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Xencor to Host First Quarter 2021 Financial Results Webcast and Conference Call on May 5, 2021

MONROVIA, Calif.–(BUSINESS WIRE)–
Xencor, Inc. (NASDAQ: XNCR), a clinical-stage biopharmaceutical company developing engineered monoclonal antibodies and cytokines for the treatment of cancer and autoimmune diseases, today announced that it will release first quarter 2021 financial results after the market closes on Wednesday, May 5, 2021.

Xencor management will host a webcast and conference call the same day at 4:30 p.m. ET (1:30 p.m. PT) to discuss the financial results and provide a corporate update.

The live call may be accessed by dialing (877) 359-9508 for domestic callers or (224) 357-2393 for international callers and referencing conference ID number 2378094. A live webcast of the conference call will be available under “Events & Presentations” in the Investors section of the Company’s website located at www.xencor.com. The webcast will be archived on the company website for 30 days.

About Xencor, Inc.

Xencor is a clinical-stage biopharmaceutical company developing engineered monoclonal antibodies and cytokines for the treatment of cancer and autoimmune diseases. Currently, 21 candidates engineered with Xencor’s XmAb^® technology are in clinical development internally and with partners. Xencor’s XmAb antibody engineering technology enables small changes to the structure of proteins resulting in new mechanisms of therapeutic action. For more information, please visit www.xencor.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210428006025/en/

Charles Liles

[email protected]

Media Contact

Jason I. Spark

Canale Communications

619-849-6005

[email protected]

KEYWORDS: United States North America California

INDUSTRY KEYWORDS: Biotechnology Pharmaceutical Health Oncology

MEDIA:

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Alerus Financial Corporation Reports First Quarter 2021 Net Income of $15.2 Million

GRAND FORKS, N.D.–(BUSINESS WIRE)–
Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $15.2 million for the first quarter of 2021, or $0.86 per diluted common share, compared to net income of $10.2 million, or $0.57 per diluted common share, for the fourth quarter of 2020, and net income of $5.4 million, or $0.30 per diluted common share, for the first quarter of 2020.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, “We are pleased to report our record performance of 2020 carried through into the first quarter of 2021. We believe Alerus continues to be well positioned for growth with our diversified business model, large and growing client base, and holistic, advisor-focused approach to serving clients. We started 2021 with several hiring initiatives and were pleased to have two high performing mortgage bankers join our Twin Cities team in the first quarter. We continue to focus on adding talent to our organization, especially in areas that will grow revenue.

Our fee income business lines delivered strong results lead by our mortgage division with mortgage originations exceeding $500 million for the quarter. Retirement and benefits revenue increased over 8% during the quarter as the integration of our recent acquisition of RPS/24HourFlex continues to perform as planned. Wealth management revenue grew almost 4% during the quarter as our advisors remained focused on proactive outreach to clients in our local footprint and nationwide.

On the banking side, we continued to see stable credit quality, strengthening local economies and low levels of loan deferrals during the quarter. Our reserve levels remain very robust at over 2% of loans (excluding Paycheck Protection Program, or PPP). In addition, we saw a modest uptick in commercial line utilization, solid loan demand, and building pipelines.

In addition to our emphases on growth, we are also focused on technology investments. Over the last several years, we have invested in new technology for both our business and consumer clients, and now, we continue to develop robotics and other automation processes to improve our efficiency and support our ongoing growth initiatives. Today, we have 26 automated process robots in production across our organization. Many of these robots were developed within the last year to support unprecedented mortgage volume and new loans under the PPP. Furthermore, we recently became one of 66 limited partners in a fund focused on the acceleration of technology for community banks. We believe this is a valued partnership that will allow us to stay abreast of emerging technology trends in the community banking landscape.

Also in the first quarter, we redeemed our previously issued subordinated debt with a rate of 5.75% and refinanced with subordinated debt issued to the Bank of North Dakota with an initial fixed annual rate of 3.50%. Our capital levels remain strong and we believe we have strong capital return potential with our proven ability to execute accretive M&A, our history of strong dividend yields, and our newly approved stock buyback plan. We believe our ability to execute a diversified business model in tandem with our strong financial foundation will maximize stockholder value long-term.”

Quarterly Highlights

• Return on average total assets of 2.02%, compared to 1.34% for the fourth quarter of 2020
• Return on average tangible common equity⁽¹⁾ of 23.03%, compared to 15.13% for the fourth quarter of 2020
• Net interest margin (tax-equivalent)⁽¹⁾ was 3.12%, compared to 3.23% for the fourth quarter of 2020
• Allowance for loan losses to total loans, excluding Paycheck Protection Program, or PPP, loans, was 2.01%, compared to 2.00% as of December 31, 2020
• Efficiency ratio⁽¹⁾ of 66.43%, compared to 74.44% for the fourth quarter of 2020
• Noninterest income increased $2.2 million and was 64.97% of total revenue, compared to 62.57% for the fourth quarter of 2020
• Mortgage originations totaled $518.0 million, a 14.7% decrease from the fourth quarter of 2020
• Investment securities increased $202.8 million, or 34.2%, from the fourth quarter of 2020
• Loans held for sale decreased $43.8 million, or 35.8%, from the fourth quarter of 2020
• Loans held for investment decreased $42.0 million, or 2.1%, from the fourth quarter of 2020
• Deposits increased $145.6 million, or 5.7%, from the fourth quarter of 2020

(1) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Selected Financial Data (unaudited)
		As of and for the
		Three months ended
		March 31,				December 31,				March 31,
(dollars and shares in thousands, except per share data)		2021				2020				2020
Performance Ratios
Return on average total assets			2.02	%			1.34	%			0.89	%
Return on average common equity			18.46	%			12.30	%			7.32	%
Return on average tangible common equity (1)			23.03	%			15.13	%			9.76	%
Noninterest income as a % of revenue			64.97	%			62.57	%			59.07	%
Net interest margin (tax-equivalent) (1)			3.12	%			3.23	%			3.35	%
Efficiency ratio (1)			66.43	%			74.44	%			77.47	%
Net charge-offs/(recoveries) to average loans			0.10	%			(0.30	)%			(0.14	)%
Dividend payout ratio			17.44	%			26.32	%			50.00	%
Per Common Share
Earnings per common share – basic		$	0.87			$	0.58			$	0.31
Earnings per common share – diluted		$	0.86			$	0.57			$	0.30
Dividends declared per common share		$	0.15			$	0.15			$	0.15
Tangible book value per common share (1)		$	15.95			$	16.00			$	14.55
Average common shares outstanding – basic			17,145				17,122				17,070
Average common shares outstanding – diluted			17,465				17,450				17,405
Other Data
Retirement and benefit services assets under administration/management		$	34,774,650			$	34,199,954			$	27,718,026
Wealth management assets under administration/management			3,357,530				3,338,594				2,746,052
Mortgage originations			518,014				607,166				228,568

