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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,  D.C. 20549 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
 
October 29, 2019 (October 28, 2019)
Northrim BanCorp, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)
Alaska 
0-33501
92-0175752
________________________
(State or other jurisdiction
_____________
(Commission
_________________
(I.R.S. Employer
of incorporation)
File Number)
Identification No.)
  
 
 
3111 C Street,  Anchorage,  Alaska 
 
99503
___________________________________
(Address of principal executive offices)
 
___________
(Zip Code)
Registrant’s telephone number, including area code:
 
907-562-0062
Not Applicable
___________________________________________________
Former name or former address, if changed since last report
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Emerging growth company     ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨

Securities registered pursuant to Section 12(b) of the Act: None
TITLE OF EACH CLASS
TRADING SYMBOL
NAME OF EXCHANGE
 
 
 







Item 2.02 Results from Operations and Financial Condition.

On October 28, 2019, Northrim BanCorp, Inc. announced by press release its earnings for the third quarter ended September 30, 2019.

A copy of the press release is attached hereto as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements – not applicable
(b) Proforma financial information – not applicable
(c) Shell company transactions – not applicable
(d) Exhibit No.
 
Description
 
 
 
99.1
 
Press Release dated October 28, 2019









SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
Northrim BanCorp, Inc.
  
 
 
 
 
October 29, 2019
 
By:
 
/s/ Jed W. Ballard
 
 
 
 
Name: Jed W. Ballard
 
 
 
 
Title: EVP, Chief Financial Officer






Exhibit Index

 
 
 
Exhibit No.
 
Description
 
 
 
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1


400696713_nrimpra08.jpg
Contact:
Joe Schierhorn, President, CEO, and COO
 
(907) 261-3308
 
Jed Ballard, Chief Financial Officer
 
(907) 261-3539
NEWS RELEASE

Northrim BanCorp Earnings Increase 43% to $7.5 Million, or $1.11 per Diluted Share, in 3Q19 from 3Q18
Reflecting Strong Loan and Deposit Growth and Improved Credit Quality

ANCHORAGE, Alaska - October 28, 2019 - Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the "Company") today reported net income increased 43% to $7.5 million, or $1.11 per diluted share, in the third quarter of 2019, compared to $5.3 million, or $0.75 per diluted share, in the third quarter of 2018. In the second quarter of 2019, Northrim earned $4.3 million, or $0.62 per diluted share. A benefit for loan losses of $2.1 million, higher production in the mortgage banking division, as well as strong loan and deposit growth in the community banking franchise drove third quarter profitability.

Net income for the first nine months of 2019 increased 6% to $16.1 million, or $2.35 per diluted share, compared to $15.2 million, or $2.17 per diluted share, in the first nine months of 2018. In the first nine months of 2019, operating results include increased operating expenses of $56.2 million, up from $51.5 million in the first nine months of 2018 primarily due to increased salaries and employee benefit costs, higher occupancy expenses and rising costs for data processing and bank technology. Higher overhead costs reflect Northrim’s successful execution of its growth plans, including the addition of two new branch locations in the last year, and its ability to retain and recruit experienced, talented bankers in the Alaska markets it serves.

“The flat yield curve is creating a strong demand for home purchase and refinance mortgages. Despite a highly competitive market, our loan growth has been substantial, and our loan pipeline, for both home mortgages and business loans, remains strong,” said Joe Schierhorn, President and CEO.

Third Quarter 2019 Highlights:

•
Total revenue, which includes net interest income plus other operating income, increased 5% to $26.8 million in the third quarter of 2019, compared to $25.5 million in the second quarter of 2019 and increased 9% compared to $24.5 million in the third quarter a year ago.
◦
Community Banking provided 71% of total revenues and 84% of earnings in the third quarter of 2019.
◦
Home Mortgage Lending provided 29% of total revenues and 16% of third quarter earnings.
•
Net interest income in the third quarter of 2019 increased to $16.3 million from $15.8 million in the third quarter a year ago.
•
Net interest margin on a tax equivalent basis (“NIMTE”)* was 4.65% in the third quarter, a 9 basis point contraction compared to the third quarter a year ago, and a 12 basis point contraction compared to the preceding quarter.
•
Return on average assets was 1.90% and return on average equity was 14.45% for the third quarter of 2019.
•
The third quarter 2019 benefit for loan losses was $2.1 million compared to the year ago quarter when Northrim did not record a provision for loan losses, due to improved credit quality and improved overall economic factors.
•
The Company completed its share repurchase program, buying 192,193 shares of its common stock in the third quarter of 2019 at an average price of $37.29.




Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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Financial Highlights
Three Months Ended
(Dollars in thousands, except per share data)
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
Total assets

$1,616,631


$1,552,770


$1,520,051


$1,502,988


$1,502,673

Total portfolio loans

$1,036,547


$1,015,704


$982,341


$984,346


$982,007

Average portfolio loans

$1,020,186


$1,003,019


$988,920


$981,407


$984,914

Total deposits

$1,351,029


$1,288,178


$1,228,018


$1,228,088


$1,233,268

Average deposits

$1,307,795


$1,239,354


$1,194,512


$1,233,479


$1,223,997

Total shareholders' equity

$204,039


$206,338


$208,838


$205,947


$203,242

Net income

$7,538


$4,261


$4,312


$4,848


$5,264

Diluted earnings per share

$1.11


$0.62


$0.62


$0.69


$0.75

Return on average assets
1.90
%
1.12
%
1.18
%
1.27
%
1.40
%
Return on average shareholders' equity
14.45
%
8.13
%
8.36
%
9.30
%
10.27
%
NIM
4.60
%
4.71
%
4.83
%
4.71
%
4.69
%
NIMTE*
4.65
%
4.77
%
4.89
%
4.76
%
4.74
%
Efficiency ratio
72.01
%
77.58
%
73.23
%
76.64
%
73.82
%
Total shareholders' equity/total assets
12.62
%
13.29
%
13.74
%
13.70
%
13.53
%
Tangible common equity/tangible assets*
11.74
%
12.38
%
12.81
%
12.76
%
12.58
%
Book value per share

$31.20


$30.66


$30.36


$29.92


$29.52

Tangible book value per share*

$28.74


$28.27


$28.01


$27.57


$27.17

Dividends per share

$0.33


$0.30


$0.30


$0.27


$0.27

* References to NIMTE, tangible book value per share, tangible common equity and tangible assets (all of which exclude intangible assets) represent non-GAAP financial measures. Management has presented these non-GAAP measurements in this earnings release, because it believes these measures are useful to investors. See the end of this release for reconciliations of these non-GAAP financial measures to GAAP financial measures.

Alaska Economic Update
(Note: sources for information included in this section are included on page 10.)

