ANCHORAGE, Alaska, July 27, 2023 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NRIM, Financial) (“Northrim” or the “Company”) today reported net income of $5.6 million, or $0.98 per diluted share, in the second quarter of 2023, compared to $4.8 million, or $0.84 per diluted share, in the first quarter of 2023, and $4.8 million, or $0.83 per diluted share, in the second quarter a year ago. The increase in second quarter 2023 profitability as compared to the prior quarter was primarily the result of higher mortgage banking income. This increase was partially offset by a higher provision for credit losses compared to the preceding quarter due to loan growth. The increase in profitability in the second quarter of 2023 compared to the same period a year ago was primarily due to an increase in net interest income, which was only partially offset by a higher provision for credit losses and a decrease in mortgage banking income.
Dividends per share in the second quarter remained consistent with the first quarter of 2023 at $0.60 per share and increased 48% from $0.41 per share in the second quarter of 2022.
“We had solid loan growth in the second quarter as we continue to establish new customer relationships and gain market share,” said Joe Schierhorn, President and Chief Executive Officer Northrim BanCorp, Inc. “We continue to face increased deposit and funding costs but expect stabilization of our net interest margin in future quarters as lower yielding securities and loans begin to reprice.Credit remains strong but we remain vigilant as businesses adjust to increased expenses due to inflation and interest costs due to the rate environment.”
Second Quarter 2023 Highlights:
- Net interest income in the second quarter of 2023 increased slightly to $25.1 million compared to $25.0 million in the first quarter of 2023 and increased 13% compared to $22.2 million in the second quarter of 2022.
- Net interest margin on a tax equivalent basis (“NIMTE”)* was 4.21% for the second quarter of 2023, a 9-basis point decrease from the first quarter of 2023 and a 51-basis point increase compared to the second quarter of 2022 due primarily to the increased yields on loans, investments, and cash.
- The weighted average interest rate for new portfolio loans booked in the second quarter of 2023 was 6.93% compared to 6.42% in the first quarter of 2023 and 5.07% in the second quarter a year ago.
- Return on average assets (“ROAA”) was 0.85% and return on average equity (“ROAE”) was 9.85% for the second quarter of 2023.
- Portfolio loans were $1.66 billion at June 30, 2023, up 8% from the preceding quarter and up 18% from a year ago, primarily due to new customer relationships and expanding market share. Approximately 74% of portfolio loans are variable and 15% of earning assets are subject to rate increases immediately when prime or other rate indices increase.
- Total deposits were $2.30 billion at June 30, 2023, up slightly from the preceding quarter, and down 1% from $2.34 billion a year ago. Demand deposits decreased 14% year-over-year to $711.4 million at June 30, 2023 and currently represent 31% of total deposits.
- The average cost of interest-bearing deposits was 1.56% at June 30, 2023, up from 1.20% at March 31, 2023 and 0.16% at June 30, 2022.
- Total liquid assets and investments and loans maturing within one year were $442.9 million and our funds available for borrowing under our existing lines of credit were $1.2 billion at June 30, 2023.
| Financial Highlights | Three Months Ended | ||||||||||||||
| (Dollars in thousands, except per share data) | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | ||||||||||
| Total assets | $2,638,207 | $2,580,037 | $2,674,318 | $2,717,514 | $2,611,154 | ||||||||||
| Total portfolio loans | $1,659,239 | $1,535,187 | $1,501,785 | $1,407,266 | $1,405,709 | ||||||||||
| Total portfolio loans (excluding PPP loans) | $1,655,660 | $1,531,007 | $1,494,675 | $1,395,932 | $1,373,837 | ||||||||||
| Total deposits | $2,302,311 | $2,296,273 | $2,387,211 | $2,439,335 | $2,335,390 | ||||||||||
| Total shareholders’ equity | $221,336 | $224,425 | $218,629 | $210,699 | $215,289 | ||||||||||
| Net income | $5,577 | $4,830 | $8,595 | $10,125 | $4,795 | ||||||||||
| Diluted earnings per share | $0.98 | $0.84 | $1.48 | $1.76 | $0.83 | ||||||||||
| Return on average assets | 0.85 | % | 0.76 | % | 1.26 | % | 1.52 | % | 0.74 | % | |||||
| Return on average shareholders’ equity | 9.85 | % | 8.73 | % | 15.71 | % | 18.18 | % | 8.58 | % | |||||
| NIM | 4.14 | % | 4.22 | % | 4.31 | % | 4.22 | % | 3.67 | % | |||||
| NIMTE* | 4.21 | % | 4.30 | % | 4.36 | % | 4.27 | % | 3.70 | % | |||||
| Efficiency ratio | 74.03 | % | 78.51 | % | 65.23 | % | 63.69 | % | 77.39 | % | |||||
| Total shareholders’ equity/total assets | 8.39 | % | 8.70 | % | 8.18 | % | 7.75 | % | 8.24 | % | |||||
| Tangible common equity/tangible assets* | 7.83 | % | 8.13 | % | 7.62 | % | 7.21 | % | 7.68 | % | |||||
| Book value per share | $39.45 | $39.56 | $38.35 | $37.09 | $37.90 | ||||||||||
| Tangible book value per share* | $36.60 | $36.74 | $35.55 | $34.27 | $35.08 | ||||||||||
| Dividends per share | $0.60 | $0.60 | $0.50 | $0.50 | $0.41 | ||||||||||
| Common stock outstanding | 5,610,841 | 5,672,841 | 5,700,728 | 5,681,089 | 5,681,089 | ||||||||||
* References to NIMTE, tangible book value per share, tangible common equity to tangible assets, and tangible common equity to tangible assets, excluding the fair value of the available for sale securities portfolio (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.
