10-Q 1 NorthrimHTML08_06_1121.htm 789796fa72e04c0

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2012

 

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from_____to____

 

Commission File Number 000-33501

 

NORTHRIM BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Alaska                                                                                                 92-0175752

(State or other jurisdiction of incorporation or organization)                                                         (I.R.S. Employer Identification No.)

 

3111 C Street

Anchorage, Alaska 99503

(Address of principal executive offices)    (Zip Code)

 

(907) 562-0062

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x     No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer                    Accelerated filer x Non-accelerated filer        Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     No  x

The number of shares of the issuer's Common Stock outstanding at August 6, 2012 was 6,470,518.

 


 

 

 

TABLE OF CONTENTS

 

 

 

PART  I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

 

Consolidated Balance Sheets:    

June 30, 2012, December 31, 2011 and June 30, 2011

 

 

Consolidated Statements of Income:  

Three and six months ended June 30, 2012 and 2011

 

Consolidated Statements of Comprehensive Income:    

Three and six months ended June 30 2012 and 2011

 

 

Consolidated Statements of Changes in Shareholders’ Equity:    

Six months ended June 30, 2012 and 2011

 

 

Consolidated Statements of Cash Flows:    

Six months ended June 30, 2012 and 2011

 

Notes to the Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial    

Condition and Results of Operations

24 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35 

Item 4.

Controls and Procedures

35 

 

 

 

PART II

OTHER INFORMATION

35 

Item 1.

Legal Proceedings

35 

Item 1A.

Risk Factors

35 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35 

Item 3.

Defaults Upon Senior Securities

36 

Item 4.

Mine Safety Disclosures

36 

Item 5.

Other Information

36 

Item 6.

Exhibits

36 

SIGNATURES 

 

36 

 

 

 

 

 

 

2

 


 

 

PART I. FINANCIAL INFORMATION

These consolidated financial statements should be read in conjunction with the financial statements, accompanying notes and other relevant information included in the Northrim Bancorp, Inc’s Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 1. FINANCIAL STATEMENTS

 

CONSOLIDATED FINANCIAL STATEMENTS

NORTHRIM BANCORP, INC.

Consolidated Balance Sheets

June 30, 2012,  December 31, 2011 and June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

June 30,

 

2012

 

2011

 

2011

 

 

(Unaudited)

 

 

(In Thousands, Except Share Data)

ASSETS

 

 

 

 

 

 

 

 

         Cash and due from banks

$

34,560 

 

$

30,644 

 

$

33,101 

         Interest bearing deposits in other banks

 

76,144 

 

 

60,886 

 

 

112,730 

         Investment securities available for sale

 

189,247 

 

 

222,083 

 

 

182,878 

         Investment securities held to maturity

 

3,601 

 

 

3,819 

 

 

5,142 

                   Total portfolio investments

 

192,848 

 

 

225,902 

 

 

188,020 

 

 

 

 

 

 

 

 

 

         Investment in Federal Home Loan Bank stock

 

2,003 

 

 

2,003 

 

 

2,003 

         Loans held for sale

 

22,629 

 

 

27,822 

 

 

 -

         Loans

 

656,850 

 

 

645,562 

 

 

634,130 

         Allowance for loan losses

 

(16,490)

 

 

(16,503)

 

 

(15,574)

                   Net loans

 

662,989 

 

 

656,881 

 

 

618,556 

         Purchased receivables, net

 

23,650 

 

 

30,209 

 

 

14,743 

         Accrued interest receivable

 

2,801 

 

 

2,898 

 

 

2,745 

         Other real estate owned

 

6,448 

 

 

5,183 

 

 

5,083 

         Premises and equipment, net

 

27,797 

 

 

27,993 

 

 

28,774 

         Goodwill and intangible assets

 

8,292 

 

 

8,421 

 

 

8,556 

         Other assets

 

34,545 

 

 

34,238 

 

 

35,026 

                                                 Total assets

$

1,072,077 

 

$

1,085,258 

 

$

1,049,337 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

         Deposits:

 

 

 

 

 

 

 

 

                   Demand

$

298,953 

 

$

324,039 

 

$

296,508 

                   Interest-bearing demand

 

139,220 

 

 

141,572 

 

 

130,736 

                   Savings

 

83,100 

 

 

79,610 

 

 

74,142 

                   Alaska CDs

 

102,481 

 

 

102,384 

 

 

101,945 

                   Money market

 

164,942 

 

 

154,987 

 

 

152,004 

                   Certificates of deposit less than $100,000

 

42,634 

 

 

45,468 

 

 

49,458 

                   Certificates of deposit greater than $100,000

 

63,443 

 

 

63,188 

 

 

79,377 

                                                 Total deposits

 

894,773 

 

 

911,248 

 

