Northrim BanCorp Reports Earnings of $10.1 million, or $1.59 per Diluted Share, in 4Q20 and Earnings of $32.9 Million, or $5.11 Per Diluted Share, for the Year 2020

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Northrim BanCorp Inc
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ANCHORAGE, Alaska, Feb. 01, 2021 (GLOBE NEWSWIRE) -- Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the "Company") today reported net income of $10.10 million, or $1.59 per diluted share, in the fourth quarter of 2020, compared to $11.86 million, or $1.84 per diluted share, in the third quarter of 2020, and $4.58 million, or $0.69 per diluted share, in the fourth quarter a year ago.

Net income for the full year 2020 increased 59% to $32.89 million, or $5.11 per diluted share, compared to $20.69 million, or $3.04 per diluted share, for the full year 2019. The provision for loan losses increased to $2.4 million in 2020, compared to a $1.2 million benefit for loan loss provisions in 2019. Increased production in the Home Mortgage Lending segment, continued loan and core deposit growth, and fee and interest income from the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") loans contributed to profitability for the year.

“Northrim’s achievements in 2020 were due to increased production in mortgage operations and our success in reaching out to and supporting our customers with the PPP and other products and services,” said Joe Schierhorn, President and CEO. “The investments we have made in our people, our infrastructure and our technology, all came together in 2020 and have enabled us to help both new and existing customers as we navigate through the economic impact of the pandemic.”

“Several events occurred in 2020 that contributed to our operating performance during the year, including our participation in economic stimulus programs such as the PPP, and our decision to offer government assisted programs to customers that were new to the bank,” Schierhorn continued. “Northrim’s participation in the PPP helped service the needs of our existing customers as well as the 1,200 new customers we were able to help during the year. According to the SBA, Northrim originated more PPP loans in Alaska than any other financial institution in the state, funding 23% of all PPP loans in the state through the period ending September 30, 2020. We were able to help nearly 2,900 Alaskan companies receive PPP funding. With the new round of PPP funding that became available earlier this month, we plan to participate in the new round in an effort to and help business customers that have been impacted by the pandemic.”

COVID-19 Update:

  • Industry Exposure: Northrim has identified various industries that may be adversely impacted by the COVID-19 pandemic and the decline in oil prices that occurred in 2020. Though the industries affected may change through the progression of the pandemic, the following sectors for which Northrim has exposure, as a percent of the total loan portfolio excluding SBA PPP loans as of December 31, 2020, are: Tourism (7%), Oil and Gas (6%), Aviation (non-tourism) (5%), Healthcare (8%), Accommodations (3%), Retail (2%) and Restaurants (3%).

  • Customer Accommodations: The Company has implemented assistance to help customers experiencing financial challenges as a result of COVID-19 in addition to participation in PPP lending. These accommodations include interest only and deferral options on loan payments, as well as the waiver of various fees related to loans, deposits and other services. The number of loans with modifications has decreased significantly since June 30, 2020 with approximately 93% of the modifications at December 31, 2020 representing five relationships. The total outstanding principal balance of loan modifications due to the impacts of COVID-19 as of December 31, 2020, September 30, 2020 and June 30, 2020 were as follows:

Loan Modifications due to COVID-19 as of December 31, 2020

(Dollars in thousands)

Interest Only

Full Payment Deferral

Total

Portfolio loans

$

43,379

$

22,165

$

65,544

Number of modifications

23

11

34


Loan Modifications due to COVID-19 as of September 30, 2020

(Dollars in thousands)

Interest Only

Full Payment Deferral

Total

Portfolio loans

$

46,056

$

74,337

$

120,393

Number of modifications

16

59

75


Loan Modifications due to COVID-19 as of June 30, 2020

(Dollars in thousands)

Interest Only

Full Payment Deferral

Total

Portfolio loans

$

64,298

$

293,224

$

357,522

Number of modifications

76

403

479

Consumer loans represent less than 1% of total loan modifications identified above. Of the $65.5 million and 34 loan modifications as of December 31, 2020, approximately $53.9 million and 31 loans have entered into a second modification.

