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CST: 10/12/2019 20:26:58   

Northrim BanCorp Earns $4.3 Million, or $0.62 per Diluted Share, in 1Q19; Reflects Solid Contribution from Its Core Community Banking Franchise

225 Days ago

ANCHORAGE, Alaska, April 29, 2019 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the "Company") today reported profits grew 6% to $4.3 million, or $0.62 per diluted share, in the first quarter of 2019 compared to $4.1 million, or $0.58 per diluted share, in the first quarter of 2018.  The increase in profits was supported by an increase in the net interest margin ("NIM"), which was boosted by the repricing of short-term investments at higher interest rates and the increase in the yield and average balances of portfolio loans.

“Profitability in the first quarter of 2019 as compared to the first quarter of 2018 reflects an expanding net interest margin and moderate growth in loans and operating expenses,” said Joe Schierhorn, President and CEO.  “While new loan originations were offset by payoffs and maturities in the first quarter, our pipeline of loans remains healthy.”

First Quarter 2019 Highlights:

  • Total revenue, which includes net interest income plus other operating income, decreased 2% to $23.3 million in the first quarter of 2019, compared to $23.9 million in the fourth quarter of 2018, and grew 7% from $21.7 million in the first quarter a year ago.
     -- Community Banking provided 80% of total revenues and 100% of earnings in the first quarter of 2019.
  • Net interest income in the first quarter of 2019 increased 11% to $15.8 million from $14.3 million in the first quarter a year ago, mainly due to the higher yields on the loan and investment portfolios.
  • Net interest margin on a tax equivalent basis ("NIMTE”)* expanded to 4.89% in the first quarter of 2019, a 13-basis-point improvement, compared to the preceding quarter and a 56-basis-point improvement compared to the first quarter a year ago.
  • Return on average assets was 1.18% and return on average equity was 8.36% for the first quarter of 2019.
  • The Company repurchased 6,110 shares of its common stock in the first quarter of 2019 at an average price of $33.58, leaving 147,323 shares available under the previously announced repurchase authorization.
   
Financial Highlights Three Months Ended
(Dollars in thousands, except per share data) March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Total assets $ 1,520,051   $ 1,502,988   $ 1,502,673   $ 1,470,440   $ 1,524,741  
Total portfolio loans $ 982,341   $ 984,346   $ 982,007   $ 967,702   $ 967,575  
Average portfolio loans $ 988,920   $ 981,407   $ 984,914   $ 963,724   $ 955,718  
Total deposits $ 1,228,018   $ 1,228,088   $ 1,233,268   $ 1,205,521   $ 1,260,790  
Average deposits $ 1,194,512   $ 1,233,479   $ 1,223,997   $ 1,217,903   $ 1,233,745  
Total shareholders' equity $ 208,838   $ 205,947   $ 203,242   $ 199,456   $ 194,973  
Net income $ 4,312   $ 4,848   $ 5,264   $ 5,830   $ 4,062  
Diluted earnings per share $ 0.62   $ 0.69   $ 0.75   $ 0.84   $ 0.58  
Return on average assets   1.18 %   1.27 %   1.40 %   1.58 %   1.10 %
Return on average shareholders' equity   8.36 %   9.30 %   10.27 %   11.79 %   8.43 %
NIM   4.83 %   4.71 %   4.69 %   4.50 %   4.28 %
NIMTE*   4.89 %   4.76 %   4.74 %   4.56 %   4.33 %
Efficiency ratio   73.23 %   76.64 %   73.82 %   71.19 %   77.22 %
Total shareholders' equity/total assets   13.74 %   13.70 %   13.53 %   13.56 %   12.79 %
Tangible common equity/tangible assets*   12.81 %   12.76 %   12.58 %   12.60 %   11.85 %
Book value per share $ 30.36   $ 29.92   $ 29.52   $ 29.02   $ 28.37  
Tangible book value per share* $ 28.01   $ 27.57   $ 27.17   $ 26.66   $ 26.01  
Dividends per share $ 0.30   $ 0.27   $ 0.27   $ 0.24   $ 0.24  

* 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 8.)

Alaska’s economy continues to show gradual signs of improvement with modest job gains, improving income growth and rising gross state product ("GSP"). According to the State Department of Labor, Alaska has registered year-over-year job gains for the first two months of 2019 after losing jobs for the prior 39 months.  Average seasonally adjusted unemployment rates in Alaska through February of 2019 have been stable at 6.5%. “While job growth is modest, improving employment may signal the end of a three year recession in Alaska.  In addition, per capita income and GSP figures began to rise in the second quarter of 2018,” stated Mark Edwards, Chief Credit Officer and Bank Economist.