 

884,170 

                   Securities sold under repurchase agreements

 

15,265 

 

 

16,348 

 

 

11,616 

                   Borrowings

 

4,553 

 

 

4,626 

 

 

4,696 

                   Junior subordinated debentures

 

18,558 

 

 

18,558 

 

 

18,558 

                   Other liabilities

 

8,503 

 

 

9,043 

 

 

8,288 

                                                 Total liabilities

 

941,652 

 

 

959,823 

 

 

927,328 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

         Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding

 

 

 

 

 

 

 

 

         Common stock, $1 par value, 10,000,000 shares authorized, 6,470,518; 6,466,763; and 6,433,438

 

 

 

 

 

 

 

 

                    shares issued and outstanding at June 30, 2012, December 31, 2011 and June 30, 2011

 

6,471 

 

 

6,467 

 

 

6,433 

         Additional paid-in capital

 

53,411 

 

 

53,164 

 

 

52,953 

         Retained earnings

 

69,482 

 

 

65,469 

 

 

61,412 

         Accumulated other comprehensive income

 

984 

 

 

283 

 

 

1,169 

                                                 Total Northrim BanCorp shareholders' equity

 

130,348 

 

 

125,383 

 

 

121,967 

                             Noncontrolling interest

 

77 

 

 

52 

 

 

42 

                                       Total shareholders' equity

 

130,425 

 

 

125,435 

 

 

122,009 

                                                 Total liabilities and shareholders' equity

$

1,072,077 

 

$

1,085,258 

 

$

1,049,337 

 

 

 

 

 

 

 

 

 

See notes to the consolidated financial statements

3

 


 

 

NORTHRIM BANCORP, INC.

Consolidated Statements of Income

For the Three and Six Months Ended June 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2012

 

2011

 

2012

 

2011

 

 

(Unaudited)

 

(In Thousands, Except Per Share Data)

Interest Income

 

 

 

 

 

 

 

 

 

 

 

         Interest and fees on loans

$

10,305 

 

$

10,709 

 

$

20,530 

 

$

21,396 

         Interest on investment securities-available for sale

 

718 

 

 

663 

 

 

1,467 

 

 

1,534 

         Interest on investment securities-held to maturity

 

37 

 

 

59 

 

 

75 

 

 

120 

         Interest on deposits in other banks

 

63 

 

 

55 

 

 

103 

 

 

88 

                                       Total Interest Income

 

11,123 

 

 

11,486 

 

 

22,175 

 

 

23,138 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

         Interest expense on deposits, 

 

 

 

 

 

 

 

 

 

 

 

                  borrowings and junior subordinated debentures

 

627 

 

 

904 

 

 

1,325 

 

 

1,881 

                                       Net Interest Income

 

10,496 

 

 

10,582 

 

 

20,850 

 

 

21,257 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

89 

 

 

550 

 

 

178 

 

 

1,099 

                                       Net Interest Income After Provision for Loan Losses

 

10,407 

 

 

10,032 

 

 

20,672 

 

 

20,158 

 

 

 

 

 

 

 

 

 

 

 

 

Other Operating Income

 

 

 

 

 

 

 

 

 

 

 

         Purchased receivable income

 

712 

 

 

565 

 

 

1,424 

 

 

1,191 

         Employee benefit plan income

 

616 

 

 

593 

 

 

1,156 

 

 

1,093 

         Service charges on deposit accounts

 

569 

 

 

594 

 

 

1,137 

 

 

1,118 

         Electronic banking income

 

493 

 

 

467 

 

 

976 

 

 

916 

         Equity in earnings from RML

 

405 

 

 

270 

 

 

706 

 

 

218 

         Rental income

 

204 

 

 

191 

 

 

402 

 

 

387 

         Gain on sale of securities

 

246 

 

 

 -

 

 

273 

 

 

263 

         Other income

 

480 

 

 

390 

 

 

858 

 

 

662 

                                       Total Other Operating Income

 

3,725 

 

 

3,070 

 

 

6,932 

 

 

5,848 

 

 

 

 

 

 

 

 

 

 

 

 

Other Operating Expense

 

 

 

 

 

 

 

 

 

 

 

         Salaries and other personnel expense

 

5,154 

 

 

5,200 

 

 

10,860 

 

 

10,516 

         Occupancy

 

920 

 

 

997 

 

 

1,916 

 

 

1,907 

         Marketing expense

 

435 

 

 

443 

 

 

872 

 

 

880 

         Equipment expense

 

342 

 

 

292 

 

 

636 

 

 

596 

         Insurance expense

 

301 

 

 

295 

 

 

419 

 

 

731 

         Professional and outside services

 

287 

 

 

304 

 

 

676 

 

 

617 

         Software expense

 

270 

 

