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Northrim BanCorp Earns $20.0 Million, or $2.86 per Diluted Share, in 2018; Reflects Expanding Net Interest Margin, Improving Credit Quality, and Lower Taxes

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ANCHORAGE, Alaska, Jan. 28, 2019 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ:NRIM) ("Northrim" or the "Company") today reported earnings of $20.0 million, or $2.86 per diluted share, for 2018 and $4.8 million, or $0.69 per diluted share, for the fourth quarter of 2018.  Northrim continues to benefit from rising interest rates with the short duration of both its loan and investment portfolios repricing into higher yields in both the fourth quarter and full year.

"With the four 25-basis-point rate hikes implemented in 2018, our yields on interest-earning assets expanded faster than our cost of funds.  In addition, lower corporate tax rates and improved credit quality contributed to earnings growth in 2018," said Joe Schierhorn, President and CEO.

In the fourth quarter and full year periods ending December 31, 2017, Northrim recognized a pre-tax gain of $4.4 million on the sale of its interest in Northrim Benefits Group and operating income from that business of $2.5 million, respectively, with no contribution from this divested subsidiary in 2018.  These revenues were partially offset in 2017 by a provision for loan losses of $3.2 million, compared to a benefit of $500,000 in 2018 due to improvements in asset quality.

Fourth Quarter and Full Year 2018 Highlights:

  • Total revenue, which includes net interest income plus other operating income, decreased 3% to $23.9 million in the fourth quarter of 2018, compared to $24.5 million in the third quarter of 2018, and grew 5% from $22.6 million in the fourth quarter a year ago.
    • Community Banking provided 79% of total revenues and 96% of earnings in the fourth quarter of 2018.
    • Home Mortgage Lending provided 21% of total revenues and 4% of fourth quarter 2018 earnings.
  • Net interest income in the fourth quarter of 2018 increased 10% to $16.1 million from $14.7 million in the fourth quarter a year ago, mainly due to the higher yields on the loan and investment portfolios and was also up 2% compared to $15.8 million in the preceding quarter.
  • Pre-tax income increased to $5.8 million in the fourth quarter of 2018 compared to $4.3 million in the fourth quarter a year ago, but decreased from $6.4 million in the preceding quarter.
  • Net interest margin on a tax equivalent basis ("NIMTE") * expanded to 4.76% in the fourth quarter of 2018, a 2-basis-point improvement, compared to the preceding quarter and a 45-basis-point improvement compared to the fourth quarter a year ago.
  • Return on average assets was 1.27% and return on average equity was 9.30% for the fourth quarter of 2018 and 1.34% and 9.95% for the full year.
  • The Company repurchased 15,468 shares of its common stock in the fourth quarter of 2018 at an average price of $31.90, leaving 153,433 shares available under the previously announced repurchase authorization.

Financial Highlights Three Months Ended
(Dollars in thousands, except per share data) December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
Total assets $ 1,502,988   $ 1,502,673   $ 1,470,440   $ 1,524,741   $ 1,518,596  
Total portfolio loans $ 984,346   $ 982,007   $ 967,702   $ 967,575   $ 954,953  
Average portfolio loans $ 981,407   $ 984,914   $ 963,724   $ 955,718   $ 980,351  
Total deposits $ 1,228,088   $ 1,233,268   $ 1,205,521   $ 1,260,790   $ 1,258,283  
Average deposits $ 1,233,479   $ 1,223,997   $ 1,217,903   $ 1,233,745   $ 1,254,566  
Total shareholders' equity $ 205,947   $ 203,242   $ 199,456   $ 194,973   $ 192,802  
Net income attributable to Northrim BanCorp $ 4,848   $ 5,264   $ 5,830   $ 4,062   $ 214  
Diluted earnings per share $ 0.69   $ 0.75   $ 0.84   $ 0.58   $ 0.03  
Return on average assets   1.27 %   1.40 %   1.58 %   1.10 %   0.06 %
Return on average shareholders' equity   9.30 %   10.27 %   11.79 %   8.43 %   0.43 %
NIM   4.71 %   4.69 %   4.50 %   4.28 %   4.25 %
NIMTE*   4.76 %   4.74 %   4.56 %   4.33 %   4.31 %
Efficiency ratio   76.64 %   73.82 %   71.19 %   77.22 %   80.92 %
Total shareholders' equity/total assets   13.70 %   13.53 %   13.56 %   12.79 %   12.70 %
Tangible common equity/tangible assets*   12.76 %   12.58 %   12.60 %   11.85 %   11.75 %
Book value per share $ 29.92   $ 29.52   $ 29.02   $ 28.37   $ 28.06  
Tangible book value per share* $ 27.57   $ 27.17   $ 26.66   $ 26.01   $ 25.70  
Dividends per share $ 0.27   $ 0.27   $ 0.24   $ 0.24   $ 0.22  

