Northrim BanCorp Reports Earnings of $10.1 million, or $1.59 per Diluted Share, in 4Q20 and Earnings of $32.9 Million, or $5.11 Per Diluted Share, for the Year 2020

ANCHORAGE, Alaska, Feb. 01, 2021 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the "Company") today reported net income of $10.10 million, or $1.59 per diluted share, in the fourth quarter of 2020, compared to $11.86 million, or $1.84 per diluted share, in the third quarter of 2020, and $4.58 million, or $0.69 per diluted share, in the fourth quarter a year ago.

Net income for the full year 2020 increased 59% to $32.89 million, or $5.11 per diluted share, compared to $20.69 million, or $3.04 per diluted share, for the full year 2019.   The provision for loan losses increased to $2.4 million in 2020, compared to a $1.2 million benefit for loan loss provisions in 2019. Increased production in the Home Mortgage Lending segment, continued loan and core deposit growth, and fee and interest income from the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") loans contributed to profitability for the year.

“Northrim’s achievements in 2020 were due to increased production in mortgage operations and our success in reaching out to and supporting our customers with the PPP and other products and services,” said Joe Schierhorn, President and CEO.   “The investments we have made in our people, our infrastructure and our technology, all came together in 2020 and have enabled us to help both new and existing customers as we navigate through the economic impact of the pandemic.”

“Several events occurred in 2020 that contributed to our operating performance during the year, including our participation in economic stimulus programs such as the PPP, and our decision to offer government assisted programs to customers that were new to the bank,” Schierhorn continued.   “Northrim’s participation in the PPP helped service the needs of our existing customers as well as the 1,200 new customers we were able to help during the year.   According to the SBA, Northrim originated more PPP loans in Alaska than any other financial institution in the state, funding 23% of all PPP loans in the state through the period ending September 30, 2020.   We were able to help nearly 2,900 Alaskan companies receive PPP funding.   With the new round of PPP funding that became available earlier this month, we plan to participate in the new round in an effort to and help business customers that have been impacted by the pandemic.”

COVID-19 Update:

  • Industry Exposure: Northrim has identified various industries that may be adversely impacted by the COVID-19 pandemic and the decline in oil prices that occurred in 2020.   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 December 31, 2020, are: Tourism (7%), Oil and Gas (6%), Aviation (non-tourism) (5%), Healthcare (8%), Accommodations (3%), Retail (2%) and Restaurants (3%).

  • Customer Accommodations: The Company has implemented assistance to help customers experiencing financial challenges as a result of COVID-19 in addition to 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. The number of loans with modifications has decreased significantly since June 30, 2020 with approximately 93% of the modifications at December 31, 2020 representing five relationships. The total outstanding principal balance of loan modifications due to the impacts of COVID-19 as of December 31, 2020, September 30, 2020 and June 30, 2020 were as follows:

Loan Modifications due to COVID-19 as of December 31, 2020
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$43,379 $22,165 $65,544 
Number of modifications 23  11  34 


Loan Modifications due to COVID-19 as of September 30, 2020
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$46,056 $74,337 $120,393 
Number of modifications 16  59  75 


Loan Modifications due to COVID-19 as of June 30, 2020
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$64,298 $293,224 $357,522 
Number of modifications 76  403  479 

Consumer loans represent less than 1% of total loan modifications identified above. Of the $65.5 million and 34 loan modifications as of December 31, 2020, approximately $53.9 million and 31 loans have entered into a second modification.

Loan Loss Reserve:   Northrim booked a benefit for loan loss provisions of $599,000 for the quarter ended December 31, 2020.   This compares to a provision for loan losses of $567,000 during the previous quarter and a $150,000 benefit for loan loss provisions in the fourth quarter a year ago. For the full year 2020, the provision for loan losses was $2.4 million, compared to a benefit for loan loss provisions of $1.2 million for all of 2019.

Credit Quality: Net adversely classified loans were $12.8 million at December 31, 2020, compared to $22.3 million in the fourth quarter a year ago. Net loan recoveries were $53,000 in the fourth quarter of 2020, compared to net loan recoveries of $101,000 in the fourth quarter of 2019.

Branch Operations: All branches are fully operational, while a number of customer and employee safety measures continue to be implemented.

Growth and Paycheck Protection Program:   

 
  • For the full year of 2020, Northrim funded a total of 2,888 PPP loans totaling $375.6 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 September 30, 2020.
  • As of December 31, 2020, Northrim customers had received forgiveness through the SBA on 537 PPP loans totaling $65.1 million.
  • The Company initially utilized the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility to fund PPP loans, but paid back those funds in full during the second quarter and has since funded the SBA PPP loans through core deposits and maturity of long-term investments.
Capital Management:   At December 31, 2020, the Company’s tangible common equity to tangible assets* ratio was 9.76% and the capital of Northrim Bank (the "Bank") was well in excess of all regulatory requirements. During the fourth quarter of 2020, the Company repurchased the final 45,549 shares of common stock authorized by the Board of Directors under the previously announced stock repurchase authorization at an average price of $28.55. 

Fourth Quarter and Full Year 2020 Highlights:

  • For the year 2020, total revenue, which includes net interest income plus other operating income, increased 32% to $134.0 million, compared to $101.8 million in 2019.
  • For the fourth quarter of 2020, total revenue increased 41% to $37.0 million, compared to $26.1 million in the fourth quarter of 2019, and decreased compared to $39.9 million in the third quarter of 2020.
  • Community Banking provided 58% of total revenues and 50% of earnings in the fourth quarter of 2020.
  • Home Mortgage Lending provided 42% of total revenue and 50% of earnings in the fourth quarter of 2020.
  • Net interest income in 2020 increased 10% to $70.7 million, from $64.4 million in 2019.
  • Net interest income in the fourth quarter of 2020 was $19.2 million, up 5% from $18.3 million in the preceding quarter and up 17% from $16.4 million in the fourth quarter a year ago.
  • Net interest margin on a tax equivalent basis (“NIMTE”)* was 4.05% for the year, a 65-basis point contraction compared to 2019.
  • NIMTE* was 3.96% in the fourth quarter of 2020, a 3-basis point increase compared to the preceding quarter, and a 56-basis point contraction compared to the fourth quarter a year ago.
  • Return on average assets ("ROAA") was 1.90% and return on average equity ("ROAE") was 18.22% for the fourth quarter of 2020 and ROAA was 1.70% and ROAE was 15.53% for the year 2020.
  • Net loans increased 39% to $1.42 billion at December 31, 2020, compared to $1.02 billion at December 31, 2019, and decreased compared to $1.47 billion at September 30, 2020.
  • Total deposits increased 33% to $1.82 billion at December 31, 2020, compared to $1.37 billion at December 31, 2019, and increased 1% compared to $1.81 billion at September 30, 2020.
  • The Company's wholly owned subsidiary, Residential Mortgage, LLC, generated a $200.8 million increase in production during the quarter ended December 31, 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 $1.2 million for the quarter ended December 31, 2020, compared to a decrease of $1.5 million for the preceding quarter and a decrease of $321,000 for the fourth quarter a year ago.