 

277 

 

 

521 

 

 

517 

         Amortization of low income housing tax investments

 

234 

 

 

235 

 

 

462 

 

 

451 

         Internet banking expense

 

185 

 

 

158 

 

 

357 

 

 

311 

         OREO (income) expense, net rental income and gains on sale

 

118 

 

 

(742)

 

 

215 

 

 

(881)

         Intangible asset amortization expense

 

65 

 

 

71 

 

 

129 

 

 

141 

         Other operating expense

 

984 

 

 

1,059 

 

 

1,990 

 

 

2,129 

                                       Total Other Operating Expense

 

9,295 

 

 

8,589 

 

 

19,053 

 

 

17,915 

 

 

 

 

 

 

 

 

 

 

 

 

                   Income Before Provision for Income Taxes

 

4,837 

 

 

4,513 

 

 

8,551 

 

 

8,091 

         Provision for income taxes

 

1,551 

 

 

1,198 

 

 

2,577 

 

 

2,232 

                   Net Income

 

3,286 

 

 

3,315 

 

 

5,974 

 

 

5,859 

                             Less: Net income attributable to the noncontrolling interest

 

144 

 

 

133 

 

 

256 

 

 

222 

                                       Net Income Attributable to Northrim BanCorp

$

3,142 

 

$

3,182 

 

$

5,718 

 

$

5,637 

 

 

 

 

 

 

 

 

 

 

 

 

         Earnings Per Share, Basic

$

0.49 

 

$

0.49 

 

$

0.88 

 

$

0.88 

         Earnings Per Share, Diluted

$

0.48 

 

$

0.49 

 

$

0.87 

 

$

0.86 

         Weighted Average Shares Outstanding, Basic

 

6,469,909 

 

 

6,431,060 

 

 

6,468,724 

 

 

6,429,895 

         Weighted Average Shares Outstanding, Diluted

 

6,573,729 

 

 

6,549,744 

 

 

6,570,094 

 

 

6,548,557 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to the consolidated financial statements

4

 


 

NORTHRIM BANCORP, INC.

Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended June 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2011

 

Six Months Ended June 30, 2011

Net income

 

 

$

3,315 

 

 

 

$

5,859 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

       Unrealized gains arising during the period

$

934 

 

 

 

$

784 

 

 

       Reclassification adjustment for net gain realized in earnings

 

 -

 

 

 

 

(263)

 

 

            Net change in unrealized gains

$

934 

 

 

 

$

521 

 

 

Other comprehensive income

 

 

 

934 

 

 

 

 

521 

            Comprehensive income

 

 

 

4,249 

 

 

 

 

6,380 

            Less: comprehensive income attributable to the noncontrolling interest

 

 

 

(133)

 

 

 

 

(222)

                 Comprehensive income attributable to Northrim BanCorp

 

 

$

4,116 

 

 

 

$

6,158 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2012

 

 

Six Months Ended June 30, 2012

Net income

 

 

$

3,286 

 

 

 

$

5,974 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

       Unrealized gains arising during the period

$

92 

 

 

 

$

974 

 

 

       Reclassification adjustment for net gain realized in earnings

 

(246)

 

 

 

 

(273)

 

 

            Net change in unrealized gains

$

(154)

 

 

 

$

701 

 

 

Other comprehensive income

 

 

 

(154)

 

 

 

 

701 

            Comprehensive income

 

 

 

3,132 

 

 

 

 

6,675 

             Less: comprehensive income attributable to the noncontrolling interest

 

 

 

(144)

 

 

 

 

(256)

                  Comprehensive income attributable to Northrim BanCorp

 

 

$

2,988 

 

 

 

$

6,419 

 

 

 

 

 

 

 

 

 

 

See notes to the consolidated financial statements

5

 


 

 

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

Additional

 

 

 

Other

 

Non-

 

 

 

 

Number

 

 

Par

 

Paid-in

 

Retained

Comprehensive

 

controlling

 

 

 

 

of Shares

 

 

Value

 

Capital

 

Earnings

Income

 

Interest

 

 

Total

 

(Unaudited)

 

(In Thousands)

Six Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Balance as of January 1, 2011

6,427 

 

$

6,427 

 

$

52,658 

 

$

57,339 

$

648 

 

$

50 

 

$

117,122 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Cash dividend declared

 -

 

 

 -

 

 

 -

 

 

(1,564)

 

 -

 

 

 -

 

 

(1,564)

    Stock based compensation expense

 -

 

 

 -

 

 

263 

 

 

 -

 

 -

 

 

 -

 

 

263 

    Exercise of stock options

 

 

 

 

(6)

 

 

 -

 

 -

 

 

 -

 

 

 -

    Excess tax benefits from share-based payment arrangements

 -

 

 

