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Northrim BanCorp 2Q15 Earnings Increase 9% to $4.8 Million, or $0.69 Per Diluted Share

ANCHORAGE, Alaska, July 28, 2015 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ:NRIM) ("Northrim") today reported that loan and deposit growth coupled with contributions from the two acquisitions completed in 2014 generated a 9% increase in second quarter profits and a 19% increase in profits year-to-date compared to the same periods a year ago. Net income in the second quarter of 2015 improved to $4.8 million, or $0.69 per diluted share, compared to $4.4 million, or $0.63 per diluted share, in the second quarter of 2014, and increased 34% from $3.6 million, or $0.51 per diluted share, in the first quarter of 2015.

"Loan and deposit growth, expanding net interest margin, and continuing solid credit quality fueled profitability in the second quarter. The benefits of the two acquisitions we completed last year are also contributing to earnings in the first half of this year," said Joseph Beedle, President and CEO. "Our mortgage origination business contributed $8.1 million to pre-tax revenues in the second quarter and $0.20 per diluted share."

Financial Highlights (at or for the periods ended June 30, 2015, compared to March 31, 2015, and June 30, 2014)

  • Year-to-date 2015 profits increased 19% to $8.3 million, or $1.20 per diluted share, from $7.0 million, or $1.04 per diluted share, in the first half of 2014.
  • Total revenues, which include net interest income, plus other operating income, increased 7% from the previous quarter and 47% from the second quarter a year ago. Second quarter 2015 revenues were $25.8 million, compared to $24.2 million in the preceding quarter and $17.5 million in the second quarter a year ago.
  • Net interest income grew 4% in the second quarter of 2015 compared to the first quarter of 2015 and increased 6% from the second quarter a year ago, reflecting increased loan volumes for both commercial banking and mortgage operations.
  • Return on average assets was 1.33% and return on average equity was 11.46% in the second quarter of 2015.
  • Average portfolio loans increased 5% to $967.0 million for the second quarter of 2015 from a year ago and increased 2% from the preceding quarter, reflecting organic growth in the portfolio.
  • Net interest margin improved to 4.44% in the second quarter of 2015 compared to 4.39% in the first quarter of 2015 and 4.43% in the second quarter a year ago, reflecting the increased yield on earning assets and a stable cost of funds in the quarter.
  • Northrim paid a quarterly cash dividend of $0.18 per share in June 2015, up from the $0.17 per share dividend paid in the second quarter a year ago. The dividend provides an annual yield of approximately 2.8% at current market share prices.
  • Tangible book value* was $21.47 per share at June 30, 2015, compared to $20.92 at March 31, 2015 and $21.73 per share a year ago, which primarily reflected an increase in intangible assets attributable to the two acquisitions completed in 2014.
  • Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 12.67% at June 30, 2015, compared to 12.71% at March 31, 2015, and 14.26% a year ago.
  • Tangible common equity to tangible assets* was 9.97% at June 30, 2015, compared to 10.07% at March 31, 2015, and 11.02% a year ago.

Financial Highlights Three Months Ended
(Dollars in thousands, except per share data) June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Total assets $1,500,331 $1,447,984 $1,449,349 $1,420,665 $1,355,692
Total portfolio loans $974,849 $960,564 $924,504 $936,659 $926,809
Total deposits $1,238,717 $1,191,013 $1,179,747 $1,192,367 $1,130,266
Total shareholders' equity $171,082 $167,384 $164,441 $159,271 $156,898
Net income attributable to Northrim BanCorp $4,781 $3,561 $6,674 $3,707 $4,369
Operating net income* $4,932 $4,350 $3,297 $3,586 $4,431
Diluted earnings per share $0.69 $0.51 $0.97 $0.53 $0.63
Operating diluted earnings per share* $0.71 $0.63 $0.47 $0.52 $0.64
Return on average assets 1.33% 1.01% 1.84% 1.07% 1.30%
Return on average shareholders' equity 11.46% 8.65% 16.40% 9.29% 11.21%
Net tax equivalent margin* 4.44% 4.39% 4.31% 4.43% 4.43%
Efficiency ratio* 68.64% 76.09% 58.35% 68.05% 67.76%
Tangible common equity/tangible assets* 9.97% 10.07% 9.85% 10.69% 11.02%
Tangible book value per share* $21.47 $20.92 $20.48 $22.08 $21.73
Dividends per share $0.18 $0.18 $0.18 $0.18 $0.17
 
* References to tangible book value per share, tangible common equity and tangible assets (all of which exclude intangible assets), operating net income and operating diluted earnings per share (which exclude certain non-operating income and expense items), net tax equivalent margin, and the efficiency ratio (exclusive of intangible asset amortization) represent non-GAAP financial measures. Management has presented these non-GAAP measurements in this earnings release because they believe these measures are useful to investors. See page 17 of this release for reconciliations of these measures to GAAP financial measures.