Alaska Economic Update
(Note: sources for information included in this section are included on page 13.)
The Alaska Department of Labor ("DOL") has released preliminary jobs data through May of 2023. The DOL reported Alaska’s seasonally adjusted unemployment rate for May of 2023 decreased to 3.6%, which is now lower than the U.S. rate, which rose to 3.7%. The DOL reports total payroll jobs in Alaska increased 1.8% or 5,800 jobs compared to May of 2022.
According to the DOL, Leisure and Hospitality had the largest growth of 7.2% year over year in May 2023. The 2,600 job increase over the prior 12 months brings the sector to 38,700 jobs, which is higher than the pre-pandemic level. Professional and Business Services added 800 jobs and Health Care increased by 600 jobs over the same 12 month period. The Oil and Gas sector has benefited from higher energy prices and new exploration activity, resulting in an increase of 300 jobs or 4.3% since May of 2022. Transportation, Warehousing and Utilities added 400 jobs and Retail also increased by 400 jobs year over year compared to May of 2022. Manufacturing, which is primarily seafood processing, declined 500 jobs and Information decreased 100 jobs for the same 12 month period.
Alaska’s Gross State Product (“GSP”) in the first quarter of 2023, was estimated to be $63.8 billion in current dollars, according to the Federal Bureau of Economic Analysis ("BEA"). Alaska’s inflation adjusted “real” GSP grew 1.6% at annualized rates in the first quarter of 2023, compared to the average U.S. rate of 2%. Alaska’s real GSP improvement in the first quarter of 2023 was most positively impacted by gains in the Construction and Health Care sectors.
The BEA also calculated Alaska’s seasonally adjusted personal income at $52.1 billion in the first quarter of 2023. This was an annualized improvement of 7.2% for Alaska and larger than the national average of 5.1%. Alaskans had annualized wage earnings growth of 6.6%, compared to a U.S. average of 4.6% in the first quarter of 2023 as compared to a year ago.
The monthly average price of Alaska North Slope (“ANS”) crude oil has been in a stable range between $75.81 and $82.83 in the first six months of 2023. The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 486 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2022. The DOR has forecast production to increase to 494 thousand bpd in Alaska’s fiscal year 2023 and 504 thousand bpd in 2024. That number is projected by the DOR to grow to 556 thousand bpd in 2028. This is primarily a result of new production coming on line in the NPR-A region west of Prudhoe Bay.
According to the Mortgage Bankers Association, Alaska’s home mortgage delinquency rate in the first quarter of 2023 improved to 2.7% compared to 2.9% in the fourth quarter of 2022. Alaska’s delinquency rate of 2.7% compares to the national average rate of 3.3% for the first quarter of 2023. The Mortgage Bankers Association survey reported that the mortgage foreclosure inventory in Alaska in the first quarter of 2023 was 0.54% and the national average was 0.57%.
According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 7.6% in 2022 to $456,544. This was the fifth consecutive year of price increases, following growth of 6.9% in 2021 and 5.8% in 2020. In the first six months of 2023, the average sales price in Anchorage continued to increase 3.7% to $473,330.
