UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2011
¨ | 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 Number) | |
3111 C Street | ||
Anchorage, Alaska | 99503 | |
(Address of principal executive offices) | (Zip Code) |
(907) 562-0062
(Registrants telephone number, including area code)
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. Yes x 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). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the issuer's Common Stock outstanding at November 7, 2011 was 6,442,733.
- 2 -
These consolidated financial statements should be read in conjunction with the financial statements, accompanying notes and other relevant information included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
- 3 -
CONSOLIDATED FINANCIAL STATEMENTS
NORTHRIM BANCORP, INC.
Consolidated Balance Sheets
September 30, 2011, December 31, 2010 and September 30, 2010
September 30, | December 31, | September 30, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
(In Thousands, Except Share Data) | ||||||||||||
ASSETS |
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Cash and due from banks |
$ | 34,365 | $ | 15,953 | $ | 22,367 | ||||||
Interest bearing deposits in other banks |
94,205 | 50,080 | 60,939 | |||||||||
Investment securities available for sale |
211,819 | 214,010 | 206,342 | |||||||||
Investment securities held to maturity |
4,385 | 6,125 | 6,692 | |||||||||
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Total portfolio investments |
216,204 | 220,135 | 213,034 | |||||||||
Investment in Federal Home Loan Bank stock |
2,003 | 2,003 | 2,003 | |||||||||
Loans held for sale |
| 5,558 | 20,082 | |||||||||
Loans |
629,664 | 671,812 | 635,475 | |||||||||
Allowance for loan losses |
(16,093 | ) | (14,406 | ) | (14,711 | ) | ||||||
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Net loans |
613,571 | 662,964 | 640,846 | |||||||||
Purchased receivables, net |
25,536 | 16,531 | 8,654 | |||||||||
Accrued interest receivable |
3,030 | 3,401 | 3,234 | |||||||||
Premises and equipment, net |
28,320 | 29,048 | 28,769 | |||||||||
Goodwill and intangible assets |
8,486 | 8,697 | 8,767 | |||||||||
Other real estate owned |
5,838 | 10,355 | 11,019 | |||||||||
Other assets |
34,053 | 35,362 | 38,302 | |||||||||
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Total assets |
$ | 1,065,611 | $ | 1,054,529 | $ | 1,037,934 | ||||||
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LIABILITIES |
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Deposits: |
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Demand |
$ | 307,529 | $ | 289,061 | $ | 281,972 | ||||||
Interest-bearing demand |
133,495 | 138,072 | 126,056 | |||||||||
Savings |
76,847 | 77,411 | 77,971 | |||||||||
Alaska CDs |
95,481 | 100,315 | 111,526 | |||||||||
Money market |
153,924 | 149,104 | 132,349 | |||||||||
Certificates of deposit less than $100,000 |
51,264 | 53,858 | 56,984 | |||||||||
Certificates of deposit greater than $100,000 |
75,027 | 84,315 | 91,870 | |||||||||
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Total deposits |
893,567 | 892,136 | 878,728 | |||||||||
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Securities sold under repurchase agreements |
17,034 | 12,874 | 9,996 | |||||||||
Borrowings |
4,662 | 5,386 | 5,506 | |||||||||
Junior subordinated debentures |
18,558 | 18,558 | 18,558 | |||||||||
Other liabilities |
8,445 | 8,453 | 8,290 | |||||||||
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Total liabilities |
942,266 | 937,407 | 921,078 | |||||||||
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SHAREHOLDERS EQUITY |
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Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding |
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Common stock, $1 par value, 10,000,000 shares authorized, 6,440,241, 6,427,237 and 6,409,799 shares issued and outstanding at September 30, 2011, December 31, 2010, and September 30, 2010, respectively |
6,440 | 6,427 | 6,410 | |||||||||
Additional paid-in capital |
53,091 | 52,658 | 52,660 | |||||||||
Retained earnings |
63,071 | 57,339 | 56,268 | |||||||||
Accumulated other comprehensive income |
680 | 648 | 1,476 | |||||||||
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Total Northrim BanCorp shareholders equity |
123,282 | 117,072 | 116,814 | |||||||||
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Noncontrolling interest |
63 | 50 | 42 | |||||||||
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Total shareholders equity |
123,345 | 117,122 | 116,856 | |||||||||
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Total liabilities and shareholders equity |
$ | 1,065,611 | $ | 1,054,529 | $ | 1,037,934 | ||||||
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See notes to the consolidated financial statements
- 4 -
Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2011 and 2010
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
(In Thousands, Except Per Share Data) |
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Interest Income |
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Interest and fees on loans |
$ | 10,392 | $ | 11,249 | $ | 31,788 | $ | 33,883 | ||||||||
Interest on investment securities-available for sale |
717 | 895 | 2,251 | 3,394 | ||||||||||||
Interest on investment securities-held to maturity |
49 | 68 | 169 | 213 | ||||||||||||
Interest on deposits in other banks |
72 | 54 | 160 | 119 | ||||||||||||
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Total Interest Income |
11,230 | 12,266 | 34,368 | 37,609 | ||||||||||||
Interest Expense |
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Interest expense on deposits, |
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borrowings and junior subordianted debentures |
876 | 1,370 | 2,757 | 4,306 | ||||||||||||
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Net Interest Income |
10,354 | 10,896 | 31,611 | 33,303 | ||||||||||||
Provision for loan losses |
550 | 417 | 1,649 | 3,167 | ||||||||||||
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Net Interest Income After Provision for Loan Losses |
9,804 | 10,479 | 29,962 | 30,136 | ||||||||||||
Other Operating Income |
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Purchased receivable income |
695 | 485 | 1,886 | 1,394 | ||||||||||||
Service charges on deposit accounts |
609 | 659 | 1,727 | 2,121 | ||||||||||||
Employee benefit plan income |
536 | 466 | 1,629 | 1,417 | ||||||||||||
Electronic banking income |
508 | 449 | 1,424 | 1,284 | ||||||||||||
Equity in earnings from RML |
357 | 570 | 575 | 679 | ||||||||||||
Gain on sale of securities |
33 | 58 | 296 | 471 | ||||||||||||
Equity in earnings (loss) from Elliott Cove |
(5 | ) | (4 | ) | (16 | ) | (1 | ) | ||||||||
Other income |
629 | 517 | 1,689 | 1,650 | ||||||||||||
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Total Other Operating Income |
3,362 | 3,200 | 9,210 | 9,015 | ||||||||||||
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Other Operating Expense |
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Salaries and other personnel expense |
5,230 | 5,394 | 15,746 | 16,416 | ||||||||||||
Occupancy |
914 | 1,016 | 2,821 | 2,832 | ||||||||||||
Marketing expense |
435 | 445 | 1,315 | 1,323 | ||||||||||||
Insurance expense |
391 | 502 | 1,122 | 1,482 | ||||||||||||
Professional and outside services |
370 | 338 | 1,045 | 903 | ||||||||||||
Equipment expense |
291 | 304 | 887 | 821 | ||||||||||||
Software expense |
257 | 256 | 774 | 691 | ||||||||||||
Amortization of low income housing tax investments |
224 | 201 | 675 | 652 | ||||||||||||
Internet banking expense |
162 | 144 | 473 | 455 | ||||||||||||
Intangible asset amortization expense |
70 | 76 | 211 | 229 | ||||||||||||
Operational losses, net |
37 | 123 | 198 | 325 | ||||||||||||
Impairment (recovery) on purchased receivables, net |
| (3 | ) | 2 | 404 | |||||||||||
OREO (income) expense, net of rental income and gains on sale |
(14 | ) | (969 | ) | (895 | ) | (907 | ) | ||||||||
Other operating expense |
1,062 | 883 | 2,970 | 2,766 | ||||||||||||
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Total Other Operating Expense |
9,429 | 8,710 | 27,344 | 28,392 | ||||||||||||
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Income Before Provision for Income Taxes |
3,737 | 4,969 | 11,828 | 10,759 | ||||||||||||
Provision for income taxes |
1,125 | 1,629 | 3,357 | 3,243 | ||||||||||||
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Net Income |
2,612 | 3,340 | 8,471 | 7,516 | ||||||||||||
Less: Net income attributable to the noncontrolling interest |
106 | 162 | 328 | 298 | ||||||||||||
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Net Income Attributable to Northrim BanCorp |
$ | 2,506 | $ | 3,178 | $ | 8,143 | $ | 7,218 | ||||||||
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Earnings Per Share, Basic |
$ | 0.39 | $ | 0.50 | $ | 1.27 | $ | 1.13 | ||||||||
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Earnings Per Share, Diluted |
$ | 0.38 | $ | 0.49 | $ | 1.24 | $ | 1.11 | ||||||||
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Weighted Average Shares Outstanding, Basic |
6,436,178 | 6,401,069 | 6,431,989 | 6,391,252 | ||||||||||||
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Weighted Average Shares Outstanding, Diluted |
6,554,776 | 6,479,813 | 6,553,462 | |
6,473,915 |
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See notes to the consolidated financial statements
- 5 -
Consolidated Statements of Changes in
Shareholders Equity and Comprehensive Income
For the Nine Months Ended September 30, 2011 and 2010
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||
Number | Par | Paid-in | Retained | Comprehensive | Noncontrolling | |||||||||||||||||||||||
of Shares | Value | Capital | Earnings | Income | Interest | Total | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Nine months ending September 30, 2010: |
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Balance as of January 1, 2010 |
6,371 | $ | 6,371 | $ | 52,139 | $ | 51,121 | $ | 1,341 | $ | 48 | $ | 111,020 | |||||||||||||||
Cash dividend declared |
| | | (2,071 | ) | | | (2,071 | ) | |||||||||||||||||||
Stock option expense |
| | 387 | | | | 387 | |||||||||||||||||||||
Exercise of stock options |
39 | 39 | (43 | ) | | | | (4 | ) | |||||||||||||||||||
Excess tax benefits from share-based payment arrangements |
| | 177 | | | | 177 | |||||||||||||||||||||
Distributions to noncontrolling interest |
| | | | | (304 | ) | (304 | ) | |||||||||||||||||||
Comprehensive income: |
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Change in unrealized holding gain (loss) on available for sale securities, net of tax |
| | | | 135 | | 135 | |||||||||||||||||||||
Net income attributable to the noncontrolling interest |
| | | | | 298 | 298 | |||||||||||||||||||||
Net income attributable to Northrim BanCorp |
| | | 7,218 | | | 7,218 | |||||||||||||||||||||
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Total Comprehensive Income |
7,651 | |||||||||||||||||||||||||||
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Balance as of September 30, 2010 |
6,410 | $ | 6,410 | $ | 52,660 | $ | 56,268 | $ | 1,476 | $ | 42 | $ | 116,856 | |||||||||||||||
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Nine months ending September 30, 2011: |
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Balance as of January 1, 2011 |
6,427 | $ | 6,427 | $ | 52,658 | $ | 57,339 | $ | 648 | $ | 50 | $ | 117,122 | |||||||||||||||
Cash dividend declared |
| | | (2,411 | ) | | | (2,411 | ) | |||||||||||||||||||
Stock option expense |
| | 381 | | | | 381 | |||||||||||||||||||||
Exercise of stock options |
13 | 13 | (32 | ) | | | | (19 | ) | |||||||||||||||||||
Excess tax benefits from share-based payment arrangements |
| | 84 | | | | 84 | |||||||||||||||||||||
Distributions to noncontrolling interest |
| | | | | (315 | ) | (315 | ) | |||||||||||||||||||
Comprehensive income: |
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Change in unrealized holding gain (loss) on available for sale securities, net of tax |
| | | | 32 | | 32 | |||||||||||||||||||||
Net income attributable to the noncontrolling interest |
| | | | | 328 | 328 | |||||||||||||||||||||
Net income attributable to Northrim BanCorp |
| | | 8,143 | | | 8,143 | |||||||||||||||||||||
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Total Comprehensive Income |
8,503 | |||||||||||||||||||||||||||
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Balance as of September 30, 2011 |
6,440 | $ | 6,440 | $ | 53,091 | $ | 63,071 | $ | 680 | $ | 63 | $ | 123,345 | |||||||||||||||
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See notes to the consolidated financial statements
- 6 -
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2011 and 2010
Nine Months Ended September 30, |
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2011 | 2010 | |||||||
(Unaudited) | ||||||||
(In Thousands) | ||||||||
Operating Activities: |
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Net income |
$ | 8,471 | $ | 7,516 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
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Security (gains), net |
(296 | ) | (471 | ) | ||||
Depreciation and amortization of premises and equipment |
1,299 | 1,165 | ||||||
Amortization of software |
155 | 130 | ||||||
Intangible asset amortization |
211 | 229 | ||||||
Amortization of investment security premium, net of discount accretion |
144 | 306 | ||||||
Deferred tax (benefit) liability |
(1,311 | ) | 2,054 | |||||
Stock-based compensation |
381 | 387 | ||||||
Excess tax benefits from share-based payment arrangements |
(84 | ) | (177 | ) | ||||
Deferral of loan fees and costs, net |
(240 | ) | 153 | |||||
Provision for loan losses |
1,649 | 3,167 | ||||||
