EX-99.1 2 exhibit991q42017.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1


nrimpra04.jpg
Contact:
Joe Schierhorn, President, CEO, and COO
 
(907) 261-3308
 
Jed Ballard, Chief Financial Officer
 
(907) 261-3539
NEWS RELEASE

Northrim BanCorp Earns $13.2 million, or $1.88 per Diluted Share, in 2017
Gain from Sale of Subsidiary, Revaluation of Deferred Tax Assets, and
Other Non-Operating Items Impact Profits

ANCHORAGE, Alaska - January 29, 2018 - Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the "Company") today reported profits for both the fourth quarter and full year in 2017. Net income attributable to the Company ("net income") was $13.2 million, or $1.88 per diluted share, in 2017, compared to $14.4 million, or $2.06 per diluted share, in 2016. In the fourth quarter of 2017, Northrim's net income was $214,000, or $0.03 per diluted share compared to $5.5 million, of $0.79 per diluted share in the preceding quarter and $3.6 million, or $0.51 per diluted share, in the fourth quarter of 2016. Net income was reduced by $0.16 per share in 2017 and by $0.41 per share in 2016 due to a number of one-time or non-operating items, detailed in the table below.

“We recorded additional tax expense of $2.7 million, or $0.39 per diluted share, due to the downward revision to our net deferred tax asset ("DTA") value in the fourth quarter of 2017 to comply with the recently enacted federal tax legislation,” said Joe Schierhorn, President and CEO. “Going forward, we expect we will recoup this write-down in approximately one year, reflecting the lower tax rates effective in 2018. We believe our effective tax rate will decline to between 19% and 20% from 32% in 2017 (excluding the fourth quarter 2017 DTA charge), and that earnings will increase between 15% and 16% based on the 21% top tax rate applicable to earnings in 2018 and beyond.”

Several items impacted the quarterly and full year comparisons including:
•
The revaluation of the DTA reduced net income by $2.7 million, or $0.39 per diluted share, in the fourth quarter of 2017.
•
The sale of Northrim’s interest in Northrim Benefits Group (NBG) contributed $4.4 million pretax and $2.6 million after tax, or $0.38 per diluted share, to both third quarter and full year 2017 net income. NBG contributed revenues of $2.5 million in 2017, $609,000 in the third quarter of 2017, and $871,000 in the fourth quarter of 2016.
•
There was no fourth quarter 2017 provision for loan losses compared to $2.5 million recorded in the third quarter of 2017 and $743,000 in the fourth quarter a year ago. In 2017, the provision for loan losses was $3.2 million compared to $2.3 million in 2016. The increase in the provision for loan losses in 2017 is the result of the increase in nonperforming loans and an increase in the specific allowance for impaired loans of $352,000 in 2017.
•
The conversion to a new core banking system was successfully completed in May of 2017. The conversion added one-time costs of $943,000, or $0.14 per diluted share in 2017 and $179,000, or $0.03 per diluted share in the third quarter of 2017.
•
The third quarter of 2016 includes a non-cash, one-time accounting correction which resulted in an increase in expenses, net of tax, of $1.4 million, or $0.20 per diluted share due to a change in accounting treatment for the earn-out payments associated with the Company's 2014 acquisition of Residential Mortgage, LLC ("RML").
•
In the fourth quarter of 2017, the Company wrote down the carrying value of its minority ownership interest in another mortgage origination business owned by RML by $686,000, or $404,000 after tax, or $0.06 per diluted share.


Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
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The following tables summarize one-time and other non-operating items for the periods presented:

 
Three Months Ended
(Dollars in thousands, except per share data)
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
Net income attributable to Northrim BanCorp

$214


$5,523


$3,589


$3,825


$3,590

Impact of one-time and other non-operating items:
 
 
 
 
 
  Gain on sale of Northrim Benefits Group
(2
)
(4,443
)
—

—

—

   Core conversion costs
—

179

633

131

—

   Writedown minority interest in equity method investment
686

—

—

—

—

  Compensation expense, net RML acquisition payments
(193
)
149

—

174

708

   Provision for income taxes related to above one-time items
(202
)
1,692

(260
)
(125
)
(291
)
   Provision for income taxes, change in DTA valuation
2,678

—

—

—

—

          Operating net income*

$3,181


$3,100


$3,962


$4,005


$4,007

Average diluted shares
6,963,125

6,959,035

6,997,727

6,993,726

6,983,771

Operating diluted earnings per share*

$0.46


$0.45


$0.57


$0.57


$0.57


 
Year-to-date
(Dollars in thousands, except per share data)
December 31, 2017
December 31, 2016
One Year % Change
Net income attributable to Northrim BanCorp

$13,151


$14,411

-9
%
Impact of one-time and other non-operating items:
 
 
 
   Gain on sale of Northrim Benefits Group
(4,445
)
—

NM

   Core conversion costs
943

—

NM

  Writedown minority interest in equity method investment
686

—

NM

  Compensation expense, net RML acquisition payments
130

4,775

-97
%
   Provision for income taxes related to above items
1,104

(1,963
)
 
   Provision for income taxes, change in DTA valuation
2,678

—

 
          Operating net income*

$14,247


$17,223

-17
%
Average diluted shares
6,977,910

6,974,864

—
%
Operating diluted earnings per share*

$2.04


$2.47

-17
%


Other highlights for the fourth quarter and full year in 2017 include the following:
•
The allowance for loan losses was $21.5 million at December 31, 2017, which equates to 100% of total nonperforming loans at December 31, 2017.
•
The Company repurchased 58,341 shares of its common stock in the third quarter of 2017 at an average price of $27.56, leaving 168,901 shares available under the previously announced repurchase authorization.
•
Northrim redeemed $8.0 million in junior subordinated debt held at Northrim Capital Trust 1. This liability bore interest at a floating rate of 90-day LIBOR plus 3.15%, or 4.33% at the time it was redeemed, and had a final maturity of May 15, 2033. In 2016, total interest expense on this debt was $310,000. Interest expense on this debt in 2017 through the date of redemption on August 15, 2017 was $212,000. This redemption decreased Tier 1 Capital to Risk Adjusted Assets and Total Capital to Risk Adjusted Assets by 62 basis points each.
•
An interest rate swap executed in September 2017 effectively converts the floating rate of interest on the remaining $10.0 million in outstanding junior subordinated debt from 90-day LIBOR plus 1.37%, or 2.96% as of December 31, 2017, to a fixed rate of 3.72% through the junior subordinated debt's final maturity date of March 15, 2036.



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
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“In addition to increasing cash dividends to shareholders, we plan to invest future tax savings in infrastructure, enhanced employee benefits, and additions to our branch network in 2018,” Schierhorn said. “We are also introducing new products and services to better meet the needs of our customers, by leveraging the improved features of our new core operating system. And, we are expanding our expertise in several areas by hiring team members with experience in lending, technology, and financial management. While the economic recession in Alaska continues to reduce employment statewide, the rate of job losses is expected to be slower in 2018 than it was in either 2017 or 2016. While, growth of loans and deposits remains a challenge, we believe that these planned investments will position us to grow through increased market share.”

Financial Highlights
Three Months Ended
(Dollars in thousands, except per share data)
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
Total assets

$1,519,109


$1,523,341


$1,493,205


$1,512,580


$1,526,540

Total portfolio loans

$955,667


$989,253


$991,209


$960,832


$975,015

Average portfolio loans

$980,351


$1,003,751


$969,051


$970,493


$977,678

Total deposits

$1,258,283


$1,258,317


$1,234,310


$1,247,073


$1,267,653

Average deposits

$1,254,566


$1,262,808


$1,244,583


$1,230,947


$1,265,214

Total shareholders' equity

$192,802


$194,427


$191,777


$189,452


$186,712

Net income attributable to Northrim BanCorp

$214


$5,523


$3,589


$3,825


$3,590

Operating net income*

$3,181


$3,100


$3,962


$4,005


$4,007

Diluted earnings per share

$0.03


$0.79


$0.51


$0.55


$0.51

Operating diluted earnings per share*

$0.46


$0.45


$0.57


$0.57


$0.57

Return on average assets
0.06
%
1.44
%
0.96
%
1.04
%
0.94
%
Operating return on average assets*
0.83
%
0.81
%
1.05
%
1.09
%
1.05
%
Return on average shareholders' equity
0.43
%
11.25
%
7.43
%
8.30
%
7.96
%
Operating return on average shareholders' equity*
6.40
%
6.32
%
8.21
%
8.69
%
8.88
%
Net interest margin ("NIM")
4.25
%
4.28
%
4.20
%
4.15
%
4.01
%
Tax equivalent NIM*
4.31
%
4.34
%
4.26
%
4.22
%
4.07
%
Efficiency ratio
80.92
%
61.31
%
76.95
%
72.95
%
75.57
%
Operating efficiency ratio*
78.74
%
71.26
%
74.36
%
71.62
%
72.65
%
Total shareholders' equity/total assets
12.69
%
12.76
%
12.84
%
12.53
%
12.23
%
Tangible common equity/tangible assets*
11.75
%
11.82
%
11.88
%
11.57
%
11.28
%
Book value per share

$28.06


$28.37


$27.75


$27.42


$27.07

Tangible book value per share*

$25.70


$26.00


$25.40


$25.06


$24.70

Dividends per share

$0.22


$0.22


$0.21


$0.21


$0.20

* References to operating net income, operating diluted earnings per share, operating return on average assets, operating return on average shareholders' equity, tax equivalent NIM, operating efficiency ratio, 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.


