Northrim BanCorp 2Q15 Earnings Increase 9% to $4.8 Million, or $0.69 Per Diluted Share

ANCHORAGE, Alaska, July 28, 2015 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ:NRIM) ("Northrim") today reported that loan and deposit growth coupled with contributions from the two acquisitions completed in 2014 generated a 9% increase in second quarter profits and a 19% increase in profits year-to-date compared to the same periods a year ago. Net income in the second quarter of 2015 improved to $4.8 million, or $0.69 per diluted share, compared to $4.4 million, or $0.63 per diluted share, in the second quarter of 2014, and increased 34% from $3.6 million, or $0.51 per diluted share, in the first quarter of 2015.

"Loan and deposit growth, expanding net interest margin, and continuing solid credit quality fueled profitability in the second quarter. The benefits of the two acquisitions we completed last year are also contributing to earnings in the first half of this year," said Joseph Beedle, President and CEO. "Our mortgage origination business contributed $8.1 million to pre-tax revenues in the second quarter and $0.20 per diluted share."

Financial Highlights (at or for the periods ended June 30, 2015, compared to March 31, 2015, and June 30, 2014)

• Year-to-date 2015 profits increased 19% to $8.3 million, or $1.20 per diluted share, from $7.0 million, or $1.04 per diluted share, in the first half of 2014.
• Total revenues, which include net interest income, plus other operating income, increased 7% from the previous quarter and 47% from the second quarter a year ago. Second quarter 2015 revenues were $25.8 million, compared to $24.2 million in the preceding quarter and $17.5 million in the second quarter a year ago.
• Net interest income grew 4% in the second quarter of 2015 compared to the first quarter of 2015 and increased 6% from the second quarter a year ago, reflecting increased loan volumes for both commercial banking and mortgage operations.
• Return on average assets was 1.33% and return on average equity was 11.46% in the second quarter of 2015.
• Average portfolio loans increased 5% to $967.0 million for the second quarter of 2015 from a year ago and increased 2% from the preceding quarter, reflecting organic growth in the portfolio.
• Net interest margin improved to 4.44% in the second quarter of 2015 compared to 4.39% in the first quarter of 2015 and 4.43% in the second quarter a year ago, reflecting the increased yield on earning assets and a stable cost of funds in the quarter.
• Northrim paid a quarterly cash dividend of $0.18 per share in June 2015, up from the $0.17 per share dividend paid in the second quarter a year ago. The dividend provides an annual yield of approximately 2.8% at current market share prices.
• Tangible book value^* was $21.47 per share at June 30, 2015, compared to $20.92 at March 31, 2015 and $21.73 per share a year ago, which primarily reflected an increase in intangible assets attributable to the two acquisitions completed in 2014.
• Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 12.67% at June 30, 2015, compared to 12.71% at March 31, 2015, and 14.26% a year ago.
• Tangible common equity to tangible assets^* was 9.97% at June 30, 2015, compared to 10.07% at March 31, 2015, and 11.02% a year ago.

Alaska Economic Update

"Alaskans and our state economy continue to demonstrate stability in the current low-price energy marketplace," said Beedle. "With the reduction in state spending called for in the state budget for fiscal 2016 that is heavily reliant upon draws from reserves, we expect employment and economic activity in the state will be impacted somewhat." Alaska has significant resources, both in its reserve funds and the Alaska Permanent Fund, to finance expected state government funding gaps for the next couple of years.

North Slope investment and operating activity is at record levels despite low oil prices, reflecting the long-term nature of these conventional oil projects. "Overall North Slope capital investments are estimated at $4.45 billion this year and are still expected to increase to $4.88 billion in 2016, according to figures given by companies to the state Department of Revenue. The projected years are based in state fiscal years, with the current fiscal year 2015 starting last July 1 and fiscal year 2016 beginning this July 1. By comparison, the industry spent $3.73 billion for capital projects in 2014, the fiscal year ending last June 30," stated Alaska Business Monthly in a May 5, 2015 article.

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 "About Northrim" link and then click "Alaska's Economy". Information from our website is not incorporated into, and does not form a part of this press release.

Review of Income Statement

Community Banking

Operating net income* for the Community Banking segment increased 18% in the second quarter of 2015 to $3.6 million from $3.0 million in the preceding quarter due to increases in net interest income and other operating income and a decrease in other operating expenses. Second quarter 2015 operating net income* decreased 15% from the same quarter in 2014 primarily due to net recoveries on loans in the second quarter of 2014 that led to a negative loan loss provision. The increase in the loan loss provision in the second quarter of 2015 as compared to the second quarter of 2014 was partially offset by an increase in net interest income. The following table provides highlights of the Community Banking segment of Northrim:

Net Interest Margin

"We continue to manage our balance sheet to be neutral to interest rate movements," said Joe Schierhorn, Northrim Bank's President and Chief Operating Officer. "We target a weighted average duration of approximately two years for our investment securities portfolio. The actual duration is two years as of June 30, 2015. Additionally, 68% of our loan portfolio is made up of variable rate loans at the end of the second quarter." Northrim's tax equivalent net interest margin ("NIM") remained well above national averages¹ in the second quarter of 2015 at 4.44%, compared to 4.39% in the preceding quarter and 4.43% in the second quarter a year ago. For the first six months of 2015, NIM was 4.41% compared to 4.36% for the same period a year ago.

