×

Northrim BanCorp Earns $4.4 Million, or $0.63 Per Diluted Share, in Q214

Northrim BanCorp, Inc. new logo

ANCHORAGE, Alaska, July 22, 2014 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (Nasdaq:NRIM) ("Northrim") today reported net profits of $4.4 million, or $0.63 per diluted share, for the second quarter of 2014, up 64% from the first quarter of 2014 and up 25% from the year ago quarter, reflecting a negative loan loss provision of $1.1 million as a result of net recoveries of previously charged off loans and contributions from the acquisition of Alaska Pacific Bancshares, Inc. ("Alaska Pacific") at the beginning of the second quarter. For the first half of 2014, net profits increased 14% to $7.0 million, or $1.04 per diluted share, compared to $6.2 million, or $0.94 per diluted share in the first six months of 2013.

"The acquisition of Alaska Pacific Bancshares provided contributions to revenues and earnings this quarter, particularly through net interest margin expansion and the growth in our loan portfolio," said Marc Langland, Chairman, President and CEO of Northrim Bancorp. "We now have 15 branch locations serving 75% of Alaska's population throughout Anchorage, the Matanuska Valley, Juneau, Fairbanks, Sitka and Ketchikan. The integration of this franchise into ours is going well, and we are pleased with the strong bonds we are forging with customers and employees in these new markets."

Financial Highlights (at or for the periods ended June 30, 2014, compared to March 31, 2014, and June 30, 2013)

  • Diluted earnings per share improved to $0.63 in the second quarter of 2014, as compared to $0.40 per diluted share in the first quarter of 2014 and $0.53 per diluted share in the second quarter a year ago.
  • Total revenues, which include net interest income plus other operating income, were $17.5 million in the second quarter of 2014, a 25% increase from total revenues of $14.0 million for the first quarter ending March 31, 2014 and a 20% increase from total revenues of $14.6 million in the second quarter a year ago.
  • Net interest income was $13.4 million in the second quarter of 2014, compared to $11.2 million in the first quarter ended March 31, 2014 and $10.9 million in the second quarter a year ago.
  • Other operating income, which includes revenues from Residential Mortgage, LLC, our mortgage affiliate, and other financial services affiliates, service charges, and electronic banking, were 23.4% of total revenues in the second quarter of 2014, as compared to 19.6% for the quarter ended March 31, 2014 and 25.3% in the second quarter a year ago.
  • Northrim paid a quarterly cash dividend of $0.17 per share in June of 2014, up 13% from the $0.15 per share dividend paid a year ago. The dividend provides a yield of approximately 2.7% at current market share prices.
  • Tangible book value1 grew 7.3% to $21.73 per share at June 30, 2014, compared to $20.26 per share a year ago and grew 2.9% compared to $21.11 at March 31, 2014.
  • Average portfolio loans increased 20% to $924.9 million for the second quarter of 2014 compared to the first quarter of 2014, reflecting the addition of the loans acquired from Alaska Pacific.
  • Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets at June 30, 2014, of 14.26%, compared to 15.75% at March 31, 2014 and 15.65% a year ago. The decrease in Tier 1 Capital to Risk Adjusted Assets at June 30, 2014 is a result of the acquisition of $167.2 million in assets from Alaska Pacific. Northrim paid $6.4 million in cash and issued 290,212 shares of common stock with a value of $7.4 million on April 1, 2014 for the purchase of Alaska Pacific.
  • Tangible common equity to tangible assets2was 11.02% at June 30, 2014, compared to 11.54% at March 31, 2014, and 11.41% a year ago.

Alaska Economic Update

"All sectors of the Alaska economy remain stable with only moderate reductions in the government sector," said Joseph Beedle, Northrim Bank's President. "Fisheries, tourism, transportation, health services, construction, and the ever important resource extraction industries continue to produce moderate growth. However, the recent upswing in the oil industry is considered sustainable only if voters do not repeal the favorable 2013 oil tax legislation, which is scheduled for a statewide referendum vote on August 19, 2014. As relayed in April, we believe the 2013 oil tax legislation is vitally important to the economy of Alaska."