“Alaska’s leading economic drivers in 2019 are expected to be tourism, military, and oil & gas activity,” Edwards continued.  According to a State Department of Commerce report released in November of 2018, the Alaska tourism industry generated $4.5 billion in economic output in 2017.  The number of visitors has grown for five consecutive years. The cruise industry is predicting 175,000 more passengers in 2019, for a growth rate of 16% from larger ships and more ports of call.

“Alaska is also expected to benefit from increased levels of federal military and infrastructure spending,” Edwards noted.  Fairbanks has been positively impacted by the announced transfer of two F-35 squadrons to the local Eielson base between 2020 and 2022.  They expect an increase of approximately 50% in base population, adding 3,300 people to the current 6,800 (including families).  This is projected to require over $550 million in base construction and significant residential construction, both on and off base, according to presentations by officials at Eielson Air Force Base.

Oil production generated $1.9 billion in unrestricted revenue for the State of Alaska in fiscal year ("FY") 2018. According to the State Department of Revenue, in FY 2019 the oil industry is expected to generate over $2.1 billion in unrestricted state revenue. North Slope production averaged 518,400 barrels per day in 2018, up from 508,446 barrels per day in 2015, but a decline of 1.5% from 2017. North Slope production is projected to average 511,500 barrels per day in FY 2019 and 529,500 barrels per day in FY 2020. Exploration and development activity in new fields in the National Petroleum Reserve - Alaska is creating construction jobs and permanent positions as a result of the increase in direct investment.

“We are encouraged by the improvements in several sectors of our economy. However, we are concerned about the potential impacts on the economy from the current state budget proposals,” said Schierhorn.

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 first quarter of 2019, Northrim generated a return on average assets ("ROAA") of 1.18% and a return on average equity ("ROAE") of 8.36%, compared to 1.27% and 9.30%, respectively in the fourth quarter of 2018 and 1.10% and 8.43%, respectively, in the first quarter a year ago.

Net Interest Income/Net Interest Margin

Net interest income, before the provision for loan losses, increased 11% to $15.8 million in the first quarter of 2019 compared to $14.3 million in the first quarter of 2018 and decreased slightly compared to $16.1 million in the fourth quarter of 2018.

NIMTE* was 4.89% in the first quarter of 2019 compared to 4.76% in the preceding quarter and 4.33% in the first quarter a year ago.  The deployment of lower-yielding investments into more productive loans and higher-yielding securities and the repricing of variable rate loans and investments contributed to the increases in net interest income and NIMTE* in the first quarter of 2019 compared to prior quarters.  The yield on interest earning assets in the first quarter improved to 5.23%, up 15 basis points from the fourth quarter of 2018 and 74 basis points year-over-year.  The cost of funds increased in the first quarter of 2019 to 53 basis points, up three basis points from the preceding quarter and 28 basis points compared to the same quarter last year.

“We are continuing to see some benefits of our relatively short duration loan and investment portfolios from the rising interest rates over the past two years,” said Jed Ballard, Chief Financial Officer. “We also continue to closely monitor our cost of funds in our current interest rate environment.”

Provision for Loan Losses

Northrim recorded a $750,000 provision for loan losses in the first quarter of 2019, largely due to an increase in nonperforming loans and large borrower concentration.  In the fourth quarter of 2018, Northrim recorded a benefit for loan losses of $200,000, and in the first quarter a year ago Northrim recorded no provision for loan losses.  Nonperforming loans, net of government guarantees, increased during the quarter to $18.5 million at March 31, 2019, compared to $14.7 million at December 31, 2018, and decreased slightly from $18.6 million at March 31, 2018.  The allowance for loan losses was 109% of nonperforming loans, net of government guarantees at March 31, 2019.

Other Operating Income

In addition to home mortgage lending, Northrim has interests in other businesses that complement its core community banking activities, including purchased receivables financing and wealth management.  Other operating income contributed $7.5 million, or 32% of total first quarter 2019 revenues, as compared to $7.7 million, or 32% of revenues in the fourth quarter of 2018, and $7.5 million, or 34% of revenues in the first quarter of 2018.  The primary drivers of changes in other operating income are variability in the mortgage market, which is seasonal and cyclical,  and gains 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 $534,000 in the first quarter of 2019,  compared to a $490,000 reduction to other income in the fourth quarter of 2018. In the fourth quarter of 2018, the Company recorded for the first time in other operating income the fair value of its commercial loan servicing portfolio of $1.0 million. Going forward only the changes in the fair value of the Company's commercial loan servicing portfolio will be reflected in other operating income and are not expected to be significant.

Other Operating Expenses

Other operating expenses decreased 7% to $17.1 million in the first quarter of 2019, compared to $18.3 million in the fourth quarter of 2018 and increased modestly compared to $16.8 million in the first quarter of 2018.  Reducing other operating expense during the first quarter of 2019 was a $316,000 net gain on the sale of an OREO property.

Income Tax Provision

For the first quarter of 2019, Northrim recorded $1.2 million in state and federal income tax expense for an effective tax rate of 21.2% compared to $868,000, or 17.6% in the year-ago quarter.