(1) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Results of Operations

Net Interest Income

Net interest income for the first quarter of 2021 was $22.0 million, a decrease of $1.1 million, or 4.8%, from $23.2 million for the fourth quarter of 2020, and an increase of $3.2 million, or 17.0%, from $18.8 million for the first quarter of 2020. The linked quarter decrease in net interest income was primarily driven by a $2.0 million decrease in interest income from loans, the largest component of which was an $854 thousand decrease on interest and loan fees recognized on PPP loans. During the first quarter of 2021, average interest earning assets increased $10.5 million, primarily due to increases of $113.2 million in investment securities and $20.3 million in interest-bearing deposits with banks, partially offset by decreases of $82.5 million in loans held for investment and $40.6 million in loans held for sale. The change in the balance sheet mix resulted in a 21 basis point decrease in the average earning asset yield. The cost of interest-bearing liabilities decreased 16 basis points from the fourth quarter of 2020 primarily due to continued downward repricing of time deposits. The balance in average long-term liabilities decreased $33.0 million due to the redemption of a $50.0 million subordinated note that was completed on January 29, 2021. On March 30, 2021, we issued a $50.0 million subordinated note to the Bank of North Dakota, and as a result we anticipate the average balance of long-term liabilities to increase in the second quarter of 2021.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 3.12% for the first quarter of 2021, an 11 basis point decrease from 3.23% for the fourth quarter of 2020, and a 23 basis point decrease from 3.35% in the first quarter of 2020. The linked quarter decrease was primarily due to lower yields on interest earning assets, partially offset by lower rates on interest-bearing liabilities. Excluding PPP loans, net interest margin was 2.95% for the first quarter of 2021, an 8 basis point decrease from 3.03% for the fourth quarter of 2020. The year over year decrease was primarily attributable to the historically low and flat yield curve and a more liquid balance sheet mix which resulted in a 81 basis point decrease in interest earning asset yields and compressed net interest margin.

Noninterest Income

Noninterest income for the first quarter of 2021 was $40.9 million, a $2.2 million, or 5.6%, increase from the fourth quarter of 2020. The increase was primarily driven by a $1.3 million increase in retirement and benefit services revenue, a $351 thousand increase in mortgage banking revenue, and a $219 thousand increase in other noninterest income. The increase in retirement and benefit services income was primarily driven by the revenue attributable to the acquisition of Retirement Planning Services, Inc. (doing business as RPS Plan Administrators and 24HourFlex). The increase in mortgage banking revenue was primarily a result of a $3.0 million increase in the change in fair market value of the secondary market hedge, partially offset by a 28 basis point decrease in the gain on sale margin.

Noninterest income for the first quarter of 2021 increased $13.7 million, or 50.4%, from $27.2 million in the first quarter of 2020. This increase was primarily due to a $12.1 million increase in mortgage banking revenue, as mortgage originations increased from $228.6 million in the first quarter of 2020 to $518.0 million in the first quarter of 2021, and a $1.6 million increase in the change in fair market value of the secondary market hedge.

Noninterest Expense

Noninterest expense for the first quarter of 2021 was $43.0 million, a decrease of $4.1 million, or 8.7%, compared to the fourth quarter of 2020. The decrease was primarily due to decreases of $2.8 million in compensation expense, $659 thousand in business services, software and technology expense, $506 thousand in other noninterest expense, and $458 thousand in mortgage and lending expenses, partially offset by an $851 thousand increase in employee taxes and benefits driven by seasonally higher payroll related taxes. The decrease in compensation expense was primarily due to a decrease in mortgage related compensation and incentives.

Noninterest expense for the first quarter of 2021 increased $6.3 million, or 17.2%, from $36.7 million in the first quarter of 2020. The increase was primarily attributable to increased compensation expense, employee taxes and benefits and mortgage and lending expenses, primarily as a result of the significant year over year increase in mortgage originations. Additional compensation expense and employee taxes and benefits also increased as a result of the acquisition of RPS.

Financial Condition

Total assets were $3.2 billion as of March 31, 2021, an increase of $138.0 million, or 4.6%, from December 31, 2020. The overall increase in total assets included increases of $202.8 million in available-for-sale investment securities and $17.3 million in cash and cash equivalents, partially offset by a $43.8 million decrease in loans held for sale and a $42.0 million decrease in loans held for investment.

Loans

Total loans were $1.94 billion as of March 31, 2021, a decrease of $42.0 million, or 2.1%, from December 31, 2020. The decrease was primarily due to a $13.8 million decrease in the commercial and industrial loan portfolio, as approximately $93.6 million of PPP loans were forgiven, and $83.4 million of new PPP loans were originated and funded. The consumer loan portfolio decreased $30.7 million from December 31, 2020, due to high levels of refinancing and our strategic exit from indirect lending.

The following table presents the composition of our loan portfolio as of the dates indicated:

		March 31,			December 31,			September 30,			June 30,			March 31,
(dollars in thousands)		2021			2020			2020			2020			2020
Commercial
Commercial and industrial (1)		$	678,029		$	691,858		$	789,036		$	794,204		$	502,637
Real estate construction			40,473			44,451			33,169			31,344			25,487
Commercial real estate			569,451			563,007			535,216			519,104			522,106
Total commercial			1,287,953			1,299,316			1,357,421			1,344,652			1,050,230
Consumer
Residential real estate first mortgage			454,958			463,370			469,050			456,737			457,895
Residential real estate junior lien			130,299			143,416			152,487			154,351			170,538
Other revolving and installment			64,135			73,273			79,461			78,457			79,614
Total consumer			649,392			680,059			700,998			689,545			708,047
Total loans		$	1,937,345		$	1,979,375		$	2,058,419		$	2,034,197		$	1,758,277

(1) Includes PPP loans of $256.8 million at March 31, 2021, $268.4 million at December 31, 2020, $348.9 million at September 30, 2020 and $347.3 million at June 30, 2020.

Deposits

Total deposits were $2.72 billion as of March 31, 2021, an increase of $145.6 million, or 5.7%, from December 31, 2020. Interest-bearing deposits increased $124.9 million while noninterest-bearing deposits increased $20.7 million. Key drivers of the increase included inflows from government stimulus programs and higher depositor balances due to the uncertain economic environment and volatile financial markets. The increase in interest-bearing deposits included increases of $55.6 million in interest-bearing demand deposits, a $58.1 million increase in money market accounts, a $7.6 million increase in savings accounts and a $3.6 million increase in time deposits. Although overall deposits increased, there was a $26.6 million decrease in synergistic deposits, primarily in the retirement and benefit services money market accounts. Excluding synergistic deposits, commercial transaction deposits increased $135.2 million, or 12.2%, while consumer transaction deposits increased $24.3 million, or 3.8%, since December 31, 2020. Noninterest-bearing deposits as a percentage of total deposits was 28.5% as of March 31, 2021 compared to 29.3% as of December 31, 2020.

The following table presents the composition of our deposit portfolio as of the dates indicated:

		March 31,			December 31,			September 30,			June 30,			March 31,
(dollars in thousands)		2021			2020			2020			2020			2020
Noninterest-bearing demand		$	775,434		$	754,716		$	693,450		$	700,892		$	608,559
Interest-bearing
Interest-bearing demand			674,466			618,900			590,366			579,840			477,752
Savings accounts			87,492			79,902			78,659			75,973			60,181
Money market savings			967,273			909,137			892,473			892,717			773,652
Time deposits			212,908			209,338			207,422			203,731			201,370
Total interest-bearing			1,942,139			1,817,277			1,768,920			1,752,261			1,512,955
Total deposits		$	2,717,573		$	2,571,993		$	2,462,370		$	2,453,153		$	2,121,514

Asset Quality

Total nonperforming assets were $4.9 million as of March 31, 2021, a decrease of $248 thousand, or 4.8%, from December 31, 2020. As of March 31, 2021, the allowance for loan losses was $33.8 million, or 1.74% of total loans, compared to $34.2 million, or 1.73% of total loans, as of December 31, 2020. Excluding PPP loans, the ratio of allowance for loan losses to total loans was 2.01% as of March 31, 2021, compared to 2.00% as of December 31, 2020.