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 "About Alaska" tab. Information from our website is not incorporated into, and does not form a part of, this press release.

Review of Operations:

Revenue and Net Interest Income

Total revenues, which include net interest income plus other operating income, were $17.5 million in the second quarter of 2014, up 25.4% from $14.0 million in the first quarter of 2014 and up 19.7% from $14.6 million in the second quarter of 2013. Total revenues increased 11.1% in the first six months of 2014 to $31.5 million from $28.3 million in the first six months of 2013, reflecting the addition of the Alaska Pacific franchise.

"In the second quarter of 2014, net interest income increased 19% to $13.4 million, compared to $11.2 million in the immediate prior quarter and was up 23% from $10.9 million in the second quarter of 2013. The addition of $138.4 million in loans from the Alaska Pacific acquisition, along with organic loan growth, generated an increase in net interest income this quarter," said Joseph Beedle, Northrim Bank's President.

"Our net interest margin improved in both the second quarter and first half of 2014 from the year ago periods," said Joe Schierhorn, Chief Operating Officer. "With the acquisition of Alaska Pacific, our ratio of loans to deposits increased, growing to 82.0% at the end of the second quarter of 2014 from 76.5% in the preceding quarter and 74.9% a year ago. We are also continuing to deploy more of our lower yielding assets into more profitable loans, which is supporting our margin." In the second quarter of 2014, Northrim's net interest margin (NIM) was 4.43%, up from 4.28% in the preceding quarter and 4.34% in the second quarter a year ago. For the first six months of 2014, NIM was 4.36% compared to 4.33% for the first six months of 2013.

Provision for Loan Losses

"Due to the continuing strength in asset quality and large recoveries on previously charged off loans, we recorded a negative provision for loan losses in the second quarter of 2014," said Latosha Frye, Chief Financial Officer. The negative loan loss provision was $1.1 million in the second quarter of 2014 of this year compared to no provision in the second quarter of 2013. For the first six months of 2014, the negative loan loss provision totaled $1.1million, compared to a provision of $150,000 in the first six months of 2013.

Other Operating Income

Northrim has interests in a number of complementary businesses that provide financial services to businesses and individuals, including purchased receivables financing, health insurance plans, mortgage origination and wealth management. In the second quarter of 2014, total other operating income increased 50% to $4.1 million from $2.7 million in the preceding quarter and grew 11% from $3.7 million in the second quarter of 2013. "Contributions from the acquisition of Alaska Pacific and gains on sale of securities contributed to growth in other operating income in the second quarter of 2014 as compared to the second quarter of 2013. These contributions coupled with a seasonal increase in production from our residential mortgage affiliate represent the primary reasons for the increase in other operating income as compared to the first quarter of 2014," Frye continued.

In the first six months of 2014, other operating income was $6.8 million and equal to the year ago period levels. "For the first half of 2014, growth in employee benefit plan income generated from Enroll Alaska, a division of our affiliate, Northrim Benefits Group, LLC, and higher revenue in several categories as a result of the Alaska Pacific acquisition helped offset lower income from purchased receivables and a reduction in earnings from our mortgage affiliate as compared to the first six months of 2013," said Frye.

Employee benefit plan income contributed $878,000 to second quarter 2014 revenues, compared to $876,000 in the preceding quarter and $632,000 in the second quarter of 2013, primarily due to revenue contributions from Enroll Alaska. For the first six months of 2014, employee benefit plan income increased 46% to $1.8 million from $1.2 million in the first six months of 2013. Approximately 60% of the increase in employee benefit plan income in the first half of 2014 resulted from an increase in revenues from Enroll Alaska. Northrim expects that Enroll Alaska revenues will increase only moderately through the end of 2014. The next open enrollment period for the Affordable Care Act commences on November 15, 2014.

