þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Alaska | 92-0175752 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
3111 C Street Anchorage, Alaska (Address of principal executive offices) |
99503 (Zip Code) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (do not check if a smaller reporting company) | Smaller reporting company o |
- 3 -
March 31, | December 31, | March 31, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
(In Thousands, Except Share Data) | ||||||||||||
ASSETS |
||||||||||||
Cash and due from banks |
$ | 29,109 | $ | 15,953 | $ | 18,920 | ||||||
Overnight investments |
138,707 | 50,080 | 59,259 | |||||||||
Investment securities
available for sale |
181,800 | 214,010 | 164,017 | |||||||||
Investment securities
held to maturity |
6,068 | 6,125 | 7,666 | |||||||||
Total portfolio
investments |
187,868 | 220,135 | 171,683 | |||||||||
Investment in Federal Home Loan Bank stock |
2,003 | 2,003 | 2,003 | |||||||||
Loans held for sale |
| 5,558 | | |||||||||
Loans |
654,341 | 671,812 | 646,917 | |||||||||
Allowance for loan
losses |
(15,139 | ) | (14,406 | ) | (14,046 | ) | ||||||
Net loans |
639,202 | 662,964 | 632,871 | |||||||||
Purchased receivables,net |
13,611 | 16,531 | 6,962 | |||||||||
Accrued interest
receivable |
3,184 | 3,401 | 3,683 | |||||||||
Premises and equipment,
net |
28,827 | 29,048 | 28,140 | |||||||||
Goodwill and intangible
assets |
8,626 | 8,697 | 8,920 | |||||||||
Other real estate owned |
10,343 | 10,355 | 16,065 | |||||||||
Other assets |
34,183 | 35,362 | 40,050 | |||||||||
Total assets |
$ | 1,095,663 | $ | 1,054,529 | $ | 988,556 | ||||||
LIABILITIES |
||||||||||||
Deposits: |
||||||||||||
Demand |
$ | 340,943 | $ | 289,061 | $ | 260,817 | ||||||
Interest-bearing
demand |
133,031 | 138,072 | 120,373 | |||||||||
Savings |
76,058 | 77,411 | 70,033 | |||||||||
Alaska CDs |
96,919 | 100,315 | 111,019 | |||||||||
Money market |
151,594 | 149,104 | 126,156 | |||||||||
Certificates of
deposit less than $100,000 |
51,931 | 53,858 | 61,287 | |||||||||
Certificates of deposit greater than $100,000 |
82,748 | 84,315 | 85,370 | |||||||||
Total deposits |
933,224 | 892,136 | 835,055 | |||||||||
Securities sold under repurchase agreements |
11,595 | 12,874 | 8,997 | |||||||||
Borrowings |
5,421 | 5,386 | 5,594 | |||||||||
Junior subordinated
debentures |
18,558 | 18,558 | 18,558 | |||||||||
Other liabilities |
8,091 | 8,453 | 7,938 | |||||||||
Total liabilities |
976,889 | 937,407 | 876,142 | |||||||||
SHAREHOLDERS EQUITY |
||||||||||||
Preferred Stock, $1 par value, 2,500,000 shares authorized,
none issued or
outstanding |
| | | |||||||||
Common stock, $1 par value, 10,000,000 shares authorized,
6,429,476, 6,427,237 and 6,386,925 shares issued and
outstanding at March 31, 2011, December 31, 2010,
and March 31, 2010,
respectively |
6,429 | 6,427 | 6,387 | |||||||||
Additional paid-in
capital |
52,807 | 52,658 | 52,355 | |||||||||
Retained earnings |
59,012 | 57,339 | 52,374 | |||||||||
Accumulated other comprehensive income |
498 | 648 | 1,295 | |||||||||
Total Northrim BanCorp shareholders equity |
118,746 | 117,072 | 112,411 | |||||||||
Noncontrolling
interest |
28 | 50 | 3 | |||||||||
Total
shareholders
equity |
118,774 | 117,122 | 112,414 | |||||||||
Total liabilities and shareholders equity |
$ | 1,095,663 | $ | 1,054,529 | $ | 988,556 | ||||||
- 4 -
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
(In Thousands, Except Per Share Data) | ||||||||
Interest Income |
||||||||
Interest and fees on loans |
$ | 10,687 | $ | 11,422 | ||||
Interest on investment securities-available for sale |
871 | 1,254 | ||||||
Interest on investment securities-held to maturity |
61 | 75 | ||||||
Interest on overnight investments |
33 | 23 | ||||||
Total Interest Income |
11,652 | 12,774 | ||||||
Interest Expense |
||||||||
Interest expense on deposits,
borrowings and junior subordianted debentures |
977 | 1,470 | ||||||
Net Interest Income |
10,675 | 11,304 | ||||||
Provision for loan losses |
549 | 1,375 | ||||||
Net Interest Income After Provision for Loan Losses |
10,126 | 9,929 | ||||||
Other Operating Income |
||||||||
Purchased receivable income |
626 | 314 | ||||||
Service charges on deposit accounts |
524 | 700 | ||||||
Employee benefit plan income |
500 | 421 | ||||||
Electronic banking income |
449 | 400 | ||||||
Gain on sale of securities |
263 | 281 | ||||||
Equity in earnings (loss) from Elliott Cove |
(7 | ) | 5 | |||||
Equity in (loss) from RML |
(52 | ) | (73 | ) | ||||
Other income |
475 | 545 | ||||||
Total Other Operating Income |
2,778 | 2,593 | ||||||
Other Operating Expense |
||||||||
Salaries and other personnel expense |
5,316 | 5,620 | ||||||
Occupancy |
910 | 919 | ||||||
Marketing expense |
437 | 439 | ||||||
Insurance expense |
436 | 558 | ||||||
Professional and outside services |
337 | 242 | ||||||
Equipment expense |
304 | 273 | ||||||
Software expense |
240 | 219 | ||||||
Amortization of low income housing tax investments |