Other Operating Income

Northrim has interests in businesses that complement its core community banking activities. It provides financial services to businesses and individuals through these interests, including purchased receivables financing, health insurance plans, and wealth management.

Other operating income for the Community Banking segment increased 15% to $3.7 million in the second quarter of 2015 from $3.3 million in the preceding quarter and was consistent with other operating income of $3.8 million in the second quarter of 2014. Included in other operating income was other income of $947,000 for the second quarter of 2015, compared to $660,000 in the preceding quarter and $829,000 in the second quarter of 2014. In the second quarter of 2015, other income included $179,000 in recoveries from loans acquired and marked to fair value in the Alaska Pacific merger and $89,000 in gains from the sale of Elliott Cove Capital Management and Insurance operations. Other income for the first quarter of 2015 included $48,000 in recoveries from loans acquired and marked to fair value in the Alaska Pacific merger, and the second quarter of 2014 included a $158,000 bargain purchase gain on the Alaska Pacific merger. Additionally, employee benefit plan income in the second quarter of 2015 included a one-time catch-up payment of $119,000. "Our employee benefit plan programs remain profitable and enrich the financial service offerings we provide to our business customers," said Latosha Frye, Chief Financial Officer.

Other Operating Expenses

Operating expenses for the Community Banking segment decreased 10% to $12.0 million in the second quarter of 2015 compared to $13.3 million in the first quarter of 2015 and increased 3% from $11.6 million in the second quarter a year ago. Routine operating expenses for the Community Banking segment remained relatively consistent in the first two quarters of 2015, and the decrease in the second quarter of 2015 as compared to the first quarter of 2015 is the result of decreases in non-routine operating expenses including the change in fair value of the RML earn-out liability and other real estate owned ("OREO") expenses, net of rental income and gains on sales. The increase in the second quarter of 2015 as compared to the same quarter in 2014 is the result of increases in routine operating expenses including a $233,000 increase in medical claims costs and an $86,000 increase in marketing expenses. Changes in non-routine operating expenses including the change in fair value of the RML earn-out liability, merger and acquisition expense, the reserve for purchased receivables, and OREO expenses, net of rental income and gains on sales in the second quarter of 2015 netted to a $98,000 decrease as compared to the same quarter in 2014.

Home Mortgage Lending Operations

On December 1, 2014, Residential Mortgage became a wholly owned subsidiary of Northrim Bank., RML's gross revenues and expenses are now reported on a consolidated basis throughout the various sections of Northrim's income statement. The following table provides highlights of the Home Mortgage Lending segment of Northrim Bank:

Information included in the table above for the Home Mortgage Lending segment in periods before December 1, 2014 includes earnings from Northrim's 23.5% equity interest in RML. As of December 1, 2014, operations of RML are consolidated into Northrim's results. The data included in the table above for the quarter ended December 31, 2014 includes Northrim's 23.5% share in earnings for the first two months of the quarter and includes 100% of the earnings of RML for the one month period ending December 31, 2014. Additionally, mortgage commitments, loans funded for sale, and the percentage of refinances to total funding represents the activity for the one month period from December 1 through December 31, 2014 that occurred in the quarter ended December 31, 2014.

"New home purchases fueled the increase in mortgage volumes during the quarter, accounting for 80% of the originations, reflecting the stable real estate market in our footprint," said Schierhorn.

"The increase in our operating expenses for the Home Mortgage Lending segment is primarily the result of higher commission costs during high production periods," said Frye.

Income Tax Provision

Income tax expense for the second quarter of 2015 increased to $2.7 million, compared to $1.7 million for the first quarter of 2015 due to an increase in pre-tax income and a decrease in the ratio of tax-exempt interest income to total net income. The difference in the effective tax rate for the periods reported, compared to the combined Federal and State statutory tax rate of 41.11%, is primarily the result of the Company's tax credits related to investments in low income housing tax credit partnerships and educational charitable contributions to qualified entities in the state of Alaska, tax-exempt interest income on qualified bonds and loans, and investments in life insurance policies whose earnings are not subject to taxes.

Balance Sheet Review

Northrim's assets increased 11% to $1.50 billion at June 30, 2015, compared to $1.36 billion a year ago, reflecting continued loan growth during the year and the purchase of the remaining equity interests in Residential Mortgage at the end of 2014.

Investment securities decreased 12% from the preceding quarter and increased 8% from a year ago. The investment portfolio generated an average net tax equivalent yield of 1.50% for the second quarter of 2015 and the average estimated duration of the investment portfolio was 2.0 years at June 30, 2015.

Loans held for sale increased 19% to $73.6 million at the end of the second quarter of 2015 and average loans held for sale increased 52% to $66.0 million from the preceding quarter, reflecting the demand for new home mortgages in the Alaska marketplace.