•
Total revenue, which includes net interest income plus other operating income, was $22.6 million in the fourth quarter of 2017, compared to $28.8 million in the third quarter of 2017, and $24.3 million in the same period a year ago. For the full year in 2017, total revenues were $98.2 million compared to $99.6 million in 2016.
•
Community Banking contributed 75% to total revenues and 92% to net income in 2017.
•
Home Mortgage Lending contributed 25% to total revenues and 8% of net income in 2017.
•
Net interest income in the fourth quarter of 2017 increased 6% to $14.7 million as compared to $13.9 million in the year ago quarter, mainly as a result of a change in the mix of assets, and was down 2% from $14.9 million in the preceding quarter due to a change in the mix of assets and a decline in average interest-earning assets.
•
Both net interest margin ("NIM") at 4.25% and net interest margin on a tax equivalent basis ("NIMTE")* at 4.31% increased in the fourth quarter of 2017, compared to 4.01% and 4.07%, respectively, in the fourth quarter of 2016, primarily due to an improved mix of assets in the current quarter. The Company's NIMTE* remains above peer averages1.


Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
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•
Northrim paid a quarterly cash dividend of $0.22 per share in December 2017, up from the $0.20 per share dividend paid in December 2016. The dividend provides an annual yield of approximately 2.6% at current market share prices.
•
Book value per share increased 3.7% to $28.06 at the end of the fourth quarter of 2017 from $27.07 a year ago, while tangible book value per share* increased 4.0% to $25.70 at the end of the fourth quarter of 2017 from $24.70 a year ago.
•
At year end, total non-performing assets, net of government guarantees increased to $28.7 million, or 1.89% of assets, compared to $26.2 million, or 1.72% of assets, at September 30, 2017 and $19.3 million, or 1.27% of assets a year ago. Total adversely classified loans remained consistent at $33.8 million at year end 2017, compared to $33.8 million at September 30, 2017 and decreased slightly from $35.6 million a year ago.
•
Following net charge-offs of $1.4 million in 2017, the allowance for loan losses to portfolio loans grew to 2.25% at year end, compared to 2.02% a year ago.
•
Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 14.65%, total shareholders' equity to total assets of 12.69%, and tangible common equity to tangible assets* of 11.75% at December 31, 2017.
1As of September 30, 2017, the SNL US Bank Index tracked 150 banks with assets between $1 billion and $5 billion with averages for the following ratios: NIM (tax equivalent) 3.69%, loan loss reserves to gross loans of 0.95%, return on average assets (ROAA) 1.01%, and return on average equity (ROAE) 9.31%.


Alaska Economic Update
(Note: sources for information included in this section are included on page 13.)

“Alaska is expected to lose jobs again in 2018, although the losses appear to be tapering. Total employment is forecasted to decline by 0.5% in 2018 (-1,800 jobs) after falling 1.1% in 2017 and 1.9% in 2016,” said Karinne Wiebold of the Alaska Department of Labor and Workforce Development. “Losses were deepest in 2016 when the state’s economy shed 6,300 jobs, primarily in oil and gas and in state government. Then in 2017, Alaska lost an estimated 3,600 jobs. If it hadn’t been for strong health care growth, the overall job loss would have been deeper. If employment follows the forecasted pattern this year, that would put Alaska’s total loss from 2015 through 2018 at 11,700 jobs (-3.5 %).”

Preliminary seasonally adjusted unemployment in December was 7.3% compared to 4.1% for the United States. Not seasonally adjusted unemployment in Alaska in December was also 7.3%, up from 7.1% in November compared to 3.9% for the nation, placing Alaska at 50th in the country for both unemployment and job growth. However, Alaska’s ranking rose to 8th on per capita personal income, and also improved to 8th for average hourly earnings in the leisure and hospitality sectors in November 2017.

Throughput in the Trans Alaska Pipeline System increased in 2017, marking the second straight year-over-year increase in volume of oil transported following thirteen years of declining volume. “More oil flowing through TAPS means a safer, more efficient and more sustainable pipeline system,” said Tom Barrett, Alyeska President. “Increased throughput also signals a stronger economy for Alaska and more opportunities for Alaskans.”

“This winter will be the biggest exploration drilling program that ConocoPhillips, formerly Alaska’s top explorer, has conducted on the North Slope since 2002,” said Joe Marushack, ConocoPhillips Alaska President.

“The increase in drilling activity this winter is a good sign for the long-term health of the Alaska economy, bringing high-paying jobs and new tax revenues for the state and local communities,” said Schierhorn.

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



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
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Review of Income Statement

Consolidated Income Statement

In the fourth quarter of 2017, Northrim generated return on average assets ("ROAA") of 0.06% and a return on average equity ("ROAE") of 0.43%, compared to 0.94% and 7.96%, respectively in the fourth quarter of 2016. Excluding the one-time and other non-operating items detailed above, ROAA* was 0.83% and ROAE* was 6.40% in the fourth quarter of 2017. These results were below the average 1.01% ROAA and the 9.31% ROAE posted by the 150 banks that make up the SNL U.S. Bank Index with assets between $1 billion and $5 billion as of September 30, 2017. NIM and NIMTE* for the fourth quarter of 2017 were 4.25% and 4.31%, respectively, compared to 3.69% NIMTE* for the index peers1.

For the full year in 2017, ROAA was 0.87% and ROAE was 6.81%, compared to 0.96% and 7.93%, respectively, for 2016. Excluding the one-time and other non-operating items detailed above, ROAA* was 0.94% and ROAE* was 7.38% for 2017 compared to 1.14% and 9.48%, respectively, in 2016. The decline in these ratios is primarily due to lower net income from the Home Mortgage Lending segment and the increase in the provision for loan losses.

Net Interest Income/Net Interest Margin

Net interest income grew 6% to $14.7 million in the fourth quarter of 2017 compared to $13.9 million in the fourth quarter of 2016 and was down 2% from $14.9 million in the third quarter of 2017. For the full year in 2017, net interest income increased 2% to $57.7 million from $56.4 million in 2016.

Higher total interest income, coupled with lower total interest expense, contributed to the increases in net interest income and NIMTE* in the fourth quarter and for the full year compared to the same periods in 2016 primarily due to a higher yield on interest-earning assets. Net interest income and NIMTE* declined in the fourth quarter of 2017 compared to the third quarter of 2017 primarily due to lower average earning-asset balances and a less favorable mix. The cost of funds declined in the fourth quarter compared to the preceding quarter and compared to the same quarter last year, and also declined for the full year 2017 compared to 2016.

NIMTE* was 4.31% in the fourth quarter of 2017 compared to 4.34% in the preceding quarter and 4.07% from the same quarter a year ago. For 2017, NIMTE* improved to 4.28% from 4.20% in 2016. The following table summarizes the components of these changes:


 
4Q17 vs. 3Q17
4Q17 vs. 4Q16
Nonaccrual interest adjustments
0.01
 %
0.04
%
Interest rates and loan fees
0.02
 %
0.19
%
Volume and mix of interest-earning assets
(0.06
)%
0.01
%
Change in NIMTE*
(0.03
)%
0.24
%

 
YTD17 vs.YTD16
Nonaccrual interest adjustments
—
%
Interest rates and loan fees
0.08
%
Volume and mix of interest-earning assets
—
%
Change in NIMTE*
0.08
%

“The repayment of one of our higher-cost floating rate liabilities, completed in August of this year, is expected to reduce interest expense going forward by at least $300,000 per year, and the impact is higher in the future if interest rates


Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
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continue to rise,” said Jed Ballard, Chief Financial Officer. “We believe the elimination of this interest expense will help to sustain or improve NIM in the coming quarters."

“We expect NIM will continue to increase in 2018 to 4.40% and NIMTE* to increase to approximately 4.45% in 2018, as we anticipate that interest rates will continue to rise, and that our earning assets will continue to reprice higher throughout the year. Our investment portfolio has an average duration of 1.9 years, with approximately $160 million in securities either maturing or repricing in 2018," Ballard continued.

Provision for Loan Losses

There was no provision for loan losses in the fourth quarter of 2017 primarily due to decreases in portfolio loans, nonperforming loans, and the portion of the allowance specific to impaired loans, which decreased by $548,000 in the third quarter. The decrease in the reserve on impaired loans is the result of principal pay downs on several impaired loans, and the receipt of additional collateral for one impaired loan.

For the full year in 2017, the provision for loan losses increased to $3.2 million as a result of an increase in nonperforming loans, net of government guarantees, during the year and a $350,000 increase in the portion of the allowance specific to impaired loans compared to December 31, 2016.

The allowance for loan losses is 100% of nonperforming loans, net of government guarantees, at December 31, 2017.

