Market Overview

Northrim BanCorp Earns $3.1 Million, or $0.44 per Diluted Share in 3Q16

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ANCHORAGE, Alaska, Oct. 31, 2016 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ: NRIM) ("Northrim" or the "Company") today reported lower earnings for the third quarter and first nine months of 2016 primarily reflecting a  non-cash accounting correction, higher operating expenses, and a decrease in net interest margin and mortgage income primarily due to slowing loan growth in both the commercial and mortgage market in Alaska compared to the same periods in 2015. Third quarter net income attributable to the Company declined to $3.1 million, or $0.44 per diluted share, compared to $4.4 million, or $0.63 per diluted share, in the second quarter of 2016, and $5.3 million, or $0.77 per diluted share, in the third quarter of 2015.  In the first nine months of 2016, net income attributable to the Company decreased to $10.8 million, or $1.55 per diluted share, compared to $13.7 million, or $1.97 per diluted share in the first nine months of 2015.  Excluding the accounting correction described below, third quarter net income attributable to the Company would have been $4.7 million, or $0.67 per diluted share, and $12.4 million, or $1.78 per diluted share, for the first nine months of 2016.

Although  the non-cash accounting correction covered the period from December 1, 2014, through June 30, 2016, or the seven previous fiscal quarters, the Company made the correction in the third quarter of 2016 on a prospective basis, which resulted in an increase in expenses, net of tax, in the current quarter of $1.4 million, or $0.20 per diluted share relating to the accounting correction for the prior periods.  Prior periods have not been adjusted, consistent with the prospective method, for the change in accounting.  The correction reduced total shareholders' equity by $1.4 million, reduced goodwill by $7.3 million, and increased regulatory capital ratios as of September 30, 2016. The correction was due to a change in accounting treatment for the earn-out payments associated with the Company's 2014 acquisition of Residential Mortgage Holding Company, LLC ("RML").  This change in accounting treatment also reduced net income for the third quarter of 2016 by $213,000, or $0.03 per diluted share, for a total decrease in net income of $1.6 million, or $0.23 per share including the correction for the prior periods. Following the reductions in the balance sheet resulting from the accounting correction, book value per share decreased $0.23 or 1% and tangible book value* per share grew $0.83, or 3.5% to $24.61 as of September 30, 2016.

"The accounting correction arose due to the complexity of the facts and circumstances and the nuances of accounting guidance for the payments related to our 2014 acquisition of RML, particularly because of the continued employment of some of the selling members of RML. The earn-out payments are based on RML's pretax income.  This payment, which is now reported as "compensation expense, RML acquisition payments" in the Company's Income Statement reflects 100% of the payments that the Company will pay to the selling members of RML.  Prior to the accounting correction, the Company had essentially capitalized its estimate of the fair value of all future earn-out payments as part of the price paid to acquire RML. The expenses recorded in prior periods as ‘change in fair value, RML earn-out liability' represent the increase in payments owed to the sellers of RML in excess of our original estimate at the time of purchase due to higher than anticipated pretax income from RML's operations." said Joseph Beedle, Chairman, President and CEO of Northrim Bancorp.  "The cash paid to the sellers of RML for the earn-out payments does not change under this new reporting method, only the way the Company is accounting for it in its financial statements."

References to tax equivalent NIM, 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 measures to GAAP financial measures.

"Under the new accounting treatment, the quarterly net income in prior periods related to the earn-out payments would have decreased by approximately $213,000 per quarter." said Latosha Frye, Chief Financial Officer.  "As it has since inception and regardless of this change in accounting method, expense related to the earn-out payments will fluctuate based on RML's pretax income."

The following table outlines the impact of the accounting correction on the net income attributable to the Company from each of our reporting segments for the third quarter of 2016 and the results from those segments in the third quarter of 2015:

 9/30/2016 9/30/20169/30/2015
 Net income attributable Net income attributableNet income attributable
 to Northrim BanCorp, Inc.Impact ofto Northrim BanCorp, Inc.to Northrim BanCorp, Inc.
(Dollars in thousands)as reportedCorrectionbefore correctionas reported
Community Banking$1,706  ($1,557)$3,263  $3,675  
Home Mortgage Lending 1,389     1,389   1,660  
Total$3,095  ($1,557)$4,652  $5,335  
                 

Home mortgage lending contributed $8.3 million to pre-tax revenues and $0.20 to net earnings per share ("EPS") in the third quarter of 2016, and $22.5 million to pre-tax revenue and $0.50 to net EPS in the first nine months of 2016.

"The loan portfolio increased 3% in the third quarter of 2016 compared to the preceding quarter end and 2% year-over-year, mainly reflecting growth in both commercial and commercial real estate loans and offsetting payoffs in several large commercial construction projects in 2016," said Joe Schierhorn, Northrim Bank's President and CEO.  "Our commercial real estate ("CRE") loan portfolio (both owner-occupied and investment properties) generated 13% year-over-year growth compared to the third quarter of 2015, and accounted for 50% of loans at the end of September 2016.

"New construction projects in the Anchorage market are coming in at a slower pace than in the past few years, as the economy contracts mainly due to the effects of continued low oil prices," Schierhorn continued.  "Construction loans were down 30% year-over-year in the third quarter of 2016, primarily due to approximately $84 million in projects which were completed and termed out in the last twelve months.  Of these construction loans, $55 million converted to the CRE term loan portfolio, which contributed to overall growth of $13.8 million, or 3%, in our CRE portfolio in the third quarter."  We expect construction loans to decrease by another $10-15 million by the end of 2016.

Financial Highlights

 Three Months Ended
(Dollars in thousands, except per share data)September
30, 2016
June 30,
2016
March 31,
2016
December
31, 2015
September
30, 2015
Total assets$1,540,120  $1,518,370  $1,500,199  $1,499,492  $1,539,253  
Total portfolio loans$997,076  $967,346  $970,517  $980,787  $973,680  
Average portfolio loans$979,164  $969,450  $980,117  $979,789  $982,301  
Total deposits$1,278,366  $1,255,688  $1,246,968  $1,240,792  $1,264,919  
Average deposits$1,263,750  $1,235,142  $1,236,555  $1,291,133  $1,230,243  
Total shareholders' equity$185,758  $183,965  $180,398  $177,214  $175,336  
Net income attributable to Northrim BanCorp$3,095  $4,350  $3,376  $4,106  $5,335  
Diluted earnings per share$0.44  $0.63  $0.48  $0.59  $0.77  
Return on average assets 0.81 % 1.17 % 0.91 % 1.05 % 1.42 %
Return on average shareholders' equity 6.73 % 9.42 % 7.61 % 9.37 % 12.37 %
Net interest margin ("NIM") 4.11 % 4.21 % 4.23 % 4.05 % 4.32 %
Tax equivalent NIM* 4.17 % 4.27 % 4.29 % 4.10 % 4.38 %
Efficiency ratio 80.89 % 74.52 % 74.47 % 74.23 % 66.93 %
Total shareholders' equity/total assets 12.06 % 12.12 % 12.02 % 11.82 % 11.39 %
Tangible common equity/tangible assets* 11.12 % 10.72 % 10.61 % 10.40 % 10.00 %
Book value per share$26.99  $26.75  $26.23  $25.77  $25.56  
Tangible book value per share*$24.61  $23.30  $22.78  $22.31  $22.09  
Dividends per share$0.20  $0.19  $0.19  $0.19  $0.19  
                     