Year-over-year, portfolio loans grew 5% to $974.8 million at quarter end, and average portfolio loans increased 2% in the second quarter. "Construction and land development loans contributed the majority of the growth in construction loans with commercial real estate projects and tax-advantaged low-income housing projects accounting for the bulk of these loans. Residential housing construction loans remain consistent at approximately 4% of portfolio loans during the past year," Schierhorn noted.

Northrim's deposit base continues to be 100% Alaska-based, and is primarily made up of low-cost transaction accounts. Balances in transaction accounts at June 30, 2015, represented 88.0% of total deposits compared to 90.2% a year ago. At June 30, 2015, total deposits were $1.24 billion, up 10% from $1.13 billion a year ago and up 4% from the immediate prior quarter. Year-over-year, average non-interest bearing deposits grew 10% and average interest-bearing deposits increased 6% in the second quarter of 2015.

Other borrowings decreased to $22.3 million at June 30, 2015 from $22.6 million at March 31, 2015 and increased from $2.2 million at June 30, 2014. The increase in other borrowings as compared to the same period in the prior year is the result of the inclusion of RML's short term borrowings in Northrim's consolidated balance sheet.

Shareholders' equity increased 9% to $171.0 million, or $24.96 per share, at June 30, 2015, compared to $156.9 million, or $22.97 per share, a year ago. Tangible book value per share^* was $21.47 at June 30, 2015, compared to $21.73 per share a year ago and $20.92 per share at March 31, 2015. Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 12.71% at June 30, 2015.

Asset Quality

Nonperforming assets were 0.52% of total assets and non-performing loans were 0.52% of portfolio loans at June 30, 2015. The allowance for loan losses increased to 1.79% of portfolio loans at June 30, 2015 from 1.76% at the end of the first quarter of 2015. The primary reason for this increase in the second quarter of 2015 as compared to the preceding quarter was an increase in adversely classified loans to 2.29% of portfolio loans from 0.91% at March 31, 2015 and 0.62% at June 30, 2014. Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss. This increase resulted primarily from the downgrade of two relationships, one in the retail industry and one in the healthcare industry, during the quarter. These downgrades were unrelated to the recent decrease in oil prices. Northrim estimates that approximately 8% of portfolio loans as of June 30, 2015 have direct exposure to the oil and gas industry in Alaska.

OREO declined 33% to $2.8 million at the end of the second quarter of 2015, compared to $4.2 million the preceding quarter following the sale of four properties that generated a net gain on sale of $135,000.

There were $3.2 million in restructured loans included in nonaccrual loans at the end of the second quarter of 2015, as compared to $3.2 million at March 31, 2015, and $1.5 million at June 30, 2014. Northrim held $5.7 million in performing restructured loans that were not included in nonaccrual loans at the end of the second quarter of 2015. "Borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations are categorized as restructured loans," said Frye. "We present restructured loans that are performing separately from those that are in nonaccrual to provide more information on this category of loans and to differentiate between accruing performing and nonperforming restructured loans."

About Northrim BanCorp

Northrim BanCorp, Inc. is the parent company of Northrim Bank, an Alaska-based community bank with 14 branches in Anchorage, the Matanuska Valley, Juneau, Fairbanks, Ketchikan, and Sitka serving 75% of Alaska's population; and an asset based lending division in Washington; and a wholly-owned mortgage brokerage company, Residential Mortgage Holding Company, LLC. The Bank differentiates itself with its detailed knowledge of Alaska's economy and its "Customer First Service" philosophy. Affiliated companies include Northrim Benefits Group, LLC; and Pacific Wealth Advisors, LLC.

www.northrim.com

Forward-Looking Statement

This release may contain "forward-looking statements" as that term is defined for purposes of Section 21D of the Securities and Exchange Act. These statements are, in effect, management's attempt to predict future events, and thus are subject to various risks and uncertainties. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. All statements, other than statements of historical fact, regarding our financial position, business strategy and management's plans and objectives for future operations are forward-looking statements. When used in this report, the words "anticipate," "believe," "estimate," "expect," and "intend" and words or phrases of similar meaning, as they relate to Northrim and its management are intended to help identify forward-looking statements. Although we believe that management's expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. Forward looking statements are subject to various risks and uncertainties that may cause our actual results may differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: our ability to maintain strong asset quality and to maintain or expand our market share or net interest margins; our ability to implement our marketing and growth strategies; our expected cost savings, synergies, and other financial benefits from the recently completed merger of Northrim with Alaska Pacific might not be realized within the expected time frames and costs or difficulties relating to integration matters might be greater than expected; our expected cost savings, synergies and other financial benefits from the acquisition of Residential Mortgage Holding Company, LLC might not be realized within the expected time frames and costs or difficulties relating to integration matters might be greater than expected; and our ability to execute our business plan. Further, actual results may be affected by our ability to compete on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy as those factors relate to our cost of funds and return on assets. In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and from time to time are disclosed in our other filings with the SEC. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations. These forward-looking statements are made only as of the date of this release, and Northrim does not undertake any obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this release.

http://www.akbizmag.com/Alaska-Business-Monthly/May-2015/North-Slope-Activity-Sees-Increased-Investment/

http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2014/06/09/sp-ratings-2014