Alaska Economic Update

"Alaskans and our state economy continue to demonstrate stability in the current low-price energy marketplace," said Beedle. "With the reduction in state spending called for in the state budget for fiscal 2016 that is heavily reliant upon draws from reserves, we expect employment and economic activity in the state will be impacted somewhat." Alaska has significant resources, both in its reserve funds and the Alaska Permanent Fund, to finance expected state government funding gaps for the next couple of years.

North Slope investment and operating activity is at record levels despite low oil prices, reflecting the long-term nature of these conventional oil projects. "Overall North Slope capital investments are estimated at $4.45 billion this year and are still expected to increase to $4.88 billion in 2016, according to figures given by companies to the state Department of Revenue. The projected years are based in state fiscal years, with the current fiscal year 2015 starting last July 1 and fiscal year 2016 beginning this July 1. By comparison, the industry spent $3.73 billion for capital projects in 2014, the fiscal year ending last June 30," stated Alaska Business Monthly in a May 5, 2015 article.

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 Northrim" link and then click "Alaska's Economy". Information from our website is not incorporated into, and does not form a part of this press release.

Review of Income Statement

Community Banking

Operating net income* for the Community Banking segment increased 18% in the second quarter of 2015 to $3.6 million from $3.0 million in the preceding quarter due to increases in net interest income and other operating income and a decrease in other operating expenses. Second quarter 2015 operating net income* decreased 15% from the same quarter in 2014 primarily due to net recoveries on loans in the second quarter of 2014 that led to a negative loan loss provision. The increase in the loan loss provision in the second quarter of 2015 as compared to the second quarter of 2014 was partially offset by an increase in net interest income. The following table provides highlights of the Community Banking segment of Northrim:

Community Banking
Three Months Ended
(Dollars in thousands, except per share data) June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Net interest income $13,984 $13,516 $13,893 $13,725 $13,411
Provision (benefit) for loan losses 376 326 500 (1,136)
Other operating income 3,724 3,252 6,764 4,550 3,751
Other operating expense 12,017 13,324 11,798 12,779 11,620
Income before provision for income taxes 5,315 3,118 8,359 5,496 6,678
Provision for income taxes 1,730 813 2,008 1,824 2,423
Net income 3,585 2,305 6,351 3,672 4,255
Less: net income attributable to the noncontrolling interest 162 72 130 191 95
Net income attributable to Northrim BanCorp $3,423 $2,233 $6,221 $3,481 $4,160
Average diluted shares 6,941,671 6,930,873 6,943,553 6,919,993 6,919,568
Diluted earnings per share $0.49 $0.32 $0.90 $0.50 $0.60
Operating net income* $3,574 $3,022 $4,043 $3,360 $4,222
Operating diluted earnings per share* $0.51 $0.44 $0.58 $0.49 $0.61

Net Interest Margin

"We continue to manage our balance sheet to be neutral to interest rate movements," said Joe Schierhorn, Northrim Bank's President and Chief Operating Officer. "We target a weighted average duration of approximately two years for our investment securities portfolio. The actual duration is two years as of June 30, 2015. Additionally, 68% of our loan portfolio is made up of variable rate loans at the end of the second quarter." Northrim's tax equivalent net interest margin ("NIM") remained well above national averages1 in the second quarter of 2015 at 4.44%, compared to 4.39% in the preceding quarter and 4.43% in the second quarter a year ago. For the first six months of 2015, NIM was 4.41% compared to 4.36% for the same period a year ago.

 
1As of March 31, 2015, the NIM for the SNL US Bank Index was 2.70% and the NIM for SNL US Banks with assets between $1 billion and $5 billion was 3.68%.

Other Operating Income

Northrim has interests in businesses that complement its core community banking activities. It provides financial services to businesses and individuals through these interests, including purchased receivables financing, health insurance plans, and wealth management.

Other operating income for the Community Banking segment increased 15% to $3.7 million in the second quarter of 2015 from $3.3 million in the preceding quarter and was consistent with other operating income of $3.8 million in the second quarter of 2014. Included in other operating income was other income of $947,000 for the second quarter of 2015, compared to $660,000 in the preceding quarter and $829,000 in the second quarter of 2014. In the second quarter of 2015, other income included $179,000 in recoveries from loans acquired and marked to fair value in the Alaska Pacific merger and $89,000 in gains from the sale of Elliott Cove Capital Management and Insurance operations. Other income for the first quarter of 2015 included $48,000 in recoveries from loans acquired and marked to fair value in the Alaska Pacific merger, and the second quarter of 2014 included a $158,000 bargain purchase gain on the Alaska Pacific merger. Additionally, employee benefit plan income in the second quarter of 2015 included a one-time catch-up payment of $119,000. "Our employee benefit plan programs remain profitable and enrich the financial service offerings we provide to our business customers," said Latosha Frye, Chief Financial Officer.

