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Northwest Bancorporation, Inc. Reports Second Quarter 2014 Financial Results

SPOKANE, Wash., July 16, 2014 (GLOBE NEWSWIRE) -- Northwest Bancorporation, Inc. (OTCQB:NBCT) (the "Company"), the holding company of Inland Northwest Bank (the "Bank" or "INB"), today reported financial results for the quarter ended June 30, 2014.

Net income for the second quarter of 2014 was $758 thousand, compared to $1.2 million for the corresponding period in 2013. For the six months ended June 30, 2014, net income was $1.3 million, compared to $1.8 million for the corresponding period in 2013. The Company's results for the quarter ended June 30, 2013, included nonrecurring income of $742 thousand, which was the result of the benefit recognized from the recapture of its deferred tax asset valuation allowance.

After preferred stock dividends and related accretion adjustments, net income available to common shareholders was $758 thousand, or $0.18 per diluted share, for the second quarter of 2014, compared to $1.0 million, or $0.33 per diluted share, for the corresponding period in 2013. Net income available for common shareholders was $1.3 million, or $0.32 per diluted share, for the six months ended June 30, 2014, compared to $1.5 million, or $0.47 per diluted share, for the corresponding period in 2013. Without the nonrecurring income in 2013, net income would have been approximately $0.8 million, or $0.25 per diluted share.

Financial highlights

  • Achieved tenth consecutive quarter of profitability, with net income of $758 thousand.
  • Nonperforming assets decreased 57% year over year.
  • Noninterest bearing deposits increased 15% year over year.
  • The number of checking and savings accounts increased by 4% year over year.
  • Loans grew by $21 million, or 6.9%, during the first half of 2014 and are up by $40 million year over year.
  • Book value of Company stock increased 2.6% during the second quarter, to $8.91 per share.

Balance sheet

As of June 30, 2014, the Company had total assets of $408.5 million, compared to $394.2 million on December 31, 2013 and $391.2 million on June 30, 2013. This represents an increase of $14.3 million, or 3.6%, over year end and an increase of $17.3 million, or 4.4%, year over year.

The investment portfolio was $47.1 million as of June 30, 2014, down $7.3 million, or 13.4%, from $54.4 million at December 31, 2013. The decrease reflects a shift in the deployment of capital from investments to loans. The net unrealized gain in the portfolio was $1.3 million, which was 44% higher than the $929 thousand net unrealized gain at year-end 2013.

The net loan portfolio was $317.4 million on June 30, 2014. This was up $20.5 million, or 6.9%, from year end and was up $39.6 million, or 14.3%, from June 30, 2013, when the loan portfolio was $277.8 million. The increase from prior periods primarily reflects increased commercial lending activity. "I'm finally starting to believe that our region is beginning to recover from the Great Recession," President and CEO, Randall Fewel commented. "For INB to be able to grow its loan portfolio by $40 million in twelve months tells me that many community-based businesses in Spokane and Kootenai counties are starting to invest in growth once again."

Deposits at June 30, 2014 were $341.2 million, an increase of $20.6 million, or 6.4%, compared to December 31, 2013, and an increase of $17.2 million, or 5.3%, compared to June 30, 2013. Core deposits (all deposits except time deposits) ended the quarter at $260.2 million, which is 76.2% of total deposits. This represents an increase of $4.3 million, or 1.7%, since the beginning of the year and an increase of $12.2 million, or 4.9%, over the $247.9 million level on June 30, 2013.

Noninterest bearing deposits, a subset of core deposits, were $87.5 million at quarter end, representing 25.6% of total deposits. This compares to noninterest bearing deposits of $76.1 million, or 23.5% of total deposits, at June 30, 2013, and to $83.1 million, or 25.9% of total deposits, at year-end 2013. The level of noninterest bearing deposits at quarter end represented growth of $11.4 million, or 15.0%, compared to June 30, 2013.

Asset quality, provision and allowance for loan losses

The Bank's nonperforming assets ("NPAs") were $3.8 million at quarter end, representing 0.93% of total assets. NPAs are defined as loans on which the Bank has stopped accruing interest and includes foreclosed real estate. NPAs at the end of 2013 were $5.3 million, representing 1.34% of total assets, and at June 30, 2013, NPAs were $8.9 million, representing 2.28% of total assets. "I am thrilled to see our NPAs below 1% of assets," Fewel said. "We haven't seen NPAs that low for seven years. Reducing problem assets has so many positive ramifications for a bank. We can earn more interest income; we don't have to put as many reserves aside for future losses; and the mindset of our calling officers shifts from defensive to production. This continued and steady decline in our NPAs is a real positive for INB," Fewel commented.

