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Northrim Banp(NRIM) - 2020 Q4 - Annual Report
NRIMNorthrim Banp(NRIM)2021-03-05 22:21

Economic Impact and Growth Outlook - The company expects modest growth opportunities in 2021 due to the impacts of COVID-19 and lower oil prices, which have slowed the economy in Alaska [22]. - Alaska's gross state product (GSP) was 50.4billioninQ32020,downfrom50.4 billion in Q3 2020, down from 54.5 billion in Q3 2019, reflecting the economic impact of the pandemic [40]. - The company anticipates a recovery of 8,600 jobs, or approximately 2.8% increase in total employment in Alaska for 2021 [39]. - The company anticipates that the long-term growth of the Alaska economy will be determined by large-scale natural resource development projects [46]. - The company believes that the implementation of the POMV concept is positive for Alaska's financial well-being, despite concerns over low oil prices affecting long-term economic growth [48]. Workforce and Employment - As of December 31, 2020, the company had 438 full-time equivalent employees, with 72% identifying as women and 28% as men [25][26]. - Approximately 45% of the company's employees were working remotely as of December 31, 2020, compared to less than 8% before the pandemic [29]. Financial Performance and Credit Management - The company has allocated more resources to credit management to enhance financial analysis of complex loan relationships and improve credit quality [23]. - The company had 78.9million,or578.9 million, or 5% of portfolio loans, in the tourism sector as of December 31, 2020, indicating significant exposure to industries affected by COVID-19 [36]. - As of December 31, 2020, 45% of the company's revenue was derived from the residential housing market, up from 31% in 2019 and 29% in 2018 [44]. - At December 31, 2020, 780.1 million, or 54%, of the company's loan portfolio was represented by commercial loans in Alaska [44]. - Investment earnings represented 66% of unrestricted revenues in 2020, compared to 52% in 2019 [47]. Regulatory Compliance and Capital Management - The Company and the Bank are required to maintain a common equity Tier 1 capital ratio of 4.5% and a total risk-based ratio of 8.0% [75]. - The conservation buffer, consisting of common equity Tier 1 capital, must be at least 2.5% above the required capital ratios [75]. - As of December 31, 2020, the Company had 10millionmoreinregulatorycapitalthantheBank,primarilyduetotrustpreferredsecurities[84].−TheCompanyintendstomaintaincapitalratiosfortheBankin2021thatexceedtheFDIC′srequirementsforthe"well−capitalized"classification[83].−TheCompanyissubjecttotheCommunityReinvestmentActandreceiveda"Satisfactory"ratingfromtheFDICinitsmostrecentexamination[88].−TheCompanyisincompliancewiththeUSAPATRIOTActandtheAnti−MoneyLaunderingActasofDecember31,2020[89].−TheRulesforcapitalrequirementstookfulleffectonJanuary1,2019,andboththeCompanyandtheBankhavebeencompliantsinceJanuary1,2015[78].−TheBank′sabilitytopaydividendstotheCompanyislimitedtoensureitmeetsregulatoryrequirementsforbeing"well−capitalized"[83].InterestRateRiskManagement−TheCompanyreportedtotalinterest−earningassetsof10 million more in regulatory capital than the Bank, primarily due to trust preferred securities [84]. - The Company intends to maintain capital ratios for the Bank in 2021 that exceed the FDIC's requirements for the "well-capitalized" classification [83]. - The Company is subject to the Community Reinvestment Act and received a "Satisfactory" rating from the FDIC in its most recent examination [88]. - The Company is in compliance with the USA PATRIOT Act and the Anti-Money Laundering Act as of December 31, 2020 [89]. - The Rules for capital requirements took full effect on January 1, 2019, and both the Company and the Bank have been compliant since January 1, 2015 [78]. - The Bank's ability to pay dividends to the Company is limited to ensure it meets regulatory requirements for being "well-capitalized" [83]. Interest Rate Risk Management - The Company reported total interest-earning assets of 1,952,740,000, with 68.36% maturing within one year [309]. - Interest-bearing liabilities totaled 1,206,283,000,with94.281,206,283,000, with 94.28% maturing within one year [309]. - The interest sensitivity gap was 746,457,000, indicating a positive gap across all maturity categories [309]. - A 400 basis point increase in interest rates is projected to increase net interest income by 8,214,000inthefirstyear,representingan11.668,214,000 in the first year, representing an 11.66% change [312]. - The estimated impact on net income under a 400 basis point increase scenario shows a decrease of 663,000 in the first year, but an increase of 6,337,000inthesecondyear,reflectinga23.856,337,000 in the second year, reflecting a 23.85% change [312]. - The Asset and Liability Committee manages interest rate risks through various measures, including income simulations and interest sensitivity analysis [303]. - The Company utilizes derivatives in its Home Mortgage Lending segment to hedge interest rate risks associated with mortgage loan commitments [306]. - Interest rate gap analysis is considered a standard tool for measuring exposure to interest rate risk, but it is not the sole indicator of earnings performance [305]. - The Company’s interest rate risk management strategies are influenced by economic conditions, asset quality, and other considerations [303]. Competition and Market Position - The company faces competition from various financial institutions, including credit unions that have liberalized their lending authority [51]. - Northrim Bank held approximately a 12% share of the Alaska bank deposits as of June 30, 2020 [53]. - Credit unions in Alaska had a 44% share of total deposits held in banks and credit unions as of June 30, 2020 [51]. - The company plans to continue leveraging affiliate relationships to strengthen its customer base and attract new clients [35]. Housing Market and Economic Indicators - Alaska's home mortgage delinquency rate was 6.78% in Q3 2020, lower than the national average of 7.60% [43]. - Approximately 20% of total state revenues of 8.7 billion in the fiscal year ending June 30, 2020, were generated through various taxes and royalties on the oil industry [47]. - The distribution from the Alaska Permanent Fund Corporation was 992pereligibleresidentin2020,totalingapproximately992 per eligible resident in 2020, totaling approximately 640 million [50].