Northwest Bancorporation, Inc. Reports Fourth Quarter and Year End 2017 Financial Results

SPOKANE, Wash., Jan. 29, 2018 (GLOBE NEWSWIRE) -- Northwest Bancorporation, Inc. (OTC:NBCT) (the “Company”), the holding company of Inland Northwest Bank (the “Bank” or “INB”), today reported financial results for the quarter and year ended December 31, 2017.

Net income for the fourth quarter of 2017 was $1.15 million, compared to $0.96 million for the previous quarter and $1.41 million for the fourth quarter of 2016. Earnings per diluted share increased from $0.13 for the third quarter of 2017, to $0.15 for the fourth quarter of 2017, and are down $0.06 from the fourth quarter of last year. For the year ended December 31, 2017, net income was $4.13 million, compared to $5.07 million for the in the year ended December 31, 2016, representing a decrease of $0.94 million, or 18.6%. Earnings per diluted share decreased 24.4% year over year, from $0.78 in 2016 to $0.59 in 2017. Earnings for the quarter and year ended December 31, 2017 were negatively impacted by the following nonrecurring expenses:

  • On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among other items, the Tax Act reduced the federal corporate tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing January 1, 2018. Generally accepted accounting principles in the United States (“GAAP”) require companies to revalue their deferred tax assets and liabilities with the resulting tax effects accounted for in the reporting period of enactment. Accordingly, the Company recorded related incremental income tax expense of $418 thousand in the fourth quarter of 2017 to revalue its net deferred tax asset.
  • Nonrecurring costs associated with the acquisition of CenterPointe Community Bank (“CenterPointe”) were $262 thousand, net of tax, for the fourth quarter. Acquisition-related costs totaled $1.4 million and $299 thousand, net of tax, for the years ended December 31, 2017 and 2016, respectively.
  • During the fourth quarter, the Company converted its core processing system from an in-house to an outsourced environment, which resulted in one-time costs totaling $225 thousand, net of tax.

These nonrecurring expenses totaled $905 thousand and $2.1 million, net of tax, for the quarter and year ended December 31, 2017, which compares to nonrecurring expenses totaling $(15) thousand and $299 thousand for the comparable periods in 2016. Quarterly core earnings (non-GAAP), which exclude these nonrecurring costs, were up $170 thousand and $0.02 per diluted share compared to the previous quarter and up $660 thousand and $0.07 per diluted share compared to the fourth quarter of last year. Compared to 2016, core earnings for 2017 were up $813 thousand, or 15.1%, and core earnings per diluted share were up $0.07, or 8.5%.

2017 Highlights

  • Successful completion of our second acquisition, CenterPointe Community Bank, on July 14, 2017.
  • Opened 2 de-novo branches in Kennewick and Ephrata.
  • Total revenue for 2017 was $35.4 million, up 19.1% over the previous year.
  • Net interest margin expanded to 4.57% in 2017, compared to 4.41% in 2016.
  • Organic loan growth (excluding loans acquired from CenterPointe) was $95.6 million, or 19.5%.
  • Organic deposit growth was $36.3 million, or 6.6%.
  • Noninterest bearing deposits increased to 34.5% of total deposits, up from 29.9% at the end of 2016.
  • Maintained strong credit quality with nonperforming assets at 0.31% of total assets and net charge-offs totaling 0.02% of average loans for the year.
  • The market price of the Company’s stock increased by $2.15 per share to $12.45 per share, a 20.9% increase during 2017.

Russell Lee, the Company’s President and CEO, commented, “We reached several important milestones in 2017, including the completion of the CenterPointe acquisition, opening 2 new branches, significant investments in our people and infrastructure, and we surpassed $800 million in total assets.” Mr. Lee continued, “Although our fourth quarter results were significantly impacted by adjustments related to the new tax provisions as well as some one-time expenses, we can see attractive trends for core earnings and revenue growth. The non-GAAP results we are reporting support the Company’s longer term strategic vision.”

Balance sheet

As of December 31, 2017, the Company had total assets of $826.8 million, compared to $827.7 million on September 30, 2017 and $636.5 million on December 31, 2016. Total assets increased $190.2 million, or 29.9%, during 2017, of which $154.8 million is related to the acquisition of CenterPointe.