Purchased receivable loss |
2 | 404 | ||||||
Purchases of loans held for sale |
| (43,593 | ) | |||||
Proceeds from the sale of loans held for sale |
5,558 | 23,530 | ||||||
Gain on sale of loans held for sale |
| (19 | ) | |||||
Gain on sale of other real estate owned |
(859 | ) | (1,443 | ) | ||||
Impairment on other real estate owned |
| 250 | ||||||
Proceeds in excess of earnings (earnings in exess of proceeds) from RML |
200 | (242 | ) | |||||
Equity in loss (income) from Elliott Cove |
16 | 1 | ||||||
Decrease in accrued interest receivable |
371 | 752 | ||||||
(Increase) decrease in other assets |
2,105 | 654 | ||||||
(Decrease) in other liabilities |
(226 | ) | 742 | |||||
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Net Cash Provided (Used) by Operating Activities |
17,546 | (4,505 | ) | |||||
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Investing Activities: |
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Investment in securities: |
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Purchases of investment securities-available-for-sale |
(113,242 | ) | (169,199 | ) | ||||
Purchases of investment securities-held-to-maturity |
| (517 | ) | |||||
Proceeds from sales/maturities of securities-available-for-sale |
115,644 | 141,416 | ||||||
Proceeds from calls/maturities of securities-held-to-maturity |
1,735 | 1,105 | ||||||
Purchases of domestic certificates of deposit |
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Investment in (repayment from) purchased receivables |
(9,007 | ) | (1,797 | ) | ||||
Loan paydowns, net of new advances |
40,171 | 15,857 | ||||||
Proceeds from sale of other real estate owned |
7,912 | 9,225 | ||||||
Investment in Elliott Cove |
| (100 | ) | |||||
Investment in other real estate owned |
(29 | ) | (34 | ) | ||||
Loan to Elliott Cove, net of repayments |
122 | 60 | ||||||
Purchases of premises and equipment |
(571 | ) | (1,556 | ) | ||||
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Net Cash Provided (Used) by Investing Activities |
42,735 | (5,540 | ) | |||||
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Financing Activities: |
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Increase in deposits |
1,431 | 25,620 | ||||||
Increase in securities sold under repurchase agreements |
4,160 | 3,263 | ||||||
(Decrease) in borrowings |
(724 | ) | (81 | ) | ||||
Distributions to noncontrolling interest |
(315 | ) | (304 | ) | ||||
Excess tax benefits from share-based payment arrangements |
84 | 177 | ||||||
Cash dividends paid |
(2,380 | ) | (2,045 | ) | ||||
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Net Cash Provided by Financing Activities |
2,256 | 26,630 | ||||||
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Net Increase in Cash and Cash Equivalents |
62,537 | 16,585 | ||||||
Cash and Cash Equivalents at Beginning of Period |
66,033 | 66,721 | ||||||
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Cash and Cash Equivalents at End of Period |
$ | 128,570 | $ | 83,306 | ||||
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Supplemental Information: |
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Income taxes paid |
$ | 2,880 | $ | 1,263 | ||||
Interest paid |
$ | 3,009 | $ | 4,310 | ||||
Transfer of loans to other real estate owned |
$ | 2,255 | $ | 1,990 | ||||
Loans made to facilitate sales of other real estate owned |
$ | 1,362 | $ | 5,967 | ||||
Cash dividends declared but not paid |
$ | 31 | $ | 26 |
See notes to the consolidated financial statements
- 7 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2011 and 2010
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by Northrim BanCorp, Inc. (the Company) in accordance with accounting principles generally accepted in the United States of America (GAAP) and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to prior year amounts to maintain consistency with the current year with no impact on net income or total shareholders equity. The Company determined that it operates as a single operating segment. Operating results for the interim period ended September 30, 2011, are not necessarily indicative of the results anticipated for the year ending December 31, 2011. These consolidated financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
2. Significant Accounting Policies and Recent Accounting Pronouncements
The Companys significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-02, A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring (ASU 2011-02). ASU 2011-02 provides guidance on a creditors evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties in order to determine when a restructured loan is a troubled debt restructuring. This ASU was effective for the Companys financial statements for annual and interim periods beginning on or after June 15, 2011, and has been applied retrospectively to the beginning of the period of adoption. The adoption of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). Some of the amendments contained in ASU 2011-04 clarify FASBs intent about the application of existing fair value measurement requirements, and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This ASU is effective for the Companys financial statements for annual and interim periods beginning on or after December 15, 2011, and must be applied prospectively. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial position or results of operations.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 amends Topic 220, Comprehensive Income, to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects. This ASU is effective for the Companys financial statements for annual and interim periods beginning on or after December 15, 2011, and must be applied prospectively. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial position or results of operations.
In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (ASU 2011-08). ASU 2011-08 amends Topic 350, Intangibles Goodwill and Other, to simplify how entities, both
- 8 -
public and nonpublic, test goodwill for impairment. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Previous guidance under Topic 350 required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments in this update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This ASU is effective for the Companys financial statements for annual and interim periods beginning on or after December 15, 2011, and must be applied prospectively. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial position or results of operations.
3. Investment Securities
The carrying values and approximate fair values of investment securities at September 30, 2011 and 2010, respectively, are presented below. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. There were ten and eight securities with unrealized losses as of September 30, 2011 and 2010, respectively, that have been in a loss position for less than twelve months. There were no securities with unrealized losses as of September 30, 2011 and 2010 that have been in a loss position for more than twelve months. Because the Company does not intend to sell, nor is it required to sell these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.
- 9 -
At September 30, 2011, $30.3 million in securities, or 14%, of the investment portfolio was pledged, as compared to $26.2 million, or 12%, at December 31, 2010, and $19.7 million, or 9%, at September 30, 2010. We held no securities of any single issuer (other than government sponsored entities) that exceeded 10% of our shareholders equity at September 30, 2011, December 31, 2010 or September 30, 2010.
September 30, |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
(In Thousands) | ||||||||||||||||
2011: |
||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 153,017 | $ | 831 | $ | 22 | $ | 153,826 | ||||||||
Muncipal securities |
14,002 | 536 | | 14,538 | ||||||||||||
U.S. Agency mortgage-backed securities |
56 | 2 | | 58 | ||||||||||||
Corporate bonds |
43,593 | 439 | 635 | 43,397 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 210,668 | $ | 1,808 | $ | 657 | $ | 211,819 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities held to maturity |
||||||||||||||||
Municipal securities |
$ | 4,385 | $ | 234 | $ | | $ | 4,619 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held to maturity |
$ | 4,385 | $ | 234 | $ | | $ | 4,619 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
2010: |
||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 151,614 | $ | 805 | $ | 7 | $ | 152,411 | ||||||||
Muncipal securities |
6,169 | 300 | | 6,469 | ||||||||||||
U.S. Agency mortgage-backed securities |
76 | 3 | | 79 | ||||||||||||
Corporate bonds |
45,980 | 1,440 | 37 | 47,383 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 203,839 | $ | 2,548 | $ | 44 | $ | 206,342 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities held to maturity |
||||||||||||||||
Municipal securities |
$ | 6,692 | $ | 304 | $ | | $ | 6,996 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held to maturity |
$ | 6,692 | $ | 304 | $ | | $ | 6,996 | ||||||||
|
|
|
|
|
|
|
|
- 10 -
The amortized cost and fair values of debt securities at September 30, 2011, are distributed by contractual maturity as shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Cost |
Fair Value | Weighted Average Yield |
||||||||||
(In Thousands) | ||||||||||||
US Treasury and government sponsored entities |
||||||||||||
Within 1 year |
$ | 53,227 | $ | 53,514 | 1.10 | % | ||||||
1-5 years |
99,790 | 100,312 | 0.91 | % | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 153,017 | $ | 153,826 | 0.97 | % | ||||||
|
|
|
|
|
|
|||||||
U.S. Agency mortgage-backed securities |
||||||||||||
5-10 years |
$ | 56 | $ | 58 | 4.45 | % | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 56 | $ | 58 | 4.45 | % | ||||||
|
|
|
|
|
|
|||||||
Corporate bonds |
||||||||||||
1-5 years |
$ | 43,593 | $ | 43,397 | 2.38 | % | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 43,593 | $ | 43,397 | 2.38 | % | ||||||
|
|
|
|
|
|
|||||||
Municipal securities |
||||||||||||
Within 1 year |
$ | 2,349 | $ | 2,370 | 2.76 | % | ||||||
1-5 years |
4,969 | 5,135 | 2.92 | % | ||||||||
5-10 years |
7,919 | 8,340 | 4.51 | % | ||||||||
Over 10 years |
3,150 | 3,312 | 4.79 | % | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 18,387 | $ | 19,157 | 3.90 | % | ||||||
|
|
|
|
|
|
The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the nine months ending September 30, 2011 and 2010, respectively, are as follows:
September 30, |
Proceeds | Gross Gains |
Gross Losses |
|||||||||
(In Thousands) | ||||||||||||
2011: |
||||||||||||
Available for sale securities |
$ | 17,030 | $ | 296 | $ | | ||||||
2010: |
||||||||||||
Available for sale securities |
$ | 20,261 | $ | 471 | $ | | ||||||
|
|
|
|
|
|
- 11 -
A summary of interest income for the nine months ending September 30, 2011 and 2010 on available for sale investment securities is as follows:
September 30, |
2011 | 2010 | ||||||
(In Thousands) | ||||||||
US Treasury and government sponsored entities |
$ | 1,197 | $ | 2,096 | ||||
U.S. Agency mortgage-backed securities |
2 | 3 | ||||||
Other |
683 | 1,080 | ||||||
|
|
|
|
|||||
Total taxable interest income |
$ | 1,882 | $ | 3,179 | ||||
|
|
|
|
|||||
Municipal securities |
369 | 215 | ||||||
|
|
|
|
|||||
Total tax-exempt interest income |
369 | 215 | ||||||
|
|
|
|
|||||
Total |
$ | 2,251 | $ | 3,394 | ||||
|
|
|
|
For the periods ending September 30, 2011, December 31, 2010 and September 30, 2010, we held Federal Home Loan Bank of Seattle (FHLB) stock with a book value approximately equal to its market value in the amount of $2.0 million for each period. The Company evaluated its investment in FHLB stock for other-than-temporary impairment as of September 30, 2011, consistent with its accounting policy. Based on the Companys evaluation of the underlying investment, including the long-term nature of the investment, the liquidity position of the FHLB of Seattle, the actions being taken by the FHLB of Seattle to address its regulatory capital situation, and the Companys intent and ability to hold the investment for a period of time sufficient to recover the par value, the Company did not recognize an other-than-temporary impairment loss. Even though the Company did not recognize an other-than-temporary impairment loss during the nine-month period ending September 30, 2011, continued deterioration in the FHLB of Seattles financial position may result in future impairment losses.
4. Loans
The composition of the loan portfolio by segment, excluding loans held for resale, is presented below:
September 30, 2011 | December 31, 2010 | September 30, 2010 | ||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | Dollar | Percent | |||||||||||||||||||
Amount | of Total | Amount | of Total | Amount | of Total | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Commercial |
$ | 228,538 | 36.3 | % | $ | 256,971 | 38.3 | % | $ | 237,647 | 37.4 | % | ||||||||||||
Real estate construction |
45,984 | 7.3 | % | 62,620 | 9.3 | % | 50,979 | 8.0 | % | |||||||||||||||
Real estate term |
316,463 | 50.3 | % | 312,128 | 46.5 | % | 305,808 | 48.1 | % | |||||||||||||||
Home equity lines and other consumer |
41,609 | 6.6 | % | 43,264 | 6.4 | % | 43,992 | 6.9 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
$ | 632,594 | $ | 674,983 | $ | 638,426 | ||||||||||||||||||
Less: Unearned origination fee, |
||||||||||||||||||||||||
net of origination costs |
(2,930 | ) | -0.5 | % | (3,171 | ) | -0.5 | % | (2,951 | ) | -0.5 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total loans |
$ | 629,664 | $ | 671,812 | $ | 635,475 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2011, approximately 31% of the portfolio was scheduled to mature over the next 12 months, and 23% was scheduled to mature between October 1, 2012, and September 30, 2016.