Net charge-offs were $65 thousand and $214 thousand for the three and six-month periods ending on June 30, 2014, respectively, compared to $36 thousand and $215 thousand for the comparable periods in 2013. The provision for loan losses was $167 thousand and $417 thousand for the three and six-month periods ending on June 30, 2014, compared to $244 thousand and $488 thousand for the comparable periods in 2013. As of June 30, 2014, the allowance for loan losses ("ALLL") was $6.0 million, or 1.85% of gross loans. This is slightly higher than on December 31, 2013, when it was $5.8 million and represented 1.91% of the loan portfolio, and is $473 thousand higher than a year ago when the ALLL was $5.5 million and represented 1.95% of gross loans.

Capital

Shareholders' equity has increased $1.7 million during 2014. The increase reflects earnings retention and an increase in accumulated other comprehensive income. The book value of the Company stock was $8.91 per share of common stock on June 30, 2014, up $0.42, or 4.9%, over the $8.49 per share book value on December 31, 2013.

The Bank continues to maintain capital levels in excess of the requirements to be categorized as "well-capitalized" under applicable regulatory standards. The Bank's Tier 1 leverage capital to average assets ratio at June 30, 2014 was 11.3%, compared to 11.1% on June 30, 2013; the regulatory minimum to be considered well-capitalized is 5.0%. The Bank's total capital to risk-weighted assets ratio at June 30, 2014 was 13.3% compared to 14.1% on June 30, 2013; the regulatory threshold for this ratio for a bank to be considered well-capitalized is 10.0%.

Total revenue

Total revenue was $4.7 million for both the second quarters of 2014 and 2013. Total revenue was $9.1 million and $9.7 million for the six months ended June 30, 2014 and 2013, respectively. Total revenue is defined as net interest income plus noninterest income. "The decline in total revenue year over year was largely due to a drop off in mortgage refinance activity," Fewel commented. "Our gains from sale of mortgage loans dropped from $869 thousand for the first half of last year to $336 thousand this year – a decline of 52%. However, residential mortgage origination activity picked up in June and was up 17% over June last year, so even though this is just one month, we are hopeful this important part of our business will be better in the third quarter," Fewel said.

Net interest income

Net interest income was $3.8 million for the quarter ended June 30, 2014, compared to $3.6 million for the comparable period in 2013, representing an increase of $199 thousand, or 5.5%. Net interest income was $7.5 million for the six months ended June 30, 2014, compared to $7.3 million for the comparable period in 2013, representing an increase of $152 thousand, or 2.1%. The net interest margin (interest income minus interest expense, divided by average earning assets) increased from 4.03% in the second quarter of 2013 to 4.11% in the second quarter of 2014. This compares to a net interest margin of 4.07% year-to-date and 4.10% last year through June. "We are working hard to maintain our net interest margin in a very challenging interest rate environment," Fewel said, "and are doing as well as we are because of our success in growing the loan portfolio. Converting low yielding investments to higher yielding commercial loans has offset much of the effect of repricing loans in the portfolio to lower rates as they hit their rate adjustment time frames."

Noninterest income

Noninterest income decreased by $224 thousand, or 20.5%, from $1.1 million in the second quarter last year, to $870 thousand in the second quarter this year. Noninterest income for the first six months of 2014 was $1.6 million, compared to $2.4 million for the same period in 2013. This represents a decline in noninterest income for the first half of the year of $732 thousand, or 30.7%. This decrease was related to lower service charges on deposits, lower gains from sales of loans, and lower operating income generated from foreclosed real estate properties. Net gains on sales of investment securities were $44 thousand and $65 thousand for the three and six-month periods ending on June 30, 2014, respectively, compared to $0 and $106 thousand for the comparable periods in 2013. "The Dodd-Frank Act has had a negative effect on banks' noninterest income, and INB is no exception," Fewel commented. "It has impacted income from debit card usage, overdrafts, and mortgage originations," he said, "and all of us are having to make adjustments."

Noninterest expense

Noninterest expense for the second quarter decreased by $385 thousand, or 10.2%, from $3.8 million last year to $3.4 million this year. Noninterest expense for the six months ending June 30, 2014, was $6.8 million, compared to $7.7 million for the same period in 2013. This represents a decline in noninterest expense of $899 thousand, or 11.7%. Nearly all categories of noninterest expenses were down year over year, with the most significant reductions resulting from lower costs related to operating, maintaining or selling foreclosed real estate properties. "With our noninterest income being down $732 thousand, it was important that we reduce our noninterest expense commensurately," Fewel said, "and I'm very pleased we were able to do that."