Loan Loss Reserve: Northrim booked a benefit for loan loss provisions of $599,000 for the quarter ended December 31, 2020. This compares to a provision for loan losses of $567,000 during the previous quarter and a $150,000 benefit for loan loss provisions in the fourth quarter a year ago. For the full year 2020, the provision for loan losses was $2.4 million, compared to a benefit for loan loss provisions of $1.2 million for all of 2019.

Credit Quality: Net adversely classified loans were $12.8 million at December 31, 2020, compared to $22.3 million in the fourth quarter a year ago. Net loan recoveries were $53,000 in the fourth quarter of 2020, compared to net loan recoveries of $101,000 in the fourth quarter of 2019.

Branch Operations: All branches are fully operational, while a number of customer and employee safety measures continue to be implemented.

Growth and Paycheck Protection Program:

Capital Management: At December 31, 2020, the Company’s tangible common equity to tangible assets* ratio was 9.76% and the capital of Northrim Bank (the "Bank") was well in excess of all regulatory requirements. During the fourth quarter of 2020, the Company repurchased the final 45,549 shares of common stock authorized by the Board of Directors under the previously announced stock repurchase authorization at an average price of $28.55.

Fourth Quarter and Full Year 2020 Highlights:

  • For the year 2020, total revenue, which includes net interest income plus other operating income, increased 32% to $134.0 million, compared to $101.8 million in 2019.

  • For the fourth quarter of 2020, total revenue increased 41% to $37.0 million, compared to $26.1 million in the fourth quarter of 2019, and decreased compared to $39.9 million in the third quarter of 2020.

  • Community Banking provided 58% of total revenues and 50% of earnings in the fourth quarter of 2020.

  • Home Mortgage Lending provided 42% of total revenue and 50% of earnings in the fourth quarter of 2020.

  • Net interest income in 2020 increased 10% to $70.7 million, from $64.4 million in 2019.

  • Net interest income in the fourth quarter of 2020 was $19.2 million, up 5% from $18.3 million in the preceding quarter and up 17% from $16.4 million in the fourth quarter a year ago.

  • Net interest margin on a tax equivalent basis (“NIMTE”)* was 4.05% for the year, a 65-basis point contraction compared to 2019.

  • NIMTE* was 3.96% in the fourth quarter of 2020, a 3-basis point increase compared to the preceding quarter, and a 56-basis point contraction compared to the fourth quarter a year ago.

  • Return on average assets ("ROAA") was 1.90% and return on average equity ("ROAE") was 18.22% for the fourth quarter of 2020 and ROAA was 1.70% and ROAE was 15.53% for the year 2020.

  • Net loans increased 39% to $1.42 billion at December 31, 2020, compared to $1.02 billion at December 31, 2019, and decreased compared to $1.47 billion at September 30, 2020.

  • Total deposits increased 33% to $1.82 billion at December 31, 2020, compared to $1.37 billion at December 31, 2019, and increased 1% compared to $1.81 billion at September 30, 2020.

  • The Company's wholly owned subsidiary, Residential Mortgage, LLC, generated a $200.8 million increase in production during the quarter ended December 31, 2020, as compared to the same period in 2019.

  • The decrease in mortgage interest rates resulted in a decrease of the Bank's mortgage servicing rights by $1.2 million for the quarter ended December 31, 2020, compared to a decrease of $1.5 million for the preceding quarter and a decrease of $321,000 for the fourth quarter a year ago.