216 | 226 | ||||||
Internet banking expense |
153 | 146 | ||||||
Operation losses, net |
79 | 73 | ||||||
Intangible asset amortization expense |
70 | 76 | ||||||
Impairment on purchased receivables, net |
2 | 1 | ||||||
OREO (income) expense, net of rental income and gains on sale |
(139 | ) | 102 | |||||
Other operating expense |
965 | 1,000 | ||||||
Total Other Operating Expense |
9,326 | 9,894 | ||||||
Income Before Provision for Income Taxes |
3,578 | 2,628 | ||||||
Provision for income taxes |
1,034 | 702 | ||||||
Net Income |
2,544 | 1,926 | ||||||
Less: Net income attributable to the noncontrolling interest |
89 | 26 | ||||||
Net Income Attributable to Northrim BanCorp |
$ | 2,455 | $ | 1,900 | ||||
Earnings Per Share, Basic |
$ | 0.38 | $ | 0.30 | ||||
Earnings Per Share, Diluted |
$ | 0.37 | $ | 0.29 | ||||
Weighted Average Shares Outstanding, Basic |
6,428,730 | 6,385,760 | ||||||
Weighted Average Shares Outstanding, Diluted |
6,548,480 | 6,468,310 | ||||||
- 5 -
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||
Number | Par | Paid-in | Retained | Comprehensive | Noncontrolling | |||||||||||||||||||||||
of Shares | Value | Capital | Earnings | Income | Interest | Total | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Three months ending March 31, 2010: |
||||||||||||||||||||||||||||
Balance as of January 1, 2010 |
6,371 | $ | 6,371 | $ | 52,139 | $ | 51,121 | $ | 1,341 | $ | 48 | $ | 111,020 | |||||||||||||||
Cash dividend declared |
| | | (647 | ) | | | (647 | ) | |||||||||||||||||||
Stock option expense |
| | 129 | | | | 129 | |||||||||||||||||||||
Exercise of stock options |
16 | 16 | (15 | ) | | | | 1 | ||||||||||||||||||||
Excess tax benefits from share-based payment arrangements |
| | 102 | | | | 102 | |||||||||||||||||||||
Distributions to noncontrolling interest |
| | | | | (71 | ) | (71 | ) | |||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Change in unrealized holding gain (loss)
on available for sale investment securities,
net of related income tax effect |
| | | | (46 | ) | | (46 | ) | |||||||||||||||||||
Net income attributable to the noncontrolling interest |
| | | | | 26 | 26 | |||||||||||||||||||||
Net income attributable to Northrim BanCorp |
| | | 1,900 | | | 1,900 | |||||||||||||||||||||
Total Comprehensive Income |
1,880 | |||||||||||||||||||||||||||
Balance as of March 31, 2010 |
6,387 | $ | 6,387 | $ | 52,355 | $ | 52,374 | $ | 1,295 | $ | 3 | $ | 112,414 | |||||||||||||||
Three months ending March 31, 2011: |
||||||||||||||||||||||||||||
Balance as of January 1, 2011 |
6,427 | $ | 6,427 | $ | 52,658 | $ | 57,339 | $ | 648 | $ | 50 | $ | 117,122 | |||||||||||||||
Cash dividend declared |
| | | (782 | ) | | | (782 | ) | |||||||||||||||||||
Stock option expense |
| | 134 | | | | 134 | |||||||||||||||||||||
Exercise of stock options |
2 | 2 | (2 | ) | | | | | ||||||||||||||||||||
Excess tax benefits from share-based payment arrangements |
| | 17 | | | | 17 | |||||||||||||||||||||
Distributions to noncontrolling interest |
| | | | | (111 | ) | (111 | ) | |||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Change in
unrealized holding gain (loss) on available for sale investment securities, net of related income tax effect |
| | | | (150 | ) | | (150 | ) | |||||||||||||||||||
Net income attributable to the noncontrolling interest |
| | | | | 89 | 89 | |||||||||||||||||||||
Net income attributable to Northrim BanCorp |
| | | 2,455 | | | 2,455 | |||||||||||||||||||||
Total Comprehensive Income |
2,394 | |||||||||||||||||||||||||||
Balance as of March 31, 2011 |
6,429 | $ | 6,429 | $ | 52,807 | $ | 59,012 | $ | 498 | $ | 28 | $ | 118,774 | |||||||||||||||
- 6 -
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
(In Thousands) | ||||||||
Operating Activities: |
||||||||
Net income |
$ | 2,544 | $ | 1,926 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
||||||||
Security (gains), net |
(263 | ) | (281 | ) | ||||
Depreciation and amortization of premises and equipment |
436 | 385 | ||||||
Amortization of software |
51 | 40 | ||||||
Intangible asset amortization |
70 | 76 | ||||||
Amortization of investment security premium, net of discount accretion |
69 | 40 | ||||||
Deferred tax (benefit) liability |
(505 | ) | 1,770 | |||||
Stock-based compensation |
134 | 129 | ||||||
Excess tax benefits from share-based payment arrangements |
(17 | ) | (102 | ) | ||||
Deferral of loan fees and costs, net |
(210 | ) | (221 | ) | ||||
Provision for loan losses |
549 | 1,375 | ||||||
Purchased receivable loss (recovery) |
2 | 1 | ||||||
Proceeds from the sale of loans held for sale |
5,558 | | ||||||
Gain on sale of other real estate owned |
(72 | ) | (70 | ) | ||||
Impairment on other real estate owned |
| 176 | ||||||
Proceeds in excess of earnings from RML |
301 | 245 | ||||||
Equity in
loss (income) from Elliott Cove |
7 | (5 | ) | |||||
Decrease in accrued interest receivable |
217 | 303 | ||||||
(Increase) decrease in other assets |