The Alaska economy went through three consecutive years of a mild recession. Macro-economic indicators began to show a positive change in the fourth quarter of 2018, with improvements continuing into 2019. The State Department of Labor reported growth of 400 jobs in August of 2019 compared to August of 2018. October of 2018 was the first month of year-over-year increase in employment since September of 2015. After 37 months of year-over-year declines, Alaska now has eleven consecutive months of year-over-year job increases. The Department of Labor forecasted an increase of 1,400 jobs, or 0.4% growth for the entire year. They expect the major drivers of job growth to be military, oil & gas activity and tourism.
Alaska’s seasonally adjusted gross state product (GSP) was $54.6 billion in the first quarter of 2019, according to the U.S. Bureau of Economic Analysis (BEA) in a report released on July 25, 2019. Alaska’s GSP increased 3.9% annualized in the first quarter of 2019, marking the fourth consecutive quarter of improvement in Alaska’s GSP. Alaska’s real GSP declined by 5.7% annualized in the first quarter of 2018, but then grew in the second, third and fourth quarters last year. The net result was a slight decline of GSP for 2018 of -0.3%. Alaska’s GSP declined -1.8% in 2016 and -0.2 % in 2017.
Alaska’s personal income grew 4.3% annualized in the first quarter of 2019 and 5.6% in the second quarter according to a report released on September 24, 2019 by the BEA. Total personal income from all sources in Alaska grew to $45.5 billion. The largest increase in dollar terms in the second quarter of 2019 came from a $330 million or 4.6% growth in wages and proprietors income. Dividends, interest and rental income grew by $100 million and income from government transfer payments increased by $185 million in the second quarter.
“The most recent macro-economic indicators show Alaska’s economy has begun to grow again and add jobs. In the near term, there is concern over the effect of State government budget cuts. However, there is renewed optimism in the private sector that a number of large-scale natural resource development projects are advancing and new discoveries


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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of oil and gas are increasing investment activity for exploration and development," stated Mark Edwards, EVP Chief Credit Officer and Bank Economist.
Alaska North Slope (ANS) average monthly oil prices have been between $60 and $72 in 2019. The September monthly average for ANS was $63.83. The State Department of Revenue has forecasted an annual average ANS oil price of $68.90 per barrel in fiscal year (FY) 2019 and $66 per barrel in FY 2020.
Alaska’s crude oil production averaged 540,500 barrels per day (bpd) in FY 2017. This was an increase of 9,300 bpd over the previous year and the second year of production growth. This two-year positive trend reversed slightly last year when total output declined 1.2% to 534,000 bpd in FY 2018. The State Department of Revenue forecasts production on the North Slope to decline in FY 2019 by 1.3% and then rise by 3.5% in 2020.
“The impact of the pending sale of BP’s Alaska operations to Hilcorp, announced in August, provides both opportunities and challenges for oil services firms and the businesses that serve this leading industrial sector,” added Schierhorn. “BP currently employs approximately 1,600 workers or one-sixth of total employment in Alaska’s oil and gas industry. Hilcorp has told BP’s workers that they will receive more information on future employment levels in December.”

Alaska’s home mortgage delinquency and foreclosure levels continue to be better than most of the nation. Alaskans showed resiliency and kept their home payments current despite the local recession. According to the Mortgage Bankers Association, Alaska’s foreclosure rate was 0.68% at the end of the second quarter 2019. This compares to 0.63% at the end of the first quarter 2019. The comparable national average rate was 0.90% at the end of the second quarter 2019. The national rate continues to improve while the Alaska rate remains relatively lower and stable.
The national survey reported that the percentage of delinquent mortgage loans in Alaska was 3.21% for the second quarter of 2019. The Alaska delinquency rate at the end of 2018 was 2.92%, compared to 3.37% for the same period in 2017. The 2018 average delinquency rate across the country was 1.4% higher than Alaska at 4.32%. The U.S. rate moved slightly higher to 4.41% at the end of the second quarter 2019.
Northrim Bank sponsors the Alaskanomics blog to provide news, analysis, and commentary on Alaska’s economy. Join the conversation at Alaskanomics.com, or for more information on the Alaska economy, visit: www.northrim.com
and click on the “Business Banking” link and then click “Learn.” Information from our website is not incorporated into, and does not form, a part of this earnings release.


Review of Income Statement

Consolidated Income Statement
In the third quarter of 2019, Northrim generated a return on average assets ("ROAA") of 1.90% and a return on average equity ("ROAE") of 14.45%, compared to 1.12% and 8.13%, respectively in the second quarter of 2019 and 1.40% and 10.27%, respectively, in the third quarter a year ago. These results were above the average posted by the SNL Small Cap U.S. Bank Index with total market capitalization between $250 million and $1 billion as of June 30, 20191.

Net Interest Income/Net Interest Margin
Net interest income grew 3% to $16.3 million in the third quarter of 2019 compared to $15.8 million in the third quarter of 2018 and increased modestly compared to $16.0 million in the second quarter of 2019. For the first nine months of 2019, net interest income increased 7% to $48.0 million from $45.1 million in the first nine months of 2018. Interest income benefited by the growth in the loan portfolio which more than offset increased cost of interest-bearing deposits and borrowings in both the third quarter and first nine months of 2019 compared to the year ago periods.
1As of June 30, 2019, the SNL Small Cap US Bank Index tracked 123 banks with total common market capitalization between $250 million and $1 billion with averages for the following ratios: NIMTE* 3.46%, ROAA 1.13%, and ROAE 10.41%.



Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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NIMTE* was 4.65% in the third quarter of 2019 compared to 4.77% in the preceding quarter and 4.74% in the third quarter a year ago. The yield on interest earning assets in the third quarter of 2019 was 5.08%, down 9 basis points from the second quarter of 2019 and up 11 basis points year-over-year. The cost of funds increased in the third quarter of 2019 to 68 basis points, up 5 basis points from the preceding quarter and up 32 basis points compared to the third quarter a year ago.
“Our cost of funds increased during the quarter due to CD deposit campaigns that continued through the end of the summer, however, with the recent rate drops we should see costs of funds level off or drop in the fourth quarter,” said Jed Ballard, Chief Financial Officer. “Even with the recent rate decrease by the Fed in the third quarter, our loans reprice at higher rates than when they originated two to three years ago.”

Provision for Loan Losses
Northrim recorded a benefit for loan losses of $2.1 million in the third quarter of 2019. In the second quarter of 2019, Northrim recorded a $300,000 provision for loan losses, and in the third quarter of 2018, Northrim recorded no provision for loan losses. “We recorded a benefit for loan losses in the third quarter due to a combination of improved credit quality, including net loan recoveries of $694,000, as well as improved overall economic factors,” said Ballard.
Nonperforming loans, net of government guarantees, improved during the quarter to $15.5 million at September 30, 2019, compared to $16.9 million at June 30, 2019, and $16.6 million at September 30, 2018. The allowance for loan losses was 123% of nonperforming loans, net of government guarantees at September 30, 2019.