Financial Highlights

Three Months Ended

(Dollars in thousands, except per share data)

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Total assets

$

2,121,798

$

2,097,738

$

2,016,705

$

1,691,262

$

1,643,996

Total portfolio loans

$

1,444,050

$

1,492,720

$

1,433,201

$

1,081,873

$

1,043,371

Average portfolio loans

$

1,489,029

$

1,465,839

$

1,342,717

$

1,059,023

$

1,027,728

Total deposits

$

1,824,981

$

1,806,133

$

1,737,359

$

1,395,492

$

1,372,351

Average deposits

$

1,820,251

$

1,750,167

$

1,620,008

$

1,359,206

$

1,361,786

Total shareholders' equity

$

221,575

$

214,616

$

206,923

$

197,723

$

207,117

Net income

$

10,100

$

11,855

$

9,900

$

1,033

$

4,580

Diluted earnings per share

$

1.59

$

1.84

$

1.52

$

0.16

$

0.69

Return on average assets

1.90

%

2.31

%

2.04

%

0.25

%

1.11

%

Return on average shareholders' equity

18.22

%

22.10

%

19.44

%

2.00

%

8.74

%

NIM

3.94

%

3.90

%

3.98

%

4.32

%

4.48

%

NIMTE*

3.96

%

3.93

%

4.02

%

4.37

%

4.52

%

Efficiency ratio

65.31

%

58.85

%

64.76

%

84.87

%

78.79

%

Total shareholders' equity/total assets

10.44

%

10.23

%

10.26

%

11.69

%

12.60

%

Tangible common equity/tangible assets*

9.76

%

9.54

%

9.54

%

10.84

%

11.73

%

Book value per share

$

35.45

$

34.18

$

32.49

$

31.06

$

31.58

Tangible book value per share*

$

32.88

$

31.62

$

29.97

$

28.53

$

29.12

Dividends per share

$

0.35

$

0.35

$

0.34

$

0.34

$

0.33


* References to NIMTE, tangible book value per share, tangible common equity and tangible assets (all of which exclude intangible assets) represent non-GAAP financial measures. Management has presented these non-GAAP measurements in this earnings release, because it believes these measures are useful to investors. See the end of this release for reconciliations of these non-GAAP financial measures to GAAP financial measures.

Alaska Economic Update
(Note: sources for information included in this section are included on page 14.)

2020 was an unprecedented year in just about every economic measure. Mark Edwards, EVP Chief Credit Officer and Bank Economist summarized, “wild swings in oil prices and unemployment resulting from government mandated business closures were then supported by trillions of dollars, with billions flowing to Alaska, in assistance programs in an attempt to counteract the negative economic impact of these health policies. Despite the economic shocks from COVID-19, housing prices and the number of home sales increased sharply in Alaska as long-term interest rates fell.”

Employment data from the State of Alaska is available through November. Total payroll jobs were 293,500 for November 2020, down 7.4% compared to the same period in 2019. Leisure and hospitality was the hardest hit, down 22% year over year, a loss of 7,000 jobs. Transportation, Warehousing and Utilities declined 14.9% or 3,100 since last November. Direct Oil and Gas jobs fell 29.9% or 2,900 jobs. Professional and Business Services has also been negatively impacted, down 8.1% or 2,200 jobs over the last 12 months.

Alaska’s annualized and seasonally adjusted gross state product (“GSP”) was $50.4 billion in the third quarter of 2020, compared to $54.5 billion in the third quarter of 2019, according to the Federal Bureau of Economic Analysis ("BEA") in a report released on December 23, 2020. Alaska’s real GSP increased by 0.7% in 2018 and 0.6% in 2019. 2020 has been very erratic due to COVID-19. Alaska’s GSP declined 6% at a seasonally adjusted annualized rate in the first quarter of 2020 and declined 33.8% in second quarter. However, in the third quarter of 2020 the GSP in Alaska improved 32.2% at an annualized rate. This is very similar to the nationwide averages for the U.S. which saw a decline of 5% in the first quarter of 2020, a loss of 31.4% in the second quarter and a positive improvement of 33.4% in the third quarter. In the third quarter of 2020 in Alaska, the largest improvements came from Transportation and Warehousing, Government, Health Care and Accommodation and Food Services.

Alaska’s seasonally adjusted personal income for the third quarter of 2020 was $48.6 billion compared to $46 billion in the third quarter of 2019, according to a report released by the BEA on December 17, 2020. In a typical year, the majority of personal income is derived from wage earnings. Additionally, some people receive government transfer payments, such as social security, Medicare and Medicaid. Personal income is further supported by earnings from dividends, interest and rents.