Financial HighlightsThree Months Ended
(Dollars in thousands, except per share data)December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019
Total assets$2,121,798  $2,097,738  $2,016,705  $1,691,262  $1,643,996  
Total portfolio loans$1,444,050  $1,492,720  $1,433,201  $1,081,873  $1,043,371  
Average portfolio loans$1,489,029  $1,465,839  $1,342,717  $1,059,023  $1,027,728  
Total deposits$1,824,981  $1,806,133  $1,737,359  $1,395,492  $1,372,351  
Average deposits$1,820,251  $1,750,167  $1,620,008  $1,359,206  $1,361,786  
Total shareholders' equity$221,575  $214,616  $206,923  $197,723  $207,117  
Net income$10,100  $11,855  $9,900  $1,033  $4,580  
Diluted earnings per share$1.59  $1.84  $1.52  $0.16  $0.69  
Return on average assets 1.90 % 2.31 % 2.04 % 0.25 % 1.11 %
Return on average shareholders' equity 18.22 % 22.10 % 19.44 % 2.00 % 8.74 %
NIM 3.94 % 3.90 % 3.98 % 4.32 % 4.48 %
NIMTE* 3.96 % 3.93 % 4.02 % 4.37 % 4.52 %
Efficiency ratio 65.31 % 58.85 % 64.76 % 84.87 % 78.79 %
Total shareholders' equity/total assets 10.44 % 10.23 % 10.26 % 11.69 % 12.60 %
Tangible common equity/tangible assets* 9.76 % 9.54 % 9.54 % 10.84 % 11.73 %
Book value per share$35.45  $34.18  $32.49  $31.06  $31.58  
Tangible book value per share*$32.88  $31.62  $29.97  $28.53  $29.12  
Dividends per share$0.35  $0.35  $0.34  $0.34  $0.33  


 

* 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 14.)

2020 was an unprecedented year in just about every economic measure.   Mark Edwards, EVP Chief Credit Officer and Bank Economist summarized, “wild swings in oil prices and unemployment resulting from government mandated business closures were then supported by trillions of dollars, with billions flowing to Alaska, in assistance programs in an attempt to counteract the negative economic impact of these health policies.   Despite the economic shocks from COVID-19, housing prices and the number of home sales increased sharply in Alaska as long-term interest rates fell.”

Employment data from the State of Alaska is available through November.   Total payroll jobs were 293,500 for November 2020, down 7.4% compared to the same period in 2019.     Leisure and hospitality was the hardest hit, down 22% year over year, a loss of 7,000 jobs.   Transportation, Warehousing and Utilities declined 14.9% or 3,100 since last November. Direct Oil and Gas jobs fell 29.9% or 2,900 jobs. Professional and Business Services has also been negatively impacted, down 8.1% or 2,200 jobs over the last 12 months.

Alaska’s annualized and seasonally adjusted gross state product (“GSP”) was $50.4 billion in the third quarter of 2020, compared to $54.5 billion in the third quarter of 2019, according to the Federal Bureau of Economic Analysis ("BEA") in a report released on December 23, 2020. Alaska’s real GSP increased by 0.7% in 2018 and 0.6% in 2019. 2020 has been very erratic due to COVID-19.   Alaska’s GSP declined 6% at a seasonally adjusted annualized rate in the first quarter of 2020 and declined 33.8% in second quarter.   However, in the third quarter of 2020 the GSP in Alaska improved 32.2% at an annualized rate.   This is very similar to the nationwide averages for the U.S. which saw a decline of 5% in the first quarter of 2020, a loss of 31.4% in the second quarter and a positive improvement of 33.4% in the third quarter.   In the third quarter of 2020 in Alaska, the largest improvements came from Transportation and Warehousing, Government, Health Care and Accommodation and Food Services.

Alaska’s seasonally adjusted personal income for the third quarter of 2020 was $48.6 billion compared to $46 billion in the third quarter of 2019, according to a report released by the BEA on December 17, 2020.   In a typical year, the majority of personal income is derived from wage earnings.   Additionally, some people receive government transfer payments, such as social security, Medicare and Medicaid. Personal income is further supported by earnings from dividends, interest and rents.

In the second quarter of 2020, Alaska’s personal income rose by $2.6 billion compared to the prior year as government transfer payments rose by $4.9 billion, according to the BEA, mainly from COVID-19 stimulus money. This was somewhat offset by a $2.2 billion reduction in wage income and a $139 million decrease in investment and rental income.   In the third quarter of 2020, these two major segments of income reversed.   Wage earnings improved by $2.6 billion and government transfer payments decreased by $3.5 billion compared to the prior quarter.   Investment and rental income was relatively unchanged, down $55 million. The net effect of all this movement is personal income is $2.6 billion or 5.6% higher in the third quarter of 2020 in Alaska than where it was in the third quarter of 2019.  

This is similar to what has occurred across the country. Government transfer payments in the U.S. increased $2.45 trillion in the second quarter of 2020, while wage declines were a much smaller $920 billion. Then there was a reduction of government transfer payments in the third quarter of $1.3 trillion, somewhat offset by an improvement of $814 billion in wage earnings in the U.S. In the U.S., personal income is $1.3 trillion or 7.1% higher in the third quarter of 2020 than it was in the third quarter of 2019.

Alaska North Slope (“ANS”) crude oil had monthly averages in 2018 and 2019 ranging from $58.86 to $80.03 a barrel.   ANS began 2020 at $65.48. Prices fell quickly at the beginning of the year, responding to fears that COVID-19 would devastate the global economy and reduce the demand for travel.   The low month was April when ANS averaged $16.54 a barrel.   However, by June the oil markets stabilized and for the last six months the average monthly price remained between $40.42 and $43.55.   The November monthly average was $42.91. ANS daily prices rose above $50 a barrel on December 10th and finished the year at $52.19.

Alaska’s crude oil production averaged 485,300 barrels per day (“bpd”) in fiscal year (“FY”) 2020, which ended in June.   This was a decrease of 4.8% compared to the previous FY end.   Total output declined 1.2% in FY 2018 and 4.5% in FY 2019.   The State Department of Revenue forecasts production on the North Slope to increase by 0.7% in FY 2021 to 488,900 bpd.

Alaska’s home mortgage delinquency and foreclosure levels continue to be better than most of the nation.   According to the Mortgage Bankers Association, Alaska’s foreclosure rate was 0.49% at the end of the third quarter 2020, an improvement from 0.71% in the third quarter of 2019.   The comparable national average rate was slightly higher at 0.59% in the third quarter of 2020, but also improved from 0.84% for the same period in 2019. The survey reported that the percentage of delinquent mortgage loans in Alaska was 6.78% at the end of September 2020, up from 3.16% for the third quarter of 2019.   The comparable delinquency rate for the entire country was higher at 7.6% in the third quarter of 2020, also higher than 4.09% for the same period in 2019.

