Contact:              Joe Schierhorn, Chief Financial Officer

          (907) 261-3308

 

 

NEWS RELEASE

 

Northrim BanCorp Earns $3.5 Million, or $0.53 Per Diluted Share, in Second Quarter of 2013

 

ANCHORAGE, Alaska—July 23, 2013 -- Northrim BanCorp, Inc. (NASDAQ:NRIM) today reported net profits of $3.5 million, or $0.53 per diluted share in the second quarter of 2013, compared to  $2.7 million, or $0.41 per diluted share in the first quarter of 2013 and $3.1 million, or $0.48 per diluted share in the second quarter of 2012.  Growth in average loan balances, improvement in loan quality, and continued contributions from affiliated companies generated the growth in net profits in the second quarter and first six months of 2013 as compared to similar periods in 2012.  In the first six months of 2013, Northrim earned $6.2 million, or $0.94 per diluted share, compared to $5.7 million, or $0.87 per diluted share in the first six months of 2012. 

“The recently passed decrease in oil tax rates is showing early signs of success in attracting new capital for energy exploration and production in Alaska,” said Marc Langland, Chairman, President and CEO of Northrim Bancorp.  “Major energy producers have announced plans for significant new drilling programs, which bodes well for the future health of Alaska’s economy.” 

Financial Highlights (at or for the period ended June 30, 2013, compared to March 31, 2013, and June 30, 2012)

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“Contributions from our residential mortgage and employee benefits affiliates and our purchased receivables line of business generated revenue growth in the second quarter, said Joe Beedle, President and CEO of Northrim Bank.  “Second quarter 2013 volumes for our mortgage affiliate rebounded from the seasonal low of the first quarter and surpassed the strong volumes generated both in the second quarter and first half of 2012.  Mortgage volumes for new purchase activity are again the majority of the new mortgage loan volumes.  We continue to believe that loan origination volume at our residential mortgage affiliate will be a good contributor to earnings in 2013, although not at the same levels of last year.” 

 

Alaska Economic Update

 

“Economic activity in Alaska is improving, both as a reflection of the general economic recovery in the nation and from the newly passed legislation designed to boost oil and gas exploration and production,” said Langland.

 

According to the Alaska Economic Report & Alaska Legislative Digest’s Special Report of July 6, 2013, “Oil activity is now picking up.”

An Anchorage Daily News article on July 7, 2013 stated that construction activity in Anchorage is also picking up.  “Through May 31, the Municipality of Anchorage had received building permit applications for an estimated $302.8 million worth of work.  During the first five months of 2012, $240.9 million worth of building permits were applied for -- a 25 percent year-over-year increase.  Since bottoming out in 2010 with $144.7 million in permit applications, Anchorage has seen steady growth.  The low figure in 2010 coincides with the lowest number of construction jobs statewide in the past decade.”

Northrim Bank sponsors the Alaskanomics blog to provide news, analysis and commentary on Alaska’s economy.   Join the conversation at Alaskanomics.com or for more information on the Alaska economy, visit: www.northrim.com and click on the “About Alaska” tab.  Information from our website is not incorporated into, and does not form a part of, this press release.

 

Review of Operations:

 

Revenue and Net Interest Income

 

Total revenues, which include net interest income plus other operating income, continue to benefit from contributions from our complementary financial business services.  Total revenues increased 7% to $14.6 million in the second quarter of 2013 compared to $13.7 million in the first quarter of 2013 and were up 3% from $14.2 million in the second quarter of 2012.  For the first six months of 2013, total revenues increased 2% to $28.3 million from $27.8 million in the like period a year ago. 

 

In the second quarter of 2013, net interest income grew 3% to $10.9 million, compared to $10.6 million in the immediate prior quarter and was up 4% from $10.5 million in the second quarter of 2012.  In the first six months of 2013, net interest income increased 3% to $21.5 million, compared to $20.9 million in the like period a year ago.

 

“The mix of our deposit balances together with growth in loans continues to help sustain our margin,” said Joe Schierhorn, Chief Financial Officer.  “In addition, our net interest margin continues to be well above the average for the SNL Bank and Thrift Index of 2.95% at March 31, 2013.”  In the second quarter of 2013, Northrim’s net interest margin (NIM) was 4.34%, up 2 basis points from 4.32% in the preceding quarter and down 17 basis points from 4.51% in the second quarter a year ago.  Year-to-date, NIM was 4.33% compared to 4.52% in the first six months of 2012.