In the second quarter of this year, service charges were $607,000, up from $476,000 in the preceding quarter and $539,000 in the second quarter a year ago. In the second quarter of 2014, electronic banking income contributed $604,000 to other operating income, an increase of 21% from the first quarter of 2014 and 13% from the second quarter of 2013. For the first six months of 2014, electronic banking income grew 6% to $1.1 million and service charges increased 2% to $1.1 million from the year ago period.

Purchased receivable income was $484,000 in the second quarter of 2014 as compared to $481,000 in the first quarter of 2014, and $768,000 in the second quarter a year ago, reflecting the 35% decline in balances from a year ago due to customers paying down their balances in the first quarter of 2014. For the first six months of 2014, purchased receivable income declined 34% to $965,000 from $1.5 million in the first six months of 2013. "While average purchased receivable balances have been lower in 2014, the balances have been growing since December 31, 2013, and we recognize it will take some time to rebuild this portfolio. In the meantime, we are pleased with the contribution this funding program provides to our income stream," said Beedle.

Earnings from Residential Mortgage contributed $355,000 to second quarter 2014 revenues compared to a loss of $131,000 in the first quarter of 2014 and income of $538,000 in the second quarter of 2013. Residential Mortgage generated earnings of $224,000 in the first six months of 2014, compared to $780,000 in the first six months of 2013. "Demand for home mortgages is usually seasonal in Alaska, with volumes in the first quarter at the low point for the year. We are starting to see demand return to more normalized levels, but it is still well below the levels that we saw in the last few years as a result of higher refinance activity in the prior years," said Schierhorn.

Gain on sale of securities contributed $349,000 to revenues in the second quarter of 2014, compared to $97,000 in the first quarter of 2014 and $100,000 in the second quarter a year ago. For the first six months of 2014, gain on sale of securities generated $446,000 in revenues compared to $318,000 in the first six months of 2013.

Other income totaled $829,000 for the second quarter of 2014, compared to $435,000 in the first quarter of 2014 and $589,000 in the second quarter of 2013. For the first six months of 2014, other income was $1.3 million compared to $968,000 in the first six months a year ago. The increase in other income in the second quarter of 2014 was primarily related to the acquisition of Alaska Pacific which added $132,000 in various servicing fee income and $158,000 in a one-time bargain purchase gain.

Other Operating Expenses

Overhead costs increased 16% to $12.0 million in the second quarter of 2014, as compared to $10.3 million in the first quarter of 2014, reflecting the acquisition of the Alaska Pacific operations and one-time merger costs. In the second quarter a year ago overhead costs were $9.4 million. For the first six months of 2014, other operating expenses increased 17% to $22.3 million from $19.1 million in the first six months of 2013. Second quarter 2014 compensation costs grew 16% to $6.8 million from $5.9 million in the first quarter of 2014, and increased 22% from the second quarter a year ago. "As we complete the integration of the Alaska Pacific operations into our systems in the third quarter of this year, we anticipate that on-going overhead costs related to the merger and the operation of our new branches in Southeast Alaska will decline. The majority of the one-time expenses associated with the merger are behind us now," said Beedle.

Balance Sheet Review

Northrim's assets increased 16% to $1.36 billion at June 30, 2014, compared to $1.16 billion a year ago and 13% from $1.20 billion at March 31, 2014, reflecting the $167.2 million in acquired assets from Alaska Pacific.

Investment securities totaled $213.6 million at June 30, 2014, compared to $236.2 million at March 31, 2014 and $227.5 million a year ago. At June 30, 2014, the investment portfolio was comprised of 62% U.S. Agency securities (primarily Federal Home Loan Bank and Federal Farm Credit Bank debt), 20% corporate securities, 8% Alaskan municipality, utility, or state agency securities, 7% U.S. treasury securities, 2% stock in the Federal Home Loan Bank of Seattle, and 1% in mortgage backed securities. At June 30, 2014, the average estimated duration of the investment portfolio was 18 months. The investment portfolio generated an average net tax equivalent yield of 1.39% for the second quarter of 2014.