As part of the on-going monitoring of the credit quality of the Companys loan portfolio, management tracks certain credit quality indicators including trends in past due and nonaccrual loans, gross and net charge offs, and movement in loan balances within the risk classifications. The Company utilizes a risk grading matrix to assign a risk classification to each of its loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the 8 risk classifications are as follows:
- 12 -
| Risk Code 1 Excellent: Loans in this grade are those where the borrower has substantial financial capacity, above average profit margins, and excellent liquidity. Cash flow has been consistent and is well in excess of debt servicing requirements. Loans in this grade may be secured by cash and/or negotiable securities having a readily ascertainable market value and may also be fully guaranteed by the U.S. Government, and other approved governments and financial institutions. Loans in this grade have borrowers with exceptional credit ratings and would compare to AA ratings as established by Standard & Poor's. |
| Risk Code 2 Good: Loans in this grade are those to borrowers who have demonstrated satisfactory asset quality, earnings history, liquidity and other adequate margins of creditor protection. Borrowers exhibit positive fundamentals in terms of working capital, cash flow sufficient to service the debt, and debt to worth ratios. Borrowers for loans in this grade are capable of absorbing normal economic or other setbacks without difficulty. The borrower may exhibit some weaknesses or varying historical profitability. Management is considered adequate in all cases. Borrowing facilities may be unsecured or secured by customary acceptable collateral with well-defined market values. Additional support for the loan is available from secondary repayment sources and/or adequate guarantors. |
| Risk Code 3 Satisfactory: Loans in this grade represent moderate credit risk due to some instability in borrower capacity and financial condition. These loans generally require average loan officer attention. Characteristics of assets in this classification may include: marginal debt service coverage, newly established ventures, limited or unstable earnings history, some difficulty in absorbing normal setbacks, and atypical maturities, collateral or other exceptions to established loan policies. In all cases, such weaknesses are offset by well secured collateral positions and/or acceptable guarantors. |
| Risk Code 4 Watch List: Loans in this grade are acceptable, but additional attention is needed. This is an interim classification reserved for loans that are intrinsically creditworthy but which require specific attention. Loans may have documentation deficiencies that are deemed correctable, may be contrary to current lending policies, or may have insufficient credit or financial information. Loans in this grade may also be characterized by borrower failure to comply with loan covenants or to provide other required information. If such conditions are not resolved within 90 days from the date of the assignment of Risk Code 4, the loan may warrant further downgrade. |
| Risk Code 5 Special Mention: Loans in this grade have had a deterioration of financial condition or collateral value, but are still reasonably secured by collateral or net worth of the borrower. Although the Company is presently protected from loss, potential weaknesses are apparent which, if not corrected, could cause future problems. Loans in this classification warrant more than the ordinary amount of attention but have not yet reached the point of concern for loss. Loans in this category have deteriorated sufficiently that they would have difficulty in refinancing. Loans in this classification may show one or more of the following characteristics: inadequate loan documentation, deteriorating financial condition or control over collateral, economic or market conditions which may adversely impact the borrower in the future, unreliable or insufficient credit or collateral information, adverse trends in operations that are not yet jeopardizing repayment, or adverse trends in secondary repayment sources. |
| Risk Code 6 Substandard: Loans in this grade are no longer adequately protected due to declining net worth of the borrower, lack of earning capacity, or insufficient collateral. The possibility for loss of some portion of the loan principal cannot be ruled out. Loans in this grade exhibit well-defined weaknesses that bring normal repayment into doubt. Some of these weaknesses may include: unprofitable or poor earnings trends of the borrower or property, declining liquidity, excessive debt, significant unfavorable industry comparisons, secondary repayment sources are not available, or there is a possibility of a protracted work-out. |
- 13 -
| Risk Code 7 Doubtful: Loans in this grade exhibit the same weaknesses as those classified Substandard, but the traits are more pronounced. Collection in full is improbable, however the extent of the loss may be indeterminable due to pending factors which may yet occur that could salvage the loan, such as possible pledge of additional collateral, sale of assets, merger, acquisition or refinancing. Borrowers in this grade may be on the verge of insolvency or bankruptcy, and stringent action is required on the part of the loan officer. |
| Risk Code 8 Loss: Loans in this grade are those that are largely non-collectible or those in which ultimate recovery is too distant in the future to warrant continuance as a bankable asset. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer charging the loan off even though recovery may be affected in the future. |
A risk rating is assigned for each loan at origination. The risk ratings for commercial, real estate construction, and real estate term loans may change throughout the life of the loan as a multitude of risk factors change. The risk rating for consumer loans may change as loans become delinquent. Delinquent loans are those that are thirty days or more past due.
The loan portfolio, segmented by risk class at September 30, 2011, is shown below:
Commercial | Real estate construction |
Real estate term |
Home equity lines and other consumer |
Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Risk Code 1 - Excellent |
$ | 1,074 | $ | | $ | | $ | 569 | $ | 1,643 | ||||||||||
Risk Code 2 - Good |
69,961 | | 58,293 | 902 | 129,156 | |||||||||||||||
Risk Code 3 - Satisfactory |
133,002 | 31,650 | 244,526 | 36,754 | 445,932 | |||||||||||||||
Risk Code 4 - Watch |
9,582 | 5,004 | 980 | 2,463 | 18,029 | |||||||||||||||
Risk Code 5 - Special Mention |
9,556 | | 3,408 | 453 | 13,417 | |||||||||||||||
Risk Code 6 - Substandard |
4,674 | 9,330 | 9,256 | 468 | 23,728 | |||||||||||||||
Risk Code 7 - Doubtful |
689 | | | | 689 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Subtotal |
$ | 228,538 | $ | 45,984 | $ | 316,463 | $ | 41,609 | $ | 632,594 | ||||||||||
Less: Unearned origination fees, net of origination costs |
(2,930 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
$ | 629,664 | |||||||||||||||||||
|
|
Loans are carried at their principal amount outstanding, net of charge-offs, unamortized fees and direct loan origination costs. Loan balances are charged to the Allowance when management believes that collection of principal is unlikely. Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status. All classes of loans are placed on nonaccrual and considered impaired when management believes doubt exists as to the collectability of the interest or principal. Cash payments received on nonaccrual loans are directly applied to the principal balance. Generally, a loan may be returned to accrual status when the delinquent principal and interest are brought current in accordance with the terms of the loan agreement and certain ongoing performance criteria have been met. Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms.
- 14 -
Nonaccrual loans totaled $7.9 million, $11.4 million and $13.9 million at September 30, 2011, December 31, 2010, and September 30, 2010, respectively. Nonaccrual loans at September 30, 2011, by major loan type, are presented below:
(In Thousands) | ||||
Commercial |
$ | 4,058 | ||
Real estate construction |
1,568 | |||
Real estate term |
2,061 | |||
Home equity lines and other consumer |
179 | |||
|
|
|||
Total |
$ | 7,866 | ||
|
|
Past due loans and nonaccrual loans at September 30, 2011 are presented below by loan class:
30-59 DaysPast Due Still Accruing |
60-89 Days Past Due Still Accruing |
Greater Than 90 Days Still Accruing |
Nonaccrual | Total Past Due and Nonaccrual |
Total Current |
Total Financing Receivables |
||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Risk Code 1 - Excellent |
$ | | $ | | $ | | $ | | $ | | $ | 1,643 | $ | 1,643 | ||||||||||||||
Risk Code 2 - Good |
| | | | | 129,156 | 129,156 | |||||||||||||||||||||
Risk Code 3 - Satisfactory |
454 | | | | 454 | 445,478 | 445,932 | |||||||||||||||||||||
Risk Code 4 - Watch |
89 | | | | 89 | 17,940 | 18,029 | |||||||||||||||||||||
Risk Code 5 - Special Mention |
53 | | | 177 | 230 | 13,187 | 13,417 | |||||||||||||||||||||
Risk Code 6 - Substandard |
3,064 | 3 | | 7,000 | 10,067 | 13,661 | 23,728 | |||||||||||||||||||||
Risk Code 7 - Doubtful |
| | | 689 | 689 | | 689 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Subtotal |
$ | 3,660 | $ | 3 | $ | | $ | 7,866 | $ | 11,529 | $ | 621,065 | $ | 632,594 | ||||||||||||||
Less: Unearned origination fees, net of origination costs |
(2,930 | ) | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
$ | 629,664 | |||||||||||||||||||||||||||
|
|
Past due loans greater than 90 days and still accruing were zero and $200,000 at December 31, 2010 and September 30, 2010, respectively.
The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loans effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loans collateral. Nonperforming loans greater than $50,000 are individually evaluated for impairment based upon the borrowers overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors.
- 15 -
At September 30, 2011, December 31, 2010 and September 30, 2010, the recorded investment in loans that are considered to be impaired was $10.9 million, $18.3 million, and $22.2 million, respectively. The following table presents information about impaired loans as of September 30, 2011:
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
(In Thousands) | ||||||||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Commercial - risk code 5 special mention |
$ | 374 | $ | 374 | $ | | $ | 453 | $ | 18 | ||||||||||
Commercial - risk code 6 substandard |
2,558 | 3,156 | | 2,717 | 28 | |||||||||||||||
Real estate construction - risk code 6 substandard |
431 | 431 | | 432 | | |||||||||||||||
Real estate term - risk code 6 substandard |
3,477 | 3,566 | | 3,389 | 89 | |||||||||||||||
Home equity lines and other consumer - risk code 5 special mention |
98 | 98 | | 49 | 4 | |||||||||||||||
Home equity lines and other consumer - risk code 6 substandard |
201 | 201 | | 208 | 7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,139 | $ | 7,826 | $ | | $ | 7,248 | $ | 146 | |||||||||||
With an allowance recorded |
||||||||||||||||||||
Commercial - risk code 6 substandard |
$ | 1,158 | $ | 1,158 | $ | 64 | $ | 1,332 | $ | | ||||||||||
Commercial - risk dode 7 doubtful |
688 | 688 | 646 | 716 | | |||||||||||||||
Real estate construction - risk code 6 substandard |
1,568 | 1,613 | 50 | 1,573 | | |||||||||||||||
Real estate term - risk code 6 substandard |
223 | 223 | 25 | 224 | | |||||||||||||||
Home equity lines and other consumer - risk code 6 substandard |
91 | 91 | 5 | 91 | 4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 3,728 | $ | 3,773 | $ | 790 | $ | 3,936 | $ | 4 | |||||||||||
Total |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commercial - risk code 5 special mention |
$ | 374 | $ | 374 | $ | | $ | 453 | $ | 18 | ||||||||||
Commercial - risk code 6 substandard |
3,716 | 4,314 | 64 | 4,049 | 28 | |||||||||||||||
Commercial - risk dode 7 doubtful |
688 | 688 | 646 | 716 | | |||||||||||||||
Real estate construction - risk code 6 substandard |
1,999 | 2,044 | 50 | 2,005 | | |||||||||||||||
Real estate term - risk code 6 substandard |
3,700 | 3,789 | 25 | 3,613 | 89 | |||||||||||||||
Home equity lines and other consumer - risk code 5 special mention |
98 | 98 | | 49 | 4 | |||||||||||||||
Home equity lines and other consumer - risk code 6 substandard |
292 | 292 | 5 | 299 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 10,867 | $ | 11,599 | $ | 790 | $ | 11,184 | $ | 150 | |||||||||||
|
|
|
|
|
|
|
|
|
|
The unpaid principle balance included in the table above represents the recorded investment at September 30, 2011 and amounts charged off for book purposes.
Loans classified as troubled debt restructurings totaled $4.1 million at September 30, 2011. There were no loans classified as troubled debt restructurings at December 31, 2010 or September 30, 2010. A troubled debt restructuring is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession of some kind. The Company has granted a variety of concessions to borrowers in the form of loan modifications. The modifications granted can generally be described in the following categories:
Rate Modification: A modification in which the interest rate is changed.
Term Modification: A modification in which the maturity date, timing of payments, or frequency of payments is changed.
Payment Modification: A modification in which the dollar amount of the payment is changed, or in which a loan is converted to interest only payments for a period of time are included in this category.
Combination Modification: Any other type of modification, including the use of multiple categories above.
- 16 -
The following table presents newly restructured loans that occurred during the nine months ended September 30, 2011:
September 30, 2011 | ||||||||||||
Accrual Status |
Nonaccrual Status |
Total Modifications |
||||||||||
(In Thousands) | ||||||||||||
Troubled Debt Restructurings |
||||||||||||
Commercial risk code 5 - special mention |
$ | 374 | $ | | $ | 374 | ||||||
Commercial risk code 6 - substandard |
259 | 172 | 431 | |||||||||
Commercial risk code 7 - doubtful |
| 688 | 688 | |||||||||
Real estate term risk code 6 - substandard |
1,846 | 647 | 2,493 | |||||||||
Home equity lines and other consumer risk code 5 - special mention |
98 | | 98 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 2,577 | $ | 1,507 | $ | 4,084 | ||||||
|
|
|
|
|
|
The following table presents newly restructured loans that occurred during the nine months ended September 30, 2011 by concession (terms modified):
|
September 30, 2011 | |||||||||||||||||||||||
Number of Contracts |
Rate Modification |
Term Modification |
Payment Modification |
Combination Modification |
Total Modifications |
|||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Pre-Modification Outstanding Recorded Investment: |
||||||||||||||||||||||||
Commercial risk code 5 - special mention |
1 | $ | 510 | $ | | $ | | $ | | $ | 510 | |||||||||||||
Commercial risk code 6 - substandard |
3 | | 204 | | 257 | 461 | ||||||||||||||||||
Commercial risk code 7 - doubtful |
3 | | 465 | 259 | 724 | |||||||||||||||||||
Real estate term risk code 6 - substandard |
5 | 1,408 | 402 | | 520 | 2,330 | ||||||||||||||||||
Home equity lines and other consumer risk code 5 - special mention |
1 | | 101 | | | 101 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
13 | $ | 1,918 | $ | 1,172 | $ | | $ | 1,036 | $ | 4,126 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Post-Modification Outstanding Recorded Investment: |
||||||||||||||||||||||||
Commercial risk code 5 - special mention |
1 | $ | 374 | $ | | $ | | $ | | $ | 374 | |||||||||||||
Commercial risk code 6 - substandard |
3 | | 197 | | 234 | 431 | ||||||||||||||||||
Commercial risk code 7 - doubtful |
3 | | 457 | 231 | 688 | |||||||||||||||||||
Real estate term risk code 6 - substandard |
5 | 1,683 | 321 | | 489 | 2,493 | ||||||||||||||||||
Home equity lines and other consumer risk code 5 - special mention |
1 | | 98 | | | 98 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
13 | $ | 2,057 | $ | 1,073 | $ | | $ | 954 | $ | 4,084 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011, there were no troubled debt restructurings that have defaulted since the time of their modification. All troubled debt restructurings are performing according to their modified terms. The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified in troubled debt restructurings. All troubled debt restructurings are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the Allowance for Loan Losses. There was one $90,000 charge off in 2011 on troubled debt restructurings in the real estate term category. Two commercial troubled debt restructurings with a total recorded investment of $457,000 had a specific impairment amount totaling $446,000, respectively, at September 30, 2011.