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 and wealth management. In August 2017, Northrim sold its interest in NBG recognizing a gain of $4.4 million, or $2.6 million net of tax, which represents approximately 7 times 2016 net profits from NBG. In addition, revenues from two months prior to the sale contributed $609,000 to third quarter 2017 revenues. This income stream will not recur in future quarters. These complementary business activities, including home mortgage lending and other noninterest income, contributed $8.0 million, or 35% of total revenues in the fourth quarter of 2017, as compared to $13.9 million, or 48% of revenues in the third quarter of 2017 and $10.4 million, or 43% of revenues in the fourth quarter of 2016.

For 2017, other operating income decreased 6% to $40.5 million from $43.3 million in 2016. The decrease in other operating income for 2017 compared to a year ago is primarily due to a decline in mortgage banking income in 2017, partially offset by the gain on sale from NBG.

Other Operating Expenses

Operating expenses were $18.3 million in the fourth quarter 2017, compared to $17.7 million in the third quarter of 2017 and $18.4 million in the fourth quarter of 2016. Items impacting the comparative periods include a $686,000 write down of the carrying value the Company's minority ownership interest in another mortgage origination business owned by RML, which is included in other operating expense in the fourth quarter of 2017, a $563,000 write down on one land development project included in other real estate owned ("OREO") in the fourth quarter of 2017, and the changes in compensation expense related to the acquisition of RML that fluctuate with expected earnings from RML. In addition, $179,000 of the one-time costs related to the core conversion were recorded in the third quarter of 2017.

Operating expenses for 2017 decreased 7% to $71.2 million, from $76.3 million for 2016, primarily due to the accounting adjustment in 2016 related to the acquisition of RML and a decrease in expenses in the home mortgage lending segment, net of the write down on the carrying value of the equity method investment noted above due to lower variable costs on lower production volume. These decreases were only partially offset by the OREO valuation adjustment noted above and the $943,000 in one-time costs related to the core conversion.



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
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Community Banking

“We believe that we are well positioned to capitalize on opportunities in the greater Alaska market despite the slowdown in the economy, which has impacted growth in both our loan and deposit portfolios,” said Schierhorn. “With the continuing commitments to the development of North Slope oil reserves, we believe that our economy will recover from the recessionary pressures currently impacting our market. Net interest income in the Community Banking segment increased 6% in the fourth quarter compared to the same quarter in 2016, demonstrating the strength of our core franchise.”

Net income generated in the Community Banking segment increased to $10.2 million in 2017 from $9.9 million in 2016, primarily due to the gain on the sale of NBG in 2017 and the accounting correction recorded in 2016, net of the increase in the provision for loan losses and the one-time costs associated with the core conversion, as well as the write down of net deferred tax assets resulting from the recently enacted federal tax legislation.

The following table provides highlights of the Community Banking segment of Northrim, and detail significant one-time and other non-operating items impacting the periods presented:
 
Three Months Ended
(Dollars in thousands, except per share data)
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
Net interest income

$14,381


$14,566


$13,952


$13,549


$13,584

Provision for loan losses
—

2,500

300

400

743

Other operating income
2,685

7,635

3,412

3,455

3,399

Compensation expense, net RML acquisition payments
(193
)
149

—

174

708

Other operating expense
13,113

12,252

13,284

11,622

12,151

   Income before provision for income taxes
4,146

7,300

3,780

4,808

3,381

Provision for income taxes
4,754

2,452

871

1,422

727

   Net income
(608
)
4,848

2,909

3,386

2,654

     Less: net income attributable to the noncontrolling interest
—

78

152

97

105

       Net income attributable to Northrim BanCorp

($608
)

$4,770


$2,757


$3,289


$2,549

Average diluted shares
6,963,125

6,959,035

6,997,727

6,993,726

6,983,771

Diluted earnings per share

($0.09
)

$0.69


$0.39


$0.47


$0.36

 
Three Months Ended
(Dollars in thousands, except per share data)
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
Net income attributable to Northrim BanCorp

($608
)

$4,770


$2,757


$3,289


$2,549

Impact of one-time and other non-operating items:
 
 
 
 
 
  Gain on sale of Northrim Benefits Group
(2
)
(4,443
)
—

—

—

   Core conversion costs
—

179

633

131

—

  Compensation expense, net RML acquisition payments
(193
)
149

—

174

708

   Provision for income taxes related to above items
80

1,692

(260
)
(125
)
(291
)
   Provision for income taxes, change in DTA valuation
3,411

—

—

—

—

          Operating net income*

$2,688


$2,347


$3,130


$3,469


$2,966

Average diluted shares
6,963,125

6,959,035

6,997,727

6,993,726

6,983,771

Operating diluted earnings per share*

$0.39


$0.34


$0.45


$0.50


$0.42




Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
8 of 28


 
Year-to-date
(Dollars in thousands, except per share data)
December 31, 2017
 
 
 
December 31, 2016
Net interest income

$56,448

 
 
 

$55,247

Provision for loan losses
3,200

 
 
 
2,298

Other operating income
17,187

 
 
 
13,756

Compensation expense, net RML acquisition payments
130

 
 
 
4,775

Other operating expense
50,271

 
 
 
48,610

   Income before provision for income taxes
20,034

 
 
 
13,320

Provision for income taxes
9,499

 
 
 
2,867

   Net income
10,535

 
 
 
10,453

     Less: net income attributable to the noncontrolling interest
327

 
 
 
579

       Net income attributable to Northrim BanCorp

$10,208

 
 
 

$9,874

Average diluted shares
6,977,910

 
 
 
6,974,864

Diluted earnings per share

$1.46

 
 
 

$1.41

 
Year-to-date
(Dollars in thousands, except per share data)
December 31, 2017
 
 
 
December 31, 2016
Net income attributable to Northrim BanCorp

$10,208

 
 
 

$9,874

Impact of one-time and other non-operating items:
 
 
 
 
 
   Gain on sale of Northrim Benefits Group
(4,445
)
 
 
 
—

   Core conversion costs
943

 
 
 
—

  Compensation expense - RML acquisition payments
130

 
 
 
4,775

   Provision for income taxes related to above items
1,386

 
 
 
(1,963
)
   Provision for income taxes, change in DTA valuation
3,411

 
 
 
—

          Operating net income*

$11,633

 
 
 

$12,686

Average diluted shares
6,977,910

 
 
 
6,974,864

Operating diluted earnings per share*

$1.67

 
 
 

$1.82



Home Mortgage Lending

“The mortgage market that generated very strong revenues in the past few years has cooled noticeably this year for all originators. Northrim’s Home Mortgage Lending segment in 2017 was no exception, with loans funded down 18% in the quarter and 22% for the year which was primarily the result of the general slowing of the Alaska economy, rising interest rates and normal market cycles,” said Ballard. "Despite this decline, the housing market in Alaska remains stable due to balanced supply and demand for homes in most price ranges, and we expect the Home Mortgage Lending segment to remain profitable despite the slowdown.

Ballard continued, “we are continuing to build our mortgage servicing business, which was initiated in the fourth quarter of 2015 to service loans for the Alaska Housing Finance Corporation. Northrim now services 1,630 loans in its $406.3 million home mortgage servicing portfolio, which is a 49% increase from the $272.4 million serviced a year ago.” Mortgage servicing contributed $1.5 million to fourth quarter of 2017 revenues up from $701,000 in the third quarter of 2017 and $1.2 million in the fourth quarter a year ago. Total mortgage servicing income fluctuates based on the amount of mortgage servicing rights originated during the period, and also based on changes in the fair value of mortgage servicing rights, which are driven by interest rate volatility and fluctuations in estimated prepayment speeds, which are based on industry averages.

Lastly, the $686,000 pre-tax write down of the carrying value of the Company's minority ownership interest in another mortgage origination business owned by RML discussed above is recorded in the Home Mortgage Lending segment.



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
9 of 28



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

 
Three Months Ended
(Dollars in thousands, except per share data)
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
Mortgage commitments

$43,602


$68,601


$80,068


$67,589


$62,421

Mortgage loans funded for sale

$132,606


$162,470


$143,944


$115,058


$169,235

Mortgage loan refinances to total fundings
17
%
12
%
12
%
24
%
25
%
Mortgage loans serviced for others

$406,291


$362,983


$332,485


$307,502


$272,442

 
 
 
 
 
 
Net realized gains on mortgage loans sold

$4,084


$5,218


$4,990


$3,721


$5,987

Change in fair value of mortgage loan commitments, net
(551
)
(23
)
299

128

(551
)
Total production revenue
3,533

5,195

5,289

3,849

5,436

Mortgage servicing revenue
1,450

997

838

1,153

1,194

Change in fair value of mortgage servicing rights, net1
64

(296
)
(48
)
282

(3
)
Total mortgage servicing revenue, net
1,514

701

790

1,435

1,191

Other mortgage banking revenue
220

323

272

166

333

   Total mortgage banking income

$5,267


$6,219


$6,351


$5,450


$6,960

 
 
 
 
 
 
Net interest income

$303


$352


$291


$284


$307

Provision for loan losses
—

—

—

—

—

Other operating income
5,267

6,219

6,351

5,450

6,960

Other operating expense
5,417

5,290

5,226

4,819

5,495

   Income before provision for income taxes
153

1,281

1,416

915

1,772

Provision for income taxes
(669
)
528

584

379

731

   Net income attributable to Northrim BanCorp

$822


$753


$832


$536


$1,041

 
 
 
 
 
 
Average diluted shares
6,963,125

6,959,035

6,997,727

6,993,726

6,983,771

Diluted earnings per share

$0.12


$0.11


$0.12


$0.08


$0.15

2Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates, net of collection/realization of expected cash flows over time.