Community Banking

Net interest income in the Community Banking segment increased 10% to $15.5 million in the first quarter of 2019 from $14.0 million in the first quarter of 2018.

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

   
  Three Months Ended
(Dollars in thousands, except per share data) March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Net interest income $ 15,488   $ 15,719   $ 15,358   $ 14,614   $ 14,036  
Provision (benefit) for loan losses   750     (200 )       (300 )    
Other operating income   3,235     3,199     2,770     2,836     2,518  
Other operating expense   12,518     13,637     12,204     11,748     12,367  
  Income before provision for income taxes   5,455     5,481     5,924     6,002     4,187  
Provision for income taxes   1,155     824     996     882     659  
  Net income $ 4,300   $ 4,657   $ 4,928   $ 5,120   $ 3,528  
Average diluted shares   6,981,951     6,990,319     6,990,633     6,976,985     6,968,082  
Diluted earnings per share $ 0.62   $ 0.66   $ 0.70   $ 0.74   $ 0.50  
                               

Home Mortgage Lending

“The Alaska housing market continues to show price stability throughout the state, and we experienced normal seasonality in the mortgage market with higher demand in the spring and summer and lower demand in autumn and winter,” said Jed Ballard, Chief Financial Officer.  “Loan fundings have been trending down due to a variety of factors including rising interest rates and low housing inventory levels. Loans funded in the first quarter of 2019 were $92.4 million, of which 84% were for new home purchases, compared to $109.1 million of which 82% were for new home purchases in the first quarter of 2018.

“Our mortgage servicing business, which was initiated in the fourth quarter of 2015 to service loans for the Alaska Housing Finance Corporation, continues to grow,” Ballard noted.  As of March 31, 2019, Northrim serviced 2,339 loans in its $586.6 million home-mortgage-servicing portfolio, which is a 33% increase from the $439.6 million serviced a year ago.  Mortgage servicing revenue increased to $1.7 million in the first quarter of 2019 compared to $1.2 million in the first quarter of 2018.  Total mortgage servicing income fluctuates based on the amount of mortgage servicing rights originated during the period and changes in the fair value of mortgage servicing rights, which are driven by interest rate volatility and fluctuations in estimated prepayment speeds based on published industry metrics.

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

   
  Three Months Ended
(Dollars in thousands, except per share data) March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Mortgage commitments $ 66,319   $ 44,999   $ 69,026   $ 84,092   $ 64,819  
Mortgage loans funded for sale $ 92,447   $ 113,963   $ 156,301   $ 148,183   $ 109,069  
Mortgage loan refinances to total fundings   16 %   10 %   9 %   8 %   18 %
Mortgage loans serviced for others $ 586,595   $ 557,583   $ 516,008   $ 472,190   $ 439,561  
           
Net realized gains on mortgage loans sold $ 2,927   $ 3,156   $ 4,268   $ 4,052   $ 3,346  
Change in fair value of mortgage loan commitments, net   356     (442 )   (66 )   32     316  
Total production revenue   3,283     2,714     4,202     4,084     3,662  
Mortgage servicing revenue   1,668     1,526     1,578     1,254     1,183  
Change in fair value of mortgage servicing rights, net1   (674 )   145     (128 )   (118 )   (26 )
Total mortgage servicing revenue, net   994     1,671     1,450     1,136     1,157  
Other mortgage banking revenue   21     134     251     258     125  
  Total mortgage banking income $ 4,298   $ 4,519   $ 5,903   $ 5,478   $ 4,944  
           
Net interest income $ 281   $ 418   $ 461   $ 375   $ 227  
Mortgage banking income   4,298     4,519     5,903     5,478     4,944  
Other operating expense   4,562     4,663     5,895     4,858     4,428  
  Income before provision for income taxes   17     274     469     995     743  
Provision for income taxes   5     83     133     285     209  
  Net income $ 12   $ 191   $ 336   $ 710   $ 534  
           
Average diluted shares   6,981,951     6,990,319     6,990,633     6,976,985     6,968,082  
Diluted earnings per share $   $ 0.03   $ 0.05   $ 0.10   $ 0.08  

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 were $1.52 billion at March 31, 2019, up marginally from the preceding quarter and nearly unchanged from a year ago.  Northrim’s loan-to-deposit ratio remains at 80% at March 31, 2019, unchanged from December 31, 2018, and up from 77% at March 31, 2018.

Average interest-earning assets were $1.32 billion in the first quarter of 2019, down 3% from $1.36 billion at the end of the fourth quarter of 2018 and down 2% from the first quarter a year ago.  The average yield on interest-earning assets was 5.23% in the first quarter of 2019, up from 5.08% in the preceding quarter and 4.49% in the like quarter a year ago.