 

Provision for Loan Losses

 

“Because of the continuing improvement in asset quality, we did not record a loan loss provision in the second quarter of 2013,” said Schierhorn.  The loan loss provision was $150,000 in the first quarter of this year and $89,000 in the second quarter of 2012.  For the first six months of 2013, the loan loss provision totaled $150,000, compared to $178,000 in the first six months of last year.

 

Other Operating Income

 

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Northrim has interests in a number of complementary businesses that provide financial services to businesses and individuals, including purchased receivables financing, health insurance plans, mortgage origination, and wealth management.  In the second quarter of 2013, total other operating income was up 18% to $3.7 million from $3.1 million in the preceding quarter, and consistent with the second quarter of 2012.  In the first six months of 2013, other operating income was $6.8 million, compared to $6.9 million in the first six months of 2012.  “We are continuing to make good progress on the renovation of our headquarters building,” said Chris Knudson, Chief Operating Officer. “While the project is underway, rental income from this asset is lower by approximately $180,000 per quarter.  We anticipate completion of the project later this year and plan to lease the newly renovated space in 2014.”    

 

“As noted earlier, contributions from our mortgage affiliate rebounded in the second quarter from the lower levels in the first quarter of 2013,” Knudson continued.  “We are pleased to see the mix of mortgage activity returning to purchase transactions which is more sustainable than the wave of refinancing we saw last year.” 

 

Purchased receivable income contributed $768,000 to second quarter 2013 revenues, compared to $702,000 in the preceding quarter and $712,000 in the second quarter a year ago.  For the first six months of 2013, purchased receivable financing increased 3% to $1.5 million, compared to $1.4 million a year ago.  The purchased receivable income varies from quarter to quarter depending upon the financing needs of our customers.

 

Employee benefit plan income contributed $632,000 to second quarter 2013 revenues, compared to $569,000 in the preceding quarter and $616,000 in the second quarter of 2012.    For the first six months of 2013, employee benefit plan income increased slightly to $1.20 million, compared to $1.16 million in the first six months of 2012.     

 

In the second quarter of this year, service charges were $539,000, up 3% from $525,000 in the preceding quarter and down 5% from $569,000 in the second quarter a year ago.  In the first six months of 2013, services charges on deposit accounts declined 6% as compared to the same period a year ago, to $1.1 million.  In the second quarter of 2013, electronic banking income contributed $536,000, an increase of 6% from the first quarter of 2013 and an increase of 9% from the year ago quarter.  For the first six months of 2013, electronic banking income grew 7% to $1.0 million from $976,000 in the like period a year ago.  Gain on sale of securities contributed $318,000 to revenues in the first six months of 2013, compared to $273,000 in the first six months of 2012.

 

Other income grew in the second quarter of 2013 primarily due to a contribution from interest rate swap income.  Other income was $589,000 for the second quarter of 2013, an increase of 55% from the first quarter of 2013 and a decline of 14% from the second quarter of 2012.  For the first six months of 2013, other income was $968,000, compared to $1.3 million in the first six months of 2012.  Other income declined during the first six months of 2013 as compared to the same period in 2012 due primarily to a decrease in rental income noted above.

 

Other Operating Expenses

 

Overhead costs decreased in the quarter ending June 30, 2013, as compared to first quarter of 2013 reflecting cost control efforts and the $115,000 reversal of the reserve for purchased receivables due to the payoff of a specific account during the second quarter.  Total operating expenses decreased 3% to $9.4 million during the second quarter of 2013 compared to $9.7 million in the preceding quarter and increased 1% from $9.3 million in the second quarter a year ago.  Compensation costs were down 3% at $5.6 million in the second quarter, compared to the first quarter of 2013, and increased 8% from the second quarter a year ago.  The increase in compensation costs in the second quarter of 2013 as compared to the second quarter of 2012 was primarily due to the hiring of new employees at higher salary levels and increases in salaries of existing employees.  For the first six months of 2013, operating expenses were $19.1 million, flat with the first six months of 2012.  The 4% increase in compensation expenses was offset by lower occupancy costs and reduced expenses for OREO management.