The following table presents selected asset quality data as of and for the periods indicated:

		As of and for the three months ended
		March 31,				December 31,				September 30,				June 30,				March 31,
(dollars in thousands)		2021				2020				2020				2020				2020
Nonaccrual loans		$	4,756			$	5,050			$	4,795			$	5,328			$	6,959
Accruing loans 90+ days past due			—				30				—				—				11
Total nonperforming loans			4,756				5,080				4,795				5,328				6,970
OREO and repossessed assets			139				63				10				26				209
Total nonperforming assets		$	4,895			$	5,143			$	4,805			$	5,354			$	7,179
Net charge-offs/(recoveries)			488				(1,509	)			(581	)			3,264				(595	)
Net charge-offs/(recoveries) to average loans			0.10	%			(0.30	)%			(0.11	)%			0.66	%			(0.14	)%
Nonperforming loans to total loans			0.25	%			0.26	%			0.23	%			0.26	%			0.40	%
Nonperforming assets to total assets			0.16	%			0.17	%			0.17	%			0.19	%			0.29	%
Allowance for loan losses to total loans			1.74	%			1.73	%			1.52	%			1.34	%			1.54	%
Allowance for loan losses to nonperforming loans			710	%			674	%			654	%			512	%			388	%

For the first quarter of 2021, we had net charge-offs of $488 thousand compared to net recoveries of $1.5 million for the fourth quarter of 2020 and $595 thousand for the first quarter of 2020. The net charge-offs for the first quarter of 2021 were primarily due to a $452 thousand charge-off related to one commercial real estate client. Management does not believe that this charge-off was a result of economic uncertainties in the current environment.

The provision for loan losses for the first quarter of 2021 was zero, a decrease of $1.4 million from the fourth quarter of 2020 and a decrease of $2.5 million from the first quarter of 2020. Management decided additional provisions were not necessary in the first quarter of 2021 as credit quality indicators remained strong and loan balances decreased.

The ratio of nonperforming loans to total loans at March 31, 2021 was 0.25%, and if PPP loans were excluded, this ratio would have been 0.28%. Nonperforming assets as a percentage of total assets was 0.16% at March 31, 2021. Excluding PPP loans, nonperforming assets as a percentage of total assets would have been 0.17% at March 31, 2021.

Beginning in 2020, in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, through March 31, 2021, we had entered into principal and interest deferrals on 582 loans, representing $154.0 million in total outstanding principal balances. Of those loans, 16 loans with a total outstanding principal balance of $7.6 million have been granted additional deferrals, 6 loans with a total outstanding principal balance of $767 thousand remain on the first deferral and the remaining loans have been returned to normal payment status. These loan modifications are not considered troubled debt restructurings.

Capital

Total stockholders’ equity was $329.2 million as of March 31, 2021, a decrease of $929 thousand from December 31, 2020. The tangible book value per common share, a non-GAAP financial measure, decreased to $15.95 as of March 31, 2021, from $16.00 as of December 31, 2020. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 8.86% as of March 31, 2021, from 9.27% as of December 31, 2020, primarily due to a $13.6 million decrease in accumulated other comprehensive income. The tangible common equity to tangible assets ratio, a non-GAAP financial measure, excluding PPP loans, was 9.66% as of March 31, 2021.

The following table presents our capital ratios as of the dates indicated:

		March 31,			December 31,			March 31,
		2021			2020			2020
Capital Ratios(1)
Alerus Financial Corporation Consolidated
Common equity tier 1 capital to risk weighted assets			13.48	%		12.75	%		12.36	%
Tier 1 capital to risk weighted assets			13.88	%		13.15	%		12.78	%
Total capital to risk weighted assets			17.54	%		16.79	%		16.55	%
Tier 1 capital to average assets			9.59	%		9.24	%		10.62	%
Tangible common equity / tangible assets (2)			8.86	%		9.27	%		10.09	%
Alerus Financial, N.A.
Common equity tier 1 capital to risk weighted assets			12.80	%		12.10	%		11.80	%
Tier 1 capital to risk weighted assets			12.80	%		12.10	%		11.80	%
Total capital to risk weighted assets			14.06	%		13.36	%		13.05	%
Tier 1 capital to average assets			8.85	%		8.50	%		9.80	%

(1) Capital ratios for the current quarter are to be considered preliminary until the Call Report for Alerus Financial, N.A. is filed.

(2) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Conference Call

The Company will host a conference call at 9:00 a.m. Central Time on Thursday, April 29, 2021, to discuss its financial results. The call can be accessed via telephone at (888) 317-6016. A recording of the call and transcript will be available on the Company’s investor relations website at investors.alerus.com following the call.

About Alerus Financial Corporation

Alerus Financial Corporation is a diversified financial services company headquartered in Grand Forks, ND. Through its subsidiary, Alerus Financial, N.A., Alerus provides innovative and comprehensive financial solutions to business and consumer clients through four distinct business segments—banking, retirement and benefit services, wealth management, and mortgage. Alerus provides clients with a primary point of contact to help fully understand the unique needs and delivery channel preferences of each client. Clients are provided with competitive products, valuable insight and sound advice supported by digital solutions designed to meet the clients’ needs. Alerus Financial banking and wealth management offices are located in Grand Forks and Fargo, ND, the Minneapolis-St. Paul, MN metropolitan area, and Scottsdale and Mesa, AZ. Alerus Retirement and Benefits plan administration offices are located in St. Paul, MN, East Lansing, MI, and Littleton, CO.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized by U.S. Generally Accepted Accounting Principles, or GAAP. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio. Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measures are provided in the accompanying tables. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

These non-GAAP financial measures should not be considered in isolation or as a substitute for total stockholders’ equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Examples of forward-looking statements include, among others, statements we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management’s long-term performance goals and the future plans and prospects of Alerus Financial Corporation.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the effects of the COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, as well as any changes to federal, state, or local government laws, regulations, or orders in response to the pandemic; our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses; new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss Standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the composition of our executive management team and our ability to attract and retain key personnel; rapid technological change in the financial services industry; increased competition in the financial services industry; our ability to successfully manage liquidity risk; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; potential impairment to the goodwill we recorded in connection with our past acquisitions; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes; interest rate risks associated with our business; fluctuations in the values of the securities held in our securities portfolio; governmental monetary, trade and fiscal policies; severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 global pandemic, acts of war or terrorism or other adverse external events; any material weaknesses in our internal control over financial reporting; developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative rates; changes to U.S. tax laws, regulations and guidance; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of the reports filed by Alerus Financial Corporation with the Securities and Exchange Commission.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Alerus Financial Corporation and Subsidiaries Consolidated Balance Sheets (dollars and shares in thousands, except per share data)
		March 31,				December 31,
		2021				2020
Assets		(Unaudited)				(Audited)
Cash and cash equivalents		$	190,217			$	172,962
Investment securities, at fair value
Available-for-sale			795,097				592,342
Loans held for sale			78,665				122,440
Loans			1,937,345				1,979,375
Allowance for loan losses			(33,758	)			(34,246	)
Net loans			1,903,587				1,945,129
Land, premises and equipment, net			19,605				20,289
Operating lease right-of-use assets			6,293				6,918
Accrued interest receivable			9,271				9,662
Bank-owned life insurance			32,556				32,363
Goodwill			30,201				30,201
Other intangible assets			24,768				25,919
Servicing rights			1,952				1,987
Deferred income taxes, net			13,700				9,409
Other assets			45,844				44,150
Total assets		$	3,151,756			$	3,013,771
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	775,434			$	754,716
Interest-bearing			1,942,139				1,817,277
Total deposits			2,717,573				2,571,993
Long-term debt			59,020				58,735
Operating lease liabilities			7,140				7,861
Accrued expenses and other liabilities			38,789				45,019
Total liabilities			2,822,522				2,683,608
Stockholders’ equity
Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding			—				—
Common stock, $1 par value, 30,000,000 shares authorized: 17,190,481 and 17,125,270 issued and outstanding			17,190				17,125
Additional paid-in capital			90,520				90,237
Retained earnings			224,480				212,163
Accumulated other comprehensive income (loss)			(2,956	)			10,638
Total stockholders’ equity			329,234				330,163
Total liabilities and stockholders’ equity		$	3,151,756			$	3,013,771