According to the Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.9% in 2020 to $396,918. This is following increases of 0.5% and 2.3% in 2019 and 2018 respectively.   Average sales prices in the Matanuska Susitna Borough rose 10% in 2020, continuing a decade of price gains. These two markets represent where the vast majority of the bank’s residential building activity occurs.  

The number of units sold in Anchorage was up significantly in 2020 by 19.3%, climbing from 2,719 homes sold in 2019 to 3,244 last year. The Matanuska Susitna Borough also had strong sales activity, up 9.5% in 2020 to 2,131 units sold. Mr. Edwards commented, “the main difference was a record number of sales occurred in the last quarter of the year, when sales activity typically declines in the winter. The low interest rate environment has been a major factor.”  

According to the Federal Reserve Bank of St. Louis, the average 30 year fixed rate mortgage in the U.S. is at all-time record lows.   Rates began 2020 at 3.72% in the first week of January and have fallen more than a percent to 2.67% in the last week of December 2020.

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 fourth quarter of 2020, Northrim generated a ROAA of 1.90% and a ROAE of 18.22%, compared to 2.31% and 22.10%, respectively, in the third quarter of 2020 and 1.11% and 8.74%, respectively, in the fourth quarter a year ago. Northrim’s ROAA and ROAE are above peer averages posted by the SNL Small Cap U.S. Bank Index with total market capitalization between $250 million and $1 billion as of September 30, 20201.

Net Interest Income/Net Interest Margin

Net interest income increased 17% to $19.2 million in the fourth quarter of 2020 compared to $16.4 million in the fourth quarter of 2019 and increased 5% compared to $18.3 million in the third quarter of 2020.   Interest income benefited from the growth in the loan portfolio, excluding PPP loans, during the fourth quarter of 2020, as well as the amortization of PPP loan fees and the full recognition of the deferred PPP loan fees upon forgiveness.

NIMTE* was 3.96% in the fourth quarter of 2020 compared to 3.93% in the preceding quarter and 4.52% in the fourth quarter a year ago.   “The decline in our NIMTE* compared to the prior year was impacted by the 150 basis point reduction in short-term interest rates during the last twelve months and the mix of our earning assets due to the increased liquidity of the Bank,” said Jed Ballard, Chief Financial Officer.   “Also notable was the impact of SBA PPP loans, which increased our NIMTE* by 7 basis points during the fourth quarter of 2020 compared to what our NIMTE* would have been if we had not made any SBA PPP loans, or 3.89%. For the year, SBA PPP loans decreased our NIMTE* by 12 basis points compared to what our NIMTE* would have been if we had not made any SBA PPP loans or 4.17%.” 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 September 30, 20201.

The yield on interest earning assets in the fourth quarter of 2020 was 4.24%, down one basis point from the third quarter of 2020 and down 73 basis points compared to the fourth quarter a year ago.   The cost of funds was 46 basis points in the fourth quarter of 2020, down eight basis points compared to the preceding quarter and down 24 basis points compared to the fourth quarter a year ago.

 

1As of September 30, 2020, the SNL Small Cap US Bank Index tracked 106 banks with total common market capitalization between $250 million to $1B for the following ratios: NIMTE* of 3.15%. ROAA 1.01%, and ROAE 9.60% .

Provision for Loan Losses

Northrim recorded a benefit for loan loss provision of $599,000 in the fourth quarter of 2020.   This compares to a $567,000 provision for loan losses in the third quarter of 2020, and a benefit for loan loss provision of $150,000 in the fourth quarter a year ago. “The benefit to the provision for loan losses during the quarter primarily reflects our current assessment of risks associated with the COVID-19 pandemic off-set by an improvement in overall credit quality of the loan portfolio,” said Ballard.   For the year, Northrim recorded a provision for loan losses of $2.4 million, compared to a benefit for loan losses of $1.2 million in 2019.   The total allowance for loan losses to portfolio loans decreased at December 31, 2020, compared to September 30, 2020, primarily due to a decrease in qualitative factors and increased compared to December 31, 2019, primarily due to the increase in loans at December 31, 2020, even when excluding SBA PPP loans which are 100% guaranteed by the government.

Nonperforming loans, net of government guarantees, improved during the quarter to $10.0 million at December 31, 2020, compared to $11.0 million at September 30, 2020, and $14.0 million at December 31, 2019.   The allowance for loan losses was 210% of nonperforming loans, net of government guarantees, at the end of the fourth quarter of 2020, compared to 196% three months earlier and 137% a year ago.

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 $17.7 million, or 48% of total fourth quarter 2020 revenues, as compared to $21.6 million, or 54% of revenues in the third quarter of 2020, and $9.7 million, or 37% of revenues in the fourth quarter of 2019.   For the year 2020, other operating income totaled $63.3 million, or 47% of revenues, compared to $37.3 million, or 37% of revenues in 2019.   The increase in other operating income in 2020 was due primarily to the increased volume of mortgage activity.

Other notable changes during the quarter include changes in the fair value mark-to-market of the marketable equity securities portfolio, which increased other income by $408,000 in the fourth quarter of 2020, compared to a $375,000 increase in the third quarter of 2020 and a $129,000 increase in the fourth quarter of 2019.   There was $206,000 in interest rate swap income in the fourth quarter of 2020.   This compares to $726,000 in interest rate swap income in the preceding quarter and $230,000 in interest rate swap income in the fourth quarter of 2019 on the execution of interest rate swaps related to the Company's commercial lending operations.

Other Operating Expenses

Operating expenses were $24.1 million in the fourth quarter of 2020, compared to $23.5 million in the third quarter of 2020, and $20.6 million in the fourth quarter of 2019.   Factors impacting other operating expenses include higher salary costs and personnel expenses primarily related to mortgage banking origination volume. The Company also has incurred an increase in FDIC insurance costs during 2020 as a result of asset growth and due to a premium credit that was received from the FDIC in the fourth quarter of 2019, causing a larger increase when comparing quarters. For the year 2020, operating expenses were $89.1 million, up from $76.8 million in 2019.

Income Tax Provision

In the fourth quarter of 2020, Northrim recorded $3.3 million in state and federal income tax expense for an effective tax rate of 24.7% compared to $4.0 million, or 25.2% in the third quarter of 2020 and $1.1 million, or 19.4% in the fourth quarter a year ago.   For the year, Northrim recorded $9.6 million in state and federal income tax expense, for an effective tax rate of 22.5% compared to $5.4 million and 20.8% for 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 in the second quarter of 2020. This matter was concluded in the fourth quarter of 2020 in the Company's favor.

Community Banking

“In December we celebrated Northrim’s 30th Anniversary, and we were also awarded the SBA’s 2019 Alaska Community Bank of the Year,” said Schierhorn.   “We have always considered our Alaskan communities to be our primary focus, and while growing, we never lost sight of our mission to serve the people and businesses within the communities we support. We will be opening our second Fairbanks branch in February of this year and in March of 2020 we opened a loan production office in Kodiak. We will continue to look for ways to expand our branch network and support our customers and communities.”

