Northrim BanCorp, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. Northrim is an Alaska-based bank holding company operating Community Banking and Home Mortgage Lending businesses. It reported $2.8 billion in assets and $2.5 billion in deposits at year-end.
Financial results and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $103.3 million | $95.1 million |
| Other operating income | $26.4 million | $34.1 million |
| Net income | $25.4 million | $30.7 million |
| Diluted earnings per share | $4.49 | $5.27 |
| Net interest margin | 4.14% | 3.85% |
| Efficiency ratio | 72.64% | 68.76% |
| Total assets | $2.81 billion | $2.67 billion |
| Portfolio loans | $1.79 billion | $1.50 billion |
| Deposits | $2.49 billion | $2.39 billion |
| Shareholders’ equity | $234.7 million | $218.6 million |
- Earnings and revenue: Net income fell 17%. Higher loan and investment yields lifted net interest income, but rising deposit and borrowing costs partly offset the gain. Total revenue—net interest income plus other operating income—was $129.6 million, little changed from $129.2 million in 2022.
- Segment performance: Community Banking net income declined 12% to $27.9 million. Home Mortgage Lending recorded a $2.5 million loss, versus a $0.9 million loss in 2022.
- Cash flow: Operating activities provided $38.9 million, investing activities used $255.1 million, and financing activities provided $75.3 million. Cash and cash equivalents ended the year at $118.5 million, down from $259.4 million.
- Credit quality: Net nonperforming loans were $5.0 million, or 0.28% of portfolio loans, compared with $6.4 million, or 0.43%, in 2022. The loan allowance was $17.3 million, 0.97% of portfolio loans, up from $13.8 million, or 0.92%.
- Debt and capital: Year-end borrowings were $13.7 million, plus $10.3 million in junior subordinated debentures. The Bank’s capital ratios exceeded regulatory “well-capitalized” thresholds; its common equity Tier 1 ratio was 9.89% and total risk-based capital ratio was 10.81%.
- Liquidity: Management reported $575.6 million of liquid assets and $742.9 million available under existing borrowing lines. Uninsured deposits were $1.0 billion, or 41% of total deposits. Certificates of deposit totaling $268.5 million mature in 2024.
Material changes versus 2022
- Loans grew 19% and deposits grew 4%. Loan growth was funded partly by investment maturities and calls; the securities portfolio declined 5% to $687.8 million.
- Mortgage banking income fell 41% to $12.8 million as mortgage loans originated and sold declined to $376.2 million from $585.5 million. Northrim retained $146.3 million of mortgage originations on its balance sheet, versus $34.6 million in 2022.
- Interest expense rose to $28.7 million from $5.2 million, chiefly reflecting sharply higher deposit rates and balances. Other operating expenses increased 6% to $94.2 million, including higher personnel, technology, occupancy, and insurance costs.
- Cash and cash equivalents declined by $140.8 million, primarily as loan growth outpaced deposit growth. Accumulated other comprehensive loss improved to $16.4 million from $29.1 million, mainly as unrealized losses on available-for-sale securities narrowed.
Outlook, risks, and unusual items
Management said it intends to grow market share and the balance sheet in 2024, particularly through commercial lending, and expects its factoring business to continue contributing to profitability. It plans to maintain Bank capital above “well-capitalized” requirements and stated that available liquidity should be sufficient for the foreseeable future. The filing gives no quantified earnings, revenue, or margin guidance.
- Key exposures include Alaska’s economy and its oil, tourism, and government-related industries; real estate collateral; commercial real estate; and large borrower relationships. About 72% of loans were real-estate-secured, commercial real estate was about 49% of the loan portfolio, and 39% of loans were attributable to 50 large borrowing relationships.
- Management highlights interest-rate and deposit-pricing risk, potential securities-sale losses, inflation and borrower stress, mortgage-market volatility, liquidity demands, credit-loss-estimate uncertainty, cybersecurity and vendor risks, and evolving regulation. Held-to-maturity securities had $3.3 million of unrealized losses at year-end; management said it did not intend to sell them.
- The Bank reported no discount-window or Bank Term Funding Program advances outstanding at year-end. The BTFP was available only through March 11, 2024, according to the filing.
- Northrim received $929,000 in 2023 from a government guarantee related to an OREO property sold in 2022 and received a further $392,000 in January 2024; no further proceeds were expected. The company repurchased 208,673 shares in 2023 and paid $2.40 per share in dividends.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter. Management reported no material cybersecurity incident affecting the company through the filing date and no litigation expected to have a material effect.
Important facts for investors to verify
- Whether loan and deposit growth can continue without materially increasing funding costs, credit provisions, or liquidity pressure.
- Trends in commercial real estate, construction and land-development exposures, large borrower concentrations, and allowance adequacy.
- How mortgage origination volumes and profitability respond to interest-rate and housing-market changes.
- Uninsured deposit levels, 2024 certificate maturities, borrowing capacity and collateral availability, including funding options after the BTFP’s stated end date.
- The effects of share repurchases, dividend commitments, and the narrowing—but still present—unrealized securities losses on capital and liquidity.