Alerus Financial Corporation and Subsidiaries Consolidated Statements of Income (dollars and shares in thousands, except per share data)
		Three months ended
		March 31,			December 31,			March 31,
		2021			2020			2020
Interest Income		(Unaudited)			(Unaudited)			(Unaudited)
Loans, including fees		$	20,567		$	22,549		$	20,542
Investment securities
Taxable			2,401			2,301			1,759
Exempt from federal income taxes			236			237			235
Other			117			114			570
Total interest income			23,321			25,201			23,106
Interest Expense
Deposits			995			1,210			3,392
Long-term debt			288			838			877
Total interest expense			1,283			2,048			4,269
Net interest income			22,038			23,153			18,837
Provision for loan losses			—			1,400			2,500
Net interest income after provision for loan losses			22,038			21,753			16,337
Noninterest Income
Retirement and benefit services			17,255			15,922			16,220
Wealth management			4,986			4,807			4,046
Mortgage banking			17,132			16,781			5,045
Service charges on deposit accounts			338			334			423
Net gains (losses) on investment securities			114			15			—
Other			1,056			837			1,455
Total noninterest income			40,881			38,696			27,189
Noninterest Expense
Compensation			23,698			26,522			18,731
Employee taxes and benefits			5,813			4,962			5,308
Occupancy and equipment expense			2,231			2,443			2,492
Business services, software and technology expense			4,976			5,635			4,543
Intangible amortization expense			1,151			990			990
Professional fees and assessments			1,472			1,531			1,056
Marketing and business development			676			1,045			610
Supplies and postage			531			544			707
Travel			26			21			261
Mortgage and lending expenses			1,332			1,790			1,141
Other			1,136			1,642			887
Total noninterest expense			43,042			47,125			36,726
Income before income taxes			19,877			13,324			6,800
Income tax expense			4,662			3,144			1,437
Net income		$	15,215		$	10,180		$	5,363
Per Common Share Data
Earnings per common share		$	0.87		$	0.58		$	0.31
Diluted earnings per common share		$	0.86		$	0.57		$	0.30
Dividends declared per common share		$	0.15		$	0.15		$	0.15
Average common shares outstanding			17,145			17,122			17,070
Diluted average common shares outstanding			17,465			17,450			17,405

Alerus Financial Corporation and Subsidiaries Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures (unaudited) (dollars and shares in thousands, except per share data)
		March 31,				December 31,				March 31,
		2021				2020				2020
Tangible Common Equity to Tangible Assets
Total common stockholders’ equity		$	329,234			$	330,163			$	293,608
Less: Goodwill			30,201				30,201				27,329
Less: Other intangible assets			24,768				25,919				17,401
Tangible common equity (a)			274,265				274,043				248,878
Total assets			3,151,756				3,013,771				2,512,078
Less: Goodwill			30,201				30,201				27,329
Less: Other intangible assets			24,768				25,919				17,401
Tangible assets (b)			3,096,787				2,957,651				2,467,348
Tangible common equity to tangible assets (a)/(b)			8.86	%			9.27	%			10.09	%
Tangible Book Value Per Common Share
Total common stockholders’ equity		$	329,234			$	330,163			$	293,608
Less: Goodwill			30,201				30,201				27,329
Less: Other intangible assets			24,768				25,919				17,401
Tangible common equity (c)			274,265				274,043				248,878
Total common shares issued and outstanding (d)			17,190				17,125				17,106
Tangible book value per common share (c)/(d)		$	15.95			$	16.00			$	14.55

		Three months ended
		March 31,				December 31,				March 31,
		2021				2020				2020
Return on Average Tangible Common Equity
Net income		$	15,215			$	10,180			$	5,363
Add: Intangible amortization expense (net of tax)			909				782				782
Net income, excluding intangible amortization (e)			16,124				10,962				6,145
Average total equity			334,188				329,210				294,727
Less: Average goodwill			30,201				27,766				27,329
Less: Average other intangible assets (net of tax)			19,995				13,206				14,128
Average tangible common equity (f)			283,992				288,238				253,270
Return on average tangible common equity (e)/(f)			23.03	%			15.13	%			9.76	%
Net Interest Margin (tax-equivalent)
Net interest income		$	22,038			$	23,153			$	18,837
Tax-equivalent adjustment			143				131				100
Tax-equivalent net interest income (g)			22,181				23,284				18,937
Average earning assets (h)			2,880,255				2,869,767				2,271,004
Net interest margin (tax-equivalent) (g)/(h)			3.12	%			3.23	%			3.35	%
Efficiency Ratio
Noninterest expense		$	43,042			$	47,125			$	36,726
Less: Intangible amortization expense			1,151				990				990
Adjusted noninterest expense (i)			41,891				46,135				35,736
Net interest income			22,038				23,153				18,837
Noninterest income			40,881				38,696				27,189
Tax-equivalent adjustment			143				131				100
Total tax-equivalent revenue (j)			63,062				61,980				46,126
Efficiency ratio (i)/(j)			66.43	%			74.44	%			77.47	%