 

Provision for Income Taxes

 

The provision for income taxes was $1.6 million, or 31% of second quarter 2013 pretax income, compared to $1.1 million, or 28% of pretax income in the preceding quarter and $1.6 million, or 32% of pretax income in the second quarter a year ago.  Year-to-date, the provision for income taxes was $2.7million, or 30% of pretax income for the first half of 2013, compared to $2.6 million, or 30% for the first half of 2012 pretax income.

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Balance Sheet Review

 

Northrim’s assets totaled $1.16 billion at June 30, 2013, compared to $1.15 billion three months earlier and $1.07 billion a year ago.  

 

Investment securities totaled $227.5 million at June 30, 2013, compared to $226.2 million at March 31, 2013 and $194.9 million a year ago.  At June 30, 2013, the investment portfolio was comprised of 60% U.S. Agency securities (primarily Federal Home Loan Bank and Federal Farm Credit Bank debt), 11% Alaskan municipality, utility, or state agency securities, 26% corporate securities, 2% U.S. treasury securities, and 1% stock in the Federal Home Loan Bank of Seattle.  At June 30, 2013, the average estimated duration of the investment portfolio was two years.   The investment portfolio generated an average net tax equivalent yield of 1.32% for the second quarter of 2013.  “We are continuing to keep our investment portfolio in near-term maturities to fund loan growth and reduce the risk to principal balances as interest rates rise,” said Schierhorn. 

 

“Following a $15 million payoff at the end of the quarter, our portfolio loans were down in the second quarter of 2013, compared to the preceding quarter, but they were up 9% year-over-year,” said Beedle.  “We are continuing to make steady progress in attracting and retaining seasoned lenders, and their efforts are keeping our pipeline of new business prospects strong.”  Average portfolio loan balances increased 3% in the quarter and 10% during the past twelve months to $745.4 million.  Portfolio loans totaled $718.2 million at June 30, 2013, compared to $721.6 million at March 31, 2013, and $656.9 million a year ago. 

 

Commercial loans grew 3% in the quarter ended June 30, 2013 and 24% year-over-year to $299.0 million and accounted for 42% of portfolio loans, compared to $289.4 million three months earlier and $240.4 million a year ago.  Commercial real estate loans, of which 23% are owner occupied, totaled $335.1 million at June 30, 2013, and accounted for 47% of portfolio loans, compared to a total of $347.9 million at March 31, 2013, and $340.5 million at June 30, 2012.  Construction and land development loans totaled $52.7 million at the end of June and accounted for 7% of portfolio loans, compared to $52.8 million at March 31, 2013 and $40.9 million at June 30, 2012. “We are a leading lender for builders in the greater Anchorage market, and the residential construction market is continuing to grow,” Beedle added. 

 

Loans held for sale increased to $15.8 million at the end of the second quarter of 2013, up from $11.5 million at March 31, 2013 and down from $22.6 million a year ago.  The average balance for the quarter for loans held for sale increased to $16.9 million at June 30, 2013, compared to $6.7 million at March 31, 2013 and $12.8 million a year ago, reflecting the seasonality in the mortgage market.  Northrim purchases these loans from its mortgage affiliate and sells them into the secondary market on pre-arranged commitments. 

 

The mix of deposits continues to improve with balances in transaction accounts at June 30, 2013 representing 90% of total deposits, up from 88% a year ago.  At June 30, 2013, total deposits were $958.9 million, up 7% from $894.8 million a year ago and virtually flat compared to $954.9 million at March 31, 2013. 

 

Noninterest-bearing demand deposits at June 30, 2013 increased 15% from a year ago, and interest-bearing demand deposits declined 1% over the same period.  At the end of the second quarter of 2013, money market and savings account balances were each up 13% from year-ago levels, while the Alaska CD (a flexible certificate of deposit program) balances increased 3% over the same period.  Time deposit balances at June 30, 2013 fell 14% compared to June 30, 2012.  At June 30, 2013, noninterest-bearing demand deposits accounted for 36% of total deposits, interest-bearing demand accounts were 14%, savings deposits were 10%, money market balances accounted for 19%, the Alaska CD accounted for 11%, and time certificates were 10% of total deposits.