Loans held for sale: The Company has purchased residential loans from our mortgage affiliate, Residential Mortgage Holding Company LLC (RML), from time to time since 1998. The Company then sells these loans in the secondary market. During 2009, the Company renewed its agreement with RML in anticipation of higher than normal refinance activity in the Anchorage market. The Company did not purchase or sell any loans in the third quarter of 2011. The Company sold $5.6 million in loans in the nine-month period ending September 30, 2011 and did not purchase any loans in the nine-month period ending September 30, 2011. The Company purchased $43.6 million and sold $23.5 million loans in the nine-month period ending September 30, 2010.
- 17 -
5. Allowance for Loan Losses
The following tables detail activity in the Allowance for Loan Losses (Allowance) for the three and nine month periods ending September 30, 2011:
Three months ended September 30, 2011 |
Commercial | Real estate construction |
Real estate term | Home equity lines and other consumer |
Unallocated | Total | ||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Balance, beginning of period |
$ | 6,703 | $ | 1,632 | $ | 4,970 | $ | 919 | $ | 1,350 | $ | 15,574 | ||||||||||||
Charge-Offs |
(349 | ) | | | (5 | ) | | (354 | ) | |||||||||||||||
Recoveries |
298 | 12 | | 13 | | 323 | ||||||||||||||||||
Provision |
(621 | ) | (105 | ) | 537 | (313 | ) | 1,052 | 550 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 6,031 | $ | 1,539 | $ | 5,507 | $ | 614 | $ | 2,402 | $ | 16,093 | ||||||||||||
Balance, end of period: Individually evaluated for impairment |
$ | 710 | $ | 50 | $ | 25 | $ | 5 | $ | | $ | 790 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period: Collectively evaluated for impairment |
$ | 5,321 | $ | 1,489 | $ | 5,482 | $ | 609 | $ | 2,402 | $ | 15,303 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2011 |
Commercial | Real estate construction |
Real estate term | Home equity lines and other consumer |
Unallocated | Total | ||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Balance, beginning of period |
$ | 6,374 | $ | 1,035 | $ | 4,270 | $ | 741 | $ | 1,986 | $ | 14,406 | ||||||||||||
Charge-Offs |
(913 | ) | | (90 | ) | (70 | ) | | (1,073 | ) | ||||||||||||||
Recoveries |
997 | 25 | 53 | 36 | | 1,111 | ||||||||||||||||||
Provision |
(427 | ) | 479 | 1,274 | (93 | ) | 416 | 1,649 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 6,031 | $ | 1,539 | $ | 5,507 | $ | 614 | $ | 2,402 | $ | 16,093 | ||||||||||||
Balance, end of period: Individually evaluated for impairment |
$ | 710 | $ | 50 | $ | 25 | $ | 5 | $ | | $ | 790 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period: Collectively evaluated for impairment |
$ | 5,321 | $ | 1,489 | $ | 5,482 | $ | 609 | $ | 2,402 | $ | 15,303 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following is a detail of the recorded investment in the loan portfolio, segregated by amounts evaluated individually or collectively in the Allowance at September 30, 2011:
Commercial | Real estate construction |
Real estate term |
Home equity lines and other consumer |
Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Balance, end of period |
$ | 228,538 | $ | 45,984 | $ | 316,463 | $ | 41,609 | $ | 632,594 | ||||||||||
Balance, end of period: Individually evaluated for impairment |
$ | 4,778 | $ | 1,999 | $ | 3,700 | $ | 390 | $ | 10,867 | ||||||||||
Balance, end of period: Collectively evaluated for impairment |
$ | 223,760 | $ | 43,985 | $ | 312,763 | $ | 41,219 | $ | 621,727 |
- 18 -
The following represents the balance of the Allowance as September 30, 2011 segregated by segment and class:
Total | Commercial | Real estate Construction |
Real estate term |
Home equity lines and other consumer |
Unallocated | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Individually evaluated for impairment: |
||||||||||||||||||||||||
Risk Code 6 - Substandard |
$ | 144 | $ | 64 | $ | 50 | $ | 25 | $ | 5 | $ | | ||||||||||||
Risk Code 7 - Doubtful |
$ | 646 | 646 | | | | | |||||||||||||||||
Collectively evaluated for impairment: |
||||||||||||||||||||||||
Risk Code 3 - Satisfactory |
9,265 | 3,577 | 674 | 4,450 | 564 | | ||||||||||||||||||
Risk Code 4 - Watch |
758 | 630 | 97 | 10 | 21 | | ||||||||||||||||||
Risk Code 5 - Special Mention |
1,102 | 1,027 | | 52 | 23 | | ||||||||||||||||||
Risk Code 6 - Substandard |
1,776 | 87 | 718 | 970 | 1 | | ||||||||||||||||||
Risk Code 7 - Doubtful |
| | | | | | ||||||||||||||||||
Unallocated |
2,402 | | | | | 2,402 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 16,093 | $ | 6,031 | $ | 1,539 | $ | 5,507 | $ | 614 | $ | 2,402 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2011, the Allowance was $16.1 million, and the Companys ratio of nonperforming loans compared to portfolio loans was 1.66%. The Companys ratio of Allowance compared to portfolio loans at September 30, 2011 was 2.56%.
6. Goodwill and Other Intangibles
The Company performs goodwill impairment testing annually in accordance with the policy described in Note 1 of the Companys Annual Report on Form 10-K for the year ended December 31, 2010. There was no indication of impairment as of September 30, 2011. The Company continues to monitor the Companys goodwill for potential impairment on an ongoing basis. No assurance can be given that there will not be an impairment charge to earnings during 2011 for goodwill impairment, if, for example, our stock price declines and trades at a significant discount to its book value, although there are many qualitative and quantitative factors that we analyze in determining the impairment of goodwill.
7. Variable Interest Entities
The Company has analyzed all of its affiliate relationships in accordance with GAAP and determined that Elliott Cove Capital Management LLC (Elliott Cove) is a variable interest entity (VIE). However, the Company does not have a controlling interest in Elliott Cove. The Company owns a 40.8% equity interest in Elliott Cove, an investment advisory services company, through its whollyowned subsidiary, Northrim Investment Services Company (NISC). The Company determined that Elliott Cove is a VIE based on the fact that the Company provides Elliott Cove with a line of credit for which the majority owner of Elliott Cove provides additional subordinated financial support in the form of a 50% guarantee. This line of credit has a committed amount of $750,000 and an outstanding balance of $420,000 as of September 30, 2011. Furthermore, Elliott Cove does not have access to any other financial support through other institutions, nor is it likely that it would be able to obtain additional lines of credit based on its operational losses to date and its resulting lack of equity. As such, it appears that Elliott Cove cannot finance its activities without additional subordinated financial support and is therefore considered a VIE under GAAP. However, the Company has determined that it does not have a controlling interest in Elliott Cove based on the following facts and circumstances:
a. | Neither the Company nor any members of the Companys management have control over the budgeting or operational processes of Elliott Cove. |
- 19 -
b. | While the President, CEO and Chairman of the Company is a member of Elliott Coves board, he does not exert influence on decisions beyond Northrim Investment Services Companys ownership percentage in Elliott Cove. |
c. | The Company has no veto rights with respect to decisions affecting the operations of Elliott Cove. |
The Company has the obligation to absorb losses of Elliott Cove up to its ownership percentage of 40.8%. There are no caps or guarantees on returns, and there are no protections to limit any investors share of losses. Additionally, the Company provides Elliott Cove with a $750,000 line of credit. This line includes a 50% personal guarantee by the majority owner of Elliott Cove. Therefore, the Company does have the obligation to absorb losses and the right to receive benefits that could be significant to Elliott Cove and which, as a result of its exposure to 50% of any losses incurred on the line of credit that the Company has extended to Elliott Cove, may be greater than the Companys 40.8% ownership therein.
However, GAAP requires that the Company have both the power to control the activities of Elliott Cove that most significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits from Elliott Cove that could potentially be significant to Elliott Cove. The Company has determined that the facts and circumstances of its relationship with Elliott Cove including its overall involvement in the operations, decision-making capabilities and proportionate share in earnings and losses does not satisfy the criteria for a controlling interest because it does not have the power to direct the activities of Elliott Cove according to GAAP.
The Company also provides a line of credit to our mortgage affiliate, RML. While the Company also provides a line of credit to RML, which is also guaranteed by the other owners of RML, RML has other available lines of credit with unrelated financial institutions which have been in place for many years. Additionally, RML has a history of profitability and has sufficient capital to support its operations. RML had $19.9 million in equity, $108.4 million in assets and net income of $5.9 million as of and for the year ended December 31, 2010 (see Note 9 in the Companys Form 10-K for the year ended December 31, 2010). As such, the total equity investment in the entity, which is provided by the Company and the other owners, is adequate to finance the activities of RML. Therefore, the Company has concluded that RML is not a VIE.
8. Deposit Activities
Total deposits at September 30, 2011, December 31, 2010 and September 30, 2010 were $893.6 million, $892.1 million and $878.7 million, respectively. The only deposit category with stated maturity dates is certificates of deposit. At September 30, 2011, the Company had $126.3 million in certificates of deposit as compared to certificates of deposit of $138.2 million and $148.9 million, for the periods ending December 31, 2010 and September 30, 2010, respectively. At September 30, 2011, $89.1 million, or 71%, of the Companys certificates of deposits are scheduled to mature over the next 12 months as compared to $103.7 million, or 75%, of total certificates of deposit at December 31, 2010, and $105.9 million, or 71%, of total certificates of deposit at September 30, 2010.
9. Stock Incentive Plan
The Company set aside 325,000 shares of authorized stock for the 2010 Stock Incentive Plan (2010 Plan) under which it may grant stock options and restricted stock units. The Companys policy is to issue new shares to cover awards. The total number of stock options and restricted stock units outstanding under the 2010 Plan and previous stock incentive plans at September 30, 2011 was 325,016. Under the 2010 plan and previous stock incentive plans, certain key employees have been granted the option to purchase set amounts of common stock at the market price on the day the option was granted. Optionees, at their own discretion, may cover the cost of exercise through the exchange, at the fair market value, of already owned shares of the Companys stock. Options are granted for a 10-year period and vest on a pro rata basis over the initial three years from grant. In addition to stock options, the Company has granted restricted stock units to certain key employees under the 2010 Plan and previous stock incentive plans. These restricted stock grants cliff vest at the end of a three-year time period.
- 20 -
The Company recognized expenses of $100,000 and $94,000 on the fair value of restricted stock units and $17,000 and $35,000 on the fair value of stock options for a total of $117,000 and $129,000 in stock-based compensation expense for the three-month periods ending September 30, 2011 and 2010, respectively. For the nine-month periods ending September 30, 2011 and 2010, the Company recognized expenses of $329,000 and $283,000 on the fair value of restricted stock units and $52,000 and $104,000 on the fair value of stock options for a total of $381,000 and $387,000 in stock-based compensation expense.
Proceeds from the exercise of stock options for the three months ended September 30, 2011 and 2010 were $217,000 and $292,000, respectively. The Company withheld shares valued at $237,000 and $297,000, respectively, to pay for stock option exercises or income taxes that resulted from the exercise of stock options or the vesting of restricted stock units for the three-month periods ending September 30, 2011 and 2010. The Company recognized tax deductions of $47,000 and $75,000 related to the exercise of these stock options during the quarters ended September 30, 2011 and 2010, respectively.
For the nine months ending September 30, 2011 and 2010, proceeds from the exercise of stock options were $397,000 and $789,000, respectively. The Company withheld shares valued at $416,000 and $794,000 to pay for stock option exercises or income taxes that resulted from the exercise of stock options or the vesting of restricted stock units for the nine-month periods ending September 30, 2011 and 2010, respectively. The Company recognized tax deductions of $84,000 and $177,000 related to the exercise of these stock options during the nine months ended September 30, 2011 and 2010, respectively.
10. Fair Value of Assets and Liabilities
The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1: Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal agency securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2: Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Companys estimation of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
The following methods and assumptions were used to estimate fair value disclosures. All financial instruments are held for other than trading purposes.
Cash, due from banks and interest bearing deposits in other banks: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values.
Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Investments in Federal Home Loan Bank stock are recorded at cost, which also represents fair value.
Loans held for sale: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values.
- 21 -
Loans: Fair value adjustments for loans are mainly related to credit risk, interest rate risk, required equity return, and liquidity risk. Credit risk is primarily addressed in the financial statements through the Allowance (see Note 5). Loans are valued using a discounted cash flow methodology and are pooled based on type of interest rate (fixed or adjustable) and maturity. A discount rate was developed based on the relative risk of the cash flows, taking into account the maturity of the loans and liquidity risk. Impaired loans are carried at fair value. Specific valuation allowances are included in the Allowance.
Purchased receivables: Fair values for purchased receivables are based on their carrying amounts due to their short duration and repricing frequency.
Accrued interest receivable: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values.
Deposit liabilities: The fair values of demand and savings deposits are equal to the carrying amount at the reporting date. The carrying amount for variable-rate time deposits approximate their fair value. Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies currently offered interest rates to a schedule of aggregate expected monthly maturities of time deposits.
Accrued interest payable: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values.
Securities sold under repurchase agreements: Fair values for securities sold under repurchase agreements are based on their carrying amounts due to their short duration and repricing frequency.
Borrowings: Due to the short term nature of these instruments, the carrying amount of short-term borrowings reported in the balance sheet approximate the fair value. Fair values for fixed-rate long-term borrowings are estimated using a discounted cash flow calculation that applies currently offered interest rates to a schedule of aggregate expected monthly payments.
Junior subordinated debentures: Fair value adjustments for junior subordinated debentures are based on discounted cash flows to maturity using current interest rates for similar financial instruments. Management utilized a market approach to determine the appropriate discount rate for junior subordinated debentures.
Assets subject to nonrecurring adjustment to fair value: The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets and OREO at fair value on a nonrecurring basis in accordance with GAAP. Any nonrecurring adjustments to fair value usually result from the write down of individual assets.
The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and impaired loans as of each reporting date. In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs. The Companys determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists.
The Company uses external sources to estimate fair value for projects that are not fully constructed as of the date of valuation. These projects are generally valued as if complete, with an appropriate allowance for cost of completion, including contingencies developed from external sources such as vendors, engineers and contractors. The Company believes that recording other real estate owned that is not fully constructed based on as if complete values is more appropriate than recording other real estate owned that is not fully constructed using as is values. We concluded that as is complete values are appropriate for these types of projects based on the accounting guidance for capitalization of project costs and subsequent measurement of the value of real estate. GAAP specifically states that estimates and cost
- 22 -
allocations must be reviewed at the end of each reporting period and reallocated based on revised estimates. The Company adjusts the carry value of other real estate owned in accordance with this guidance for increases in estimated cost to complete that exceed the fair value of the real estate at the end of each reporting period.
Commitments to extend credit and standby letters of credit: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.
Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Companys entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Companys financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Estimated fair values as of September 30, 2011 and December 31, 2010 are as follows:
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying Amount |
Fair Value | Carrying Amount |
Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Cash, due from banks and deposits in other banks |
$ | 128,570 | $ | 128,570 | $ | 66,033 | $ | 66,033 | ||||||||
Investment securities |
216,204 | 216,438 | 220,135 | 222,299 | ||||||||||||
Investment in Federal Home Loan Bank stock |
2,003 | 2,003 | 2,003 | 2,003 | ||||||||||||
Loans |
613,571 | 610,504 | 662,964 | 659,650 | ||||||||||||
Loans held for sale |
| | 5,558 | 5,558 | ||||||||||||
Purchased receivables |
25,536 | 25,536 | 16,531 | 16,531 | ||||||||||||
Accrued interest receivable |
3,030 | 3,030 | 3,401 | 3,401 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
$ | 893,567 | $ | 892,915 | $ | 892,136 | $ | 890,729 | ||||||||
Accrued interest payable |
48 | 48 | 300 | 300 | ||||||||||||
Securities sold under repurchase agreements |
17,034 | 17,034 | 12,874 | 12,874 | ||||||||||||
Borrowings |
4,662 | 4,101 | 5,386 | 4,759 | ||||||||||||
Junior subordinated debentures |
18,558 | 15,106 | 18,558 | 15,106 | ||||||||||||
Unrecognized financial instruments: |
||||||||||||||||
Commitments to extend credit(1) |
$ | 193,801 | $ | 1,938 | $ | 181,305 | $ | 1,813 | ||||||||
Standby letters of credit(1) |
16,232 | 162 | 19,085 | 191 |
(1) | Carrying amounts reflect the notional amount of credit exposure under these financial instruments. |
- 23 -
The following table sets forth the balances as of September 30, 2011 and 2010, respectively, of assets and liabilities measured at fair value on a recurring basis:
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Signifcant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
(In Thousands) | ||||||||||||||||
2011: |
||||||||||||||||
Available for sale securities |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 153,826 | $ | | $ | 153,826 | $ | | ||||||||
Municipal securities |
14,538 | | 14,538 | | ||||||||||||
U.S. Agency mortgage-backed securities |
58 | 58 | ||||||||||||||
Corporate bonds |
43,397 | | 43,397 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 211,819 | $ | | $ | 211,819 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
2010: |
||||||||||||||||
Available for sale securities |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 152,411 | $ | | $ | 152,411 | $ | | ||||||||
Municipal securities |
6,469 | | 6,469 | | ||||||||||||
U.S. Agency mortgage-backed securities |
79 | 79 | ||||||||||||||
Corporate bonds |
47,383 | | 47,383 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 206,342 | $ | | $ | 206,342 | $ | | ||||||||
|
|
|
|
|
|
|
|
As of and for the nine months ending September 30, 2011 and 2010, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis, except for certain assets as shown in the following table:
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total (gains) losses |
||||||||||||||||
(In Thousands) | ||||||||||||||||||||
2011: |
||||||||||||||||||||
Loans measured for impairment1 |
$ | 3,729 | $ | | $ | 2,217 | $ | 1,512 | $ | 244 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 3,729 | $ | | $ | 2,217 | $ | 1,512 | $ | 244 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
2010: |
||||||||||||||||||||
Loans measured for impairment1 |
$ | 5,163 | $ | | $ | 3,928 | $ | 1,235 | ($ | 793 | ) | |||||||||
Other real estate owned2 |
640 | | | 640 | 250 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,803 | $ | | $ | 3,928 | $ | 1,875 | ($ | 543 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
1 | Relates to certain impaired collateral dependant loans. The impairment was measured based on the fair value of collateral, in accordance with U.S. GAAP. |
2 | Relates to certain impaired other real estate owned. This impairment arose from an adjustment to the Companys estimate of the fair market value of these properties based on changes in estimated costs to complete the projects and changes in market conditions. |
For loans measured for impairment, the Company classifies fair value measurements using observable inputs, such as external appraisals, as level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as level 3 valuations in the fair value hierarchy.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the unaudited consolidated financial statements of Northrim BanCorp, Inc. (the Company) and the notes thereto presented elsewhere in this report and with the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
- 24 -
Note Regarding Forward Looking-Statements
This quarterly report on Form 10-Q includes forward-looking statements, which are not historical facts. These forward-looking statements describe managements expectations about future events and developments such as future operating results, growth in loans and deposits, continued success of the Companys style of banking, and the strength of the local economy. All statements other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this report are forward-looking. We use words such as anticipate, believe, expect, intend and similar expressions in part to help identify forward-looking statements. Forward-looking statements reflect managements current plans and expectations and are inherently uncertain. Our actual results may differ significantly from managements expectations, and those variations may be both material and adverse. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: the general condition of, and changes in, the Alaska economy; factors that impact our net interest margin; and our ability to maintain asset quality. Further, actual results may be affected by competition 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. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in Item 1A Risk Factors of this report, and 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. In addition, you should note that we do not intend to update any of the forward-looking statements or the uncertainties that may adversely impact those statements, other than as required by law.
Critical Accounting Policies
The preparation of the consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable; however, actual results may differ significantly from these estimates and assumptions which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.
The accounting policies that involve significant estimates and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities, are considered critical accounting policies. The Companys critical accounting policies include those that address the accounting for the Allowance, the valuation of goodwill and other intangible assets, and the valuation of other real estate owned. These critical accounting policies are further described in Managements Discussion and Analysis and in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in the Companys Form 10-K as of December 31, 2010. Management has applied its critical accounting policies and estimation methods consistently in all periods presented in these financial statements.
See Note 2 of the Notes to the Consolidated Financial Statements in this Form 10-Q for a summary of the pronouncements that became effective in 2011 and discussion of the impact of their adoption on the Companys consolidated financial statements.
Economic Conditions
With relatively strong prices for commodities, particularly oil, minerals and fisheries, Alaskas economy continues to be one of the best in the nation. In August, the U.S. Department of Commerce released data on disposable income by state. Preliminary figures show that total disposable income in Alaska increased 4% from 2009 to 2010, from $27.7 billion to $28.8 billion, which is the 5th fastest pace in the nation. Total personal income in Alaska has grown each of the last five years, from $23.9 million in 2006. Per capita disposable income in Alaska last year was $40,530, the 8th highest in the U.S. and 110% of the U.S. average.
- 25 -
Employment in Alaska also reached an all-time high in July of this year according to a recent report by the Alaska Department of Labor and Workforce Development. As the report notes, employment in Alaska has grown every year since 1988 except for 2009 when it declined by four-tenths of a percent, only to recoup these losses in 2010 and reach a new high at 355,100 in July of this year.
Highlights and Summary of Performance Third Quarter of 2011
| Nonperforming assets declined to $16.3 million, or 1.53% of total assets at September 30, 2011, compared to $21.8 million, or 2.07% of total assets at December 31, 2010 and $25 million, or 2.41% of total assets a year ago, due in part to the sale of a $3.8 million condominium complex that was classified as other real estate owned (OREO) and that generated a gain on sale of $449,000 in the second quarter of 2011. |
| The allowance for loan losses totaled 2.56% of gross loans at September 30, 2011, compared to 2.14% at December 31, 2010 and 2.31% a year ago. The allowance for loan losses to nonperforming loans also increased to 154.10% at September 30, 2011, from 126.21% at December 31, 2010 and 105.93% a year ago. |
| Other operating income, which includes revenues from service charges, electronic banking and financial services affiliates, contributed 24.5% to third quarter 2011 total revenues. |
| Northrim remains well-capitalized with Tier 1 Capital/risk adjusted assets at September 30, 2011 of 15.39%, up from 14.08% at December 31, 2010 and 14.46% in the third quarter of 2010. Tangible common equity to tangible assets was 10.86% at the end of the third quarter of 2011, up from 10.36% at December 31, 2010 and 10.50% in the second quarter of 2010. Tangible common equity to tangible assets is a non-GAAP ratio that represents total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets. The GAAP measure of equity to assets is total equity divided by total assets. Total equity to total assets was 11.58% at September 30, 2011 as compared to 11.11% at December 31, 2010 and 11.26% at September 30, 2010. |
| The net interest margin (NIM) was 4.45% for the quarter ended September 30, 2011, down from 4.57% for the quarter ended December 31, 2010 and down from 4.77% for the third quarter of 2010. |
| Northrim increased its quarterly dividend to $0.13 per share in the third quarter of 2011 which provides a yield of approximately 2.70% at current market share prices. |
The Company reported net income and diluted earnings per share of $2.5 million and $0.38, respectively, for the third quarter of 2011 compared to net income and diluted earnings per share of $3.2 million and $0.49, respectively, for the third quarter of 2010. The decrease in net income from the prior year was attributable to an increase in other operating expense due to decreased rental income and gains on the sale of other real estate owned and decreased net interest income. These negative results were partially offset by increases in other operating income and a decrease in the provision for income taxes for the quarter ending September 30, 2011.
Northrims total assets grew 3% at September 30, 2011 as compared to September 30, 2010, with significant increases in cash and cash equivalents and purchased receivables which were partially offset by decreases in loans and other real estate owned. Total assets at September 30, 2011 increased 1% as compared to December 31, 2010. Net loans decreased 7% to $613.6 million at September 30, 2011 as compared to $663 million at December 31, 2010 and $641 million a year ago. This decrease in the loan portfolio in the first nine months of 2011 was primarily due to decreases in commercial and real estate construction loans.
Credit Quality and Nonperforming Assets
Nonperforming assets at September 30, 2011, decreased by $5.4 million in the first nine months of 2011 and declined by $8.7 million year-over-year. Decreases in other real estate owned were the result of property sales totaling $7.9 million and $9.8 million, respectively, for the nine and twelve-month periods ending September 30, 2011 which were partially offset by additions to OREO of $2.3 million and $3.1 million, respectively, for the same periods. Nonaccrual loans decreased by $3.5 in the first nine months of 2011 and decreased $5.8 million year-over-year. These decreases were partially
- 26 -
offset by an increase of $2.6 million in troubled debt restructurings for both periods. There are thirteen troubled debt restructurings at September 30, 2011 totaling $4.1 million, and $2.6 million of the loans are current on payments and the borrowers have pledged collateral; however, the borrowers were granted concessions on the terms of their loans due to their financial difficulty. As a result, these loans are classified as nonperforming assets. The remaining $1.5 million in troubled debt restructurings are included in nonaccrual loans at September 30, 2011.
