Northrim BanCorp Reports Earnings of $9.9 Million, or $1.52 Per Diluted Share, in 2Q20 compared to $4.3 Million, or $0.62 Per Diluted Share in 2Q19

ANCHORAGE, Alaska, July 27, 2020 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the "Company") today reported net income of $9.90 million, or $1.52 per diluted share, in the second quarter of 2020, compared to $1.03 million, or $0.16 per diluted share, in the first quarter of 2020, and $4.26 million, or $0.62 per diluted share, in the second quarter a year ago. The effort put forth by all of our employees to meet the needs of our community during the pandemic resulted in increased production in the Home Mortgage Lending segment, as well as significant participation in the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") in the Community Banking segment, which contributed to record profitability.

Net income for the first six months of 2020 was $10.93 million, or $1.68 per diluted share, compared to $8.57 million, or $1.24 per diluted share, in the first six months of 2019. The provision for loan losses increased to $2.5 million, compared to a $1.1 million loan loss provision in the first half of 2019.

“Our second quarter was highlighted by higher production in new purchase and refinance activity in the Home Mortgage Lending segment, as a result of the historically low interest rate environment. Additionally, PPP loans generated during the quarter had a meaningful impact on loan and deposit growth in the Community Banking segment, which also contributed to strong second quarter results,” said Joe Schierhorn, President and CEO. “In addition to the impact of the COVID-19 pandemic, Alaska’s economy continues to reflect the downturn in the energy sector, particularly with the sharp decline in oil prices. While Alaska is one of the few states that has re-opened, we have taken a structured approach to resuming all branch activities with many employees continuing to work remotely while maintaining our high level of customer service.”

“Northrim’s participation in the PPP helped service the needs of our customers and the community,” said Schierhorn. “In early April we made the decision to offer the program to existing customers and new customers. As a result, according to the SBA, Northrim originated more PPP loans than any other financial institution in Alaska, funding 23% of all Alaska PPP loans through the period ending June 30, 2020. We were able to help approximately 1,000 new customers receive PPP funding in addition to helping more than 1,500 of our existing customers who participated in the program.”

COVID-19 Issues:

  • Industry Exposure: Northrim has identified various industries that may be adversely impacted by the COVID-19 pandemic and the significant decline in oil prices. Though the industries affected may change through the progression of the pandemic, the following sectors for which Northrim has exposure, as a percent of the total loan portfolio excluding SBA PPP loans as of June 30, 2020, are: Tourism (6%), Oil and Gas (6%), Aviation (non-tourism) (5%), Healthcare (5%), Accommodations (3%), Retail (2%) and Restaurants (2%).
  • Customer Accommodations: The Company has implemented several forms of assistance to help our customers in the event that they experience financial hardship as a result of COVID-19 in addition to our participation in PPP lending. These accommodations include interest only and deferral options on loan payments, as well as the waiver of various fees related to loans, deposits and other services. As of June 30, 2020, the Company has made the following loan modifications due to the impacts of COVID-19:
Loan Modifications due to COVID-19
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$64,298$293,224$357,522
Number of modifications76403479

Consumer loans represent 1% of total loan modifications identified above.

  • Loan Loss Reserve: Northrim booked a loan loss provision of $404,000 for the quarter ended June 30, 2020. This compares to a provision for loan losses of $2.1 million during the previous quarter and a $300,000 provision for loan losses in the second quarter a year ago.
  • Credit Quality: Net adversely classified loans improved to $15.7 million at June 30, 2020, as compared to $25.0 million at June 30, 2019. Net loan chargeoffs were $768,000 in the second quarter of 2020, compared to net loan recoveries of $9,000 in the second quarter of 2019.
  • Branch Operations: All but one branch remained open throughout the quarter. Branch lobbies were available by appointment from March 23 to June 17. All but one branch was fully reopened on June 17 with a number of customers and employee safety measures implemented.
  • Growth and Paycheck Protection Program:
    ° 
    The Company’s asset base increased during the second quarter ended June 30, 2020, due primarily to loans originated under the SBA's PPP.
    ° Through June 30, 2020, Northrim had funded approximately 2,500 PPP loans totaling $353.5 million to both existing and new customers.
    ° According to the SBA, the Company originated more SBA PPP loans in the State of Alaska than any other financial institution, funding 23% of the number and 28% of the value of all Alaska PPP loans for the period ending June 30, 2020.
    ° The Company initially utilized the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility (the "PPPLF") to fund PPP loans, but has since repaid those funds back in full and has funded the SBA PPP loans through core deposits and maturity of long-term investments.
  • Capital Management: At June 30, 2020, the Company’s tangible common equity to tangible assets* ratio was 9.54% and the Bank’s capital was well in excess of all regulatory requirements. As previously announced, the Company suspended its previously announced stock repurchasing activity effective March 26, 2020.

Second Quarter 2020 Highlights:

  • Total revenue, which includes net interest income plus other operating income, increased 58% to $35.0 million in the second quarter of 2020, compared to $22.1 million in the first quarter of 2020 and increased 37% compared to $25.5 million in the second quarter a year ago.
    ° Community Banking provided 54% of total revenues and 46% of earnings in the second quarter of 2020.
    ° Home Mortgage Lending provided 46% of total revenue and 54% of earnings in the second quarter of 2020.
  • Net interest income in the second quarter of 2020 was $17.5 million, up 11% from $15.7 million in the preceding quarter and up 9% from $16.0 million in the second quarter a year ago.
  • Net interest margin on a tax equivalent basis (“NIMTE”)* was 4.02% in the second quarter of 2020, a 35-basis point contraction compared to the preceding quarter, and a 75-basis point contraction compared to the second quarter a year ago.
  • Return on average assets was 2.04% and return on average equity was 19.44% for the second quarter of 2020.
  • Net loans increased 33% to $1.41 billion at June 30, 2020, compared to $1.06 billion at March 31, 2020, and increased 42% compared to $995.2 million at June 30, 2019.
  • Total deposits increased 24% to $1.74 billion at June 30, 2020, compared to $1.40 billion at March 31, 2020, and increased 35% compared to $1.29 billion a year earlier.
  • The Company's wholly owned subsidiary, Residential Mortgage, LLC, generated $212 million or 126% more production during the quarter ended June 30, 2020 as compared to the same period in 2019.
  • The decrease in mortgage interest rates resulted in a decrease of the Bank's mortgage servicing rights by $1.9 million for the quarter ended June 30, 2020, compared to a decrease of $930,000 for the preceding quarter and a decrease of $950,000 for the second quarter a year ago.
Financial HighlightsThree Months Ended
(Dollars in thousands, except per share data)June 30, 2020March 31, 2020December 31,
2019
September 30,
2019
June 30, 2019
Total assets$2,016,705 $1,691,262 $1,643,996 $1,616,631 $1,552,770 
Total portfolio loans$1,433,201 $1,081,873 $1,043,371 $1,036,547 $1,015,704 
Average portfolio loans$1,342,717 $1,059,023 $1,027,728 $1,020,186 $1,003,019 
Total deposits$1,737,359 $1,395,492 $1,372,351 $1,351,029 $1,288,178 
Average deposits$1,620,008 $1,359,206 $1,361,786 $1,307,795 $1,239,354 
Total shareholders' equity$206,923 $197,723 $207,117 $204,039 $206,338 
Net income$9,900 $1,033 $4,580 $7,538 $4,261 
Diluted earnings per share$1.52 $0.16 $0.69 $1.11 $0.62 
Return on average assets2.04%0.25%1.11%1.90%1.12%
Return on average shareholders' equity19.44%2.00%8.74%14.45%8.13%
NIM3.98%4.32%4.48%4.60%4.71%
NIMTE*4.02%4.37%4.52%4.65%4.77%
Efficiency ratio64.76%84.87%78.79%72.01%77.58%
Total shareholders' equity/total assets10.26%11.69%12.60%12.62%13.29%
Tangible common equity/tangible assets*9.54%10.84%11.73%11.74%12.38%
Book value per share$32.49 $31.06 $31.58 $31.20 $30.66 
Tangible book value per share*$29.97 $28.53 $29.12 $28.74 $28.27 
Dividends per share$0.34 $0.34 $0.33 $0.33 $0.30 
           