Average investment securities totaled $280.4 million at March 31, 2019, unchanged from the fourth quarter of 2018 and a decrease of 11% from the first quarter a year ago.  The average net tax equivalent yield on the securities portfolio improved to 2.65% for the first quarter of 2019, from 2.51% in the preceding quarter and 1.85% a year ago.  The average estimated duration of the investment portfolio was 22 months, at March 31, 2019.  “The benefits of higher yields from the rising interest rate environment the past few years is likely to moderate in the near term, although strong demand for short-to moderate term interest bearing instruments is providing some support for yields,” noted Ballard.

“During the first quarter of 2019, loan originations were more than offset by the rate of repayments that results from the short duration of the loan portfolio.  In addition, a majority of the loan portfolio is adjustable rate, which has benefited yields as interest rates rise,” said Schierhorn.  Portfolio loans were $982.3 million at March 31, 2019, down slightly from the preceding quarter and up 2% from a year ago.  Average portfolio loans in the first quarter of 2019 were $988.9 million, up slightly from the preceding quarter and up 3% from a year ago.  Yields on average portfolio loans in the first quarter of 2019 improved to 6.04% from 5.98% in the fourth quarter of 2018 and 5.52% in the first quarter of 2018.

Alaskans account for substantially all of Northrim’s deposit base, which is primarily made up of low-cost transaction accounts.  Balances in transaction accounts at March 31, 2019, represented 90% of total deposits.  At March 31, 2019, total deposits were $1.23 billion, level with balances at December 31, 2018, and down from $1.26 billion a year ago.  Average interest-bearing deposits were up slightly to $800.5 million with an average cost of 0.48% in the first quarter of 2019, compared to $796.4 million and an average cost of 0.45% in the fourth quarter of 2018, and down 4% from $829.6 million and an average cost of 0.18% in the first quarter of 2018.

Shareholders’ equity increased 7% to $208.8 million, or $30.36 per share, at March 31, 2019, compared to $195.0 million, or $28.37 per share, a year ago.  Tangible book value per share* was $28.01 at March 31, 2019, up from $26.01 per share a year ago.  Northrim continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” under the Basel III and Dodd Frank regulatory standards with Tier 1 Capital to Risk Adjusted Assets of 15.60% at March 31, 2019.

Asset Quality

Nonperforming assets ("NPAs") net of government guarantees increased to $25.5 million at March 31, 2019, compared to $22.6 million at the end of the preceding quarter, and improved slightly when compared to $26.1 million at March 31, 2018.  Of the NPAs, $15.4 million or 61% are nonaccrual loans related to six commercial relationships.  Two of these relationships, which totaled $6.6 million at the end of the first quarter of 2019, are businesses in the medical industry.

Net adversely classified loans improved to $27.1 million at the end of the first quarter of 2019 as compared to $27.2 million at the end of the fourth quarter of 2018 and $34.9 million one year ago.  Net loan charge-offs in the first quarter of 2019 were $60,000 compared to $441,000 in the preceding quarter and $1.0 million in charge-offs in the year ago quarter.  Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees.  As of March 31, 2019, $19.9 million, or 74% of net adversely classified loans are attributable to seven relationships with four loans to commercial businesses, two loans to medical businesses, and one loan to an oilfield services commercial business.

Performing restructured loans that were not included in nonaccrual loans at the end of the first quarter of 2019 were $3.4 million, unchanged from the preceding quarter and down from $9.2 million a year ago.  The decrease in the first quarter of 2019 compared to the year ago quarter is primarily due to the repayment of two commercial relationships.  Borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations are categorized as restructured loans.  The Company presents restructured loans that are performing separately from those that are classified as nonaccrual to provide more information on this category of loans and to differentiate between accruing performing and nonperforming restructured loans.

Northrim estimates that $67.6 million, or approximately 7% of portfolio loans as of March 31, 2019, had direct exposure to the oil and gas industry in Alaska, and $1.7 million of these loans are adversely classified.  As of March  31, 2019, Northrim has an additional $29.1 million in unfunded commitments to companies with direct exposure to the oil and gas industry in Alaska, and none of these unfunded commitments are considered to be adversely classified loans.  “We are encouraged by recent oil and gas activity in Alaska. We continue to define direct exposure to the oil and gas sector as loans to borrowers that provide oilfield services and other companies that we have identified as significantly reliant upon activity in Alaska related to the oil and gas industry, such as lodging, equipment rental, transportation and other logistics services specific to this industry,” added Ballard.