In the second quarter of 2020, Alaska’s personal income rose by $2.6 billion compared to the prior year as government transfer payments rose by $4.9 billion, according to the BEA, mainly from COVID-19 stimulus money. This was somewhat offset by a $2.2 billion reduction in wage income and a $139 million decrease in investment and rental income. In the third quarter of 2020, these two major segments of income reversed. Wage earnings improved by $2.6 billion and government transfer payments decreased by $3.5 billion compared to the prior quarter. Investment and rental income was relatively unchanged, down $55 million. The net effect of all this movement is personal income is $2.6 billion or 5.6% higher in the third quarter of 2020 in Alaska than where it was in the third quarter of 2019.

This is similar to what has occurred across the country. Government transfer payments in the U.S. increased $2.45 trillion in the second quarter of 2020, while wage declines were a much smaller $920 billion. Then there was a reduction of government transfer payments in the third quarter of $1.3 trillion, somewhat offset by an improvement of $814 billion in wage earnings in the U.S. In the U.S., personal income is $1.3 trillion or 7.1% higher in the third quarter of 2020 than it was in the third quarter of 2019.

Alaska North Slope (“ANS”) crude oil had monthly averages in 2018 and 2019 ranging from $58.86 to $80.03 a barrel. ANS began 2020 at $65.48. Prices fell quickly at the beginning of the year, responding to fears that COVID-19 would devastate the global economy and reduce the demand for travel. The low month was April when ANS averaged $16.54 a barrel. However, by June the oil markets stabilized and for the last six months the average monthly price remained between $40.42 and $43.55. The November monthly average was $42.91. ANS daily prices rose above $50 a barrel on December 10th and finished the year at $52.19.

Alaska’s crude oil production averaged 485,300 barrels per day (“bpd”) in fiscal year (“FY”) 2020, which ended in June. This was a decrease of 4.8% compared to the previous FY end. Total output declined 1.2% in FY 2018 and 4.5% in FY 2019. The State Department of Revenue forecasts production on the North Slope to increase by 0.7% in FY 2021 to 488,900 bpd.

Alaska’s home mortgage delinquency and foreclosure levels continue to be better than most of the nation. According to the Mortgage Bankers Association, Alaska’s foreclosure rate was 0.49% at the end of the third quarter 2020, an improvement from 0.71% in the third quarter of 2019. The comparable national average rate was slightly higher at 0.59% in the third quarter of 2020, but also improved from 0.84% for the same period in 2019. The survey reported that the percentage of delinquent mortgage loans in Alaska was 6.78% at the end of September 2020, up from 3.16% for the third quarter of 2019. The comparable delinquency rate for the entire country was higher at 7.6% in the third quarter of 2020, also higher than 4.09% for the same period in 2019.

According to the Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.9% in 2020 to $396,918. This is following increases of 0.5% and 2.3% in 2019 and 2018 respectively. Average sales prices in the Matanuska Susitna Borough rose 10% in 2020, continuing a decade of price gains. These two markets represent where the vast majority of the bank’s residential building activity occurs.

The number of units sold in Anchorage was up significantly in 2020 by 19.3%, climbing from 2,719 homes sold in 2019 to 3,244 last year. The Matanuska Susitna Borough also had strong sales activity, up 9.5% in 2020 to 2,131 units sold. Mr. Edwards commented, “the main difference was a record number of sales occurred in the last quarter of the year, when sales activity typically declines in the winter. The low interest rate environment has been a major factor.”

According to the Federal Reserve Bank of St. Louis, the average 30 year fixed rate mortgage in the U.S. is at all-time record lows. Rates began 2020 at 3.72% in the first week of January and have fallen more than a percent to 2.67% in the last week of December 2020.

Northrim Bank sponsors the Alaskanomics blog to provide news, analysis, and commentary on Alaska’s economy. Join the conversation at Alaskanomics.com, or for more information on the Alaska economy, visit: www.northrim.com and click on the “Business Banking” link and then click “Learn.” Information from our website is not incorporated into, and does not form, a part of this earnings release.