Portfolio loans grew 21% to $926.9 million at June 30, 2014, as compared to $763.1 million at March 31, 2014 and grew 28%, as compared to $718.2 million at June 30, 2013. On April 1, 2014, Northrim acquired $138.4 million in loans from Alaska Pacific. The following table provides details on the acquired loan portfolio after fair value adjustments as of June 30, 2014:

30-Jun-14 30-Mar-14 30-Jun-13
NRIM Legacy AKPB Acquired NRIM NRIM NRIM
Portfolio loans
Commercial loans $302,824 $36,187 $339,011 $293,999 $299,033
Commercial real estate 375,084 60,152 435,236 374,443 335,061
Construction loans 83,491 6,588 90,079 64,023 52,695
Consumer loans 34,168 32,755 66,923 34,411 34,783
Unearned loan fees, net (3,988) (452) (4,440) (3,811) (3,415)
Total portfolio loans $791,579 $135,230 $926,809 $763,065 $718,157

"We generated organic loan growth during the second quarter of 2014 with additions in commercial loans and construction lending," Schierhorn noted. Commercial loans increased 15% in the quarter ended June 30, 2014, and 13% year-over-year to $339.0 million and accounted for 37% of portfolio loans at June 30, 2014. Commercial real estate loans totaled $435.2 million and accounted for 47% of portfolio loans at June 30, 2014. Construction and land development loans increased 41% in the quarter and 71% year-over-year to $90.1 million and accounted for 10% of portfolio loans at June 30, 2014. Consumer loans almost doubled to $66.9 million and accounted for 7% of portfolio loans at quarter end.

Loans held for sale were $14.2 million at the end of the second quarter of 2014, compared to $14.3 million at March 31, 2014 and $15.8 million a year ago. The average balance for the quarter for loans held for sale increased to $10.8 million at June 30, 2014, compared to $6.6 million at March 31, 2014 and fell from $16.9 million a year ago, primarily reflecting the volatility in the mortgage refinance market. Northrim purchases these loans from its mortgage affiliate and sells them into the secondary market on pre-arranged commitments.

Northrim's deposit base continues to be 100% Alaska based, and is primarily made up of low-cost transaction accounts. Balances in transaction accounts at June 30, 2014, represented 90.2% of total deposits compared to 90.5% a year ago. At June 30, 2014, total deposits were $1.13 billion, up 18% from $958.9 million a year ago and 13% compared to $997.8 million at March 31, 2014. On April 1, 2014, Northrim acquired $151.4 million in deposits from Alaska Pacific and recorded a $623,000 core deposit intangible as part of the purchase. The following table provides details on the deposits after fair value adjustments acquired from Alaska Pacific as of June 30, 2014:

30-Jun-14 30-Mar-14 30-Jun-13
NRIM Legacy AKPB Acquired NRIM NRIM NRIM
Demand deposits $351,681 $37,047 $388,728 $355,043 $344,978
Interest-bearing demand 138,984 35,663 174,647 142,981 137,788
Savings deposits 96,553 23,565 120,118 99,034 93,714
Alaska CDs 115,081 115,081 112,531 105,568
Money market deposits 191,351 29,460 220,811 202,678 185,654
Time deposits 83,863 27,018 110,881 85,490 91,230
Total deposits $977,513 $152,753 $1,130,266 $997,757 $958,932

At June 30, 2014, noninterest-bearing demand deposits accounted for 34% of total deposits, interest-bearing demand accounts were 15%, savings deposits were 11%, money market balances accounted for 20%, the Alaska CD accounted for 10%, and time certificates were 10% of total deposits.

Shareholders' equity increased 8% to $156.9 million, or $22.97 per share, at June 30, 2014, compared to $140.1 million, or $21.50 per share, a year ago. At March 31, 2014, shareholders' equity was $145.9 million, or $22.32 per share. Tangible book value per share was $21.73 at June 30, 2014, compared to $20.26 per share a year ago and $21.11 per share at March 31, 2014. Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 14.26% at June 30, 2014.