Other Operating Expenses

Operating expenses for the Community Banking segment decreased 10% to $12.0 million in the second quarter of 2015 compared to $13.3 million in the first quarter of 2015 and increased 3% from $11.6 million in the second quarter a year ago. Routine operating expenses for the Community Banking segment remained relatively consistent in the first two quarters of 2015, and the decrease in the second quarter of 2015 as compared to the first quarter of 2015 is the result of decreases in non-routine operating expenses including the change in fair value of the RML earn-out liability and other real estate owned ("OREO") expenses, net of rental income and gains on sales. The increase in the second quarter of 2015 as compared to the same quarter in 2014 is the result of increases in routine operating expenses including a $233,000 increase in medical claims costs and an $86,000 increase in marketing expenses. Changes in non-routine operating expenses including the change in fair value of the RML earn-out liability, merger and acquisition expense, the reserve for purchased receivables, and OREO expenses, net of rental income and gains on sales in the second quarter of 2015 netted to a $98,000 decrease as compared to the same quarter in 2014.

Home Mortgage Lending Operations

On December 1, 2014, Residential Mortgage became a wholly owned subsidiary of Northrim Bank., RML's gross revenues and expenses are now reported on a consolidated basis throughout the various sections of Northrim's income statement. The following table provides highlights of the Home Mortgage Lending segment of Northrim Bank:

Home Mortgage Lending
Three Months Ended
(Dollars in thousands, except per share data) June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Net interest income $211 $116 $31 $— $—
Provision (benefit) for loan losses
Other operating income 7,839 7,283 2,612 384 355
Other operating expense 5,736 5,137 1,873
Income before provision for income taxes 2,314 2,262 770 384 355
Provision for income taxes 956 934 317 158 146
Net income attributable to Northrim BanCorp $1,358 $1,328 $453 $226 $209
Average diluted shares 6,941,671 6,930,873 6,943,553 6,919,993 6,919,568
Diluted earnings per share $0.20 $0.19 $0.07 $0.03 $0.03
Mortgage commitments $87,460 $81,214 $39,567 NA NA
Mortgage loans funded for sale $216,450 $176,373 $62,652 NA NA
Mortgage loan refinances to total fundings 20% 39% 24% NA NA
Net realized gains on mortgage loans sold $7,542 $6,154 $2,234 NA NA
Change in fair value of mortgage loan commitments, net (140) 818 12 NA NA
Total production revenue 7,402 6,972 2,246 NA NA
Other mortgage banking revenue 437 311 366 NA NA
Total mortgage banking income $7,839 $7,283 $2,612 NA NA

Information included in the table above for the Home Mortgage Lending segment in periods before December 1, 2014 includes earnings from Northrim's 23.5% equity interest in RML. As of December 1, 2014, operations of RML are consolidated into Northrim's results. The data included in the table above for the quarter ended December 31, 2014 includes Northrim's 23.5% share in earnings for the first two months of the quarter and includes 100% of the earnings of RML for the one month period ending December 31, 2014. Additionally, mortgage commitments, loans funded for sale, and the percentage of refinances to total funding represents the activity for the one month period from December 1 through December 31, 2014 that occurred in the quarter ended December 31, 2014.

"New home purchases fueled the increase in mortgage volumes during the quarter, accounting for 80% of the originations, reflecting the stable real estate market in our footprint," said Schierhorn.

"The increase in our operating expenses for the Home Mortgage Lending segment is primarily the result of higher commission costs during high production periods," said Frye.

Income Tax Provision

Income tax expense for the second quarter of 2015 increased to $2.7 million, compared to $1.7 million for the first quarter of 2015 due to an increase in pre-tax income and a decrease in the ratio of tax-exempt interest income to total net income. The difference in the effective tax rate for the periods reported, compared to the combined Federal and State statutory tax rate of 41.11%, is primarily the result of the Company's tax credits related to investments in low income housing tax credit partnerships and educational charitable contributions to qualified entities in the state of Alaska, tax-exempt interest income on qualified bonds and loans, and investments in life insurance policies whose earnings are not subject to taxes.

Balance Sheet Review

Northrim's assets increased 11% to $1.50 billion at June 30, 2015, compared to $1.36 billion a year ago, reflecting continued loan growth during the year and the purchase of the remaining equity interests in Residential Mortgage at the end of 2014.

Investment securities decreased 12% from the preceding quarter and increased 8% from a year ago. The investment portfolio generated an average net tax equivalent yield of 1.50% for the second quarter of 2015 and the average estimated duration of the investment portfolio was 2.0 years at June 30, 2015.

Loans held for sale increased 19% to $73.6 million at the end of the second quarter of 2015 and average loans held for sale increased 52% to $66.0 million from the preceding quarter, reflecting the demand for new home mortgages in the Alaska marketplace.

Year-over-year, portfolio loans grew 5% to $974.8 million at quarter end, and average portfolio loans increased 2% in the second quarter. "Construction and land development loans contributed the majority of the growth in construction loans with commercial real estate projects and tax-advantaged low-income housing projects accounting for the bulk of these loans. Residential housing construction loans remain consistent at approximately 4% of portfolio loans during the past year," Schierhorn noted.

