off ratio | 0.10 | % | 0.25 | % | -0.03 | % | to total deposits of 8% (fully collateralized) | ||||||||
| Nonperforming assets to total assets | 0.12 | 0.12 | 0.06 | – | Estimated insured deposits to total | ||||||||||
| Allowance for credit losses on loans | deposits of 76% | ||||||||||||||
| to total loans | 1.06 | 1.10 | 1.07 | – | Available borrowing capacity to | ||||||||||
| Nonperforming loan coverage ratio | 677 | 661 | 1,269 | uninsured deposits of 125% | |||||||||||
| SELECTED RATIOS | |||||||||||||||
| Return on average assets | 0.34 | % | 0.70 | % | 0.51 | % | ● | Liquidity: | |||||||
| Return on average equity | 4.41 | 8.98 | 5.75 | Closely monitored with ample on and off | |||||||||||
| Return on average tangible equity * | 4.47 | 9.08 | 5.82 | balance sheet liquidity for operations. | |||||||||||
| Net interest margin | 3.25 | 3.46 | 3.77 | ||||||||||||
| Efficiency ratio | 86.01 | 79.78 | 87.15 | ● | Asset quality: | ||||||||||
| Bank common equity tier 1 (CETI) ratio | 13.10 | 13.34 | 13.21 | Credit metrics remain stable. Past due and | |||||||||||
| Bank total risk-based capital ratio | 14.08 | 14.35 | 14.24 | nonperforming balances remain low. | |||||||||||
(1) Net interest income before provision plus noninterest income
* See reconciliation of Non-GAAP Financial Measures later in this release.
First Northwest Bancorp ( FNWB) ("First Northwest" or "Company") today reported quarterly net income of $1.8 million for the second quarter of 2023, compared to $3.5 million for the first quarter of 2023, and $2.5 million for the second quarter of 2022. Basic and diluted earnings per share were $0.20 for the second quarter of 2023, compared to $0.39 for the first quarter of 2023, and $0.27 for the second quarter of 2022. In the second quarter of 2023, the Company generated a return on average assets ("ROAA") of 0.34%, a return on average equity ("ROAE") of 4.41%, and a return on average tangible common equity* of 4.47%. Results in the second quarter of 2023 are reflective of the higher interest rate environment and the impact on the deposit mix as customers seek higher yielding alternatives for their balances.
In June 2023, First Northwest determined that Quin Ventures, Inc. ("Quin Ventures") was no longer a going concern. The Company wrote off the remaining investment in Quin Ventures through retained earnings in accordance with applicable non-controlling interest accounting methods. The noncontrolling interest in Quin Ventures balance was moved to retained earnings, with no change to total shareholders' equity as a result of the transaction.
Net Interest Income
Total interest income increased $2.2 million to $25.5 million for the second quarter of 2023, compared to $23.3 million in the previous quarter, and increased $6.5 million from $19.0 million in the second quarter of 2022. Interest income increased in the current quarter due to higher yields on earning assets and increased volume of loans and interest-earning deposits in banks. Interest and fees on loans increased year-over-year, in part, as the Company's banking subsidiary, First Fed Bank ("First Fed" or "Bank"), grew the loan portfolio through our renewed short-term participation in the Northpointe Mortgage Purchase Program ("Northpointe MPP"), draws on new and existing business lines of credit, originations of multi-family real estate loans, and auto and manufactured home loan purchases. Loan yields have increased over the prior year due to higher rates on new originations as well as the repricing of variable rate loans tied to the Prime Rate or other indices.
Total interest expense was $9.5 million for the second quarter of 2023, compared to $7.0 million in the first quarter of 2023 and $1.7 million in the second quarter a year ago. Current quarter interest expense was higher due to a 42 basis point increase in the cost of deposits to 1.54% at June 30, 2023, from 1.12% at the prior quarter end. The increase over the second quarter of 2022 was the result of a 134 basis point increase in the cost of deposits from 0.20% one year prior along with higher volumes of short-term FHLB advances and certificates of deposit ("CDs"). A shift in the deposit mix from transaction and money market accounts to a higher volume of savings accounts and CDs, primarily promotional, resulted in higher costs of deposits. Reliance on brokered CDs to replace lost consumer balances also contributed to additional deposit costs.