About Northrim BanCorp

Northrim BanCorp, Inc. is the parent company of Northrim Bank, an Alaska-based community bank with 15 branches in Anchorage, the Matanuska Valley, Juneau, Fairbanks, Ketchikan, and Sitka serving 90% of Alaska’s population; and an asset based lending division in Washington; and a wholly-owned mortgage brokerage company, Residential Mortgage Holding Company, LLC. The Bank differentiates itself with its detailed knowledge of Alaska’s economy and its “Customer First Service” philosophy. Pacific Wealth Advisors, LLC is an affiliated company of Northrim BanCorp.

www.northrim.com

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

References:

https://www.alaskanomics.com/alaskas-economy/

http://labor.alaska.gov/trends/apr19.pdf

http://www.tax.alaska.gov/programs/oil/dailyoil/dailyoil.aspx

https://www.akrdc.org/oil-and-gas

http://live.laborstats.alaska.gov/qcew/

https://www.adn.com/politics/2019/02/13/gov-dunleavy-launches-massive-budget-cut-plan/

       
       
Income Statement      
(Dollars in thousands, except per share data) Three Months Ended
(Unaudited) March 31, December 31, March 31,
   2019  2018  2018
Interest Income:      
  Interest and fees on loans $ 14,977   $ 15,251   $ 13,263  
  Interest on portfolio investments   1,758     1,662     1,348  
  Interest on deposits in banks   143     294     184  
  Total interest income   16,878     17,207     14,795  
Interest Expense:      
  Interest expense on deposits   938     894     372  
  Interest expense on borrowings   171     176     160  
  Total interest expense   1,109     1,070     532  
  Net interest income   15,769     16,137     14,263  
       
Provision (benefit) for loan losses   750     (200 )    
  Net interest income after provision for loan losses   15,019     16,337     14,263  
       
Other Operating Income:      
  Mortgage banking income   4,298     4,519     4,944  
  Purchased receivable income   809     781     840  
  Bankcard fees   650     755     625  
  Service charges on deposit accounts   413     371     354  
  Gain (loss) on marketable equity securities   534     (490 )    
  Commercial servicing revenue   122     1,135     87  
  Gain on sale of securities   23          
  Other income   684     647     612  
  Total other operating income   7,533     7,718     7,462  
       
Other Operating Expense:      
  Salaries and other personnel expense   11,302     11,442     10,585  
  Occupancy expense   1,771     1,729     1,700  
  Data processing expense   1,679     1,661     1,548  
  Professional and outside services   556     673     499  
  Marketing expense   419     857     632  
  Insurance expense   258     217     296  
  Intangible asset amortization expense   15     17     18  
  OREO expense, net rental income and gains on sale   (320 )   101     103  
  Other operating expense   1,400     1,603     1,414  
  Total other operating expense   17,080     18,300     16,795  
       
  Income before provision for income taxes   5,472     5,755     4,930  
  Provision for income taxes   1,160     907     868  
  Net income $ 4,312   $ 4,848   $ 4,062  
       
  Basic EPS $ 0.63   $ 0.70   $ 0.59  
  Diluted EPS $ 0.62   $ 0.69   $ 0.58  
  Average basic shares   6,879,619     6,888,762     6,871,963  
  Average diluted shares   6,981,951     6,990,319     6,968,082  


       
Balance Sheet      
(Dollars in thousands)      
(Unaudited) March 31, December 31, March 31,
   2019  2018  2018
       
Assets:      
  Cash and due from banks $ 30,266   $ 26,771   $ 15,170  
  Interest bearing deposits in other banks   48,667     50,767     68,792  
  Investment securities available for sale   274,441     271,610     297,573  
  Marketable equity securities   7,798     7,265     5,527  
  Investment in Federal Home Loan Bank stock   2,071     2,101     2,105  
  Loans held for sale   30,211     34,710     41,216  
  Portfolio loans   982,341     984,346     967,575  
  Allowance for loan losses   (20,209 )   (19,519 )   (20,449 )
  Net portfolio loans   962,132     964,827     947,126  
  Purchased receivables, net   21,286     14,406     19,412  
  Mortgage servicing rights   11,254     10,821     8,039  
  Other real estate owned, net   7,043     7,962     8,815  
  Premises and equipment, net   38,978     39,090     37,331  
  Lease right of use asset   15,485          
  Goodwill and intangible assets   16,139     16,154     16,207  
  Other assets   54,280     56,504     57,428  
  Total assets $ 1,520,051   $ 1,502,988   $ 1,524,741  
       
Liabilities:      
  Demand deposits $ 417,068   $ 420,988   $ 433,046  
  Interest-bearing demand   247,630     248,056     244,601  
  Savings deposits   237,510     239,054     246,981  
  Money market deposits   204,567     206,717     239,242  
  Time deposits   121,243     113,273     96,920  
  Total deposits   1,228,018     1,228,088     1,260,790  
  Securities sold under repurchase agreements   34,621     34,278     31,018  
  Other borrowings   7,200     7,241     7,338  
  Junior subordinated debentures   10,310     10,310     10,310  
  Lease liability   15,358          
  Other liabilities   15,706     17,124     20,312  
  Total liabilities   1,311,213     1,297,041     1,329,768  
       
