Northrim BanCorp, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited consolidated results include Community Banking and Home Mortgage Lending; the bank operates 19 branches in Alaska. Financial amounts below are in millions unless noted.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net interest income | $25.1 | $22.2 | $50.2 | $41.5 |
| Net interest margin | 4.14% | 3.67% | 4.18% | 3.42% |
| Provision for credit losses | $1.4 | $0.5 | $1.8 | $0.3 |
| Net income | $5.6 | $4.8 | $10.4 | $12.0 |
| Diluted EPS | $0.98 | $0.83 | $1.82 | $2.03 |
- Q2 pretax income was $6.9 million; Q2 operating expenses were $23.8 million. Annualized return on average assets was 0.85% and return on average equity was 9.85%.
- At June 30, total assets were $2.638 billion, loans $1.659 billion, deposits $2.302 billion, total liabilities $2.417 billion, and shareholders’ equity $221.3 million.
- Cash and cash equivalents were $36.8 million, down from $259.4 million at year-end 2022. First-half operating, investing, and financing cash flows were negative $22.5 million, $155.3 million, and $44.8 million, respectively.
- Borrowings totaled $64.9 million, up from $14.1 million at year-end. This included a $50 million FHLB advance at 5.49% maturing November 14, 2023. Junior subordinated debentures were $10.3 million.
- Management reported $442.9 million of liquid assets and investments and loans maturing within one year, plus $1.224 billion available under borrowing lines. Regulatory capital ratios exceeded well-capitalized thresholds: Bank total risk-based capital 11.16%, CET1 10.27%, and leverage 7.83%.
Changes and operating trends
- Q2 net income rose 16% year over year, primarily on a $2.9 million increase in net interest income, partly offset by lower mortgage banking income and higher credit-loss provision. First-half net income fell 13%, reflecting weaker mortgage banking results, higher provision, and the absence of $2.0 million of life-insurance proceeds recognized in first-half 2022.
- Net interest income increased as loan and investment yields rose. Higher funding costs partially offset the benefit: Q2 average interest-bearing deposit cost increased to 1.56% from 0.16% a year earlier.
- Loans grew 10% from December 2022, primarily commercial and consumer mortgage lending. Deposits declined 4%; demand deposits fell 11%. Certificates of deposit rose to $287.5 million, with $175.9 million maturing within 12 months.
- Mortgage banking income was $3.9 million in Q2 versus $5.9 million in Q2 2022, and $5.9 million for the first half versus $12.9 million. Management attributed the decline chiefly to lower mortgage production amid higher rates. First-half operating expenses rose 7% to $47.3 million.
Credit, liquidity, outlook, and risks
- Loan allowance for credit losses was $15.6 million, up from $13.8 million at year-end; first-half loan credit-loss expense was $1.8 million. Management cited loan growth and lower assumed prepayment and curtailment speeds, partly offset by improved forecast economic factors.
- Nonperforming assets, net of government guarantees, were $5.6 million, down from $6.4 million at year-end. Net nonperforming loans were $5.3 million; potential problem loans were $1.7 million. Uninsured deposits were $910.7 million, or 40% of total deposits, versus $1.1 billion, or 46%, at year-end.
- Available-for-sale securities had $38.4 million of gross unrealized losses at June 30; held-to-maturity securities had $4.2 million. Management attributed losses primarily to interest rates, said it did not intend to sell and expected not to need to sell before recovery, and recorded no credit allowance for these securities. After-tax accumulated unrealized losses were $27.5 million on available-for-sale securities and $3.0 million on held-to-maturity securities.
- Management stated liquidity was sufficient for the foreseeable future, while noting that unexpected deposit withdrawals or draws on $418.2 million of unfunded loan and letter-of-credit commitments could increase liquidity needs. It expected to continue receiving Bank dividends during the remainder of 2023, subject to regulatory constraints.
- No specific earnings or growth guidance was provided. Management identified risks including further rate increases, securities values, deposit and funding competition, Alaska economic conditions, real-estate values, borrower stress, credit-loss estimate uncertainty, regulatory changes, and cybersecurity threats. The filing reported no material change in market-risk disclosures, no material change in internal controls, and no legal proceedings expected to materially affect the company.
- Other notable items: the company repurchased 89,887 shares in the first half, with 195,113 shares remaining under its authorization. The fair value of mortgage servicing rights was $18.2 million and is sensitive to prepayment and discount-rate assumptions.
Important facts for investors to verify
- Whether deposit trends, uninsured deposits, and the $175.9 million of near-term CD maturities remain manageable, and whether the $50 million November FHLB maturity is refinanced or repaid.
- Whether loan growth and portfolio concentrations—including commercial real estate, oil-and-gas-related borrowers, and other Alaska industries—lead to further credit deterioration or allowance increases.
- Whether net interest margin holds up as deposit costs reprice and market rates change, and whether mortgage production and mortgage banking income stabilize.
- How the securities portfolio’s unrealized losses, liquidity sources, and reported capital ratios evolve; confirm current regulatory capital and available borrowing capacity in subsequent filings.