At September 30, 2011, management had identified potential problem loans of $5.6 million as compared to potential problem loans of $8.8 million at December 31, 2010 and $11.7 million at September 30, 2010. Potential problem loans are loans which are currently performing and are not included in nonaccrual loans, accruing loans 90 days or more past due, impaired loans or troubled debt restructurings (TDRs) that have developed negative indications that the borrower may not be able to comply with present payment terms and which may later be included in nonaccrual, past due, impaired or TDRs. The $3.2 million decrease in potential problem loans at September 30, 2011 from December 31, 2010 is due to improvements in borrower performance and pay downs, as well as the transfer of approximately $1.8 million in loans to nonaccrual status or to other real estate owned.
At September 30, 2011, December 31, 2010 and September 30, 2010 the Company held OREO of $5.8 million, $10.4 million and $11 million, respectively. During the nine months ending September 30, 2011, the Company received approximately $7.9 million in cash proceeds from the sale of OREO. These proceeds included $3.8 million for the bulk sale of twenty-three condominium units. The Company recognized a gain of $449,000 on this bulk sale. Additionally, the Company recognized $410,000 in net gains on the sales of other miscellaneous OREO properties in the nine months ending September 30, 2011. The following table summarizes total OREO activity for the three and nine-month periods ending September 30, 2011 and 2010:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In Thousands) | ||||||||||||||||
Balance, beginning of the period |
$ | 5,083 | $ | 12,973 | $ | 10,355 | $ | 17,355 | ||||||||
Transfers from loans, net |
1,273 | 1,059 | 2,255 | 1,990 | ||||||||||||
Investment in other real estate owned |
1 | 7 | 29 | 34 | ||||||||||||
Proceeds from the sale of other real estate owned |
(618 | ) | (3,337 | ) | (7,912 | ) | (9,225 | ) | ||||||||
Gain on sale of other real estate owned, net |
54 | 1,162 | 859 | 1,443 | ||||||||||||
Deferred gain on sale of other real estate owned |
45 | (771 | ) | 252 | (328 | ) | ||||||||||
Impairment on other real estate owned |
| (74 | ) | | (250 | ) | ||||||||||
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Balance at end of period |
$ | 5,838 | $ | 11,019 | $ | 5,838 | $ | 11,019 | ||||||||
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RESULTS OF OPERATIONS
Income Statement
Net Income
Net income attributable to Northrim BanCorp for the third quarter of 2011 decreased $672,000 compared to the same period in 2010. This decrease was due to increases in other operating expenses and the provision for loan losses and a decrease in net interest income. These changes were partially offset by a decrease in the provision for income taxes and a slight increase in other operating income.
Net income attributable to Northrim BanCorp for the nine-month period ending September 30, 2011 increased $925,000 compared to the same period in 2010. This increase was primarily the result of decreases in other operating expenses and in the provision for loan losses coupled with a slight increase in other operating income. These changes were partially offset by decreased net interest income and a slight increase in the provision for income taxes.
- 27 -
Net Interest Income / Net Interest Margin
Net interest income for the three and nine-month periods ending September 30, 2011, decreased $542,000 and $1.7 million, respectively, as compared to the same periods in 2010 because of reductions in interest income due to decreased yields on interest-earning assets, accompanied by a smaller decrease in the costs of the Companys interest-bearing liabilities. The Company's net interest income as a percentage of average interest-earning assets on a tax equivalent basis decreased by 32 basis points to 4.45% and decreased 45 basis points to 4.60% for the three and nine-month periods ending September 30, 2011, respectively, as compared to the same periods in 2010.
Average loans, the largest category of interest-earning assets, decreased by $12.1 million and increased by $5.7 million, respectively, in the three and nine-month periods ending September 30, 2011 as compared to 2010. In both periods, average real estate term loans increased while commercial and home equity lines and other consumer loans decreased. Average real estate construction loans decreased for the third quarter as compared to the third quarter of 2010, but in the nine months ended September 30, 2011 as compared to the same period in 2010. The fluctuations in the loan portfolio contributed a decrease of $116,000 and an increase of $448,000, respectively, to interest income for the three and nine-month periods ending September 30, 2011 as compared to 2010. Total interest income from loans decreased $857,000 and $2.1 million for the three and nine-month periods ending September 30, 2011 as compared to the same periods in 2010 as decreased interest rates more than offset the change in overall balances and mix in the loan portfolio.
Average investments increased $34.6 million and $36.6 million, respectively, in the three and nine-month periods ending September 30, 2011 as compared to the same periods in 2010. These increases arose as average deposits increased by $19.5 million and $36.1 million in the same periods in 2011 as compared to 2010. The decrease in average loans of $12.1 million for the third quarter of 2011 as compared to 2010 also contributed to the increase in average investments in the same period.
The average yield on interest-earning assets, which includes loans and investments, decreased 54 basis points and 70 basis points, respectively, to 4.82% and 5.00% for the three and nine-month periods ending September 30, 2011 from 5.36% and 5.70% in the same periods in 2010. The decrease in average yields arose from decreasing interest rates in both the loan and investment portfolios as new volume replaces old volume at lower current rates.
Average interest-bearing liabilities decreased $124,000 and increased $9.7 million, respectively, during the three and nine-month periods ending September 30, 2011 as compared the same periods in 2010. The increase for the nine-month period was the result of increased average interest-bearing deposit balances and increased balances in securities sold under repurchase agreements, which are classified as borrowings.
The average cost of interest-bearing liabilities decreased $494,000 and $1.5 million, or 32 basis points and 34 basis points, respectively, for the three and nine-month periods ending September 30, 2011 compared to the same periods in 2010 due to declining market rates across all deposit types and borrowings.
- 28 -
Components of Net Interest Margin
The following table compares average balances and rates as well as net tax equivalent margin on earning assets for the three months and nine months ending September 30, 2011 and 2010:
Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||
Average Balances | Change | Interest income/ expense |
Change | Average Yields/Costs Tax Equivalent3 |
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2011 | 2010 | $ | % | 2011 | 2010 | $ | % | 2011 | 2010 | Change | ||||||||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Commercial |
$ | 227,722 | $ | 240,235 | ($ | 12,513 | ) | -5.2 | % | $ | 3,839 | $ | 4,232 | ($ | 393 | ) | -9.3 | % | 6.69 | % | 6.99 | % | -0.30 | % | ||||||||||||||||||||
Real estate construction |
49,188 | 51,756 | (2,568 | ) | -5.0 | % | 1,021 | 1,042 | (21 | ) | -2.0 | % | 8.23 | % | 7.99 | % | 0.24 | % | ||||||||||||||||||||||||||
Real estate term |
315,597 | 296,403 | 19,194 | 6.5 | % | 4,844 | 5,091 | (247 | ) | -4.9 | % | 6.09 | % | 6.81 | % | -0.72 | % | |||||||||||||||||||||||||||
Home equity lines and other consumer |
42,255 | 45,256 | (3,001 | ) | -6.6 | % | 688 | 743 | (55 | ) | -7.4 | % | 6.46 | % | 6.60 | % | -0.14 | % | ||||||||||||||||||||||||||
Loans held for sale |
| 12,532 | (12,532 | ) | -100.0 | % | | 141 | (141 | ) | -100.0 | % | 0.00 | % | 4.45 | % | -4.45 | % | ||||||||||||||||||||||||||
Unearned origination fees, net of origination costs |
(1,730 | ) | (1,058 | ) | 672 | -63.5 | % | |||||||||||||||||||||||||||||||||||||
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Total loans1,2 |
633,032 | 645,124 | (12,092 | ) | -1.9 | % | 10,392 | 11,249 | (857 | ) | -7.6 | % | 6.55 | % | 6.93 | % | -0.38 | % | ||||||||||||||||||||||||||
Short-term investments |
101,255 | 84,371 | 16,884 | 20.0 | % | 72 | 54 | 18 | 33.3 | % | 0.28 | % | 0.25 | % | 0.03 | % | ||||||||||||||||||||||||||||
Long-term investments |
201,327 | 183,585 | 17,742 | 9.7 | % | 766 | 963 | (197 | ) | -20.5 | % | 1.66 | % | 2.22 | % | -0.56 | % | |||||||||||||||||||||||||||
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Total investments |
302,582 | 267,956 | 34,626 | 12.9 | % | 838 | 1,017 | (179 | ) | -17.6 | % | 1.19 | % | 1.59 | % | -0.40 | % | |||||||||||||||||||||||||||
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Interest-earning assets |
935,614 | 913,080 | 22,534 | 2.5 | % | 11,230 | 12,266 | (1,036 | ) | -8.4 | % | 4.82 | % | 5.36 | % | -0.54 | % | |||||||||||||||||||||||||||
Nonearning assets |
113,904 | 105,788 | 8,116 | 7.7 | % | |||||||||||||||||||||||||||||||||||||||
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Total |
$ | 1,049,518 | $ | 1,018,868 | $ | 30,650 | 3.0 | % | ||||||||||||||||||||||||||||||||||||
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Interest-bearing deposits |
$ | 587,507 | $ | 591,319 | ($ | 3,812 | ) | -0.6 | % | $ | 675 | $ | 1,161 | ($ | 486 | ) | -41.9 | % | 0.45 | % | 0.78 | % | -0.33 | % | ||||||||||||||||||||
Borrowings |
37,671 | 33,983 | 3,688 | 10.9 | % | 201 | 209 | (8 | ) | -3.8 | % | 2.12 | % | 2.41 | % | -0.29 | % | |||||||||||||||||||||||||||
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Total interest-bearing liabilities |
625,178 | 625,302 | (124 | ) | 0.0 | % | 876 | 1,370 | (494 | ) | -36.1 | % | 0.55 | % | 0.87 | % | -0.32 | % | ||||||||||||||||||||||||||
Demand deposits and other noninterest-bearing liabilities |
301,053 | 277,753 | 23,300 | 8.4 | % | |||||||||||||||||||||||||||||||||||||||
Equity |
123,287 | 115,813 | 7,474 | 6.5 | % | |||||||||||||||||||||||||||||||||||||||
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Total |
$ | 1,049,518 | $ | 1,018,868 | $ | 30,650 | 3.0 | % | ||||||||||||||||||||||||||||||||||||
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Net interest income |
$ | 10,354 | $ | 10,896 | ($ | 542 | ) | -5.0 | % | |||||||||||||||||||||||||||||||||||
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Net tax equivalent margin on earning assets3 |
4.45 | % | 4.77 | % | -0.32 | % | ||||||||||||||||||||||||||||||||||||||
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1 | Loan fees recognized during the period and included in the yield calculation totalled $643,000 and $676,000 in the third quarter of 2011 and 2010, respectively. |
2 | Average nonaccrual loans included in the computation of the average loans were $9.4 million and $14.5 million in the third quarter of 2011 and 2010, respectively. |
3 | Tax-equivalent net interest margin is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 41.11% in both 2011 and 2010. |
- 29 -
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||
Average Balances | Change | Interest income/ expense |
Change | Average Yields/Costs Tax Equivalent3 |
||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | $ | % | 2011 | 2010 | $ | % | 2011 | 2010 | Change | ||||||||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Commercial |
$ | 238,320 | $ | 242,971 | ($ | 4,651 | ) | -1.9 | % | $ | 12,068 | $ | 12,908 | ($ | 840 | ) | -6.5 | % | 6.77 | % | 7.10 | % | -0.33 | % | ||||||||||||||||||||
Real estate construction |
57,243 | 55,113 | 2,130 | 3.9 | % | 3,264 | 3,358 | (94 | ) | -2.8 | % | 7.62 | % | 8.15 | % | -0.53 | % | |||||||||||||||||||||||||||
Real estate term |
312,739 | 295,133 | 17,606 | 6.0 | % | 14,374 | 15,135 | (761 | ) | -5.0 | % | 6.14 | % | 6.86 | % | -0.72 | % | |||||||||||||||||||||||||||
Home equity lines and other consumer |
42,562 | 47,038 | (4,476 | ) | -9.5 | % | 2,069 | 2,338 | (269 | ) | -11.5 | % | 6.50 | % | 6.64 | % | -0.14 | % | ||||||||||||||||||||||||||
Loans held for sale |
409 | 4,311 | (3,902 | ) | -90.5 | % | 13 | 144 | (131 | ) | -91.0 | % | 4.32 | % | 4.46 | % | -0.14 | % | ||||||||||||||||||||||||||
Unearned origination fees, net of origination costs |
(2,340 | ) | (1,378 | ) | (962 | ) | -69.8 | % | ||||||||||||||||||||||||||||||||||||
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Total loans1, 2 |
648,933 | 643,188 | 5,745 | 0.9 | % | 31,788 | 33,883 | (2,095 | ) | -6.2 | % | 6.59 | % | 7.05 | % | -0.46 | % | |||||||||||||||||||||||||||
Short-term investments |
79,521 | 62,923 | 16,598 | 26.4 | % | 160 | 119 | 41 | 34.5 | % | 0.27 | % | 0.25 | % | 0.02 | % | ||||||||||||||||||||||||||||
Long-term investments |
201,405 | 181,378 | 20,027 | 11.0 | % | 2,420 | 3,607 | (1,187 | ) | -32.9 | % | 1.74 | % | 2.77 | % | -1.03 | % | |||||||||||||||||||||||||||
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Total investments |
280,926 | 244,301 | 36,625 | 15.0 | % | 2,580 | 3,726 | (1,146 | ) | -30.8 | % | 1.33 | % | 2.13 | % | -0.80 | % | |||||||||||||||||||||||||||
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Interest-earning assets |
929,859 | 887,489 | 42,370 | 4.8 | % | 34,368 | 37,609 | (3,241 | ) | -8.6 | % | 5.00 | % | 5.70 | % | -0.70 | % | |||||||||||||||||||||||||||
Nonearning assets |
111,435 | 107,798 | 3,637 | 3.4 | % | |||||||||||||||||||||||||||||||||||||||
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Total |
$ | 1,041,294 | $ | 995,287 | $ | 46,007 | 4.6 | % | ||||||||||||||||||||||||||||||||||||
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Interest-bearing deposits |
$ | 589,228 | $ | 582,614 | $ | 6,614 | 1.1 | % | $ | 2,162 | $ | 3,701 | ($ | 1,539 | ) | -41.6 | % | 0.49 | % | 0.85 | % | -0.36 | % | |||||||||||||||||||||
Borrowings |
36,414 | 33,327 | 3,087 | 9.3 | % | 595 | 605 | (10 | ) | -1.7 | % | 2.18 | % | 2.39 | % | -0.21 | % | |||||||||||||||||||||||||||
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Total interest-bearing liabilities |
625,642 | 615,941 | 9,701 | 1.6 | % | 2,757 | 4,306 | (1,549 | ) | -36.0 | % | 0.59 | % | 0.93 | % | -0.34 | % | |||||||||||||||||||||||||||
Demand deposits and other noninterest-bearing liabilities |
294,651 | 265,152 | 29,499 | 11.1 | % | |||||||||||||||||||||||||||||||||||||||
Equity |
121,001 | 114,194 | 6,807 | 6.0 | % | |||||||||||||||||||||||||||||||||||||||
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Total |
$ | 1,041,294 | $ | 995,287 | $ | 46,007 | 4.6 | % | ||||||||||||||||||||||||||||||||||||
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Net interest income |
$ | 31,611 | $ | 33,303 | ($ | 1,692 | ) | -5.1 | % | |||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
Net tax equivalent margin on earning assets3 |
4.60 | % | 5.05 | % | -0.45 | % | ||||||||||||||||||||||||||||||||||||||
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|
|
|
|
1 | Loan fees recognized during the period and included in the yield calculation totalled $2.0 million in the nine months ending September 30, 2011 and 2010, respectively. |
2 | Average nonaccrual loans included in the computation of the average loans were $10.2 million and $13.7 million in the nine months ending September 30, 2011 and 2010, respectively. |
3 | Tax-equivalent net interest margin is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 41.11% in both 2011 and 2010. |
Analysis of Changes in Interest Income and Expense
The following tables set forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates for the three and nine-month periods ending September 30, 2011 as compared to the same periods in 2010. Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes due to volume and the changes due to interest rate.