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, 2015, represented 88.0% of total deposits compared to 90.2% a year ago. At June 30, 2015, total deposits were $1.24 billion, up 10% from $1.13 billion a year ago and up 4% from the immediate prior quarter. Year-over-year, average non-interest bearing deposits grew 10% and average interest-bearing deposits increased 6% in the second quarter of 2015.

Other borrowings decreased to $22.3 million at June 30, 2015 from $22.6 million at March 31, 2015 and increased from $2.2 million at June 30, 2014. The increase in other borrowings as compared to the same period in the prior year is the result of the inclusion of RML's short term borrowings in Northrim's consolidated balance sheet.

Shareholders' equity increased 9% to $171.0 million, or $24.96 per share, at June 30, 2015, compared to $156.9 million, or $22.97 per share, a year ago. Tangible book value per share* was $21.47 at June 30, 2015, compared to $21.73 per share a year ago and $20.92 per share at March 31, 2015. Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 12.71% at June 30, 2015.

Asset Quality

Nonperforming assets were 0.52% of total assets and non-performing loans were 0.52% of portfolio loans at June 30, 2015. The allowance for loan losses increased to 1.79% of portfolio loans at June 30, 2015 from 1.76% at the end of the first quarter of 2015. The primary reason for this increase in the second quarter of 2015 as compared to the preceding quarter was an increase in adversely classified loans to 2.29% of portfolio loans from 0.91% at March 31, 2015 and 0.62% at June 30, 2014. Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss. This increase resulted primarily from the downgrade of two relationships, one in the retail industry and one in the healthcare industry, during the quarter. These downgrades were unrelated to the recent decrease in oil prices. Northrim estimates that approximately 8% of portfolio loans as of June 30, 2015 have direct exposure to the oil and gas industry in Alaska.

OREO declined 33% to $2.8 million at the end of the second quarter of 2015, compared to $4.2 million the preceding quarter following the sale of four properties that generated a net gain on sale of $135,000.

There were $3.2 million in restructured loans included in nonaccrual loans at the end of the second quarter of 2015, as compared to $3.2 million at March 31, 2015, and $1.5 million at June 30, 2014. Northrim held $5.7 million in performing restructured loans that were not included in nonaccrual loans at the end of the second quarter of 2015. "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."

About Northrim BanCorp

Northrim BanCorp, Inc. is the parent company of Northrim Bank, an Alaska-based community bank with 14 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; 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. Affiliated companies include 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; our expected cost savings, synergies and other financial benefits from the acquisition of Residential Mortgage Holding Company, LLC 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, 2014, 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.

http://www.akbizmag.com/Alaska-Business-Monthly/May-2015/North-Slope-Activity-Sees-Increased-Investment/

http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2014/06/09/sp-ratings-2014

