| Source: First Northwest Bancorp First Northwest Bancorp
Port Angeles, Washington, UNITED STATES
PORT ANGELES, Wash., April 26, 2023 (GLOBE NEWSWIRE) —
Matthew P. Deines, President and CEO, comments on financial results:
“First Fed generated solid first quarter results despite the well-publicized challenges in the banking industry,” said Matthew P. Deines, President and CEO of First Northwest Bancorp. “Our granular deposit franchise and reputation as a trusted member of the communities we serve has proved a source of strength and stability. We are well-positioned to navigate the rapidly changing environment and enhance long-term shareholder value.”
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 May 26, 2023, to shareholders of record as of the close of business on May 12, 2023.
(1) Net interest income before provision plus noninterest income
* See reconciliation of Non-GAAP Financial Measures later in this release.
First Northwest Bancorp (Nasdaq: FNWB) (“First Northwest” or “Company”) today reported quarterly net income of $3.5 million for the first quarter of 2023, compared to $6.1 million for the fourth quarter of 2022, and $2.8 million for the first quarter of 2022. Basic and diluted earnings per share were $0.39 for the first quarter of 2023, compared to $0.66 for the fourth quarter of 2022, and $0.30 for the first quarter of 2022. In the first quarter of 2023, the Company generated a return on average assets (“ROAA”) of 0.70%, a return on average equity (“ROAE”) of 8.98%, and a return on average tangible common equity* of 9.08%. Results in the first quarter of 2023 were positively impacted by a recapture of provision for credit losses on unfunded commitments and a reduction in noninterest expense.
The Company implemented the Current Expected Credit Loss (“CECL”) model for estimating the allowance for losses on loans and other assets effective January 1, 2023. The initial recognition resulted in increases of $2.2 million to the Allowance for Credit Losses on Loans and $1.5 million to the Unfunded Commitment Liability. The tax-effected cumulative effect of this change in accounting estimate of $3.0 million was recorded in retained earnings. Subsequent adjustments in the allowance for credit losses estimate are recorded in net income. The CECL model attempts to predict future losses by relying on projected metrics, such as unemployment and national GDP, applied to current balances. We recorded a recapture of the provision for credit losses during the first quarter of 2023 primarily due to a $22.2 million reduction in unfunded commitments during the current quarter. We anticipate continued fluctuation in the provision for credit losses going forward as both projected metrics and balances change.
Net Interest Income
Total interest income decreased $379,000 to $23.3 million for the first quarter of 2023, compared to $23.7 million in the previous quarter, and increased $6.4 million from $16.9 million in the first quarter of 2022. Interest income decreased in the current quarter due to a higher reduction in fees related to the prepayment of certain loans compared to the prior quarter in excess of the gains recorded from higher yields on earning assets. 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 single-family, multi-family and commercial real estate lending as well as purchased auto and manufactured home loans. 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 $7.0 million for the first quarter of 2023, compared to $4.7 million in the fourth quarter of 2022 and $1.4 million in the first quarter a year ago. Current quarter interest expense was higher due to a 50 basis point increase in the cost of deposits to 1.12% at March 31, 2023, from 0.62% at the prior quarter end. The increase over the first quarter of 2022 was the result of a 93 basis point increase in the cost of deposits from 0.19% 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.
Net interest income before provision for credit losses for the first quarter of 2023 decreased 13.9% to $16.3 million, compared to $18.9 million for the preceding quarter, and increased 5.3% from the first quarter one year ago.
The Company recorded a $500,000 recapture of provision for credit losses in the first quarter of 2023, reflecting a decrease in unfunded commitments during the quarter, primarily due to construction loan disbursements, as well as improvements in the underlying assumptions driving anticipated loss rates within the CECL model adopted January 1, 2023. Specifically, the gross domestic product assumption metric improved since implementation at the beginning of 2023. This compares to a loan loss provision of $285,000 for the preceding quarter and no provision for the first quarter of 2022, which were both estimated using the incurred loss method based on historical loss trends combined with qualitative adjustments.