* 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 COVID-19 pandemic has disrupted economies all around the world. In Alaska, the tourism and hospitality industries have been most affected with job losses. Oil prices dropped precipitously at the beginning of the pandemic, but have rebounded recently to healthier levels. The government’s fiscal and monetary response has been far reaching. This has greatly eased the short run impacts of the virus for most of Northrim's customers.

The State Department of Labor reported that a year and a half of positive job growth came to an abrupt end in April of 2020. The seasonally adjusted unemployment rate in the State of Alaska jumped from 5.6% in March to 13.5% in April. This moderated slightly to 12.6% in May. The comparable U.S. rate peaked at 14.7% in April and decreased to 13.3% in May. In Alaska, every major job sector reported declines year-over-year (“YoY”) in May. Leisure and Hospitality was the most severely impacted, declining 39.7% for a loss of 15,300 jobs in May. Government declined by 7,400 jobs or 9.1%, primarily due to a loss of 6,200 local government jobs. State government declined by 1,000 jobs and Federal government by only 200 jobs. Other major sectors to decline YoY in May of 2020 were: Health Care -2,900; Transportation, Warehousing and Utilities -2,700; Retail Trade -2,600; and Construction -2,400.

Oil prices have been fluctuating significantly in 2020 as the global economy reacts to the COVID-19 pandemic. Average monthly Alaska North Slope (“ANS”) crude oil prices began the year averaging $65.48 for the month of January. The virus concerns began to have an effect when monthly ANS prices declined to $54.48 in February and $33.21 in March. In the second quarter of 2020, ANS prices hit a monthly low of $16.54 in April and increased to $28.21 in May. The ANS price improved throughout June and averaged $41.78.

Trillions of dollars in federal assistance programs have helped mitigate some of the negative impacts of the COVID-19 pandemic in the short run. The Fed Funds rate was decreased 1.5% in March. “This helped reduce borrower’s interest expense dramatically,” stated Mark Edwards, EVP Chief Credit Officer and Bank Economist. “The Federal Reserve is buying corporate bonds, lending to state and municipal governments, and even aiding foreign central banks of our allies to help stabilize global markets. The Fed is adding liquidity to the system to ensure credit markets don’t freeze up.”

The SBA PPP program and the Economic Injury Disaster loan program have provided hundreds of billions of dollars to businesses around the country. President and CEO Joe Schierhorn added, “We are proud of Northrim Bank’s role in extensively supporting the SBA’s lending programs. The Federal Reserve’s Main Street Lending Program is also now available to help businesses weather current economic disruptions. Direct grants to states from the CARES Act provided approximately $1.25 billion to Alaska. An increase of $600 in weekly unemployment insurance benefits helped millions of people out of work maintain cash flow.  A moratorium on housing foreclosures, coupled with widespread payment forbearance arrangements, kept Americans in their homes.”

Alaska’s seasonally adjusted gross state product ("GSP") was $54 billion in the first quarter of 2020, according to the U.S. Bureau of Economic Analysis ("BEA") in a report released on July 7, 2020. Alaska’s real GSP decreased 4% annualized for the quarter. Real GSP decreased in all 50 states in the first quarter of 2020 and averaged a decline of 5% for the nation.  Alaska’s performance was above average, placing it 13th best of the 50 U.S. states for the quarter. This is following positive growth in Alaska in 2019 of 2.5%, compared to U.S. growth of 2.3% last year.  The largest sectors of decline in GSP in Alaska in the first quarter of 2020 were Health Care, Accommodation and food services, and Government.

Alaska’s personal income grew 3.7% in 2019 according to a report by the BEA.  Total income from all sources in Alaska grew from $44.4 billion at the end of 2018 to $46.1 billion in the first quarter of 2020.   Most of the increase came from over $1 billion in improvement of wages in 2019.  The first quarter of 2020 saw an annualized growth rate of 1.3% in Alaska.

Alaska’s delinquency and foreclosure levels continue to be better than most of the nation.  According to the Mortgage Bankers Association, Alaska’s foreclosure rate was 0.60% at the end of the first quarter 2020.  That compares to 0.63% at the end of 2019.  The comparable national average rate was 0.73% in the first quarter of 2020 and 0.78% at the end of 2019.

The national survey reported that the percentage of delinquent mortgage loans in Alaska was 3.23% in the first quarter of 2020.  This compares to 2.85% at the end of 2019. The delinquency rate for the entire country was higher at 4% in the first quarter of 2020 and 4.07% at the end of 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 second quarter of 2020, Northrim generated a return on average assets ("ROAA") of 2.04% and a return on average equity ("ROAE") of 19.44%, compared to 0.25% and 2.00%, respectively, in the first quarter of 2020 and 1.12% and 8.13%, respectively, in the second quarter a year ago.

Net Interest Income/Net Interest Margin

Net interest income increased 9.4% to $17.5 million in the second quarter of 2020 compared to $16.0 million in the second quarter of 2019 and increased 11.3% compared to $15.7 million in the first quarter of 2020.  Interest income benefited from the growth in the loan portfolio during the second quarter of 2020, as well as the amortization of PPP loan fees.