Net interest income in the Community Banking segment totaled $18.3 million in the fourth quarter of 2020, compared to $17.3 million in the third quarter of 2020 and $16.1 million in the fourth quarter of 2019. Net interest income benefited from $3.8 million of PPP income in the fourth quarter of 2020 and $8.1 million for the year. As of December 31, 2020 there was $5.9 million of unearned loan fees net of costs related to PPP loans.

Other operating income in the Community Banking segment was down for the fourth quarter 2020 compared to the preceding quarter and also the fourth quarter of the prior year. The primary change from the preceding quarter related to the large interest rate swap income in the third quarter of 2020 of $726 thousand compared to $206 thousand in the fourth quarter of 2020. The significant change in other operating income from the prior year fourth quarter was due to a decrease in purchased receivable income as a result of lower average balances in 2020 as many customers have been using proceeds from government stimulus rather than drawing on their accounts receivable lines.

Other operating expense in the Community Banking segment for the fourth quarter of 2020 increased $1.2 million compared to the preceding quarter and $700 thousand compared to the fourth quarter of the 2019. The primary reason for the change from the preceding quarter was due to an increase in the profit share accrual as a result of continued strong performance by the Company through the end of the year. The primary reason for the change in the other operating costs from the fourth quarter of 2019 is due to increased FDIC insurance costs as a result of asset growth of the Company, as well as a credit received in the fourth quarter of 2019 which decreased that quarter’s costs.

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

 Three Months Ended
(Dollars in thousands, except per share data)December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019
Net interest income$18,349   $17,388  $16,649   $15,261  $16,080  
Provision (benefit) for loan losses (599)  567   404    2,060   (150)
Other operating income 2,921    3,696   2,308    1,768   3,347  
Compensation expense, net RML acquisition payments —    —   —    —   468  
Other operating expense 15,536    14,353   14,113    13,612   14,765  
Income before provision for income taxes 6,333    6,164   4,440    1,357   4,344  
Provision for income taxes 1,303    1,249   (124)  266   719  
Net income$5,030   $4,915  $4,564   $1,091  $3,625  
Weighted average shares outstanding, diluted 6,324,461    6,413,221   6,440,898    6,560,593   6,647,510  
Diluted earnings per share$0.79   $0.76  $0.70   $0.17  $0.55  


 Year-to-date
(Dollars in thousands, except per share data)December 31, 2020December 31, 2019
Net interest income$67,647  $63,201  
(Benefit) provision for loan losses 2,432   (1,175)
Other operating income 10,693   13,145  
Compensation expense, net RML acquisition payments —   468  
Other operating expense 57,614   54,520  
Income before provision for income taxes 18,294   22,533  
Provision for income taxes 2,694   4,408  
Net income$15,600  $18,125  
Weighted average shares outstanding, diluted 6,431,367   6,808,209  
Diluted earnings per share$2.42  $2.66  

Home Mortgage Lending

“The significant activity in the mortgage market has continued through the fourth quarter of 2020, due to the low interest rate environment and the hard work of our mortgage lending teams,” said Ballard.   “Refinance activity was particularly robust, up 233% compared to the fourth quarter a year ago, while home purchases in our market also remain strong.”

During the fourth quarter of 2020, mortgage loan volume was $381.9 million, of which 52% was for new home purchases, compared to $364.2 million and 61% of loans funded for new home purchases in the third quarter of 2020, and $181.1 million, of which 70% was for new home purchases in the fourth quarter of 2019.

Loan fundings increased during the quarter and year-over-year driven by both increased refinance activity and new home purchase activity.   This was partially offset by the net change in fair value of mortgage servicing rights, which decreased mortgage banking income by $1.2 million during the fourth quarter of 2020.

“Our mortgage servicing business, which we initiated to service loans primarily for the Alaska Housing Finance Corporation, generated continued growth during the quarter,” said Ballard.   As of December 31, 2020, Northrim serviced 2,819 loans in its $683.1 million home-mortgage-servicing portfolio, which is a 4% increase from the $655.7 million serviced for the third quarter of 2020, and a 4% increase from the $659.0 million serviced a year ago.   Delinquencies in the loan servicing portfolio totaled $31.4 million at December 31, 2020, compared to $10.4 million at December 31, 2019.   Mortgage servicing revenue contributed $2.5 million to revenues in the fourth quarter of 2020 compared to $2.0 million in the third quarter of 2020 and $1.7 million in the fourth quarter of 2019.   As a result of COVID-19, approximately 5% of mortgages serviced were in forbearance as of December 31, 2020, compared to 6% as of September 30, 2020, and 2% as of December 31, 2019.

Total mortgage servicing income fluctuates based on the number of mortgage servicing rights originated during the period and changes in the fair value of those servicing rights. The fair value of mortgage servicing rights are driven by interest rate volatility and the number of serviced mortgages that pay off 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 $1.2 million for the fourth quarter of 2020, compared to a decrease of $1.5 million for the third quarter of 2020 and a decrease of $321,000 for the fourth quarter of 2019.

For the full year 2020, the change in fair value of mortgage servicing rights was a decrease of $5.6 million as compared to a decrease of $2.6 million for 2019, as a result of the historically low mortgage rates during 2020.

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

 Three Months Ended
(Dollars in thousands, except per share data)December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019
Mortgage commitments$150,276  $257,304  $206,274  $197,892  $48,796  
Mortgage loans funded for sale$381,942  $364,159  $381,086  $168,224  $181,102  
Mortgage loan refinances to total fundings 48 % 39 % 65 % 46 % 30 %
Mortgage loans serviced for others$683,117  $655,733  $655,183  $678,096  $659,048  
      
Net realized gains on mortgage loans sold$15,557  $14,736  $11,322  $4,643  $5,215  
Change in fair value of mortgage loan commitments, net (2,724)  1,943   3,579   (545)  (455) 
Total production revenue 12,833   16,679   14,901   4,098   4,760  
Mortgage servicing revenue 2,510   2,044   1,633   1,327   1,679  
Change in fair value of mortgage servicing rights:     
Due to changes in model inputs of assumptions1 (410)  (699)  (891)  (701)  72  
Other2 (783)  (806)  (1,037)  (229)  (393) 
Total mortgage servicing revenue, net 1,317   539   (295)  397   1,358  
Other mortgage banking revenue 661   714   621   170   270  
Total mortgage banking income$14,811  $17,932  $15,227  $4,665  $6,388  
      
Net interest income$875  $906  $808  $429  $330  
Mortgage banking income 14,811   17,932   15,227   4,665   6,388  
Other operating expense 8,611   9,153   8,561   5,175   5,382  
Income before provision for income taxes 7,075   9,685   7,474   (81)  1,336  
Provision for income taxes 2,005   2,745   2,138   (23)  381  
Net income$5,070  $6,940  $5,336  ($58) $955  
      
Weighted average shares outstanding, diluted 6,324,461   6,413,221   6,440,898   6,560,593   6,647,510  
Diluted earnings per share$0.80  $1.08  $0.82  ($0.01) $0.14  

1Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
2Represents changes due to collection/realization of expected cash flows over time.