Income Statement
(Dollars in thousands, except per share data) Three Months Ended
(Unaudited) June 30, March 31, Three Month June 30, One Year
2015 2015 % Change 2014 % Change
Interest Income:
Interest and fees on loans $14,135 $13,467 5% $13,082 8%
Interest on portfolio investments 784 908 -14% 772 2%
Interest on deposits in banks 24 11 118% 41 -41%
Total interest income 14,943 14,386 4% 13,895 8%
Interest Expense:
Interest expense on deposits 493 477 3% 348 42%
Interest expense on borrowings 255 277 -8% 136 88%
Total interest expense 748 754 -1% 484 55%
Net interest income 14,195 13,632 4% 13,411 6%
Provision (benefit) for loan losses 376 326 15% (1,136) NM
Net interest income after provision (benefit) for loan losses 13,819 13,306 4% 14,547 -5%
Other Operating Income:
Mortgage banking income 7,839 7,283 8% NM
Employee benefit plan income 931 777 20% 878 6%
Electronic banking income 700 622 13% 604 16%
Service charges on deposit accounts 568 490 16% 607 -6%
Purchased receivable income 562 589 -5% 484 16%
Gain on sale of securities 16 114 -86% 349 -95%
Equity in earnings from RML NM 355 NM
Other income 947 660 43% 829 14%
Total other operating income 11,563 10,535 10% 4,106 182%
Other Operating Expense:
Salaries and other personnel expense 11,125 10,550 5% 6,839 63%
Occupancy expense 1,594 1,604 -1% 1,112 43%
Professional and outside services 791 751 5% 219 261%
Marketing expense 642 617 4% 394 63%
Change in fair value, RML earn-out liability 587 1,502 -61% NM
Equipment expense 428 434 -1% 359 19%
Insurance expense 345 324 6% 284 21%
Intangible asset amortization expense 72 73 -1% 81 -11%
Merger and acquisition expense NM 312 NM
Reserve for (recovery from) purchased receivables (18) (54) -67% 243 -107%
OREO (income) expense, net rental income and gains on sale (121) 297 -141% (9) NM
Other operating expense 2,308 2,363 -2% 1,786 29%
Total other operating expense 17,753 18,461 -4% 11,620 53%
Income before provision for income taxes 7,629 5,380 42% 7,033 8%
Provision for income taxes 2,686 1,747 54% 2,569 5%
Net income 4,943 3,633 36% 4,464 11%
Less: Net income attributable to the noncontrolling interest 162 72 125% 95 71%
Net income attributable to Northrim BanCorp $4,781 $3,561 34% $4,369 9%
Basic EPS $0.70 $0.52 35% $0.64 9%
Diluted EPS $0.69 $0.51 35% $0.63 10%
Average basic shares 6,854,338 6,854,189 —% 6,829,897 —%
Average diluted shares 6,941,671 6,930,873 —% 6,919,568 —%
Income Statement
(Dollars in thousands, except per share data) Six months ended June 30,
(Unaudited) One Year
2015 2014 % Change
Interest Income:
Interest and fees on loans $27,602 $23,953 15%
Interest on portfolio investments 1,692 1,525 11%
Interest on deposits in banks 35 90 -61%
Total interest income 29,329 25,568 15%
Interest Expense:
Interest expense on deposits 970 634 53%
Interest expense on borrowings 532 290 83%
Total interest expense 1,502 924 63%
Net interest income 27,827 24,644 13%
Provision (benefit) for loan losses 702 (1,136) -162%
Net interest income after provision (benefit) for loan losses 27,125 25,780 5%
Other Operating Income:
Mortgage banking income 15,122 NM
Employee benefit plan income 1,708 1,754 -3%
Electronic banking income 1,322 1,104 20%
Purchased receivable income 1,151 965 19%
Service charges on deposit accounts 1,058 1,083 -2%
Gain on sale of securities 130 446 -71%
Equity in earnings from RML 224 NM
Other income 1,607 1,264 27%
Total other operating income 22,098 6,840 223%
Other Operating Expense:
Salaries and other personnel expense 21,675 12,759 70%
Occupancy expense 3,198 1,989 61%
Change in fair value, RML earn-out liability 2,089 NM
Professional and outside services 1,542 624 147%
Marketing expense 1,259 1,008 25%
Equipment expense 862 657 31%
Insurance expense 669 469 43%
OREO (income) expense, net rental income and gains on sale 176 (247) 171%
Intangible asset amortization expense 145 133 9%
Merger and acquisition expense 705 NM
Reserve for (recovery from) purchased receivables (72) 206 -135%
Other operating expense 4,671 3,285 42%
Total other operating expense 36,214 21,588 68%
Income before provision for income taxes 13,009 11,032 18%
Provision for income taxes 4,433 3,866 15%
Net income 8,576 7,166 20%
Less: Net income attributable to the noncontrolling interest 234 139 68%
Net income attributable to Northrim BanCorp $8,342 $7,027 19%
Basic EPS $1.22 $1.05 16%
Diluted EPS $1.20 $1.04 15%
Average basic shares 6,854,264 6,683,897 3%
Average diluted shares 6,938,879 6,774,434 2%
Balance Sheet
(Dollars in thousands)
(Unaudited) June 30, March 31, Three Month June 30, One Year
2015 2015 % Change 2014 % Change
Assets:
Cash and due from banks $44,017 $32,957 34% $36,318 21%
Interest bearing deposits in other banks 60,054 13,115 358% 61,565 -2%
Portfolio investments 229,882 260,338 -12% 213,578 8%