  • Year-to-date 2016 net income attributable to the Company totaled $10.8 million, or $1.55 per diluted share, compared to $13.7 million, or $1.97 per diluted share, in the first nine months of 2015.
  • Total revenues, which include net interest income plus total other operating income, were relatively flat in the third quarter at $26.1 million, compared to $25.9 million in the preceding quarter and $27.1 million in the third quarter a year ago.
  • Net interest income was up 1% in the third quarter of 2016 compared to the second quarter of 2016 and down 3% from the third quarter a year ago, primarily as a result of an increase in average loan balances from the second quarter of 2016, and a decrease in the yield on portfolio loans compared to the same quarter in 2015.
  • Other operating income was mostly unchanged at $11.9 million in the third quarter of 2016 compared to the previous quarter and accounted for 46% of total revenues in both quarters.  In the third quarter of 2015, other operating income was $12.4 million and 46% of total revenues and included $683,000 in gains from dispositions of loans acquired and marked to fair value in connection with our acquisition of Alaska Pacific Bancshares, Inc. in 2014.
  • Net interest margin ("NIM") decreased to 4.11% in the third quarter of 2016 compared to 4.21% in the second quarter of 2016 and 4.32% in the third quarter a year ago, while tax equivalent NIM* also declined compared to those periods, but still remained above the peer average1 at 4.17% in the third quarter of 2016.  The decrease in both NIM and tax equivalent NIM* in the current quarter compared to a year ago primarily reflects the change in the mix of interest earning assets.
  • Northrim paid a quarterly cash dividend of $0.20 per share in September 2016, up from the $0.19 per share dividend paid in September 2015.  The dividend provides an annual yield of approximately 3.3% at current market share prices. 
  • Book value per share increased to $26.99 at the end of the third quarter of 2016 compared to $26.75 at the end of the previous quarter and $25.56 at the end of the third quarter of 2015.

1As of June 30, 2016, the SNL US Bank Index tracked 146 banks with assets between $1 billion and $5 billion with averages for the following ratios: NIM (tax equivalent) 3.60%, return on average assets 0.88%, and return on average equity 8.29%

  • Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 14.24% at September 30, 2016, compared to 13.85% at June 30, 2016, and 13.00% a year ago.
  • Total shareholders' equity to total assets was 12.06% at the end of the third quarter of 2016 compared to 12.12% at the end of the prior quarter and 11.39% at the end of the third quarter of 2015, while tangible common equity to tangible assets* was 11.12% at September 30, 2016, compared to 10.72% at June 30, 2016, and 10.0% a year ago.

Alaska Economic Update

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.

"According to the Alaska Department of Labor, preliminary data shows that average employment in the Alaska economy was down an estimated 0.2% or 689 jobs in the first nine months of 2016 as compared to the same period in 2015 as job losses in the oil and gas industry, construction, state government and professional and business services continue to be partially offset by growth in retail trade, health care, and leisure and hospitality jobs.  However, estimated employment as of the end of September 2016 compared to September 2015 was down 1.0% or 3,400 jobs," said Beedle. "While the decreases in both average and period end estimated employment represent a more moderate overall impact from the decrease in the global price of oil compared to what other energy producing regions in the nation have experienced thus far, this is a larger decline than was originally predicted for 2016. Our loan demand has slowed moderately, as the Alaska economy contracts." added Beedle.

Review of Income Statement

Consolidated Income Statement

In the first nine months of 2016, Northrim generated a return on average assets of 0.96% and a return on average equity of 7.93%, as compared to a 0.88% return on average assets and 8.29% return on average equity posted by the 146 banks that make up the SNL U.S. Bank Index with assets between $1 billion and $5 billion as of June 30, 2016.  The accounting correction resulted in the Company's return on average equity and return on average assets being lower by 0.25% and 1.80%, respectively, than they would have been without the accounting correction. NIM and tax equivalent NIM* for the first nine months of 2016 were 4.18% and 4.24%, respectively, compared to 3.60% tax equivalent NIM for the index peers. 1

Net Interest Income/Net Interest Margin

Net interest income grew slightly to $14.2 million in the third quarter of 2016 as compared to $14.1 million in the previous quarter, primarily due to an increase in average portfolio loans, and fell 3% from $14.7 million in the year ago quarter mainly reflecting changes in the mix of earning assets.  In addition, net interest margin was boosted in the third quarter a year ago by the recovery of $267,000 in nonaccrual interest from a nonperforming loan that was paid off during that period.  Net interest income was unchanged in the first nine months of 2016 at $42.5 million compared to the first nine months of 2015 as an increase in earning assets was offset by changes in the mix of earning assets, as well as $646,000 in recoveries of nonaccrual interest from nonperforming loans that paid off in 2015 compared to $89,000 of recoveries in the first nine months of 2016.

NIM and tax equivalent NIM* decreased in both the third quarter and first nine months of 2016 compared to prior year periods.  "We have experienced a gradual decline in our NIM primarily as a result of the flattening of the yield curve, slower growth in loan balances, and higher securities holdings," said Schierhorn.

Northrim tax equivalent NIM*, which is primarily comprised of activities in the community banking segment, remained well above the average for the 146 banks in the SNL U.S. Bank Index with assets between $1 billion and $5 billion of 3.60% as of June 30, 2016.  "We are lowering our expectations for both our NIM and our tax equivalent NIM* to stabilize in the 4.00% to 4.10% range for our NIM and the 4.05% and 4.15% range for our tax equivalent NIM*, primarily due to our expectation that the mix of our earning assets will continue to shift towards higher balances in investment securities, as we believe growth in the higher-yielding loan portfolio will continue to be adversely affected by the expected weakness of the Alaskan economy. We believe both NIM and tax equivalent NIM should both benefit in the event interest rates rise another 25 basis points or the yield curve steepens, and would be adversely affected if interest rates fall and the yield curve continues to flatten," said Frye.