Alerus Financial Corporation and Subsidiaries Analysis of Average Balances, Yields, and Rates (unaudited) (dollars in thousands)
		Three months ended
		March 31, 2021						December 31, 2020						March 31, 2020
					Average						Average						Average
		Average			Yield/			Average			Yield/			Average			Yield/
		Balance			Rate			Balance			Rate			Balance			Rate
Interest Earning Assets
Interest-bearing deposits with banks		$	184,376		0.12	%		$	164,052		0.12	%		$	163,351		1.24	%
Investment securities (1)			662,413		1.65	%			549,198		1.88	%			337,160		2.45	%
Loans held for sale			82,249		2.13	%			122,820		2.18	%			33,138		3.08	%
Loans
Commercial:
Commercial and industrial			674,935		4.72	%			745,415		4.91	%			479,291		5.26	%
Real estate construction			45,264		4.22	%			40,009		4.31	%			26,723		5.03	%
Commercial real estate			560,986		3.79	%			545,432		3.82	%			508,164		4.61	%
Total commercial			1,281,185		4.30	%			1,330,856		4.45	%			1,014,178		4.93	%
Consumer
Residential real estate first mortgage			457,882		3.76	%			471,125		3.73	%			460,726		4.10	%
Residential real estate junior lien			137,745		4.86	%			149,456		4.72	%			173,436		5.17	%
Other revolving and installment			68,625		4.38	%			76,466		4.53	%			83,253		4.69	%
Total consumer			664,252		4.05	%			697,047		4.03	%			717,415		4.43	%
Total loans (1)			1,945,437		4.21	%			2,027,903		4.30	%			1,731,593		4.72	%
Federal Reserve/FHLB stock			5,780		4.49	%			5,794		4.46	%			5,762		4.75	%
Total interest earning assets			2,880,255		3.30	%			2,869,767		3.51	%			2,271,004		4.11	%
Noninterest earning assets			167,006						158,417						148,661
Total assets		$	3,047,261					$	3,028,184					$	2,419,665
Interest-Bearing Liabilities
Interest-bearing demand deposits		$	642,832		0.16	%		$	622,854		0.19	%		$	459,028		0.46	%
Money market and savings deposits			1,030,348		0.16	%			1,012,497		0.20	%			803,838		1.04	%
Time deposits			210,719		0.66	%			208,378		0.79	%			199,088		1.59	%
Long-term debt			25,677		4.55	%			58,726		5.68	%			58,755		6.00	%
Total interest-bearing liabilities			1,909,576		0.27	%			1,902,455		0.43	%			1,520,709		1.13	%
Noninterest-Bearing Liabilities and Stockholders’ Equity
Noninterest-bearing deposits			731,680						738,319						564,307
Other noninterest-bearing liabilities			71,817						58,200						39,922
Stockholders’ equity			334,188						329,210						294,727
Total liabilities and stockholders’ equity		$	3,047,261					$	3,028,184					$	2,419,665
Net interest rate spread					3.03	%					3.08	%					2.98	%
Net interest margin, tax-equivalent (2)					3.12	%					3.23	%					3.35	%

(1) Taxable-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0%.

(2) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

View source version on businesswire.com: https://www.businesswire.com/news/home/20210428005786/en/

Katie A. Lorenson, Chief Financial Officer

952.417.3725 (Office)

KEYWORDS: United States North America North Dakota Minnesota

INDUSTRY KEYWORDS: Banking Professional Services Finance

MEDIA:

Posted on April 28, 2021 4:03 pm

First Northwest Bancorp Earns $3.1 Million, or $0.34 Per Diluted Share, in First Quarter 2021; Highlighted by Net Interest Margin Expansion and Strong Asset Quality; Declares Quarterly Cash Dividend of $0.06 Per Share

PORT ANGELES, Wash., April 28, 2021 (GLOBE NEWSWIRE) — First Northwest Bancorp (Nasdaq: FNWB) (“Company”), the holding company for First Federal Savings and Loan Association of Port Angeles (“Bank” or “First Fed”), today reported that net income increased 257.6% to $3.1 million, or $0.34 per diluted share, for the first quarter of 2021, compared to $873,000, or $0.09 per diluted share, for the first quarter a year ago, and decreased compared to net income of $3.8 million, or $0.41 per diluted share, for the fourth quarter of 2020. First quarter results reflected strong year-over-year revenue growth, core deposit growth and net interest margin expansion. The decrease from the prior period was primarily due to lower gains on sale of one-to-four family mortgages and available for sale investments, partially offset by increased net interest income and a lower provision for loan losses. The Company also announced that its Board of Directors declared a regular quarterly cash dividend of $0.06 per common share outstanding, payable on May 28, 2021 to shareholders of record as of the close of business on May 14, 2021.

“First Northwest Bancorp’s first quarter operating results were highlighted by strong revenue generation fueled by solid net interest income and core deposit growth,” stated Matthew P. Deines, President and CEO. “Despite ongoing pressures on loan and investment yields, net interest income increased $4.1 million, or 43.3%, over the first quarter of 2020, boosted by growth in earning assets, $362,000 in Paycheck Protection Program (“PPP”) income and a significant decline in cost of funds. We continue to generate organic commercial and consumer activity as we support our communities through an emerging recovery.”

“We are actively participating in the SBA’s current round of PPP funding that began in January 2021 and concludes at the end of May,” said Deines. “This round of SBA funding offers PPP loans for companies that did not receive a PPP loan in 2020, and also “second draw” loans targeted at hard-hit businesses that have already used their initial PPP proceeds. We funded $32.4 million in second round PPP loans during the first quarter of 2021.”

First Quarter 2021 Highlights (at or for the quarter ended March 31, 2021)

• First quarter net income was $3.1 million, compared to $3.8 million in the preceding quarter and $873,000 in the year ago quarter.
• Diluted earnings per share was $0.34, compared to $0.41 per share in the preceding quarter and $0.09 per share in the first quarter a year ago.
• Provision for loan losses was $500,000 in the first quarter, compared to $930,000 in the fourth quarter of 2020 and $1.3 million in the first quarter of 2020.
• Loans receivable increased 1.3% to $1.16 billion at March 31, 2021, compared to $1.14 billion at December 31, 2020, and increased 28.6% compared to $899.2 million a year ago, primarily due to growth in commercial real estate and commercial business loans, including PPP loans.
• Deposits increased 7.6% during the quarter and increased 34.9% from one year prior, to $1.43 billion at March 31, 2021, due to successful organic and wholesale deposit-gathering strategies, including significant growth in noninterest-bearing deposits, which increased 76.8% in the last twelve months. Deposit balances benefitted from a second round of PPP and additional Federal stimulus payments during the quarter.
• The cost of deposits for the first quarter decreased to 0.27% from 0.33% for fourth quarter 2020 and 0.85% in the first quarter of 2020.
• Gain on sale of mortgage loans was $1.3 million for the first quarter compared to $2.3 million in the previous quarter and $383,000 in the first quarter of 2020, reflecting a modest slowdown in activity from the fourth quarter of 2020 and strong year-over-year quarterly mortgage originations, including refinance activity.
• During the first quarter, the Company repurchased 135,837 shares of common stock at an average price of $15.89 per share for a total of $2.2 million, leaving 872,030 shares remaining under the 2020 Stock Repurchase Plan approved in October 2020.

Recent Developments

On March 22, 2021 the Company announced that First Fed has entered into an agreement with Sterling Bank and Trust of Southfield, Michigan to purchase its Bellevue, Washington branch, subject to applicable regulatory approvals and other customary closing conditions. The agreement includes the purchase of approximately $77.7 million in deposits as of the announcement date. First Fed expects to close the transaction by the end of the second quarter of 2021.

On April 16, 2021, the Company issued 29,719 shares of the Company’s common stock under the terms of an Amended and Restated Joint Venture Agreement dated April 15, 2021 (the “Joint Venture Agreement”) with the Bank, POM Peace of Mind, Inc. (“POM”), and Quin Ventures, Inc. (“Quin”). The shares were issued to POM and had a value of approximately $500,000. Under the Joint Venture Agreement, the Company and POM have established Quin to develop a digital financial wellness platform that will offer personal financial services to the general public. Under a related Marketing and Banking Services Agreement, Quin will promote the services offered through the digital financial wellness platform and the Bank will provide banking services to the customers who utilize the platform. The Marketing and Banking Services Agreement sets forth the terms governing the parties’ commercial and economic commitments and responsibilities, including the fees to be paid by the Bank to fund the costs of acquiring customers and the distribution of interchange fees. The Company has also committed to extend $15.0 million to Quin under a capital financing agreement and related promissory note.

