nrim-20200930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from_____to____

Commission File Number 000-33501

NORTHRIM BANCORP, INC.

(Exact name of registrant as specified in its charter)


Alaska						92-0175752
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3111 C Street

Anchorage, Alaska 99503

(Address of principal executive offices) (Zip Code)

(907) 562-0062

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None


TITLE OF EACH CLASS	TRADING SYMBOL	NAME OF EXCHANGE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ¨ Accelerated Filer ý Non-accelerated Filer ¨

Smaller Reporting Company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ý No

The number of shares of the issuer’s Common Stock, par value $1 per share, outstanding at November 3, 2020 was 6,233,755.


TABLE OF CONTENTS

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders' Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to the Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	64

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	69
Item 6.	Exhibits	69
SIGNATURES		70

PART I. FINANCIAL INFORMATION

These consolidated financial statements should be read in conjunction with the financial statements, accompanying notes and other relevant information included in Northrim BanCorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

NORTHRIM BANCORP, INC.

Consolidated Balance Sheets

(Unaudited)


	September 30, 2020	December 31, 2019
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks	$31,165	$20,518
Interest bearing deposits in other banks	69,964	74,906
Investment securities available for sale, at fair value	215,369	276,138
Marketable equity securities	8,534	7,945



Investment in Federal Home Loan Bank stock	2,508	2,138

Loans held for sale	128,105	67,834

Loans	1,492,720	1,043,371
Allowance for loan losses	(21,683)	(19,088)
Net loans	1,471,037	1,024,283
Purchased receivables, net	13,520	24,373
Mortgage servicing rights, at fair value	10,589	11,920
Other real estate owned, net	6,962	7,043
Premises and equipment, net	38,615	38,422
Operating lease right-of-use asset	12,943	14,306
Goodwill	15,017	15,017
Other intangible assets, net	1,041	1,077
Other assets	72,369	58,076
Total assets	$2,097,738	$1,643,996
LIABILITIES
Deposits:
Demand	$697,363	$451,896
Interest-bearing demand	427,811	320,264
Savings	272,624	229,918
Money market	227,106	205,801
Certificates of deposit less than $250,000	94,743	90,702
Certificates of deposit $250,000 and greater	86,486	73,770
Total deposits	1,806,133	1,372,351

Borrowings	13,737	8,891
Junior subordinated debentures	10,310	10,310
Operating lease liability	12,881	14,229
Other liabilities	40,061	31,098
Total liabilities	1,883,122	1,436,879
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding	—	—
Common stock, $1 par value, 10,000,000 shares authorized, 6,279,304 and 6,558,809 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	6,279	6,559
Additional paid-in capital	42,966	50,512
Retained earnings	165,606	149,615
Accumulated other comprehensive (loss) income, net of tax	(235)	431
Total shareholders' equity	214,616	207,117
Total liabilities and shareholders' equity	$2,097,738	$1,643,996

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Income

(Unaudited)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(In Thousands, Except Per Share Data)	2020	2019	2020	2019
Interest and Dividend Income
Interest and fees on loans and loans held for sale	$18,691	$15,863	$51,504	$46,193
Interest on investment securities available for sale	940	1,528	3,951	4,850
Dividends on marketable equity securities	122	114	336	330

Dividends on Federal Home Loan Bank stock	24	19	62	57
Interest on deposits in other banks	17	313	284	591
Total Interest Income	19,794	17,837	56,137	52,021
Interest Expense
Interest expense on deposits	1,320	1,365	4,135	3,477
Interest expense on securities sold under agreements to repurchase	—	1	—	41
Interest expense on borrowings	84	70	277	189
Interest expense on junior subordinated debentures	96	95	284	282
Total Interest Expense	1,500	1,531	4,696	3,989
Net Interest Income	18,294	16,306	51,441	48,032
Provision (benefit) for loan losses	567	(2,075)	3,031	(1,025)
Net Interest Income After Provision for Loan Losses	17,727	18,381	48,410	49,057
Other Operating Income
Mortgage banking income	17,932	7,565	37,824	17,813
Bankcard fees	770	820	2,094	2,214
Purchased receivable income	516	709	2,112	2,355
Service charges on deposit accounts	269	398	802	1,224
Unrealized (loss) gain on marketable equity securities	375	130	(347)	782
Interest rate swap income	726	—	743	734
Gain on sale of marketable equity securities, net	—	—	98	—
Gain on sale of investment securities available for sale, net	—	—	—	23
Other income	1,040	887	2,270	2,466
Total Other Operating Income	21,628	10,509	45,596	27,611
Other Operating Expense
Salaries and other personnel expense	16,418	13,186	44,311	37,433
Data processing expense	1,851	1,849	5,653	5,324
Occupancy expense	1,648	1,576	4,923	4,989
Professional and outside services	884	610	2,206	1,850
Marketing expense	302	357	1,581	1,609
Insurance expense	315	102	928	592
Intangible asset amortization expense	12	15	36	45