 -

 

 

38 

 

 

 -

 

 -

 

 

 -

 

 

38 

    Distributions to noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

(230)

 

 

(230)

    Change in unrealized holding gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          on available for sale securities, net of tax

 -

 

 

 -

 

 

 -

 

 

 -

 

521 

 

 

 -

 

 

521 

    Net income attributable to the noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

222 

 

 

222 

    Net income attributable to Northrim BanCorp

 -

 

 

 -

 

 

 -

 

 

5,637 

 

 -

 

 

 -

 

 

5,637 

Six Months Ended June 30, 2011

6,433 

 

$

6,433 

 

$

52,953 

 

$

61,412 

$

1,169 

 

$

42 

 

$

122,009 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Balance as of January 1, 2012

6,467 

 

$

6,467 

 

$

53,164 

 

$

65,469 

$

283 

 

$

52 

 

$

125,435 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Cash dividend declared

 -

 

 

 -

 

 

 -

 

 

(1,705)

 

 -

 

 

 -

 

 

(1,705)

    Stock based compensation expense

 -

 

 

 -

 

 

225 

 

 

 -

 

 -

 

 

 -

 

 

225 

    Exercise of stock options

 

 

 

 

(6)

 

 

 -

 

 -

 

 

 -

 

 

(2)

    Excess tax benefits from share-based payment arrangements

 -

 

 

 -

 

 

28 

 

 

 -

 

 -

 

 

 -

 

 

28 

    Distributions to noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

(231)

 

 

(231)

    Change in unrealized holding gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          on available for sale securities, net of tax

 -

 

 

 -

 

 

 -

 

 

 -

 

701 

 

 

 -

 

 

701 

    Net income attributable to the noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

256 

 

 

256 

    Net income attributable to Northrim BanCorp

 -

 

 

 -

 

 

 -

 

 

5,718 

 

 -

 

 

 -

 

 

5,718 

Six Months Ended June 30, 2012

6,471 

 

$

6,471 

 

$

53,411 

 

$

69,482 

$

984 

 

$

77 

 

$

130,425 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to the consolidated financial statements

6

 


 

 

NORTHRIM BANCORP, INC.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

 

 

2012

 

 

2011

 

 

(Unaudited)

 

 

(In Thousands)

Operating Activities:

 

 

 

 

 

         Net income

$

5,974 

 

$

5,859 

  Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

         Gain on sale of securities, net

 

(273)

 

 

(263)

         Depreciation and amortization of premises and equipment

 

821 

 

 

868 

         Amortization of software

 

98 

 

 

102 

         Intangible asset amortization

 

129 

 

 

141 

         Amortization of investment security premium, net of discount accretion

 

145 

 

 

117 

         Deferred tax (benefit) liability

 

(240)

 

 

(396)

         Stock-based compensation

 

225 

 

 

263 

         Excess tax benefits from share-based payment arrangements

 

(28)

 

 

(38)

         Deferral of loan fees and costs, net

 

253 

 

 

(346)

         Provision for loan losses

 

178 

 

 

1,099 

         Purchases of loans held for sale

 

(86,576)

 

 

 -

         Proceeds from the sale of loans held for sale

 

91,769 

 

 

5,558 

         Gain on sale of other real estate owned

 

(26)

 

 

(805)

         Impairment on other real estate owned

 

81 

 

 

 -

         Equity in undistributed earnings from mortgage affiliate

 

37 

 

 

181 

  Net changes in assets and liabilities:

 

 

 

 

 

         (Increase) decrease in accrued interest receivable

 

97 

 

 

656 

         Decrease in other assets

 

(784)

 

 

(4)

         (Decrease) in other liabilities

 

(535)

 

 

(341)

                                                 Net Cash Provided by Operating Activities

 

11,345 

 

 

12,651 

Investing Activities:

 

 

 

 

 

         Investment in securities:

 

 

 

 

 

                   Purchases of investment securities-available-for-sale

 

(39,603)

 

 

(56,832)

                   Proceeds from sales/maturities of securities-available-for-sale

 

73,760 

 

 

88,987 

                   Proceeds from calls/maturities of securities-held-to-maturity

 

215 

 

 

992 

                   Purchases of domestic certificates of deposit

 

(1,500)

 

 

(2,000)

         Investment in purchased receivables, net of repayments

 

6,559 

 

 

1,786 

         (Increase) decrease in loans, net

 

(13,231)

 

 

37,115 

         Proceeds from sale of other real estate owned

 

199 

 

 

7,294 

         Investment in other real estate owned

 

(18)

 

 

(28)

         Loan to Elliott Cove, net of repayments

 

93 

 

 

110 

         Purchases of premises and equipment

 

(625)

 

 

(627)

                                                 Net Cash (Used) Provided by Investing Activities

 

