Northrim Banp(NRIM) - 2022 Q2 - Quarterly Report

Part I FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements, management's discussion, and market risk disclosures for the company Financial Statements This section presents Northrim BanCorp's unaudited consolidated financial statements, including balance sheets, income, and cash flow statements, with detailed accounting policy notes Consolidated Balance Sheets Total assets decreased to $2.61 billion, driven by reduced interest-bearing deposits, while shareholders' equity fell to $215.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,611,154 | $2,724,719 | | Net Loans | $1,394,172 | $1,402,147 | | Investment Securities (AFS & HTM) | $641,777 | $446,684 | | Interest bearing deposits in other banks | $312,888 | $625,022 | | Total Liabilities | $2,395,865 | $2,486,902 | | Total Deposits | $2,335,390 | $2,421,631 | | Total Shareholders' Equity | $215,289 | $237,817 | Consolidated Statements of Income Net income significantly decreased in Q2 and YTD 2022, primarily due to lower mortgage banking income and a shift to credit loss provisions Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $22,212 | $19,192 | $41,516 | $38,685 | | Provision (benefit) for credit losses | $463 | ($427) | $313 | ($1,915) | | Mortgage banking income | $5,900 | $11,360 | $12,882 | $24,982 | | Net Income | $4,795 | $8,345 | $12,021 | $20,526 | | Earnings Per Share, Diluted | $0.83 | $1.33 | $2.03 | $3.27 | Consolidated Statements of Comprehensive Income The company reported a comprehensive loss for Q2 and YTD 2022, driven by significant unrealized losses on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $4,795 | $8,345 | $12,021 | $20,526 | | Other comprehensive (loss), net of tax | ($4,930) | ($488) | ($15,934) | ($669) | | Comprehensive (loss) income | ($135) | $7,857 | ($3,913) | $19,857 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased to $215.3 million, primarily due to stock repurchases and increased other comprehensive loss, offsetting net income - Key drivers for the change in shareholders' equity in the first six months of 2022 include net income of $7.2 million in Q1 and $4.8 million in Q2, offset by stock repurchases totaling $14.2 million and cash dividends of $4.8 million[21] - A significant factor in the equity reduction was the other comprehensive loss, net of tax, which amounted to $11.0 million in Q1 and $4.9 million in Q2 2022, totaling $15.9 million for the first half of the year[21] Consolidated Statements of Cash Flows The company experienced a net decrease in cash and cash equivalents of $308.9 million, driven by investing and financing activities Six-Month Cash Flow Summary (in thousands) | Activity | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $15,309 | $68,450 | | Net Cash (Used) by Investing Activities | ($218,820) | ($152,030) | | Net Cash (Used) Provided by Financing Activities | ($105,393) | $314,500 | | Net Change in Cash and Cash Equivalents | ($308,904) | $230,920 | | Cash and Cash Equivalents at Beginning of Period | $645,827 | $115,965 | | Cash and Cash Equivalents at End of Period | $336,923 | $346,885 | Notes to the Consolidated Financial Statements The notes detail accounting policies, including the LIBOR transition, investment securities, loan activity, and segment performance - The company operates in two primary segments: Community Banking and Home Mortgage Lending[25] - The company is managing the transition away from LIBOR, with approximately $179.1 million of assets and $10.0 million of liabilities linked to USD LIBOR as of June 30, 2022[31] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, economic conditions, credit quality, and capital position, including a key accounting policy change for credit losses Update on Economic Conditions Alaska's economy shows job growth, particularly in tourism and oil & gas, with rising oil prices and housing market appreciation - Total payroll jobs in Alaska increased by 2.9% (8,900 jobs) compared to May 2021, with the Leisure and Hospitality sector growing by 12.4%[118] - The price of Alaska North Slope crude oil reached a monthly average of $120.17 a barrel in June 2022[120] - The average sales price of a single-family home in Anchorage climbed 7.5% in the first six months of 2022 to $456,052[122] Highlights and Summary of Performance - Second Quarter of 2022 Q2 2022 net income decreased to $4.8 million due to lower mortgage banking income, despite a 16% increase in net interest income Q2 2022 Performance vs. Q2 2021 | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Income | $4.8M | $8.3M | | Diluted EPS | $0.83 | $1.33 | | Total Revenue | $30.0M | $33.3M | | Net Interest Income | $22.2M | $19.2M | | Net Interest Margin | 3.67% | 3.48% | - The company paid a cash dividend of $0.41 per share in Q2 2022, an 11% increase from Q2 2021[126] Credit Quality Credit quality improved, with nonperforming assets decreasing 22% to $11.7 million and COVID-19 loan modifications significantly reduced - Nonperforming assets, net of government guarantees, decreased by $3.3 million (22%) to $11.7 million at June 30, 2022, compared to December 31, 2021[130] - The outstanding principal balance of loan modifications due to COVID-19 impacts fell to $23.6 million (5 modifications) as of June 30, 2022, down from $49.2 million (16 modifications) at December 31, 2021[129] - Total Troubled Debt Restructurings (TDRs), net of government guarantees, decreased to $5.8 million at June 30, 2022, from $7.3 million at December 31, 2021[133] Results of Operations Net income declined in Q2 and H1 2022 due to reduced mortgage banking income, despite growth in net interest income - Net interest income increased 16% to $22.2 million in Q2 2022, and net interest margin expanded 19 basis points to 3.67% compared to Q2 2021[137] - The company recorded a provision for credit losses of $463,000 in Q2 2022, compared to a benefit of $427,000 in Q2 2021, mainly due to growth in unguaranteed loan balances[148] - Other operating income fell 45% in Q2 2022, primarily due to a $5.5 million decrease in mortgage banking income as rising rates reduced refinance activity[149] Financial Condition The balance sheet reflects a strategic shift with portfolio investments increasing 43%, while total deposits decreased and capital remains strong - Portfolio investments grew by 43% to $650.9 million at June 30, 2022, from $455.1 million at year-end 2021[154] - While total loans decreased 1% due to PPP forgiveness, loans excluding PPP increased by $78.2 million (6%) to $1.374 billion since December 31, 2021[156] - Total deposits decreased 4% to $2.335 billion as of June 30, 2022, from $2.422 billion at year-end 2021, mainly due to a large temporary deposit drawdown[161] Critical Accounting Policies The company updated its Allowance for Credit Losses policy, now using U.S. unemployment and peer historical default data - Effective January 1, 2022, the ACL model for discounted cash flow (DCF) loan pools now uses U.S. unemployment as the sole economic loss driver[178] - The regression models for probability of default (PD) now utilize peer historical loan level default data instead of the Company's own historical data[178] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's market risk assessment since the 2021 Annual Report - There were no material changes in quantitative and qualitative disclosures about market risk as of June 30, 2022, compared to the 2021 year-end report[180] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2022[182] - No material changes to internal control over financial reporting occurred during the second quarter of 2022[183] Part II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures not included in financial statements Legal Proceedings The company is involved in routine legal actions not expected to materially affect its financial condition or operations - The company is party to various debtor-creditor legal actions in the normal course of business, which are not expected to have a material impact[185] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2021 Annual Report - Risk factors have not materially changed as of June 30, 2022, from those reported in the 2021 Form 10-K[186] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 200,619 shares, completing its existing share repurchase authorization Share Repurchases in Q2 2022 | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | April 2022 | 57,333 | $42.30 | | May 2022 | 77,219 | $40.23 | | June 2022 | 66,067 | $40.89 | | Total Q2 | 200,619 | $41.04 | - As of June 30, 2022, there were no shares remaining for repurchase under the publicly announced plan[189] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[190] Mine Safety Disclosures This item is not applicable to the company - Not applicable[191] Other Information The company reports no material changes to the procedures by which shareholders may nominate directors - There have been no material changes to the procedures for shareholder nomination of directors[192] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data - Exhibits filed include certifications from the CEO and CFO under Rules 13a-14(a) and 13a-14(b), and Section 906 of the Sarbanes-Oxley Act[193] Signatures This section contains the required signatures for the financial report