The net interest margin decreased to 3.46% for the first quarter of 2023, from 3.96% the prior quarter, and decreased 7 basis points compared to the first quarter of 2022 of 3.53%. Decreases from both the prior quarter and the prior year are primarily due to higher funding costs for both deposits and borrowed funds.
The yield on average earning assets of 4.95% for the first quarter of 2023, was flat compared to the fourth quarter of 2022, and increased 109 basis points from 3.86% for the first quarter of 2022. Higher loan rates at origination and increased yields on variable-rate loans were offset by a decline in the recognition of fees related to the prepayment of certain loans during the fourth quarter. 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 1.81% for the first quarter of 2023, compared to 1.24% for the fourth quarter of 2022, and increased from 0.43% for the first quarter of 2022. Total cost of funds increased to 1.53% for the first quarter of 2023 from 1.02% in the prior quarter and increased from 0.34% for the first quarter of 2022. Current quarter increases were due to higher costs on interest-bearing deposits and advances in addition to an increase in average certificate of deposit 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 22.8%, 17.3% and 11.7% of retail deposits at March 31, 2023, December 31, 2022 and March 31, 2022, respectively.
Noninterest income declined 30.7% to $2.3 million for the first quarter of 2023 from $3.4 million for the fourth quarter of 2022 from the prior quarter due partly to the non-recurring BOLI death benefit payment recorded in the fourth quarter of 2022. Noninterest income declined slightly from the same quarter one year ago, with decreases in gain on sale of loans and gain on sale investment securities. Saleable mortgage loan production continues to be hindered by reduced refinancing activity due to rising market rates on mortgage loans and a lack of single-family home inventory compared to the prior year.
Noninterest expense totaled $14.9 million for the first quarter of 2023, compared to $15.1 million for the preceding quarter and $14.8 million for the first quarter a year ago. Compensation and benefits was lower due to a decrease in medical insurance and payroll tax expense as well as lower commissions and incentives paid. The payroll tax expense was reduced in the first quarter of 2023 by a portion of the Employee Retention Credit (“ERC”) received in March 2023. These decreases were partially offset by an increase in advertising related to strategic deposit gathering initiatives and additional corporate sponsorships. The increase over the first quarter of 2022 reflects increases in data processing and occupancy expenses associated with building enhanced technological infrastructure, offset by the medical insurance and payroll tax refunds received and lower commissions and incentives paid in 2023.
Investment securities increased $2.5 million, or 0.8%, to $329.1 million at March 31, 2023, compared to $326.6 million three months earlier, and decreased $48.6 million compared to $377.7 million at March 31, 2022. The market value of the portfolio increased $4.8 million during the first quarter of 2023, primarily driven by a decrease in long-term interest rates. At March 31, 2023, municipal bonds totaled $101.9 million and comprised the largest portion of the investment portfolio at 31.0%. Non-agency issued mortgage-backed securities were the second largest segment, totaling $93.0 million, or 28.3%, of the portfolio at quarter end. The estimated average life of the securities portfolio was approximately 8.1 years, compared to 8.2 years in the prior quarter and 7.0 years in the first quarter of 2022. The effective duration of the portfolio was approximately 5.1 years, compared to 5.1 years in the prior quarter and 5.0 years at the end of the first quarter of 2022.
Loans and Unfunded Loan Commitments
Net loans, excluding loans held for sale, increased $30.6 million, or 2.0%, to $1.56 billion at March 31, 2023, from $1.53 billion at December 31, 2022, and increased $191.5 million, or 14.0%, from $1.37 billion one year ago. One-to-four family loans increased $11.0 million during the current quarter as a result of $1.1 million in new amortizing loan originations and $18.1 million of residential construction loans that converted to permanent amortizing loans, partially offset by sales and payments received. Multi-family loans increased $32.3 million during the current quarter. The increase was the result of new originations totaling $9.2 million and $9.9 million of construction loans converting into permanent amortizing loans. Construction loans decreased $32.4 million during the quarter, with $48.0 million converting into fully amortizing loans, partially offset by draws on new and existing loans. Commercial business, automobile, and home equity loans increased $23.1 million, $12.0 million and $1.2 million, respectively, during the current quarter compared to the previous quarter as originations and draws on existing commitments exceeded payoffs and scheduled payments. Commercial real estate loans decreased $16.0 million, with payoffs and scheduled payments in excess of the $20.0 million of construction loans that converted into permanent amortizing loans.