Balance Sheet Review

Total assets increased $81.9 million, or 5.0%, to $1.74 billion at March 31, 2021, compared to $1.65 billion at December 31, 2020, and increased $339.4 million, or 24.3%, compared to $1.40 billion at March 31, 2020.

Cash and cash equivalents increased by $34.1 million, or 52.4%, to $99.3 million as of March 31, 2021, compared to $65.2 million as of December 31, 2020, as the result of gross proceeds of $40.0 million from the issuance of subordinated debt as well an increase in deposits of $101.3 million offset by increases to investment securities and loans receivable.

Investment securities increased $29.2 million to $393.5 million at March 31, 2021, compared to $364.3 million three months earlier, and increased $76.0 million compared to $317.5 million at March 31, 2020. At March 31, 2021, municipal bonds totaled $132.5 million and comprised the largest portion of the investment portfolio at 33.7%. The estimated average life of the total investment securities portfolio was 7.5 years, and the average repricing term was approximately 5.3 years.

“We continue to utilize the investment portfolio as a means to generate additional interest income,” said Geri Bullard, EVP/Chief Financial Officer. “We began adding to the investment portfolio a year ago as credit spreads widened, to deploy excess cash and prudently manage the balance sheet.”

Securities consisted of the following at the dates indicated:

		March 31, 2021				December 31, 2020				March 31, 2020				Three Month Change				One Year Change
		(In thousands)
Available for Sale at Fair Value
Municipal bonds		$	132,492			$	127,862			$	52,254			$	4,630			$	80,238
U.S. government and agency issued bonds (Agency bonds)			1,913				—				—				1,913				1,913
U.S. government agency issued asset-backed securities (ABS agency)			65,910				63,820				42,125				2,090				23,785
Corporate issued asset-backed securities (ABS corporate)			17,505				29,280				34,073				(11,775	)			(16,568	)
Corporate issued debt securities (Corporate debt)			43,890				35,510				9,439				8,380				34,451
U.S. Small Business Administration securities (SBA)			17,566				18,564				25,363				(998	)			(7,797	)
Mortgage-backed securities:
U.S. government agency issued mortgage-backed securities (MBS agency)			74,016				62,683				145,139				11,333				(71,123	)
Corporate issued mortgage-backed securities (MBS corporate)			40,203				26,577				9,127				13,626				31,076
Total securities available for sale		$	393,495			$	364,296			$	317,520			$	29,199			$	75,975

Net loans, excluding loans held for sale, increased $14.5 million, or 1.3%, to $1.16 billion at March 31, 2021, from $1.14 billion at December 31, 2020, and increased $257.3 million, or 28.6%, from $899.2 million a year ago. “Our lending team did an excellent job growing the loan portfolio despite a competitive operating environment, with total loans increasing 28.6% over the last twelve months,” said Randy Riffle, EVP/Chief Lending Officer. “Additionally, new PPP loan production from the SBA’s latest round contributed meaningfully to loan production, with $32.4 million in new PPP loans funded during the first quarter.” Commercial business loans decreased $17.2 million during the quarter as the result of a decrease of $41.6 million in the Northpointe Mortgage Participation program offset by an increase of $24.7 in PPP loans.

The Company originated $66.3 million in residential mortgages during the quarter and sold $37.0 million, with an average gross margin on sale of mortgage loans of approximately 2.85%. This production compares to residential mortgage originations of $95.7 million in the preceding quarter with sales of $59.3 million, with an average gross margin of 3.01%. “Mortgage banking activity exceeded the first quarter of 2020, bucking seasonal trends, especially for refinances of existing mortgages as interest rates remain historically low,” said Kelly Liske, Chief Banking Officer.

Loans receivable consisted of the following at the dates indicated:

		March 31, 2021				December 31, 2020				March 31, 2020				Three Month Change				One Year Change
		(In thousands)
Real Estate:
One to four family		$	295,831			$	309,828			$	302,688			$	(13,997	)		$	(6,857	)
Multi-family			162,487				162,467				88,794				20				73,693
Commercial real estate			296,826				296,574				260,321				252				36,505
Construction and land			157,316				123,627				48,565				33,689				108,751
Total real estate loans			912,460				892,496				700,368				19,964				212,092
Consumer:
Home equity			33,713				33,103				35,260				610				(1,547	)
Auto and other consumer			139,134				128,233				114,194				10,901				24,940
Total consumer loans			172,847				161,336				149,454				11,511				23,393
Commercial business			83,033				100,201				55,853				(17,168	)			27,180
Total loans			1,168,340				1,154,033				905,675				14,307				262,665
Less:
Net deferred loan fees			4,983				4,346				433				637				4,550
Premium on purchased loans, net			(7,347	)			(6,129	)			(4,742	)			(1,218	)			(2,605	)
Allowance for loan losses			14,265				13,847				10,830				418				3,435
Total loans receivable, net		$	1,156,439			$	1,141,969			$	899,154			$	14,470			$	257,285

The sectors most heavily impacted by the pandemic include hospitality; restaurant and food services; and lessors of commercial real estate to these businesses. The table below presents selected information on loans to these industries as of March 31, 2021.

Industry	% of Total Loan Portfolio			Loan Balance			Number of Loans			Average Loan-to-Value
				(In thousands)
Hospitality	4.4	%		$50,332			14			60.6	%
Restaurant and food services	0.2			1,907			6			64.8
Lessors of commercial real estate to hospitality, restaurant, and retail establishments	4.3			48,103			27			52.3

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
December 31, 2020	0.2			2,349			19
March 31, 2021	0.7			8,052			4

Total deposits increased $101.3 million, or 7.6%, to $1.43 billion at March 31, 2021, compared to $1.33 billion at December 31, 2020, and increased $370.9 million, or 34.9%, when compared to $1.06 billion a year ago. Savings accounts increased 12.3% compared to a year ago to $186.2 million at March 31, 2021, and represented 13.0% of total deposits; transaction accounts increased 62.8% compared to a year ago to $466.1 million at March 31, 2021, and represented 32.5% of total deposits; money market accounts increased 95.6% compared to a year ago to $495.3 million, and represented 34.5% of total deposits; and certificates of deposit decreased 19.9% compared to a year ago to $287.2 million at quarter-end, and represented 20.0% of total deposits.

“Deposit balances remain at record levels as we experienced growth with existing customers and developed new deposit relationships,” said Bullard. “We strategically increased noninterest-bearing and other core deposits to manage overall funding costs. We lowered our total cost of funds over the quarter by shifting our deposit mix more toward non-maturity deposits.” Total cost of funds improved to 0.32% for the first quarter of 2021 compared to 0.38% for the fourth quarter of 2020.

Deposits consisted of the following at the dates indicated:

		March 31, 2021			December 31, 2020			March 31, 2020			Three Month Change				One Year Change
		(In thousands)
Savings		$	186,173		$	164,434		$	165,747		$	21,739			$	20,426
Transaction accounts			466,143			431,171			286,283			34,972				179,860
Money market accounts			495,265			429,143			253,198			66,122				242,067
Certificates of deposit			287,226			308,769			358,677			(21,543	)			(71,451	)
Total deposits		$	1,434,807		$	1,333,517		$	1,063,905		$	101,290			$	370,902

On March 25, 2021, the Company completed its private placement of $40.0 million of 3.75% fixed-to-floating rate subordinated notes due 2031 (the “Notes”) to certain qualified institutional buyers and accredited investors. The Notes have been structured to qualify as Tier 2 capital for the Company for regulatory capital purposes. The Company intends to use the net proceeds of the offering for general corporate purposes and provided $20.0 million to the Bank as Tier 1 capital. “We believe this capital will serve us well as we continue to grow the Company and enhance our footprint and product offerings,” said Deines.