25,849 

 

 

76,797 

Financing Activities:

 

 

 

 

 

         (Decrease) increase in deposits

 

(16,475)

 

 

(7,966)

         (Decrease) in securities sold under repurchase agreements

 

(1,083)

 

 

(1,258)

         (Decrease) increase in borrowings

 

(73)

 

 

(690)

         Distributions to noncontrolling interest

 

(231)

 

 

(230)

         Excess tax benefits from share-based payment arrangements

 

28 

 

 

38 

         Cash dividends paid

 

(1,686)

 

 

(1,544)

                                                 Net Cash (Used) Provided by Financing Activities

 

(19,520)

 

 

(11,650)

 

 

 

 

 

 

                                                 Net Increase in Cash and Cash Equivalents

 

17,674 

 

 

77,798 

         Cash and Cash Equivalents at Beginning of Period

 

79,530 

 

 

66,033 

         Cash and Cash Equivalents at End of Period

$

97,204 

 

$

143,831 

Supplemental Information:

 

 

 

 

 

         Income taxes paid

$

3,197 

 

$

2,844 

         Interest paid

$

1,327 

 

$

1,942 

         Transfer of loans to other real estate owned

$

1,499 

 

$

982 

         Loans made to facilitate sales of other real estate owned

$

199 

 

$

780 

         Cash dividends declared but not paid

$

19 

 

$

20 

See notes to the consolidated financial statements

7

 


 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and 2011

 

1.  Basis of Presentation

            The accompanying unaudited consolidated financial statements have been prepared by Northrim BanCorp, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Certain reclassifications have been made to prior year amounts to maintain consistency with the current year with no impact on net income or total shareholders’ equity.  The Company determined that it operates as a single operating segment.  Operating results for the interim period ended June 30, 2012, are not necessarily indicative of the results anticipated for the year ending December 31, 2012.  These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

2.  Significant Accounting Policies and Recent Accounting Pronouncements

 

            The Company’s significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

 

            In May 2011, the Financial Accounting Standard Board (“FASB”) issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”).  Some of the amendments contained in ASU 2011-04 clarify the FASB’s intent about the application of existing fair value measurement requirements, and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  This ASU was effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2011, and has been applied prospectively.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”).  ASU 2011-05 amends Topic 220, “Comprehensive Income”, to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects.  In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05 (“ASU 2011-12”).  This ASU defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments.  ASU 2011-12 was issued in order to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, the Company will continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the issuance of ASU 2011-05.  ASU 2011-12 was effective for the Company’s financial statements for annual and interim periods beginning after December 31, 2011, and has been applied prospectively.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

3.  Cash and Cash Equivalents

 

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits with other banks, banker’s acceptances, commercial paper, securities purchased under agreement to resell, federal funds sold, and securities with maturities of less than 90 days at acquisition.  

 

8

 


 

 

4.    Investment Securities

 

            The carrying values and approximate fair values of investment securities at the periods indicated are presented below: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

(In Thousands)

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

$

119,002 

 

$

504 

 

$

 

$

119,503 

Municipal securities

 

18,970 

 

 

699 

 

 

 

 

19,668 

U.S. Agency mortgage-backed securities

 

47 

 

 

 

 

 -

 

 

50 

Corporate bonds

 

46,518 

 

 

515 

 

 

186 

 

 

46,847 

Preferred stock

 

3,037 

 

 

142 

 

 

 -

 

 

3,179 

Total securities available for sale

$

187,574 

 

$

1,863 

 

$

190 

 

$

189,247 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

$

3,601 

 

$

242 

 

$

 -

 

$

3,843 

Total securities held to maturity

$

3,601 

 

$

242 

 

$

 -

 

$

3,843 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

$

160,529 

 

$

625 

 

$

50 

 

$

161,104 

Municipal securities

 

16,260 

 

 

675 

 

 

 -

 

 

16,935 

U.S. Agency mortgage-backed securities

 

52 

 

 

 

 

 -

 

 

54 

Corporate bonds

 

43,767 

 

 

343 

 

 

1,119 

 

 

42,991 

Preferred stock

 

996 

 

 

 

 

 -

 

 

999 

Total securities available for sale

$

221,604 

 

$

1,648 

 

$

1,169 

 

$

222,083 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

$

3,819 

 

$

258 

 

$

 -

 

$

4,077 

Total securities held to maturity

$

3,819 

 

$

258 

 

$

 -

 

$

4,077 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

$

137,256 

 

$

874 

 

$

 

$

138,126 

Municipal securities

 

14,023 

 

 

379 

 

 

 -

 

 

14,402 

U.S. Agency mortgage-backed securities

 

58 

 

 

 

 

 -

 

 

60 

Corporate bonds

 

