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


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 HighlightsThree 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       
    WritedownsTransfers toTransfers 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
 AverageTax Equivalent AverageTax Equivalent AverageTax Equivalent
 BalanceYield/Rate BalanceYield/Rate BalanceYield/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. 4Q181Q19 vs. 1Q18
Nonaccrual interest adjustments(0.03)%(0.01)%
Interest rates and loan fees0.09%0.45%
Volume and mix of interest-earning assets0.07%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:         
  NIM4.83% 4.71% 4.69% 4.50% 4.28%
  NIMTE*4.89% 4.76% 4.74% 4.56% 4.33%
  Efficiency ratio73.23% 76.64% 73.82% 71.19% 77.22%
  Return on average assets1.18% 1.27% 1.40% 1.58% 1.10%
  Return on average equity8.36% 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