NIMTE* was 4.02% in the second quarter of 2020 compared to 4.37% in the preceding quarter and 4.77% in the second quarter a year ago.  “The decline in our NIMTE* compared to the prior quarter was primarily due to the swift reduction in short-term interest rates during the first quarter of 2020 and the resulting effect on yields in the loan portfolio,” said Jed Ballard, Chief Financial Officer.  “Also notable was the impact of SBA PPP loans, which reduced our NIMTE* by 15 basis points during the second quarter of 2020.” Northrim’s NIMTE* continues to remain above the peer average posted by the SNL Small Cap U.S. Bank Index with total market capitalization between $250 million and $1 billion as of March 31, 20201.

The yield on interest earning assets in the second quarter of 2020 was 4.38%, down 44 basis points from the first quarter of 2020 and down 79 basis points compared to the second quarter a year ago.  The cost of funds was 57 basis points in the second quarter of 2020, down 13 basis points compared to the preceding quarter and down 6 basis points compared to the second quarter a year ago. The decrease in cost of funds for the second quarter of 2020 was the result of using the Federal Reserve's PPPLF with a cost of 35 bps for a portion of the quarter.

Provision for Loan Losses

Northrim recorded a provision for loan losses of $404,000 in the second quarter of 2020.  This compares to a $2.1 million provision in the first quarter of 2020 and a $300,000 provision in the second quarter a year ago.  “The provision for loan losses during the quarter primarily reflects management's assessment of risks associated with the COVID-19 pandemic, the reduction in oil prices and a slowing Alaska economy, as well as the small growth in the loan portfolio excluding PPP loans,” said Ballard.  The total allowance for loan losses to portfolio loans decreased at June 30, 2020 compared to March 31, 2020 and June 30, 2019 due to net charge offs during the quarter that were only partially offset by the provision for loan losses in the second quarter of 2020.

Nonperforming loans, net of government guarantees, improved during the quarter to $12.7 million at June 30, 2020, compared to $13.4 million at March 31, 2020, and $16.9 million at June 30, 2019.  The allowance for loan losses was 162% of nonperforming loans, net of government guarantees at the end of the quarter, compared to 157% three months earlier and 121% a year earlier.

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 $17.5 million, or 50% of total second quarter 2020 revenues, as compared to $6.4 million, or 29% of revenues in the first quarter of 2020, and $9.6 million, or 37% of revenues in the second quarter of 2019.  In the first six months of 2020, other operating income totaled $24.0 million, or 42% of revenues, compared to $17.1 million, or 35% of revenues in the first six months of 2019.  The primary drivers of changes in other operating income are variability in the mortgage market, which is seasonal and cyclical and also dependent on changes in mortgage rates, and 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 $149,000 in the second quarter of 2020, compared to an $871,000 decrease in the first quarter of 2020 and a $118,000 increase in the second quarter of 2019.  There was $17,000 in interest rate swap income in the second quarter of 2020.  This compares to no swap income in the preceding quarter and $734,000 in interest rate swap income in the second quarter of 2019 on the execution of interest rate swaps related to the Company's commercial lending operations. Additionally, purchased receivable income is down significantly as those customers were reportedly using resources from PPP loans, resulting in decreased outstanding purchased receivable balances in the second quarter of 2020.

“Additionally, deposit and services charges were down during the second quarter, due to customer accommodations made during the first two months of the quarter,” noted Ballard.

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1As of March 31, 2020, the SNL Small Cap US Bank Index tracked 108 banks with total common market capitalization between $250 million to $1B with an average for NIMTE* of 3.46%.

Other Operating Expenses

Operating expenses were $22.7 million in the second quarter of 2020, compared to $18.8 million in the first quarter of 2020, and $19.8 million in the second quarter of 2019.  Factors impacting other operating expenses include higher compensation costs related to the mortgage banking operations and higher data processing costs in the Community Banking segment due to charges for additional products and services.  In the first six months of 2020, operating expenses were $41.5 million, up from $36.9 million in the first six months of 2019.

Income Tax Provision

For the second quarter of 2020, Northrim recorded $2.0 million in state and federal income tax expense for an effective tax rate of 16.9% compared to $243,000, or 19.0% in the first quarter of 2020 and $1.1 million, or 21.2% in the second quarter a year ago.  For the first half of 2020, Northrim recorded $2.3 million in state and federal income tax expense, for an effective tax rate of 17.1% compared to $2.3 million and 21.2% for the same period in 2019.

The Company expensed $454,000 in the fourth quarter of 2018 to accrue for a potential increase in tax expense related to an audit that was performed by the State of Alaska for tax years 2014-2016.  The Company appealed the State of Alaska’s decision on this matter and reversed the tax accrual of $454,000 in the second quarter of 2020 because the Company believes that it is more likely than not that the court will rule in the Company’s favor.

Community Banking

“We are proud of the work we have done to provide PPP loans to our Alaskan communities,” said Schierhorn. “Our Community Banking segment continues to provide growth opportunities in the Alaska markets that we serve.  In March we opened a loan production office in Kodiak, and we have received regulatory approvals for a new branch in Fairbanks that is scheduled to open later this year.  We will continue to look at other markets where we see additional opportunities.”  Net interest income in the Community Banking segment totaled $16.6 million in the second quarter of 2020, compared to $15.3 million in the first quarter of 2020 and $15.6 million in the second quarter of 2019.

The following table provides highlights of the Community Banking segment of Northrim:

 Three Months Ended
(Dollars in thousands, except per share data)June 30, 2020March 31, 2020December 31, 2019September 30, 2019June 30, 2019
Net interest income$16,649 $15,261 $16,080 $16,000 $15,633 
Provision (benefit) for loan losses404 2,060 (150)(2,075)300 
Other operating income2,308 1,768 3,347 2,944 3,619 
Compensation expense, net RML acquisition payments  468   
Other operating expense14,113 13,612 14,765 13,126 14,111 
  Income before provision for income taxes4,440 1,357 4,344 7,893 4,841 
Provision (benefit) for income taxes(124)266 719 1,550 984 
  Net income$4,564 $1,091 $3,625 $6,343 $3,857 
Weighted average shares outstanding, diluted6,440,898 6,560,593 6,647,510 6,707,523 6,896,687 
Diluted earnings per share$0.70 $0.17 $0.55 $0.93 $0.56 


 Year-to-date
(Dollars in thousands, except per share data)June 30, 2020June 30, 2019
Net interest income$31,910 $31,121 
Provision for loan losses2,464 1,050 
Other operating income4,076 6,854 
Other operating expense27,725 26,629 
  Income before provision for income taxes5,797 10,296 
Provision for income taxes142 2,139 
  Net income$5,655 $8,157 
   
Average diluted shares6,496,515 6,939,338 
Weighted average shares outstanding, diluted$0.87 $1.18 

Home Mortgage Lending

“The significant activity in the mortgage market far exceeded normal seasonality in the second quarter of 2020, especially in the refinance market, where refinance activity was up 715% compared to the second quarter a year ago” said Ballard.  “We also continue to experience strong new home purchases in our market due to the historically low interest rate environment.”