Summary

Fewel summarized the quarterly results by saying, "We saw some very positive signs in the second quarter that our regional economic recovery is gaining some traction. Commercial loan demand has been robust and even the residential mortgage business finished the quarter strong. I'm very pleased that we were able to follow a very solid first quarter with an even better second quarter, and the progress we are making in eliminating nonperforming assets is a huge morale booster for all of us. INB will be celebrating its 25 year anniversary this coming October 2nd, so it's particularly gratifying to be having these successes as we approach that milestone."

About Northwest Bancorporation, Inc.

Northwest Bancorporation, Inc. is the parent company of Inland Northwest Bank, a state-chartered community bank which operates seven branches in Spokane County, Washington, and four branches in Kootenai County, Idaho. INB specializes in meeting the financial needs of individuals and small to medium-sized businesses, including professional corporations, by providing a full line of commercial, retail, mortgage and private banking products and services. More information about INB can be found on its website at www.inb.com. The Company's stock is listed on the OTC Markets, www.otcmarkets.com, under the symbol NBCT.

Forward-Looking Statements

This release contains forward-looking statements that are not historical facts and that are intended to be "forward-looking statements" as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, but are not limited to, statements about the Company's plans, objectives, expectations and intentions and other statements contained in this release that are not historical facts and pertain to the Company's future operating results. When used in this release, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Actual results may differ materially from the results discussed in these forward-looking statements, because such statements are inherently subject to significant assumptions, risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. These include but are not limited to: the possibility of adverse economic developments that may, among other things, increase default and delinquency risks in the Company's loan portfolios; shifts in interest rates; shifts in the rate of inflation; shifts in the demand for the Company's loan and other products; unforeseen increases in costs and expenses; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; and changes in laws, regulations and the competitive environment. Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Northwest Bancorporation, Inc.
Consolidated Statements of Financial Condition
(Unaudited)
June 30, Dec. 31, June 30,
(dollars in thousands) 2014 2013 2013
Assets:
Cash and due from banks $ 17,083 $ 13,951 $ 13,235
Interest bearing deposits 230 2,129 235
Time deposits held for investment 2,175 2,655 2,895
Securities available for sale 44,905 51,706 65,837
Federal Home Loan Bank stock, at cost 1,171 1,194 1,216
Loans receivable, net 317,432 296,938 277,800
Loans held for sale 1,612 1,139 3,422
Premises and equipment, net 15,195 15,614 16,221
Accrued interest receivable 1,238 1,261 1,385
Foreclosed real estate 1,250 1,675 3,370
Bank-owned life insurance 4,221 4,160 4,099
Other assets 1,973 1,781 1,463
Total assets $ 408,485 $ 394,203 $ 391,178
Liabilities:
Deposits:
Noninterest bearing deposits $ 87,486 $ 83,063 $ 76,062
Interest bearing transaction and savings deposits 172,669 172,754 171,877
Time deposits 81,074 64,807 76,136
341,229 320,624 324,075
Accrued interest payable 128 131 734
Federal funds purchased 4,680 12,170 9,980
Borrowed funds 22,017 23,256 12,848
Other liabilities 3,741 3,065 4,917
Total liabilities 371,795 359,246 352,554
Shareholders' equity:
Preferred stock -- -- 10,959
Common stock 32,772 32,657 26,155
Retained earnings 3,033 1,687 572
Accumulated other comprehensive income 885 613 938
Total shareholders' equity 36,690 34,957 38,624
Total liabilities and shareholders' equity $ 408,485 $ 394,203 $ 391,178
Northwest Bancorporation, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(dollars in thousands, except per share data) 2014 2014 2013 2014 2013