Net interest income before provision for credit losses for the second quarter of 2023 decreased 2.0% to $16.0 million, compared to $16.3 million for the preceding quarter, and decreased 7.3% from the second quarter one year ago.
The Company recorded a $300,000 provision for credit losses in the second quarter of 2023, reflecting the growth in the loan portfolio and additional charge-offs from the Splash unsecured consumer loan program. This compares to a recapture of loan loss provision of $500,000 for the preceding quarter due to a decrease in unfunded commitments during the quarter as well as improvements in the U.S. gross domestic product assumption driving anticipated loss rates. A loan loss provision of $500,000 was recorded for the second quarter of 2022, which was estimated using the incurred loss method based on historical loss trends combined with qualitative adjustments.
The net interest margin decreased to 3.25% for the second quarter of 2023, from 3.46% the prior quarter, and decreased 52 basis points compared to the second quarter of 2022 of 3.77%. Decreases from both the prior quarter and the prior year are due to higher funding costs for both deposits and borrowed funds. While increases in the cost of funding are currently outpacing the growth of the yield on interest-earning assets, the Company has taken measures to combat interest rate compression. The Bank augments organic loan production with higher yielding purchased loans through relationships with loan originators. We have also increased our focus on variable-rate lending and the Bank has entered into a fair value hedging agreement.
The yield on average earning assets of 5.17% for the second quarter of 2023 increased 22 basis points compared to the first quarter of 2023, and increased 103 basis points from 4.14% for the second quarter of 2022. Higher loan rates at origination and increased yields on variable-rate loans were offset by a slight decline in the recognition of fees related to loan prepayments. The year-over-year increase was primarily due to higher average loan balances augmented by increases in yields, which were positively impacted by the rising rate environment and overall improvements in the mix of interest-earning assets.
The cost of average interest-bearing liabilities increased to 2.33% for the second quarter of 2023, compared to 1.81% for the first quarter of 2023, and increased from 0.49% for the second quarter of 2022. Total cost of funds increased to 1.98% for the second quarter of 2023 from 1.53% in the prior quarter and increased from 0.39% for the second quarter of 2022. Current quarter increases were due to higher costs on interest-bearing deposits and advances in addition to increases in average CD and advance balances.
The increase over the same quarter last year was driven by higher rates paid on deposits. The Company has attracted and retained funding through the use of promotional products. The mix of retail deposit balances has shifted away from non-maturity accounts towards higher cost term certificate and savings products. Retail CDs represented 25.8%, 22.8% and 12.3% of retail deposits at June 30, 2023, March 31, 2023 and June 30, 2022, respectively. Average interest-bearing deposit balances increased $45.5 million, or 3.5%, to $1.33 billion for the second quarter of 2023 compared to $1.29 billion for the first quarter of 2023 and increased $110.0 million, or 9.0%, compared to $1.22 billion for the second quarter of 2022.