The investment portfolio was $45.6 million as of December 31, 2017, up $15.7 million, or 52.3%, from $30.0 million at December 31, 2016. During the year, the CenterPointe acquisition added $28.0 million to the portfolio, which was partially offset by normal paydowns and maturities. The net unrealized gain in the portfolio decreased from $370 thousand at December 31, 2016, to $160 thousand at December 31, 2017.

The net loan portfolio was $682.2 million on December 31, 2017, representing an increase of $4.7 million, or 0.7%, during the fourth quarter of 2017 and an increase of $191.4 million, or 39.0%, from December 31, 2016. Loan growth during the year included organic loan growth of $95.6 million, or 19.5%, combined with $95.8 million acquired from CenterPointe.

Deposits were $722.6 million at December 31, 2017, compared to $721.7 million on September 30, 2017 and $548.4 million on December 31, 2016. During the year, organic deposit growth totaled $36.3 million, or 6.6%, while the CenterPointe acquisition added $137.9 million to total deposits. Noninterest bearing deposits represented 34.5% of total deposits as of December 31, 2017, compared to 33.3% at September 30, 2017, and to 29.9% at December 31, 2016.

Asset quality, provision and allowance for loan losses

As of December 31, 2017, the Company’s nonperforming assets (“NPAs”) were $2.6 million, representing 0.31% of total assets. NPAs are defined as loans on which the Bank has stopped accruing interest and includes other real estate owned. NPAs at the end of last quarter were $1.9 million, representing 0.23% of total assets, and at December 31, 2016, NPAs were $1.5 million, representing 0.23% of total assets.

The Bank had net loan charge-offs of $33 thousand and $125 thousand for the three and twelve-month periods ending on December 31, 2017, compared to net loan charge-offs of $44 thousand and $124 thousand for the comparable periods in 2016. The provision for loan losses was $294 thousand and $1.14 million for the three and twelve-month periods ending on December 31, 2017, compared to $0 and $363 thousand for the comparable periods in 2016. As of December 31, 2017, the allowance for loan losses was $7.3 million, or 1.05% of gross loans, compared to 1.02% for the previous quarter and 1.26% for the comparable period in 2016. Gross loans include those loans acquired through acquisitions of other banks (“purchased loans”), which are recorded at fair value, net of credit-related discounts. The allowance for loan losses as a percent of gross loans, excluding purchased loans, was 1.28% as of December 31, 2017, compared to 1.29% for the previous quarter and 1.37% for the comparable period in 2016.

Capital

Shareholders’ equity increased $13.8 million, or 20.9%, during 2017. The increase primarily reflects 2017 earnings for the Company and the issuance of 783,142 shares of the Company’s common stock as partial consideration for the acquisition of CenterPointe. During 2017, book value per share of the Company’s common stock increased $0.75, or 7.3%, and tangible book value per share (non-GAAP) increased $0.22 per share, or 2.4%.

The Bank continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” under regulatory standards. As of December 31, 2017, the Bank’s Tier 1 leverage capital to average assets ratio was 9.5%, its common equity Tier 1 (“CET1”) capital ratio was 10.1%, and its total capital to risk-weighted assets ratio was 11.1%. The regulatory requirements to be considered “well-capitalized” for these three ratios are 5.0%, 6.5%, and 10.0%, respectively.

Total revenue

Total revenue was $10.6 million for the fourth quarter of 2017, representing an increase of $645 thousand, or 6.5%, from the previous quarter, and representing an increase of $3.1 million, or 41.7%, over the comparable quarter in 2016. Total revenue was $35.4 million and $29.7 million for the years ended December 31, 2017 and 2016, respectively, which represents an increase of $5.7 million, or 19.1%. Total revenue is defined as net interest income plus noninterest income.

Net interest income

Net interest income was $9.2 million for the quarter ended December 31, 2017, an increase of $613 thousand, or 7.1%, from the previous quarter and an increase of $3.0 million, or 48.5%, from the fourth quarter of 2016. Net interest income was $30.2 million for the year ended December 31, 2017, an increase of $5.3 million, or 21.2%, from the comparable period in 2016.

The net interest margin (interest income minus interest expense, divided by average earning assets) was 4.85% for the fourth quarter of 2017, compared to 4.82% for the previous quarter; excluding net purchased loan discount accretion, the net interest margin was 4.72% and 4.66%, respectively. For the year, the net interest margin was 4.57% in 2017 compared to 4.41% in 2016; excluding net purchased loan discount accretion, the net interest margin was 4.45% and 4.21%, respectively.