 Year-to-date
(Dollars in thousands, except per share data)December 31, 2020December 31, 2019
Mortgage loans funded for sale$1,295,411  $684,297  
Mortgage loan refinances to total fundings 50 % 26 %
   
Net realized gains on mortgage loans sold$46,258  $19,813  
Change in fair value of mortgage loan commitments, net 2,253   21  
Total production revenue 48,511   19,834  
Mortgage servicing revenue 7,514   6,115  
Change in fair value of mortgage servicing rights:  
Due to changes in model inputs of assumptions1 (2,701)  (1,312) 
Other2 (2,855)  (1,295) 
Total mortgage servicing revenue, net 1,958   3,508  
Other mortgage banking revenue 2,166   859  
Total mortgage banking income$52,635  $24,201  
   
Net interest income$3,018  $1,241  
Mortgage banking income 52,635   24,201  
Other operating expense 31,500   21,850  
Income before provision for income taxes 24,153   3,592  
Provision for income taxes 6,865   1,026  
Net income$17,288  $2,566  
   
Weighted average shares outstanding, diluted 6,431,367   6,808,209  
Diluted earnings per share$2.69  $0.38  

1Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
2Represents changes due to collection/realization of expected cash flows over time.

Balance Sheet Review

Northrim’s total assets increased to $2.12 billion at December 31, 2020, up 1% from the preceding quarter and up 29% from a year ago.   Northrim’s loan-to-deposit ratio was 79% at December 31, 2020, down from 83% at September 30, 2020 and up from 76% at December 31, 2019.

Average interest-earning assets were $1.94 billion in the fourth quarter of 2020, up 4% from $1.87 billion in the third quarter of 2020 and up 33% from $1.45 billion in the fourth quarter a year ago.   The average yield on interest-earning assets was 4.24% in the fourth quarter of 2020, down from 4.25% in the preceding quarter and 4.97% in the fourth quarter a year ago.

Average investment securities increased to $231.9 million in the fourth quarter of 2020, compared to $217.6 million in the third quarter of 2020 and decreased compared to $279.8 million in the fourth quarter a year ago.   The average net tax equivalent yield on the securities portfolio was 1.73% for the fourth quarter of 2020, down from 2.11% in the preceding quarter and 2.65% in the year ago quarter.   The average estimated duration of the investment portfolio at December 31, 2020, was 2.9 years.   In an effort to diversify its investment portfolio into higher yielding, longer duration assets, Northrim added $10.0 million of investment securities, classified as held to maturity on the books at December 31, 2020.

“Much of the loan production during the third and fourth quarters resulted from new customers we obtained through the PPP process,” said Ballard.   At December 31, 2020, commercial loans represented 33% of total loans, PPP loans represented 21% of total loans, commercial real estate owner occupied loans comprised 11% of total loans, commercial real estate non-owner occupied loans comprised 24% of total loans, and construction loans made up 8% of total loans.   Portfolio loans were $1.44 billion at December 31, 2020, down 3% from the preceding quarter and up 38% from a year ago.   Portfolio loans excluding the impact from PPP were $1.14 billion at December 31, 2020, up 1% from the preceding quarter and up 9% from a year ago. Average portfolio loans in the fourth quarter of 2020 were $1.49 billion, up 2% from the preceding quarter and up 45% from a year ago.   Yields on average portfolio loans in the fourth quarter of 2020 increased to 5.00% from 4.83% in the third quarter of 2020 and decreased compared to 5.94% in the fourth 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 December 31, 2020, balances in transaction accounts represented 90% of total deposits.   Total deposits were $1.82 billion at December 31, 2020, up 1% from $1.81 billion at September 30, 2020, and up 33% from $1.37 billion a year ago.   Demand deposits increased 42% year-over-year to $643.8 million at December 31, 2020.   Average interest-bearing deposits were up 6% to $1.14 billion with an average cost of 0.40% in the fourth quarter of 2020, compared to $1.08 billion and an average cost of 0.49% in the third quarter of 2020, and up 25% compared to $910.4 million and an average cost of 0.65% in the fourth quarter of 2019.

“In 2020, we captured market share in all of our markets by adding new customer relationships and strong future growth opportunities. Our lenders, retail bankers and commercial cash managers have worked hard to meet the needs of our customers and are contributing to our success,” said Michael Martin, the Bank's Chief Operating Officer and General Counsel.   

Shareholders’ equity was $221.6 million, or $35.45 per share, at December 31, 2020, compared to $214.6 million, or $34.18 per share, at September 30, 2020 and $207.1 million, or $31.58 per share, a year ago.   Tangible book value per share* was $32.88 at December 31, 2020, compared to $31.62 at September 30, 2020, and $29.12 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 14.20% at December 31, 2020, compared to 14.11% at September 30, 2020, and 14.38% at December 31, 2019.

Asset Quality

“Credit quality continued to improve throughout the year, with nonperforming loans at December 31, 2020 decreasing 28% compared to a year ago and decreasing 9% compared to three months earlier,” said Martin.   “We are being diligent with monitoring the loan portfolio and working closely with our customers given the current economic environment.”

Nonperforming assets ("NPAs") net of government guarantees were $16.3 million at December 31, 2020, down from $17.9 million at September 30, 2020 and $19.9 million a year ago.   Of the NPAs, $6.8 million, or 42% are nonaccrual loans related to five commercial relationships. Two of these relationships, which totaled $2.4 million at December 31, 2020, are businesses in the medical industry.

Net adversely classified loans were $12.8 million at December 31, 2020, as compared to $14.5 million at September 30, 2020, and $22.3 million a year ago.   Net loan recoveries were $53,000 in the fourth quarter of 2020, compared to net loan recoveries of $463,000 in the third quarter of 2020, and net loan recoveries of $101,000 in the fourth quarter of 2019.   Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees.   As of December 31, 2020, $9.9 million, or 78% of net adversely classified loans are attributable to ten relationships with six 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 December 31, 2020, net of government guarantees were $832,000, down from $865,000 three months earlier and from $1.4 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, unless it is the result of the COVID-19 global pandemic.   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.

Excluding SBA PPP loans, Northrim had $78.9 million, or 7% of portfolio loans, in the tourism sector; $56.1 million, or 5% of portfolio loans, in the aviation (non-tourism) sector; $96.9 million, or 8% of total portfolio loans, in the healthcare sector; $37.2 million, or 3% in the accommodations sector; $17.4 million, or 2% in retail loans; and $31.0 million, or 3% in the restaurant sector, as of December 31, 2020.