Quarter ended September 30, 2011 vs. 2010 | ||||||||||||
Increase (decrease) due to | ||||||||||||
Volume | Rate | Total | ||||||||||
Interest Income: |
||||||||||||
Loans |
($ | 116 | ) | ($ | 741 | ) | ($ | 857 | ) | |||
Long-term investments |
122 | (319 | ) | (197 | ) | |||||||
Short-term investments |
12 | 7 | 19 | |||||||||
|
|
|
|
|
|
|||||||
Total interest income |
$ | 18 | ($ | 1,053 | ) | ($ | 1,035 | ) | ||||
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|
|
|
|
|
|||||||
Interest Expense: |
||||||||||||
Deposits: |
||||||||||||
Interest-bearing deposits |
($ | 7 | ) | (479 | ) | ($ | 486 | ) | ||||
Borrowings |
58 | (66 | ) | (8 | ) | |||||||
|
|
|
|
|
|
|||||||
Total interest expense |
$ | 51 | ($ | 545 | ) | ($ | 494 | ) | ||||
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|
|
|
- 30 -
Nine months ended September 30, 2011 vs. 2010 | ||||||||||||
Increase (decrease) due to | ||||||||||||
Volume | Rate | Total | ||||||||||
Interest Income: |
||||||||||||
Loans |
$ | 448 | ($ | 2,542 | ) | ($ | 2,094 | ) | ||||
Long-term investments |
502 | (1,689 | ) | (1,187 | ) | |||||||
Short-term investments |
32 | 10 | 42 | |||||||||
|
|
|
|
|
|
|||||||
Total interest income |
$ | 982 | ($ | 4,221 | ) | ($ | 3,239 | ) | ||||
|
|
|
|
|
|
|||||||
Interest Expense: |
||||||||||||
Deposits: |
||||||||||||
Interest-bearing deposits |
$ | 42 | (1,581 | ) | ($ | 1,539 | ) | |||||
Borrowings |
(183 | ) | 173 | (10 | ) | |||||||
|
|
|
|
|
|
|||||||
Total interest expense |
($ | 141 | ) | ($ | 1,408 | ) | ($ | 1,549 | ) | |||
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|
Provision for Loan Losses
The provision for loan losses was $550,000 and $417,000 million for the quarters ending September 30, 2011 and 2010, respectively. The Company had net charge offs of $30,000 and $132,000 for the third quarters of 2011 and 2010, respectively. The provision for loan losses was $1.6 million and $3.2 million for the nine-month periods ending September, 2011 and 2010, respectively. Net recoveries were $38,000 and net charge offs $1.6 million, respectively, for the nine-month periods ending September 30, 2011 and 2010. At September 30, 2011, the Allowance was $16.1 million, or 2.56% of total loans as compared to $14.7 million, or 2.31% of total loans a year ago. The Company believes that the current level of the reserve is appropriate at September 30, 2011 to address the impact of the current economic environment on our loan portfolio. See additional analysis of the Allowance in the Balance Sheet Overview section.
Other Operating Income
Other operating income for the third quarter of 2011 increased $162,000 as compared to the third quarter of 2010. This increase is primarily due to increases of $210,000, $70,000 and $112,000, respectively, in purchased receivable income, employee benefit plan income, and other income. The increase in purchased receivable income resulted from higher average balances, and the increase in employee benefit plan income resulted from the sale and service of employee benefit plans through our affiliate Northrim Benefits Group, LLC (NBG) through its continued efforts to provide additional products and services to an increasing client base. The increase in other income is primarily the result of an increase in the Companys share of income from our affiliate Pacific Wealth Advisors, LLC, (PWA) which is accounted for using the equity method. These increases were partially offset by a $213,000 decrease in equity in earnings from our affiliate Residential Mortgage Holding Company LLC (RML) due to decreased activity in the third quarter of 2011 as compared to the same period in 2010.
Changes in other operating income for the year-to-date as of September, 30 2011 are similar to those that occurred in the third quarter of 2011 as compared to 2010 discussed above. Other operating income increased $195,000 as compared to the same period in 2010. This increase is primarily due to increases in purchased receivable income of $492,000 and employee benefit plan income of $212,000, as discussed above. However, for the nine months ended September 30, 2011 as compared to the same period in 2010, these increases were partially offset by decreases of $175,000 in gains on the sale of securities and $394,000 in service charges on deposit accounts. Service charges on deposit accounts decreased as a result of changes in regulations that restrict the Companys ability to assess overdraft charges on point-of-sale transactions unless its customers request the overdraft protection service.
Other Operating Expense
Other operating expense for the third quarter of 2011 increased $719,000 as compared to the third quarter of 2010. This increase was primarily due to a $955,000 increase in OREO expense, net of rental income and gains on the sale of OREO properties, which was primarily due to decreased gains on the sale of
- 31 -
OREO properties. Additionally, other operating expense increased $179,000 primarily due to increased taxes, insurance, and other loan collateral expenses associated with the loan collection process. These increases were partially offset by decreases of $164,000, $111,000, and $102,000, respectively, in salaries and other personnel expense due to lower group medical costs, insurance expense due to lower FDIC insurance premiums, and decreased rent expense due to the relocation of the activities of one branch located in Fairbanks, Alaska, from a rented facility to a facility that the Company owns in Fairbanks.
Other operating expense for the nine months ended September 30, 2011 decreased $1 million as compared to the same period in 2010. Salaries and other personnel expense, impairment on purchased receivables net of recoveries, and insurance expense for the nine months ended September 30, 2011 decreased by $670,000, $402,000 and $360,000, respectively, as compared to the same period in 2010. Salaries and other personnel expense decreased due to lower group medical and salary costs. Impairment on purchased receivables, net of recoveries, decreased due to the fact that the Company had losses on two customer accounts in 2010 and did not have losses in 2011. Insurance expense decreased due to a $557,000 decrease in FDIC insurance premiums, which was partially offset by a $195,000 increase in Keyman insurance expense that arose from decreases in the cash surrender value of assets held under the Companys policies. These decreases were partially offset in the nine-month period in 2011 as compared to 2010 due to a $204,000 increase in other operating expenses, which is primarily due to an increase in other loan collateral expenses associated with the loan collection process.
Income Taxes
The provision for income taxes decreased by $504,000 in the third quarter of 2011 as compared to the same period in 2010, primarily due to decreased pre-tax income. The provision for income taxes increased by $114,000 in the nine-month period ending September 30, 2011 as compared to the same period in 2010 due to increased pre-tax income. The tax rates for the third quarters of 2011 and 2010 were 30% and 33%, respectively. The tax rates for the first nine months of 2011 and 2010 were 28% and 30%. The decrease in the tax rates for both periods in 2011 as compared to 2010 arose from an increase in tax exempt income on investments and tax credits relative to the level of taxable income.
FINANCIAL CONDITION
Balance Sheet Overview
Investment Securities
Investment securities at September 30, 2011 decreased $3.9 million, or 2%, from December 31, 2010, and increased $3.2 million, or 1%, from September 30, 2010. Portfolio investments remained relatively consistent between these three periods because cash received from increases in deposit balances and decreases in loan balances was invested in shorter term interest bearing deposits in other banks during each of the three periods.
Loans and Lending Activities
Our loan products include short and medium-term commercial loans, commercial credit lines, construction and real estate loans, and consumer loans. From our inception, we have emphasized commercial, land development and home construction, and commercial real estate lending. This type of lending has provided us with market opportunities and higher net interest margins than other types of lending. However, it also involves greater risks, including greater exposure to changes in local economic conditions, than certain other types of lending.
Loans are the highest yielding component of our earning assets. Loans comprised 68% and 70% of total average earning assets for the three and nine-month periods ending September 30, 2011, compared to 71% and 72% for the same periods in 2010, respectively. The yield on loans averaged 6.55% and 6.59% for the three and nine-month periods ending September 30, 2011, compared to 6.93% and 7.05% for the three and nine-month periods ending September 30, 2010. See the Net Interest Income section for further discussion of average balances and yields for the three and nine-month periods ending September 30, 2011 and 2010.
- 32 -
The loan portfolio decreased by $5.8 million, or 1%, to $629.7 million at September 30, 2011 from $635.5 million at September 30, 2010. The loan portfolio decreased by $42.1 million, or 6%, at September 30, 2011 from $671.8 million at December 31, 2010 primarily due to a lower level of commercial and real estate construction loans. The following table details the changes in loan balances by loan type:
September 30, 2011 | December 31, 2010 | September 30, 2010 | ||||||||||||||||||||||
Dollar Amount |
Percent of Total |
Dollar Amount |
Percent of Total |
Dollar Amount |
Percent of Total |
|||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Commercial |
$ | 228,538 | 36.3 | % | $ | 256,971 | 38.3 | % | $ | 237,647 | 37.4 | % | ||||||||||||
Real estate construction |
45,984 | 7.3 | % | 62,620 | 9.3 | % | 50,979 | 8.0 | % | |||||||||||||||
Real estate term |
316,463 | 50.3 | % | 312,128 | 46.5 | % | 305,808 | 48.1 | % | |||||||||||||||
Home equity lines and other consumer |
41,609 | 6.6 | % | 43,264 | 6.4 | % | 43,992 | 6.9 | % | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
$ | 632,594 | $ | 674,983 | $ | 638,426 | ||||||||||||||||||
Less: Unearned origination fee, |
||||||||||||||||||||||||
net of origination costs |
(2,930 | ) | -0.5 | % | (3,171 | ) | -0.5 | % | (2,951 | ) | -0.5 | % | ||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total loans |
$ | 629,664 | $ | 671,812 | $ | 635,475 | ||||||||||||||||||
|
|
|
|
|
|
Due to its efforts to capitalize on market opportunities, the Company expects its loan portfolio to increase during the remainder of 2011 mainly in the commercial and real estate term areas.