1,367 | (1,143 | ) | |||||
Decrease (increase) of deferred gain on sales of other real estate owned |
68 | 49 | ||||||
Decrease (increase) of other liabilities |
(517 | ) | (89 | ) | ||||
Net Cash (Used) Provided by Operating Activities |
9,789 | 4,604 | ||||||
Investing Activities: |
||||||||
Investment in securities: |
||||||||
Purchases of investment securities-available-for-sale |
(31,839 | ) | (26,028 | ) | ||||
Purchases of investment securities-held-to-maturity |
| (517 | ) | |||||
Proceeds from sales/maturities of securities-available-for-sale |
63,991 | 40,334 | ||||||
Proceeds from calls/maturities of securities-held-to-maturity |
55 | 135 | ||||||
Investment in (repayment from) purchased receivables |
2,918 | 298 | ||||||
Loan paydowns, net of new advances |
16,891 | 7,162 | ||||||
Proceeds from sale of other real estate owned |
1,140 | 1,981 | ||||||
Investment in other real estate owned |
(14 | ) | (4 | ) | ||||
Loan to Elliott Cove, net of repayments |
75 | (43 | ) | |||||
Purchases of premises and equipment |
(215 | ) | (2 | ) | ||||
Purchases of software |
(12 | ) | (73 | ) | ||||
Net Cash (Used) Provided by Investing Activities |
52,990 | 23,243 | ||||||
Financing Activities: |
||||||||
(Decrease) increase in deposits |
41,088 | (20,317 | ) | |||||
(Decrease) increase in securities sold under repurchase agreements |
(1,279 | ) | 2,264 | |||||
Increase in borrowings |
35 | 2,271 | ||||||
Distributions to noncontrolling interest |
(111 | ) | (71 | ) | ||||
Proceeds from issuance of common stock |
| 1 | ||||||
Excess tax benefits from share-based payment arrangements |
17 | 102 | ||||||
Cash dividends paid |
(746 | ) | (639 | ) | ||||
Net Cash (Used) Provided by Financing Activities |
39,004 | (16,389 | ) | |||||
Net Increase in Cash and Cash Equivalents |
101,783 | 11,458 | ||||||
Cash and Cash Equivalents at Beginning of Period |
66,033 | 66,721 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 167,816 | $ | 78,179 | ||||
Supplemental Information: |
||||||||
Income taxes paid |
$ | 4 | $ | 4 | ||||
Interest paid |
$ | 1,015 | $ | 1,456 | ||||
Transfer of loans to other real estate owned |
$ | 974 | $ | 744 | ||||
Loans made to facilitate sales of other real estate owned |
$ | 417 | $ | 291 | ||||
Cash dividends declared but not paid |
$ | 36 | $ | 8 | ||||
- 7 -
- 8 -
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
March 31, | Cost | Gains | Losses | Fair Value | ||||||||||||
(In Thousands) | ||||||||||||||||
2011: |
||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 145,745 | $ | 343 | $ | 407 | $ | 145,681 | ||||||||
Muncipal Securities |
12,080 | 177 | | 12,257 | ||||||||||||
U.S. Agency Mortgage-backed Securities |
66 | 3 | | 69 | ||||||||||||
Corporate bonds |
23,061 | 740 | 8 | 23,793 | ||||||||||||
Total securities available for sale |
$ | 180,952 | $ | 1,263 | $ | 415 | $ | 181,800 | ||||||||
Securities held to maturity |
||||||||||||||||
Municipal securities |
$ | 6,068 | $ | 173 | $ | | $ | 6,241 | ||||||||
Total securities held to maturity |
$ | 6,068 | $ | 173 | $ | | $ | 6,241 | ||||||||
2010: |
||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 127,730 | $ | 768 | $ | 115 | $ | 128,383 | ||||||||
Muncipal Securities |
6,179 | 109 | | 6,288 | ||||||||||||
U.S. Agency Mortgage-backed Securities |
82 | 2 | | 84 | ||||||||||||
Corporate bonds |
27,827 | 1,435 | | 29,262 | ||||||||||||
Total securities available for sale |
$ | 161,818 | $ | 2,314 | $ | 115 | $ | 164,017 | ||||||||
Securities Held to Maturity |
||||||||||||||||
Municipal Securities |
$ | 7,666 | $ | 224 | $ | 3 | $ | 7,887 | ||||||||
Total securities held to maturity |
$ | 7,666 | $ | 224 | $ | 3 | $ | 7,887 | ||||||||
- 9 -
Weighted | ||||||||||||
Amortized | Average | |||||||||||
Cost | Fair Value | Yield | ||||||||||
(In Thousands) | ||||||||||||
US Treasury and government sponsored entities |
||||||||||||
Within 1 year |
$ | 3,297 | $ | 3,380 | 3.06 | % | ||||||
1-5 years |
142,448 | 142,301 | 0.96 | % | ||||||||
Total |
$ | 145,745 | $ | 145,681 | 1.00 | % | ||||||
U.S. Agency Mortgage-backed securities |
||||||||||||
5-10 years |
$ | 66 | $ | 69 | 4.45 | % | ||||||
Total |
$ | 66 | $ | 69 | 4.45 | % | ||||||
Corporate bonds |
||||||||||||
Within 1 year |
$ | | $ | | 0.00 | % | ||||||
1-5 years |
8,544 | 8,986 | 3.41 | % | ||||||||
5-10 years |
14,517 | 14,807 | 2.27 | % | ||||||||
Total |
$ | 23,061 | $ | 23,793 | 2.69 | % | ||||||
Municipal securities |
||||||||||||
Within 1 year |
$ | 2,547 | $ | 2,561 | 3.46 | % | ||||||
1-5 years |
5,323 | 5,455 | 2.78 | % | ||||||||
5-10 years |
7,128 | 7,291 | 4.24 | % | ||||||||
Over 10 years |
3,150 | 3,191 | 4.79 | % | ||||||||
Total |
$ | 18,148 | $ | 18,498 | 3.80 | % | ||||||
Gross | Gross | |||||||||||
March 31, | Proceeds | Gains | Losses | |||||||||
(In Thousands) | ||||||||||||
2011: |
||||||||||||
Available for sale securities |
$ | 6,987 | $ | 263 | $ | | ||||||
2010: |
||||||||||||
