nrim-20220630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

☐ 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)

Securities registered pursuant to Section 12(b) of the Act: None


TITLE OF EACH CLASS	TRADING SYMBOL	NAME OF EXCHANGE

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.

ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically 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).

ý Yes ¨ No

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

Large Accelerated Filer ¨ Accelerated Filer ý Non-accelerated Filer ¨

Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

☐ Yes ý No

The number of shares of the issuer’s Common Stock, par value $1 per share, outstanding at August 5, 2022 was 5,681,089.


TABLE OF CONTENTS

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders' Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to the Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	58

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	60
Item 6.	Exhibits	60
SIGNATURES		61

PART I. FINANCIAL INFORMATION

These consolidated financial statements should be read in conjunction with the consolidated financial statements, accompanying notes and other relevant information included in Northrim BanCorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

NORTHRIM BANCORP, INC.

Consolidated Balance Sheets

(Unaudited)


	June 30, 2022	December 31, 2021
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks	$24,035	$20,805
Interest bearing deposits in other banks	312,888	625,022
Investment securities available for sale, at fair value	612,027	426,684
Marketable equity securities	9,122	8,420
Investment securities held to maturity, at amortized cost	29,750	20,000
Investment in Federal Home Loan Bank stock	3,824	3,107

Loans held for sale	63,080	73,650

Loans	1,405,709	1,413,886
Allowance for credit losses, loans	(11,537)	(11,739)
Net loans	1,394,172	1,402,147
Purchased receivables, net	15,277	6,987
Mortgage servicing rights, at fair value	16,301	13,724
Other real estate owned, net	5,638	5,638
Premises and equipment, net	37,106	37,164
Operating lease right-of-use assets	9,875	11,001
Goodwill	15,017	15,017
Other intangible assets, net	980	992
Other assets	62,062	54,361
Total assets	$2,611,154	$2,724,719
LIABILITIES
Deposits:
Demand	$830,156	$887,824
Interest-bearing demand	666,283	692,683
Savings	349,208	348,164
Money market	319,843	314,996
Certificates of deposit less than $250,000	96,630	100,851
Certificates of deposit $250,000 and greater	73,270	77,113
Total deposits	2,335,390	2,421,631

Borrowings	14,302	14,508
Junior subordinated debentures	10,310	10,310
Operating lease liabilities	9,846	10,965
Other liabilities	26,017	29,488
Total liabilities	2,395,865	2,486,902
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, 5,681,089 and 6,014,813 issued and outstanding at June 30, 2022 and December 31, 2021, respectively	5,681	6,015
Additional paid-in capital	17,716	31,162
Retained earnings	211,232	204,046
Accumulated other comprehensive loss, net of tax	(19,340)	(3,406)
Total shareholders' equity	215,289	237,817
Total liabilities and shareholders' equity	$2,611,154	$2,724,719

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Income

(Unaudited)


	Three Months Ended		Six Months Ended
	June 30,		June 30,
(In Thousands, Except Per Share Data)	2022	2021	2022	2021
Interest and Dividend Income
Interest and fees on loans and loans held for sale	$19,807	$18,963	$38,075	$38,387
Interest on investment securities available for sale	1,926	815	3,061	1,593
Dividends on marketable equity securities	113	126	225	213
Interest on investment securities held to maturity	352	265	625	511
Dividends on Federal Home Loan Bank stock	28	23	56	46
Interest on deposits in other banks	766	61	1,008	99
Total Interest and Dividend Income	22,992	20,253	43,050	40,849
Interest Expense
Interest expense on deposits	599	879	1,174	1,828

Interest expense on borrowings	87	88	173	148
Interest expense on junior subordinated debentures	94	94	187	188
Total Interest Expense	780	1,061	1,534	2,164
Net Interest Income	22,212	19,192	41,516	38,685
Provision (benefit) for credit losses	463	(427)	313	(1,915)
Net Interest Income After Provision (Benefit) for Credit Losses	21,749	19,619	41,203	40,600
Other Operating Income
Mortgage banking income	5,900	11,360	12,882	24,982
Bankcard fees	927	879	1,731	1,619
Purchased receivable income	566	575	968	1,107
Service charges on deposit accounts	402	308	776	598
Gain on sale of marketable equity securities, net	—	31	—	31
Keyman life insurance proceeds	—	—	2,002	—
Unrealized (loss) gain on marketable equity securities	(810)	178	(1,232)	94