 
Three Months Ended
(Dollars in thousands, except per share data)
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
Net income attributable to Northrim BanCorp

$822


$753


$832


$536


$1,041

Impact of one-time and other non-operating items:
 
 
 
 
 
    Writedown minority interest in equity method investment
686

—

—

—

—

   Provision for income taxes related to above items
(282
)
—

—

—

—

   Provision for income taxes, change in DTA valuation
(733
)
—

—

—

—

          Operating net income*

$493


$753


$832


$536


$1,041

Average diluted shares
6,963,125

6,959,035

6,997,727

6,993,726

6,983,771

Operating diluted earnings per share*

$0.07


$0.11


$0.12


$0.08


$0.15




Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
10 of 28


 
Year-to-date
(Dollars in thousands, except per share data)
December 31, 2017
 
 
 
December 31, 2016
Mortgage loans funded for sale

$554,077

 
 
 

$735,799

Mortgage loan refinances to total fundings
16
%
 
 
 
21
%
 
 
 
 
 
 
Net realized gains on mortgage loans sold

$18,013

 
 
 

$25,413

Change in fair value of mortgage loan commitments, net
(147
)
 
 
 
(354
)
Total production revenue
17,866

 
 
 
25,059

Mortgage servicing revenue
4,438

 
 
 
3,710

Change in fair value of mortgage servicing rights, net1
2

 
 
 
(526
)
Total mortgage servicing revenue, net
4,440

 
 
 
3,184

Other mortgage banking revenue
981

 
 
 
1,264

   Total mortgage banking income

$23,287

 
 
 

$29,507

 
 
 
 
 
 
Net interest income

$1,230

 
 
 

$1,110

Other operating income
23,287

 
 
 
29,507

Other operating expense
20,752

 
 
 
22,895

   Income before provision for income taxes
3,765

 
 
 
7,722

Provision for income taxes
822

 
 
 
3,185

   Net income attributable to Northrim BanCorp

$2,943

 
 
 

$4,537

 
 
 
 
 
 
Average diluted shares
6,977,910

 
 
 
6,974,864

Diluted earnings per share

$0.42

 
 
 

$0.65

2Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates, net of collection/realization of expected cash flows over time.
 
Year-to-date
(Dollars in thousands, except per share data)
December 31, 2017
 
 
 
December 31, 2016
Net income attributable to Northrim BanCorp

$2,943

 
 
 

$4,537

Impact of one-time and other non-operating items:
 
 
 
 
 
   Writedown minority interest in equity method investment
686

 
 
 
—

   Provision for income taxes related to above items
(282
)
 
 
 
—

   Provision for income taxes, change in DTA valuation
(733
)
 
 
 
—

          Operating net income*

$2,614

 
 
 

$4,537

Average diluted shares
6,977,910

 
 
 
6,974,864

Operating diluted earnings per share*

$0.37

 
 
 

$0.65



Balance Sheet Review

Northrim’s assets were $1.52 billion at December 31, 2017, virtually unchanged from both preceding and year ago quarters. Average interest earnings assets were also relatively unchanged in the quarter and full year periods.

Average investment securities increased 1% in the fourth quarter of 2017 from the preceding quarter and decreased 7% from the fourth quarter a year ago. The investment portfolio generated an average net tax equivalent yield of 1.77% for the fourth quarter of 2017. The average estimated duration of the investment portfolio was 1.9 years, at December 31, 2017.



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
11 of 28


Average loans held for sale decreased 25% to $43.3 million in the fourth quarter of 2017 compared to the preceding quarter and decreased 20% from the same quarter a year ago, primarily reflecting the seasonality of the mortgage business and the reduced demand for home loans in the Alaska marketplace.

Portfolio loans were down to $955.7 million at the end of the fourth quarter of 2017 compared to both the preceding and year ago quarters. Average portfolio loans in the fourth quarter of 2017 were $980.4 million, up slightly from a year ago and down 2.3% from the preceding quarter. Seasonality, the slowing Alaska economy, and some larger loan payoffs contributed to moderate declines in all loan categories for the quarter and the 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 December 31, 2017, represented 92% of total deposits. At December 31, 2017, total deposits were $1.26 billion, unchanged from the immediate prior quarter and down slightly from $1.27 billion from a year ago.

Average total deposits were stable in both the fourth quarter and full year in 2017 compared to the respective periods in 2016.

Shareholders’ equity increased 3% to $192.8 million, or $28.06 per share, at December 31, 2017, compared to $186.7 million, or $27.07 per share, a year ago. Tangible book value per share* was $25.70 at December 31, 2017, compared to $24.70 per share a year ago. Northrim continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” under the Basel III and Dodd Frank regulatory standards with Tier 1 Capital to Risk Adjusted Assets of 14.65% at December 31, 2017. “The repayment of the $8 million in junior subordinated debt in August brought our capital ratios down, which is expected to improve profitability without reducing liquidity significantly,” said Schierhorn.

Asset Quality

Nonperforming assets, net of government guarantees, increased to $28.7 million at December 31, 2017, compared to $26.2 million at the end of the preceding quarter due to a $4.4 million addition to OREO, net of government guarantees, from a previously disclosed single lending relationship that was previously accruing but adversely classified at the end of the third quarter of 2017. The $4.4 million that was previously adversely classified but still accruing interest was categorized in this manner because the real estate loan was collateralized and payments of principal and interest were covered by rental income being generated from the property. This increase in OREO was partially offset by principal paydowns on nonaccrual loans, net of government guarantees, and the $563,000 writedown on one OREO property discussed above.

Nonperforming assets, net of government guarantees increased to $28.7 million at December 31, 2017, compared to $19.3 million a year ago, due to one $8.3 million commercial business and one commercial relationships for $2.9 million, in the medical industry. These relationships, along with one other $7.7 million commercial relationship in the medical industry, represent 88% of total nonperforming loans, net of government guarantees, as of December 31, 2017. The additions to nonperforming assets in 2017 were partially offset by pay downs on nonaccrual loans and the sale of several OREO properties totaling $2.5 million in 2017 for a net gain on sales of $371,000.

Adversely classified loans, net of government guarantees, were $33.8 million at the end of the fourth quarter of 2017 as compared to $33.8 million at the end of the third quarter of 2017 and $35.6 million one year ago. Net charge-offs in the fourth quarter of 2017 were minimal and $1.4 million for the full year. “None of these charge-offs were related directly to the oil sector,” said Ballard.







Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
12 of 28


The following table details loan charge-offs, by industry:
(Dollars in thousands)
Three Months Ended
 
December 31, 2017
September 30, 2017
December 31, 2016
Charge-offs:
 
 
 
Construction

$—


$—


$535

Transportation and warehousing
24

339

—

Other services
5

48

31

Retail trade
—

—

4

News media
—

731

—

Consumer
26

85

21

   Total charge-offs

$55


$1,203


$591


Performing restructured loans that were not included in nonaccrual loans at the end of the fourth quarter of 2017 were $7.7 million, unchanged from the preceding quarter and up from $6.1 million a year ago. The increase in the fourth quarter of 2017 compared to the year ago quarter is primarily due to the addition of one commercial loan. 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.

Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees. As of December 31, 2017, $25.2 million, or 74% of adversely classified loans net of government guarantees are attributable to five relationships in the following sectors; two commercial businesses, two medical businesses, and one oilfield services commercial business.