| Selected Yields | 2Q 23 | 1Q 23 | 4Q 22 | 3Q 22 | 2Q 22 | |||||||||||||||
| Loan yield | 5.38 | % | 5.16 | % | 5.22 | % | 4.75 | % | 4.48 | % | ||||||||||
| Investment securities yield | 4.09 | 3.93 | 3.71 | 3.21 | 2.96 | |||||||||||||||
| Cost of interest-bearing deposits | 1.87 | 1.37 | 0.78 | 0.41 | 0.26 | |||||||||||||||
| Cost of deposits | 1.54 | 1.12 | 0.62 | 0.32 | 0.20 | |||||||||||||||
| Cost of borrowed funds | 4.36 | 3.92 | 3.30 | 2.50 | 1.96 | |||||||||||||||
| Net interest spread | 2.84 | 3.13 | 3.72 | 3.72 | 3.65 | |||||||||||||||
| Net interest margin | 3.25 | 3.46 | 3.96 | 3.88 | 3.77 | |||||||||||||||
Noninterest Income
Noninterest income declined 26.7% to $1.7 million for the second quarter of 2023 from $2.3 million for the first quarter of 2023 primarily due to a decline in the valuation of servicing rights on sold loans of $675,000 related to the impact of loan payoffs that increased the prepayment speed applied to the remaining servicing rights, as well as a current quarter reduction due to the paid-off loans, mainly attributable to one large commercial loan. Noninterest income declined 23.0% from $2.2 million the same quarter one year ago, due to decreases in the servicing rights valuation, gain on sale of mortgage loans and swap fee income. Saleable mortgage loan production continues to be hindered by reduced refinancing activity due to rising market rates on mortgage loans compared to the prior year.
Noninterest income declined $580,000 to $4.0 million for the six months ended June 30, 2023, compared to $4.6 million for the six months ended June 30, 2022.
| Noninterest Income | ||||||||||||||||||||
| $ in thousands | 2Q 23 | 1Q 23 | 4Q 22 | 3Q 22 | 2Q 22 | |||||||||||||||
| Loan and deposit service fees | $ | 1,064 | $ | 1,141 | $ | 1,163 | 1,302 | $ | 1,091 | |||||||||||
| Sold loan servicing fees and servicing right mark-to-market | (191 | ) | 493 | 202 | 206 | 27 | ||||||||||||||
| Net gain on sale of loans | 58 | 176 | 55 | 285 | 231 | |||||||||||||||
| Net gain on sale of investment securities | — | — | — | — | (8 | ) | ||||||||||||||
| Increase in cash surrender value of bank-owned life insurance | 190 | 226 | 230 | 221 | 213 | |||||||||||||||
| Income from death benefit on bank-owned life insurance, net | — | — | 1,489 | — | — | |||||||||||||||
| Other income | 590 | 298 | 229 | 320 | 668 | |||||||||||||||
| Total noninterest income | $ | 1,711 | $ | 2,334 | $ | 3,368 | $ | 2,334 | $ | 2,222 | ||||||||||
Noninterest Expense
Noninterest expense totaled $15.2 million for the second quarter of 2023, compared to $14.9 million for the preceding quarter and $17.0 million for the second quarter a year ago. Increases in payroll tax, incentive payments, and stockholder communications during the current quarter were partially offset by decreases in advertising. The reduced expenses compared to the second quarter of 2022 reflects a $2.0 million decrease related to Quin Ventures compensation, advertising and customer acquisition costs, and occupancy expenses, as well as decreases in Bank commissions paid and non-recurring compensation expense, partially offset by higher Bank professional fees and FDIC insurance premiums. The Company continues to focus on managing expenses, with a focus on reducing advertising and discretionary spending.
Noninterest expense decreased 5.4% to $30.1 million for the six months ended June 30, 2023, compared to $31.8 million for the six months ended June 30, 2022. Compensation expense decreased $2.5 million primarily due to lower commissions, payroll taxes, and medical insurance expenses. Quin Ventures expenses included in the current six-month period totaled $320,000 compared to $2.7 million in the six months ended June 30, 2022.
| Noninterest Expense | ||||||||||||||||||||
| $ in thousands | 2Q 23 | 1Q 23 | 4Q 22 | 3Q 22 | 2Q 22 | |||||||||||||||
| Compensation and benefits | $ | 8,180 | $ | 7,837 | $ | 8,357 | $ | 9,045 | $ | 9,735 | ||||||||||
| Data processing | 2,080 | 2,038 | 2,119 | 1,778 | 1,870 | |||||||||||||||
| Occupancy and equipment | 1,214 | 1,209 | 1,300 | 1,499 | 1,432 | |||||||||||||||
| Supplies, postage, and telephone | ||||||||||||||||||||