Other income	822	801	1,503	1,597
Total Other Operating Income	7,807	14,132	18,630	30,028
Other Operating Expense
Salaries and other personnel expense	15,401	14,917	29,507	29,645
Data processing expense	2,311	2,206	4,303	4,241
Occupancy expense	1,748	1,869	3,474	3,529
Marketing expense	814	672	1,239	1,076
Professional and outside services	708	642	1,430	1,266
Insurance expense	516	329	1,082	643
OREO expense, net rental income and gains on sale	19	47	7	11
Intangible asset amortization expense	6	9	12	18



Other operating expense	1,715	1,645	3,285	3,234
Total Other Operating Expense	23,238	22,336	44,339	43,663
Income Before Provision for Income Taxes	6,318	11,415	15,494	26,965
Provision for income taxes	1,523	3,070	3,473	6,439


Net Income	$4,795	$8,345	$12,021	$20,526
Earnings Per Share, Basic	$0.83	$1.34	$2.05	$3.30
Earnings Per Share, Diluted	$0.83	$1.33	$2.03	$3.27
Weighted Average Shares Outstanding, Basic	5,750,873	6,206,913	5,844,455	6,213,392
Weighted Average Shares Outstanding, Diluted	5,805,870	6,277,265	5,902,287	6,280,369

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

2010


	Three Months Ended June 30,		Six Months Ended June 30,
(In Thousands)	2022	2021	2022	2021
Net income	$4,795	$8,345	$12,021	$20,526
Other comprehensive income (loss), net of tax:
Securities available for sale:
Unrealized holding (losses) arising during the period	($7,715)	($90)	($24,017)	($1,608)



Derivatives and hedging activities:
Unrealized holding (losses) gains arising during the period	827	(587)	1,754	673
Income tax benefit related to unrealized gains and losses	1,958	189	6,329	266
Other comprehensive (loss), net of tax	(4,930)	(488)	(15,934)	(669)
Comprehensive (loss) income	($135)	$7,857	($3,913)	$19,857

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)


	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss), net of Tax	Total
	Number of Shares	Par Value
(In Thousands)
Balance as of January 1, 2021	6,251	$6,251	$41,808	$173,498	$18	$221,575
Cash dividend on common stock ($0.37 per share)	—	—	—	(2,313)	—	(2,313)
Stock-based compensation expense	—	—	280	—	—	280
Exercise of stock options and vesting of restricted stock units, net	17	17	(295)	—	—	(278)
Repurchase of common stock	(61)	(61)	(2,151)	—	—	(2,212)
Other comprehensive loss, net of tax	—	—	—	—	(181)	(181)
Cumulative effect of adoption of ASU 2016-13	—	—	—	2,400	—	2,400

Net income	—	—	—	12,181	—	12,181
Balance as of March 31, 2021	6,207	$6,207	$39,642	$185,766	($163)	$231,452
Cash dividend on common stock ($0.37 per share)	—	—	—	(2,320)	—	(2,320)
Stock-based compensation expense	—	—	229	—	—	229


Other comprehensive loss, net of tax	—	—	—	—	(488)	(488)
Net income	—	—	—	8,345	—	8,345
Balance as of June 30, 2021	6,207	$6,207	$39,871	$191,791	($651)	$237,218
Cash dividend on common stock ($0.38 per share)	—	—	—	(2,384)	—	(2,384)
Stock-based compensation expense	—	—	232	—	—	232

Repurchase of common stock	(30)	(30)	(1,174)	—	—	(1,204)
Other comprehensive loss, net of tax	—	—	—	—	(265)	(265)
Net income	—	—	—	8,877	—	8,877
Balance as of September 30, 2021	6,177	$6,177	$38,929	$198,284	($916)	$242,474
Cash dividend on common stock ($0.38 per share)	—	—	—	(2,352)	—	(2,352)
Stock-based compensation expense	—	—	332	—	—	332
Exercise of stock options and vesting of restricted stock units, net	26	26	(169)	—	—	(143)
Repurchase of common stock	(188)	(188)	(7,930)	—	—	(8,118)
Other comprehensive loss, net of tax	—	—	—	—	(2,490)	(2,490)
Net income	—	—	—	8,114	—	8,114
Balance as of December 31, 2021	6,015	$6,015	$31,162	$204,046	($3,406)	$237,817