Northrim estimates that $65.1 million, or approximately 6% of portfolio loans excluding SBA PPP loans, had direct exposure to the oil and gas industry in Alaska, as of December 31, 2020, and $1.4 million of these loans are adversely classified. As of December 31, 2020, Northrim has an additional $63.5 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; the timing of PPP loan forgiveness; 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/

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

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

http://www.tax.state.ak.us/

www.mba.org

https://www.alaskarealestate.com/MLSMember/RealEstateStatistics.aspx

https://fred.stlouisfed.org/series/MORTGAGE30US

Income Statement      
(Dollars in thousands, except per share data)Three Months Ended Year-to-date
(Unaudited)December 31,September 30,December 31, December 31,December 31,
  2020 2020 2019  2020 2019
Interest Income:      
Interest and fees on loans$19,587  $18,691 $15,957   $71,091  $62,150  
Interest on portfolio investments 967   1,086  1,774    5,316   7,011  
Interest on deposits in banks 25   17  331    309   922  
Total interest income 20,579   19,794  18,062    76,716   70,083  
Interest Expense:      
Interest expense on deposits 1,144   1,320  1,484    5,279   4,961  
Interest expense on borrowings 211   180  168    772   680  
Total interest expense 1,355   1,500  1,652    6,051   5,641  
Net interest income 19,224   18,294  16,410    70,665   64,442  
       
Provision (benefit) for loan losses (599)  567  (150)   2,432   (1,175) 
Net interest income after provision (benefit) for      
loan losses 19,823   17,727  16,560    68,233   65,617  
       
Other Operating Income:      
Mortgage banking income 14,811   17,932  6,388    52,635   24,201  
Purchased receivable income 538   516  916    2,650   3,271  
Bankcard fees 743   770  762    2,837   2,976  
Gain on marketable equity securities 408   375  129    61   911  
Service charges on deposit accounts 300   269  333    1,102   1,557  
Interest rate swap income 206   726  230    949   964  
Gain on sale of securities          98   23  
Other income 726   1,040  977    2,996   3,443  
Total other operating income 17,732   21,628  9,735    63,328   37,346  
       
Other Operating Expense:      
Salaries and other personnel expense 16,826   16,418  13,884    61,137   51,317  
Data processing expense 2,015   1,851  1,804    7,668   7,128  
Occupancy expense 1,701   1,648  1,618    6,624   6,607  
Professional and outside services 951   884  681    3,157   2,531  
Marketing expense 739   302  764    2,320   2,373  
Insurance expense 300   315  (35)   1,228   557  
Intangible asset amortization expense 12   12  15    48   60  
Compensation expense RML acquisition payments, net      468       468  
OREO expense, net rental income and gains on sale (250)  23  (7)   (242)  (193) 
Other operating expense 1,853   2,053  1,423    7,174   5,990  
Total other operating expense 24,147   23,506  20,615    89,114   76,838  
       
Income before provision for income taxes 13,408   15,849  5,680    42,447   26,125  
Provision for income taxes 3,308   3,994  1,100    9,559   5,434  
Net income$10,100  $11,855 $4,580   $32,888  $20,691  
       
Basic EPS$1.61  $1.87 $0.70   $5.18  $3.08  
Diluted EPS$1.59  $1.84 $0.69   $5.11  $3.04  
Weighted average shares outstanding, basic 6,245,254   6,338,465  6,552,471    6,354,687   6,708,622  
Weighted average shares outstanding, diluted 6,324,461   6,413,221  6,647,510    6,431,367   6,808,209  



Balance Sheet   
(Dollars in thousands)   
(Unaudited)December 31,September 30,December 31,
  2020 2020 2019
    
Assets:   
Cash and due from banks$23,304  $31,165  $20,518  
Interest bearing deposits in other banks 92,661   69,964   74,906  
Investment securities available for sale 247,633   215,369   276,138  
Marketable equity securities 9,052   8,534   7,945  
Investment securities held to maturity 10,000        
Investment in Federal Home Loan Bank stock 2,551   2,508   2,138  
Loans held for sale 146,178   128,105   67,834  
Portfolio loans 1,444,050   1,492,720   1,043,371  
Allowance for loan losses (21,136)  (21,683)  (19,088) 
Net portfolio loans 1,422,914   1,471,037   1,024,283  
Purchased receivables, net 13,922   13,520   24,373  
Mortgage servicing rights, at fair value 11,218   10,589   11,920  
Other real estate owned, net 7,289   6,962   7,043  
Premises and equipment, net 38,102   38,615   38,422  
Lease right of use asset 12,440   12,943   14,306  
Goodwill and intangible assets, net 16,046   16,058   16,094  
Other assets 68,488   72,369   58,076  
Total assets$2,121,798  $2,097,738  $1,643,996  
    
Liabilities:   
Demand deposits$643,825  $697,363  $451,896  
Interest-bearing demand 459,095   427,811   320,264  
Savings deposits 308,725   272,624   229,918  
Money market deposits 237,705   227,106   205,801  
Time deposits 175,631   181,229   164,472  
Total deposits 1,824,981   1,806,133   1,372,351  
Other borrowings 14,817   13,737   8,891  
Junior subordinated debentures 10,310   10,310   10,310  
Lease liability 12,378   12,881   14,229  
Other liabilities 37,737   40,061   31,098  
Total liabilities 1,900,223   1,883,122   1,436,879  
    
Shareholders' Equity:   
Total shareholders' equity 221,575   214,616   207,117  
Total liabilities and shareholders' equity$2,121,798  $2,097,738  $1,643,996  
    


Additional Financial Information
(Dollars in thousands)
(Unaudited)

Composition of Portfolio Investments       
 December 31, 2020 September 30, 2020 December 31, 2019
 Balance% of total Balance% of total Balance% of total
U.S. Treasury securities$37,547 14.1% $37,691 16.8% $57,480 20.2%
U.S. Agency securities 137,054 51.4%  119,861 53.6%  154,372 54.4%
Corporate securities 40,492 15.2%  27,215 12.2%  35,066 12.3%
Marketable equity securities 9,052 3.4%  8,534 3.8%  7,945 2.8%
Collateralized loan obligations 41,684 15.6%  28,266 12.6%  25,923 9.1%
Alaska municipality, utility, or state bonds 856 0.3%  2,336 1.0%  3,297 1.2%
Total portfolio investments$266,685   $223,903   $284,083  
         


Composition of Portfolio Loans            
 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
 Balance% of total Balance% of total Balance% of total Balance% of total Balance% of total
Commercial loans$469,540  33% $460,542  31% $426,675  29% $434,832  40% $412,690  39%
SBA Payment Protection loans 310,518  21%  375,636  25%  353,485  24%    %    %
CRE owner occupied loans 163,597  11%  148,993  10%  154,741  11%  146,453  13%  138,891  13%
CRE nonowner occupied loans 355,694  24%  364,232  24%  360,533  25%  355,753  33%  355,466  34%
Construction loans 118,782  8%  120,619  8%  114,464  8%  109,849  10%  100,626  10%
Consumer loans 37,654  3%  37,183  2%  38,310  3%  39,923  4%  40,783  4%
Subtotal 1,455,785     1,507,205     1,448,208     1,086,810     1,048,456   
Unearned loan fees, net (11,735)    (14,485)    (15,007)    (4,937)    (5,085)  
Total portfolio loans$1,444,050    $1,492,720    $1,433,201    $1,081,873    $1,043,371   