Review of Income Statement

Consolidated Income Statement

In the fourth quarter of 2020, Northrim generated a ROAA of 1.90% and a ROAE of 18.22%, compared to 2.31% and 22.10%, respectively, in the third quarter of 2020 and 1.11% and 8.74%, respectively, in the fourth quarter a year ago. Northrim’s ROAA and ROAE are above peer averages posted by the SNL Small Cap U.S. Bank Index with total market capitalization between $250 million and $1 billion as of September 30, 20201.

Net Interest Income/Net Interest Margin

Net interest income increased 17% to $19.2 million in the fourth quarter of 2020 compared to $16.4 million in the fourth quarter of 2019 and increased 5% compared to $18.3 million in the third quarter of 2020. Interest income benefited from the growth in the loan portfolio, excluding PPP loans, during the fourth quarter of 2020, as well as the amortization of PPP loan fees and the full recognition of the deferred PPP loan fees upon forgiveness.

NIMTE* was 3.96% in the fourth quarter of 2020 compared to 3.93% in the preceding quarter and 4.52% in the fourth quarter a year ago. “The decline in our NIMTE* compared to the prior year was impacted by the 150 basis point reduction in short-term interest rates during the last twelve months and the mix of our earning assets due to the increased liquidity of the Bank,” said Jed Ballard, Chief Financial Officer. “Also notable was the impact of SBA PPP loans, which increased our NIMTE* by 7 basis points during the fourth quarter of 2020 compared to what our NIMTE* would have been if we had not made any SBA PPP loans, or 3.89%. For the year, SBA PPP loans decreased our NIMTE* by 12 basis points compared to what our NIMTE* would have been if we had not made any SBA PPP loans or 4.17%.” Northrim’s NIMTE* continues to remain above the peer average posted by the SNL Small Cap U.S. Bank Index with total market capitalization between $250 million and $1 billion as of September 30, 20201.

The yield on interest earning assets in the fourth quarter of 2020 was 4.24%, down one basis point from the third quarter of 2020 and down 73 basis points compared to the fourth quarter a year ago. The cost of funds was 46 basis points in the fourth quarter of 2020, down eight basis points compared to the preceding quarter and down 24 basis points compared to the fourth quarter a year ago.

1As of September 30, 2020, the SNL Small Cap US Bank Index tracked 106 banks with total common market capitalization between $250 million to $1B for the following ratios: NIMTE* of 3.15%. ROAA 1.01%, and ROAE 9.60% .

Provision for Loan Losses

Northrim recorded a benefit for loan loss provision of $599,000 in the fourth quarter of 2020. This compares to a $567,000 provision for loan losses in the third quarter of 2020, and a benefit for loan loss provision of $150,000 in the fourth quarter a year ago. “The benefit to the provision for loan losses during the quarter primarily reflects our current assessment of risks associated with the COVID-19 pandemic off-set by an improvement in overall credit quality of the loan portfolio,” said Ballard. For the year, Northrim recorded a provision for loan losses of $2.4 million, compared to a benefit for loan losses of $1.2 million in 2019. The total allowance for loan losses to portfolio loans decreased at December 31, 2020, compared to September 30, 2020, primarily due to a decrease in qualitative factors and increased compared to December 31, 2019, primarily due to the increase in loans at December 31, 2020, even when excluding SBA PPP loans which are 100% guaranteed by the government.

Nonperforming loans, net of government guarantees, improved during the quarter to $10.0 million at December 31, 2020, compared to $11.0 million at September 30, 2020, and $14.0 million at December 31, 2019. The allowance for loan losses was 210% of nonperforming loans, net of government guarantees, at the end of the fourth quarter of 2020, compared to 196% three months earlier and 137% a year ago.

Other Operating Income

In addition to home mortgage lending, Northrim has interests in other businesses that complement its core community banking activities, including purchased receivables financing and wealth management. Other operating income contributed $17.7 million, or 48% of total fourth quarter 2020 revenues, as compared to $21.6 million, or 54% of revenues in the third quarter of 2020, and $9.7 million, or 37% of revenues in the fourth quarter of 2019. For the year 2020, other operating income totaled $63.3 million, or 47% of revenues, compared to $37.3 million, or 37% of revenues in 2019. The increase in other operating income in 2020 was due primarily to the increased volume of mortgage activity.