Shareholders' Equity:      
  Total shareholders' equity   208,838     205,947     194,973  
  Total liabilities and shareholders' equity $ 1,520,051   $ 1,502,988   $ 1,524,741  
       

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Composition of Portfolio Investments              
  March 31,
2019
  December 31,
2018
  March 31,
2018
  Balance % of total   Balance % of total   Balance % of total
U.S. Treasury securities $ 55,037   19.5 %   $ 54,863   19.7 %   $ 49,603   16.4 %
U.S. Agency securities   157,260   55.7 %     153,997   55.1 %     193,715   63.9 %
Corporate securities   40,337   14.3 %     39,780   14.3 %     34,469   11.4 %
Marketable equity securities   7,798   2.8 %     7,265   2.6 %     5,527   1.8 %
Collateralized loan obligations   17,909   6.3 %     13,886   5.0 %     6,010   2.0 %
Alaska municipality, utility, or state bonds   3,748   1.3 %     4,710   1.7 %     9,160   3.0 %
Other municipality, utility, or state bonds   150   0.1 %     4,374   1.6 %     4,616   1.5 %
  Total portfolio investments $ 282,239       $ 278,875       $ 303,100    
                 


Composition of Portfolio Loans                        
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
  Balance % of total   Balance % of total   Balance % of total   Balance % of total   Balance % of total
Commercial loans $ 344,164   35 %   $ 342,420   35 %   $ 333,132   34 %   $ 327,733   34 %   $ 316,081   33 %
CRE owner occupied loans   130,141   13 %     126,414   13 %     130,166   13 %     127,384   13 %     132,589   14 %
CRE nonowner occupied loans   360,071   37 %     367,759   37 %     382,313   39 %     385,648   40 %     395,915   40 %
Construction loans   109,404   11 %     109,367   11 %     97,976   10 %     89,433   9 %     85,257   9 %
Consumer loans   42,861   4 %     42,873   4 %     42,775   4 %     41,711   4 %     41,841   4 %
  Subtotal   986,641         988,833         986,362         971,909         971,683    
Unearned loan fees, net   (4,300 )       (4,487 )       (4,355 )       (4,207 )       (4,108 )  
  Total portfolio loans $ 982,341       $ 984,346       $ 982,007       $ 967,702       $ 967,575    
                             


Composition of Deposits                        
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
  Balance % of total   Balance % of total   Balance % of total   Balance % of total   Balance % of total
Demand deposits $ 417,068   34 %   $ 420,988   35 %   $ 450,409   36 %   $ 401,925   33 %   $ 433,046   34 %
Interest-bearing demand   247,630   20 %     248,056   20 %     240,974   20 %     246,628   20 %     244,601   19 %
Savings deposits   237,510   19 %     239,054   19 %     233,611   19 %     237,978   20 %     246,981   20 %
Money market deposits   204,567   17 %     206,717   17 %     208,614   17 %     223,189   19 %     239,242   19 %
Time deposits   121,243   10 %     113,273   9 %     99,660   8 %     95,801   8 %     96,920   8 %
  Total deposits $ 1,228,018       $ 1,228,088       $ 1,233,268       $ 1,205,521       $ 1,260,790    
                                                 

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Asset Quality            
  March 31,   December 31,   March 31,  
   2019    2018    2018  
  Nonaccrual loans $ 19,516     $ 15,210     $ 18,895    
  Loans 90 days past due and accruing               84    
  Total nonperforming loans   19,516       15,210       18,979    
  Nonperforming loans guaranteed by government   (1,038 )     (516 )     (412 )  
  Net nonperforming loans   18,478       14,694       18,567    
  Other real estate owned   7,043       7,962       8,815    
  Repossessed assets   1,242       1,242          
  Other real estate owned guaranteed by government   (1,279 )     (1,279 )     (1,280 )  
  Net nonperforming assets $ 25,484     $ 22,619     $ 26,102    
  Nonperforming loans / portfolio loans, net of government guarantees   1.88   %   1.49   %   1.92   %
  Nonperforming assets / total assets, net of government guarantees   1.68   %   1.50   %   1.71   %
             
  Performing restructured loans $ 3,368     $ 3,413     $ 9,162    
  Nonperforming loans plus performing restructured loans, net of government            
  guarantees $ 21,846     $ 18,107     $ 27,729    
  Nonperforming loans plus performing restructured loans / portfolio loans, net of            
  government guarantees   2.22   %   1.84   %   2.87   %
  Nonperforming assets plus performing restructured loans / total assets, net of            
  government guarantees   1.90   %   1.73   %   2.31   %
             
  Adversely classified loans, net of government guarantees $ 27,080     $ 27,217     $ 34,934    
  Loans 30-89 days past due and accruing, net of government guarantees /            
  portfolio loans   0.36   %   0.36   %   0.92   %
             