Loans held for sale 73,593 61,873 19% 14,189 419%
Portfolio loans 974,849 960,564 1% 926,809 5%
Allowance for loan losses (17,418) (16,947) 3% (16,032) 9%
Net portfolio loans 957,431 943,617 1% 910,777 5%
Purchased receivables, net 14,048 15,332 -8% 17,380 -19%
Other real estate owned, net 2,807 4,209 -33% 4,897 -43%
Premises and equipment, net 37,942 36,449 4% 32,370 17%
Goodwill and intangible assets 23,889 23,962 —% 8,430 183%
Other assets 56,668 56,132 1% 56,188 1%
Total assets $1,500,331 $1,447,984 4% $1,355,692 11%
Liabilities:
Demand deposits $455,358 $410,464 11% $388,728 17%
Interest-bearing demand 173,952 179,124 -3% 174,647 —%
Savings deposits 129,938 127,708 2% 120,118 8%
Alaska CDs 97,592 99,120 -2% 115,081 -15%
Money market deposits 232,877 227,345 2% 220,811 5%
Time deposits 149,000 147,252 1% 110,881 34%
Total deposits 1,238,717 1,191,013 4% 1,130,266 10%
Securities sold under repurchase agreements 17,895 17,820 —% 19,776 -10%
Other borrowings 22,309 22,569 -1% 2,186 921%
Junior subordinated debentures 18,558 18,558 —% 18,558 —%
Other liabilities 31,770 30,640 4% 28,008 13%
Total liabilities 1,329,249 1,280,600 4% 1,198,794 11%
Shareholders' Equity:
Northrim BanCorp shareholders' equity 170,805 167,257 2% 156,771 9%
Noncontrolling interest 277 127 118% 127 118%
Total shareholders' equity 171,082 167,384 2% 156,898 9%
Total liabilities and shareholders' equity $1,500,331 $1,447,984 4% $1,355,692 11%
Additional Financial Information
(Dollars in thousands)
(Unaudited)
Composition of Portfolio Investments
June 30, 2015 March 31, 2015 June 30, 2014
Balance % of
total
Balance % of
total
Balance % of
total
U.S. Treasury securities $15,150 6.6% $15,151 5.8% $15,564 7.3%
U.S. Agency securities 158,093 68.8% 185,105 71.1% 132,329 62.0%
U.S. Agency mortgage-backed securities 926 0.4% 979 0.4% 1,154 0.5%
Corporate bonds 40,326 17.5% 41,325 15.9% 42,966 20.1%
Alaska municipality, utility, or state bonds 12,965 5.6% 13,525 5.2% 17,203 8.1%
Other municipality, utility, or state bonds 605 0.3% 886 0.3% 887 0.4%
FHLB Stock 1,817 0.8% 3,367 1.3% 3,475 1.6%
Total portfolio investments $229,882 $260,338 $213,578
Composition of Portfolio Loans
June 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014
Balance % of
total
Balance % of
total
Balance % of
total
Balance % of
total
Balance % of
total
Commercial loans $334,181 34% $324,433 34% $306,543 33% $317,315 34% $339,011 36%
Commercial real estate loans 445,369 46% 445,699 46% 432,982 46% 451,821 48% 435,236 47%
Construction loans 139,916 14% 133,654 14% 126,037 14% 106,335 11% 90,079 10%
Consumer loans 59,842 6% 61,240 6% 63,493 7% 65,836 7% 66,923 7%
Subtotal 979,308 965,026 929,055 941,307 931,249
Unearned loan fees, net (4,459) (4,462) (4,551) (4,648) (4,440)
Total portfolio loans $974,849 $960,564 $924,504 $936,659 $926,809
Composition of Deposits
June 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014
Balance % of
total
Balance % of
total
Balance % of
total
Balance % of
total
Balance % of
total
Demand deposits $455,358 36% $410,464 35% $403,523 35% $438,805 37% $388,728 34%
Interest-bearing demand 173,952 15% 179,124 15% 185,114 15% 176,030 15% 174,647 15%
Savings deposits 129,938 10% 127,708 11% 122,588 10% 119,002 10% 120,118 11%
Alaska CDs 97,592 8% 99,120 8% 99,736 8% 112,667 9% 115,081 10%
Money market deposits 232,877 19% 227,345 19% 226,574 20% 237,235 20% 220,811 20%
Time deposits 149,000 12% 147,252 12% 142,212 12% 108,628 9% 110,881 10%
Total deposits $1,238,717 $1,191,013 $1,179,747 $1,192,367 $1,130,266
Additional Financial Information
(Dollars in thousands)
(Unaudited)
Asset Quality
June 30, March 31, June 30,
2015 2015 2014
Nonaccrual loans $5,040 $4,810 $3,080
Loans 90 days past due
Total nonperforming loans 5,040 4,810 3,080
Other real estate owned 2,807 4,209 4,897
Nonperforming purchased receivables 243
Total nonperforming assets $7,847 $9,019 $8,220
Government guarantees on nonperforming assets2 $1,628 $2,375 $968
Performing restructured loans $5,736 $5,789 $7,214
Nonperforming loans / portfolio loans 0.52% 0.50% 0.33%
Nonperforming assets / total assets 0.52% 0.62% 0.61%
Loans measured for impairment $26,345 $12,827 $6,351
Allowance for loan losses / portfolio loans 1.79% 1.76% 1.73%
Allowance for loan losses / nonperforming loans 346% 352% 521%
Gross loan charge-offs for the quarter $— $188 $63
Gross loan recoveries for the quarter ($96) ($87) ($1,199)
Net loan charge-offs (recoveries) for the quarter ($96) $102 ($1,136)
Net loan charge-offs (recoveries) year-to-date $6 $102 ($886)
Net loan charge-offs (recoveries) for the quarter / average loans, for the quarter (0.01)% 0.01% (0.12)%
Net loan charge-offs (recoveries) year-to-date / average loans, year-to-date annualized —% 0.04% (0.21)%
 