Other notable changes during the quarter include changes in the fair value mark-to-market of the marketable equity securities portfolio, which increased other income by $408,000 in the fourth quarter of 2020, compared to a $375,000 increase in the third quarter of 2020 and a $129,000 increase in the fourth quarter of 2019. There was $206,000 in interest rate swap income in the fourth quarter of 2020. This compares to $726,000 in interest rate swap income in the preceding quarter and $230,000 in interest rate swap income in the fourth quarter of 2019 on the execution of interest rate swaps related to the Company's commercial lending operations.

Other Operating Expenses

Operating expenses were $24.1 million in the fourth quarter of 2020, compared to $23.5 million in the third quarter of 2020, and $20.6 million in the fourth quarter of 2019. Factors impacting other operating expenses include higher salary costs and personnel expenses primarily related to mortgage banking origination volume. The Company also has incurred an increase in FDIC insurance costs during 2020 as a result of asset growth and due to a premium credit that was received from the FDIC in the fourth quarter of 2019, causing a larger increase when comparing quarters. For the year 2020, operating expenses were $89.1 million, up from $76.8 million in 2019.

Income Tax Provision

In the fourth quarter of 2020, Northrim recorded $3.3 million in state and federal income tax expense for an effective tax rate of 24.7% compared to $4.0 million, or 25.2% in the third quarter of 2020 and $1.1 million, or 19.4% in the fourth quarter a year ago. For the year, Northrim recorded $9.6 million in state and federal income tax expense, for an effective tax rate of 22.5% compared to $5.4 million and 20.8% for 2019.

The Company expensed $454,000 in the fourth quarter of 2018 to accrue for a potential increase in tax expense related to an audit that was performed by the State of Alaska for tax years 2014-2016. The Company appealed the State of Alaska's decision on this matter and reversed the tax accrual in the second quarter of 2020. This matter was concluded in the fourth quarter of 2020 in the Company's favor.

Community Banking

“In December we celebrated Northrim’s 30th Anniversary, and we were also awarded the SBA’s 2019 Alaska Community Bank of the Year,” said Schierhorn. “We have always considered our Alaskan communities to be our primary focus, and while growing, we never lost sight of our mission to serve the people and businesses within the communities we support. We will be opening our second Fairbanks branch in February of this year and in March of 2020 we opened a loan production office in Kodiak. We will continue to look for ways to expand our branch network and support our customers and communities.”

Net interest income in the Community Banking segment totaled $18.3 million in the fourth quarter of 2020, compared to $17.3 million in the third quarter of 2020 and $16.1 million in the fourth quarter of 2019. Net interest income benefited from $3.8 million of PPP income in the fourth quarter of 2020 and $8.1 million for the year. As of December 31, 2020 there was $5.9 million of unearned loan fees net of costs related to PPP loans.

Other operating income in the Community Banking segment was down for the fourth quarter 2020 compared to the preceding quarter and also the fourth quarter of the prior year. The primary change from the preceding quarter related to the large interest rate swap income in the third quarter of 2020 of $726 thousand compared to $206 thousand in the fourth quarter of 2020. The significant change in other operating income from the prior year fourth quarter was due to a decrease in purchased receivable income as a result of lower average balances in 2020 as many customers have been using proceeds from government stimulus rather than drawing on their accounts receivable lines.

Other operating expense in the Community Banking segment for the fourth quarter of 2020 increased $1.2 million compared to the preceding quarter and $700 thousand compared to the fourth quarter of the 2019. The primary reason for the change from the preceding quarter was due to an increase in the profit share accrual as a result of continued strong performance by the Company through the end of the year. The primary reason for the change in the other operating costs from the fourth quarter of 2019 is due to increased FDIC insurance costs as a result of asset growth of the Company, as well as a credit received in the fourth quarter of 2019 which decreased that quarter’s costs.