  Allowance for loan losses / portfolio loans   2.06   %   1.98   %   2.11   %
  Allowance for loan losses / nonperforming loans, net of government guarantees   109   %   133   %   110   %
             
  Gross loan charge-offs for the quarter $ 109     $ 713     $ 1,104    
  Gross loan recoveries for the quarter $ (49 )   $ (272 )   $ (92 )  
  Net loan (recoveries) charge-offs for the quarter $ 60     $ 441     $ 1,012    
  Net loan (recoveries) charge-offs for the quarter / average loans, for the quarter   0.01   %   0.04   %   0.11   %
                         

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Nonperforming Assets Rollforward              
        Writedowns Transfers to Transfers to    
  Balance at
December 31,
2018
Additions
this
quarter
Payments
this
quarter
/Charge-offs
this quarter
OREO/
REPO
Performing
Status
this quarter
Sales this
quarter
Balance at
March 31,
2019
Commercial loans $ 12,671   $ 2,029   $ (1,765 ) $ (109 ) $   $   $ (1,400 ) $ 11,426  
Commercial real estate   2,273     2,990                         5,263  
Construction loans       2,423                         2,423  
Consumer loans   266     152     (14 )                   404  
Non-performing loans guaranteed by government   (516 )   (694 )   172                     (1,038 )
  Total non-performing loans   14,694     6,900     (1,607 )   (109 )           (1,400 )   18,478  
Other real estate owned   7,962                         (919 )   7,043  
Repossessed assets   1,242                             1,242  
Other real estate owned guaranteed                
by government   (1,279 )                           (1,279 )
  Total non-performing assets,                
  net of government guarantees $ 22,619   $ 6,900   $ (1,607 ) $ (109 ) $   $   $ (2,319 ) $ 25,484  
                                                 

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

Loan Charge-offs by Industry        
  Three Months Ended
  March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Charge-offs:          
Remediation services $ 89   $   $   $   $  
Transportation and warehousing       362              
Other services               78      
Excavation and construction   20     320              
Health care and social assistance                   965  
Consumer       31     9     22     139  
  Total charge-offs $ 109   $ 713   $ 9   $ 100   $ 1,104  
                               

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates                
  Three Months Ended
  March 31,
2019
  December 31,
2018
  March 31,
2018
    Average     Average     Average
  Average Tax Equivalent   Average Tax Equivalent   Average Tax Equivalent
  Balance Yield/Rate   Balance Yield/Rate   Balance Yield/Rate
Assets                
Interest bearing deposits in other banks $ 24,199   2.36 %   $ 51,441   2.23 %   $ 48,177   1.53 %
Portfolio investments   280,419   2.65 %     280,831   2.51 %     314,099   1.85 %
Loans held for sale   31,203   4.52 %     46,230   4.59 %     34,503   3.73 %
Portfolio loans   988,920   6.04 %     981,407   5.98 %     955,718   5.52 %
  Total interest-earning assets   1,324,741   5.23 %     1,359,909   5.08 %     1,352,497   4.49 %
Nonearning assets   162,241         149,695         141,588    
  Total assets $ 1,486,982       $ 1,509,604       $ 1,494,085    
                 
Liabilities and Shareholders' Equity                
Interest-bearing deposits $ 800,488   0.48 %   $ 796,362   0.45 %   $ 829,545   0.18 %
Borrowings   51,515   1.32 %     52,400   1.32 %     46,263   1.38 %
  Total interest-bearing liabilities   852,003   0.53 %     848,762   0.50 %     875,808   0.25 %
                 
Noninterest-bearing demand deposits   394,024         437,116         404,200    
Other liabilities   31,710         16,886         18,581    
Shareholders' equity   209,245         206,840         195,496    
  Total liabilities and shareholders' equity $ 1,486,982       $ 1,509,604       $ 1,494,085    
  Net spread   4.70 %     4.58 %     4.24 %
  NIM   4.83 %     4.71 %     4.28 %
  NIMTE*   4.89 %     4.76 %     4.33 %
  Average portfolio loans to average                
  interest-earning assets   74.65 %       72.17 %       70.66 %  
  Average portfolio loans to average total deposits   82.79 %       79.56 %       77.46 %  
  Average non-interest deposits to average                
  total deposits   32.99 %       35.44 %       32.76 %  
  Average interest-earning assets to average                
  interest-bearing liabilities   155.49 %       160.22 %       154.43 %  
                             

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

  1Q19 vs. 4Q18 1Q19 vs. 1Q18
Nonaccrual interest adjustments (0.03 )% (0.01 )%
Interest rates and loan fees 0.09 % 0.45 %
Volume and mix of interest-earning assets 0.07 % 0.12 %
Change in NIMTE* 0.13 % 0.56 %
         

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

Capital Data (At quarter end)            
  March 31,
2019
  December 31,
2018
  March 31,
2018
 