Available for sale securities |
$ | 7,332 | $ | 281 | $ | | ||||||
- 10 -
March 31, | 2011 | 2010 | ||||||
(In Thousands) | ||||||||
US Treasury and government sponsored entities |
$ | 456 | $ | 835 | ||||
U.S. Agency Mortgage-backed Securities |
1 | 1 | ||||||
Other |
310 | 348 | ||||||
Total taxable interest income |
$ | 767 | $ | 1,184 | ||||
Municipal Securities |
104 | 70 | ||||||
Total tax-exempt interest income |
104 | 70 | ||||||
Total |
$ | 871 | $ | 1,254 | ||||
March 31, 2011 | December 31, 2010 | March 31, 2010 | ||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | Dollar | Percent | |||||||||||||||||||
Amount | of Total | Amount | of Total | Amount | of Total | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Commercial |
$ | 241,540 | 37 | % | $ | 256,971 | 38 | % | $ | 248,873 | 38 | % | ||||||||||||
Real estate construction |
62,082 | 9 | % | 62,620 | 9 | % | 54,238 | 8 | % | |||||||||||||||
Real estate term |
311,080 | 48 | % | 312,128 | 46 | % | 298,887 | 46 | % | |||||||||||||||
Home equity lines and other consumer |
42,600 | 7 | % | 43,264 | 6 | % | 47,496 | 7 | % | |||||||||||||||
Subtotal |
$ | 657,302 | $ | 674,983 | $ | 649,494 | ||||||||||||||||||
Less: Unearned origination fee,
net of origination costs |
(2,961 | ) | 0 | % | (3,171 | ) | 0 | % | (2,577 | ) | 0 | % | ||||||||||||
Total loans |
$ | 654,341 | $ | 671,812 | $ | 646,917 | ||||||||||||||||||
- 11 -
| 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 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 & Poors. | ||
| 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 |
- 12 -
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. | |||
| 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. |
Home equity | ||||||||||||||||||||
Real estate | lines and other | |||||||||||||||||||
Commercial | construction | Real estate term | consumer | Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Risk Code 1 - Excellent |
$ | 891 | $ | | $ | | $ | 701 | $ | 1,592 | ||||||||||
Risk Code 2 - Good |
79,425 | 326 | 65,430 | 943 | 146,124 | |||||||||||||||
Risk Code 3 - Satisfactory |
127,985 | 47,862 | 229,595 | 37,764 | 443,206 | |||||||||||||||
Risk Code 4 - Watch |
11,549 | 3,229 | 2,429 | 2,108 | 19,315 | |||||||||||||||
Risk Code 5 - Special Mention |
15,180 | | 3,199 | 560 | 18,939 | |||||||||||||||
Risk Code 6 - Substandard |
5,932 | 10,665 | 10,427 | 524 | 27,548 | |||||||||||||||
Risk Code 7 - Doubtful |
578 | | | | 578 | |||||||||||||||
Subtotal |
$ | 241,540 | $ | 62,082 | $ | 311,080 | $ | 42,600 | $ | 657,302 | ||||||||||
Less: Unearned origination fees,
net of origination costs |
(2,961 | ) | ||||||||||||||||||
$ | 654,341 | |||||||||||||||||||
- 13 -
(In Thousands) | ||||
Commercial |
$ | 4,514 | ||
Real estate construction |
2,184 | |||
Real estate term |
3,239 | |||
Home equity lines and other consumer |
385 | |||
Total |
$ | 10,322 | ||
Recorded | ||||||||||||||||||||||||||||
30-59 | Investment > 90 | |||||||||||||||||||||||||||
DaysPast | 60-89 Days | Greater Than | Total Past | Total Financing | Days and | |||||||||||||||||||||||
Due | Past Due | 90 Days | Due | Current | Receivables | Accruing | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Risk Code 1 - Excellent |
$ | | $ | | $ | | $ | | $ | 1,592 | $ | 1,592 | $ | | ||||||||||||||
Risk Code 2 - Good |
| | | | 146,124 | 146,124 | | |||||||||||||||||||||
Risk Code 3 - Satisfactory |
813 | | | 813 | 442,393 | 443,206 | | |||||||||||||||||||||
Risk Code 4 - Watch |
| | | | 19,315 | 19,315 | | |||||||||||||||||||||
Risk Code 5 - Special Mention |
1,151 | 13 | | 1,164 | 17,775 | 18,939 | | |||||||||||||||||||||
Risk Code 6 - Substandard |
1,498 | 24 | | 1,522 | 26,026 | 27,548 | | |||||||||||||||||||||
Risk Code 7 - Doubtful |
| | | | 578 | 578 | | |||||||||||||||||||||
Subtotal |
$ | 3,462 | $ | 37 | $ | | $ | 3,499 | $ | 653,803 | $ | 657,302 | $ | | ||||||||||||||
Less: Unearned origination fees,
net of origination costs |
(2,961 | ) | ||||||||||||||||||||||||||
$ | 654,341 | $ | | |||||||||||||||||||||||||
- 14 -
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Commercial |
$ | 3,663 | $ | 4,261 | $ | | $ | 3,703 | $ | 14 | ||||||||||
Real estate construction |
1,599 | 1,678 | | 1,616 | | |||||||||||||||
Real estate term |
5,886 | 5,886 | | 5,848 | 57 | |||||||||||||||
Home equity lines and other consumer |
215 | 215 | | 202 | 1 | |||||||||||||||
$ | 11,363 | $ | 12,040 | $ | | $ | 11,369 | $ | 72 | |||||||||||
With an allowance recorded |
||||||||||||||||||||
Commercial |
$ | 885 | $ | 885 | $ | 415 | $ | 891 | $ | 1 | ||||||||||
Real estate construction |
1,568 | 1,613 | 57 | 1,573 | | |||||||||||||||
Real estate term |
251 | 251 | 62 | 253 | | |||||||||||||||
Home equity lines and other consumer |
50 | 50 | 11 | 50 | | |||||||||||||||
$ | 2,754 | $ | 2,799 | $ | 545 | $ | 2,767 | $ | 1 | |||||||||||
Total |
||||||||||||||||||||
Commercial |
$ | 4,548 | $ | 5,146 | $ | 415 | $ | 4,594 | $ | 15 | ||||||||||