During the second quarter of 2020, mortgage loan volume more than doubled to $381.1 million, of which 35% was for new home purchases, compared to $168.2 million and 54% of loans funded for new home purchases in the first quarter of 2020, and $169.0 million, of which 82% was for new home purchases in the second quarter of 2019.

Loan fundings increased during the quarter and year-over-year driven by increased refinance activity.  This was partially offset by the net change in fair value of mortgage servicing rights, which decreased mortgage banking income by $1.9 million during the second quarter of 2020.

“Our mortgage servicing business, which we initiated to service loans for the Alaska Housing Finance Corporation, contracted for the first time in the second quarter of 2020 compared to the first quarter of 2020 as a result of the significant refinance activity,” added Ballard.  As of June 30, 2020, Northrim serviced 2,686 loans in its $655.2 million home-mortgage-servicing portfolio, which is a 3% decrease from the $678.1 million serviced for the first quarter of 2020, and a 9% increase from the $598.4 million serviced a year ago.  Mortgage servicing revenue contributed $1.6 million to revenues in the second quarter of 2020 compared to $1.3 million in the first quarter of 2020 and $1.1 million in the second quarter of 2019.  Total mortgage servicing income fluctuates based on the amount of mortgage servicing rights originated during the period and changes in the fair value of those servicing rights, which is driven by interest rate volatility and the amount of serviced mortgages that payoff during the period as well as fluctuations in estimated prepayment speeds based on published industry metrics. The change in the fair value of mortgage servicing rights was a decrease of $1.9 million for the second quarter of 2020, compared to a decrease of $930,000 for the first quarter of 2020 and a decrease of $950,000 for the second quarter of 2019.  The portion of the change in the fair value of mortgage servicing rights resulting from collection of cash flows, including payoffs, was a decrease of $1 million for the second quarter of 2020, a decrease of $229,000 for the preceding quarter, and a decrease of $320,000 for the same quarter a year ago.

The following table provides highlights of the Home Mortgage Lending segment of Northrim:

 Three Months Ended
(Dollars in thousands, except per share data)June 30,
2020
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
Mortgage commitments$206,274 $197,892 $48,796 $86,044 $107,330 
Mortgage loans funded for sale$381,086 $168,224 $181,102 $241,795 $168,953 
Mortgage loan refinances to total fundings65%46%30%33%18%
Mortgage loans serviced for others$655,183 $678,096 $659,048 $634,059 $598,415 
      
Net realized gains on mortgage loans sold$11,322 $4,643 $5,215 $6,768 $4,903 
Change in fair value of mortgage loan commitments, net3,579 (545)(455)(535)655 
Total production revenue14,901 4,098 4,760 6,233 5,558 
Mortgage servicing revenue1,633 1,327 1,679 1,649 1,119 
Change in fair value of mortgage servicing rights, net1(1,928)(930)(321)(662)(950)
Total mortgage servicing revenue, net(295)397 1,358 987 169 
Other mortgage banking revenue621 170 270 345 223 
  Total mortgage banking income$15,227 $4,665 $6,388 $7,565 $5,950 
      
Net interest income$808 $429 $330 $306 $324 
Mortgage banking income15,227 4,665 6,388 7,565 5,950 
Other operating expense8,561 5,175 5,382 6,198 5,708 
  Income (loss) before provision for income taxes7,474 (81)1,336 1,673 566 
Provision (benefit) for income taxes2,138 (23)381 478 162 
  Net income (loss)$5,336 (58)$955 $1,195 $404 
      
Weighted average shares outstanding, diluted6,440,898 6,560,593 6,647,510 6,707,523 6,896,687 
Diluted earnings (loss) per share$0.82 (0.01)$0.14 $0.18 $0.06 

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.

 Year-to-date
(Dollars in thousands, except per share data)June 30,
2020
June 30,
2019
Mortgage loans funded for sale$549,310 $261,400 
Mortgage loan refinances to total fundings59%17%
   
Net realized gains on mortgage loans sold$15,965 $7,830 
Change in fair value of mortgage loan commitments, net3,034 1,011 
Total production revenue18,999 8,841 
Mortgage servicing revenue2,960 2,787 
Change in fair value of mortgage servicing rights, net1(2,858)(1,624)
Total mortgage servicing revenue, net102 1,163 
Other mortgage banking revenue791 244 
  Total mortgage banking income$19,892 $10,248 
   
Net interest income$1,237 $605 
Mortgage banking income19,892 10,248 
Other operating expense13,736 10,270 
  Income before provision for income taxes7,393 583 
Provision for income taxes2,115 167 
  Net income$5,278 $416 
   
Weighted average shares outstanding, diluted6,496,515 6,939,338 
Diluted earnings per share$0.81 $0.06 

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 $2.02 billion at June 30, 2020, up 19% from the preceding quarter and up 30% from a year ago. Northrim’s loan-to-deposit ratio was 82% at June 30, 2020, up from 78% at March 31, 2020 and 79% at June 30, 2019.

Average interest-earning assets were $1.76 billion in the second quarter of 2020, up 21% from $1.46 billion in the first quarter of 2020 and up 30% from $1.36 billion in the second quarter a year ago.  The average yield on interest-earning assets was 4.38% in the second quarter of 2020, down from 4.82% in the preceding quarter and 5.17% in the second quarter a year ago.

Average investment securities decreased to $256.5 million in the second quarter of 2020, compared to $284.1 million in the first quarter of 2020 and $281.5 million in the second quarter a year ago. The average net tax equivalent yield on the securities portfolio was 2.50% for the second quarter of 2020, down from 2.59% in the preceding quarter and 2.71% in the year ago quarter. The average estimated duration of the investment portfolio at June 30, 2020 was 2.5 years.

“Our participation in the PPP bolstered loan production during the quarter.  While the loan pipeline remains strong, new loan growth outside of PPP loans has slowed somewhat as companies paused their expansion efforts and placed projects on hold as a result of the uncertainty around the COVID-19 pandemic and lower oil prices. We have also seen loan activity during the quarter from new customers we obtained through the PPP process,” said Ballard.  At June 30, 2020, commercial loans represented 29% of total loans, PPP loans represented 24% of total loans, commercial real estate loans comprised 36% of total loans, and construction loans made up 8% of total loans.  Portfolio loans were $1.43 billion at June 30, 2020, up 32% from the preceding quarter and up 41% from a year ago.  Portfolio loans excluding the impact from PPP were $1.09 billion at June 30, 2020, up 1% from the preceding quarter and up 7% from a year ago. Average portfolio loans in the second quarter of 2020 were $1.34 billion, up 27% from the preceding quarter and up 34% from a year ago.  Yields on average portfolio loans in the second quarter of 2020 decreased to 4.99% from 5.69% in the first quarter of 2020 and decreased compared to 5.96% in the second quarter of 2019.