 

Shareholders’ equity increased 7% to $140.1 million, or $21.48 per share, at June 30, 2013, compared to $130.4 million, or $20.14 per share, a year ago.  At the end of the first quarter this year, shareholders’ equity was $138.1 million, or $21.19 per share.   Tangible book value per share was $20.25 at June 30, 2013, compared to $18.86 per share a year

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ago and $19.95 per share at March 31, 2013.   Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 15.65% at June 30, 2013. 

 

 

 

Asset Quality 

 

“We have continued to improve our asset quality with a concerted effort from our staff throughout our organization,” said Beedle. The ratio of nonperforming assets (NPAs) to total assets dropped to 0.70% at June 30, 2013, down from 0.77% three months earlier and 1.16% a year ago.  NPAs were $8.1 million at June 30, 2013, compared to $8.9 million in the preceding quarter and $12.5 million a year ago. 

 

Nonperforming loans (NPLs) improved to 0.53% of portfolio loans from 0.61% in the preceding quarter and 0.92% a year ago.  NPLs decreased to $3.8 million at June 30, 2013, as compared to $4.4 million at March 31, 2013 and $6.0 million a year ago.  Other real estate owned (OREO) was $4.3 million at the end of the second quarter of 2013, compared to $4.3 million in the preceding quarter and $6.4 million at the end of the second quarter of 2012.

 

Loans measured for impairment totaled $11.2 million at June 30, 2013, compared to $11.6 million at March 31, 2013, and $14.2 million in the second quarter a year ago. 

 

At June 30, 2013, there were $2.8 million of restructured loans included in nonaccrual loans, as compared to $3.3 million at March 31, 2013, and $3.8 million at June 30, 2012.  At June 30, 2013, Northrim held $6.2 million in performing restructured loans that were not included in nonaccrual loans, as compared to $6.6 million at March 31, 2013, and $8.1 million at June 30, 2012.  “Borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations are categorized as restructured loans,” said Schierhorn.  “We present restructured loans that are performing separately from those that are in nonaccrual to provide more information on this category of loans and to differentiate between accruing performing and nonperforming restructured loans.”

 

The coverage ratio of the allowance for loan losses to nonperforming loans increased to 431% at June 30, 2013, compared to 378% three months earlier, and 274% a year ago.  The allowance for loan losses was $16.5 million, or 2.30% of portfolio loans at June 30, 2013, compared to $16.6 million, or 2.31% of portfolio loans at the end of the preceding quarter and $16.5 million, or 2.51% of portfolio loans a year ago.   

 

About Northrim BanCorp

 

Northrim BanCorp, Inc. is the parent company of Northrim Bank, an Alaska-based community bank with ten branches in Anchorage, the Matanuska Valley, and Fairbanks serving 70% of Alaska’s population; and an asset based lending division in Washington. The Bank differentiates itself with its detailed knowledge of Alaska’s economy and its “Customer First Service” philosophy. Affiliated companies include Elliott Cove Insurance Agency, LLC; Elliott Cove Capital Management, LLC; Residential Mortgage, LLC; Northrim Benefits Group, LLC; and Pacific Wealth Advisors, LLC.  Northrim was added to the U.S. Small-Cap Russell 2000®  Index after the Russell Investment Group reconstituted its comprehensive set of U.S. and global equity indexes in June of 2012. 

 

www.northrim.com 

 

This release may contain “forward-looking statements” as that term is defined for purposes of Section 21D of the Securities and Exchange Act.  These statements are, in effect, management’s attempt to predict future events, and thus are subject to various risks and uncertainties. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. All statements, other than statements of historical fact, regarding our financial position, business strategy and management’s plans and objectives for future operations are forward-looking statements.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words or phrases of similar meaning, as they relate to Northrim or 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.  Our actual results may differ materially and adversely from our expectations as indicated in the forward-looking statements.  These risks and uncertainties include our ability to maintain strong asset quality and to maintain or expand our market share or net interest margins, and to implement our marketing and growth strategies.  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

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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, 2012, and from time to time are disclosed in our other filings with the SEC.  However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations.

 

Sources

http://www.adn.com/2013/07/07/2963135/moa-permits-up-25-percent-jobs.html#storylink=cpy 

SNL Financial Bank and Thrift Index at www.snl.com

The Alaska Economic Report & Alaska Legislative Digest’s Special Report of July 6,  2013

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Note Transmitted on GlobeNewswire on July  23, 2013, at 12:00 pm Alaska Standard Time.

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