Noninterest income

Noninterest income was $1.4 million during the fourth quarter of 2017, up $32 thousand, or 2.4%, from the previous quarter and up $103 thousand, or 8.2%, from the comparable period in 2016. Noninterest income ended 2017 at $5.1 million, an increase of $395 thousand, or 8.4%, over 2016. This year over year increase in noninterest income was related to higher NSF income, higher debit and credit card interchange income, recoveries on acquired written off loans, as well as additional revenues related to the CenterPointe acquisition.

Noninterest expense

Noninterest expense totaled $7.9 million for the fourth quarter of 2017, down $66 thousand, or 0.8%, from the previous quarter. The quarter over quarter decrease is primarily related to a reduction in acquisition-related costs, which was largely offset by increases in all other categories of noninterest expenses. The fourth quarter of 2017 was the first full quarter that included CenterPointe’s operating expenses; CenterPointe added four additional locations to our branch network as well as additional personnel. Also, the following nonrecurring expenses totaling $1.0 million were included in the fourth quarter 2017 results: $392 thousand in acquisition-related costs; $341 thousand in expense related to converting our core processing system from an in-house to an outsourced environment; $150 thousand to write down the value of a closed branch location; $48 thousand in write downs on obsolete ATMs; and $100 thousand related to a special bonus of $500 per non-executive employee that was awarded as a result of the expected future favorable impact of the Tax Cuts & Jobs Act of 2017.

Noninterest expense ended 2017 at $27.2 million, an increase of $5.4 million, or 24.7%, over 2016. Nonrecurring expenses in 2017 totaled $2.6 million, which includes $1.9 million in acquisition-related costs in addition to other nonrecurring costs totaling $639 thousand as noted above. Nonrecurring expenses in 2016 totaled $453 thousand and consisted solely of acquisition-related costs. Excluding these nonrecurring costs, noninterest expense was $24.7 million in 2017 compared to $21.4 million in 2016, an increase of $3.3 million, or 15.4%; this increase primarily reflects general increases in operating expenses as well as the inclusion of CenterPointe’s operating expenses.

Key ratios

Return on average assets (“ROA”) for fourth quarter 2017 was 0.55%, compared to 0.49% in the previous quarter and 0.88% in the fourth quarter last year. For the year ended December 31, 2017 and 2016, ROA was 0.57% and 0.82%, respectively. Core ROA (non-GAAP), which excludes certain nonrecurring expenses, was 0.98% and 0.86% for the quarter and year ended December 31, 2017, and 0.87% and 0.87% for the same periods in 2016.

Return on average equity (“ROE”) was 5.78% for fourth quarter 2017, compared to 5.22% in the previous quarter and 8.59% for the fourth quarter last year. For the year ended December 31, 2017 and 2016, ROE was 5.74% and 8.00%, respectively. Core ROE (non-GAAP) was 10.35% and 8.59% for the quarter and year ended December 31, 2017, and 8.50% and 8.47% for the same periods in 2016.

Non-GAAP Financial Measures

This news release contains certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). Management believes these non-GAAP financial measures provide investors with information useful in understanding the Company’s financial performance. Non-GAAP financial measures should not be viewed as substitutes for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures appear under the caption “Reconciliation of Non-GAAP Measures” in the accompanying financial tables.

The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends. Core earnings excludes nonrecurring items from net income which the Company does not view as related to its normal operations. These items are presented net of tax and include such items as acquisition-related costs, systems conversion costs, and tax expense associated with the enactment of the Tax Act. Acquisition-related costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs and professional fees. The Company uses the non-GAAP measure of tangible book value, which excludes intangible assets from book value as it improves our comparability to other banking organizations that have not engaged in acquisitions that have resulted in the accumulation of goodwill and other intangible assets.

About Northwest Bancorporation, Inc.
Northwest Bancorporation, Inc. is the parent company of Inland Northwest Bank, a state-chartered community bank which currently operates 21 offices across Washington, Idaho and Oregon. INB specializes in meeting the financial needs of individuals and small to medium-sized businesses, including professional corporations and agriculture-related operations, by providing a full line of commercial, retail, agricultural, and 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 quoted on the OTC Market’s Pink Marketplace, 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; lower-than-expected revenue or cost savings in connection with acquisitions; 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.