Provision for Loan Losses

The provision for loan losses was $652,000 in the third quarter of 2016 compared to $200,000 in the second quarter of 2016 and $676,000 in the third quarter of 2015.  The increase in the third quarter of 2016 as compared to the second quarter of 2016 was primarily due to a $332,000 increase in the specific impairment allocated to one $5.9 million residential land development project that was moved to nonaccrual loans in the second quarter of 2016 as well as growth in the overall loan portfolio during the quarter. The allowance for loan losses to portfolio loans at the end of the third quarter of 2016 increased to 1.95% from 1.90% at June 30, 2016 and 1.83% at September 30, 2015.

Other Operating Income

In addition to home mortgage lending, Northrim has interests in other businesses that complement its core community banking activities.  It provides financial services to businesses and individuals through these interests, including purchased receivables financing, employee benefit plans, and wealth management.  These complementary business activities contributed $1.6 million, or 6% of total revenues in the third quarter of 2016, $1.5 million or 6% of revenues in the second quarter of 2016, and $1.6 million, or 6% of revenues in the third quarter a year ago.

Other operating income was $11.9 million, or 46% of total revenues in the third quarter of 2016, which represented a decline of 4% from $12.4 million, or 46% of third quarter 2015 revenues. Impacting the quarter was lower other income generated from gains on the disposition of loans acquired in 2014.  On a year-to-date basis, other operating income decreased 5% to $32.9 million from $34.5 million in the first nine months of 2015, primarily due to high refinancing activity in the second quarter of 2015 and lower other income for the reasons indicated above.

Other Operating Expenses

Operating expenses increased to $21.2 million in the third quarter of 2016 compared to $19.4 million in the second quarter of 2016 and $18.2 million in the third quarter of 2015.  The increase from the previous quarters was primarily the result of the change in the accounting treatment for the earn-out payments, including the correction for the prior periods, that added $2.6 million to pre-tax expenses in the current quarter, combined with higher salaries and other personnel expenses during the quarter.  These increases were partially offset by lower expenses associated with other real estate owned and a decrease in losses on the sale of premises and equipment in the third quarter of 2016 as compared to the second quarter of 2016.  The Company sold one branch location in the second quarter of 2016, but simultaneously entered into a long-term lease of the same branch location.

Community Banking

Net income attributable to the Company for the community banking segment totaled $1.7 million, compared to $2.8 million in the second quarter of 2016 and $3.7 million in the third quarter of 2015, which represented a 39% and 54% decline in the current quarter compared to the second quarter of 2016 and the third quarter of 2015, respectively. Excluding the $1.6 million in additional after-tax expenses that resulted from the change in accounting, including the correction for prior periods in the third quarter of 2016, net income attributable to the Company in the current quarter would have increased 15% from the preceding quarter and decreased by 11% compared to the third quarter a year ago.  Lower other operating expenses, specifically due to the loss on the sale of the branch noted above in the second quarter of 2016 as well as lower expenses for other real estate owned in the third quarter of 2016 were primarily the reason that net income attributable to the Company would have been higher in the current quarter compared to the previous quarter if the accounting correction had not been applied.  Slower loan growth and lower gains from the sale of previously acquired loans primarily accounted for the year-over-year decline in the third quarter, outside of the effects of the accounting correction. Year-to-date, net income attributable to the Company for the community banking segment totaled $7.3 million, or $1.05 per diluted share for the first nine months of 2016, down 22% from $9.3 million in the first nine months of 2015.  Excluding the $1.6 million in additional after-tax expenses resulting from the change in accounting, net income attributable to the Company would have decreased by 5% from the same period in 2015.  Additionally, lower income from the Company's loan portfolio and lower other income from gains on the disposition of loans acquired in 2014 combined with increased personnel costs of $1.3 million in the first nine months of 2016, mainly consisting of salary and medical expenses, primarily accounted for the decline year-over-year.

"RML continues to outperform our original projections made when we purchased the business at the end of 2014.  The accounting correction created a great deal of noise in the quarter for both the income statements and balance sheet. Excluding the effects of the accounting correction, third quarter earnings in the community banking segment increased compared to the prior quarter while profits were down year-over-year primarily due to a decreased yield on our loan portfolio, decreased gains from the disposition of loans from a previous acquisition, and increased salaries and other personnel expenses," said Frye.  "While we are actively managing costs, we recognize a need to continue to invest to keep pace with compliance and risk management expectations."

The accounting correction related to the acquisition of RML is an obligation of Northrim Bank and is included in the community banking segment results.

The following table provides highlights of the community banking segment of Northrim:

 Three Months Ended
(Dollars in thousands, except per share data)September 30, 2016June 30,
2016
March 31, 2016December 31, 2015September 30, 2015
Net interest income$13,901  $13,829  $13,933  $14,008  $14,425  
Provision for loan losses 652   200   703   376   676  
Other operating income 3,594   3,354   3,409   3,794   4,269  
Compensation expense, RML acquisition payments 3,250   687   130   1,225   780  
Other operating expense 11,649   12,504   12,306   11,965   11,853  
Income before provision for income taxes 1,944   3,792   4,203   4,236   5,385  
Provision for income taxes 50   805   1,285   985   1,513  
Net income 1,894   2,987   2,918   3,251   3,872  
Less: net income attributable to the noncontrolling interest 188   156   130   120   197  
Net income attributable to Northrim BanCorp$1,706  $2,831  $2,788  $3,131  $3,675  
Average diluted shares 6,973,354   6,968,891   6,964,707   6,971,828   6,952,209  
Diluted earnings per share$0.24  $0.41  $0.40  $0.45  $0.53  


 Year-to-date
(Dollars in thousands, except per share data)September 30, 2016   September 30, 2015
Net interest income$41,663     $41,925  
Provision for loan losses 1,555      1,378  
Other operating income 10,357      11,202  
Compensation expense, RML acquisition payments 4,067      2,869  
Other operating expense 36,459      35,106  
Income before provision for income taxes 9,939      13,774  
Provision for income taxes 2,140      4,038  
Net income 7,799      9,736  
Less: net income attributable to the noncontrolling interest 474      431  
Net income attributable to Northrim BanCorp$7,325     $9,305  
Average diluted shares 6,968,557      6,941,861  
Diluted earnings per share$1.05     $1.34  
            