Other Operating Income

In addition to home mortgage lending, Northrim has interests in other businesses that complement its core community banking activities, including purchased receivables financing and wealth management. Other operating income contributed $10.5 million, or 39% of total third quarter 2019 revenues, as compared to $9.6 million, or 37% of revenues in the second quarter of 2019, and $8.7 million, or 35% of revenues in the third quarter of 2018. In the first nine months
of 2019, other operating income totaled $27.6 million, or 37% of revenues, compared to $24.4 million, or 35% of revenues in the first nine months of 2018. The primary drivers of changes in other operating income are variability in the mortgage market, which is seasonal and cyclical, and gains or losses from the fair value changes of marketable equity securities. The fair value mark-to-market of the marketable equity securities portfolio increased other income by $130,000 in the third quarter of 2019, compared to a $118,000 increase in the second quarter of 2019 and increased other income by $782,000 in the first nine months of 2019, compared to a decrease of $136,000 in the first nine months of 2018. Additionally, $734,000 in interest rate swap income was earned in the second quarter of 2019 on the execution of interest rate swaps related to the Company's commercial lending operations.

Other Operating Expenses

Operating expenses were $19.3 million in the third quarter of 2019, compared to $19.8 million in the second quarter of 2019 and $18.1 million in the third quarter of 2018. Impacting operating expenses include costs associated with the two new branch locations in Soldotna opened in the fourth quarter of 2018 and East Anchorage opened in the second quarter of 2019, higher compensation costs for the mortgage banking operations due to increased loan originations and increased data processing and banking technology costs. In the first nine months of 2019, operating expenses were $56.2 million, up from $51.5 million in the first nine months of 2018, reflecting higher overhead expenses, as explained above. “We added several talented bankers in lending and cash management over the past year, to execute our business plan to grow the company and expand market share. In addition, we continue to invest in technology, which increased data processing costs, to introduce new products and services to our customers,” said Schierhorn.



Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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Income Tax Provision

For the third quarter of 2019, Northrim recorded $2.0 million in state and federal income tax expense for an effective tax rate of 21.2% compared to $1.1 million, or 17.7% in the third quarter a year ago. For the first nine months of 2019, Northrim recorded $4.3 million in state and federal income tax expense, for an effective tax rate of 21.2% compared to $3.2 million and 17.3% for the same period in 2018. The tax rate increased in both periods in 2019 due to less tax-exempt income and fewer estimated tax credits as a percentage of pre-tax income in 2019 as compared to 2018.


Community Banking

“Our Alaska franchise is growing, and our recent branch expansions, combined with the addition of new and existing relationships, will continue to provide long-term opportunities in our market,” said Schierhorn.

Net interest income in the Community Banking segment increased 4% to $16.0 million in the third quarter of 2019 from $15.4 million in the third quarter of 2018.

The following table provides highlights of the Community Banking segment of Northrim:
 
Three Months Ended
(Dollars in thousands, except per share data)
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
Net interest income

$16,000


$15,633


$15,488


$15,719


$15,358

Provision (benefit) for loan losses
(2,075
)
300

750

(200
)
—

Other operating income
2,944

3,619

3,235

3,199

2,770

Other operating expense
13,126

14,111

12,518

13,637

12,204

   Income before provision for income taxes
7,893

4,841

5,455

5,481

5,924

Provision for income taxes
1,550

984

1,155

824

996

   Net income

$6,343


$3,857


$4,300


$4,657


$4,928

Average diluted shares
6,707,523

6,896,687

6,981,951

6,990,319

6,990,633

Diluted earnings per share

$0.93


$0.56


$0.62


$0.66


$0.70


 
Year-to-date
(Dollars in thousands, except per share data)
September 30, 2019
September 30, 2018
Net interest income

$47,121


$44,008

(Benefit) provision for loan losses
(1,025
)
(300
)
Other operating income
9,798

8,124

Other operating expense
39,755

36,319

   Income before provision for income taxes
18,189

16,113

Provision for income taxes
3,689

2,537

   Net income

$14,500


$13,576

 
 
 
Average diluted shares
6,861,973

6,978,679

Diluted earnings per share

$2.11


$1.94






Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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Home Mortgage Lending

“Demand for mortgage loans picked up substantially in the current quarter, in large part due to an increase in refinancing as a result of lower mortgage rates, in addition to the normal seasonality in the mortgage market,” said Ballard. Third quarter of 2019 volume increased to $241.8 million, of which 67% were for new home purchases, compared to $169.0 million and 82% of loans funded in the second quarter of 2019 and $156.3 million of which 91% were for new home purchases in the third quarter of 2018.

“Our mortgage servicing business, which was initiated in the fourth quarter of 2015 to service loans for the Alaska Housing Finance Corporation, experienced substantial growth during the quarter,” Ballard added. As of September 30, 2019, Northrim serviced 2,534 loans in its $634.1 million home-mortgage-servicing portfolio, which is a 23% increase from the $516.0 million serviced a year ago. Mortgage servicing revenue contributed $1.6 million to revenues in the third quarter of 2019 compared to $1.1 million in the second quarter of 2019 and $1.6 million in the third quarter of 2018. Total mortgage servicing income fluctuates based on the amount of mortgage servicing rights originated during the period and changes in the fair value of mortgage servicing rights, which are driven by interest rate volatility and fluctuations in estimated prepayment speeds based on published industry metrics. The change in the fair value of mortgage servicing rights was a decrease of $662,000 for the third quarter of 2019 compared to a decrease of $950,000 for the second quarter of 2019 and a decrease of $128,000 for the third quarter of 2018. In the first nine months of 2019 the change in fair value of mortgage servicing rights was a decrease of $2.3 million as compared to a decrease of $272,000 for the first nine months of 2018.