2Represents 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.
Balance at Additions Payments Charge-offs Transfers to Sales Balance at
June 30, 2015 this quarter this quarter this quarter OREO this quarter March 31, 2015
Commercial loans $3,049 $550 ($39) $— $— $— $2,538
Commercial real estate 1,679 (116) 1,795
Construction loans
Consumer loans 312 (8) (157) 477
Other real estate owned 2,807 157 (1,559) 4,209
Total non-performing assets $7,847 $550 ($163) $— $— ($1,559) $9,019
Additional Financial Information
(Dollars in thousands)
(Unaudited)
Average Balances, Yields, and Rates
Three Months Ended
June 30, 2015 March 31, 2015 June 30, 2014
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 $39,229 0.25% $14,809 0.30% $48,466 0.33%
Portfolio investments 229,485 1.50% 270,743 1.47% 243,096 1.39%
Loans held for sale 66,074 3.56% 43,361 3.70% 10,827 4.03%
Portfolio loans 966,952 5.67% 946,074 5.62% 924,881 5.65%
Total interest-earning assets 1,301,740 4.67% 1,274,987 4.62% 1,227,270 4.58%
Nonearning assets 143,404 154,204 116,450
Total assets $1,445,144 $1,429,191 $1,343,720
Liabilities and Shareholders' Equity
Interest-bearing deposits $784,972 0.25% $775,172 0.25% $748,537 0.19%
Borrowings 54,644 1.85% 58,982 1.83% 43,063 1.23%
Total interest-bearing liabilities 839,616 0.36% 834,154 0.36% 791,600 0.24%
Noninterest-bearing demand deposits 408,390 386,324 371,979
Other liabilities 29,840 41,788 23,862
Shareholders' equity 167,298 166,925 156,279
Total liabilities and shareholders' equity $1,445,144 $1,429,191 $1,343,720
Net spread 4.31% 4.26% 4.34%
Net tax equivalent margin* 4.44% 4.39% 4.43%
Average portfolio loans to average interest-earning assets 74.28% 74.20% 75.36%
Average portfolio loans to average total deposits 81.03% 81.45% 82.54%
Average non-interest deposits to average total deposits 34.22% 33.26% 33.20%
Average interest-earning assets to average interest-bearing liabilities 155.04% 152.85% 155.04%
Additional Financial Information
(Dollars in thousands)
(Unaudited)
Average Balances, Yields, and Rates
Year-to-date
June 30, 2015 June 30, 2014
Average Average
Average Tax Equivalent Average Tax Equivalent
Balance Yield/Rate Balance Yield/Rate
Assets
Interest bearing deposits in other banks $26,972 0.26% $53,275 0.34%
Portfolio investments 250,000 1.49% 243,200 1.39%
Loans held for sale 54,780 3.62% 8,727 4.07%
Portfolio loans 956,571 5.65% 848,007 5.68%
Total interest-earning assets 1,288,323 4.65% 1,153,209 4.52%
Nonearning assets 148,888 109,046
Total assets $1,437,211 $1,262,255
Liabilities and Shareholders' Equity
Interest-bearing deposits $780,099 0.25% $692,212 0.18%
Borrowings 56,801 1.84% 42,752 1.34%
Total interest-bearing liabilities 836,900 0.36% 734,964 0.25%
Noninterest-bearing demand deposits 397,417 354,205
Other liabilities 35,781 21,846
Shareholders' equity 167,113 151,240
Total liabilities and shareholders' equity $1,437,211 $1,262,255
Net spread 4.29% 4.27%
Net tax equivalent margin* 4.41% 4.36%
Average portfolio loans to average interest-earning assets 74.25% 73.53%
Average portfolio loans to average total deposits 81.24% 81.04%
Average non-interest deposits to average total deposits 33.75% 33.85%
Average interest-earning assets to average interest-bearing liabilities 153.94% 156.91%
Additional Financial Information
(Dollars in thousands)
(Unaudited)
Capital Data (At quarter end)
June 30, 2015 March 31, 2015 June 30, 2014
Book value per share $24.96 $24.42 $22.97
Tangible book value per share* $21.47 $20.92 $21.73
Tangible Common Equity/Tangible Assets* 9.97% 10.07% 11.02%
Tier 1 Capital / Risk Adjusted Assets 12.67% 12.71% 14.26%
Total Capital / Risk Adjusted Assets 13.92% 13.96% 15.51%
Tier 1 Capital / Average Assets 10.25% 10.35% 12.55%
Shares outstanding 6,854,413 6,854,189 6,830,913
Unrealized gain on AFS securities, net of income taxes $643 $747 $852
Profitability Ratios
June 30, 2015 March 31, 2015 June 30, 2014
For the quarter:
Net tax equivalent margin* 4.44% 4.39% 4.43%
Efficiency ratio* 68.64% 76.09% 65.87%
Return on average assets 1.33% 1.01% 1.30%
Return on average equity 11.46% 8.65% 11.21%
Year-to-date: June 30, 2015 June 30, 2014
Net tax equivalent margin* 4.41% 4.36%
Efficiency ratio* 72.25% 68.15%
Return on average assets 1.17% 1.12%
Return on average equity 10.07% 9.37%
*Non-GAAP Financial Measures
(Dollars in thousands, except per share data)
(Unaudited)
Tangible book value is a non-GAAP measure defined as shareholders' equity, less intangible assets, divided by shares outstanding.
June 30, 2015 June 30, 2015
Book value per
share
Tangible book
value per share
Total shareholder's equity $171,082 $171,082
Less: goodwill and intangible assets N/A 23,889
$171,082 $147,193
Divided by shares outstanding 6,854 6,854
$24.96 $21.47