Average sales prices for single family homes in the Matanuska Susitna Borough rose 9.9% in 2022 to $382,504, continuing a trend of average price increases for more than a decade. Average home prices in the Matanuska Susitna Borough increased 15.6% in 2021 and 9.9% in 2020. In the first six months of 2023, the average sales price in the Matanuska Susitna Borough has increased 3.5% to $395,952. These two markets represent the regions where the vast majority of Northrim Bank’s residential lending activity occurs.
The Alaska Multiple Listing Services reported there were 934 housing units sold in Anchorage in the first six months of 2023, compared to 1,298 in the first half of 2022 for a decline of 33.2%. Anchorage home sales also declined by 21.2% in 2022 compared to 2021. “A lack of inventory due to a reduction in the supply of new homes being constructed and a lower churn of existing homes being listed on the market are the primary reasons for the decline in sales,” explains Mark Edwards, EVP Chief Credit Officer and Bank Economist. “The limited supply of homes is not keeping up with demand and therefore price increases are continuing, despite the higher interest rate environment,” he concludes. The Matanuska Susitna Borough also experienced a lower volume of home sales in the last 18 months. For the first six months of 2023 there were 761 homes sales in the Matanuska Susitna Borough, compared to 1,077 in the first half of 2022 for a decrease of 29.3%. Matanuska Susitna Borough home sales also declined 11.9% in 2022 compared to the prior year according to the Alaska Multiple Listing Services.
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 earnings release.
Review of Income Statement
Consolidated Income Statement
In the second quarter of 2023, Northrim generated a ROAA of 0.85% and a ROAE of 9.85%, compared to 0.76% and 8.73%, respectively, in the first quarter of 2023 and 0.74% and 8.58%, respectively, in the second quarter a year ago.
Net Interest Income/Net Interest Margin
Net interest income increased slightly to $25.1 million in the second quarter of 2023 compared to $25.0 million in the first quarter of 2023 and increased 13% compared to $22.2 million in the second quarter of 2022. Interest expense on deposits increased to $6.1 million in the second quarter compared to $4.6 million in the first quarter of 2023 and $599,000 in the second quarter of 2022.
NIMTE* was 4.21% in the second quarter of 2023 compared to 4.30% in the preceding quarter and 3.70% in the second quarter a year ago. NIMTE* decreased 9 basis points in the second quarter of 2023 compared to the prior quarter mostly due to an increase in the cost of interest-bearing deposits and borrowings and increased 51 basis points compared to the second quarter of 2022 primarily due to higher yields on portfolio loans, investments, and interest bearing deposits in other banks. This increase in yields in the second quarter of 2023 compared to the second quarter of 2022 was only partially offset by higher rates on interest-bearing deposits and borrowings. The weighted average interest rate for new loans booked in the second quarter of 2023 was 6.93% compared to 6.42% in the first quarter of 2023 and 5.07% in the second quarter a year ago. No long-term investments were purchased in the second quarter of 2023, however, the Company purchased long-term investments in the first quarter of 2023 with a weighted average yield of 7.21% compared to 3.22% in the second quarter a year ago. “We expect our net interest margin to remain relatively stable as estimated increases in earning-asset yields and the change in mix of our earning-assets with the maturing of low rate investment securities supporting future loan growth to likely to be offset by increases in deposit rates, as the deposit market remains competitive in this rising interest rate environment,” said Jed Ballard, Chief Financial Officer. Northrim’s NIMTE* continues to remain above the peer average posted by the S&P U.S. Small Cap Bank Index with total market capitalization between $250 million and $1 billion as of March 31, 20231.
Provision for Credit Losses
Northrim recorded a provision for credit losses of $1.4 million in the second quarter of 2023, which includes a $103,000 benefit to the provision for credit losses on unfunded commitments and a provision for credit losses on loans of $1.5 million. This compares to a provision for credit losses of $360,000 in the first quarter of 2023, and a provision for credit losses of $463,000 in the second quarter a year ago. The increase in the provision for credit losses on loans in the second quarter of 2023 is primarily due to loan growth during the quarter which was only partially offset by a slight improvement in management's forecasted economic factors.
Nonperforming loans, net of government guarantees, decreased during the quarter to $5.3 million at June 30, 2023, compared to $6.1 million at March 31, 2023, and decreased compared to $7.3 million at June 30, 2022.
The allowance for credit losses was 292% of nonperforming loans, net of government guarantees, at the end of the second quarter of 2023, compared to 233% three months earlier and 158% a year ago.