OREO expense (income), net rental income and gains on sale	23	(31)	8	(186)


Other operating expense	2,053	1,660	5,321	4,567
Total Other Operating Expense	23,506	19,324	64,967	56,223
Income Before Provision for Income Taxes	15,849	9,566	29,039	20,445
Provision for income taxes	3,994	2,028	6,251	4,334


Net Income	$11,855	$7,538	$22,788	$16,111
Earnings Per Share, Basic	$1.87	$1.13	$3.57	$2.38
Earnings Per Share, Diluted	$1.84	$1.11	$3.52	$2.35
Weighted Average Shares Outstanding, Basic	6,338,465	6,604,044	6,391,164	6,760,672
Weighted Average Shares Outstanding, Diluted	6,413,221	6,707,523	6,467,991	6,861,973

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

2010


	Three Months Ended September 30,		Nine Months Ended September 30,
(In Thousands)	2020	2019	2020	2019
Net income	$11,855	$7,538	$22,788	$16,111
Other comprehensive income (loss), net of tax:
Securities available for sale:
Unrealized gains arising during the period	$54	$83	$477	$2,816
Reclassification of net gains included in net income, net of tax expense
of $0 for the third quarters of 2020 and 2019, and $28 and $7 for the
nine months ended September 30, 2020 and 2019, respectively	—	—	(70)	(16)
Derivatives and hedging activities:
Unrealized gains (losses) arising during the period	245	(691)	(1,622)	(1,672)
Income tax (expense) benefit related to unrealized gains and losses	(85)	(23)	549	(742)
Other comprehensive (loss) income, net of tax	214	(631)	(666)	386
Comprehensive income	$12,069	$6,907	$22,122	$16,497

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)


	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss), net of Tax	Total
	Number of Shares	Par Value
(In Thousands)
Balance as of January 1, 2019	6,883	$6,883	$62,132	$137,452	($520)	$205,947
Cash dividend on common stock ($0.30 per share)	—	—	—	(2,087)	—	(2,087)
Stock-based compensation expense	—	—	196	—	—	196
Exercise of stock options and vesting of restricted stock units, net	2	2	(2)	—	—	—
Repurchase of common stock	(6)	(6)	(199)	—	—	(205)
Other comprehensive income, net of tax	—	—	—	—	675	675


Net income	—	—	—	4,312	—	4,312
Balance as of March 31, 2019	6,879	$6,879	$62,127	$139,677	$155	$208,838
Cash dividend on common stock ($0.30 per share)	—	—	—	(2,060)	—	(2,060)
Stock-based compensation expense	—	—	155	—	—	155

Repurchase of common stock	(150)	(150)	(5,048)	—	—	(5,198)
Other comprehensive income, net of tax	—	—	—	—	342	342
Net income	—	—	—	4,261	—	4,261
Balance as of June 30, 2019	6,729	$6,729	$57,234	$141,878	$497	$206,338
Cash dividend on common stock ($0.33 per share)	—	—	—	(2,199)	—	(2,199)
Stock-based compensation expense	—	—	193	—	—	193
Exercise of stock options and vesting of restricted stock units, net	3	3	(37)	—	—	(34)
Repurchase of common stock	(192)	(192)	(6,974)	—	—	(7,166)
Other comprehensive loss, net of tax	—	—	—	—	(631)	(631)
Net income	—	—	—	7,538	—	7,538
Balance as of September 30, 2019	6,540	$6,540	$50,416	$147,217	($134)	$204,039
Cash dividend on common stock ($0.33 per share)	—	—	—	(2,182)	—	(2,182)
Stock-based compensation expense	—	—	288	—	—	288
Exercise of stock options and vesting of restricted stock units, net	19	19	(192)	—	—	(173)