Northrim estimates that $70.8 million, or approximately 7% of portfolio loans as of December 31, 2017, had direct exposure to the oil and gas industry in Alaska, and $4.2 million of these loans are adversely classified. Northrim has an additional $53.5 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,” added Ballard. “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. Pacific Wealth Advisors, LLC is an affiliated company of Northrim BanCorp.

www.northrim.com


Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
13 of 28


Forward-Looking Statement
This release may contain “forward-looking statements” as that term is defined for purposes of Section 21E of the Securities Exchange Act of 1934. 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, 2016, 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/

http://labor.state.ak.us/news/2018/news18-02.pdf

http://www.petroleumnews.com/pntruncate/992348319.shtml

http://www.alyeska-pipe.com/assets/uploads/pagestructure/NewsCenter_MediaResources_PressRelease_Entries
/636504966895432028_pr1470_2017ThroughputIncrease%202.pdf



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
14 of 28


Income Statement
 
 
 
 
 
(Dollars in thousands, except per share data)
Three Months Ended
(Unaudited)
December 31,
September 30,
Three Month
December 31,
Year-Over-Year
 
2017
2017
% Change
2016
% Change
Interest Income:
 
 
 
 
 
     Interest and fees on loans

$13,861


$14,341

-3
 %

$13,423

3
 %
     Interest on portfolio investments
1,168

1,060

10
 %
1,032

13
 %
     Interest on deposits in banks
203

118

72
 %
67

203
 %
          Total interest income
15,232

15,519

-2
 %
14,522

5
 %
Interest Expense:
 
 
 
 
 
     Interest expense on deposits
382

429

-11
 %
447

-15
 %
     Interest expense on borrowings
166

173

-4
 %
184

-10
 %
          Total interest expense
548

602

-9
 %
631

-13
 %
          Net interest income
14,684

14,917

-2
 %
13,891

6
 %
 
 
 
 
 
 
Provision for loan losses
—

2,500

-100
 %
743

-100
 %
          Net interest income after provision for loan losses
14,684

12,417

18
 %
13,148

12
 %
 
 
 
 
 
 
Other Operating Income:
 
 
 
 
 
     Mortgage banking income
5,267

6,219

-15
 %
6,960

-24
 %
     Gain on sale of Northrim Benefits Group
2

4,443

NM

—

NM

     Employee benefit plan income
—

609

-100
 %
871

-100
 %
     Purchased receivable income
758

752

1
 %
703

8
 %
     Bankcard fees
694

664

5
 %
675

3
 %
     Service charges on deposit accounts
360

406

-11
 %
473

-24
 %
     Loss on sale of securities
—

(3
)
NM

—

NM

     Other income
871

765

14
 %
677

29
 %
          Total other operating income
7,952

13,855

-43
 %
10,359

-23
 %
 
 
 
 
 
 
Other Operating Expense:
 
 
 
 
 
     Salaries and other personnel expense
10,971

11,115

-1
 %
11,332

-3
 %
     Occupancy expense
1,761

1,706

3
 %
1,590

11
 %
     Data processing expense
1,340

1,509

-11
 %
1,293

4
 %
     Professional and outside services
457

674

-32
 %
780

-41
 %
     Marketing expense
833

332

151
 %
596

40
 %
     Insurance expense
239

475

-50
 %
179

34
 %
     OREO expense, net rental income and gains on sale
621

(44
)
-1,511
 %
28

2,118
 %
     Gain on disposal of premises and equipment
—

—

—
 %
(13
)
-100
 %
     Intangible asset amortization expense
21

26

-19
 %
29

-28
 %
     Compensation expense, net RML acquisition payments
(193
)
149

-230
 %
708

-127
 %
     Other operating expense
2,287

1,749

31
 %
1,832

25
 %
          Total other operating expense
18,337

17,691

4
 %
18,354

—
 %
 
 
 
 
 
 
          Income before provision for income taxes
4,299

8,581

-50
 %
5,153

-17
 %
     Provision for income taxes
4,085

2,980

37
 %
1,458

180
 %
          Net income
214

5,601

-96
 %
3,695

-94
 %
               Less: Net income attributable to the noncontrolling interest
—

78

-100
 %
105

-100
 %
                     Net income attributable to Northrim BanCorp

$214


$5,523

-96
 %

$3,590

-94
 %
 
 
 
 
 
 
          Basic EPS

$0.03


$0.80

-96
 %

$0.52

-94
 %
          Diluted EPS

$0.03


$0.79

-96
 %

$0.51

-94
 %
          Average basic shares
6,865,753

6,872,273

0
 %
6,897,890

0
 %
          Average diluted shares
6,963,125

6,959,035

0
 %
6,983,771

0
 %



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
15 of 28


Income Statement
 
(Dollars in thousands, except per share data)
Twelve months ended December 31,
(Unaudited)
 
 
Year-Over-Year
 
2017
2016
% Change
Interest Income:
 
 
 
     Interest and fees on loans

$55,041


$54,777

0
 %
     Interest on portfolio investments
4,634

3,936

18
 %
     Interest on deposits in banks
433

205

111
 %
          Total interest income
60,108

58,918

2
 %
Interest Expense:
 
 
 
     Interest expense on deposits
1,707

1,870

-9
 %
     Interest expense on borrowings
723

691

5
 %
          Total interest expense
2,430

2,561

-5
 %
          Net interest income
57,678

56,357

2
 %
 
 
 
 
Provision for loan losses
3,200

2,298

39
 %
          Net interest income after provision for loan losses
54,478

54,059

1
 %
 
 
 
 
Other Operating Income:
 
 
 
   Mortgage banking income
23,287

29,507

-21
 %
   Gain on sale of Northrim Benefits Group
4,445

—

NM

   Employee benefit plan income
2,506

3,770

-34
 %
   Purchased receivable income
2,975

2,347

27
 %
   Bankcard fees
2,597

2,670

-3
 %
   Service charges on deposit accounts
1,614

1,998

-19
 %
   Gain (loss) on sale of securities
11

(11
)
200
 %
   Other income
3,039

2,982

2
 %
          Total other operating income
40,474

43,263

-6
 %
 
 
 
 
Other Operating Expense:
 
 
 
   Salaries and other personnel expense
44,721

46,752

-4
 %
   Occupancy expense
6,752

6,462

4
 %
   Data processing expense
5,549

4,879

14
 %
   Marketing expense
2,566

2,449

5
 %
   Professional and outside services
2,365

2,797

-15
 %
   Insurance expense
1,161

1,023

13
 %
   OREO expense, net rental income and gains on sale
837

98

754
 %
   Compensation expense - RML acquisition payments
130

4,775

-97
 %
   Intangible asset amortization expense
100

135

-26
 %
   Loss on disposal of premises and equipment
3

352

-99
 %
   Other operating expense
6,969

6,558

6
 %
          Total other operating expense
71,153

76,280

-7
 %
 
 
 
 
          Income before provision for income taxes
23,799

21,042

13
 %
     Provision for income taxes
10,321

6,052

71
 %
          Net income
13,478

14,990

-10
 %
               Less: Net income attributable to the noncontrolling interest
327

579

-44
 %
                     Net income attributable to Northrim BanCorp

$13,151


$14,411

-9
 %
 
 
 
 
          Basic EPS

$1.91


$2.09

-9
 %
          Diluted EPS

$1.88


$2.06

-9
 %
          Average basic shares
6,889,621

6,883,663

0
 %
          Average diluted shares
6,977,910

6,974,864

0
 %






Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
16 of 28


Balance Sheet
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
(Unaudited)
December 31,
September 30,
Three Month
December 31,
One Year
 
2017
2017
% Change
2016
% Change
 
 
 
 
 
 
Assets:
 
 
 
 
 
     Cash and due from banks

$25,016


$13,960

79
 %

$34,485

-27
 %
     Interest bearing deposits in other banks
52,825

73,309

-28
 %
16,066

229
 %
     Portfolio investments
312,750

271,248

15
 %
332,118

-6
 %
     Investment in Federal Home Loan Bank stock
2,115

2,116

0
 %
1,965

8
 %
 
 
 
 
 
 
     Loans held for sale
43,778

59,214

-26
 %
43,596

—
 %
 
 
 
 
 
 
     Portfolio loans
955,667

989,253

-3
 %
975,015

-2
 %
     Allowance for loan losses
(21,461
)
(21,464
)
0
 %
(19,697
)
9
 %
          Net portfolio loans
934,206

967,789

-3
 %
955,318

-2
 %
     Purchased receivables, net
22,231

12,930

72
 %
20,491

8
 %
     Mortgage servicing rights
7,305

6,181

18
 %
4,157

76
 %
     Other real estate owned, net
8,651

3,505

147
 %
6,574

32
 %
     Premises and equipment, net
37,867

40,046

-5
 %
39,318

-4
 %
     Goodwill and intangible assets
16,224

16,245

0
 %
16,324

-1
 %
     Other assets
56,141

56,798

-1
 %
56,128

—
 %
          Total assets
$1,519,109
$1,523,341
0
 %
$1,526,540
0
 %
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
     Demand deposits

$414,686


$426,946

-3
 %

$449,206

-8
 %
     Interest-bearing demand
252,009

240,274

5
 %
201,349

25
 %
     Savings deposits
247,458

251,266

-2
 %
241,088

3
 %
     Money market deposits
243,603

233,768

4
 %
244,295

—
 %
     Time deposits
100,527

106,063

-5
 %
131,715

-24
 %
          Total deposits
1,258,283

1,258,317

0
 %
1,267,653

-1
 %
     Securities sold under repurchase agreements
27,746

31,084

-11
 %
27,607

1
 %
     Other borrowings
7,362

7,387

0
 %
4,338

70
 %
     Junior subordinated debentures
10,310

10,310

—
 %
18,558

-44
 %
     Other liabilities
22,606

21,816

4
 %
21,672

4
 %
          Total liabilities
1,326,307

1,328,914

0
 %
1,339,828

-1
 %
 
 
 
 
 
 
Shareholders' Equity:
 
 
 
 
 