Real estate construction |
3,167 | 3,291 | 57 | 3,189 | | |||||||||||||||
Real estate term |
6,137 | 6,137 | 62 | 6,101 | 57 | |||||||||||||||
Home equity lines and other consumer |
265 | 265 | 11 | 252 | 1 | |||||||||||||||
$ | 14,117 | $ | 14,839 | $ | 545 | $ | 14,136 | $ | 73 | |||||||||||
- 15 -
Home equity | ||||||||||||||||||||||||
Real estate | lines and other | |||||||||||||||||||||||
Commercial | construction | Real estate term | consumer | Unallocated | Total | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Balance, beginning of period |
$ | 6,374 | $ | 1,035 | $ | 4,270 | $ | 741 | $ | 1,986 | $ | 14,406 | ||||||||||||
Charge-Offs |
(473 | ) | | | | | (473 | ) | ||||||||||||||||
Recoveries |
590 | 1 | 53 | 13 | | 657 | ||||||||||||||||||
Provision |
(353 | ) | 840 | (18 | ) | (153 | ) | 233 | 549 | |||||||||||||||
Balance, end of period |
$ | 6,138 | $ | 1,876 | $ | 4,305 | $ | 601 | $ | 2,219 | $ | 15,139 | ||||||||||||
Balance, end of period: Individually evaluated
for impairment |
$ | 415 | $ | 57 | $ | 62 | $ | 11 | $ | | $ | 545 | ||||||||||||
Balance, end of period: Collectively evaluated
for impairment |
$ | 5,723 | $ | 1,819 | $ | 4,243 | $ | 590 | $ | 2,219 | $ | 14,594 | ||||||||||||
Home equity | ||||||||||||||||||||
Real estate | lines and other | |||||||||||||||||||
Commercial | construction | Real estate term | consumer | Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Balance, end of period |
$ | 241,540 | $ | 62,082 | $ | 311,080 | $ | 42,600 | $ | 657,302 | ||||||||||
Balance, end of period: Individually evaluated
for impairment |
$ | 4,548 | $ | 3,167 | $ | 6,137 | $ | 265 | $ | 14,117 | ||||||||||
Balance, end of period: Collectively evaluated
for impairment |
$ | 236,992 | $ | 58,915 | $ | 304,943 | $ | 42,335 | $ | 643,185 | ||||||||||
- 16 -
Home equity | ||||||||||||||||||||||||
Real estate | Real estate | lines and other | ||||||||||||||||||||||
Total | Commercial | Construction | term | consumer | Unallocated | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Individually evaluated for impairment: |
||||||||||||||||||||||||
Risk Code 6 - Substandard |
$ | 545 | $ | 415 | $ | 57 | $ | 62 | $ | 11 | $ | | ||||||||||||
Collectively evaluated for impairment: |
||||||||||||||||||||||||
Risk Code 3 - Satisfactory |
8,835 | 3,333 | 1,407 | 3,559 | 536 | | ||||||||||||||||||
Risk Code 4 - Watch |
622 | 432 | 81 | 92 | 17 | | ||||||||||||||||||
Risk Code 5 - Special Mention |
1,953 | 1,834 | | 83 | 36 | | ||||||||||||||||||
Risk Code 6 - Substandard |
960 | 119 | 331 | 509 | 1 | | ||||||||||||||||||
Risk Code 7 - Doubtful |
5 | 5 | | | | | ||||||||||||||||||
Unallocated |
2,219 | | | | | 2,219 | ||||||||||||||||||
$ | 15,139 | $ | 6,138 | $ | 1,876 | $ | 4,305 | $ | 601 | $ | 2,219 | |||||||||||||
a. | Neither the Company nor any members of the Companys management have control over the budgeting or operational processes of Elliott Cove. |
- 17 -
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. |
- 18 -
- 19 -
- 20 -
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 167,816 | $ | 167,816 | $ | 66,033 | $ | 66,033 | ||||||||
Investment securities |
187,868 | 190,044 | 220,135 | 222,299 | ||||||||||||
Investment in Federal Home Loan Bank stock |
2,003 | 2,003 | 2,003 | 2,003 | ||||||||||||
Loans |
639,202 | 636,007 | 662,964 | 659,650 | ||||||||||||
Loans held for sale |
| | 5,558 | 5,558 | ||||||||||||
Purchased receivables |
13,611 | 13,611 | 16,531 | 16,531 | ||||||||||||
Accrued interest receivable |
3,184 | 3,184 | 3,401 | 3,401 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
$ | 933,224 | $ | 932,150 | $ | 892,136 | $ | 890,729 | ||||||||
Accrued interest payable |
262 | 262 | 300 | 300 | ||||||||||||
Securities sold under repurchase agreements |
11,595 | 11,595 | 12,874 | 12,874 | ||||||||||||
Borrowings |
5,421 | 4,774 | 5,386 | 4,759 | ||||||||||||
Junior subordinated debentures |
18,558 | 15,106 | 18,558 | 15,106 | ||||||||||||
Unrecognized financial instruments: |
||||||||||||||||
Commitments to extend credit(1) |
$ | 198,437 | $ | 1,984 | $ | 181,305 | $ | 1,813 | ||||||||
Standby letters of credit(1) |
19,290 | 193 | 19,085 | 191 |
(1) | Carrying amounts reflect the notional amount of credit exposure under these financial instruments. |
- 21 -
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable Inputs | ||||||||||||||
Total | Assets (Level 1) | Inputs (Level 2) | (Level 3) | |||||||||||||
(In Thousands) | ||||||||||||||||
2011: |
||||||||||||||||
Available for sale securities |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 145,681 | | $ | 145,681 | | ||||||||||
Municipal Securities |
12,257 | | 12,257 | | ||||||||||||
U.S. Agency Mortgage-backed Securities |
69 | 69 | ||||||||||||||
Corporate bonds |
23,793 | | 23,793 | | ||||||||||||
Total |
$ | 181,800 | | $ | 181,800 | | ||||||||||
2010: |
||||||||||||||||
Available for sale securities |
||||||||||||||||
U.S. Treasury and government sponsored entities |