Composition of Deposits            
 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
 Balance% of total Balance% of total Balance% of total Balance% of total Balance% of total
Demand deposits$643,825 35% $697,363 38% $680,033 40% $453,003 33% $451,896 33%
Interest-bearing demand 459,095 25%  427,811 24%  400,138 23%  333,352 24%  320,264 23%
Savings deposits 308,725 17%  272,624 15%  261,934 15%  228,383 16%  229,918 17%
Money market deposits 237,705 13%  227,106 13%  215,735 12%  207,418 15%  205,801 15%
Time deposits 175,631 10%  181,229 10%  179,519 10%  173,336 12%  164,472 12%
Total deposits$1,824,981   $1,806,133   $1,737,359   $1,395,492   $1,372,351  


Additional Financial Information
(Dollars in thousands)
(Unaudited)

Asset QualityDecember 31, September 30, December 31, 
 2020 2020 2019 
Nonaccrual loans$11,120   $12,647   $15,356   
Loans 90 days past due and accruing 449           
Total nonperforming loans 11,569    12,647    15,356   
Nonperforming loans guaranteed by government (1,521)   (1,600)   (1,405)  
Net nonperforming loans 10,048    11,047    13,951   
Other real estate owned 7,289    6,962    7,043   
Repossessed assets 231    779    231   
Nonperforming purchased receivables     410       
Other real estate owned guaranteed by government (1,279)   (1,279)   (1,279)  
Net nonperforming assets$16,289   $17,919   $19,946   
Nonperforming loans, net of government guarantees / portfolio loans 0.70  % 0.74  % 1.34  %
Nonperforming loans, net of government guarantees / portfolio loans,      
net of government guarantees 0.92  % 1.02  % 1.38  %
Nonperforming assets, net of government guarantees / total assets 0.77  % 0.85  % 1.21  %
Nonperforming assets, net of government guarantees / total assets      
net of government guarantees 0.92  % 1.06  % 1.24  %
       
Performing restructured loans$2,355   $2,367   $1,448   
Performing restructured loans guaranteed by government (1,523)   (1,502)      
Net performing restructured loans$832   $865   $1,448   
Nonperforming loans plus performing restructured loans, net of government      
guarantees$10,880   $11,912   $15,399   
Nonperforming loans plus performing restructured loans, net of government      
guarantees / portfolio loans 0.75  % 0.80  % 1.48  %
Nonperforming loans plus performing restructured loans, net of government      
guarantees / portfolio loans, net of government guarantees 0.99  % 1.10  % 1.52  %
Nonperforming assets plus performing restructured loans, net of government      
guarantees / total assets 0.81  % 0.90  % 1.30  %
Nonperforming assets plus performing restructured loans, net of government      
guarantees / total assets, net of government guarantees 0.97  % 1.12  % 1.33  %
       
Adversely classified loans, net of government guarantees$12,768   $14,492   $22,330   
Special mention loans, net of government guarantees$19,063   $18,141   $19,748   
Loans 30-89 days past due and accruing, net of government guarantees /      
portfolio loans 0.05  % 0.16  % 0.15  %
Loans 30-89 days past due and accruing, net of government guarantees /      
portfolio loans, net of government guarantees 0.07  % 0.22  % 0.15  %
       
Allowance for loan losses / portfolio loans 1.46  % 1.45  % 1.83  %
Allowance for loan losses / portfolio loans, net of government guarantees 1.93  % 2.00  % 1.88  %
Allowance for loan losses / nonperforming loans, net of government guarantees 210  % 196  % 137  %
       
Gross loan charge-offs for the quarter$11   $141   $11   
Gross loan recoveries for the quarter$64   ($604)  ($112)  
Net loan (recoveries) charge-offs for the quarter($53)  ($463)  ($101)  
Net loan (recoveries) charge-offs year-to-date$384   $436   ($744)  
Net loan (recoveries) charge-offs for the quarter / average loans, for the quarter 0.00  % (0.03) % (0.01) %
Net loan (recoveries) charge-offs year-to-date / average loans,      
year-to-date annualized 0.03  % 0.05  % (0.07) %



Additional Financial Information
(Dollars in thousands)
(Unaudited)

Nonperforming Assets Rollforward
    WritedownsTransfers toTransfers to  
 Balance at September 30, 2020Additions this quarterPayments this quarter/Charge-offs
this quarter
OREO/ REPOPerforming Status
this quarter
Sales this quarterBalance at December 31, 2020
Commercial loans$6,831   $— ($754) ($11) ($490)  $—  $—  $5,576  
Commercial real estate 4,940   449  (267)             5,122  
Construction loans 702                   702  
Consumer loans 174     (5)             169  
Non-performing loans guaranteed by government (1,600)    79              (1,521) 
Total non-performing loans 11,047   449  (947)  (11)  (490)       10,048  
Other real estate owned 6,962   490             (163)  7,289  
Repossessed assets 779                (548)  231  
Nonperforming purchased        
receivables 410     (410)               
Other real estate owned guaranteed        
by government (1,279)                  (1,279) 
Total non-performing assets,        
net of government guarantees$17,919  $939 ($947) ($11) ($490)  $— ($711) $16,289  

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

Loan Charge-offs by Industry    
 Three Months Ended
 December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019
Charge-offs:     
Support for oil and gas operations$— $— $— $36 $— 
Food service contractors       99   
Retail sales       16   
Offices of physicians 11         
Excavation and construction   33       
Health care and social assistance   108  804     
Consumer       14  11 
Total charge-offs$11 $141 $804 $165 $11 



Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates
 Three Months Ended
 December 31, 2020 September 30, 2020 December 31, 2019
  Average  Average  Average
 AverageTax Equivalent AverageTax Equivalent AverageTax Equivalent
 BalanceYield/Rate BalanceYield/Rate BalanceYield/Rate
Assets        
Interest bearing deposits in other banks$84,872 0.12% $60,504 0.11% $79,076 1.64%
Portfolio investments 231,867 1.73%  217,599 2.11%  279,841 2.65%
Loans held for sale 135,776 2.79%  122,994 3.11%  68,111 3.76%
Portfolio loans 1,489,029 5.00%  1,465,839 4.83%  1,027,728 5.94%
Total interest-earning assets 1,941,544 4.24%  1,866,936 4.25%  1,454,756 4.97%
Nonearning assets 175,413    172,853    176,871  
Total assets$2,116,957   $2,039,789   $1,631,627  
         
Liabilities and Shareholders' Equity        
Interest-bearing deposits$1,140,327 0.40% $1,077,193 0.49% $910,402 0.65%
Borrowings 24,819 3.35%  23,574 3.02%  19,226 3.42%
Total interest-bearing liabilities 1,165,146 0.46%  1,100,767 0.54%  929,628 0.70%
         
Noninterest-bearing demand deposits 679,924    672,974    451,384  
Other liabilities 51,363    52,611    42,650  
Shareholders' equity 220,524    213,437    207,965  
Total liabilities and shareholders' equity$2,116,957   $2,039,789   $1,631,627  
Net spread 3.78%  3.71%  4.27%
NIM 3.94%  3.90%  4.48%
NIMTE* 3.96%  3.93%  4.52%
Average portfolio loans to average        
interest-earning assets 76.69%   78.52%   70.65% 
Average portfolio loans to average total deposits 81.80%   83.75%   75.47% 
Average non-interest deposits to average        
total deposits 37.35%   38.45%   33.15% 
Average interest-earning assets to average        
interest-bearing liabilities 166.64%   169.60%   156.49% 