Interest and dividend income:
Loans receivable $ 3,999 $ 3,792 $ 3,707 $ 7,791 $ 7,494
Investment securities 347 393 416 740 850
Other 9 10 12 19 28
Total interest and dividend income 4,355 4,195 4,135 8,550 8,372
Interest expense:
Deposits 352 343 428 695 876
Borrowed funds 192 198 95 390 183
Total interest expense 544 541 523 1,085 1,059
Net interest income 3,811 3,654 3,612 7,465 7,313
Provision for loan losses 167 250 244 417 488
Noninterest income:
Service charges on deposits 246 226 262 472 518
Gains from sale of loans, net 177 159 365 336 869
Gain on investment securities, net 44 21 -- 65 106
Other noninterest income 403 374 467 777 889
Total noninterest income 870 780 1,094 1,650 2,382
Noninterest expense:
Salaries and employee benefits 1,720 1,782 1,729 3,502 3,567
Occupancy and equipment 332 341 326 673 679
Depreciation and amortization 290 293 311 583 619
Advertising and promotion 116 102 95 218 179
FDIC assessments 72 66 129 138 257
Loss (gain) on foreclosed real estate, net (87) (63) 231 (150) 312
Other noninterest expense 958 864 965 1,822 2,072
Total noninterest expense 3,401 3,385 3,786 6,786 7,685
Income before income taxes 1,113 799 676 1,912 1,522
Income tax expense 355 211 (542) 566 (301)
NET INCOME $ 758 $ 588 $ 1,218 $ 1,346 $ 1,823
Preferred stock dividends and discount accretion, net -- -- 169 -- 338
Net income available to common shares $ 758 $ 588 $ 1,049 $ 1,346 $ 1,485
Earnings per common share - basic $ 0.18 $ 0.14 $ 0.34 $ 0.33 $ 0.48
Earnings per common share - diluted $ 0.18 $ 0.14 $ 0.33 $ 0.32 $ 0.47
Weighted average common shares outstanding - basic 4,117,673 4,117,673 3,089,957 4,117,673 3,089,957
Weighted average common shares outstanding - diluted 4,195,568 4,189,288 3,149,379 4,192,448 3,145,900
Northwest Bancorporation, Inc.
Key Financial Ratios and Data
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(dollars in thousands, except per share data) 2014 2014 2013 2014 2013
PERFORMANCE RATIOS (annualized)
Return on average assets 0.76% 0.60% 1.07% 0.68% 0.76%
Return on average equity 8.37% 6.65% 10.90% 7.52% 7.75%
Yield on earning assets 4.70% 4.62% 4.61% 4.66% 4.69%
Cost of funds 0.80% 0.82% 0.78% 0.81% 0.80%
Net interest margin 4.11% 4.03% 4.03% 4.07% 4.10%
Noninterest income to average assets 0.87% 0.79% 1.11% 0.83% 1.22%
Noninterest expense to average assets 3.40% 3.44% 3.85% 3.42% 3.92%
Provision expense to average assets 0.17% 0.25% 0.25% 0.21% 0.25%
Efficiency ratio(1) 72.7% 76.3% 80.5% 74.5% 79.3%
June 30, Dec. 31, June 30,
2014 2013 2013
ASSET QUALITY RATIOS AND DATA
Nonaccrual loans $2,563 $3,614 $5,539
Foreclosed real estate $1,250 $1,675 $3,370
Nonperforming assets $3,813 $5,289 $8,909
Loans 30-89 days past due and on accrual $4,120 $1,279 $1,162
Restructured loans $7,228 $8,375 $10,135
Allowance for loan losses $6,006 $5,803 $5,533
Nonperforming assets to total assets 0.93% 1.34% 2.28%
Allowance for loan losses to total loans 1.85% 1.91% 1.95%
Allowance for loan losses to nonaccrual loans 234.33% 160.57% 99.89%
Net charge-offs $65 (2) $36 (2) $214 (3) $215 (3)
Net charge-offs to average loans (annualized) 0.08% (2) 0.05% (2) 0.14% (3) 0.15% (3)
CAPITAL RATIOS AND DATA
Common shares outstanding at period end 4,117,673 4,117,673 3,089,957
Book value per common share $8.91 $8.49 $8.95
Tangible common equity $36,690 $34,957 $27,665
Shareholders' equity to total assets 9.0% 8.9% 9.9%
Total capital to risk-weighted assets (3) 13.3% 13.4% 14.1%
Tier 1 capital to risk-weighted assets (3) 12.1% 12.1% 12.8%
Tier 1 leverage capital ratio (3) 11.3% 11.0% 11.1%
DEPOSIT RATIOS AND DATA
Core deposits (4) $260,155 $255,817 $247,939
Core deposits to total deposits 76.2% 79.8% 76.5%
Noninterest bearing deposits to total deposits 25.6% 25.9% 23.5%
Net loan to deposit ratio 93.0% 92.6% 85.7%
Notes:
(1) Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).
(2) Net charge-offs for the three-month period.
(3) Regulatory capital ratios are reported for Inland Northwest Bank.
(4) Core deposits include all deposits except time deposits.

CONTACT: For more information contact: Randall L. Fewel, President and CEO Holly Poquette, Chief Financial Officer 509.456.8888 nbct@inb.comSource:Northwest Bancorporation, Inc.