Home Mortgage Lending

Total mortgage production revenue in the third quarter of 2016 was $7.2 million compared to $7.6 million in the preceding quarter and $7.5 million a year ago.  "Although net realized gains on the sale of mortgage loans increased during the third quarter from the second quarter, the change in the fair value of our mortgage loan commitments generated a loss in the third quarter compared to a gain in the prior quarter primarily due to the decrease in total loan commitments in the third quarter as compared to the increase in commitments in the second quarter.  The fluctuation in commitments is primarily driven by normal seasonality," said Schierhorn.   Third quarter 2016 mortgage lending volumes increased as compared to the second quarter, which is also a normal seasonal fluctuation, with refinancing activity accounting for 24% of total loans funded in the current quarter.  Refinancing activity accounted for 18% of loans funded in the second quarter of 2016 and 10% of third quarter 2015 production. "Seasonality also accounts for the 27% decline in mortgage commitments in the current quarter compared to the previous quarter," Schierhorn noted.

In the fourth quarter of 2015, Northrim began servicing the loans RML originates for the Alaska Housing Finance Corporation, which account for approximately 20% of loans originated by RML in 2016.  Northrim now services 970 loans in its $231.2 million servicing portfolio, which has more than doubled in size over the past year.  Servicing income contributed $782,000 to third quarter mortgage banking income, compared to $510,000 for the second quarter of 2016 and $308,000 in the third quarter a year ago.

Operating expenses in the home mortgage lending segment increased to $6.3 million in the third quarter of 2016 compared to $6.2 million in the second quarter of 2016 and $5.6 million in the third quarter a year ago.  "In addition to higher commission costs, which increase when production increases, the increase in operating expenses for the home mortgage lending segment in the third quarter of 2016 compared to the third quarter of 2015 is primarily the result of increasing fixed costs for technology needs and additional staff in marketing and loan management, as well as increased employee medical costs, similar to the community banking segment," said Frye.

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

 Three Months Ended
(Dollars in thousands, except per share data)September 30, 2016June 30, 2016March 31, 2016December 31, 2015September 30, 2015
Mortgage commitments$72,315  $98,788  $83,823  $71,280  $74,637  
Mortgage loans funded for sale$224,594  $208,921  $133,050  $159,590  $201,402  
Mortgage loan refinances to total fundings 24%  18%  16  12%  10 
Mortgage loans serviced for others$231,167  $193,230  $160,803  $125,446  $94,791  
      
Net realized gains on mortgage loans sold$7,502  $7,147  $4,777  $5,216  $7,496  
Change in fair value of mortgage loan commitments, net (331)  480   48   (57)  (5) 
Total production revenue 7,171   7,627   4,825   5,159   7,491  
Mortgage servicing revenue, net 782   510   701   820   308  
Other mortgage banking revenue 388   373   170   331   339  
  Total mortgage banking income$8,341  $8,510  $5,696  $6,310  $8,138  
      
Net interest income$312  $250  $241  $392  $257  
Provision for loan losses               
Other operating income 8,341   8,510   5,696   6,310   8,138  
Other operating expense 6,287   6,178   4,935   5,039   5,570  
  Income before provision for income taxes 2,366   2,582   1,002   1,663   2,825  
Provision for income taxes 977   1,063   414   688   1,165  
  Net income attributable to Northrim BanCorp$1,389  $1,519  $588  $975  $1,660  
      
Average diluted shares 6,973,354   6,968,891   6,964,707   6,971,828   6,952,209  
Diluted earnings per share$0.20  $0.22  $0.08  $0.14  $0.24  


 Year-to-date
(Dollars in thousands, except per share data)September 30, 2016    September 30, 2015
Mortgage commitments$72,315     $74,637  
Mortgage loans funded for sale$566,565     $594,225  
Mortgage loan refinances to total fundings 20%     22 
      
Net realized gains on mortgage loans sold$19,426     $21,181  
Change in fair value of mortgage loan commitments, net 196      672  
Total production revenue 19,622      21,853  
Mortgage servicing revenue, net 1,994      362  
Other mortgage banking revenue 931      1,088  
  Total mortgage banking income$22,547     $23,303  
      
Net interest income$803     $584  
Provision for loan losses         
Other operating income 22,547      23,303  
Other operating expense 17,400      16,443  
  Income before provision for income taxes 5,950      7,444  
Provision for income taxes 2,454      3,073  
  Net income attributable to Northrim BanCorp$3,496     $4,371  
      
Average diluted shares 6,968,557      6,941,861  
Diluted earnings per share$0.50     $0.63  
      

Balance Sheet Review

Northrim's assets were $1.54 billion at September 30, 2016, mostly unchanged from a year ago and up 1% from $1.52 billion three months ago.  The mix of assets at each period end continued to shift from short term assets to portfolio investments and loans.

Average investment securities decreased 1% from the preceding quarter and increased 24% from a year ago.  The investment portfolio generated an average net tax equivalent yield of 1.42% for the third quarter of 2016 and the average estimated duration of the investment portfolio was 1.2 years at September 30, 2016.

Average loans held for sale increased 36% to $66.6 million in the third quarter of 2016 compared to the preceding  quarter, and increased 18% from the same quarter a year ago, primarily reflecting the seasonality of the mortgage business and the continuing steady demand for home loans in the Alaska marketplace.

Year-over-year, portfolio loans increased 2% to $997.1 million at September 30, 2016, and average portfolio loans increased 1% to $976.3 million in the first nine months of 2016 compared to the same period a year ago. Construction and land development loans, which are by nature short-term, grew 13% in the third quarter of 2016 and fell 30% year-over year.  Partially offsetting this decline was the increase in commercial real estate term loans which grew 3% in the third quarter of 2016 and 13% year-over-year.

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 September 30, 2016, represented 90% of total deposits.  At September 30, 2016, total deposits were $1.28 billion, up slightly from $1.26 billion both from the immediate prior quarter and the same quarter a year ago.  Year-over-year, average non-interest bearing deposits grew 7% in 2016 and average interest-bearing deposits increased 3%, bringing average total deposits up 3% to $1.26 billion at the end of the third quarter of 2016 compared to $1.23 billion at the end of the third quarter a year ago.

Other borrowings declined to $4.4 million at September 30, 2016, down substantially from $12.5 million at September 30, 2015, as Northrim is now funding RML's short term borrowings from its internally generated liquidity.