The following table provides highlights of the Community Banking segment of Northrim:

Three Months Ended

(Dollars in thousands, except per share data)

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Net interest income

$

18,349

$

17,388

$

16,649

$

15,261

$

16,080

Provision (benefit) for loan losses

(599

)

567

404

2,060

(150

)

Other operating income

2,921

3,696

2,308

1,768

3,347

Compensation expense, net RML acquisition payments

468

Other operating expense

15,536

14,353

14,113

13,612

14,765

Income before provision for income taxes

6,333

6,164

4,440

1,357

4,344

Provision for income taxes

1,303

1,249

(124

)

266

719

Net income

$

5,030

$

4,915

$

4,564

$

1,091

$

3,625

Weighted average shares outstanding, diluted

6,324,461

6,413,221

6,440,898

6,560,593

6,647,510

Diluted earnings per share

$

0.79

$

0.76

$

0.70

$

0.17

$

0.55


Year-to-date

(Dollars in thousands, except per share data)

December 31, 2020

December 31, 2019

Net interest income

$

67,647

$

63,201

(Benefit) provision for loan losses

2,432

(1,175

)

Other operating income

10,693

13,145

Compensation expense, net RML acquisition payments

468

Other operating expense

57,614

54,520

Income before provision for income taxes

18,294

22,533

Provision for income taxes

2,694

4,408

Net income

$

15,600

$

18,125

Weighted average shares outstanding, diluted

6,431,367

6,808,209

Diluted earnings per share

$

2.42

$

2.66

Home Mortgage Lending

“The significant activity in the mortgage market has continued through the fourth quarter of 2020, due to the low interest rate environment and the hard work of our mortgage lending teams,” said Ballard. “Refinance activity was particularly robust, up 233% compared to the fourth quarter a year ago, while home purchases in our market also remain strong.”

During the fourth quarter of 2020, mortgage loan volume was $381.9 million, of which 52% was for new home purchases, compared to $364.2 million and 61% of loans funded for new home purchases in the third quarter of 2020, and $181.1 million, of which 70% was for new home purchases in the fourth quarter of 2019.

Loan fundings increased during the quarter and year-over-year driven by both increased refinance activity and new home purchase activity. This was partially offset by the net change in fair value of mortgage servicing rights, which decreased mortgage banking income by $1.2 million during the fourth quarter of 2020.

“Our mortgage servicing business, which we initiated to service loans primarily for the Alaska Housing Finance Corporation, generated continued growth during the quarter,” said Ballard. As of December 31, 2020, Northrim serviced 2,819 loans in its $683.1 million home-mortgage-servicing portfolio, which is a 4% increase from the $655.7 million serviced for the third quarter of 2020, and a 4% increase from the $659.0 million serviced a year ago. Delinquencies in the loan servicing portfolio totaled $31.4 million at December 31, 2020, compared to $10.4 million at December 31, 2019. Mortgage servicing revenue contributed $2.5 million to revenues in the fourth quarter of 2020 compared to $2.0 million in the third quarter of 2020 and $1.7 million in the fourth quarter of 2019. As a result of COVID-19, approximately 5% of mortgages serviced were in forbearance as of December 31, 2020, compared to 6% as of September 30, 2020, and 2% as of December 31, 2019.

Total mortgage servicing income fluctuates based on the number of mortgage servicing rights originated during the period and changes in the fair value of those servicing rights. The fair value of mortgage servicing rights are driven by interest rate volatility and the number of serviced mortgages that pay off during the period as well as fluctuations in estimated prepayment speeds based on published industry metrics. The change in the fair value of mortgage servicing rights was a decrease of $1.2 million for the fourth quarter of 2020, compared to a decrease of $1.5 million for the third quarter of 2020 and a decrease of $321,000 for the fourth quarter of 2019.

For the full year 2020, the change in fair value of mortgage servicing rights was a decrease of $5.6 million as compared to a decrease of $2.6 million for 2019, as a result of the historically low mortgage rates during 2020.

