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4th Quarter and Year End Financials Posted

1.26.2017 Bank News

Northwest Bancorporation, Inc. (OTC Pink: NBCT) (the “Company”), the holding company of Inland Northwest Bank (the “Bank” or “INB”), today reported financial results for the quarter ended December 31, 2016.

Net income for the fourth quarter of 2016 was $1.41 million, compared to $1.55 million for the previous quarter and $726 thousand for the fourth quarter of 2015. Earnings per diluted share decreased 12.5%, from $0.24 for the third quarter of 2016, to $0.21 for the fourth quarter of 2016, but are up $0.10, from the fourth quarter of last year. For the year ended December 31, 2016, net income was $5.07 million, compared to $3.06 million for the corresponding period in 2015, representing an increase of $2.01 million, or 65.7%. Earnings per diluted share increased 27.9%, from $0.61 in 2015, to $0.78 in 2016. Operating results for 2016 include a full year of contribution from the former Bank of Fairfield, whose parent company was acquired in October 2015.

Company President and CEO, Russell Lee, commented, “It is gratifying to see that the hard work of the entire INB Team has been positively reflected in the Company’s 2016 financial results. We have been focused on executing our long‐term plan of strategic growth, and the benefits to our shareholders of this plan are becoming evident.”

Balance sheet

As of December 31, 2016, the Company had total assets of $636.5 million, compared to $647.9 million on September 30, 2016 and $610.8 million on December 31, 2015. The decrease in assets of $11.4 million, or 1.8%, during the fourth quarter was primarily related to an expected decrease in deposits from a single customer. Year over year, assets are up $25.7 million, or 4.2%.

The investment portfolio was $30.0 million as of December 31, 2016, down $1.9 million, or 6.1%, from $31.9 million at September 30, 2016. The net unrealized gain in the portfolio was $370 thousand, 57.2% lower than the $865 thousand net unrealized gain at September 30, 2016.

The net loan portfolio was $490.8 million on December 31, 2016. This represents an increase of $20.1 million, or 4.3%, from last quarter; loan growth during the fourth quarter of 2016 is primarily related to INB’s new loan production office in Richland, Washington. Year over year, the net loan portfolio was up $13.5 million, or 2.8%.

Deposits at December 31, 2016 were $548.4 million, a decrease of $11.7 million, or 2.1%, compared to September 30, 2016 and an increase of $22.5 million, or 4.3%, compared to December 31, 2015. The decrease during the fourth quarter was partially related to a short‐term $16 million deposit from one customer on the last day of the third quarter; without this temporary deposit, total deposits would have increased $4.3 million during the fourth quarter. Noninterest bearing deposits were $164.0 million at year end, representing 29.9% of total deposits. This compares to noninterest bearing deposits of $176.9 million, or 31.6% of total deposits, at September 30, 2016, and to $158.6 million, or 30.2% of total deposits, at December 31, 2015.

Asset quality, provision and allowance for loan losses

The Bank’s nonperforming assets (“NPAs”) were $1.5 million at year end, representing 0.23% of total assets. NPAs are defined as loans on which the Bank has stopped accruing interest and includes foreclosed real estate. NPAs at the end of last quarter were $1.6 million, representing 0.24% of total assets, and at December 31, 2015, NPAs were $1.6 million, representing 0.25% of total assets.

The Bank had net loan recoveries of $29 thousand and net loan charge‐offs of $79 thousand for the three and twelvemonth periods ending on December 31, 2016, compared to net loan recoveries of $4 thousand and $76 thousand for the comparable periods in 2015. The provision for loan losses was $0 and $363 thousand for the three and twelve‐month periods ending on December 31, 2016, compared to $40 thousand and $220 thousand for the comparable periods in 2015. As of December 31, 2016, the allowance for loan losses was $6.3 million, or 1.26% of gross loans; this was slightly higher than on December 31, 2015 when it was $6.0 million and represented 1.25% of the loan portfolio.

Capital

Shareholders’ equity increased $5.2 million, or 8.5%, during 2016, which was mostly related to earnings retention. Tangible book value of the Company’s common stock was $9.13 per share on December 31, 2016, up $0.78, or 9.3%, over the $8.35 per share on December 31, 2015.