Analysis of Allowance for Loan Losses
The Company maintains an Allowance to reflect losses inherent in the loan portfolio. The Allowance is increased by provisions for loan losses and loan recoveries and decreased by loan charge-offs. The size of the Allowance is determined through quarterly assessments of probable estimated losses in the loan portfolio. Our methodology for making such assessments and determining the adequacy of the Allowance includes the following key elements:
| A specific allocation for impaired loans. Management determined the fair value of the majority of these loans based on the underlying collateral values. This analysis is based upon a specific analysis for each impaired loan, including external appraisals on loans secured by real property, managements assessment of the current market, recent payment history, and an evaluation of other sources of repayment. In-house evaluations of fair value are used in the impairment analysis in some situations. Inputs to the in-house evaluation process include information about sales of comparable properties in the appropriate markets and changes in tax assessed values. The Company obtains appraisals on real and personal property that secure its loans during the loan origination process in accordance with regulatory guidance and its loan policy. The Company obtains updated appraisals on loans secured by real or personal property based upon its assessment of changes in the current market or particular projects or properties, information from other current appraisals, and other sources of information. Appraisals may be adjusted downward by the Company based on its evaluation of the facts and circumstances on a case by case basis. External appraisals may be discounted when management believes that the absorption period used in the appraisal is unrealistic, when expected liquidation costs exceed those included in the appraisal, or when managements evaluation of deteriorating market conditions warrants an adjustment. Additionally, the Company may also adjust appraisals in the above circumstances between appraisal dates. The Company uses the information provided in these updated appraisals along with its evaluation of all other information available on a particular property as it assesses the collateral coverage on its performing and nonperforming loans and the impact that may have on the adequacy of its Allowance. The specific allowance for impaired loans, as well as the overall Allowance, may increase based on the Companys assessment of updated appraisals. See Note 5 of the Notes to Consolidated Financial Statements included in Item 1 of this report for further discussion of the Companys estimation of the fair value of impaired loans. |
- 33 -
| When the Company determines that a loss has occurred on an impaired loan, a charge-off equal to the difference between carrying value and fair value is recorded. If a specific allowance is deemed necessary for a loan, and then that loan is partially charged off, the loan remains classified as a nonperforming loan after the charge-off is recognized. Loans measured for impairment based on collateral value and all other loans measured for impairment are accounted for in the same way. The total annualized charge-off rate for nonperforming loans for the nine months ended September 30, 2011 and September 30, 2010 was 21% and 14%, respectively. |
| A general allocation. The Company has identified segments and classes of loans not considered impaired for purposes of establishing the general allocation allowance. The Company determined the disaggregation of the loan portfolio into segments and classes based on its assessment of how different pools of loans with like characteristics in the portfolio behave over time. This determination is based on historical experience and managements assessment of how current facts and circumstances are expected to affect the loan portfolio. |
| The Company first disaggregates the loan portfolio into the following segments: commercial, real estate construction, real estate term, and home equity lines and other consumer loans. Then the Company further disaggregates each of these segments into the following classes, which are also known as risk classifications: excellent, good, satisfactory, watch, special mention, substandard, doubtful, and loss. |
| After the portfolio has been disaggregated into segments and classes, the Company calculates a general reserve for each segment and class based on the average year loss history for each segment and class. This general reserve is then adjusted for qualitative factors by segment and class. As of March 31, 2011, the Company increased the look-back period used in the calculation of average historical loss rates from three years to four years. Management made this change because we now have four years of historical data in the enhanced methodology to use in the calculation, and we believe that including the elevated loss experience from 2007 that occurred as a result of the economic downturn from that time is appropriate. The Companys loan portfolio continues to include a concentration in a small number of large borrowers. Management believes that including the loss experience from 2007 in the current Allowance calculation appropriately captures the inherent risk this concentration brings to our loan portfolio. |
| An unallocated reserve. The unallocated portion of the Allowance provides for other credit losses inherent in the loan portfolio that may not have been contemplated in the specific and general components of the Allowance, and it acknowledges the inherent imprecision of all loss prediction models. The unallocated component is reviewed periodically based on trends in credit losses and overall economic conditions. |
| At September 30, 2011, the unallocated portion of the Allowance as a percentage of the total Allowance was 14.9%. The unallocated portion of the Allowance as a percentage of the total Allowance was 13.8% at December 31, 2010 and 13.7% at September 30, 2010. |
Further discussion of the enhancement to the Companys Allowance methodology can be found in Item 7 in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.
- 34 -
The following table sets forth information regarding changes in the Allowance for the periods indicated:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In Thousands) | ||||||||||||||||
Balance at beginning of period |
$ | 15,574 | $ | 14,427 | $ | 14,406 | $ | 13,108 | ||||||||
Charge-offs: |
||||||||||||||||
Commercial |
349 | 519 | 913 | 2,153 | ||||||||||||
Real estate construction |
| | | 79 | ||||||||||||
Real estate term |
| 222 | 90 | 342 | ||||||||||||
Home equity lines and other consumer |
5 | 52 | 70 | 305 | ||||||||||||
|
|
|
|
|
|
|
|
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Total charge-offs |
354 | 793 | 1,073 | 2,879 | ||||||||||||
Recoveries: |
||||||||||||||||
Commercial |
298 | 637 | 997 | 1,256 | ||||||||||||
Real estate construction |
12 | | 25 | 4 | ||||||||||||
Real estate term |
| | 53 | 11 | ||||||||||||
Home equity lines and other consumer |
13 | 23 | 36 | 44 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total recoveries |
323 | 660 | 1,111 | 1,315 | ||||||||||||
Net, (recoveries) charge-offs |
31 | 133 | (38 | ) | 1,564 | |||||||||||
Provision for loan losses |
550 | 417 | 1,649 | 3,167 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 16,093 | $ | 14,711 | $ | 16,093 | $ | 14,711 | ||||||||
|
|
|
|
|
|
|
|
While management believes that it uses the best information available to determine the Allowance, unforeseen market conditions and other events could result in adjustment to the Allowance, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination of the Allowance. Moreover, bank regulators frequently monitor banks' loan loss allowances, and if regulators were to determine that the Companys Allowance is inadequate, they may require the Company to increase the Allowance, which may adversely impact our net income and financial condition.
Deposits
Deposits are the Companys primary source of funds. Total deposits decreased $1.4 million to $893.6 million at September 30, 2011, from December 31, 2010, and increased $14.8 million from September 30, 2010. The Companys deposits generally are expected to fluctuate according to the level of the Companys market share, economic conditions, and normal seasonal trends. The Company continues to market its High Performance Checking products and expects increases in the number of deposit accounts and the balances associated with them in 2011. There were no depositors with deposits representing 10% or more of total deposits at September 30, 2011, December 31, 2010, or September 30, 2010.
Borrowings
At September 30, 2011, the Companys maximum borrowing line from the FHLB was $113.2 million, approximately 11% of the Companys assets. FHLB advances are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Companys assets. At September 30, 2011, December 31, 2010, and September 30, 2010, the Company had no outstanding balances on the borrowing line.
- 35 -
The Company purchased its main office facility for $12.9 million on July 1, 2008. In this transaction, the Company, through Northrim Building LLC, assumed an existing loan secured by the building in an amount of $5.1 million. At September 30, 2011, December 31, 2010, and September 30, 2010, the outstanding balance on this loan was $4.7 million, $4.8 million, and $4.8 million, respectively. This loan has a maturity date of April 1, 2014 and a fixed interest rate of 5.95%.
In addition to the borrowings for the building, the Company had $620,000 and $707,000 in other borrowings outstanding at December 31, 2010 and September 30, 2010, respectively. There were no other borrowings outstanding at September 30, 2011. Other borrowings during each of these periods consisted of short-term borrowings from the Federal Reserve Bank for Treasury tax deposits.
At September 30, 2011, December 31, 2010, and September 30, 2010, the Company had no short-term (original maturity of one year or less) borrowings that exceeded 30% of shareholders equity.
Liquidity and Capital Resources
The Company manages its liquidity through its Asset and Liability Committee. In addition to the $128.6 million of cash and cash equivalents and $181.5 million in unpledged available for sale securities held at September 30, 2011, the Company had additional funding sources which include fed fund borrowing lines and advances available at the Federal Home Loan Bank of Seattle and the Federal Reserve Bank of approximately $105 million as of September 30, 2011.
At September 30, 2011, $30.3 million in securities, or 14%, of the investment portfolio was pledged, as compared to $26.2 million, or 12%, at December 31, 2010, and $19.7 million, or 9%, at September 30, 2010. As shown in the Consolidated Statements of Cash Flows, net cash provided by operating activities was $17.5 million for the first nine months of 2011. The sale of loans held for sale provided $5.6 million of this total. Net cash of $42.9 million was provided by investing activities for the same period, mostly due to net loan pay downs. The $2.3 million of cash provided by financing activities for the period primarily consisted of a $5.6 million decrease in deposits and securities sold under repurchased agreements, offset by $2.4 million in cash dividends paid to shareholders.
The Company issued 6,803 shares of its common stock through the exercise of stock options in the third quarter of 2011 and did not repurchase any shares of its common stock under the Companys publicly announced repurchase program. At September 30, 2011, the Company had approximately 6.4 million shares of its common stock outstanding.
Capital Requirements and Ratios
The Company and Northrim Bank (the Bank) are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum regulatory capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material adverse effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by regulators about the components of regulatory capital, risk weightings, and other factors. The regulatory agencies may establish higher minimum requirements if, for example, a bank or bank holding company has previously received special attention or has a high susceptibility to interest rate risk.
The requirements address both risk-based capital and leverage capital. At September 30, 2011, all capital ratios of the Company and the Bank exceeded the ratios required for a well-capitalized institution.
The following table illustrates the actual capital ratios for the Company and the Bank as calculated under regulatory guidelines, compared to the regulatory minimum capital ratios and the regulatory minimum capital ratios needed to be eligible to qualify as a well-capitalized institution as of September 30, 2011.
- 36 -
Adequately- Capitalized |
Well- Capitalized |
Actual
Ratio BHC |
Actual
Ratio Bank |
|||||||||||||
Tier 1 risk-based capital |
4.00 | % | 6.00 | % | 15.39 | % | 14.17 | % | ||||||||
Total risk-based capital |
8.00 | % | 10.00 | % | 16.65 | % | 15.42 | % | ||||||||
Leverage ratio |
4.00 | % | 5.00 | % | 12.84 | % | 11.82 | % |
The regulatory capital ratios for the Company exceed those for the Bank primarily because the $18.6 million junior subordinated debenture offerings that the Company completed in the third quarter of 2003 and the fourth quarter of 2005 are included in the Companys capital for regulatory purposes although such securities are accounted for as a long-term debt in its financial statements. The junior subordinated debentures are not accounted for on the Banks financial statements nor are they included in its capital. As a result, the Company has $18.6 million more in regulatory capital than the Bank, which explains the significant difference in the capital ratios for the two entities.
Off-Balance Sheet Items
The Company is a party to financial instruments with off-balance sheet risk. Among the off-balance sheet items entered into in the ordinary course of business are commitments to extend credit and the issuance of letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheet. Certain commitments are collateralized. As of September 30, 2011, December 31, 2010 and September 30, 2010, the Companys commitments to extend credit and to provide letters of credit amounted to $210 million, $200.4 million, and $206.5 million, respectively. Since many of the commitments are expected to expire without being drawn upon, these total commitment amounts do not necessarily represent future cash requirements.
Capital Expenditures and Commitments
The Company has no capital commitments as of September 30, 2011.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our assessment of market risk as of September 30, 2011 indicates that there are no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, 2010.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our principal executive and financial officers supervised and participated in this evaluation. Based on this evaluation, our principal executive and financial officers each concluded that as of September 30, 2011, the disclosure controls and procedures are effective in timely alerting them to material information required to be included in the periodic reports to the Securities and Exchange Commission. The design of any system of controls is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any of our plans, products, services or procedures will succeed in achieving their intended goals under future conditions.
- 37 -
Changes in Internal Control over Disclosure and Reporting
There was no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
During the normal course of its business, the Company is a party to various debtor-creditor legal actions, which individually or in the aggregate, could be material to the Companys business, operations, or financial condition. These include cases filed as a plaintiff in collection and foreclosure cases, and the enforcement of creditors rights in bankruptcy proceedings.
For information regarding risk factors, please refer to Item 1A in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. These risk factors have not materially changed as of September 30, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)-(b) Not applicable
(c) There were no stock repurchases by the Company during the nine months ending September 30, 2011.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
(a) | Not applicable |
(b) | There have been no material changes to the procedures by which shareholders may nominate directors to the Companys board. |
- 38 -
31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) | |
31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) | |
32.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 | |
32.2 | Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
101.LAB | XBRL Labels Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
Notes to Exhibits List:
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheet at September 30, 2011, December 31, 2010 and September 30, 2010, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010, (iii) Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income for the nine months ended September 30, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and September 30, 2010, and (v) Notes to the Consolidated Financial Statements. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
- 39 -
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NORTHRIM BANCORP, INC. | ||||||
November 7, 2011 | By | /s/ R. Marc Langland | ||||
R. Marc Langland | ||||||
Chairman, President, and CEO | ||||||
(Principal Executive Officer) | ||||||
November 7, 2011 | By |
/s/ Joseph M. Schierhorn | ||||
Joseph M. Schierhorn | ||||||
Executive Vice President, | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
- 40 -