Total shareholders’ equity was $182.1 million at March 31, 2021, compared to $186.4 million three months earlier, and $167.2 million a year earlier. The decrease in equity was driven by reduced other comprehensive income of $5.2 million due to a decrease in the unrealized gain on investments of $3.5 million and a $1.7 million adjustment reflecting the recognition of prior service cost related to First Fed’s transfer out of a multiemployer pension plan into a single employer plan. The decrease in equity compared to the prior quarter was also a result of stock buybacks during the first quarter of 2021. Book value per common share was $17.86 at March 31, 2021, compared to $18.20 at December 31, 2020 and $16.02 at March 31, 2020.

Operating Results

In the first quarter of 2021, the Company generated a return on average assets (“ROAA”) of 0.76%, and a return on average equity (“ROAE”) of 6.70%, compared to 0.97% and 8.32%, respectively, in the fourth quarter of 2020, and 0.27% and 1.94%, respectively, in the first quarter a year ago.

Total interest income increased to $14.6 million for the first quarter of 2021, compared to $14.0 million in the previous quarter and $12.0 million in the first quarter of 2020. Interest and fees on loans increased due to loan growth compared to the prior quarter. Quarter over quarter, the yield on average loans receivable increased by 2 basis points. Total interest expense was $1.2 million for the first quarter of 2021, compared to $1.3 million in the fourth quarter of 2020, and $2.6 million in the first quarter a year ago. The decrease in interest expense was due to the decline in the cost of total deposits to 27 basis points from 34 basis points in the prior quarter and 85 basis points the first quarter one year ago.

Net interest income, before provision for loan losses, increased 6.4% during the quarter to $13.5 million, compared to $12.7 million for the preceding quarter, and increased 43.3% compared to $9.4 million in the first quarter a year ago. “The first round of PPP expired on August 8, 2020, and as of March 31, 2021, we received from the SBA proceeds on forgiven loans totaling $16.6 million. Approximately $177,000 of the income recognized during the first quarter was related to deferred fees associated with PPP loan payoffs, compared to $182,000 of the income related to deferred fees associated with PPP loan payoffs in the prior quarter,” added Riffle.

While asset quality improved during the last twelve months, additional loan growth and the anticipated impact of the COVID-19 pandemic on local businesses resulted in a $500,000 provision for loan losses during the first quarter of 2021. This compares to a provision for loan losses of $930,000 for the preceding quarter, and a provision for loan losses of $1.3 million for the first quarter of 2020.

The net interest margin expanded 2 basis point to 3.48% for the first quarter of 2021, compared to 3.46% for the fourth quarter of 2020, and increased 37 basis points compared to 3.11% for the first quarter in 2020. “Despite a challenging interest rate environment, our earning asset mix enhancements as well as substantially reducing our cost of funds helped increase our net interest margin over the past twelve months,” said Bullard.

The yield on earning assets decreased 3 basis points to 3.78% for the first quarter of 2021, compared to 3.81% for the fourth quarter of 2020, and decreased 19 basis points from 3.97% for the first quarter of 2020. The decrease was due to lower yields on the investment portfolio and loans, which was offset by higher average loan balances. The yield on the loan portfolio increased to 4.43% for the first quarter of 2021, from 4.41% for the fourth quarter of 2020, and decreased from 4.52% for the first quarter of 2020 due to a decline in the overall rate environment. The cost of interest-bearing liabilities decreased 7 basis points to 0.40% for the first quarter of 2021, compared to 0.47% for the fourth quarter of 2020, and decreased 71 basis points from 1.11% for the first quarter in 2020.

Noninterest income decreased 41.7% to $2.7 million for the first quarter of 2021 from $4.6 million for the fourth quarter of 2020 and increased 16.7% compared to $2.3 million for the first quarter a year ago. The first quarter of 2021 included a $1.3 million gain on sale of loans compared to a $2.3 million gain on sale of loans in the preceding quarter and a $383,000 gain on sale of loans in the first quarter a year ago. Noninterest income growth during the fourth quarter of 2020 also included a $912,000 gain on sale of investment securities. Loan and deposit service fees, the second largest component of noninterest income, totaled $837,000 for the first quarter 2021, compared to $940,000 for the preceding quarter and $881,000 for the first quarter a year ago.

Noninterest expense totaled $12.1 million for the first quarter of 2021, compared to $11.7 million for the preceding quarter and $9.4 million for the first quarter a year ago. The quarterly increase reflects higher compensation expense, including salaries, commissions and benefits. Also impacting operating expenses for the first quarter was the implementation of new technology enhancements for loan and deposit account applications through the use of digital and mobile banking products.

Capital Ratios and Credit Quality

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, 2021. Common Equity Tier 1 and Total Risk-Based Capital Ratios at March 31, 2021, were 15.1 % and 16.3%, respectively. The Company distributed $20.0 million to the Bank as Tier 1 capital.

Nonperforming loans decreased to $2.1 million at March 31, 2021, from $2.3 million at December 31, 2020. The percentage of the allowance for loan losses to nonperforming loans increased to 668.1%, at March 31, 2021, from 609.2% at December 31, 2020, and 622.4% at March 31, 2020. Classified loans increased $6.6 million during the current quarter to $14.1 million at March 31, 2021, due to one substandard commercial real estate loan. The allowance for loan losses as a percentage of total loans was 1.2% at March 31, 2021, which was unchanged compared to three months and one year earlier.

About the Company

First Northwest is a bank holding company that primarily engages in the business activity of its subsidiary, First Fed. First Fed is a community-oriented financial institution serving Clallam, Jefferson, Kitsap, Whatcom, and King counties in Washington, through its Seattle lending center and ten full-service branches. Our business and operating strategy is focused on building sustainable earnings through hiring experienced bankers, geographic expansion, diversifying our loan product mix, expanding our deposit product offerings that deliver value-added solutions, enhancing existing services and digital service delivery channels, and enhancing our infrastructure to support the changing needs and expectations of our customers.

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data) (Unaudited)