$ | 128,383 | | $ | 128,383 | | ||||||||||
Municipal Securities |
6,288 | | 6,288 | | ||||||||||||
U.S. Agency Mortgage-backed Securities |
84 | 84 | ||||||||||||||
Corporate bonds |
29,262 | | 29,262 | | ||||||||||||
Total |
$ | 164,017 | | $ | 164,017 | | ||||||||||
Quoted Prices in | ||||||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||||||
for Identical | Observable | Unobservable Inputs | Total (gains) | |||||||||||||||||
Total | Assets (Level 1) | Inputs (Level 2) | (Level 3) | losses | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
2011: |
||||||||||||||||||||
Loans measured for impairment1 |
$ | 2,754 | | $ | 2,219 | $ | 535 | $ | 162 | |||||||||||
Total |
$ | 2,754 | | $ | 2,219 | $ | 535 | $ | 162 | |||||||||||
2010: |
||||||||||||||||||||
Loans measured for impairment1 |
$ | 12,651 | | $ | 8,480 | $ | 4,171 | $ | 258 | |||||||||||
Other real estate owned2 |
498 | | | 498 | 176 | |||||||||||||||
Total |
$ | 13,149 | | $ | 8,480 | $ | 4,669 | $ | 434 | |||||||||||
1 | Relates to certain impaired collateral dependant loans. The impairment was measured based on the fair value of collateral, in accordance with 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. |
- 22 -
- 23 -
| Northrim continued to maintain strong capital ratios with Tier 1 Capital/risk adjusted assets of 14.97% at March 31, 2011 as compared to 14.08% at December 31, 2010 and 14.31% a year ago. | ||
| Northrims tangible common equity to tangible assets at quarter end was 10.13%, down from 10.56% a year earlier and the previous quarter which was 10.36%. 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 10.84% at March 31, 2011 as compared to 11.11% at December 31, 2010 and 11.37% at March 31, 2010. | ||
| The net interest margin increased to 4.72% for the first quarter of 2011, up from 4.57% in the fourth quarter of 2010, but down from 5.34% in the first quarter of 2010. | ||
| Book value at March 31, 2011 was $18.47 per share and tangible book value was $17.13 per share, up from $17.60 and $16.20, respectively, a year earlier, and $18.21 and $16.86 at December 31, 2010. Tangible book value is shareholders equity, less intangible assets, divided by common stock outstanding. | ||
| The Allowance continued to increase, now totaling 2.31% of total portfolio loans at March 31, 2011, compared to 2.17% at March 31, 2010 and 2.14% at December 31, 2010. The Allowance to nonperforming loans also increased to 128.42% from 90.25% a year ago and 126.21% from December 31, 2010. |
- 24 -
| Nonperforming loans totaled $11.8 million, or 1.80% of total portfolio loans at March 31, 2011, compared to $15.6 million, or 2.41% of total portfolio loans a year ago and $11.4 million , or 1.70% of total portfolio loans at December 31, 2010. | ||
| The $4.3 million condominium conversion project in Anchorage that moved into OREO during the fourth quarter of 2009 continues to generate rental income producing an average yield of approximately 2.6% for the first quarter of 2011. Of the 68 original units, 39 condos have been sold and 24 are rented at March 31, 2011, providing positive year-to-date cash flow for the project. | ||
| Sales of OREO continued during the first quarter of 2011, with nine properties sold for an aggregate of $1.1 million, generating a $59,000 net gain over current carrying value in the first quarter of 2010. In the first quarter of 2011, the Company also recognized $13,000 in deferred gains on sales of OREO property that occurred in previous periods and now meet the accounting requirements for gain recognition. At March 31, 2011 the Company had $220,000 in remaining deferred gains on sale of OREO property. | ||
| The Company had net recoveries in the first quarter of 2011 of $184,000, or 0.03% of average loans, reflecting the effects of $657,000 in recoveries, compared to net charge-offs of $437,000, or 0.07% of average loans during the first quarter of 2010, and net charge-offs of $2.5 million in the preceding quarter. | ||
| Loans measured for impairment decreased to $14.1 million at March 31, 2011, compared to $44 million at March 31, 2010 and $18.3 million at December 31, 2010.. |
- 25 -
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
Balance, beginning of the period |
$ | 10,355 | $ | 17,355 | ||||
Transfers from loans, net |
974 | 744 | ||||||
Investment in other real estate owned |
14 | 4 | ||||||
Proceeds from the sale of other real estate owned |
(1,140 | ) | (1,981 | ) | ||||
Gain on sale of other real estate owned, net |
72 | 70 | ||||||
Deferred gain on sale of other real estate owned |
68 | 49 | ||||||
Impairment on other real estate owned |
| (176 | ) | |||||
Balance at end of period |
$ | 10,343 | $ | 16,065 | ||||
- 26 -
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||
Interest income/ | Average Yields/Costs | |||||||||||||||||||||||||||||||||||||||||||