Alaskans continue to account for substantially all of Northrim’s deposit base, which is primarily made up of low-cost transaction accounts.  At June 30, 2020, balances in transaction accounts represented 90% of total deposits.  Total deposits were $1.74 billion at June 30, 2020, up 24% from $1.40 billion at March 31, 2020, and up 35% from $1.29 billion a year ago.  Average interest-bearing deposits were up 10% to $1.02 billion with an average cost of 0.53% in the second quarter of 2020, compared to $925.9 million and an average cost of 0.64% in the first quarter of 2020, and up 24% compared to $818.1 million and an average cost of 0.58% in the second quarter of 2019.

“Deposits were up during the quarter in part due to funding PPP loans, but also due to new customer relationships as a result of our significant PPP effort.  Our lenders, retail bankers and commercial cash managers have worked hard to meet the needs of our existing and new customers,” said Michael Martin, the Bank's Chief Operating Officer and General Counsel.  “Our suite of deposit products, along with superior “Customer First Service,” is proving to be what businesses are looking for from their community bank.”

Shareholders’ equity was $206.9 million, or $32.49 per share, at June 30, 2020, compared to $197.7 million, or $31.06 per share, at March 31, 2020 and $206.3 million, or $30.66 per share, a year ago.  Tangible book value per share* was $29.97 at June 30, 2020, compared to $28.53 at March 31, 2020, and $28.27 per share a year ago.  Northrim continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with Tier 1 Capital to Risk Adjusted Assets of 13.99% at June 30, 2020, compared to 13.25% at March 31, 2020, and 15.03% at June 30, 2019.

Asset Quality

“Several credit quality metrics improved during the second quarter of this year compared to three months earlier despite the current economic environment we are in, and we were actively communicating with borrowers and offering them solutions.  We remain diligent with monitoring the loan portfolio during this new economic cycle,” said Martin.

Nonperforming assets ("NPAs") net of government guarantees were $20.8 million at June 30, 2020, up from $19.6 million at March 31, 2020 and down from $23.9 million a year ago.  Of the NPAs, $10.4 million, or 50% are nonaccrual loans and nonperforming purchased receivables related to five commercial relationships. Two of these relationships, which totaled $5.8 million at June 30, 2020, are businesses in the medical industry.

Net adversely classified loans improved to $15.7 million at June 30, 2020, as compared to $17.4 million at March 31, 2020, and $25.0 million a year ago.  Net loan charge offs were $768,000 in the second quarter of 2020, compared to net loan charge offs of $131,000 in the first quarter of 2020, and net loan recoveries of $9,000 in the second quarter of 2019.  Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees.  As of June 30, 2020, $11.5 million, or 73% of net adversely classified loans are attributable to nine relationships with five 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 June 30, 2020, net of government guarantees were $966,000, down from $1.4 million three months earlier and from $1.6 million a year ago.  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.

As of June 30, 2020, Northrim had $63.4 million, or 6% of portfolio loans excluding SBA PPP loans, in the tourism sector; $56.0 million, or 5% of portfolio loans excluding SBA PPP loans, in the aviation (non-tourism) sector; $51.5 million, or 5% of total portfolio loans excluding SBA PPP loans, in the healthcare sector; $34.4 million, or 3% in the accommodations sector; $23.9 million, or 2% in retail loans; and $23.5 million, or 2% in the restaurant sector.

Northrim estimates that $70.2 million, or approximately 6% of portfolio loans excluding SBA PPP loans had direct exposure to the oil and gas industry in Alaska, as of June 30, 2020, and $1.9 million of these loans are adversely classified.  As of June 30, 2020, Northrim has an additional $51.9 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 loans.  Northrim defines direct exposure to the oil and gas sector as loans to borrowers that provide oilfield services and other companies that have been 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, and a loan production office in Kodiak, 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

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, management’s plans and objectives for future operations, and statements related to the expected or potential impact of the novel coronavirus (COVID-19) pandemic and the related responses of the government 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, whether concerning the COVID-19 pandemic and the government responses related thereto or otherwise, 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: the uncertainties relating to the impact of COVID-19 on the Company's credit quality, business, operations and employees; the availability and terms of funding from government sources related to COVID-19; 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, 2019, 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.bea.gov/data/gdp/gdp-state

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

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

https://labor.alaska.gov/news/2020/news20-19.htm

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

https://www.mba.org/store/products/market-and-research-data/q1-2020-quarterly-mortgage-bankers-performance-report

https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-and-treasury-announce-release-ppp-loan-data

Income Statement     
(Dollars in thousands, except per share data)Three Months EndedYear-to-date
(Unaudited)June 30,March 31,June 30,June 30,June 30,
 20202020201920202019
Interest Income:     
  Interest and fees on loans$17,454 $15,359 $15,353 $32,813 $30,330 
  Interest on portfolio investments1,519 1,744 1,818 3,263 3,576 
  Interest on deposits in banks31 236 135 267 278 
  Total interest income19,004 17,339 17,306 36,343 34,184 
Interest Expense:     
  Interest expense on deposits1,331 1,484 1,174 2,815 2,112 
  Interest expense on borrowings216 165 175 381 346 
  Total interest expense1,547 1,649 1,349 3,196 2,458 
  Net interest income17,457 15,690 15,957 33,147 31,726 
      
Provision for loan losses404 2,060 300 2,464 1,050 
  Net interest income after provision for loan losses17,053 13,630 15,657 30,683 30,676 
      
Other Operating Income:     
  Mortgage banking income15,227 4,665 5,950 19,892 10,248 
  Bankcard fees681 643 744 1,324 1,394 
  Purchased receivable income675 921 837 1,596 1,646 
  Service charges on deposit accounts171 362 413 533 826 
  Unrealized gain (loss) on marketable equity securities149 (871)118 (722)652 
  Interest rate swap income17  734 17 734 
  Gain on sale of securities 98  98 23 
  Other income615 615 773 1,230 1,579 
  Total other operating income17,535 6,433 9,569 23,968 17,102 
      
Other Operating Expense:     
  Salaries and other personnel expense15,637 12,256 12,945 27,893 24,247 
  Data processing expense2,033 1,769 1,796 3,802 3,475 
  Occupancy expense1,618 1,657 1,642 3,275 3,413 
  Professional and outside services714 608 684 1,322 1,240 
  Marketing expense696 583 833 1,279 1,252 
  Insurance expense301 312 232 613 490 
  OREO expense, net rental income and gains on sale21 (36)165 (15)(155)
  Intangible asset amortization expense12 12 15 24 30 
  Other operating expense1,642 1,626 1,507 3,268 2,907 
  Total other operating expense22,674 18,787 19,819 41,461 36,899 
      