* 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 10.)

According to the State Department of Labor, average monthly employment in Alaska through November of 2018 was lower by 1,300 jobs, or (-0.4%) compared to November of 2017. Health care continues to be the bright spot, adding 500 jobs up 1.3% (in this sector).  "The construction sector is often a leading indicator of future economic change," stated Mark Edwards, Senior Vice President Credit Administration and Bank Economist.  November 2018 year-over-year figures show construction added 200 jobs, up +1.4%, ending a two-year decline.  Also significant was a positive increase of 100 jobs, or +1.1%, in the oil and gas sector, reversing a three-year decline.  This sector suffered the most during the recent recession and it consists of the highest paying jobs in the economy.

The Alaska Department of Labor highlighted military, oil & gas activity and tourism as the three primary drivers leading to forecasted job growth of 0.4% in 2019.  This is projected to end a three year period of job losses between 2016 and 2018.  Military job growth is expected to be the most significant driver due to the deployment of F-35 fighter jets at Eielson Air Force Base in Fairbanks.  The troops supporting two full squadrons are expected to arrive between 2020 and 2022, and positive economic impacts are already occurring.  According to Alaska Labor Economist Karinne Wiebold, "Preparations include a half-billion dollars in new construction to accommodate the jets and additional active duty and civilian support staff."  This should also indirectly help other sectors throughout the state including numerous professional and business services.

Oil prices continued to fluctuate in 2018, but trended higher on average during most of the year.  There are a number of near-term projects that have led the Alaska Department of Revenue Commissioner, Bruce Tangeman, to forecast oil production growth over the next two years.  Commissioner Tangeman stated in the December 2018 Revenue Sources Book, "For FY 2018, North Slope oil production averaged 518,400 barrels per day (bpd), a decline of 1.5% compared to FY 2017.  The Department of Revenue forecasts that new fields will help increase production to 526,800 bpd in FY 2019 and 533,200 bpd in FY 2020."

According to the Alaska Department of Labor report, the third major economic driver is expected to be tourism and the Alaska Department of Labor projects 2019 will be a record year for visitors.  Economist Wiebold stated, "The projected number of cruise ship passengers is up 16% to 1.36 million.  As long as the U.S. economy remains strong and barring substantial disruptions globally, Alaska will continue to be an attractive tourist destination."

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 fourth quarter of 2018, Northrim generated a return on average assets ("ROAA") of 1.27% and a return on average equity ("ROAE") of 9.30%, compared to 1.40% and 10.27%, respectively in the third quarter of 2018 and 0.06% and 0.43%, respectively, in the fourth quarter a year ago. In the full year of 2018, ROAA was 1.34% and ROAE was 9.95%, compared to 0.87% and 6.81%, respectively, in 2017.  These results were above the averages posted by the 149 banks that make up the SNL Index of U.S. Banks with assets of $1 to $5 Billion as of September 30, 20181. Average ROAA was 0.85% and ROAE was 7.92% for the index in 2017.

Net Interest Income/Net Interest Margin

Net interest income, before the provision for loan losses, grew 10% to $16.1 million in the fourth quarter of 2018 compared to $14.7 million in the fourth quarter of 2017 and was up 2% from $15.8 million in the third quarter of 2018.  For the full year in 2018, net interest income increased 6% to $61.2 mill

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