1As of March 31, 2023, the S&P U.S. Small Cap Bank Index tracked 243 banks with total common market capitalization between $250 million to $1B for the following ratio: NIMTE* of 3.43%.
Other Operating Income
In addition to home mortgage lending, Northrim has interests in other businesses that complement its core community banking activities, including purchased receivables financing and wealth management. Other operating income contributed $7.0 million, or 22% of total second quarter 2023 revenues, as compared to $4.9 million, or 16% of revenues in the first quarter of 2023, and $7.8 million, or 26% of revenues in the second quarter of 2022. The increase in other operating income in the second quarter of 2023 as compared to the preceding quarter is primarily the result of an increase in mortgage banking income due to higher volume of mortgage activity. The decrease in other operating income in the second quarter of 2023 as compared to the second quarter a year ago was due primarily to lower volume of mortgage activity. See further discussion regarding mortgage activity during the second quarter contained under “Home Mortgage Lending” below. The fair market value of marketable equity securities decreased $234,000 in the second quarter of 2023 compared to a decrease of $223,000 in the prior quarter and a decrease of $810,000 in the second quarter of 2022.
Other Operating Expenses
Operating expenses were $23.8 million in the second quarter of 2023, compared to $23.5 million in the first quarter of 2023, and $23.2 million in the second quarter of 2022. The increase in other operating expenses in the second quarter of 2023 compared to the prior reported periods is primarily due to increased marketing and insurance expenses as well as an increase in other operating expenses.
Income Tax Provision
In the second quarter of 2023, Northrim recorded $1.4 million in state and federal income tax expense for an effective tax rate of 19.6%, compared to $1.2 million, or 20.4% in the first quarter of 2023 and $1.5 million, or 24.1% in the second quarter a year ago. The decrease in the tax rate in the second quarter of 2023 as compared to the second quarter of 2022 is primarily the result of an increase in tax credits and tax exempt interest income as a percentage of pre-tax income in 2023 as compared to 2022.
Community Banking
Northrim opened a loan production office in Homer, Alaska in the second quarter of 2023. “We are pleased to continue our expansion throughout Alaska with our loan production office in Homer as we continue to look for opportunities to expand our market share,” said Mike Huston, Northrim Bank President.
Net interest income in the Community Banking segment totaled $22.7 million in the second quarter of 2023, compared to $24.8 million in the first quarter of 2023 and $21.6 million in the second quarter of 2022. Net interest income decreased in the second quarter of 2023 as compared to the first quarter of 2023 mostly due to a reclassification of $768,000 of mortgage net interest income from the first quarter of 2023 out of the Community Banking segment and into Home Mortgage Lending.
In the most recent deposit market share data from the FDIC for the period from June 30, 2021, to June 30, 2022, Northrim’s deposit market share in Alaska increased to $2.4 billion, or 13.95% of Alaska's total deposits as of June 30, 2022 from $2.2 billion, or 13.00% of Alaska's total deposits as of June 30, 2021. This represents 7.3% growth in market share percentage for Northrim during that period while, according to the FDIC, the total deposits in Alaska were up only 1% during the same period. See further discussion regarding the Company's deposit movement for the quarter below.
The following table provides highlights of the Community Banking segment of Northrim:
| Three Months Ended | |||||||||||
| (Dollars in thousands, except per share data) | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | ||||||
| Net interest income | $22,700 | $24,752 | $26,741 | $25,668 | $21,603 | ||||||
| Provision (benefit) for credit losses | 1,407 | 360 | 1,886 | (353 | ) | 463 | |||||
| Other operating income | 3,067 | 2,900 | 3,819 | 2,938 | 1,907 | ||||||
| Other operating expense | 17,805 | 17,417 | 16,678 | 15,977 | 16,415 | ||||||
| Income before provision for income taxes | 6,555 | 9,875 | 11,996 | 12,982 | 6,632 | ||||||
| Provision for income taxes | 1,192 | 2,315 | 1,884 | 2,911 | 1,605 | ||||||
| Net income | $5,363 | $7,560 | $10,112 | $10,071 | $5,027 | ||||||
| Weighted average shares outstanding, diluted | 5,677,292 | 5,757,458 | 5,769,415 | 5,740,494 | 5,805,870 | ||||||
| Diluted earnings per share | $0.94 | $1.31 | $1.74 | $1.75 | $0.87 | ||||||
| Year-to-date | ||||
| (Dollars in thousands, except per share data) | June 30, 2023 | June 30, 2022 | ||
| Net interest income | $47,452 | $40,512 | ||
| Provision for credit losses | 1,767 | 313 | ||
| Other operating income | 5,967 | 5,748 | ||
| Other operating expense | 35,222 | 31,246 | ||
| Income before provision for income taxes | 16,430 | 14,701 | ||
| Provision for income taxes | 3,507 | 3,246 | ||
| Net income Community Banking segment | $12,923 | $11,455 | ||
| Weighted average shares outstanding, diluted | 5,719,453 | 5,902,287 | ||
| Diluted earnings per share | $2.26 | $1.94 | ||
Home Mortgage Lending
During the second quarter of 2023, mortgage loans funded for sale increased to $113.8 million, of which 97% was for home purchases, compared to $50.7 million and 95% of loans funded for home purchases in the first quarter of 2023, and decreased as compared to $191.0 million, of which 90% was for home purchases in the second quarter of 2022. The rising interest rate environment has caused the housing market to slow down and also resulted in fewer refinances compared to 2022.