Asset Quality

Nonaccrual loans increased to $3.1 million and non-performing assets ("NPAs") increased to $8.2 million primarily as a result of the acquisition of the Alaska Pacific loan portfolio. In accordance with generally accepted accounting principles, the acquired loan portfolio was recorded at its estimated fair value as of April 1, 2014 and the total fair value adjustment was a net discount of $3.0 million. The ratio of NPAs to total assets was 0.61% at June 30, 2014, an increase from 0.37% three months earlier and down from 0.70% a year ago.

Nonperforming loans ("NPLs") were 0.33% of portfolio loans compared to 0.13% in the preceding quarter and 0.53% a year ago. NPLs were $3.1 million at June 30, 2014, as compared to $1.0 million at March 31, 2014 and $3.8 million a year ago. Other real estate owned (OREO) was $4.9 million at the end of the second quarter of 2014, compared to $3.4 million in the preceding quarter and $4.3 million at the end of the second quarter of 2013. Nonperforming purchased receivables were $243,000 at June 30, 2014 and zero at March 31, 2014 and June 30, 2013.As of June 30, 2014 12% of NPAs, or $968,000 were guaranteed by agencies of the United States government or the State of Alaska.

Loans measured for impairment totaled $12.0 million at June 30, 2014, compared to $6.0 million at March 31, 2014, and $11.2 million in the second quarter a year ago.

There were $1.5 million in restructured loans included in nonaccrual loans at the end of the second quarter of 2014, as compared to none at March 31, 2014, and $2.8 million at June 30, 2013. At June 30, 2014, Northrim held $7.2 million in performing restructured loans that were not included in nonaccrual loans, as compared to $4.8 million at March 31, 2014, and $6.2 million at June 30, 2013. "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," said Frye. "We present restructured loans that are performing separately from those that are in nonaccrual to provide more information on this category of loans and to differentiate between accruing performing and nonperforming restructured loans."

The coverage ratio of the allowance for loan losses to nonperforming loans was 521% at June 30, 2014, compared to 1,605% three months earlier, and 431% a year ago. The allowance for loan losses was stable at $16.0 million at June 30, 2014, compared to $16.0 million at the end of the preceding quarter and $16.5 million a year ago.

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 75% of Alaska's population; and an asset based lending division in Washington. The Bank differentiates itself with its detailed knowledge of Alaska's economy and its "Customer First Service" philosophy. Affiliated companies include Elliott Cove Insurance Agency, LLC; Elliott Cove Capital Management, LLC; Residential Mortgage, LLC; Northrim Benefits Group, LLC; and Pacific Wealth Advisors, LLC.

www.northrim.com

Forward-Looking Statement

This release may contain "forward-looking statements" as that term is defined for purposes of Section 21D of the Securities and Exchange Act. 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 may 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; our ability to implement our marketing and growth strategies; our expected cost savings, synergies, and other financial benefits from the recently completed merger of Northrim with Alaska Pacific might not be realized within the expected time frames and costs or difficulties relating to integration matters might be greater than expected; 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, 2013, and from time to time are disclosed in our other filings with the SEC. 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.

1Tangible book value per share is a non-GAAP measure defined as shareholders' equity, less intangible assets, divided by shares outstanding. See the last page of this release for a reconciliation to shareholders' equity.

2Tangible common equity to tangible assets is a non-GAAP measure defined as total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets. See the last page of this release for more information on this non-GAAP measure.