Average Balances | Change | expense | Change | Tax Equivalent | ||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | $ | % | 2011 | 2010 | $ | % | 2011 | 2010 | Change | ||||||||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Commercial |
$ | 243,136 | $ | 244,074 | $ | (938 | ) | 0 | % | $ | 4,070 | $ | 4,360 | $ | (290 | ) | -7 | % | 6.79 | % | 7.24 | % | -0.45 | % | ||||||||||||||||||||
Real estate construction |
63,749 | 60,004 | 3,745 | 6 | % | 1,166 | 1,204 | (38 | ) | -3 | % | 7.42 | % | 8.14 | % | -0.72 | % | |||||||||||||||||||||||||||
Real estate term |
313,380 | 297,934 | 15,446 | 5 | % | 4,743 | 5,051 | (308 | ) | -6 | % | 6.14 | % | 6.88 | % | -0.74 | % | |||||||||||||||||||||||||||
Home equity lines and
other consumer |
43,091 | 48,544 | (5,453 | ) | -11 | % | 695 | 807 | (112 | ) | -14 | % | 6.54 | % | 6.75 | % | -0.21 | % | ||||||||||||||||||||||||||
Real estate loans for sale |
1,239 | | 1,239 | 100 | % | 13 | | 13 | 100 | % | 4.32 | % | 0.00 | % | 4.32 | % | ||||||||||||||||||||||||||||
Unearned origination fees, net of
origination costs |
(2,661 | ) | (1,886 | ) | 775 | 41 | % | |||||||||||||||||||||||||||||||||||||
Total loans1,2 |
661,934 | 648,670 | 13,264 | 2 | % | 10,687 | 11,422 | (735 | ) | -6 | % | 6.59 | % | 7.15 | % | -0.56 | % | |||||||||||||||||||||||||||
Short-term investments |
52,462 | 36,887 | 15,575 | 42 | % | 33 | 23 | 10 | 43 | % | 0.25 | % | 0.25 | % | 0.00 | % | ||||||||||||||||||||||||||||
Long-term investments |
214,869 | 178,229 | 36,640 | 21 | % | 932 | 1,329 | (397 | ) | -30 | % | 1.86 | % | 3.11 | % | -1.25 | % | |||||||||||||||||||||||||||
Total investments |
267,331 | 215,116 | 52,215 | 24 | % | 965 | 1,352 | (387 | ) | -29 | % | 1.56 | % | 2.66 | % | -1.10 | % | |||||||||||||||||||||||||||
Interest-earning assets |
929,265 | 863,786 | 65,479 | 8 | % | 11,652 | 12,774 | (1,122 | ) | -9 | % | 5.14 | % | 6.03 | % | -0.89 | % | |||||||||||||||||||||||||||
Nonearning assets |
110,803 | 109,244 | 1,559 | 1 | % | |||||||||||||||||||||||||||||||||||||||
Total |
$ | 1,040,068 | $ | 973,030 | $ | 67,038 | 7 | % | ||||||||||||||||||||||||||||||||||||
Interest-bearing deposits |
$ | 594,249 | $ | 577,497 | $ | 16,752 | 3 | % | $ | 780 | $ | 1,275 | $ | (495 | ) | -39 | % | 0.53 | % | 0.90 | % | -0.37 | % | |||||||||||||||||||||
Borrowings |
36,338 | 32,460 | 3,878 | 12 | % | 197 | 195 | 2 | 1 | % | 2.20 | % | 2.39 | % | -0.19 | % | ||||||||||||||||||||||||||||
Total interest-bearing liabilities |
630,587 | 609,957 | 20,630 | 3 | % | 977 | 1,470 | (493 | ) | -34 | % | 0.63 | % | 0.98 | % | -0.35 | % | |||||||||||||||||||||||||||
Demand deposits and other
noninterest-bearing liabilities |
290,874 | 250,483 | 40,391 | 16 | % | |||||||||||||||||||||||||||||||||||||||
Equity |
118,607 | 112,590 | 6,017 | 5 | % | |||||||||||||||||||||||||||||||||||||||
Total |
$ | 1,040,068 | $ | 973,030 | $ | 67,038 | 7 | % | ||||||||||||||||||||||||||||||||||||
Net interest income |
$ | 10,675 | $ | 11,304 | $ | (629 | ) | -6 | % | |||||||||||||||||||||||||||||||||||
Net tax equivalent margin on earning assets3 |
4.72 | % | 5.34 | % | -0.62 | % | ||||||||||||||||||||||||||||||||||||||
1 | Loan fees recognized during the period and included in the yield calculation totalled $604,000 and $670,000 in the first quarter of 2011 and 2010, respectively. | |
2 | Average nonaccrual loans included in the computation of the average loans were $10.9 million and $14.5 million in the first 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. |
- 27 -
Quarter ended March 31, 2011 vs. 2010 | ||||||||||||
Increase (decrease) due to | ||||||||||||
Volume | Rate | Total | ||||||||||
Interest Income: |
||||||||||||
Loans |
$ | 236 | $ | (971 | ) | $ | (735 | ) | ||||
Long-term investments |
416 | (813 | ) | (397 | ) | |||||||
Short-term investments |
10 | | 10 | |||||||||
Total interest income |
$ | 661 | $ | (1,784 | ) | $ | (1,122 | ) | ||||
Interest Expense: |
||||||||||||
Deposits: |
||||||||||||
Interest-bearing deposits |
$ | 37 | (532 | ) | $ | (495 | ) | |||||
Borrowings |
6 | (4 | ) | 2 | ||||||||
Total interest expense |
$ | 43 | $ | (536 | ) | $ | (493 | ) | ||||
- 28 -
March 31, 2011 | December 31, 2010 | March 31, 2010 | ||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | Dollar | Percent | |||||||||||||||||||
Amount | of Total | Amount | of Total | Amount | of Total | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Commercial |
$ | 241,540 | 37 | % | $ | 256,971 | 38 | % | $ | 248,873 | 38 | % | ||||||||||||
Real estate construction |
62,082 | 9 | % | 62,620 | 9 | % | 54,238 | 8 | % | |||||||||||||||
Real estate term |
311,080 | 48 | % | 312,128 | 46 | % | 298,887 | 46 | % | |||||||||||||||
Home equity lines and other consumer |
42,600 | 7 | % | 43,264 | 6 | % | 47,496 | 7 | % | |||||||||||||||
Subtotal |
$ | 657,302 | $ | 674,983 | $ | 649,494 | ||||||||||||||||||
Less: Unearned origination fee,
net of origination costs |
(2,961 | ) | 0 | % | (3,171 | ) | 0 | % | (2,577 | ) | 0 | % | ||||||||||||
Total loans |
$ | 654,341 | $ | 671,812 | $ | 646,917 | ||||||||||||||||||