     Northrim BanCorp shareholders' equity
192,802

194,427

-1
 %
186,594

3
 %
     Noncontrolling interest
—

—

—
 %
118

-100
 %
          Total shareholders' equity
192,802

194,427

-1
 %
186,712

3
 %
          Total liabilities and shareholders' equity

$1,519,109


$1,523,341

0
 %

$1,526,540

0
 %
 
 
 
 
 
 


Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
17 of 28


Additional Financial Information
(Dollars in thousands)
(Unaudited)

Composition of Portfolio Investments
 
 
 
 
 
 
 
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
U.S. Treasury securities

$49,877

15.9
%
 

$30,012

11.1
%
 

$30,063

9.1
%
U.S. Agency securities
199,583

63.9
%
 
179,088

65.9
%
 
233,298

70.2
%
U.S. Agency mortgage-backed securities
—

0.0
%
 
—

0.0
%
 
2

—
%
Corporate bonds
42,863

13.7
%
 
40,883

15.1
%
 
49,699

15.0
%
Collateralized loan obligations
6,005

1.9
%
 
3,002

1.1
%
 
—

—
%
Alaska municipality, utility, or state bonds
9,752

3.1
%
 
13,502

5.0
%
 
14,296

4.3
%
Other municipality, utility, or state bonds
4,670

1.5
%
 
4,761

1.8
%
 
4,760

1.4
%
   Total portfolio investments

$312,750

 
 

$271,248

 
 

$332,118

 
 
 
 
 
 
 
 
 
 

Composition of Portfolio Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
Commercial loans

$313,769

33
%
 

$315,512

32
%
 

$309,493

31
%
 

$275,809

29
%
 

$278,178

28
%
CRE owner occupied loans
132,097

14
%
 
135,053

14
%
 
139,475

14
%
 
140,102

15
%
 
152,178

16
%
CRE nonowner occupied loans
359,871

37
%
 
386,294

39
%
 
401,662

40
%
 
408,472

41
%
 
402,003

41
%
Construction loans
111,294

12
%
 
111,427

11
%
 
98,713

10
%
 
94,004

10
%
 
98,220

10
%
Consumer loans
42,792

4
%
 
44,942

4
%
 
46,010

5
%
 
46,838

5
%
 
48,870

5
%
   Subtotal
959,823

 
 
993,228

 
 
995,353

 
 
965,225

 
 
979,449

 
Unearned loan fees, net
(4,156
)
 
 
(3,975
)
 
 
(4,144
)
 
 
(4,393
)
 
 
(4,434
)
 
     Total portfolio loans

$955,667

 
 

$989,253

 
 

$991,209

 
 

$960,832

 
 

$975,015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Composition of Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
 
Balance
% of total
Demand deposits

$414,686

33
%
 

$426,946

34
%
 

$395,310

32
%
 

$421,867

33
%
 

$449,206

36
%
Interest-bearing demand
252,009

20
%
 
240,274

19
%
 
231,073

19
%
 
194,414

16
%
 
201,349

16
%
Savings deposits
247,458

20
%
 
251,266

20
%
 
249,275

20
%
 
252,218

20
%
 
241,088

19
%
Money market deposits
243,603

19
%
 
233,768

19
%
 
231,780

19
%
 
244,881

20
%
 
244,295

19
%
Time deposits
100,527

8
%
 
106,063

8
%
 
126,872

10
%
 
133,693

11
%
 
131,715

10
%
   Total deposits

$1,258,283

 
 

$1,258,317

 
 

$1,234,310

 
 

$1,247,073

 
 

$1,267,653

 


Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
18 of 28


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Asset Quality
 
 
 
 
 
 
 
December 31,
 
September 30,
 
December 31,
 
 
2017
 
2017
 
2016
 
     Nonaccrual loans

$21,626

 

$24,317

 

$13,893

 
     Loans 90 days past due and accruing
252

 
214

 
456

 
          Total nonperforming loans
21,878

 
24,531

 
14,349

 
             Nonperforming loans guaranteed by government
(467
)
 
(1,846
)
 
(1,413
)
 
                Net nonperforming loans
21,411

 
22,685

 
12,936

 
     Other real estate owned
8,651

 
3,505

 
6,574

 
             Other real estate owned guaranteed by government
(1,333
)
 
—

 
(195
)
 
                Net nonperforming assets

$28,729

 

$26,190

 

$19,315

 
     Nonperforming loans / portfolio loans, net of government guarantees
2.24

%
2.29

%
1.33

%
     Nonperforming assets / total assets, net of government guarantees
1.89

%
1.72

%
1.27

%
 
 
 
 
 
 
 
     Performing restructured loans

$7,668

 

$7,687

 

$6,131

 
     Nonperforming loans plus performing restructured loans, net of government
 
 
 
 
 
 
     guarantees

$29,079

 

$30,372

 

$19,067

 
     Nonperforming loans plus performing restructured loans / portfolio loans, net of
 
 
 
 
 
 
     government guarantees
3.04

%
3.07

%
1.96

%
     Nonperforming assets plus performing restructured loans / total assets, net of
 
 
 
 
 
 
     government guarantees
2.48

%
2.22

%
1.68

%
 
 
 
 
 
 
 
     Adversely classified loans, net of government guarantees

$33,845

 

$33,789

 

$35,634

 
     Loans 30-89 days past due and accruing, net of government guarantees /
 
 
 
 
 
 
     portfolio loans
0.22

%
0.70

%
0.22

%
 
 
 
 
 
 
 
     Allowance for loan losses / portfolio loans
2.25

%
2.17

%
2.02

%
     Allowance for loan losses / nonperforming loans, net of government guarantees
100

%
95

%
152

%
 
 
 
 
 
 
 
     Gross loan charge-offs for the quarter

$55

 

$1,203

 

$591

 
     Gross loan recoveries for the quarter

($53
)
 

($106
)
 

($66
)
 
     Net loan charge-offs (recoveries) for the quarter

$2

 

$1,097

 

$525

 
     Net loan charge-offs year-to-date

$1,435

 

$1,433

 

$754

 
     Net loan charge-offs for the quarter / average loans, for the quarter
0.00

%
0.11

%
0.05

%
     Net loan charge-offs year-to-date / average loans,
 
 
 
 
 
 
          year-to-date annualized
0.15

%
0.19

%
0.08

%



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
19 of 28


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Nonperforming Assets Rollforward
 
 
 
 
 
 
 
 
Balance at
Additions
Payments
Writedowns
Transfers to
Transfers to
Sales
Balance at
 
September 30, 2017
this quarter
this quarter
/Charge-offs
 this quarter
OREO
Performing Status
this quarter
this quarter
December 31, 2017
Commercial loans

$22,794


$321


($1,440
)

($29
)

($1,333
)

($156
)

$—


$20,157

Commercial real estate
1,331

—

—

—

—

—

—

1,331

Construction loans
—

—

—

—

—

—

—

—

Consumer loans
406

12

(2
)
(26
)
—

—

—

390

Non-performing loans guaranteed by government
(1,846
)
—

23

—

1,333

23

—

(467
)
   Total non-performing loans
22,685

333

(1,419
)
(55
)
—

(133
)
—

21,411

Other real estate owned
3,505

5,744

—

(563
)
—

—

(35
)
8,651

Other real estate owned guaranteed
 
 
 
 
 
 
 
 
by government
—

(1,333
)
—

—

—

—

—

(1,333
)
   Total non-performing assets,
 
 
 
 
 
 
 
 
   net of government guarantees

$26,190


$4,744


($1,419
)

($618
)

$—


($133
)

($35
)

$28,729









Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
20 of 28


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Average Balances, Yields, and Rates
 
 
 
 
 
 
 
 
 
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
 
Average
 
 
Average
 
 
Average
 
Average
Tax Equivalent
 
Average
Tax Equivalent
 
Average
Tax Equivalent
 
Balance
Yield/Rate
 
Balance
Yield/Rate
 
Balance
Yield/Rate
Assets
 
 
 
 
 
 
 
 
Interest bearing deposits in other banks

$61,030

1.30
%
 

$37,349

1.24
%
 

$37,328

0.54
%
Portfolio investments
287,393

1.77
%
 
284,806

1.63
%
 
309,519

1.48
%
Loans held for sale
43,259

4.28
%
 
57,346

3.74
%
 
54,266

3.54
%
Portfolio loans
980,351

5.45
%
 
1,003,751

5.49
%
 
977,678

5.31
%
   Total interest-earning assets
1,372,033

4.46
%
 
1,383,252

4.51
%
 
1,378,791

4.25
%
Nonearning assets
147,832

 
 
142,226

 
 
142,987

 
   Total assets

$1,519,865

 
 

$1,525,478

 
 

$1,521,778

 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
 
Interest-bearing deposits

$829,295

0.18
%
 

$839,743

0.20
%
 

$804,334

0.22
%
Borrowings
48,376

1.35
%
 
49,223

1.36
%
 
51,879

1.38
%
   Total interest-bearing liabilities
877,671

0.25
%
 
888,966

0.27
%
 
856,213

0.29
%
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
425,271

 
 
423,065

 
 
460,880

 
Other liabilities
19,857

 
 
18,744

 
 
25,247

 
Shareholders' equity
197,066

 
 