The following table provides highlights of the Home Mortgage Lending segment of Northrim:
 
Three Months Ended
(Dollars in thousands, except per share data)
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
Mortgage commitments

$86,044


$107,330


$66,319


$44,999


$69,026

Mortgage loans funded for sale

$241,795


$168,953


$92,447


$113,963


$156,301

Mortgage loan refinances to total fundings
33
%
18
%
16
%
10
%
9
%
Mortgage loans serviced for others

$634,059


$598,415


$586,595


$557,583


$516,008

 
 
 
 
 
 
Net realized gains on mortgage loans sold

$6,768


$4,903


$2,927


$3,156


$4,268

Change in fair value of mortgage loan commitments, net
(535
)
655

356

(442
)
(66
)
Total production revenue
6,233

5,558

3,283

2,714

4,202

Mortgage servicing revenue
1,649

1,119

1,668

1,526

1,578

Change in fair value of mortgage servicing rights, net1
(662
)
(950
)
(674
)
145

(128
)
Total mortgage servicing revenue, net
987

169

994

1,671

1,450

Other mortgage banking revenue
345

223

21

134

251

   Total mortgage banking income

$7,565


$5,950


$4,298


$4,519


$5,903

 
 
 
 
 
 
Net interest income

$306


$324


$281


$418


$461

Mortgage banking income
7,565

5,950

4,298

4,519

5,903

Other operating expense
6,198

5,708

4,562

4,663

5,895

   Income before provision for income taxes
1,673

566

17

274

469

Provision for income taxes
478

162

5

83

133

   Net income

$1,195


$404


$12


$191


$336

 
 
 
 
 
 
Average diluted shares
6,707,523

6,896,687

6,981,951

6,990,319

6,990,633

Diluted earnings per share

$0.18


$0.06


$—


$0.03


$0.05

1Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates, net of collection/realization of expected cash flows over time.


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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Year-to-date
(Dollars in thousands, except per share data)
September 30, 2019
September 30, 2018
Mortgage loans funded for sale

$503,195


$413,552

Mortgage loan refinances to total fundings
25
%
11
%
 
 
 
Net realized gains on mortgage loans sold

$14,598


$11,666

Change in fair value of mortgage loan commitments, net
476

282

Total production revenue
15,074

11,948

Mortgage servicing revenue
4,436

4,015

Change in fair value of mortgage servicing rights, net1
(2,286
)
(272
)
Total mortgage servicing revenue, net
2,150

3,743

Other mortgage banking revenue
589

634

   Total mortgage banking income

$17,813


$16,325

 
 
 
Net interest income

$911


$1,063

Mortgage banking income
17,813

16,325

Other operating expense
16,468

15,181

   Income before provision for income taxes
2,256

2,207

Provision for income taxes
645

627

   Net income

$1,611


$1,580

 
 
 
Average diluted shares
6,861,973

6,978,679

Diluted earnings per share

$0.24


$0.23

1Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates, net of collection/realization of expected cash flows over time.

Balance Sheet Review

Northrim’s total assets increased to $1.62 billion at September 30, 2019, up 4% from the preceding quarter and up 8% from a year ago. Northrim’s loan-to-deposit ratio was 77% at September 30, 2019, down from 79% at June 30, 2019 and 80% at September 30, 2018.

Average interest-earning assets were $1.40 billion in the third quarter of 2019, up 4% from $1.36 billion in the second quarter of 2019 and up 5% from $1.34 billion in the third quarter a year ago. The average yield on interest-earning assets was 5.08% in the third quarter of 2019, down from 5.17% in the preceding quarter and up from 4.97% in the third quarter a year ago.

Average investment securities decreased 10% to $253.4 million in the third quarter of 2019, compared to $281.5 million in the second quarter of 2019 and decreased 4% from $264.4 million in the third quarter a year ago. The average net tax equivalent yield on the securities portfolio improved to 2.73% for the third quarter of 2019, from 2.71% in the preceding quarter and 2.29% a year ago*. The average estimated duration of the investment portfolio was 19 months, at September 30, 2019.

Loan originations more than offset the rate of repayments that results from the short duration of the loan portfolio. At September 30, 2019, commercial loans increased to 39% of total loans, while commercial real estate remained at 48% of total loans and construction loans decreased slightly to 9% of total loans, compared to three months earlier. Portfolio loans were $1.04 billion at September 30, 2019, up 2% from the preceding quarter and up 6% from a year ago. Average portfolio loans in the third quarter of 2019 were $1.02 billion, up 2% from the preceding quarter and up 4% from a


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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year ago. Yields on average portfolio loans in the third quarter of 2019 declined to 5.92% from 5.96% in the second quarter of 2019 and improved compared to 5.81% in the third quarter of 2018.

“We are executing our deposit strategy on a number of different fronts, most notably with new synergies between commercial cash managers and lenders targeting new deposits. In addition, we have enhanced several deposit products and services for our customers, which improves our competitive position in our markets,” said Schierhorn.

Alaskans account for substantially all of Northrim’s deposit base, which is primarily made up of low-cost transaction accounts. Balances in transaction accounts at September 30, 2019, represented 88% of total deposits. At September 30, 2019, total deposits were $1.35 billion, up 5% from $1.29 billion at June 30, 2019, and up 10% from $1.23 billion a year ago. Average interest-bearing deposits were up 6% to $870.4 million with an average cost of 0.62% in the third quarter of 2019, compared to $818.1 million and an average cost of 0.58% in the second quarter of 2019, and up 9% compared to $795.3 million and an average cost of 0.30% in the third quarter of 2018.

Shareholders’ equity was $204.0 million, or $31.20 per share, at September 30, 2019, compared to $206.3 million, or $30.66 per share, at June 30, 2019 and $203.2 million, or $29.52 per share, a year ago. Tangible book value per share* was $28.74 at September 30, 2019, up from $27.17 per share a year ago. Northrim continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” under the Basel III and Dodd Frank regulatory standards with Tier 1 Capital to Risk Adjusted Assets of 14.57% at September 30, 2019. Share repurchases accounted for the modest decline in shareholders' equity in both the third and second quarters of 2019, compared to a year ago.

Asset Quality

“The overall improvement in the quality of the loan portfolio during the quarter reflects the hard work of our lending and credit administration teams,” said Ballard. “Net loan recoveries totaled $694,000 for the quarter, and all credit quality metrics improved compared to three months earlier.”

Nonperforming assets ("NPAs") net of government guarantees improved to $21.5 million at September 30, 2019, compared to $23.9 million at June 30, 2019, and $24.1 million at September 30, 2018. Of the NPAs, $13.0 million, or 61% are nonaccrual loans related to six commercial relationships. Two of these relationships, which totaled $6.0 million at the end of the third quarter of 2019, are businesses in the medical industry.

Net adversely classified loans improved to $24.2 million at the end of the third quarter of 2019 as compared to $25.0 million at the end of the second quarter of 2019, and $29.7 million one year ago. Loan recoveries were greater than loan charge-offs in the third quarter by $694,000, compared to $9,000 in net loan recoveries in the second quarter of 2019 and $52,000 in net loan recoveries in the year ago quarter. Year to date, net loan recoveries were $643,000, compared to net loan charge-offs of $1.0 million in the first nine months of 2018. Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees. As of September 30, 2019, $18.3 million, or 76% of net adversely classified loans are attributable to eight relationships with four loans to commercial businesses, two loans to medical businesses, and two loans to oilfield services commercial businesses.