Other comprehensive income, net of tax	—	—	—	—	565	565
Net income	—	—	—	4,580	—	4,580
Balance as of December 31, 2019	6,559	$6,559	$50,512	$149,615	$431	$207,117

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Continued)

(Unaudited)


	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss), net of Tax	Total
	Number of Shares	Par Value
(In Thousands)
Balance as of January 1, 2020	6,559	$6,559	$50,512	$149,615	$431	$207,117
Cash dividend on common stock ($0.34 per share)	—	—	—	(2,223)	—	(2,223)
Stock-based compensation expense	—	—	242	—	—	242

Repurchase of common stock	(193)	(193)	(6,117)	—	—	(6,310)
Other comprehensive loss, net of tax	—	—	—	—	(2,136)	(2,136)
Cumulative effect of adoption of accounting principles related to equity compensation expense	—	—	139	(139)	—	—
Net income	—	—	—	1,033	—	1,033
Balance as of March 31, 2020	6,366	$6,366	$44,776	$148,286	($1,705)	$197,723
Cash dividend on common stock ($0.34 per share)	—	—	—	(2,188)	—	(2,188)
Stock-based compensation expense	—	—	238	—	—	238
Exercise of stock options and vesting of restricted stock units, net	2	2	(8)	—	—	(6)

Other comprehensive income, net of tax	—	—	—	—	1,256	1,256
Net income	—	—	—	9,900	—	9,900
Balance as of June 30, 2020	6,368	$6,368	$45,006	$155,998	($449)	$206,923
Cash dividend on common stock ($0.35 per share)	—	—	—	(2,247)	—	(2,247)
Stock-based compensation expense	—	—	237	—	—	237

Repurchase of common stock	(89)	(89)	(2,277)	—	—	(2,366)
Other comprehensive income, net of tax	—	—	—	—	214	214
Net income	—	—	—	11,855	—	11,855
Balance as of September 30, 2020	6,279	$6,279	$42,966	$165,606	($235)	$214,616

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(In Thousands)	2020	2019
Operating Activities:
Net income	$22,788	$16,111
Adjustments to Reconcile Net Income to Net Cash Used by Operating Activities:
Gain on sale of securities, net	(98)	(23)
Loss on disposal of premises and equipment	22	—
Depreciation and amortization of premises and equipment	2,337	2,231
Amortization of software	821	753
Intangible asset amortization	36	45
Amortization of investment security premium, net of discount accretion	(24)	26
Unrealized loss (gain) on marketable equity securities	347	(782)
Deferred tax (benefit) expense	(477)	758
Stock-based compensation	717	544

Deferred loan fees and amortization, net of costs	9,399	137
Provision (benefit) for loan losses	3,031	(1,025)
Benefit for purchased receivables	(7)	(103)
Additions to home mortgage servicing rights carried at fair value	(3,032)	(2,672)
Change in fair value of home mortgage servicing rights carried at fair value	4,363	2,287
Change in fair value of commercial servicing rights carried at fair value	180	118
Gain on sale of loans	(30,701)	(14,598)
Proceeds from the sale of loans held for sale	883,899	470,561
Origination of loans held for sale	(913,469)	(503,195)
Gain on sale of other real estate owned	(176)	(380)


Net changes in assets and liabilities:
(Increase) decrease in accrued interest receivable	(3,512)	19
(Increase) in other assets	(6,443)	3,257
Decrease in other liabilities	2,980	3,590
Net Cash (Used) by Operating Activities	(27,019)	(22,341)
Investing Activities:
Investment in securities:
Purchases of investment securities available for sale	(89,173)	(63,904)
Purchases of marketable equity securities	(1,439)	—
Purchases of FHLB stock	(5,884)	(879)
Proceeds from sales/calls/maturities of securities available for sale	150,544	81,059
Proceeds from sales of marketable equity securities	502	—