Income Statement
(Dollars in thousands, except per share data) Three Months Ended
(Unaudited) June 30, March 31, Three Month June 30, One Year
2014 2014 % Change 2013 % Change
Interest Income:
Interest and fees on loans $13,082 $10,871 20% $10,734 22%
Interest on portfolio investments 772 753 3% 660 17%
Interest on deposits in banks 41 49 -16% 46 -11%
Total interest income 13,895 11,673 19% 11,440 21%
Interest Expense:
Interest expense on deposits 348 286 22% 310 12%
Interest expense on borrowings 136 154 -12% 201 -32%
Total interest expense 484 440 10% 511 -5%
Net interest income 13,411 11,233 19% 10,929 23%
Provision (benefit) for loan losses (1,136) NM NM
Net interest income after provision (benefit) for loan losses 14,547 11,233 30% 10,929 33%
Other Operating Income:
Employee benefit plan income 878 876 — % 632 39%
Service charges on deposit accounts 607 476 28% 539 13%
Electronic banking income 604 500 21% 536 13%
Purchased receivable income 484 481 1% 768 -37%
Equity in earnings (loss) from RML 355 (131) NM 538 -34%
Gain on sale of securities 349 97 260% 100 249%
Other income 829 435 91% 589 41%
Total other operating income 4,106 2,734 50% 3,702 11%
Other Operating Expense:
Salaries and other personnel expense 6,839 5,920 16% 5,586 22%
Occupancy expense 1,112 877 27% 858 30%
Professional and outside services 410 724 -43% 309 33%
Marketing expense 394 614 -36% 445 -11%
Equipment expense 359 298 20% 301 19%
Insurance expense 284 185 54% 261 9%
Reserve for (recovery from) purchased receivables 243 (37) NM (115) NM
Intangible asset amortization expense 81 52 56% 59 37%
OREO (income) expense, net rental income and gains on sale (9) (238) 96% 12 NM
Other operating expense 2,237 1,914 17% 1,675 34%
Total other operating expense 11,950 10,309 16% 9,391 27%
Income before provision for income taxes 6,703 3,658 83% 5,240 28%
Provision for income taxes 2,239 955 134% 1,635 37%
Net income 4,464 2,703 65% 3,605 24%
Less: Net income attributable to the noncontrolling interest 95 45 111% 109 -13%
Net income attributable to Northrim BanCorp $4,369 $2,658 64% $3,496 25%
Basic EPS $0.64 $0.41 56% $0.54 19%
Diluted EPS $0.63 $0.40 58% $0.53 19%
Average basic shares 6,829,897 6,537,652 4% 6,515,414 5%
Average diluted shares 6,919,568 6,629,330 4% 6,591,003 5%
Income Statement
(Dollars in thousands, except per share data) Six months ended June 30,
(Unaudited) One Year
2014 2013 % Change
Interest Income:
Interest and fees on loans $23,953 $21,076 14%
Interest on portfolio investments 1,525 1,348 13%
Interest on deposits in banks 90 108 -17%
Total interest income 25,568 22,532 13%
Interest Expense:
Interest expense on deposits 634 648 -2%
Interest expense on borrowings 290 393 -26%
Total interest expense 924 1,041 -11%
Net interest income 24,644 21,491 15%
Provision (benefit) for loan losses (1,136) 150 NM
Net interest income after provision (benefit) for loan losses 25,780 21,341 21%
Other Operating Income:
Employee benefit plan income 1,754 1,201 46%
Electronic banking income 1,104 1,040 6%
Service charges on deposit accounts 1,083 1,064 2%
Purchased receivable income 965 1,470 -34%
Gain on sale of securities 446 318 40%
Equity in earnings from RML 224 780 -71%
Other income 1,264 968 31%
Total other operating income 6,840 6,841 — %
Other Operating Expense:
Salaries and other personnel expense 12,759 11,321 13%
Occupancy expense 1,989 1,746 14%
Professional and outside services 1,134 658 72%
Marketing expense 1,008 892 13%
Equipment expense 657 579 13%
Insurance expense 469 405 16%
Reserve for (recovery from) purchased receivables 206 (31) NM
Intangible asset amortization expense 133 117 14%
OREO (income) expense, net rental income and gains on sale (247) 6 NM
Other operating expense 4,152 3,395 22%
Total other operating expense 22,260 19,088 17%
Income before provision for income taxes 10,360 9,094 14%
Provision for income taxes 3,194 2,725 17%
Net income 7,166 6,369 13%
Less: Net income attributable to the noncontrolling interest 139 199 -30%
Net income attributable to Northrim BanCorp $7,027 $6,170 14%
Basic EPS $1.05 $0.95 11%
Diluted EPS $1.04 $0.94 11%
Average basic shares 6,683,897 6,513,935 3%