Performing restructured loans that were not included in nonaccrual loans at the end of the third quarter of 2019 were $1.5 million, down from $1.6 million in the preceding quarter and from $3.3 million a year ago. The decrease in the third quarter of 2019 compared to the year ago quarter is primarily due to the repayment of one relationship. Borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations are categorized as restructured loans. The Company presents restructured loans that are performing separately from those that are classified as nonaccrual to provide more information on this category of loans and to differentiate between accruing performing and nonperforming restructured loans.

Northrim estimates that $66.3 million, or approximately 6% of portfolio loans as of September 30, 2019, had direct exposure to the oil and gas industry in Alaska, and $2.7 million of these loans are adversely classified. As of September 30, 2019, Northrim has an additional $29.1 million in unfunded commitments to companies with direct exposure to the oil and gas industry in Alaska, and none of these unfunded commitments are considered to be adversely classified


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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loans. Northrim defines direct exposure to the oil and gas sector as loans to borrowers that provide oilfield services and other companies that have identified as significantly reliant upon activity in Alaska related to the oil and gas industry, such as lodging, equipment rental, transportation and other logistics services specific to this industry.

About Northrim BanCorp

Northrim BanCorp, Inc. is the parent company of Northrim Bank, an Alaska-based community bank with 16 branches in Anchorage, the Matanuska Valley, Soldotna, Juneau, Fairbanks, Ketchikan, and Sitka serving 90% of Alaska’s population; and an asset based lending division in Washington; and a wholly-owned mortgage brokerage company, Residential Mortgage Holding Company, LLC. The Bank differentiates itself with its detailed knowledge of Alaska’s economy and its “Customer First Service” philosophy. Pacific Wealth Advisors, LLC is an affiliated company of Northrim BanCorp.

www.northrim.com


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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Forward-Looking Statement
This release may contain “forward-looking statements” as that term is defined for purposes of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are, in effect, management’s attempt to predict future events, and thus are subject to various risks and uncertainties. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. All statements, other than statements of historical fact, regarding our financial position, business strategy and management’s plans and objectives for future operations are forward-looking statements.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words or phrases of similar meaning, as they relate to Northrim and its management are intended to help identify forward-looking statements.  Although we believe that management’s expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct.  Forward looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements.  These risks and uncertainties include: our ability to maintain strong asset quality and to maintain or expand our market share or net interest margins; and our ability to execute our business plan.  Further, actual results may be affected by our ability to compete on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy as those factors relate to our cost of funds and return on assets.  In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates.  Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and from time to time are disclosed in our other filings with the Securities and Exchange Commission.  However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations. These forward-looking statements are made only as of the date of this release, and Northrim does not undertake any obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this release.


References:

https://www.alaskanomics.com/alaskas-economy/
https://www.adn.com/business-economy/2019/10/07/as-bp-exits-alaska-1600-employees-are-waiting-to-find-out-what’s next/
https://www.bea.gov/data/gdp/gdp-state

https://www.bea.gov/data/income-saving/personal-income-by-state

http://almis.labor.state.ak.us/

http://labor.alaska.gov/news/2019/news19-20.htm

http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx

https://tax.alaska.gov/programs/oil/production.aspx

https://www.mba.org/2019-press-releases/august/mortgage-delinquencies-rise-in-the-second-quarter-of-2019




Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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Income Statement
 
 
 
 
 
 
(Dollars in thousands, except per share data)
Three Months Ended
 
Year-to-date
(Unaudited)
September 30,
June 30,
September 30,
 
September 30,
September 30,
 
2019
2019
2018
 
2019
2018
Interest Income:
 
 
 
 
 
 
     Interest and fees on loans

$15,863


$15,353


$14,992

 

$46,193


$42,291

     Interest on portfolio investments
1,661

1,818

1,419

 
5,237

4,167

     Interest on deposits in banks
313

135

169

 
591

512

          Total interest income
17,837

17,306

16,580

 
52,021

46,970

Interest Expense:
 
 
 
 
 
 
     Interest expense on deposits
1,365

1,174

595

 
3,477

1,413

     Interest expense on borrowings
166

175

166

 
512

486

          Total interest expense
1,531

1,349

761

 
3,989

1,899

          Net interest income
16,306

15,957

15,819

 
48,032

45,071

 
 
 
 
 
 
 
Provision (benefit) for loan losses
(2,075
)
300

—

 
(1,025
)
(300
)
          Net interest income after provision for loan losses
18,381

15,657

15,819

 
49,057

45,371

 
 
 
 
 
 
 
Other Operating Income:
 
 
 
 
 
 
     Mortgage banking income
7,565

5,950

5,903

 
17,813

16,325

     Bankcard fees
820

744

724

 
2,214

2,056

     Purchased receivable income
709

837

767

 
2,355

2,474

     Service charges on deposit accounts
398

413

407

 
1,224

1,137

     Gain (loss) on marketable equity securities
130

118

37

 
782

(136
)
     Interest rate swap income
—

734

70

 
734

70

     Gain on sale of securities
—

—

—

 
23

—

     Other income
887

773

765

 
2,466

2,523

          Total other operating income
10,509

9,569

8,673

 
27,611

24,449

 
 
 
 
 
 
 
Other Operating Expense:
 
 
 
 
 
 
     Salaries and other personnel expense
13,186

12,945

11,261

 
37,433

33,208

     Data processing expense
1,849

1,796

1,503

 
5,324

4,374

     Occupancy expense
1,576

1,642

1,687

 
4,989

4,407

     Professional and outside services
610

684

727

 
1,850

1,780

     Marketing expense
357

833

367

 
1,609

1,461

     Insurance expense
102

232

171

 
592

645

     Intangible asset amortization expense
15

15

18

 
45

53

     Impairment of equity method investment
—

—

804

 
—

804

     OREO expense, net rental income and gains on sale
(31
)
165

43

 
(186
)
157

     Other operating expense
1,660

1,507

1,518

 
4,567

4,611

          Total other operating expense
19,324

19,819

18,099

 
56,223

51,500

 
 
 
 
 
 
 
          Income before provision for income taxes
9,566

5,407

6,393

 
20,445

18,320

     Provision for income taxes
2,028

1,146

1,129

 
4,334

3,164

          Net income

$7,538


$4,261


$5,264

 

$16,111


$15,156

 
 
 
 
 
 
 
          Basic EPS

$1.13


$0.62


$0.77

 

$2.38


$2.21

          Diluted EPS

$1.11


$0.62


$0.75

 

$2.35


$2.17

          Average basic shares
6,604,044

6,798,352

6,877,194

 
6,760,672

6,873,843

          Average diluted shares
6,707,523

6,896,687

6,990,633

 
6,861,973

6,978,679










Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
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Balance Sheet
 