29,553 

 

 

785 

 

 

48 

 

 

30,290 

Total securities available for sale

$

180,890 

 

$

2,040 

 

$

52 

 

$

182,878 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

$

5,142 

 

$

196 

 

$

 -

 

$

5,338 

Total securities held to maturity

$

5,142 

 

$

196 

 

$

 -

 

$

5,338 

 

 

 

 

 

 

 

 

 

 

 

 

The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.  There were five securities with unrealized losses as of June 30, 2012 and 2011, respectively, that have been in a loss position for less than twelve months.  There were no securities with unrealized losses as of June 30, 2012 and June 30, 2011 that have been in an unrealized loss position for more than twelve months.  Because the Company does not intend to sell, nor is it required to sell these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired. 

 

At June 30, 2012, $33.2 million in securities, or 17%, of the investment portfolio was pledged, as compared to $32.1 million, or 14%, at December 31, 2011, and $24.2 million, or 13%, at June 30, 2011.  We held no securities of any single issuer

9

 


 

 

(other than government sponsored entities) that exceeded 10% of our shareholders’ equity at June 30, 2012,  December 31, 2011 or June 30, 2011.

 

The amortized cost and fair values of debt securities at June 30, 2012, are distributed by contractual maturity as shown below.  Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Although preferred stock has no stated maturity, it is aggregated in the calculation of weighted average yields presented below in the category of investments that mature in ten years or more.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Fair Value

Weighted Average Yield

 

 

 

(In Thousands)

 

US Treasury and government sponsored entities

 

 

 

 

 

 

 

Within 1 year

$

29,996 

 

$

30,034 
0.76 

%

1-5 years

 

89,006 

 

 

89,469 
0.73 

%

Total

$

119,002 

 

$

119,503 
0.74 

%

 

 

 

 

 

 

 

 

U.S. Agency mortgage-backed securities

 

 

 

 

 

 

 

5-10 years

$

47 

 

$

50 
4.45 

%

Total

$

47 

 

$

50 
4.45 

%

 

 

 

 

 

 

 

 

Corporate bonds

 

 

 

 

 

 

 

Within 1 year

$

3,160 

 

$

3,195 
2.88 

%

1-5 years

 

43,358 

 

 

43,652 
2.45 

%

Total

$

46,518 

 

$

46,847 
2.48 

%

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

Over 10 years

 

3,037 

 

 

3,179 
5.88 

%

Total

$

3,037 

 

$

3,179 
5.88 

%

 

 

 

 

 

 

 

 

Municipal securities

 

 

 

 

 

 

 

Within 1 year

$

2,414 

 

$

2,422 
1.79 

%

1-5 years

 

9,897 

 

 

10,137 
2.01 

%

5-10 years

 

7,305 

 

 

7,776 
4.58 

%

Over 10 years

 

2,955 

 

 

3,176 
4.79 

%

Total

$

22,571 

 

$

23,511 
3.18 

%

 

 

 

 

 

 

 

 

The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the six months ending June 30, 2012 and 2011, respectively, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds

 

Gross Gains

 

Gross Losses

 

(In Thousands)

2012

 

 

 

 

 

 

 

 

Available for sale securities

$

30,424 

 

$

273 

 

$

 -

2011

 

 

 

 

 

 

 

 

Available for sale securities

$

6,987 

 

$

263 

 

$

 -

 

 

 

 

 

 

 

 

 

A summary of interest income for the six months ending June 30, 2012 and 2011 on available for sale investment securities is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

 

2011

 

 

(In Thousands)

US Treasury and government sponsored entities

$

553 

 

$

816 

U.S. Agency mortgage-backed securities

 

 

 

Other

 

630 

 

 

482 

    Total taxable interest income

$

1,184 

 

$

1,299 

 

 

 

 

 

 

Municipal securities

$

283 

 

$

235 

    Total tax-exempt interest income

 

283 

 

 

235 

    Total

$

1,467 

 

$

1,534 

 

 

 

 

 

 

10

 


 

 

For the periods ending June 30, 2012,  December 31, 2011 and June 30, 2011, we held Federal Home Loan Bank of Seattle (“FHLB”) stock with a book value approximately equal to its market value in the amount of $2.0 million for each period. The Company evaluated its investment in FHLB stock for other-than-temporary impairment as of June 30, 2012, consistent with its accounting policy.  Based on the Company’s evaluation of the underlying investment, including the long-term nature of the investment, the liquidity position of the FHLB of Seattle, the actions being taken by the FHLB of Seattle to address its regulatory capital situation, and the Company’s intent and ability to hold the investment for a period of time sufficient to recover the par value, the Company did not recognize an other-than-temporary impairment loss. Even though the Company did not recognize an other-than-temporary impairment loss during the six-month period ending June 30, 2012, continued deterioration in the FHLB of Seattle’s financial position may result in future impairment losses.