Average diluted shares 6,774,434 6,590,899 3%
Balance Sheet
(Dollars in thousands)
(Unaudited) June 30, March 31, Three Month June 30, One Year
2014 2014 % Change 2013 % Change
Assets:
Cash and due from banks $36,318 $33,116 10% $29,216 24%
Interest bearing deposits in other banks 61,565 75,725 -19% 78,269 -21%
Portfolio investments 213,578 236,242 -10% 227,503 -6%
Loans:
Loans held for sale 14,189 14,328 -1% 15,811 -10%
Portfolio loans
Commercial loans 339,011 293,999 15% 299,033 13%
Commercial real estate 435,236 374,443 16% 335,061 30%
Construction loans 90,079 64,023 41% 52,695 71%
Consumer loans 66,923 34,411 94% 34,783 92%
Unearned loan fees, net (4,440) (3,811) -17% (3,415) -30%
Total portfolio loans 926,809 763,065 21% 718,157 29%
Total loans 940,998 777,393 21% 733,968 28%
Allowance for loan losses (16,032) (16,032) — % (16,528) -3%
Net loans 924,966 761,361 21% 717,440 29%
Purchased receivables, net 17,380 9,900 76% 26,546 -35%
Other real estate owned, net 4,897 3,443 42% 4,293 14%
Premises and equipment, net 32,370 27,794 16% 28,200 15%
Goodwill and intangible assets 8,430 7,889 7% 8,053 5%
Other assets 56,188 48,104 17% 45,330 24%
Total assets $1,355,692 $1,203,574 13% $1,164,850 16%
Liabilities:
Demand deposits $388,728 $355,043 9% $344,978 13%
Interest-bearing demand 174,647 142,981 22% 137,788 27%
Savings deposits 120,118 99,034 21% 93,714 28%
Alaska CDs 115,081 112,531 2% 105,568 9%
Money market deposits 220,811 202,678 9% 185,654 19%
Time deposits 110,881 85,490 30% 91,230 22%
Total deposits 1,130,266 997,757 13% 958,932 18%
Securities sold under repurchase agreements 19,776 19,886 -1% 20,321 -3%
Other borrowings 2,186 2,197 -1% 6,629 -67%
Junior subordinated debentures 18,558 18,558 — % 18,558 — %
Other liabilities 28,008 19,246 46% 20,356 38%
Total liabilities 1,198,794 1,057,644 13% 1,024,796 17%
Shareholders' Equity:
Northrim BanCorp shareholders' equity 156,771 145,793 8% 139,979 12%
Noncontrolling interest 127 137 -7% 75 69%
Total shareholders' equity 156,898 145,930 8% 140,054 12%
Total liabilities and shareholders' equity $1,355,692 $1,203,574 13% $1,164,850 16%
Financial Ratios and Other Data
(Dollars in thousands)
(Unaudited) June 30, March 31, June 30,
2014 2014 2013
Asset Quality:
Nonaccrual loans $3,080 $999 $3,833
Loans 90 days past due
Total nonperforming loans 3,080 999 3,833
Other real estate owned 4,897 3,443 4,293
Nonperforming purchased receivables 243
Total nonperforming assets $8,220 $4,442 $8,126
Government guarantees on nonperforming assets1 $968 $ — $ —
Performing restructured loans $7,214 $4,778 $6,244
Nonperforming loans / portfolio loans 0.33% 0.13% 0.53%
Nonperforming assets / total assets 0.61% 0.37% 0.70%
Allowance for loan losses / portfolio loans 1.73% 2.10% 2.30%
Allowance for loan losses / nonperforming loans 521% 1,605% 431%
Gross loan charge-offs for the quarter $63 $329 $355
Gross loan (recoveries) for the quarter ($1,199) ($79) ($242)
Net loan charge-offs (recoveries) for the quarter ($1,136) $250 $113
Net loan charge-offs (recoveries) year-to-date ($886) $250 $31
Net loan charge-offs (recoveries) for the quarter / average loans, for the quarter (0.12)% 0.03% 0.02%
Net loan charge-offs (recoveries) year-to-date / average loans, year-to-date annualized (0.21)% 0.13% 0.01%
Capital Data (At quarter end):
Book value per share $22.97 $22.32 $21.50
Tangible book value per share2 $21.73 $21.11 $20.26
Tangible Common Equity/Tangible Assets3 11.02% 11.54% 11.41%
Tier 1 Capital / Risk Adjusted Assets 14.26% 15.75% 15.65%
Total Capital / Risk Adjusted Assets 15.51% 17.01% 16.91%
Tier 1 Capital / Average Assets 12.55% 13.42% 13.28%
Shares outstanding 6,830,913 6,537,652 6,515,414
Unrealized gain on AFS securities, net of income taxes $852 $668 $639
Profitability Ratios (For the quarter):
Net interest margin (tax equivalent)4 4.43% 4.28% 4.34%
Efficiency ratio5 67.76% 73.44% 63.78%
Return on average assets 1.30% 0.91% 1.22%
Return on average equity 11.21% 7.38% 10.03%
Profitability Ratios (Year-to-date):
Net interest margin (tax equivalent)4 4.36% 4.28% 4.33%
Efficiency ratio5 70.28% 73.44% 66.96%
Return on average assets 1.12% 0.91% 1.10%
Return on average equity 9.37% 7.38% 8.96%