 
 
(Dollars in thousands)
 
 
 
(Unaudited)
September 30,
June 30,
September 30,
 
2019
2019
2018
 
 
 
 
Assets:
 
 
 
     Cash and due from banks

$45,381


$25,377


$37,651

     Interest bearing deposits in other banks
46,807

45,454

32,528

     Investment securities available for sale
257,270

249,986

264,193

     Marketable equity securities
8,045

7,916

6,035

     Investment in Federal Home Loan Bank stock
2,140

2,069

2,103

     Loans held for sale
81,942

61,531

56,636

     Portfolio loans
1,036,547

1,015,704

982,007

     Allowance for loan losses
(19,137
)
(20,518
)
(20,160
)
          Net portfolio loans
1,017,410

995,186

961,847

     Purchased receivables, net
13,673

13,114

12,706

     Mortgage servicing rights
11,206

10,836

9,695

     Other real estate owned, net
7,043

7,043

8,707

     Premises and equipment, net
38,556

39,155

38,637

     Lease right of use asset
14,307

14,924

—

     Goodwill and intangible assets
16,109

16,124

16,171

     Other assets
56,742

64,055

55,764

          Total assets
$1,616,631
$1,552,770
$1,502,673
 
 
 
 
Liabilities:
 
 
 
     Demand deposits

$460,327


$435,425


$450,409

     Interest-bearing demand
292,198

285,664

240,974

     Savings deposits
228,739

232,190

233,611

     Money market deposits
214,352

204,151

208,614

     Time deposits
155,413

130,748

99,660

          Total deposits
1,351,029

1,288,178

1,233,268

     Securities sold under repurchase agreements
—

864

32,429

     Other borrowings
8,933

7,158

7,282

     Junior subordinated debentures
10,310

10,310

10,310

     Lease liability
14,224

14,807

—

     Other liabilities
28,096

25,115

16,142

          Total liabilities
1,412,592

1,346,432

1,299,431

 
 
 
 
Shareholders' Equity:
 
 
 
          Total shareholders' equity
204,039

206,338

203,242

          Total liabilities and shareholders' equity

$1,616,631


$1,552,770


$1,502,673

 
 
 
 


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
13 of 20


Additional Financial Information
(Dollars in thousands)
(Unaudited)

Composition of Portfolio Investments
 
 
 
 
 
 
 
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
U.S. Treasury securities

$65,303

24.6
%
 

$55,349

21.5
%
 

$54,452

20.2
%
U.S. Agency securities
123,197

46.5
%
 
127,417

49.4
%
 
151,380

56.0
%
Corporate securities
42,460

16.0
%
 
40,400

15.7
%
 
40,516

15.0
%
Marketable equity securities
8,045

3.0
%
 
7,916

3.1
%
 
6,035

2.2
%
Collateralized loan obligations
22,930

8.6
%
 
22,931

8.9
%
 
6,002

2.2
%
Alaska municipality, utility, or state bonds
3,230

1.2
%
 
3,739

1.4
%
 
7,307

2.7
%
Other municipality, utility, or state bonds
150

0.1
%
 
150

0.1
%
 
4,536

1.7
%
   Total portfolio investments

$265,315

 
 

$257,902

 
 

$270,228

 
 
 
 
 
 
 
 
 
 

Composition of Portfolio Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
Commercial loans

$398,231

39
%
 

$387,257

38
%
 

$344,164

35
%
 

$342,420

35
%
 

$333,132

34
%
CRE owner occupied loans
127,045

12
%
 
126,991

12
%
 
130,141

13
%
 
126,414

13
%
 
130,166

13
%
CRE nonowner occupied loans
377,311

36
%
 
367,703

36
%
 
360,071

37
%
 
367,759

37
%
 
382,313

39
%
Construction loans
98,716

9
%
 
97,837

10
%
 
109,404

11
%
 
109,367

11
%
 
97,976

10
%
Consumer loans
39,868

4
%
 
40,234

4
%
 
42,861

4
%
 
42,873

4
%
 
42,775

4
%
   Subtotal
1,041,171

 
 
1,020,022

 
 
986,641

 
 
988,833

 
 
986,362

 
Unearned loan fees, net
(4,624
)
 
 
(4,318
)
 
 
(4,300
)
 
 
(4,487
)
 
 
(4,355
)
 
     Total portfolio loans

$1,036,547

 
 

$1,015,704

 
 

$982,341

 
 

$984,346

 
 

$982,007

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Composition of Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
Demand deposits

$460,327

33
%
 

$435,425

34
%
 

$417,068

34
%
 

$420,988

35
%
 

$450,409

36
%
Interest-bearing demand
292,198

22
%
 
285,664

22
%
 
247,630

20
%
 
248,056

20
%
 
240,974

20
%
Savings deposits
228,739

17
%
 
232,190

18
%
 
237,510

19
%
 
239,054

19
%
 
233,611

19
%
Money market deposits
214,352

16
%
 
204,151

16
%
 
204,567

17
%
 
206,717

17
%
 
208,614

17
%
Time deposits
155,413

12
%
 
130,748

10
%
 
121,243

10
%
 
113,273

9
%
 
99,660

8
%
   Total deposits

$1,351,029

 
 

$1,288,178

 
 

$1,228,018

 
 

$1,228,088

 
 

$1,233,268

 


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
14 of 20


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Asset Quality
 
 
 
 
 
 
 
September 30,
 
June 30,
 
September 30,
 
 
2019
 
2019
 
2018
 
     Nonaccrual loans

$17,442

 

$18,080

 

$16,728

 
     Loans 90 days past due and accruing
—

 
—

 
152

 
          Total nonperforming loans
17,442

 
18,080

 
16,880

 
             Nonperforming loans guaranteed by government
(1,935
)
 
(1,139
)
 
(279
)
 
                Net nonperforming loans
15,507

 
16,941

 
16,601

 
     Other real estate owned
7,043

 
7,043

 
8,707

 
     Repossessed assets
231

 
1,182

 
29

 
             Other real estate owned guaranteed by government
(1,279
)
 
(1,279
)
 
(1,279
)
 
                Net nonperforming assets

$21,502

 

$23,887

 

$24,058

 
     Nonperforming loans / portfolio loans, net of government guarantees
1.50

%
1.67

%
1.69

%
     Nonperforming assets / total assets, net of government guarantees
1.33

%
1.54

%
1.60

%
 
 
 
 
 
 
 
     Performing restructured loans

$1,498

 

$1,645

 

$3,252

 
     Nonperforming loans plus performing restructured loans, net of government
 
 
 
 
 
 
     guarantees

$17,005

 

$18,586

 

$19,853

 
     Nonperforming loans plus performing restructured loans / portfolio loans, net of
 
 
 