For more information contact:

Russell A. Lee, President and CEO
Holly Poquette, Chief Financial Officer
509.456.8888
nbct@inb.com


Northwest Bancorporation, Inc.
Consolidated Statements of Financial Condition
(Unaudited)
Dec. 31, Sep. 30, Dec. 31,
(dollars in thousands)2017 2017 2016
Assets:
Cash and due from banks$37,850 $39,704 $22,183
Interest bearing deposits 13,917 9,477 53,259
Time deposits held for investment 4,174 5,895 4,640
Securities available for sale 41,458 45,146 25,328
Federal Home Loan Bank stock, at cost 1,262 1,379 1,033
Loans receivable, net 682,220 677,524 490,816
Loans held for sale 1,366 2,142 3,824
Premises and equipment, net 14,800 15,604 14,061
Bank-owned life insurance 9,417 9,385 7,054
Accrued interest receivable 3,454 4,188 2,642
Goodwill 9,477 9,483 6,206
Core deposit intangible 2,694 2,811 1,262
Other real estate owned 1,242 702 745
Other assets 3,443 4,309 3,475
Total assets$826,774 $827,749 $636,528
Liabilities:
Deposits:
Noninterest bearing deposits$249,541 $240,410 $164,027
Interest bearing transaction and savings deposits 361,851 368,602 261,432
Time deposits 111,231 112,711 122,962
722,623 721,723 548,421
Accrued interest payable 174 139 151
Borrowed funds 19,597 22,421 18,567
Other liabilities 4,516 4,685 3,334
Total liabilities 746,910 748,968 570,473
Shareholders' equity:
Common stock 62,552 62,387 52,733
Retained earnings 17,188 16,062 13,078
Accumulated other comprehensive income 124 332 244
Total shareholders' equity 79,864 78,781 66,055
Total liabilities and shareholders' equity$826,774 $827,749 $636,528

Northwest Bancorporation, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Year Ended
Dec. 31, Sep. 30, Dec. 31, Dec. 31, Dec. 31,
(dollars in thousands, except per share data)2017 2017 2016
2017
2016
Interest and dividend income:
Loans receivable$9,498 $8,856 $6,477 $31,345 $26,046
Investment securities 320 310 230 987 941
Other 78 68 104 390 278
Total interest and dividend income 9,896 9,234 6,811 32,722 27,265
Interest expense:
Deposits 480 436 419 1,711 1,570
Borrowed funds 207 202 190 777 747
Total interest expense 687 638 609 2,488 2,317
Net interest income 9,209 8,596 6,202 30,234 24,948
Provision for loan losses 294 386 - 1,136 363
Noninterest income:
Service charges on deposits 267 267 216 977 852
Gains from sale of loans, net 393 339 451 1,396 1,447
Other noninterest income 700 722 590 2,751 2,430
Total noninterest income 1,360 1,328 1,257 5,124 4,729
Noninterest expense:
Salaries and employee benefits 3,871 3,761 3,037 13,886 11,620
Occupancy and equipment 889 480 411 2,321 1,661
Depreciation and amortization 414 410 310 1,439 1,215
Advertising and promotion 348 265 216 1,146 917
FDIC assessments 131 70 9 305 288
Gain on other real estate owned, net - - (53) (29) (54)
Acquisition-related costs 392 1,288 (23) 1,917 453
Other noninterest expense 1,877 1,714 1,475 6,240 5,730
Total noninterest expense 7,922 7,988 5,382 27,225 21,830
Income before income taxes 2,353 1,550 2,077 6,997 7,484
Income tax expense 1,208 590 672 2,868 2,413
NET INCOME$1,145 $960 $1,405 $4,129 $5,071
Earnings per common share - basic$0.16 $0.14 $0.22 $0.61 $0.79
Earnings per common share - diluted$0.15 $0.13 $0.21 $0.59 $0.78
Weighted average common shares outstanding - basic 7,227,769 7,094,730 6,404,319 6,794,669 6,382,048
Weighted average common shares outstanding - diluted 7,428,169 7,296,177 6,544,481 6,982,182 6,511,253