- 29 -
| 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 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 4 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. | ||
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 charge-off rate for nonperforming loans as of March 31, 2011 and March 31, 2010 was 18% and 22%, 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. |
- 30 -
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 March 31, 2011, the unallocated portion of the Allowance as a percentage of the total Allowance was 14.7%. The unallocated portion of the Allowance as a percentage of the total Allowance was 13.8% at December 31, 2010 and 51.4% at March 31, 2010 as reported in the Companys Form 10-Q for the quarter ended March 31, 2010. The decrease in the unallocated portion of the Allowance as a percentage of the total Allowance at March 31, 2011 and December 31, 2010 as compared to March 31, 2010 is due to an enhancement to the Companys methodology. The Company enhanced its method of estimating the Allowance in the third quarter of 2010. The Company elected this enhanced method of estimating the Allowance because it believes that it more accurately allocates expected losses by loan segment and class. The Company performed a retrospective review of the Allowance as of December 31, 2009, March 31, 2010 and June 30, 2010 and determined that this enhancement does not have an effect on the Companys financial position, results of operations, or earnings per share for any period; rather, the refined method of estimating the Allowance changes how the total Allowance is allocated among the Companys loan types and the unallocated portion of the Allowance. |
March 31, 2011 | March 31, 2010, Enhanced | |||||||||||||||||||||||||||||||
Impaired | Formula-based | Impaired | Formula-based | |||||||||||||||||||||||||||||
Allownace applicable to: | Total | Loans | Amounts | Other | Total | Loans | Amounts | Other | ||||||||||||||||||||||||
Commercial |
$ | 6,138 | $ | 415 | $ | 5,723 | | $ | 5,530 | $ | 1,190 | $ | 4,340 | | ||||||||||||||||||
Real estate construction |
1,876 | 57 | $ | 1,819 | | 1,708 | 633 | 1,075 | | |||||||||||||||||||||||
Real estate term |
4,305 | 62 | $ | 4,243 | | 3,375 | 118 | 3,257 | | |||||||||||||||||||||||
Home equity lines and other
consumer |
601 | 11 | $ | 590 | | 520 | 1 | 519 | | |||||||||||||||||||||||
Unallocated |
2,219 | | | $ | 2,219 | 2,913 | | | 2,913 | |||||||||||||||||||||||
Total |
$ | 15,139 | $ | 545 | $ | 12,375 | $ | 2,219 | $ | 14,046 | $ | 1,942 | $ | 9,191 | $ | 2,913 | ||||||||||||||||
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Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
Balance at beginning of period |
$ | 14,406 | $ | 13,108 | ||||
Charge-offs: |
||||||||
Commercial |
473 | 792 | ||||||
Real estate construction |
| 79 | ||||||
Real estate term |
| | ||||||
Home equity lines and
other consumer |
| 79 | ||||||
Total charge-offs |
473 | 950 | ||||||
Recoveries: |
||||||||
Commercial |
590 | 504 | ||||||
Real estate construction |
1 | | ||||||
Real estate term |
53 | | ||||||
Home equity lines and
other consumer |
13 | 9 | ||||||
Total recoveries |
657 | 513 | ||||||
Net, (recoveries) charge-offs |
(184 | ) | 437 | |||||
Provision for loan losses |
549 | 1,375 | ||||||
Balance at end of period |
$ | 15,139 | $ | 14,046 | ||||
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- 33 -
Adequately- | Well- | Actual Ratio | Actual Ratio | |||||||||||||
Capitalized | Capitalized | BHC | Bank | |||||||||||||
Tier 1 risk-based capital |
4.00 | % | 6.00 | % | 14.97 | % | 13.93 | % | ||||||||
Total risk-based capital |
8.00 | % | 10.00 | % | 16.23 | % | 15.19 | % | ||||||||
Leverage ratio |
4.00 | % | 5.00 | % | 12.52 | % | 11.65 | % |
- 34 -
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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 |
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NORTHRIM BANCORP, INC. |
||||
May 9, 2011 | By | /s/ R. Marc Langland | ||
R. Marc Langland | ||||
Chairman, President, and CEO (Principal Executive Officer) |
||||
May 9, 2011 | By | /s/ Joseph M Schierhorn | ||
Joseph M. Schierhorn | ||||
Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) |
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1. | I have reviewed this quarterly report on Form 10-Q of Northrim BanCorp, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2011 | /s/ R. Marc Langland | |||
R. Marc Langland | ||||
Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Northrim BanCorp, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2011 | /s/ Joseph M. Schierhorn | |||
Joseph M. Schierhorn | ||||
Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ R. Marc Langland | ||||
R. Marc Langland | ||||
Chief Executive Officer | ||||
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ Joseph M. Schierhorn | ||||
Joseph M. Schierhorn | ||||
Chief Financial Officer | ||||