 

5.  Loans Held for Sale

            The Company has purchased residential loans from our mortgage affiliate, Residential Mortgage Holding Company LLC (“RML”), from time to time since 1999.  The Company then sells these loans in the secondary market.  The Company purchased $86.6 million and sold $91.8 in loans in the three-month period ending June 30, 2012.   The Company sold $5.6 million loans and did not purchase any loans in the three-month period ending June 30, 2011

 

 

6.  Loans

 

The composition of the loan portfolio by segment, excluding loans held for resale, is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

 

 

December 31, 2011

 

 

 

June 30, 2011

 

 

Dollar

Percent

 

 

Dollar

Percent

 

 

Dollar

Percent

 

 

Amount

of Total

 

 

Amount

of Total

 

 

Amount

of Total

 

 

 

(In Thousands)

 

Commercial

$

240,395 
36.6 

%

 

$

252,689 
39.1 

%

 

$

232,765 
36.7 

%

Real estate construction

 

40,922 
6.2 

%

 

 

40,182 
6.2 

%

 

 

47,639 
7.5 

%

Real estate term

 

340,530 
51.8 

%

 

 

315,860 
48.9 

%

 

 

314,093 
49.5 

%

Home equity lines and other consumer

 

38,260 
5.8 

%

 

 

39,834 
6.2 

%

 

 

42,458 
6.7 

%

         Subtotal

$

660,107 

 

 

 

$

648,565 

 

 

 

$

636,955 

 

 

Less: Unearned origination fee,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         net of origination costs

 

(3,257)
(0.5)

%

 

 

(3,003)
(0.5)

%

 

 

(2,825)
(0.4)

%

         Total loans

$

656,850 

 

 

 

$

645,562 

 

 

 

$

634,130 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

            At June 30, 2012,  approximately 19% of the portfolio was scheduled to mature over the next 12 months, and 20% was scheduled to mature between July 1, 2013, and June 30, 2017.

 

            As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends in past due and nonaccrual loans, gross and net charge offs, and movement in loan balances within the risk classifications.  The Company utilizes a risk grading matrix to assign a risk classification to each of its loans.  Loans are graded on a scale of 1 to 8.  A description of the general characteristics of the eight risk classifications are as follows:  

 

11

 


 

 

·

Risk Code 1 - Excellent:  Loans in this grade are those where the borrower has substantial financial capacity, above average profit margins, and excellent liquidity.  Cash flow has been consistent and is well in excess of debt servicing requirements.  Loans in this grade may be secured by cash and/or negotiable securities having a readily ascertainable market value and may also be fully guaranteed by the U.S. Government, and other approved government and financial institutions.  Loans in this grade have borrowers with exceptional credit ratings and would compare to AA ratings as established by Standard & Poor's. 

·

Risk Code 2 – Good:  Loans in this grade are those to borrowers who have demonstrated satisfactory asset quality, earnings history, liquidity and other adequate margins of creditor protection.  Borrowers exhibit positive fundamentals in terms of working capital, cash flow sufficient to service the debt, and debt to worth ratios.  Borrowers for loans in this grade are capable of absorbing normal economic or other setbacks without difficulty.  The borrower may exhibit some weaknesses or varying historical profitability.  Management is considered adequate in all cases.  Borrowing facilities may be unsecured or secured by customary acceptable collateral with well-defined market values.  Additional support for the loan is available from secondary repayment sources and/or adequate guarantors.

·

Risk Code 3 – Satisfactory:  Loans in this grade represent moderate credit risk due to some instability in borrower capacity and financial condition.  These loans generally require average loan officer attention.  Characteristics of assets in this classification may include: marginal debt service coverage, newly established ventures, limited or unstable earnings history, some difficulty in absorbing normal setbacks, and atypical maturities, collateral or other exceptions to established loan policies.  In all cases, such weaknesses are offset by well secured collateral positions and/or acceptable guarantors.

·

Risk Code 4 - Watch List:  Loans in this grade are acceptable, but additional attention is needed.  This is an interim classification reserved for loans that are intrinsically creditworthy but which require specific attention.  Loans may have documentation deficiencies that are deemed correctable, may be contrary to current lending policies, or may have insufficient credit or financial information.  Loans in this grade may also be characterized by borrower failure to comply with loan covenants or to provide other required information.  If such conditions are not resolved within 90 days from the date of the assignment of Risk Code 4, the loan may warrant further downgrade.