Northwest Bancorporation, Inc.
Key Financial Ratios and Data
(Unaudited)
Three Months Ended Year Ended
Dec. 31, Sep. 30, Dec. 31, Dec. 31, Dec. 31,
(dollars in thousands, except per share data)2017 2017 2016 2017 2016
PERFORMANCE RATIOS (annualized)
Return on average assets 0.55% 0.49% 0.88% 0.57% 0.82%
Return on average equity 5.78% 5.22% 8.59% 5.74% 8.00%
Yield on earning assets 5.21% 5.18% 4.62% 4.95% 4.82%
Cost of funds 0.55% 0.53% 0.60% 0.56% 0.59%
Net interest margin 4.85% 4.82% 4.21% 4.57% 4.41%
Noninterest income to average assets 0.65% 0.68% 0.78% 0.71% 0.77%
Noninterest expense to average assets 3.80% 4.09% 3.35% 3.77% 3.54%
Provision expense to average assets 0.14% 0.20% 0.00% 0.16% 0.06%
Efficiency ratio (1) 75.0% 80.5% 72.2% 77.0% 73.6%
Dec. 31, Sep. 30, Dec. 31,
2017 2017 2016
ASSET QUALITY RATIOS AND DATA
Nonaccrual loans$1,326 $1,199 $740
Other real estate owned$1,242 $702 $745
Nonperforming assets$2,568 $1,901 $1,485
Loans 30-89 days past due and on accrual$925 $1,885 $1,598
Restructured loans$2,283 $2,329 $3,589
Allowance for loan losses$7,274 $7,013 $6,263
Nonperforming assets to total assets 0.31% 0.23% 0.23%
Allowance for loan losses to total loans 1.05% 1.02% 1.26%
Allowance for loan losses to nonaccrual loans 548.6% 584.9% 846.4%
Net charge-offs$33 (2)$(16)(2)$44 (2)$125 (3)$124 (3)
Net charge-offs to average loans (annualized) 0.02%(2) -0.03%(2) 0.11%(2) 0.02%(3) 0.03%(3)
CAPITAL RATIOS AND DATA
Common shares outstanding at period end 7,237,251 7,218,241 6,419,861
Book value per share$11.04 $10.91 $10.29
Tangible book value per share$9.35 $9.21 $9.13
Shareholders' equity to total assets 9.7% 9.5% 10.4%
Total capital to risk-weighted assets (4) 11.1% 11.0% 13.0%
Tier 1 capital to risk-weighted assets (4) 10.1% 10.1% 11.8%
Tier 1 common equity ratio (4) 10.1% 10.1% 11.8%
Tier 1 leverage capital ratio (4) 9.5% 10.0% 10.8%
DEPOSIT RATIOS AND DATA
Core deposits (5)$611,392 $609,012 $425,459
Core deposits to total deposits 84.6% 84.4% 77.6%
Noninterest bearing deposits to total deposits 34.5% 33.3% 29.9%
Net loan to deposit ratio 94.4% 93.9% 89.5%
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)Net charge-offs year to date.
(4)Regulatory capital ratios are reported for Inland Northwest Bank.
(5)Core deposits include all deposits except time deposits.

Northwest Bancorporation, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
Three Months Ended Year Ended
Dec. 31, Sep. 30, Dec. 31, Dec. 31, Dec. 31,
(dollars in thousands, except per share data)2017 2017 2016 2017 2016
Core Earnings:
Net income$1,145 $960 $1,405 $4,129 $5,071
Plus:Acquisition-related costs, net of tax 262 920 (15) 1,411 299
Income tax expense related to the Tax Act 418 - - 418 -
Core conversion costs, net of tax 225 - - 225 -
Core earnings$2,050 $1,880 $1,390 $6,183 $5,370
Core earnings per diluted share$0.28 $0.26 $0.21 $0.89 $0.82
Core return on average assets 0.98% 1.04% 0.87% 0.86% 0.87%
Core return on average equity 10.35% 10.22% 8.50% 8.59% 8.47%
Tangible Book Value Per Share:
Total shareholders' equity$79,864 $78,781 $66,055 $79,864 $66,055
Less:Goodwill (9,477) (9,483) (6,206) (9,477) (6,206)
Core deposit intangible (2,694) (2,811) (1,262) (2,694) (1,262)
Tangible common equity$67,693 $66,487 $58,587 $67,693 $58,587
Common shares outstanding 7,237,251 7,218,241 6,419,861 7,237,251 6,419,861
Book value per share$11.04 $10.91 $10.29 $11.04 $10.29
Tangible book value per share$9.35 $9.21 $9.13 $9.35 $9.13

Source:Northwest Bancorporation, Inc.