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Continued)

(Unaudited)


	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss), net of Tax	Total
	Number of Shares	Par Value
(In Thousands)
Balance as of January 1, 2022	6,015	$6,015	$31,162	$204,046	($3,406)	$237,817
Cash dividend on common stock ($0.41 per share)	—	—	—	(2,471)	—	(2,471)
Stock-based compensation expense	—	—	187	—	—	187

Repurchase of common stock	(133)	(133)	(5,790)	—	—	(5,923)
Other comprehensive loss, net of tax	—	—	—	—	(11,004)	(11,004)

Net income	—	—	—	7,226	—	7,226
Balance as of March 31, 2022	5,882	$5,882	$25,559	$208,801	($14,410)	$225,832
Cash dividend on common stock ($0.41 per share)	—	—	—	(2,364)	—	(2,364)
Stock-based compensation expense	—	—	190	—	—	190

Repurchase of common stock	(201)	(201)	(8,033)	—	—	(8,234)
Other comprehensive loss, net of tax	—	—	—	—	(4,930)	(4,930)
Net income	—	—	—	4,795	—	4,795
Balance as of June 30, 2022	5,681	$5,681	$17,716	$211,232	($19,340)	$215,289

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
(In Thousands)	2022	2021
Operating Activities:
Net income	$12,021	$20,526
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:
Gain on sale of securities, net	—	(31)

Depreciation and amortization of premises and equipment	1,585	1,632
Amortization of software	587	574
Intangible asset amortization	12	18
Amortization of investment security premium, net of discount accretion	347	223
Unrealized loss (gain) on marketable equity securities	1,232	(94)
Deferred tax (benefit) expense	—	958
Stock-based compensation	377	509

Deferred loan fees and amortization, net of costs	(3,247)	5,710
Provision (benefit) for credit losses	313	(1,915)

Additions to home mortgage servicing rights carried at fair value	(2,115)	(3,193)
Change in fair value of home mortgage servicing rights carried at fair value	(462)	1,576
Change in fair value of commercial servicing rights carried at fair value	48	76
Gain on sale of loans	(8,569)	(21,265)
Proceeds from the sale of loans held for sale	353,737	648,901
Origination of loans held for sale	(334,598)	(587,277)
Gain on sale of other real estate owned	—	(189)


Proceeds from keyman life insurance	(2,002)	—
Net changes in assets and liabilities:
(Increase) in accrued interest receivable	(1,271)	132
Decrease in other assets	3,324	6,277
(Decrease) in other liabilities	(6,010)	(4,698)
Net Cash Provided by Operating Activities	15,309	68,450
Investing Activities:
Investment in securities:
Purchases of investment securities available for sale	(214,703)	(173,968)
Purchases of marketable equity securities	(1,937)	(493)
Purchases of FHLB stock	(727)	(570)
Purchases of investment securities held to maturity	(9,750)	(10,000)
Proceeds from sales/calls/maturities of securities available for sale	5,000	82,575
Proceeds from sales of marketable equity securities	—	47


Proceeds from redemption of FHLB stock	10	7
(Increase) decrease in purchased receivables, net	(8,290)	1,422
Decrease (increase) in loans, net	11,116	(49,921)
Proceeds from sale of other real estate owned	—	679

Proceeds from keyman life insurance	2,002	—
Purchases of software	(14)	(76)

Purchases of premises and equipment	(1,527)	(1,732)
Net Cash (Used) by Investing Activities	(218,820)	(152,030)
Financing Activities:
(Decrease) increase in deposits	(86,241)	321,457

(Decrease) in borrowings	(206)	(137)
Repurchase of common stock	(14,157)	(2,212)
Proceeds from the issuance of common stock	—	5

Cash dividends paid	(4,789)	(4,613)
Net Cash (Used) Provided by Financing Activities	(105,393)	314,500
Net Change in Cash and Cash Equivalents	(308,904)	230,920


Cash and Cash Equivalents at Beginning of Period	645,827	115,965
Cash and Cash Equivalents at End of Period	$336,923	$346,885
Supplemental Information:
Income taxes paid	$40	$1,852
Interest paid	$1,471	$2,132

Transfer of loans to other real estate owned	$—	$274


Non-cash lease liability arising from obtaining right of use assets	$—	$79
Cash dividends declared but not paid	$46	$45