The Company originated $5.8 million in residential mortgages during the first quarter of 2023 and sold $5.4 million, with an average gross margin on sale of mortgage loans of approximately 1.99%. This production compares to residential mortgage originations of $8.6 million in the preceding quarter with sales of $3.3 million, with an average gross margin of 2.19%. Higher market rates on mortgage loans and a lack of single-family home inventory continued to hinder saleable mortgage loan production in the first quarter. New single-family residence construction loan commitments totaled $4.9 million in the first quarter, compared to $16.1 million in the preceding quarter.
Total deposits increased $30.0 million, to $1.59 billion at March 31, 2023, compared to $1.56 billion at December 31, 2022, and increased $44.8 million, or 2.9%, compared to $1.55 billion one year ago. Increases in consumer CDs of $75.2 million, business savings account balances of $29.8 million, business CD balances of $12.3 million, consumer savings account balances of $11.4 million, and brokered CDs of $654,000, were offset by decreases in consumer money market account balances of $62.2 million, business demand account balances of $15.1 million, consumer demand account balances of $12.4 million, business money market account balances of $8.0 million, and public fund CDs of $1.9 million during the first quarter. We believe decreases in certain categories were driven by customers seeking higher rates and additional diversification over a variety of account types. The current rate environment has contributed to greater competition for deposits with more rate specials offered to attract new funds.
Demand deposits decreased 9.4% compared to a year ago to $481.3 million at March 31, 2023, and represented 30.2% of total deposits; money market accounts decreased 30.8% compared to a year ago to $402.8 million, and represented 25.3% of total deposits; savings accounts increased 22.7% compared to a year ago to $242.1 million at March 31, 2023, and represented 15.2% of total deposits; and CDs increased 95.8% compared to a year ago to $468.0 million at quarter-end, and represented 29.4% of total deposits. Brokered CDs increased $68.8 million to $134.5 million at March 31, 2023, from $65.7 million a year ago, accounting for 30.0% of the increase in CD balances.
The Company estimates that approximately 17% of total deposits are uninsured. Consumer deposits make up 62% of total deposits with an average balance of approximately $24,000 per account. Collateralized public fund balances totaled $115.3 million at March 31, 2023. While the mix of deposits moved to higher cost product types, the Company did not experience any unusual deposit activity in the first quarter of 2023.
Nonperforming loans were $2.6 million at March 31, 2023, an increase of $843,000 from December 31, 2022, related to increased delinquencies in a single-family residential loan, Triad purchased manufactured home loans and Splash unsecured consumer loans. The percentage of the allowance for credit losses on loans to nonperforming loans decreased to 661% at March 31, 2023, from 900% at December 31, 2022, and decreased from 1227% at March 31, 2022. Classified loans increased $1.3 million to $18.2 million at March 31, 2023, due to the downgrade of one $537,000 single-family residential loan during the first quarter along with delinquent Triad purchased manufactured home loans totaling $320,000 and Splash unsecured consumer loans totaling $438,000. The allowance for credit losses on loans as a percentage of total loans was 1.10% at March 31, 2023, increasing from 1.04% at the prior quarter end and increasing from 1.09% reported one year earlier.
Total shareholders’ equity increased to $160.3 million at March 31, 2023, compared to $158.3 million three months earlier, due to $3.5 million of net income and an increase in the fair market value of the investment securities portfolio, net of taxes, of $3.7 million, partially offset by a $3.0 million decrease for the cumulative CECL adjustment, a $1.4 million decrease in the fair market value of derivatives, net of taxes and the cost of repurchased shares. Bond values increased quarter-over-quarter as the economic outlook on long-term rates fell, partially influenced by the recent bank failures.