·

Risk Code 5 - Special Mention:  Loans in this grade have had a deterioration of financial condition or collateral value, but are still reasonably secured by collateral or net worth of the borrower.  Although the Company is presently protected from loss, potential weaknesses are apparent which, if not corrected, could cause future problems.  Loans in this classification warrant more than the ordinary amount of attention but have not yet reached the point of concern for loss.  Loans in this category have deteriorated sufficiently that they would have difficulty in refinancing.  Loans in this classification may show one or more of the following characteristics: inadequate loan documentation, deteriorating financial condition or control over collateral, economic or market conditions which may adversely impact the borrower in the future, unreliable or insufficient credit or collateral information, adverse trends in operations that are not yet jeopardizing repayment, or adverse trends in secondary repayment sources.

·

Risk Code 6 – Substandard:  Loans in this grade are no longer adequately protected due to declining net worth of the borrower, lack of earning capacity, or insufficient collateral.  The possibility for loss of some portion of the loan principal cannot be ruled out.  Loans in this grade exhibit well-defined weaknesses that bring normal repayment into doubt.  Some of these weaknesses may include: unprofitable or poor earnings trends of the borrower or property, declining liquidity, excessive debt, significant unfavorable industry comparisons, secondary repayment sources are not available, or there is a possibility of a protracted work-out.

·

Risk Code 7 – Doubtful:  Loans in this grade exhibit the same weaknesses as those classified Substandard, but the traits are more pronounced.  Collection in full is improbable, however the extent of the loss may be indeterminable due to pending factors which may yet occur that could salvage the loan, such as possible pledge of additional collateral, sale of assets, merger, acquisition or refinancing.  Borrowers in this grade may be on the verge of insolvency or bankruptcy, and stringent action is required on the part of the loan officer.

·

Risk Code 8 – Loss:  Loans in this grade are those that are largely non-collectible or those in which ultimate recovery is too distant in the future to warrant continuance as a bankable asset.  This classification does not mean that the asset has

12

 


 

 

absolutely no recovery or salvage value, but rather it is not practical or desirable to defer charging the loan off even though recovery may be affected in the future.

·

A risk rating is assigned for each loan at origination.  The risk ratings for commercial, real estate construction, and real estate term loans may change throughout the life of the loan as a multitude of risk factors change.  The risk rating for consumer loans may change as loans become delinquent.  Delinquent loans are those that are thirty days or more past due. 

            The loan portfolio, segmented by risk class for the periods indicated, is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Real estate construction

 

Real estate term

 

Home equity lines and other consumer

 

Total

 

 

(In Thousands)

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Code 1 - Excellent

$

968 

 

$

 -

 

$

 -

 

$

426 

 

$

1,394 

Risk Code 2 - Good

 

61,999 

 

 

289 

 

 

62,521 

 

 

818 

 

 

125,627 

Risk Code 3 - Satisfactory

 

159,236 

 

 

36,769 

 

 

264,425 

 

 

34,274 

 

 

494,704 

Risk Code 4 - Watch

 

6,837 

 

 

451 

 

 

1,370 

 

 

1,909 

 

 

10,567 

Risk Code 5 - Special Mention

 

8,717 

 

 

370 

 

 

3,910 

 

 

167 

 

 

13,164 

Risk Code 6 - Substandard

 

2,215 

 

 

3,043 

 

 

8,132 

 

 

666 

 

 

14,056 

Risk Code 7 - Doubtful

 

423 

 

 

 -

 

 

172 

 

 

 -

 

 

595 

  Subtotal

$

240,395 

 

$

40,922 

 

$

340,530 

 

$

38,260 

 

$

660,107 

Less: Unearned origination fees, net of origination costs

 

 

 

 

 

 

 

 

 

 

 

(3,257)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

656,850 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Code 1 - Excellent

$

540 

 

$

 -

 

$

 -

 

$

575 

 

$

1,115 

Risk Code 2 - Good

 

65,315 

 

 

 -

 

 

55,617 

 

 

849 

 

 

121,781 

Risk Code 3 - Satisfactory

 

164,767 

 

 

29,063 

 

 

247,330 

 

 

35,914 

 

 

477,074 

Risk Code 4 - Watch

 

8,033 

 

 

3,579 

 

 

1,102 

 

 

1,497 

 

 

14,211 

Risk Code 5 - Special Mention

 

9,671 

 

 

 -

 

 

3,339 

 

 

364 

 

 

13,374 

Risk Code 6 - Substandard

 

3,694 

 

 

7,540 

 

 

8,026 

 

 

635 

 

 

19,895 

Risk Code 7 - Doubtful

 

669 

 

 

 -

 

 

446 

 

 

 -

 

 

1,115 

  Subtotal

$

252,689 

 

$

40,182 

 

$

315,860 

 

$

39,834 

 

$

648,565 

Less: Unearned origination fees, net of origination costs

 

 

 

 

 

 

 

 

 

 

 

(3,003)