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

 4Q20 vs. 3Q204Q20 vs. 4Q19
Nonaccrual interest adjustments(0.19)%(0.04)%
Impact of SBA Paycheck Protection Program loans0.40  %0.07  %
Interest rates and loan fees(0.11)%(0.63)%
Volume and mix of interest-earning assets and liabilities(0.07)%0.04  %
Change in NIMTE*0.03  %(0.56)%



Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates
 Year-to-date
 December 31, 2020 December 31, 2019
  Average  Average
 AverageTax Equivalent AverageTax Equivalent
 BalanceYield/Rate BalanceYield/Rate
Assets     
Interest bearing deposits in other banks$66,260 0.46% $46,404 1.96%
Portfolio investments 247,384 2.26%  273,711 2.68%
Loans held for sale 105,287 3.05%  56,344 3.96%
Portfolio loans 1,339,908 5.08%  1,010,098 5.96%
Total interest-earning assets 1,758,839 4.40%  1,386,557 5.11%
Nonearning assets 177,208    169,150  
Total assets$1,936,047   $1,555,707  
      
Liabilities and Shareholders' Equity     
Interest-bearing deposits$1,040,606 0.51% $850,202 0.58%
Borrowings 35,918 2.13%  33,730 1.98%
Total interest-bearing liabilities 1,076,524 0.56%  883,932 0.64%
      
Noninterest-bearing demand deposits 597,610    426,205  
Other liabilities 50,192    36,968  
Shareholders' equity 211,721    208,602  
Total liabilities and shareholders' equity$1,936,047   $1,555,707  
Net spread 3.84%  4.47%
NIM 4.02%  4.65%
NIMTE* 4.05%  4.70%
Average portfolio loans to average interest-earning assets 76.18%   72.85% 
Average portfolio loans to average total deposits 81.79%   79.14% 
Average non-interest deposits to average total deposits 36.48%   33.39% 
Average interest-earning assets to average interest-bearing liabilities 163.38%   156.86% 

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

 YTD20 vs.YTD19
Nonaccrual interest adjustments0.05%
Impact of SBA Paycheck Protection Program loans(0.12)%
Interest rates and loan fees(0.56)%
Volume and mix of interest-earning assets and liabilities(0.02)%
Change in NIMTE*(0.65)%



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

Capital Data (At quarter end)      
 December 31, 2020 September 30, 2020 December 31, 2019 
Book value per share$35.45   $34.18   $31.58   
Tangible book value per share*$32.88   $31.62   $29.12   
Total shareholders' equity/total assets 10.44  % 10.23  % 12.60  %
Tangible Common Equity/Tangible Assets* 9.76  % 9.54  % 11.73  %
Tier 1 Capital / Risk Adjusted Assets 14.20  % 14.11  % 14.38  %
Total Capital / Risk Adjusted Assets 15.46  % 15.36  % 15.63  %
Tier 1 Capital / Average Assets 10.25  % 10.31  % 12.41  %
Shares outstanding 6,251,004    6,279,304    6,558,809   
Unrealized gain on AFS debt securities, net of income taxes$1,260   $1,308   $965   
Unrealized loss on derivatives and hedging activities($1,242)  ($1,543)  ($534)  


Profitability Ratios          
 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 
For the quarter:          
NIM3.94 %3.90 %3.98 %4.32 %4.48 %
NIMTE* 3.96 %3.93 %4.02 %4.37 %4.52 %
Efficiency ratio65.31 %58.85 %64.76 %84.87 %78.79 %
Return on average assets1.90 %2.31 %2.04 %0.25 %1.11 %
Return on average equity18.22 %22.10 %19.44 %2.00 %8.74 %


 December 31, 2020 December 31, 2019 
Year-to-date:    
NIM4.02 %4.65 %
NIMTE* 4.05 %4.70 %
Efficiency ratio66.47 %75.43 %
Return on average assets1.70 %1.33 %
Return on average equity15.53 %9.92 %

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

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of the Company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.

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
 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
Net interest income$19,224  $18,294  $17,457  $15,690  $16,410 
Divided by average interest-bearing assets 1,941,544   1,866,936   1,762,140   1,461,542   1,454,756 
Net interest margin ("NIM")2 3.94%  3.90%  3.98%  4.32%  4.48%
          
Net interest income$19,224  $18,294  $17,457  $15,690  $16,410 
Plus: reduction in tax expense related to         
tax-exempt interest income 122   136   168   187   180 
 $19,346  $18,430  $17,625  $15,877  $16,590 
Divided by average interest-bearing assets 1,941,544   1,866,936   1,762,140   1,461,542   1,454,756 
NIMTE2 3.96%  3.93%  4.02%  4.37%  4.52%


 Year-to-date
 December 31, 2020 December 31, 2019
Net interest income$70,665  $64,442 
Divided by average interest-bearing assets 1,758,839   1,386,557 
Net interest margin ("NIM")3 4.02%  4.65%
    
Net interest income$70,665  $64,442 
Plus: reduction in tax expense related to   
tax-exempt interest income 613   722 
 $71,278  $65,164 
Divided by average interest-bearing assets 1,758,839   1,386,557 
NIMTE3 4.05%  4.70%

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.

 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
          
Total shareholders' equity$221,575  $214,616  $206,923  $197,723  $207,117 
Divided by shares outstanding 6,251   6,279   6,368   6,366   6,559 
Book value per share$35.45  $34.18  $32.49  $31.06  $31.58 


 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
          
Total shareholders' equity$221,575  $214,616  $206,923  $197,723  $207,117 
Less: goodwill and intangible assets 16,046   16,058   16,070   16,082   16,094 
 $205,529  $198,558  $190,853  $181,641  $191,023 
Divided by shares outstanding 6,251   6,279   6,368   6,366   6,559 
Tangible book value per share$32.88  $31.62  $29.97  $28.53  $29.12 

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. 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.

December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
          
Total shareholders' equity$221,575  $214,616  $206,923  $197,723  $207,117 
Total assets 2,121,798   2,097,738   2,016,705   1,691,262   1,643,996 
Total shareholders' equity to total assets 10.44%  10.23%  10.26%  11.69%  12.60%


Northrim BanCorp, Inc.

December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
Total shareholders' equity$221,575  $214,616  $206,923  $197,723  $207,117 
Less: goodwill and other intangible assets, net 16,046   16,058   16,070   16,082   16,094 
Tangible common shareholders' equity$205,529  $198,558  $190,853  $181,641  $191,023 
          
Total assets$2,121,798  $2,097,738  $2,016,705  $1,691,262  $1,643,996 
Less: goodwill and other intangible assets, net 16,046   16,058   16,070   16,082   16,094 
Tangible assets$2,105,752  $2,081,680  $2,000,635  $1,675,180  $1,627,902 
Tangible common equity ratio 9.76%  9.54%  9.54%  10.84%  11.73%

 


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