 
 
 
     government guarantees
1.64

%
1.83

%
2.02

%
     Nonperforming assets plus performing restructured loans / total assets, net of
 
 
 
 
 
 
     government guarantees
1.42

%
1.64

%
1.82

%
 
 
 
 
 
 
 
     Adversely classified loans, net of government guarantees

$24,199

 

$25,016

 

$29,730

 
     Loans 30-89 days past due and accruing, net of government guarantees /
 
 
 
 
 
 
     portfolio loans
0.12

%
0.70

%
0.26

%
 
 
 
 
 
 
 
     Allowance for loan losses / portfolio loans
1.85

%
2.02

%
2.05

%
     Allowance for loan losses / nonperforming loans, net of government guarantees
123

%
121

%
121

%
 
 
 
 
 
 
 
     Gross loan charge-offs for the quarter

$29

 

$68

 

$9

 
     Gross loan recoveries for the quarter

($723
)
 

($77
)
 

($61
)
 
     Net loan (recoveries) charge-offs for the quarter

($694
)
 

($9
)
 

($52
)
 
     Net loan (recoveries) charge-offs year-to-date

($643
)
 

$51

 

$1,001

 
     Net loan (recoveries) charge-offs for the quarter / average loans, for the quarter
(0.07
)
%
0.00

%
(0.01
)
%
     Net loan (recoveries) charge-offs year-to-date / average loans,
 
 
 
 
 
 
          year-to-date annualized
(0.09
)
%
0.01

%
0.14

%



Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
15 of 20


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Nonperforming Assets Rollforward
 
 
 
 
 
 
 
 
 
 
 
Writedowns
Transfers to
Transfers to
 
 
 
Balance at June 30, 2019
Additions this quarter
Payments this quarter
/Charge-offs
 this quarter
OREO/ REPO
Performing Status
this quarter
Sales this quarter
Balance at September 30, 2019
Commercial loans

$11,207


$1,328


($1,414
)

($22
)

($231
)

$—


$—


$10,868

Commercial real estate
5,041

—

(67
)
—

—

—

—

4,974

Construction loans
1,492

—

(19
)
—

—

—

—

1,473

Consumer loans
340

7

(213
)
(7
)
—

—

—

127

Non-performing loans guaranteed by government
(1,139
)
(797
)
1

—

—

—

—

(1,935
)
   Total non-performing loans
16,941

538

(1,712
)
(29
)
(231
)
—

—

15,507

Other real estate owned
7,043

—

—

—

—

—

—

7,043

Repossessed assets
1,182

231

—

—

—

—

(1,182
)
231

Other real estate owned guaranteed
 
 
 
 
 
 
 
 
by government
(1,279
)
—

—

—

—

—

—

(1,279
)
   Total non-performing assets,
 
 
 
 
 
 
 
 
   net of government guarantees

$23,887


$769


($1,712
)

($29
)

($231
)

$—


($1,182
)

$21,502



The following table details loan charge-offs, by industry:
Loan Charge-offs by Industry
 
 
 
 
 
Three Months Ended
 
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
Charge-offs:
 
 
 
 
 
Remediation services

$—


$—


$89


$—


$—

Transportation and warehousing
—

—

—

362

—

Retail sales
22

—

—

—

—

Excavation and construction
—

—

20

320

—

Health care and social assistance
—

64

—

—

—

Consumer
7

4

—

31

9

   Total charge-offs

$29


$68


$109


$713


$9







Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
16 of 20


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Average Balances, Yields, and Rates
 
 
 
 
 
 
 
 
 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
 
Average
 
 
Average
 
 
Average
 
Average
Tax Equivalent
 
Average
Tax Equivalent
 
Average
Tax Equivalent
 
Balance
Yield/Rate
 
Balance
Yield/Rate
 
Balance
Yield/Rate
Assets
 
 
 
 
 
 
 
 
Interest bearing deposits in other banks

$58,754

2.08
%
 

$22,850

2.34
%
 

$34,136

1.94
%
Portfolio investments
253,364

2.73
%
 
281,450

2.71
%
 
264,377

2.29
%
Loans held for sale
74,181

3.79
%
 
51,280

4.13
%
 
54,792

4.64
%
Portfolio loans
1,020,186

5.92
%
 
1,003,019

5.96
%
 
984,914

5.81
%
   Total interest-earning assets
1,406,485

5.08
%
 
1,358,599

5.17
%
 
1,338,219

4.97
%
Nonearning assets
169,907

 
 
167,414

 
 
150,808

 
   Total assets

$1,576,392

 
 

$1,526,013

 
 

$1,489,027

 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
 
Interest-bearing deposits

$870,369

0.62
%
 

$818,122

0.58
%
 

$795,256

0.30
%
Borrowings
19,749

3.27
%
 
44,938

1.53
%
 
46,663

1.39
%
   Total interest-bearing liabilities
890,118

0.68
%
 
863,060

0.63
%
 
841,919

0.36
%
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
437,426

 
 
421,232

 
 
428,741

 
Other liabilities
41,946

 
 
31,391

 
 
15,039

 
Shareholders' equity
206,902

 
 
210,330

 
 
203,328

 
   Total liabilities and shareholders' equity

$1,576,392

 
 

$1,526,013

 
 

$1,489,027

 
   Net spread
 
4.40
%
 
 
4.54
%
 
 
4.61
%
   NIM
 
4.60
%
 
 
4.71
%
 
 
4.69
%
   NIMTE*
 
4.65
%
 
 
4.77
%
 
 
4.74
%
   Average portfolio loans to average
 
 
 
 
 
 
 
 
        interest-earning assets
72.53
%
 
 
73.83
%
 
 
73.60
%
 
   Average portfolio loans to average total deposits
78.01
%
 
 
80.93
%
 
 
80.47
%
 
   Average non-interest deposits to average
 
 
 
 
 
 
 
 
         total deposits
33.45
%
 
 
33.99
%
 
 
35.03
%
 
   Average interest-earning assets to average
 
 
 
 
 
 
 
 
         interest-bearing liabilities
158.01
%
 
 
157.42
%
 
 
158.95
%
 

The components of the change in NIMTE* are detailed in the table below:

 
3Q19 vs. 2Q19
3Q19 vs. 3Q18
Nonaccrual interest adjustments
0.01
 %
0.03
 %
Interest rates and loan fees
(0.11
)%
(0.12
)%
Volume and mix of interest-earning assets and liabilities
(0.02
)%
—
 %
Change in NIMTE*
(0.12
)%
(0.09
)%


Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
17 of 20


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Average Balances, Yields, and Rates
 
 
 
 
 
 
Year-to-date
 
September 30, 2019
 
September 30, 2018
 
 
Average
 
 
Average
 
Average
Tax Equivalent
 
Average
Tax Equivalent
 
Balance
Yield/Rate
 
Balance
Yield/Rate
Assets
 
 
 
