Northrim Bancorp Inc. 10-Q Summary (Period Ended June 30, 2009)
Business Context and Reporting Period
This filing covers the quarterly period ended June 30, 2009. Northrim Bancorp, Inc. is a publicly traded bank holding company (Nasdaq: NRIM) headquartered in Anchorage, Alaska. The company operates primarily through its wholly-owned subsidiary, Northrim Bank, and holds interests in mortgage, investment advisory, and employee benefit subsidiaries. The company operates as a single segment focused on commercial, construction, and real estate lending within Alaska and select Pacific Northwest markets.
Key Financial Metrics
| Metric | Q2 2009 (3 Months) | YTD 2009 (6 Months) | Q2 2008 (3 Months) | YTD 2008 (6 Months) |
|---|---|---|---|---|
| Net Income (Attributable to Northrim) | $1.877 million | $3.832 million | $1.439 million | $3.587 million |
| Earnings Per Share (Diluted) | $0.29 | $0.60 | $0.22 | $0.55 |
| Total Assets | $975.7 million | - | $1,043.4 million | - |
| Total Loans (Gross) | $684.9 million | - | $710.1 million | - |
| Total Deposits | $819.1 million | - | $902.0 million | - |
| Net Interest Income | $11.666 million | $22.842 million | $11.466 million | $23.661 million |
| Provision for Loan Losses | $2.117 million | $3.492 million | $1.999 million | $3.699 million |
| Allowance for Loan Losses | $13.187 million | - | $13.519 million | - |
| Shareholders' Equity | $108.0 million | - | $102.0 million | - |
Material Changes vs. Prior Period
- Profitability: Net income increased 30% year-over-year for the quarter and 7% year-over-year for the six-month period. This was driven primarily by a 28% increase in other operating income, offsetting a slight decrease in net interest income for the six-month period.
- Loan Portfolio: Total loans decreased 4% year-over-year to $684.9 million. Commercial real estate loans increased 18%, while construction/development loans decreased 31% and commercial loans decreased 10% due to refinance activity and lower construction originations.
- Asset Quality: Nonperforming loans decreased to $20.0 million (2.92% of total loans) from $26.0 million at year-end 2008, though they remain higher than the $18.1 million recorded in Q2 2008. Net charge-offs increased significantly to $2.3 million for the quarter compared to $1.1 million in Q2 2008.
- Deposits: Total deposits declined 9% year-over-year to $819.1 million, largely due to the departure of one large customer, partially offset by an increase in public deposits from the Alaska Permanent Fund.
- Expenses: Insurance expense surged 328% year-over-year for the quarter, primarily due to a special FDIC assessment of $420,000 and increased regular assessments. OREO expenses decreased 57% due to lower impairment charges.
Guidance, Outlook, and Risks
- Outlook: Management expects the loan portfolio to decrease slightly in the future, with moderate growth in commercial real estate offset by declines in construction and consumer loans. The company anticipates lower mortgage refinance activity in future periods, which will reduce earnings from its mortgage affiliate.
- Asset Quality Strategy: Management intends to aggressively reduce loans measured for impairment and Other Real Estate Owned (OREO). The goal is to reduce these balances by 10% from June 30, 2009 levels by December 31, 2009.
- Capital: The company maintains a "well-capitalized" status. Management intends to maintain a Tier 1 risk-based capital ratio for the Bank in excess of 10% throughout 2009.
- Risks: Key risks include the general condition of the Alaska economy, specifically the slowdown in residential real estate sales and construction. There is also exposure to interest rate risk, though the company is currently asset-sensitive. Goodwill impairment remains a risk if the stock price continues to trade at a significant discount to book value.
- Unusual Items: The Q2 2009 results included a one-time special FDIC assessment of $420,000. Additionally, the company recognized gains on the sale of OREO properties ($115,000 in Q2) which contributed to other operating income.
Investor Verification Checklist
- FDIC Assessments: Verify the impact of the special FDIC assessment and the potential for additional assessments later in 2009 as noted by management.
- Construction Loan Exposure: Review the specific composition of the $79.5 million construction/development loan portfolio and the trajectory of nonperforming assets in this sector.
- Mortgage Affiliate Earnings: Assess the sustainability of the 180% increase in earnings from the mortgage affiliate (RML), given management's expectation of declining refinance activity.
- OREO Valuation: Examine the $11.6 million OREO portfolio, specifically the $370,000 in expected capital expenditures to complete projects by September 2009 and the associated sales risks.
- Deposit Concentration: Confirm the stability of the Alaska Permanent Fund deposits ($35.2 million) which offset the loss of a major customer.