194,703

 
 
179,438

 
   Total liabilities and shareholders' equity

$1,519,865

 
 

$1,525,478

 
 

$1,521,778

 
   Net spread
 
4.21
%
 
 
4.24
%
 
 
3.96
%
   Net interest margin ("NIM")
 
4.25
%
 
 
4.28
%
 
 
4.01
%
   Tax equivalent NIM*
 
4.31
%
 
 
4.34
%
 
 
4.07
%
   Average portfolio loans to average
 
 
 
 
 
 
 
 
        interest-earning assets
71.45
%
 
 
72.56
%
 
 
70.91
%
 
   Average portfolio loans to average total deposits
78.14
%
 
 
79.49
%
 
 
77.27
%
 
   Average non-interest deposits to average
 
 
 
 
 
 
 
 
         total deposits
33.90
%
 
 
33.50
%
 
 
36.43
%
 
   Average interest-earning assets to average
 
 
 
 
 
 
 
 
         interest-bearing liabilities
156.33
%
 
 
155.60
%
 
 
161.03
%
 


Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
21 of 28


Additional Financial Information
(Dollars in thousands)
(Unaudited)
Average Balances, Yields, and Rates
 
 
 
 
 
 
Year-to-date
 
December 31, 2017
 
December 31, 2016
 
 
Average
 
 
Average
 
Average
Tax Equivalent
 
Average
Tax Equivalent
 
Balance
Yield/Rate
 
Balance
Yield/Rate
Assets
 
 
 
 
 
Interest bearing deposits in other banks

$36,944

1.15
%
 

$37,074

0.50
%
Portfolio investments
305,211

1.66
%
 
296,214

1.46
%
Loans held for sale
44,047

3.95
%
 
52,012

3.59
%
Portfolio loans
981,001

5.47
%
 
976,613

5.46
%
   Total interest-earning assets
1,367,203

4.46
%
 
1,361,913

4.38
%
Nonearning assets
143,849

 
 
144,609

 
   Total assets

$1,511,052

 
 

$1,506,522

 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
Interest-bearing deposits

$829,918

0.21
%
 

$803,877

0.23
%
Borrowings
50,523

1.40
%
 
50,095

1.35
%
   Total interest-bearing liabilities
880,441

0.27
%
 
853,972

0.30
%
 
 
 
 
 
 
Noninterest-bearing demand deposits
418,415

 
 
446,366

 
Other liabilities
19,067

 
 
24,556

 
Shareholders' equity
193,129

 
 
181,628

 
   Total liabilities and shareholders' equity

$1,511,052

 
 

$1,506,522

 
   Net spread
 
4.19
%
 
 
4.08
%
   NIM
 
4.22
%
 
 
4.14
%
   NIMTE*
 
4.28
%
 
 
4.20
%
   Average portfolio loans to average interest-earning assets
71.75
%
 
 
71.71
%
 
   Average portfolio loans to average total deposits
78.58
%
 
 
78.11
%
 
   Average non-interest deposits to average total deposits
33.52
%
 
 
35.70
%
 
   Average interest-earning assets to average interest-bearing liabilities
155.29
%
 
 
159.48
%
 

Capital Data (At quarter end)
 
 
 
 
 
 
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
Book value per share

$28.06

 

$28.37

 

$27.07

 
Tangible book value per share*

$25.70

 

$26.00

 

$24.70

 
Total shareholders' equity/total assets
12.69

%
12.76

%
12.23

%
Tangible Common Equity/Tangible Assets*
11.75

%
11.82

%
11.28

%
Tier 1 Capital / Risk Adjusted Assets
14.65

%
13.50

%
14.54

%
Total Capital / Risk Adjusted Assets
15.90

%
14.75

%
15.80

%
Tier 1 Capital / Average Assets
12.41

%
11.54

%
12.59

%
Shares outstanding
6,871,963

 
6,852,338

 
6,897,890

 
Unrealized gain (loss) on AFS securities, net of income taxes

($369
)
 

$147

 

($397
)
 



Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
22 of 28


Additional Financial Information
(Dollars and shares in thousands)
(Unaudited)
Profitability Ratios
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
For the quarter:
 
 
 
 
 
 
 
 
 
 
     Net interest margin ("NIM")
4.25
%
4.28
%
4.20
%
4.15
%
4.01
%
     Tax equivalent NIM*
4.31
%
4.34
%
4.26
%
4.22
%
4.07
%
     Efficiency ratio
80.92
%
61.40
%
76.95
%
72.95
%
75.57
%
     Return on average assets
0.06
%
1.44
%
0.96
%
1.04
%
0.94
%
     Return on average equity
0.43
%
11.25
%
7.43
%
8.30
%
7.96
%

 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
 
Year-to-date:
 
 
 
 
 
 
 
 
 
 
     NIM
4.22
%
 
 
 
 
 
 
4.14
%
     NIMTE*
4.28
%
 
 
 
 
 
 
4.20
%
     Efficiency ratio
72.39
%
 
 
 
 
 
 
76.44
%
     Return on average assets
0.87
%
 
 
 
 
 
 
0.96
%
     Return on average equity
6.81
%
 
 
 
 
 
 
7.93
%



*Non-GAAP Financial Measures
(Dollars and shares 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 2017 and 2016. 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
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Net interest income

$14,684

 

$14,917

 

$14,244

 

$13,833

 

$13,891

Divided by average interest-bearing assets
1,372,033

 
1,383,252

 
1,360,961

 
1,352,171

 
1,378,791

Net interest margin ("NIM")2
4.25
%
 
4.28
%
 
4.20
%
 
4.15
%
 
4.01
%
 
 
 
 
 
 
 
 
 
 
Net interest income

$14,684

 

$14,917

 

$14,244

 

$13,833

 

$13,891

Plus: reduction in tax expense related to
 

 
 

 
 

 
 
 
 
     tax-exempt interest income
204

 
220

 
224

 
224

 
209

 

$14,888

 

$15,137

 

$14,468

 

$14,057

 

$14,100

Divided by average interest-bearing assets
1,372,033

 
1,383,252

 
1,360,961

 
1,352,171

 
1,378,791

Tax equivalent NIM2
4.31
%
 
4.34
%
 
4.26
%
 
4.22
%
 
4.07
%








Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
23 of 28



(Dollars and shares in thousands, except per share data)
(Unaudited)
 
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Net interest income

$57,678

 
 
 
 
 
 
 

$56,357

Divided by average interest-bearing assets
1,367,203

 
 
 
 
 
 
 
1,361,913

Net interest margin ("NIM")3
4.22
%
 
 
 
 
 
 
 
4.14
%
 
 
 
 
 
 
 
 
 
 
Net interest income

$57,678

 
 
 
 
 
 
 

$56,357

Plus: reduction in tax expense related to
 

 
 
 
 
 
 
 
 
     tax-exempt interest income
872

 
 
 
 
 
 
 
808

 

$58,550

 
 
 
 
 
 
 

$57,165

Divided by average interest-bearing assets
1,367,203

 
 
 
 
 
 
 
1,361,913

Tax equivalent NIM3
4.28
%
 
 
 
 
 
 
 
4.20
%


3Calculated using actual days in the quarter divided by 365 for quarters ended in 2017 and actual days in the quarter divided by 366 for quarters ended in 2016.

4Calculated using actual days in the year divided by 365 for year-to-date period ended in 2017 and actual days in the year divided by 366 for year-to-date period ended in 2016.


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.
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity

$192,802

 

$194,427

 

$191,177

 

$189,452

 

$186,712

Divided by shares outstanding
6,872

 
6,852

 
6,911

 
6,910

 
6,898

Book value per share

$28.06

 

$28.37

 

$27.66

 

$27.42

 
$27.07

 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity

$192,802

 

$194,427

 

$191,777

 

$189,452

 

$186,712

Less: goodwill and intangible assets
16,224

 
16,245

 
16,271

 
16,298

 
16,324

 

$176,578

 

$178,182

 

$175,506

 

$173,154

 

$170,388

Divided by shares outstanding
6,872

 
6,852

 
6,911

 
6,910

 
6,898

Tangible book value per share

$25.70

 

$26.00

 

$25.40

 

$25.06

 
$24.70




Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
24 of 28



(Dollars and shares in thousands, except per share data)
(Unaudited)

Tangible Common Equity to Tangible Assets

Tangible common equity to tangible assets is a non-GAAP ratio that represents total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets. This ratio has received more attention over the past several years from stock analysts and regulators. The most comparable GAAP measure of shareholders' equity to total assets is calculated by dividing total shareholders' equity by total assets.

Northrim BanCorp, Inc.

December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity

$192,802

 

$194,427

 

$191,777

 

$189,452

 

$186,712

Total assets
1,519,109

 
1,523,341

 
1,493,205

 
1,512,580

 
1,526,540

Total shareholders' equity to total assets
12.69
%
 
12.76
%
 
12.84
%
 
12.53
%
 
12.23
%

Northrim BanCorp, Inc.