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, 2016, the Bank’s Tier 1 leverage capital to average assets ratio was 10.8%, its common equity Tier 1 (“CET1”) capital ratio was 11.8%, and its total capital to risk‐weighted assets ratio was 13.0%. 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 $7.5 million for the fourth quarter of 2016, representing a decrease of $227 thousand, or 3.0%, from the previous quarter, and representing an increase of $509 thousand, or 7.3%, over the comparable quarter in 2015. Total revenue was $29.7 million and $22.8 million for the years ended December 31, 2016 and 2015, respectively, which represents an increase of $6.9 million, or 30.0%. Total revenue is defined as net interest income plus noninterest income.

Net interest income

Net interest income was $6.2 million for the quarter ended December 31, 2016, a decrease of $233 thousand, or 3.6%, from the previous quarter and an increase of $264 thousand, or 4.4%, from the fourth quarter of 2015. The decrease is net interest income during the fourth quarter is largely due to declining levels of purchased loan discount accretion. Net interest income was $24.9 million for year ended December 31, 2016, compared to $18.8 million for the comparable period in 2015.

The net interest margin (interest income minus interest expense, divided by average earning assets) decreased from 4.44% in the fourth quarter of 2015 to 4.21% in the fourth quarter of 2016. For the year, the net interest margin was 4.41% in 2016 compared to 4.22% in 2015; excluding net purchased loan discount accretion, the net interest margin was 4.21% and 4.19%, respectively.

Noninterest income

Noninterest income was $1.3 million for the fourth quarter of 2016, up $245 thousand, or 24.2%, compared to the fourth quarter of 2015; this increase was largely related to higher revenues from sales of residential mortgage loans. Noninterest income ended 2016 at $4.7 million, an increase of $737 thousand, or 18.5%, over the same period in 2015. This year over year increase in noninterest income was partially due to higher revenues from sales of residential mortgage loans and partially due to increased revenues related to the Fairfield acquisition.

Noninterest expense

Noninterest expense totaled $5.4 million for the fourth quarter of 2016, down $471 thousand, or 8.0%, compared to the fourth quarter of 2015; excluding nonrecurring acquisition‐related costs, noninterest expense would have increased $170 thousand, or 3.2%. Noninterest expense ended 2016 at $21.8 million, an increase of $3.7 million, or 20.6%, over 2015; excluding nonrecurring acquisition‐related costs, noninterest expense would have increased $4.3 million, or 25.1%. This year over year increase in noninterest expense was primarily due to increased operating expenses related to the Fairfield acquisition.

Key ratios

Return on average assets (“ROA”) for fourth quarter 2016 was 0.88%, compared to 1.01% in the previous quarter and 0.49% in the fourth quarter last year. For the year ended December 31, 2016, ROA was 0.82%, compared to 0.63% for 2015. Excluding nonrecurring acquisition‐related costs, ROA would have been 0.87% for the three and twelve‐month periods ending December 31, 2016, compared to 0.76% and 0.77% for the three and twelve‐month periods ending December 31, 2015, respectively.

Return on average equity (“ROE”) was 8.59% for fourth quarter 2016, compared to 9.69% in the previous quarter and 4.80% for the fourth quarter last year. For the year ended December 31, 2016, ROE was 8.00%, compared to 6.39% for 2015. Excluding nonrecurring acquisition‐related costs, ROE would have been 8.50% and 8.47% for the three and twelvemonth periods ending December 31, 2016, respectively, compared to 7.50% and 7.78% for the three and twelve‐month periods ending December 31, 2015, respectively.

Yield on earning assets was 4.82% and 4.71% for the years ended December 31, 2016 and 2015, respectively, and the cost of funds was 0.59% and 0.67%, respectively.

About Northwest Bancorporation, Inc.

Northwest Bancorporation, Inc. is the parent company of Inland Northwest Bank, a state‐chartered community bank which currently operates eleven branches in Eastern Washington, and four branches in Northern Idaho. 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.