Average Balances
(Dollars in thousands)
(Unaudited)
June 30, March 31, Three Month June 30, One Year
2014 2,014 % Change 2013 % Change
Average Quarter Balances
Loans held for sale $10,827 $6,604 64% $16,866 -36%
Portfolio loans 924,881 770,278 20% 728,491 27%
Total loans 935,708 776,882 20% 745,357 26%
Total earning assets 1,227,270 1,078,325 14% 1,022,899 20%
Total assets 1,343,720 1,179,885 14% 1,145,920 17%
Noninterest-bearing deposits 371,979 336,234 11% 333,598 12%
Interest-bearing deposits 748,537 635,261 18% 610,784 23%
Total deposits 1,120,516 971,495 15% 944,382 19%
Shareholders' equity 156,279 146,146 7% 139,743 12%
Average Year-to-date Balances
Loans held for sale $8,727 $6,604 32% $11,787 -26%
Portfolio loans 848,007 770,278 10% 719,369 18%
Total loans 856,734 776,882 10% 731,156 17%
Total earning assets 1,153,209 1,078,325 7% 1,013,902 14%
Total assets 1,262,255 1,179,885 7% 1,130,235 12%
Noninterest-bearing deposits 354,205 336,234 5% 327,028 8%
Interest-bearing deposits 692,212 635,261 9% 607,050 14%
Total deposits 1,046,417 971,495 8% 934,078 12%
Shareholders' equity 151,240 146,146 3% 138,823 9%

1 Represents the portion of nonperforming assets that are guaranteed by governmental agencies including the Small Business Administration, the United States Department of Agriculture, the Bureau of Indian Affairs, and the Alaska Industrial Development and Export Authority.

2 Tangible book value is a non-GAAP measure defined as shareholders' equity, less intangible assets, divided by shares outstanding.

Book value per share Tangible book value per share
Northrim BanCorp shareholder's equity $156,898 $156,898
Less: goodwill and intangible assets N/A (8,430)
$156,898 $148,468
Divided by shares outstanding 6,831 6,831
$22.97 $21.73

3 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 GAAP measure of common equity to assets would be total equity to total assets. Total equity to total assets was 11.57% at June 30, 2014 as compared to 12.12% at March 31, 2014 and 12.02% at June 30, 2013.

4 Tax-equivalent net interest margin 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 41.11% in both 2014 and 2013.

5 The efficiency ratio is a non-GAAP ratio that is calculated by dividing other operating expense, exclusive of intangible asset amortization, by the sum of net interest income and other operating income.

CONTACT: Joe Schierhorn, Chief Operating Officer (907) 261-3308 Latosha Frye, Chief Financial Officer (907) 261-8763

Source:Northrim BanCorp, Inc.