December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Total shareholders' equity

$192,802

 

$194,427

 

$191,777

 

$189,452

 

$186,712

Less: goodwill and other intangible assets, net
16,224

 
16,245

 
16,271

 
16,298

 
16,324

Tangible common shareholders' equity

$176,578

 

$178,182

 

$175,506

 

$173,154

 

$170,388

 
 
 
 
 
 
 
 
 
 
Total assets

$1,519,109

 

$1,523,341

 

$1,493,205

 

$1,512,580

 

$1,526,540

Less: goodwill and other intangible assets, net
16,224

 
16,245

 
16,271

 
16,298

 
16,324

Tangible assets

$1,502,885

 

$1,507,096

 

$1,476,934

 

$1,496,282

 

$1,510,216

Tangible common equity ratio
11.75
%
 
11.82
%
 
11.88
%
 
11.57
%
 
11.28
%

Operating diluted earnings per share

Operating diluted earnings per share is a non-GAAP ratio that represents operating net income divided by average diluted shares. The most comparable GAAP measure is diluted earnings per share. The following table provides a reconciliation of operating diluted earnings per share with diluted earnings per share:

Northrim BanCorp, Inc.
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Net income

$214

 

$5,523

 

$3,589

 

$3,825

 

$3,590

Divided by weighted-average diluted shares outstanding
6,963,125

 
6,959,035

 
6,997,727

 
6,993,726

 
6,983,771

Diluted earnings per share
$0.03
 
$0.79
 
$0.51
 
$0.55
 
$0.51
Northrim BanCorp, Inc.
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Operating net income

$3,181

 

$3,100

 

$3,962

 

$4,005

 

$4,007

Divided by weighted-average diluted shares outstanding
6,963,125

 
6,959,035

 
6,997,727

 
6,993,726

 
6,983,771

Operating diluted earnings per share
$0.46
 
$0.45
 
$0.57
 
$0.57
 
$0.57











Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
25 of 28


(Dollars and shares in thousands, except per share data)
(Unaudited)

Northrim BanCorp, Inc.
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Net income

$13,151

 
 
 
 
 
 
 

$14,411

Divided by weighted-average diluted shares outstanding
6,977,910

 
 
 
 
 
 
 
6,974,864

Diluted earnings per share
$1.88
 
 
 
 
 
 
 
$2.06
Northrim BanCorp, Inc.
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Operating net income

$14,247

 
 
 
 
 
 
 

$17,223

Divided by weighted-average diluted shares outstanding
6,977,910

 
 
 
 
 
 
 
6,974,864

Operating diluted earnings per share
$2.04
 
 
 
 
 
 
 
$2.47
Community Banking
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Net income

($608
)
 

$4,770

 

$2,757

 

$3,289

 

$2,549

Divided by weighted-average diluted shares outstanding
6,963,125

 
6,959,035

 
6,997,727

 
6,993,726

 
6,983,771

Diluted earnings per share
$(0.09)
 
$0.69
 
$0.39
 
$0.47
 
$0.36
Community Banking
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Operating net income

$2,688

 

$2,347

 

$3,130

 

$3,469

 

$2,966

Divided by weighted-average diluted shares outstanding
6,963,125

 
6,959,035

 
6,997,727

 
6,993,726

 
6,983,771

Operating diluted earnings per share
$0.39
 
$0.34
 
$0.45
 
$0.50
 
$0.42
Community Banking
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Net income

$10,208

 
 
 
 
 
 
 

$9,874

Divided by weighted-average diluted shares outstanding
6,977,910

 
 
 
 
 
 
 
6,974,864

Diluted earnings per share
$1.46
 
 
 
 
 
 
 
$1.41
Community Banking
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Operating net income

$11,633

 
 
 
 
 
 
 

$12,686

Divided by weighted-average diluted shares outstanding
6,977,910

 
 
 
 
 
 
 
6,974,864

Operating diluted earnings per share
$1.67
 
 
 
 
 
 
 
$1.82
















Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
26 of 28


(Dollars and shares in thousands, except per share data)
(Unaudited)
Home Mortgage Lending
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Net income

$822

 

$753

 

$832

 

$536

 

$1,041

Divided by weighted-average diluted shares outstanding
6,963,125

 
6,959,035

 
6,997,727

 
6,993,726

 
6,983,771

Diluted earnings per share
$0.12
 
$0.11
 
$0.12
 
$0.08
 
$0.15

Home Mortgage Lending
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Operating net income

$493

 

$753

 

$832

 

$536

 

$1,041

Divided by weighted-average diluted shares outstanding
6,963,125

 
6,959,035

 
6,997,727

 
6,993,726

 
6,983,771

Operating diluted earnings per share
$0.07
 
$0.11
 
$0.12
 
$0.08
 
$0.15
Home Mortgage Lending
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Net income

$2,943

 
 
 
 
 
 
 

$4,537

Divided by weighted-average diluted shares outstanding
6,977,910

 
 
 
 
 
 
 
6,974,864

Diluted earnings per share
$0.42
 
 
 
 
 
 
 
$0.65
Home Mortgage Lending
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Operating net income

$2,614

 
 
 
 
 
 
 

$4,537

Divided by weighted-average diluted shares outstanding
6,977,910

 
 
 
 
 
 
 
6,974,864

Operating diluted earnings per share
$0.37
 
 
 
 
 
 
 
$0.65


































Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
27 of 28


(Dollars and shares in thousands, except per share data)
(Unaudited)

Operating efficiency ratio

The operating efficiency ratio is a non-GAAP ratio that is calculated by dividing operating other operating expense (which exclude certain non-operating expense items), exclusive of intangible asset amortization, by the sum of net interest income and operating other operating income (which exclude certain non-operating income items). The following tables set forth the calculation of the operating efficiency ratio:

Northrim BanCorp, Inc.

Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Total other operating expense

$18,337

 

$17,691

 

$18,510

 

$16,615

 

$18,354

Less: core conversion costs
—

 
179

 
633

 
131

 
—

Less: writedown minority interest in equity method investment
686

 
—

 
—

 
—

 
—

Less: compensation expense, net RML acquisition payments
(193
)
 
149

 
—

 
174

 
708

Operating other operating expense

$17,844

 

$17,363

 

$17,877

 

$16,310

 

$17,646

Less: intangible asset amortization
21

 
26

 
27

 
26

 
29

 

$17,823

 

$17,337

 

$17,850

 

$16,284

 

$17,617

Other operating income

$7,952

 

$13,855

 

$9,762

 

$8,905

 

$10,359

Less: gain on sale of Northrim Benefits Group
2

 
4,443

 
—

 
—

 
—

Operating other operating income

$7,950

 

$9,412

 

$9,762

 

$8,905

 

$10,359

Plus: net interest income
14,684

 
14,917

 
14,244

 
13,833

 
13,891

 

$22,634

 

$24,329

 

$24,006

 

$22,738

 

$24,250

   Operating efficiency ratio
78.74
%
 
71.26
%
 
74.36
%
 
71.62
%
 
72.65
%


Operating return on average assets ratio

The operating return on average assets ratio is a non-GAAP ratio that is calculated by dividing operating net income (which exclude certain non-operating income and expense items) by average assets. The following tables set forth the calculation of the operating return on average assets ratio:

Northrim BanCorp, Inc.

Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Operating net income

$3,181

 

$3,100

 

$3,962

 

$4,005

 

$4,007

Divided by average assets
1,519,865

 
1,525,478

 
1,506,820

 
1,491,576

 
1,521,778

Operating return on average assets ratio
0.83
%
 
0.81
%
 
1.05
%
 
1.09
%
 
1.05
%

Northrim BanCorp, Inc.

Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Operating net income

$14,247

 
 
 
 
 
 
 

$17,223

Divided by average assets
1,511,052

 
 
 
 
 
 
 
1,506,522

Operating return on average assets ratio
0.94
%
 
 
 
 
 
 
 
1.14
%










Northrim BanCorp Earns $13.2 Million, or $1.88 per Diluted Share, in 2017
January 29, 2018
28 of 28


(Dollars and shares in thousands, except per share data)
(Unaudited)

Operating return on average equity ratio

The operating return on average equity ratio is a non-GAAP ratio that is calculated by dividing operating net income (which exclude certain non-operating income and expense items) by average shareholders' equity. The following tables set forth the calculation of the operating return on average equity ratio:
Northrim BanCorp, Inc.
Three Months Ended
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
Operating net income

$3,181

 

$3,100

 

$3,962

 

$4,005

 

$4,007

Divided by average shareholders' equity
197,066

 
194,703

 
193,656

 
186,960

 
179,438

Operating return on average equity ratio
6.40
%
 
6.32
%
 
8.21
%
 
8.69
%
 
8.88
%

Northrim BanCorp, Inc.
Year-to-date
 
December 31, 2017
 
 
 
 
 
 
 
December 31, 2016
Operating net income

$14,247

 
 
 
 
 
 
 

$17,223

Divided by average shareholders' equity
193,129

 
 
 
 
 
 
 
181,628

Operating return on average equity ratio
7.38
%
 
 
 
 
 
 
 
9.48
%

-0-
Note Transmitted on GlobeNewswire on January 29, 2018, at 12:15 pm Alaska Standard Time.