The Company has developed mortgage products including adjustable rate mortgages, a second home product, and extended locks which are intended to appeal to customers given the current interest rate environment. During the second quarter of 2023, Residential Mortgage originated $55.6 million in home mortgages, which were mostly adjustable rate mortgages, that Northrim Bank purchased and booked as consumer loans at a weighted average interest rate of 5.70%, up from $42.0 million and 5.11% in the first quarter of 2023 and $34.6 million and 5.52% in the fourth quarter of 2022. Total mortgage production for the second quarter of 2023 was up 83% compared to the first quarter of 2023 and down 11% compared to the second quarter a year ago. Given the seasonality of the mortgage operations, the Company usually sees an increase in production in the second quarter. Additionally, management anticipates that the volume of mortgages that Northrim Bank will purchase from Residential Mortgage to decrease, as they look to sell a larger percentage of production on the secondary market going forward. Mr. Ballard noted that “the recent purchases of mortgage by Northrim Bank was a long-term, strategic decision in order to utilize prior year's excess liquidity, reduce asset sensitivity, and provide products to loan originators to market for increased production.” Mr. Ballard added, “our target for these mortgages is approximately 10% of our loan portfolio.”
The expansion efforts of mortgage production in the Arizona, Colorado, and Pacific Northwest markets in late 2022 have contributed to 15% of Residential Mortgage's $169 million total production in the second quarter of 2023 and 19% of $93 million in total production in the first quarter of 2023.
The net change in fair value of mortgage servicing rights decreased mortgage banking income by $574,000 during the second quarter of 2023 compared to a decrease of $795,000 for the first quarter of 2023 and a decrease of $250,000 for the second quarter of 2022. Mortgage servicing revenue remained stable at $1.4 million in the second quarter of 2023 relative to the prior quarter and decreased from $1.9 million in the second quarter of 2022 due to lower production of Alaska Housing Finance Corporation (AHFC) mortgages which contribute to servicing revenues at origination. In the second quarter of 2023, the Company added $30 million in new mortgage loans to the servicing portfolio as compared to $26 million in the first quarter of 2023 and $57 million in the second quarter of 2022.
As of June 30, 2023, Northrim serviced 3,537 loans in its $921.6 million home-mortgage-servicing portfolio, a 1% increase compared to the $911.1 million serviced for the first quarter of 2023, and a 13% increase from the $818.3 million serviced a year ago. Delinquencies in the loan servicing portfolio totaled 2.1% at June 30, 2023, compared to 2.6% at June 30, 2022.
Other operating expense decreased to $6.0 million in the second quarter of 2023, compared to $6.1 million in the first quarter of 2023, and compared to $6.8 million in the second quarter of 2022. The decrease in other operating expenses in the second quarter of 2023 compared to the second quarter of 2022 is primarily due to decreased salaries and other personnel expense. Despite higher mortgage loan production volumes, salaries and other personnel expense decreased mostly due to deferred salary costs on mortgage loans originated for investment.
The following table provides highlights of the Home Mortgage Lending segment of Northrim:
| Three Months Ended | |||||||||||||||
| (Dollars in thousands, except per share data) | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | ||||||||||
| Mortgage commitments | $71,123 | $41,050 | $29,065 | $74,731 | $116,167 | ||||||||||
| Mortgage loans funded for sale | $113,824 | $50,725 | $82,149 | $168,786 | $191,023 | ||||||||||
| Mortgage loans funded for investment | $55,595 | $41,964 | $34,622 | $— | |||||||||||