  Income before provision for income taxes11,914 1,276 5,407 13,190 10,879 
  Provision for income taxes2,014 243 1,146 2,257 2,306 
  Net income$9,900 $1,033 $4,261 $10,933 $8,573 
      
  Basic EPS$1.54 $0.16 $0.62 $1.70 $1.25 
  Diluted EPS$1.52 $0.16 $0.62 $1.68 $1.24 
  Weighted average shares outstanding, basic6,367,397 6,467,630 6,798,352 6,417,514 6,838,986 
  Weighted average shares outstanding, diluted6,440,898 6,560,593 6,896,687 6,496,515 6,939,338 


Balance Sheet   
(Dollars in thousands)   
(Unaudited)June 30,March 31,June 30,
 202020202019
    
Assets:   
  Cash and due from banks$34,331 $31,096 $25,377 
  Interest bearing deposits in other banks55,081 54,714 45,454 
  Investment securities available for sale202,347 268,959 249,986 
  Marketable equity securities7,758 7,609 7,916 
  Investment in Federal Home Loan Bank stock2,428 3,312 2,069 
  Loans held for sale133,975 86,258 61,531 
  Portfolio loans1,433,201 1,081,873 1,015,704 
  Allowance for loan losses(20,653)(21,017)(20,518)
  Net portfolio loans1,412,548 1,060,856 995,186 
  Purchased receivables, net11,549 23,670 13,114 
  Mortgage servicing rights, at fair value10,721 11,653 10,836 
  Other real estate owned, net7,205 7,205 7,043 
  Premises and equipment, net39,055 39,293 39,155 
  Lease right of use asset13,189 13,757 14,924 
  Goodwill and intangible assets16,070 16,082 16,124 
  Other assets70,448 66,798 64,055 
  Total assets$2,016,705 $1,691,262 $1,552,770 
    
Liabilities:   
  Demand deposits$680,033 $453,003 $435,425 
  Interest-bearing demand400,138 333,352 285,664 
  Savings deposits261,934 228,383 232,190 
  Money market deposits215,735 207,418 204,151 
  Time deposits179,519 173,336 130,748 
  Total deposits1,737,359 1,395,492 1,288,178 
  Securities sold under repurchase agreements  864 
  Other borrowings11,754 36,877 7,158 
  Junior subordinated debentures10,310 10,310 10,310 
  Lease liability13,121 13,685 14,807 
  Other liabilities37,238 37,175 25,115 
  Total liabilities1,809,782 1,493,539 1,346,432 
    
Shareholders' Equity:   
  Total shareholders' equity206,923 197,723 206,338 
  Total liabilities and shareholders' equity$2,016,705 $1,691,262 $1,552,770 
    

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Composition of Portfolio Investments       
 June 30, 2020 March 31, 2020 June 30, 2019
 Balance% of total Balance% of total Balance% of total
U.S. Treasury securities$47,832 22.8% $58,09721.0% $55,349 21.5%
U.S. Agency securities92,171 43.8% 153,81255.6% 127,417 49.4%
Corporate securities32,043 15.3% 30,56711.1% 40,400 15.7%
Marketable equity securities7,758 3.7% 7,6092.8% 7,916 3.1%
Collateralized loan obligations27,974 13.3% 24,1608.7% 22,931 8.9%
Alaska municipality, utility, or state bonds2,327 1.1% 2,3230.8% 3,739 1.4%
Other municipality, utility, or state bonds % % 150 0.1%
  Total portfolio investments$210,105   $276,568  $257,902  
         


Composition of Portfolio Loans            
 June 30, 2020 March 31, 2020 December 31,
2019
 September 30,
2019
 June 30, 2019
 Balance% of total Balance% of total Balance% of total Balance% of total Balance% of total
Commercial loans$426,675 29% $434,832 40% $412,690 39% $398,213 39% $387,257 38%
SBA Payment Protection loans353,485 24%  %  %  %  %
CRE owner occupied loans154,741 11% 146,453 13% 138,891 13% 127,045 12% 126,991 12%
CRE nonowner occupied loans360,533 25% 355,753 33% 355,466 34% 377,311 36% 367,703 36%
Construction loans114,464 8% 109,849 10% 100,626 10% 98,716 9% 97,837 10%
Consumer loans38,310 3% 39,923 4% 40,783 4% 39,868 4% 40,234 4%
  Subtotal1,448,208   1,086,810   1,048,456   1,041,153   1,020,022  
Unearned loan fees, net(15,007)  (4,937)  (5,085)  (4,624)  (4,318) 
  Total portfolio loans$1,433,201   $1,081,873   $1,043,371   $1,036,529   $1,015,704  
               


Composition of Deposits            
 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
 Balance% of total Balance% of total Balance% of total Balance% of total Balance% of total
Demand deposits$680,033 40% $453,003 33% $451,896 33% $460,327 33% $435,425 34%
Interest-bearing demand400,138 23% 333,352 24% 320,264 23% 292,198 22% 285,664 22%
Savings deposits261,934 15% 228,383 16% 229,918 17% 228,739 17% 232,190 18%
Money market deposits215,735 12% 207,418 15% 205,801 15% 214,352 16% 204,151 16%
Time deposits179,519 10% 173,336 12% 164,472 12% 155,413 12% 130,748 10%
  Total deposits$1,737,359   $1,395,492   $1,372,351   $1,351,029   $1,288,178  
 
 

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Asset Quality     
 June 30, March 31, June 30,
 2020 2020 2019
  Nonaccrual loans$14,365  $15,074  $18,080 
  Loans 90 days past due and accruing     
  Total nonperforming loans14,365  15,074  18,080 
  Nonperforming loans guaranteed by government(1,635) (1,671) (1,139)
  Net nonperforming loans12,730  13,403  16,941 
  Other real estate owned7,205  7,205  7,043 
  Repossessed assets919  231  1,182 
  Nonperforming purchased receivables1,226     
  Other real estate owned guaranteed by government(1,279) (1,279) (1,279)
  Net nonperforming assets$20,801  $19,560  $23,887 
  Nonperforming loans, net of government guarantees / portfolio loans0.89% 1.24% 1.67%
  Nonperforming loans, net of government guarantees / portfolio loans,     
  net of government guarantees1.21% 1.28% 1.72%
  Nonperforming assets, net of government guarantees / total assets1.03% 1.16% 1.54%
  Nonperforming assets, net of government guarantees / total assets     
  net of government guarantees1.27% 1.18% 1.57%
      