Book value per share $ 30.36     $ 29.92     $ 28.37    
Tangible book value per share* $ 28.01     $ 27.57     $ 26.01    
Total shareholders' equity/total assets   13.74   %   13.70   %   12.79   %
Tangible Common Equity/Tangible Assets*   12.81   %   12.76   %   11.85   %
Tier 1 Capital / Risk Adjusted Assets   15.60   %   15.47   %   14.88   %
Total Capital / Risk Adjusted Assets   16.86   %   16.73   %   16.14   %
Tier 1 Capital / Average Assets   13.86   %   13.40   %   12.82   %
Shares outstanding   6,878,829       6,883,216       6,871,963    
Unrealized loss on AFS debt securities, net of income taxes $ (59 )   $ (1,127 )   $ (1,530 )  
Unrealized gain on derivatives and hedging activities $ 214     $ 607     $ 651    
                         


Profitability Ratios                  
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
For the quarter:                  
  NIM 4.83 %   4.71 %   4.69 %   4.50 %   4.28 %
  NIMTE* 4.89 %   4.76 %   4.74 %   4.56 %   4.33 %
  Efficiency ratio 73.23 %   76.64 %   73.82 %   71.19 %   77.22 %
  Return on average assets 1.18 %   1.27 %   1.40 %   1.58 %   1.10 %
  Return on average equity 8.36 %   9.30 %   10.27 %   11.79 %   8.43 %
                             

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

Net interest margin on a tax equivalent basis

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

   
  Three Months Ended
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
Net interest income $ 15,769     $ 16,137     $ 15,819     $ 14,989     $ 14,263  
Divided by average interest-bearing assets   1,324,741       1,359,909       1,338,219       1,335,181       1,352,497  
Net interest margin ("NIM")2   4.83 %     4.71 %     4.69 %     4.50 %     4.28 %
                   
Net interest income $ 15,769     $ 16,137     $ 15,819     $ 14,989     $ 14,263  
Plus: reduction in tax expense related to                  
  tax-exempt interest income   188       196       182       175       173  
  $ 15,957     $ 16,333     $ 16,001     $ 15,164     $ 14,436  
Divided by average interest-bearing assets   1,324,741       1,359,909       1,338,219       1,335,181       1,352,497  
NIMTE2   4.89 %     4.76 %     4.74 %     4.56 %     4.33 %

2Calculated using actual days in the quarter divided by 365 for quarters ended in 2019 and 2018.
*Non-GAAP Financial Measures
(Dollars and shares in thousands, except per share data)
(Unaudited)

Tangible Book Value

Tangible book value is a non-GAAP measure defined as shareholders' equity, less intangible assets, divided by shares outstanding.  The following table sets forth the reconciliation of tangible book value per share and book value per share.

 
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
                   
Total shareholders' equity $ 208,838     $ 205,947     $ 203,242     $ 199,456     $ 194,973  
Divided by shares outstanding   6,879       6,883       6,884       6,873       6,872  
Book value per share $ 30.36     $ 29.92     $ 29.52     $ 29.02     $ 28.37  


 
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
                   
Total shareholders' equity $ 208,838     $ 205,947     $ 203,242     $ 199,456     $ 194,973  
Less: goodwill and intangible assets   16,139       16,154       16,171       16,189       16,207  
  $ 192,699     $ 189,793     $ 187,071     $ 183,267     $ 178,766  
Divided by shares outstanding   6,879       6,883       6,884       6,873       6,872  
Tangible book value per share $ 28.01     $ 27.57     $ 27.17     $ 26.66     $ 26.01  
                                     

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.

 
Northrim BanCorp, Inc.

 
March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
                   
Total shareholders' equity $ 208,838     $ 205,947     $ 203,242     $ 199,456     $ 194,973  
Total assets   1,520,051       1,502,988       1,502,673       1,470,440       1,524,741  
Total shareholders' equity to total assets   13.74 %     13.70 %     13.53 %     13.56 %     12.79 %


 
Northrim BanCorp, Inc.

 
March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
Total shareholders' equity $ 208,838     $ 205,947     $ 203,242     $ 199,456     $ 194,973  
Less: goodwill and other intangible assets, net   16,139       16,154       16,171       16,189       16,207  
Tangible common shareholders' equity $ 192,699     $ 189,793     $ 187,071     $ 183,267     $ 178,766  
                   
Total assets $ 1,520,051     $ 1,502,988     $ 1,502,673     $ 1,470,440     $ 1,524,741  
Less: goodwill and other intangible assets, net   16,139       16,154       16,171       16,189       16,207  
Tangible assets $ 1,503,912     $ 1,486,834     $ 1,486,502     $ 1,454,251     $ 1,508,534  
Tangible common equity ratio   12.81 %     12.76 %     12.58 %     12.60 %     11.85 %


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

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