 
 
Interest bearing deposits in other banks

$35,394

2.20
%
 

$39,335

1.72
%
Portfolio investments
271,645

2.69
%
 
288,311

2.07
%
Loans held for sale
52,379

4.05
%
 
46,042

4.30
%
Portfolio loans
1,004,157

5.97
%
 
968,225

5.66
%
   Total interest-earning assets
1,363,575

5.16
%
 
1,341,913

4.73
%
Nonearning assets
166,548

 
 
146,006

 
   Total assets

$1,530,123

 
 

$1,487,919

 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
Interest-bearing deposits

$829,916

0.56
%
 

$814,339

0.23
%
Borrowings
38,618

1.74
%
 
45,943

1.39
%
   Total interest-bearing liabilities
868,534

0.61
%
 
860,282

0.29
%
 
 
 
 
 
 
Noninterest-bearing demand deposits
417,719

 
 
410,841

 
Other liabilities
35,053

 
 
17,734

 
Shareholders' equity
208,817

 
 
199,062

 
   Total liabilities and shareholders' equity

$1,530,123

 
 

$1,487,919

 
   Net spread
 
4.55
%
 
 
4.44
%
   NIM
 
4.71
%
 
 
4.49
%
   NIMTE*
 
4.76
%
 
 
4.54
%
   Average portfolio loans to average interest-earning assets
73.64
%
 
 
72.15
%
 
   Average portfolio loans to average total deposits
80.48
%
 
 
79.03
%
 
   Average non-interest deposits to average total deposits
33.48
%
 
 
33.53
%
 
   Average interest-earning assets to average interest-bearing liabilities
157.00
%
 
 
155.99
%
 

The components of the change in NIMTE* are detailed in the table below:
 
YTD19 vs.YTD18
Nonaccrual interest adjustments
—
%
Interest rates and loan fees
0.18
%
Volume and mix of interest-earning assets and liabilities
0.04
%
Change in NIMTE*
0.22
%





Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
18 of 20


Additional Financial Information
(Dollars in thousands, except per share data)
(Unaudited)
Capital Data (At quarter end)
 
 
 
 
 
 
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
Book value per share

$31.20

 

$30.66

 

$29.52

 
Tangible book value per share*

$28.74

 

$28.27

 

$27.17

 
Total shareholders' equity/total assets
12.62

%
13.29

%
13.53

%
Tangible Common Equity/Tangible Assets*
11.74

%
12.38

%
12.58

%
Tier 1 Capital / Risk Adjusted Assets
14.57

%
15.03

%
15.33

%
Total Capital / Risk Adjusted Assets
15.82

%
16.28

%
16.58

%
Tier 1 Capital / Average Assets
12.68

%
13.22

%
13.41

%
Shares outstanding
6,539,796

 
6,729,456

 
6,884,386

 
Unrealized gain (loss) on AFS debt securities, net of income taxes

$930

 

$871

 

($1,680
)
 
Unrealized gain (loss) on derivatives and hedging activities

($1,064
)
 

($374
)
 

$1,039

 

Profitability Ratios
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
For the quarter:
 
 
 
 
 
 
 
 
 
 
     NIM
4.60
%
4.71
%
4.83
%
4.71
%
4.69
%
     NIMTE*
4.65
%
4.77
%
4.89
%
4.76
%
4.74
%
     Efficiency ratio
72.01
%
77.58
%
73.23
%
76.64
%
73.82
%
     Return on average assets
1.90
%
1.12
%
1.18
%
1.27
%
1.40
%
     Return on average equity
14.45
%
8.13
%
8.36
%
9.30
%
10.27
%

 
September 30, 2019
 
September 30, 2018
 
Year-to-date:
 
 
 
 
     NIM
4.71
%
4.49
%
     NIMTE*
4.76
%
4.54
%
     Efficiency ratio
74.27
%
74.00
%
     Return on average assets
1.41
%
1.36
%
     Return on average equity
10.32
%
10.18
%




Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
19 of 20


*Non-GAAP Financial Measures
(Dollars and shares in thousands, except per share data)
(Unaudited)

Net interest margin on a tax equivalent basis

Net interest margin on a tax equivalent basis ("NIMTE") is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax equivalent basis using a combined federal and state statutory rate of 28.43% in 2019 and 2018, respectively. The most comparable GAAP measure is net interest margin and the following table sets forth the reconciliation of NIMTE to net interest margin.

 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
Net interest income

$16,306

 

$15,957

 

$15,769

 

$16,137

 

$15,819

Divided by average interest-bearing assets
1,406,485

 
1,358,599

 
1,324,741

 
1,359,909

 
1,338,219

Net interest margin ("NIM")2
4.60
%
 
4.71
%
 
4.83
%
 
4.71
%
 
4.69
%
 
 
 
 
 
 
 
 
 
 
Net interest income

$16,306

 

$15,957

 

$15,769

 

$16,137

 

$15,819

Plus: reduction in tax expense related to
 

 
 

 
 

 
 

 
 

     tax-exempt interest income
163

 
191

 
188

 
196

 
182

 

$16,469

 

$16,148

 

$15,957

 

$16,333

 

$16,001

Divided by average interest-bearing assets
1,406,485

 
1,358,599

 
1,324,741

 
1,359,909

 
1,338,219

NIMTE2
4.65
%
 
4.77
%
 
4.89
%
 
4.76
%
 
4.74
%

 
Year-to-date
 
September 30, 2019
 
September 30, 2018
Net interest income

$48,032

 

$45,071

Divided by average interest-bearing assets
1,363,575

 
1,341,913

Net interest margin ("NIM")3
4.71
%
 
4.49
%
 
 
 
 
Net interest income

$48,032

 

$45,071

Plus: reduction in tax expense related to
 

 
 
     tax-exempt interest income
554

 
530

 

$48,586

 

$45,601

Divided by average interest-bearing assets
1,363,575

 
1,341,913

NIMTE3
4.76
%
 
4.54
%

2Calculated using actual days in the quarter divided by 365 for quarters ended in 2019 and 2018.

3Calculated using actual days in the year divided by 365 for year-to-date periods in 2019 and 2018.



Northrim BanCorp Earns $7.5 Million, or $1.11 per Diluted Share in 3Q19
October 28, 2019
20 of 20


*Non-GAAP Financial Measures
(Dollars and shares in thousands, except per share data)
(Unaudited)

Tangible Book Value

Tangible book value is a non-GAAP measure defined as shareholders' equity, less intangible assets, divided by shares outstanding. The following table sets forth the reconciliation of tangible book value per share and book value per share.
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity

$204,039

 

$206,338