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 is calculated by dividing total equity by total assets. Total equity to total assets was 11.40% at June 30, 2015 as compared to 11.56% at March 31, 2015 and 11.57% at June 30, 2014.
June 30, 2015 March 31, 2015 June 30, 2014
Total shareholders' equity $171,082 $167,384 $156,898
Less: goodwill and other intangible assets, net 23,889 23,962 8,430
Tangible common shareholders' equity $147,193 $143,422 $148,468
Total assets $1,500,331 $1,447,984 $1,355,692
Less: goodwill and other intangible assets, net 23,889 23,962 8,430
Tangible assets $1,476,442 $1,424,022 $1,347,262
Tangible common equity ratio 9.97% 10.07% 11.02%
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 2015 and 2014.
Three Months Ended
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Net interest income $14,195 $13,632 $13,924 $13,725 $13,411
Divided by average interest-bearing assets 1,301,740 1,274,758 1,297,877 1,242,944 1,227,270
Net interest margin3 4.37% 4.34% 4.26% 4.38% 4.38%
Net interest income $14,195 $13,632 $13,924 $13,725 $13,411
Plus: reduction in tax expense related to tax-exempt interest income 199 152 165 139 129
$14,394 $13,784 $14,089 $13,864 $13,540
Divided by average interest-bearing assets 1,301,740 1,274,758 1,297,877 1,242,944 1,227,270
Tax-equivalent net interest margin3 4.44% 4.39% 4.31% 4.43% 4.43%
Year-to-date
June 30, 2015 June 30, 2014
Net interest income $27,827 $24,644
Divided by average interest-bearing assets 1,288,323 1,153,209
Net interest margin3 4.36% 4.31%
Net interest income $27,827 $24,644
Plus: reduction in tax expense related to tax-exempt interest income 351 280
$28,178 $24,924
Divided by average interest-bearing assets 1,288,323 1,153,209
Tax-equivalent net interest margin3 4.41% 4.36%
3Calculated using actual days in the quarter divided by 365.
(Dollars in thousands, except per share data)
(Unaudited)
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.
Three Months Ended
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Other operating expense $17,753 $18,461 $13,671 $12,779 $11,620
Less: intangible asset amortization 72 73 75 81 81
$17,681 $18,388 $13,596 $12,698 $11,539
Net interest income $14,195 $13,632 $13,924 $13,725 $13,411
Plus: other operating income 11,563 10,535 9,375 4,934 4,106
$25,758 $24,167 $23,299 $18,659 $17,517
Efficiency ratio 68.64% 76.09% 58.35% 68.05% 65.87%
Year-to-date
June 30, 2015 June 30, 2014
Other operating expense $36,214 $21,588
Less: intangible asset amortization 145 133
$36,069 $21,455
Net interest income $27,827 $24,644
Plus: other operating income 22,098 6,840
$49,925 $31,484
Efficiency ratio 72.25% 68.15%
(Dollars in thousands, except per share data)
(Unaudited)
Operating net income is a non-GAAP measure and represents net income attributable to the Company which excludes gains and losses on the sale of securities and fixed assets, gain on the purchase of the mortgage affiliate, gain on the sale of other real estate owned, gain on loans acquired, changes in the fair value of the earn out liability related to the purchase of the mortgage affiliate, and merger and acquisition expenses, net of tax.
Northrim BanCorp, Inc. Three Months Ended
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Net income attributable to Northrim BanCorp $4,781 $3,561 $6,674 $3,707 $4,369
Gain on sale of securities (16) (114) (15) (349)
Gain on sale of fixed assets (1,115)
Gain on purchase of mortgage affiliate (3,001)
Gain on sale of other real estate owned (135) (173) (102) (75)
Gain on loans acquired (179) (48) (691) (4)
Change in fair value, RML earn-out liability 587 1,502
Merger and acquisition expense 226 1,031 312
Total adjustment to net income 257 1,340 (3,639) (205) (112)
Provision for income taxes 106 551 (262) (84) (174)
Operating net income $4,932 $4,350 $3,297 $3,586 $4,431
Community Banking Segment Three Months Ended
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Net income attributable to Northrim BanCorp $3,423 $2,233 $6,221 $3,481 $4,160
Gain on sale of securities (16) (114) (15) (349)
Gain on sale of fixed assets (1,115)
Gain on purchase of mortgage affiliate (3,001)
Gain on sale of other real estate owned (135) (173) (102) (75)
Gain on loans acquired (179) (48) (691) (4)
Change in fair value, RML earn-out liability 587 1,502
Merger and acquisition expense 226 1,031 312
Total adjustment to net income 257 1,340 (3,639) (205) (112)
Provision for income taxes 106 551 (1,461) (84) (174)
Operating net income $3,574 $3,022 $4,043 $3,360 $4,222
Operating diluted earnings per share is a non-GAAP ratio that represents operating net income divided by average diluted shares.

CONTACT: Joe Schierhorn, Chief Operating Officer and President of Northrim Bank (907) 261-3308 Latosha Frye, Chief Financial Officer (907) 261-8763

Source:Northrim BanCorp, Inc.