		March 31, 2021				December 31, 2020				March 31, 2020				Three Month Change				One Year Change
Assets
Cash and due from banks		$	15,827			$	13,508			$	15,531				17.2	%			1.9	%
Interest-bearing deposits in banks			83,444				51,647				91,633				61.6				-8.9
Investment securities available for sale, at fair value			393,495				364,296				317,520				8.0				23.9
Loans held for sale			4,037				3,753				4,531				7.6				-10.9
Loans receivable (net of allowance for loan losses of $14,265, $13,847, and $10,830)			1,156,439				1,141,969				899,154				1.3				28.6
Federal Home Loan Bank (FHLB) stock, at cost			3,997				5,977				7,581				-33.1				-47.3
Accrued interest receivable			6,251				6,966				4,124				-10.3				51.6
Premises and equipment, net			14,795				14,785				14,231				0.1				4.0
Mortgage servicing rights, net			2,309				2,120				843				8.9				173.9
Bank-owned life insurance, net			38,596				38,353				30,355				0.6				27.1
Prepaid expenses and other assets			17,103				10,975				11,436				55.8				49.6
Total assets		$	1,736,293			$	1,654,349			$	1,396,939				5.0	%			24.3	%
Liabilities and Shareholders’ Equity
Deposits		$	1,434,807			$	1,333,517			$	1,063,905				7.6	%			34.9	%
FHLB advances			50,000				109,977				150,021				-54.5				-66.7
Subordinated debt			39,310				—				—				100.0				100.0
Accrued interest payable			84				53				194				58.5				-56.7
Accrued expenses and other liabilities			27,994				23,303				15,225				20.1				83.9
Advances from borrowers for taxes and insurance			2,000				1,116				443				79.2				351.5
Total liabilities			1,554,195				1,467,966				1,229,788				5.9				26.4
Shareholders’ Equity
Preferred stock, $0.01 par value, authorized 5,000,000 shares, no shares issued or outstanding			—				—				—				n/a				n/a
Common stock, $0.01 par value, authorized 75,000,000 shares; issued and outstanding 10,195,644 at March 31, 2021; issued and outstanding 10,247,185 at December 31, 2020; and issued and outstanding 10,432,963 at March 31, 2020			102				102				104				0.0				-1.9
Additional paid-in capital			96,499				97,412				99,479				-0.9				-3.0
Retained earnings			94,363				92,657				85,549				1.8				10.3
Accumulated other comprehensive income (loss), net of tax			199				5,442				(8,256	)			-96.3				102.4
Unearned employee stock ownership plan (ESOP) shares			(9,065	)			(9,230	)			(9,725	)			1.8				6.8
Total shareholders’ equity			182,098				186,383				167,151				-2.3				8.9
Total liabilities and shareholders’ equity		$	1,736,293			$	1,654,349			$	1,396,939				5.0	%			24.3	%

FIRST NORTHWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) (Unaudited)

		Quarter Ended
		March 31, 2021				December 31, 2020				March 31, 2020				Three Month Change				One Year Change
INTEREST INCOME
Interest and fees on loans receivable		$	12,541			$	11,894			$	9,836				5.4	%			27.5	%
Interest on mortgage-backed and related securities			464				437				959				6.2				-51.6
Interest on investment securities			1,570				1,581				1,069				-0.7				46.9
Interest on deposits in banks			13				9				68				44.4				-80.9
FHLB dividends			45				56				47				-19.6				-4.3
Total interest income			14,633				13,977				11,979				4.7				22.2
INTEREST EXPENSE
Deposits			934				1,079				2,138				-13.4				-56.3
FHLB advances			191				221				434				-13.6				-56.0
Subordinated debt			25				—				—				100.0				100.0
Total interest expense			1,150				1,300				2,572				-11.5				-55.3
Net interest income			13,483				12,677				9,407				6.4				43.3
PROVISION FOR LOAN LOSSES			500				930				1,266				-46.2				-60.5
Net interest income after provision for loan losses			12,983				11,747				8,141				10.5				59.5
NONINTEREST INCOME
Loan and deposit service fees			837				940				881				-11.0				-5.0
Mortgage servicing fees, net of amortization			30				146				15				-79.5				100.0
Net gain on sale of loans			1,337				2,324				383				-42.5				249.1
Net gain on sale of investment securities			—				912				605				-100.0				-100.0
Increase in cash surrender value of bank-owned life insurance			244				249				328				-2.0				-25.6
Other income			256				67				106				282.1				141.5
Total noninterest income			2,704				4,638				2,318				-41.7				16.7
NONINTEREST EXPENSE
Compensation and benefits			7,295				7,193				5,361				1.4				36.1
Data processing			739				691				690				6.9				7.1
Occupancy and equipment			1,623				1,663				1,351				-2.4				20.1
Supplies, postage, and telephone			242				236				211				2.5				14.7
Regulatory assessments and state taxes			261				271				174				-3.7				50.0
Advertising			445				572				272				-22.2				63.6
Professional fees			522				408				400				27.9				30.5
FDIC insurance premium			148				89				—				66.3				100.0
FHLB prepayment penalty			—				—				210				n/a				-100.0
Other			819				596				713				37.4				14.9
Total noninterest expense			12,094				11,719				9,382				3.2				28.9
INCOME BEFORE PROVISION FOR INCOME TAXES			3,593				4,666				1,077				-23.0				233.6
PROVISION FOR INCOME TAXES			473				850				204				-44.4				131.9
NET INCOME		$	3,120			$	3,816			$	873				-18.2	%			257.4	%
Basic and diluted earnings per common share		$	0.34			$	0.41			$	0.09				-17.1	%			277.8	%

FIRST NORTHWEST BANCORP AND SUBSIDIARY

Selected Financial Ratios and Other Data
(Unaudited)

		As of or For the Quarter Ended
		March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
Performance ratios: (1)
Return on average assets			0.76	%			0.97	%			0.99	%			0.56	%			0.27	%
Return on average equity			6.70				8.32				8.22				4.60				1.94
Average interest rate spread			3.38				3.35				3.22				2.90				2.86
Net interest margin (2)			3.48				3.46				3.36				3.10				3.11
Efficiency ratio (3)			74.7				67.7				60.9				72.3				80.0
Average interest-earning assets to average interest-bearing liabilities			134.6				131.7				130.9				129.5				130.1
Book value per common share		$	17.86			$	18.20			$	17.65			$	17.07			$	16.02
Asset quality ratios:
Nonperforming assets to total assets at end of period (4)			0.1	%			0.1	%			0.2	%			0.2	%			0.2	%
Nonperforming loans to total loans (5)			0.2				0.2				0.3				0.3				0.2
Allowance for loan losses to nonperforming loans (5)			668.1				609.2				419.9				360.8				622.4
Allowance for loan losses to total loans			1.2				1.2				1.2				1.2				1.2
Net charge-offs to average outstanding loans			—				—				—				—				—
Capital ratios (First Fed):
Tier 1 leverage		11.2		%			10.3	%			10.5	%			10.9	%			11.8	%
Common equity Tier 1 capital		15.1					13.4				14.7				15.1				16.8
Tier 1 risk-based		15.1					13.4				14.7				15.1				16.8
Total risk-based		16.3					14.6				16.0				16.4				18.1
Other Information:
Average total assets		$	1,645,806			$	1,567,521			$	1,488,723			$	1,401,500			$	1,287,529
Average total loans			1,144,230				1,089,505				1,009,210				938,646				876,135
Average interest-earning assets			1,549,316				1,466,103				1,401,090				1,305,437				1,208,314
Average noninterest-bearing deposits			283,204				245,024				218,615				196,698				159,214
Average interest-bearing deposits			1,092,114				1,032,608				1,009,041				936,968				849,196
Average interest-bearing liabilities			58,629				80,731				61,244				71,170				79,659
Average equity			186,171				183,424				178,887				172,009				179,614
Average shares – basic			9,094,354				9,214,965				9,257,252				9,373,253				9,624,727
Average shares – diluted			9,185,725				9,258,109				9,263,975				9,408,123				9,676,377

(1)		Performance ratios are annualized, where appropriate.
(2)		Net interest income divided by average interest-earning assets.
(3)		Total noninterest expense as a percentage of net interest income and total other noninterest income.
(4)		Nonperforming assets consists of nonperforming loans (which include nonaccruing loans and accruing loans more than 90 days past due), real estate owned and repossessed assets.
(5)		Nonperforming loans consists of nonaccruing loans and accruing loans more than 90 days past due.

Contact:
Matthew P. Deines, President and Chief Executive Officer
Geri Bullard, EVP and Chief Financial Officer
First Northwest Bancorp
360-457-0461