  Performing restructured loans$2,887  $4,389  $1,645 
  Performing restructured loans guaranteed by government(1,921) (2,953)  
  Net performing restructured loans$966  $1,436  $1,645 
  Nonperforming loans plus performing restructured loans, net of government     
  guarantees$13,696  $14,839  $18,586 
  Nonperforming loans plus performing restructured loans, net of government     
  guarantees / portfolio loans0.96% 1.37 1.83%
  Nonperforming loans plus performing restructured loans, net of government     
  guarantees / portfolio loans, net of government guarantees1.30% 1.41% 1.88%
  Nonperforming assets plus performing restructured loans, net of government     
  guarantees  / total assets1.08% 1.24% 1.64%
  Nonperforming assets plus performing restructured loans, net of government     
  guarantees  / total assets, net of government guarantees1.34% 1.27% 1.68%
      
  Adversely classified loans, net of government guarantees$15,703  $17,388  $25,016 
  Loans 30-89 days past due and accruing, net of government guarantees /     
  portfolio loans0.05% 0.33% 0.70%
  Loans 30-89 days past due and accruing, net of government guarantees /     
  portfolio loans, net of government guarantees0.06% 0.34% 0.72%
      
  Allowance for loan losses / portfolio loans1.44% 1.94% 2.02%
  Allowance for loan losses / portfolio loans, net of government guarantees1.96% 2.00% 2.08%
  Allowance for loan losses / nonperforming loans, net of government guarantees162% 157% 121%
      
  Gross loan charge-offs for the quarter$804  $165  $68 
  Gross loan recoveries for the quarter36) 34) 77)
  Net loan (recoveries) charge-offs for the quarter$768  $131  9)
  Net loan charge-offs year-to-date$899  $131  $51 
  Net loan charge-offs for the quarter / average loans, for the quarter0.06% 0.01% %
  Net loan charge-offs year-to-date / average loans,     
  year-to-date annualized0.15% 0.05% 0.01%
         
         

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Nonperforming Assets Rollforward       
    WritedownsTransfers toTransfers to  
 Balance at March 31, 2020Additions this quarterPayments this quarter/Charge-offs
 this quarter
OREO/ REPOPerforming Status
this quarter
Sales this quarterBalance at June 30, 2020
Commercial loans$9,340 $1,055 ($534)($804)($695)$—$—$8,362 
Commercial real estate4,635 508 (20)  5,123 
Construction loans915  (213)  702 
Consumer loans184  (6)  178 
Non-performing loans guaranteed by government(1,671)(54)90   (1,635)
  Total non-performing loans13,403 1,509 (683)(804)(695)12,730 
Other real estate owned7,205     7,205 
Repossessed assets231 695 (7)  919 
Nonperforming purchased receivables 1,226    1,226 
Other real estate owned guaranteed        
by government(1,279)    (1,279)
  Total non-performing assets,        
  net of government guarantees$19,560 $3,430 ($690)($804)($695)$—$—$20,801 

The following table details loan charge-offs, by industry:

Loan Charge-offs by Industry    
 Three Months Ended
 June 30, 2020March 31, 2020December 31, 2019September 30, 2019June 30, 2019
Charge-offs:     
Support for oil and gas operations$—$36$—$—$—
Retail sales1622
Food service contractors99
Health care and social assistance80464
Consumer141174
Total charge-offs$804$165$11$29$68
 
 

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates        
 Three Months Ended
 June 30, 2020 March 31, 2020 June 30, 2019
  Average  Average  Average
 AverageTax Equivalent AverageTax Equivalent AverageTax Equivalent
 BalanceYield/Rate BalanceYield/Rate BalanceYield/Rate
Assets        
Interest bearing deposits in other banks$51,448 0.24% $68,076 1.37% $22,850 2.34%
Portfolio investments 256,500 2.50%  284,068 2.59%  281,450 2.71%
Loans held for sale 111,475 3.12%  50,375 3.51%  51,280 4.13%
Portfolio loans 1,342,717 4.99%  1,059,023 5.69%  1,003,019 5.96%
  Total interest-earning assets 1,762,140 4.38%  1,461,542 4.82%  1,358,599 5.17%
Nonearning assets 186,583    174,049    167,414  
  Total assets$1,948,723   $1,635,591   $1,526,013  
         
Liabilities and Shareholders' Equity        
Interest-bearing deposits$1,017,544 0.53% $925,859 0.64% $818,122 0.58%
Borrowings 73,349 1.17%  22,188 2.95%  44,938 1.53%
  Total interest-bearing liabilities 1,090,893 0.57%  948,047 0.70%  863,060 0.63%
         
Noninterest-bearing demand deposits 602,464    433,347    421,232  
Other liabilities 50,525    46,231    31,391  
Shareholders' equity 204,841    207,966    210,330  
  Total liabilities and shareholders' equity$1,948,723   $1,635,591   $1,526,013  
  Net spread 3.81%  4.12%  4.54%
  NIM 3.98%  4.32%  4.71%
  NIMTE* 4.02%  4.37%  4.77%
  Average portfolio loans to average        
  interest-earning assets 76.20%   72.46%   73.83% 
  Average portfolio loans to average total deposits 82.88%   77.91%   80.93% 
  Average non-interest deposits to average        
  total deposits 37.19%   31.88%   33.99% 
  Average interest-earning assets to average        
  interest-bearing liabilities 161.53%   154.16%   157.42% 

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

 2Q20 vs. 1Q202Q20 vs. 2Q19
Nonaccrual interest adjustments0.02%0.03%
Impact of SBA Paycheck Protection Program loans(0.15)%(0.15)%
Interest rates and loan fees, all other loans(0.27)%(0.55)%
Volume and mix of interest-earning assets and liabilities0.05%(0.08)%
Change in NIMTE*(0.35)%(0.75)%
 
 

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates     
 Year-to-date
 June 30, 2020 June 30, 2019
  Average  Average
 AverageTax Equivalent AverageTax Equivalent
 BalanceYield/Rate BalanceYield/Rate
Assets     
Interest bearing deposits in other banks$59,762 0.88% $23,521 2.35%
Portfolio investments 270,284 2.55%  280,937 2.68%
Loans held for sale 80,925 3.24%  41,297 4.28%
Portfolio loans 1,200,870 5.30%  996,009 6.00%
  Total interest-earning assets 1,611,841 4.58%  1,341,764 5.20%
Nonearning assets 180,316    164,841  
  Total assets$1,792,157   $1,506,605  
      
Liabilities and Shareholders' Equity     
Interest-bearing deposits$971,701 0.58% $809,354 0.53%
Borrowings 47,769 1.59%  48,208 1.42%
  Total interest-bearing liabilities 1,019,470 0.63%  857,562 0.58%
      