Tangible book value per common share* was $16.38 at March 31, 2023, compared to $16.13 at December 31, 2022, and $17.56 at March 31, 2022. Book value per common share was $16.57 at March 31, 2023, compared to $16.31 at December 31, 2022, and $17.77 at March 31, 2022.
Capital levels for both the Company and its operating bank, First Fed, remain in excess of applicable regulatory requirements and the Bank was categorized as “well-capitalized” at March 31, 2023. Common Equity Tier 1 and Total Risk-Based Capital Ratios at March 31, 2023, were 13.3% and 14.4%, respectively.
Share Repurchase Program and Cash Dividend
First Northwest continued to return capital to our shareholders through cash dividends and share repurchases during the first quarter of 2023. We repurchased 44,441 shares of common stock under the Company’s October 2020 stock repurchase plan at an average price of $14.07 per share for a total of $627,000 during the quarter ended March 31, 2023, leaving 257,586 shares remaining under the plan. In addition, the Company paid cash dividends totaling $671,000 in the first quarter of 2023.
* See reconciliation of Non-GAAP Financial Measures later in this release.
The Company has received several accolades as a leader in the community.
In April 2022, First Fed was recognized as a Top Corporate Citizen by the Puget Sound Business Journal. The Corporate Citizenship Awards honors local corporate philanthropists and companies making significant contributions in the region. The top 25 small, medium and large-sized companies were recognized in addition to nine other honorees last year. First Fed was ranked #3 in the medium-sized company category in 2022 and was ranked #4 in the same category in 2021.
In June 2022, First Fed was named to the Middle Market Fast 50 List by the Puget Sound Business Journal. First Fed also made the Fast 50 list for 2020 and 2021, which recognizes the region’s fastest-growing middle market companies.
Additionally, in June 2022 First Fed was named on the Puget Sound Business Journal’s Best Workplaces list. First Fed has been recognized as one the top 100 workplaces in Washington, as voted for two years in row by each company’s own employees.
In September 2022, the First Fed team was honored to bring home the Gold for Best Bank in the Best of the Northwest survey hosted by Bellingham Alive.
In October 2022, First Fed was also recognized in the Best of the Peninsula surveys, winning Best Bank for both Clallam and Jefferson counties. The Bank was a finalist for Best Bank on Bainbridge Island and Central Kitsap. Also, First Fed received Best Financial Advisor in Jefferson.
About the Company
First Northwest Bancorp (Nasdaq: FNWB) is a financial holding company engaged in investment activities including the business of its subsidiary, First Fed Bank. First Fed is a Pacific Northwest-based financial institution which has served its customers and communities since 1923. Currently First Fed has 16 locations in Washington state including 12 full-service branches. First Fed’s business and operating strategy is focused on building sustainable earnings by delivering a full array of financial products and services for individuals, small businesses, non-profit organizations, and commercial customers. In 2022, First Northwest made an investment in The Meriwether Group, LLC, a boutique investment banking and accelerator firm. Additionally, First Northwest focuses on strategic partnerships to provide modern financial services such as digital payments and marketplace lending. First Northwest Bancorp was incorporated in 2012 and completed its initial public offering in 2015 under the ticker symbol FNWB. The Company is headquartered in Port Angeles, Washington.
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 of factors including, but not limited to: increased competitive pressures; changes in the interest rate environment; the credit risks of lending activities; pressures on liquidity, including as a result of withdrawals of deposits or declines in the value of our investment portfolio; 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 2023 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.
For More Information Contact:
Matthew P. Deines, President and Chief Executive Officer
Geri Bullard, EVP and Chief Financial Officer
FIRST NORTHWEST BANCORP AND SUBSIDIARY
(Dollars in thousands) (Unaudited)
Non-GAAP Financial Measures
This press release contains financial measures that are not defined in generally accepted accounting principles (“GAAP”). Non-GAAP measures are presented where management believes the information will help investors understand the Company’s results of operations or financial position and assess trends. Where non-GAAP financial measures are used, the comparable GAAP financial measure is also provided. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of the GAAP and non-GAAP measures are presented below.
Calculations Based on Tangible Common Equity:
Non-GAAP Financial Measures Footnote