Shareholders' equity increased 6% to $185.8 million, or $26.99 per share, at September 30, 2016, compared to $175.3 million, or $25.56 per share, a year ago.  Tangible book value per share* was $24.61 at September 30, 2016, compared to $22.09 per share a year ago.  Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 14.24% at September 30, 2016.

Asset Quality

"The ratio of nonperforming assets to total assets, net of government guarantees decreased during the third quarter of 2016 to 0.78% of assets from 0.80% of assets at June 30, 2016, but increased from 0.37% a year ago primarily due to the addition of two lending relationships to non-accrual loans totaling $8.2 million in the second quarter 2016," said Frye.  "One $5.9 million relationship is related to a residential land development project in the greater Anchorage market and has been included in adversely classified loans since December 31, 2015.  The other $2.3 million relationship is made up of three loans to a commercial business in the transportation industry, which was added to adversely classified loans in the second quarter of 2016."

"While adversely classified assets remain elevated at the end of the third quarter as compared to one year ago, we had a decrease in charge-offs in the third quarter of 2016 compared to the third quarter of 2015 and did not have any charge-offs related to the oil sector," said Schierhorn. The following table details loan charge-offs, by industry:

(Dollars in thousands)Three Months Ended
 September 30, 2016  June 30, 2016  September 30, 2015
Charge-offs:   
Construction$  $  $25  
Retail trade    135   342  
Consumer 22      33  
  Total charge-offs$22  $135  $400  
             

Net non-performing loans were 0.93% of portfolio loans compared to 1.00% at the end of the preceding quarter and 0.22% a year ago.  The increase compared to the same quarter of 2015 was primarily the result of the increase in nonaccrual loans that was discussed above.

Performing restructured loans, that were not included in nonaccrual loans at the end of the third quarter of 2016, increased to $14.9 million from $11.2 million at the end of the second quarter primarily due to the restructuring of one $4.2 million oil sector relationship that included a concession for interest-only payment terms for one year.  Performing restructured loans were $3.2 million at the end of the third quarter a year ago, and the increase as of the third quarter of 2016 is primarily due to the addition of the oilfield services commercial business noted above and one medical business. The maturities of the loans to the medical business were extended to allow the amortization schedules for the loans to more closely mirror the cash flow of this business.  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.  At September 30, 2016, performing restructured loans plus nonperforming loans, net of government guarantees, increased to 2.43% of total assets from 2.15% at the end of the preceding quarter and 0.55% a year ago.

Other real estate owned ("OREO") increased slightly to $2.8 million at the end of the third quarter of 2016, compared to $2.6 million the preceding quarter and declined from $3.5 million a year ago.

The allowance for loan losses was 1.95% of portfolio loans at September 30, 2016, compared to 1.90% at June 30, 2016, and 1.83% at the end of the third quarter of 2015.  Adversely classified loans totaled $41.5 million, or 4% of portfolio loans, at the end of the third quarter of 2016, compared to 4% at June 30, 2016, and 3% at the end of the third quarter of 2015.  Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees.  As of September 30, 2016, $34.7 million, or 84% of adversely classified loans net of government guarantees are attributable to five relationships in the following sectors; one retail commercial business, one commercial real estate construction project, one medical business, one residential land development project, and one oilfield services commercial business.

Northrim estimates that $51.9 million, or approximately 5% of portfolio loans as of September 30, 2016, have direct exposure to the oil and gas industry in Alaska, and $4.2 million of these loans are adversely classified.  Northrim has an additional $44.4 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 continue to have no loans to oil producers or exploration companies," said Frye.  "We 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."

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 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. 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 21E 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 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, 2015, 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:

http://labor.alaska.gov/trends/jan16.pdf 
http://live.laborstats.alaska.gov/ces/ces.cfm?at=01&a=000000&adj=0 
http://labor.alaska.gov/news/2016/news16-33.pdf 

Income Statement     
(Dollars in thousands, except per share data)Three Months Ended
(Unaudited)September 30,June 30,Three MonthSeptember 30,One Year
 20162016% Change2015% Change
Interest Income:     
  Interest and fees on loans$13,866  $13,710  1%$14,484  -4%
  Interest on portfolio investments 944   967  -2% 857  10%
  Interest on deposits in banks 50   41  22% 47  6%
    Total interest income 14,860   14,718  1% 15,388  -3%
Interest Expense:                
  Interest expense on deposits 473   479  -1% 490  -3%
  Interest expense on borrowings 174   160  9% 216  -19%
    Total interest expense 647   639  1% 706  -8%
    Net interest income 14,213   14,079  1% 14,682  -3%
           
Provision for loan losses 652   200  226% 676  -4%
    Net interest income after provision for loan losses 13,561   13,879  -2% 14,006  -3%
      
Other Operating Income:     
  Mortgage banking income 8,341   8,510  -2% 8,138  2%
  Employee benefit plan income 999   936  7% 1,004  0%
  Bankcard fees 687   675  2% 689  0%
  Purchased receivable income 579   531  9% 587  -1%
  Service charges on deposit accounts 516   510  1% 559  -8%
  Gain on sale of securities    12  -100% 4  -100%
  Other income 813   690  18% 1,426  -43%
    Total other operating income 11,935   11,864  1% 12,407  -4%
      
Other Operating Expense:     
  Salaries and other personnel expense 12,158   12,011  1% 11,440  6%
  Compensation expense, RML acquisition payments 3,250   687  373% 780  317%
  Occupancy expense 1,567   1,697  -8% 1,522  3%
  Data processing expense 1,121   1,146  -2% 1,043  7%
  Professional and outside services 761   785  -3% 642  19%
  Marketing expense 500   615  -19% 565  -12%
  Insurance expense 265   263  1% 406  -35%
  Intangible asset amortization expense 35   35  % 73  -52%
  Loss on sale of premises and equipment 6   358  -98%   NM 
  OREO (income) expense, net rental income and gains on sale (32  127  125% 152  -121%
  Other operating expense 1,555   1,645  -5% 1,580  -2%
    Total other operating expense 21,186   19,369  9% 18,203  16%
      
    Income before provision for income taxes 4,310   6,374  -32% 8,210  -48%
  Provision for income taxes 1,027   1,868  -45% 2,678  -62%
    Net income 3,283   4,506  -27% 5,532  -41%
      Less: Net income attributable to the noncontrolling interest 188   156  21% 197  -5%
        Net income attributable to Northrim BanCorp$3,095  $4,350  -29%$5,335  -42%
      