Noninterest-bearing demand deposits 517,906    407,703  
Other liabilities 48,378    31,550  
Shareholders' equity 206,403    209,790  
  Total liabilities and shareholders' equity$1,792,157   $1,506,605  
  Net spread 3.95%  4.62%
  NIM 4.14%  4.77%
  NIMTE* 4.18%  4.83%
  Average portfolio loans to average interest-earning assets 74.50%   74.23% 
  Average portfolio loans to average total deposits 80.62%   81.84% 
  Average non-interest deposits to average total deposits 34.77%   33.50% 
  Average interest-earning assets to average interest-bearing liabilities 158.11%   156.46% 

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

 YTD20 vs.YTD19
Nonaccrual interest adjustments0.03%
Impact of SBA Paycheck Protection Program loans

 
(0.09)%
Interest rates and loan fees, all other loans(0.51)%
Volume and mix of interest-earning assets and liabilities(0.08)%
Change in NIMTE*(0.65)%
 
 

Additional Financial Information
(Dollars in thousands, except per share data)
(Unaudited)

Capital Data (At quarter end)     
 June 30, 2020 March 31, 2020 June 30, 2019
Book value per share$32.49  $31.06  $30.66 
Tangible book value per share*$29.97  $28.53  $28.27 
Total shareholders' equity/total assets 10.26 %  11.69 %  13.29 %
Tangible Common Equity/Tangible Assets* 9.54 %  10.84 %  12.38 %
Tier 1 Capital / Risk Adjusted Assets 13.99 %  13.25 %  15.03 %
Total Capital / Risk Adjusted Assets 15.24 %  14.50 %  16.28 %
Tier 1 Capital / Average Assets 11.92 %  11.93 %  13.22 %
Shares outstanding 6,368,046   6,366,100   6,729,456 
Unrealized gain (loss) on AFS debt securities, net of income taxes$1,269  $13  $871 
Unrealized gain (loss) on derivatives and hedging activities, net of income taxes($1,718) ($1,718) ($374)


Profitability Ratios         
 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
For the quarter:         
  NIM3.98% 4.32% 4.48% 4.60% 4.71%
  NIMTE*4.02% 4.37% 4.52% 4.65% 4.77%
  Efficiency ratio64.76% 84.87% 78.79% 72.01% 77.58%
  Return on average assets2.04% 0.25% 1.11% 1.90% 1.12%
  Return on average equity19.44% 2.00% 8.74% 14.45% 8.13%


 June 30, 2020 June 30, 2019
Year-to-date:   
  NIM4.14% 4.77%
  NIMTE*4.18% 4.83%
  Efficiency ratio72.55% 75.51%
  Return on average assets1.23% 1.15%
  Return on average equity10.65% 8.24%
      

*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 both 2020 and 2019. 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
 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
Net interest income$17,457  $15,690  $16,410  $16,306  $15,957 
Divided by average interest-bearing assets 1,762,140   1,461,542   1,454,756   1,406,485   1,358,599 
Net interest margin ("NIM")2 3.98%  4.32%  4.48%  4.60%  4.71%
          
Net interest income$17,457  $15,690  $16,410  $16,306  $15,957 
Plus: reduction in tax expense related to         
  tax-exempt interest income 168   187   180   163   191 
 $17,625  $15,877  $16,590  $16,469  $16,148 
Divided by average interest-bearing assets 1,762,140   1,461,542   1,454,756   1,406,485   1,358,599 
NIMTE2 4.02%  4.37%  4.52%  4.65%  4.77%


 Year-to-date
 June 30, 2020 June 30, 2019
Net interest income$33,147  $31,726 
Divided by average interest-bearing assets 1,611,841   1,341,764 
Net interest margin ("NIM")3 4.14%  4.77%
    
Net interest income$33,147  $31,726 
Plus: reduction in tax expense related to   
  tax-exempt interest income 349   379 
 $33,496  $32,105 
Divided by average interest-bearing assets 1,611,841   1,341,764 
NIMTE3 4.18%  4.83%

2Calculated using actual days in the quarter divided by 366 for the quarter ended in 2020 and 365 for quarters ended in 2019.
3Calculated using actual days in the year divided by 366 for year-to-date period in 2020 and 365 for year-to-date period in 2019.

*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 most comparable GAAP measure is book value per share and the following table sets forth the reconciliation of tangible book value per share and book value per share.

 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
          
Total shareholders' equity$206,923  $197,723  $207,117  $204,039  $206,338 
Divided by shares outstanding 6,368   6,366   6,559   6,540   6,729 
Book value per share$32.49  $31.06  $31.58  $31.20  $30.66 


 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
          
Total shareholders' equity$206,923  $197,723  $207,117  $204,039  $206,338 
Less: goodwill and intangible assets 16,070   16,082   16,094   16,109   16,124 
 $190,853  $181,641  $191,023  $187,930  $190,214 
Divided by shares outstanding 6,368   6,366   6,559   6,540   6,729 
Tangible book value per share$29.97  $28.53  $29.12  $28.74  $28.27 

Tangible Common Equity to Tangible Assets

Tangible common equity to tangible assets is a non-GAAP ratio that represents total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets. This ratio has received more attention over the past several years from stock analysts and regulators.  The most comparable GAAP measure of shareholders' equity to total assets is calculated by dividing total shareholders' equity by total assets and the following table sets forth the reconciliation of tangible common equity to tangible assets and shareholders' equity to total assets.

Northrim BanCorp, Inc.

 
June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
          
Total shareholders' equity$206,923  $197,723  $207,117  $204,039  $206,338 
Total assets 2,016,705   1,691,262   1,643,996   1,616,631   1,552,770 
Total shareholders' equity to total assets 10.26%  11.69%  12.60%  12.62%  13.29%


Northrim BanCorp, Inc.

 
June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
Total shareholders' equity$206,923  $197,723  $207,117  $204,039  $206,338 
Less: goodwill and other intangible assets, net 16,070   16,082   16,094   16,109   16,124 
Tangible common shareholders' equity$190,853  $181,641  $191,023  $187,930  $190,214 
          
Total assets$2,016,705  $1,691,262  $1,643,996  $1,616,631  $1,552,770 
Less: goodwill and other intangible assets, net 16,070   16,082   16,094   16,109   16,124 
Tangible assets$2,000,635  $1,675,180  $1,627,902  $1,600,522  $1,536,646 
Tangible common equity ratio 9.54%  10.84%  11.73%  11.74%  12.38%


Contact: Joe Schierhorn,  President, CEO, and COO
 (907) 261-3308 
 Jed Ballard, Chief Financial Officer
 (907) 261-3539

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