    Basic EPS$0.45  $0.63  -29%$0.78  -42%
    Diluted EPS$0.44  $0.63  -30%$0.77  -43%
    Average basic shares 6,882,482   6,877,140  0% 6,856,059  0%
    Average diluted shares 6,973,354   6,968,891  0% 6,952,209  0%


Income Statement 
(Dollars in thousands, except per share data)Nine months ended September 30,
(Unaudited)  One Year
 20162015% Change
Interest Income:   
  Interest and fees on loans$41,354  $42,086  -2%
  Interest on portfolio investments 2,904   2,549  14%
  Interest on deposits in banks 138   82  68%
    Total interest income 44,396   44,717  -1%
Interest Expense:   
  Interest expense on deposits 1,423   1,460  -3%
  Interest expense on borrowings 507   748  -32%
    Total interest expense 1,930   2,208  -13%
    Net interest income 42,466   42,509  0%
    
Provision for loan losses 1,555   1,378  13%
    Net interest income after provision for loan losses 40,911   41,131  -1%
    
Other Operating Income:   
  Mortgage banking income 22,547   23,303  -3%
  Employee benefit plan income 2,899   2,712  7%
  Bankcard fees 1,995   1,947  2%
  Purchased receivable income 1,644   1,738  -5%
  Service charges on deposit accounts 1,525   1,617  -6%
  (Loss) gain on sale of securities (11)  134  -108%
  Other income 2,305   3,054  -25%
    Total other operating income 32,904   34,505  -5%
    
Other Operating Expense:   
  Salaries and other personnel expense 35,420   33,115  7%
  Occupancy expense 4,872   4,720  3%
  Compensation expense, RML acquisition payments 4,067   2,869  42%
  Data processing expense 3,351   3,243  3%
  Professional and outside services 2,252   2,184  3%
  Marketing expense 1,853   1,824  2%
  Insurance expense 844   1,075  -21%
  Loss on sale of premises and equipment 365   7  NM 
  Intangible asset amortization expense 106   218  -51%
  OREO expense, net rental income and gains on sale 70   328  -79%
  Other operating expense 4,726   4,835  -2%
    Total other operating expense 57,926   54,418  6%
    
    Income before provision for income taxes 15,889   21,218  -25%
  Provision for income taxes 4,594   7,111  -35%
    Net income 11,295   14,107  -20%
      Less: Net income attributable to the noncontrolling interest 474   431  10%
        Net income attributable to Northrim BanCorp$10,821  $13,676  -21%
    
    Basic EPS$1.57  $2.00  -22%
    Diluted EPS$1.55  $1.97  -21%
    Average basic shares 6,878,921   6,854,862  0%
    Average diluted shares 6,968,557   6,941,861  0%


Balance Sheet     
(Dollars in thousands)     
(Unaudited)September 30,June 30,Three MonthSeptember 30,One Year
  2016  2016 % Change 2015 % Change
      
Assets:     
  Cash and due from banks$37,955  $30,095  26%$42,257  -10%
  Interest bearing deposits in other banks 7,911   44,661  -82% 102,309  -92%
  Portfolio investments 301,257   291,502  3% 235,177  28%
  Investment in Federal Home Loan Bank stock 1,965   1,966  0% 1,816  8%
                    
  Loans held for sale 76,452    60,360   27% 66,597   15%
                    
  Portfolio loans 997,076   967,346  3% 973,680  2%
  Allowance for loan losses (19,479)  (18,385) 6% (17,848) 9%
    Net portfolio loans 977,597   948,961  3% 955,832  2%
  Purchased receivables, net 15,500   13,596  14% 13,732  13%
  Other real estate owned, net 2,824   2,558  10% 3,511  -20%
  Premises and equipment, net 39,102   38,671  1% 39,434  -1%
  Goodwill and intangible assets 16,354   23,706  -31% 23,817  -31%
  Other assets 63,203   62,294  1% 54,771  15%
    Total assets$1,540,120   $1,518,370   1%$1,539,253   0%
      
Liabilities:     
  Demand deposits$474,971  $461,970  3%$485,304  -2%
  Interest-bearing demand 194,426   183,885  6% 179,080  9%
  Savings deposits 236,821   231,246  2% 221,205  7%
  Money market deposits 242,102   241,334  0% 236,488  2%
  Time deposits 130,046   137,253  -5% 142,842  -9%
    Total deposits 1,278,366   1,255,688  2% 1,264,919  1%
  Securities sold under repurchase agreements 27,701   26,049  6% 33,413  -17%
  Other borrowings 4,350   4,362  0% 12,458  -65%
  Junior subordinated debentures 18,558   18,558  % 18,558  %
  Other liabilities 25,387   29,748  -15% 34,569  -27%
    Total liabilities 1,354,362   1,334,405  1% 1,363,917  -1%
      
Shareholders' Equity:     
  Northrim BanCorp shareholders' equity 185,310   183,654  1% 175,189  6%
  Noncontrolling interest 448   311  44% 147  205%
    Total shareholders' equity 185,758   183,965  1% 175,336  6%
    Total liabilities and shareholders' equity$1,540,120  $1,518,370  1%$1,539,253  0%
      

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Composition of Portfolio Investments       
 September 30, 2016 June 30, 2016 September 30, 2015
 Balance% of
total
 Balance% of
total
 Balance% of
total
U.S. Treasury securities$30,224  10.0% $30,315  10.4% $15,166  6.4%
U.S. Agency securities 215,282  71.5%  205,121  70.4%  167,608  71.3%
U.S. Agency mortgage-backed securities 4  0.0%  6  0.0%  874  0.4%
Corporate bonds 45,578  15.1%  45,818  15.7%  39,535  16.8%
Alaska municipality, utility, or state bonds 9,583  3.2%  9,651  3.3%  11,390  4.8%
Other municipality, utility, or state bonds 586  0.2%  591  0.2%  603  0.3%
  Total portfolio investments$301,257    $291,502    $235,176   
         


Composition of Portfolio Loans            
 September 30,
2016
 June 30,
2016
 March 31,
2016
 December 31,
2015
 September 30, 2015
 Balance% of total Balance% of total Balance% of total Balance% of total Balance% of total
Commercial loans$342,632  34% $337,354  35% $326,735  34% $329,534  33% $325,092  33%
CRE owner occupied loans 166,941  17%  153,264  16%  128,933  13%  128,763  13%  112,527  12%
CRE nonowner occupied loans 330,839  33%  330,678  33%  340,830  35%  352,098  36%  327,556  33%
Construction loans 109,093  11%  96,236  10%  126,155  13%  119,419  12%  155,920  16%
Consumer loans 51,979  5%  54,134  6%  52,115  5%  55,585  6%  56,933  6%
  Subtotal 1,001,484     971,666     974,768     985,399     978,028   
Unearned loan fees, net (4,408)    (4,320    (4,251    (4,612    (4,348)  
   Total portfolio loans$997,076    $967,346    $970,517    $980,787    $973,680   
               


Composition of Deposits            
 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
 Balance% of total Balance% of total Balance% of total Balance% of total Balance% of total
Demand deposits$474,971  37% $461,970  37% $442,842  35% $430,191  35% $485,304  39%
Interest-bearing demand 194,426  15%  183,885  15%  195,896  16%  209,291  17%  179,080  14%
Savings deposits 236,821  19%  231,246  18%  230,834  19%  227,969  18%  221,205  17%
Money market deposits 242,102  19%  241,334  19%  240,675  19%  236,675  19%  236,488  19%
Time deposits 130,046  10%  137,253  11%  136,721  11%  136,666  11%  142,842  11%
  Total deposits$1,278,366    $1,255,688    $1,246,968    $1,240,792    $1,264,919   
                              

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Asset Quality     
 September 30, June 30, September 30,
 2016 2016 2015
      
Nonaccrual loans$10,885   $11,184   $3,735  
Loans 90 days past due and accruing     47      
Total nonperforming loans 10,885    11,231    3,735  
Nonperforming loans guaranteed by government (1,624)   (1,600)   (1,596) 
Net nonperforming loans 9,261    9,631    2,139  
Other real estate owned 2,824    2,558    3,511  
Net nonperforming assets$12,085   $12,189   $5,650  
Nonperforming loans / portfolio loans, net of government guarantees 0.93%   1.00%   0.22% 
Nonperforming assets / total assets, net of government guarantees 0.78%   0.80%   0.37% 
      
Performing restructured loans$14,936   $11,177   $3,203  
Nonperforming loans plus performing restructured loans, net of government     
guarantees$24,197   $20,808   $5,342  
Nonperforming loans plus performing restructured loans / portfolio loans, net of     
government guarantees 2.43%   2.15%   0.55% 
Nonperforming assets plus performing restructured loans / total assets, net of              
government guarantees 1.75%   1.54%   0.58% 
      
Adversely classified loans, net of government guarantees$41,503   $41,072   $30,951  
      
Loans 30-89 days past due and accruing, net of government guarantees /     
portfolio loans 0.10%   0.12%   0.01% 
               
Allowance for loan losses / portfolio loans 1.95%   1.90%   1.83% 
Allowance for loan losses / nonperforming loans, net of government guarantees 210%   191%   834% 
      
Gross loan charge-offs for the quarter$22   $135   $400  
Gross loan recoveries for the quarter($464)  ($137)  ($153) 
Net loan charge-offs (recoveries) for the quarter($442)  ($2)  $247  
Net loan charge-offs year-to-date$229   $671   $253  
Net loan charge-offs (recoveries) for the quarter / average loans, for the quarter (0.05)%   0.00%   0.03% 
Net loan charge-offs year-to-date / average loans,     
year-to-date annualized 0.03%   0.14%   0.03% 
               

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Nonperforming Assets Rollforward      
 Balance atAdditionsPaymentsWritedowns/
Charge-offs
Transfers to
Performing
Status
SalesBalance at
 June 30,
2016
this
quarter
this
quarter
this
quarter
this
quarter
this
quarter
September 30,
2016
Commercial loans$4,479  $29  ($124)$— $— $— $4,384  
Commercial real estate 255      (14)    241  
Construction loans 5,884           5,884  
Consumer loans 613      (62) (23) (152)  376  
Non-performing loans guaranteed by government (1,600)     (24)    (1,624) 
  Total non-performing loans 9,631   29   (224) (23) (152)  9,261  
Other real estate owned 2,558   512    (56)  (190) 2,824  
  Total non-performing assets,       
  net of government guarantees$12,189  $541  ($224)($79)($152)($190)$12,085  
                             

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates        
 Three Months Ended
 September 30, 2016 June 30, 2016 September 30, 2015
  Average  Average  Average
 AverageTax Equivalent AverageTax Equivalent AverageTax Equivalent
 BalanceYield/Rate BalanceYield/Rate BalanceYield/Rate
Assets        
Interest bearing deposits in other banks$39,762  0.49% $33,151  0.49% $74,895  0.25%
Portfolio investments 289,938  1.42%  293,716  1.44%  233,255  1.58%
Loans held for sale 66,606  3.51%  48,826  3.85%  56,379  3.90%
Portfolio loans 979,164  5.44%  969,450  5.54%  982,301  5.67%
Total interest-earning assets 1,375,470  4.35%  1,345,143  4.46%  1,346,830  4.58%
Nonearning assets 149,856     144,274     145,747   
Total assets$1,525,326    $1,489,417    $1,492,577   
         
Liabilities and Shareholders' Equity        
Interest-bearing deposits$800,441  0.23% $804,944  0.24% $783,721  0.25%
Borrowings 49,627  1.36%  47,996  1.30%  57,916  1.45%
Total interest-bearing liabilities 850,068  0.30%  852,940  0.30%  841,637  0.33%
         
Noninterest-bearing demand deposits 463,309     430,198     446,522   
Other liabilities 29,030     20,509     33,321   
Shareholders' equity 182,919     185,770     171,097   
Total liabilities and shareholders' equity$1,525,326    $1,489,417    $1,492,577   
Net spread 4.05%  4.16%  4.25%
Net interest margin ("NIM") 4.11%  4.21%  4.32%
Tax equivalent NIM* 4.17%  4.27%  4.38%
Average portfolio loans to average        
interest-earning assets 71.19 %   72.07 %   72.93 % 
Average portfolio loans to average total deposits 77.48 %   78.49 %   79.85 % 
Average non-interest deposits to average                   
total deposits 36.66 %    34.83 %    36.30 % 
Average interest-earning assets to average                   
interest-bearing liabilities 161.81 %   157.71 %   160.03 % 
                  

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates     
 Year-to-date
 September 30, 2016 September 30, 2015
  Average  Average
 AverageTax Equivalent AverageTax Equivalent
 BalanceYield/Rate BalanceYield/Rate
Assets     
Interest bearing deposits in other banks$36,989  0.49% $43,122  0.25%
Portfolio investments 291,747  1.45%  244,357  1.52%
Loans held for sale 51,255  3.71%  55,319  3.72%
Portfolio loans 976,254  5.51%  965,241  5.66%
Total interest-earning assets 1,356,245  4.43%  1,308,039  4.62%
Nonearning assets 145,154     147,830   
Total assets$1,501,399    $1,455,869   
      
Liabilities and Shareholders' Equity     
Interest-bearing deposits$803,724  0.24% $781,320  0.25%
Borrowings 49,496  1.34%  57,177  1.71%
Total interest-bearing liabilities 853,220  0.30%  838,497  0.35%
      
Noninterest-bearing demand deposits 441,493     413,966   
Other liabilities 24,323     34,951   
Shareholders' equity 182,363     168,455   
Total liabilities and shareholders' equity$1,501,399    $1,455,869   
Net spread 4.13%  4.27%
Net interest margin ("NIM") 4.18%  4.35%
Tax equivalent NIM* 4.24%  4.40%
Average portfolio loans to average interest-earning assets 71.98 %   73.79 % 
Average portfolio loans to average total deposits 78.40 %   80.75 % 
Average non-interest deposits to average total deposits 35.46 %   34.63 % 
Average interest-earning assets to average interest-bearing liabilities 158.96 %   156.00 % 
            

Additional Financial Information
(Dollars in thousands)
(Unaudited)

Capital Data (At quarter end)     
 September 30, 2016 June 30, 2016 September 30, 2015
Book value per share$26.99   $26.75   $25.56  
Tangible book value per share*$24.61   $23.30   $22.09  
Total shareholders' equity/total assets 12.06%   12.12%   11.39% 
Tangible Common Equity/Tangible Assets* 11.12%   10.72%   10.00% 
Tier 1 Capital / Risk Adjusted Assets 14.24%   13.85%   13.00% 
Total Capital / Risk Adjusted Assets 15.50%   15.11%   14.25% 
Tier 1 Capital / Average Assets 12.36%   12.10%   10.21% 
Shares outstanding 6,882,482    6,877,140    6,859,351  
Unrealized gain on AFS securities, net of income taxes$637   $742   $784  


Profitability Ratios          
 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 
For the quarter:          
Net interest margin ("NIM")4.11%4.21%4.23%4.05%4.32%
Tax equivalent NIM*4.17%4.27%4.29%4.10%4.38%
Efficiency ratio80.89%74.52%74.47%74.23%66.93%
Return on average assets0.81%1.17%0.91%1.05%1.42%
Return on average equity6.73%9.42%7.61%9.37%12.37%


 September 30, 2016       September 30, 2015 
Year-to-date:          
Net interest margin ("NIM")4.18%      4.35%
Tax equivalent NIM*4.24%      4.40%
Efficiency ratio76.71%      70.38%
Return on average assets0.96%      1.26%
Return on average equity7.93%      10.85%
             

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

Tax equivalent NIM

Tax equivalent NIM 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 2016 and 2015. The most comparable GAAP measure is net interest margin and the following table sets forth the reconciliation of tax equivalent NIM to net interest margin.

 Three Months Ended
 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
Net interest income$14,213   $14,079   $14,174   $14,400   $14,682  
Divided by average interest-bearing assets 1,375,470    1,345,143    1,347,912    1,411,436    1,346,830  
Net interest margin ("NIM")2 4.11 %  4.21 %  4.23 %  4.05 %  4.32 %
                         
Net interest income$14,213   $14,079   $14,174   $14,400   $14,682  
Plus: reduction in tax expense related to                        
  tax-exempt interest income 196    197    206    186    185  
 $14,409   $14,276   $14,380   $14,586   $14,867  
Divided by average interest-bearing assets 1,375,470    1,345,143    1,347,912    1,411,436    1,346,830  
Tax equivalent NIM2 4.17 %  4.27 %  4.29 %  4.10 %  4.38 %


 Year-to-date
 September 30, 2016       September 30, 2015
Net interest income$42,466         $42,509  
Divided by average interest-bearing assets 1,356,245          1,308,039  
Net interest margin ("NIM")3 4.18 %        4.35 %
                
Net interest income$42,466         $42,509  
Plus: reduction in tax expense related to               
  tax-exempt interest income 599          536  
 $43,065         $43,045  
Divided by average interest-bearing assets 1,356,245          1,308,039  
Tax equivalent NIM3 4.24 %        4.40 %
                

2Calculated using actual days in the quarter divided by 366 for quarters ended in 2016 and actual days in the quarter divided by 365 for quarters ended in 2015.

3Calculated using actual days in the year divided by 366 for year-to-date period ended in 2016 and actual days in the year divided by 365 for year-to-date period ended in 2015.

(Dollars in thousands)    
(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.

 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
          
Total shareholders' equity$185,758   $183,965   $180,398   $177,214   $175,336  
Less: goodwill and intangible assets N/A    N/A    N/A    N/A    N/A   
 $185,758   $183,965   $180,398   $177,214   $175,336  
Divided by shares outstanding 6,882    6,877    6,877    6,877    6,859  
Book value per share$26.99   $26.75   $26.23   $25.77   $25.56   


 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
          
Total shareholders' equity$185,758   $183,965   $180,398   $177,214   $175,336  
Less: goodwill and intangible assets 16,354    23,706    23,741    23,776    23,817  
 $169,404   $160,259   $156,657   $153,438   $151,519  
Divided by shares outstanding 6,882    6,877    6,877    6,877    6,859  
Tangible book value per share$24.61   $23.30   $22.78   $22.31   $22.09   
                        

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.

 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
          
Total shareholders' equity$185,758   $183,965   $180,398   $177,214   $175,336  
Total assets 1,540,120    1,518,370    1,500,199    1,499,492    1,539,253  
Total shareholders' equity to total assets 12.06 %  12.12 %  12.02 %  11.82 %  11.39 %


 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
Total shareholders' equity$185,758   $183,965   $180,398   $177,214   $175,336  
Less: goodwill and other intangible assets, net 16,354    23,706    23,741    23,776    23,817  
Tangible common shareholders' equity$169,404   $160,259   $156,657   $153,438   $151,519  
          
Total assets$1,540,120   $1,518,370   $1,500,199   $1,499,492   $1,539,253  
Less: goodwill and other intangible assets, net 16,354    23,706    23,741    23,776    23,817  
Tangible assets$1,523,766   $1,494,664   $1,476,458   $1,475,716   $1,515,436  
Tangible common equity ratio 11.12 %  10.72 %  10.61 %  10.40 %  10.00 %


Note Transmitted on GlobeNewswire on October 31, 2016, at 4:00 pm Alaska Standard Time.

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

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