The following table provides highlights of the Home Mortgage Lending segment of Northrim:

Three Months Ended

(Dollars in thousands, except per share data)

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Mortgage commitments

$

150,276

$

257,304

$

206,274

$

197,892

$

48,796

Mortgage loans funded for sale

$

381,942

$

364,159

$

381,086

$

168,224

$

181,102

Mortgage loan refinances to total fundings

48

%

39

%

65

%

46

%

30

%

Mortgage loans serviced for others

$

683,117

$

655,733

$

655,183

$

678,096

$

659,048

Net realized gains on mortgage loans sold

$

15,557

$

14,736

$

11,322

$

4,643

$

5,215

Change in fair value of mortgage loan commitments, net

(2,724

)

1,943

3,579

(545

)

(455

)

Total production revenue

12,833

16,679

14,901

4,098

4,760

Mortgage servicing revenue

2,510

2,044

1,633

1,327

1,679

Change in fair value of mortgage servicing rights:

Due to changes in model inputs of assumptions1

(410

)

(699

)

(891

)

(701

)

72

Other2

(783

)

(806

)

(1,037

)

(229

)

(393

)

Total mortgage servicing revenue, net

1,317

539

(295

)

397

1,358

Other mortgage banking revenue

661

714

621

170

270

Total mortgage banking income

$

14,811

$

17,932

$

15,227

$

4,665

$

6,388

Net interest income

$

875

$

906

$

808

$

429

$

330

Mortgage banking income

14,811

17,932

15,227

4,665

6,388

Other operating expense

8,611

9,153

8,561

5,175

5,382

Income before provision for income taxes

7,075

9,685

7,474

(81

)

1,336

Provision for income taxes

2,005

2,745

2,138

(23

)

381

Net income

$

5,070

$

6,940

$

5,336

($

58

)

$

955

Weighted average shares outstanding, diluted

6,324,461

6,413,221

6,440,898

6,560,593

6,647,510

Diluted earnings per share

$

0.80

$

1.08

$

0.82

($

0.01

)

$

0.14

1Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
2Represents changes due to collection/realization of expected cash flows over time.

Year-to-date

(Dollars in thousands, except per share data)

December 31, 2020

December 31, 2019

Mortgage loans funded for sale

$

1,295,411

$

684,297

Mortgage loan refinances to total fundings

50

%

26

%

Net realized gains on mortgage loans sold

$

46,258

$

19,813

Change in fair value of mortgage loan commitments, net

2,253

21

Total production revenue

48,511

19,834

Mortgage servicing revenue

7,514

6,115

Change in fair value of mortgage servicing rights:

Due to changes in model inputs of assumptions1

(2,701

)

(1,312

)

Other2

(2,855

)

(1,295

)

Total mortgage servicing revenue, net

1,958

3,508

Other mortgage banking revenue

2,166

859

Total mortgage banking income

$

52,635

$

24,201

Net interest income

$

3,018

$

1,241

Mortgage banking income

52,635

24,201

Other operating expe...nse

31,500

21,850

Income before provision for income taxes

24,153

3,592

Provision for income taxes

6,865

1,026

Net income

$

17,288

$

2,566

Weighted average shares outstanding, diluted

6,431,367

6,808,209

Diluted earnings per share

$

2.69

$

0.38

1Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
2Represents changes due to collection/realization of expected cash flows over time.

Balance Sheet Review

Northrim’s total assets increased to $2.12 billion at December 31, 2020, up 1% from the preceding quarter and up 29% from a year ago. Northrim’s loan-to-deposit ratio was 79% at December 31, 2020, down from 83% at September 30, 2020 and up from 76% at December 31, 2019.

Average interest-earning assets were $1.94 billion in the fourth quarter of 2020, up 4% from $1.87 billion in the third quarter of 2020 and up 33% from $1.45 billion in the fourth quarter a year ago. The average yield on interest-earning assets was 4.24% in the fourth quarter of 2020, down from 4.25% in the preceding quarter and 4.97% in the fourth quarter a year ago.

Average investment securities increased to $231.9 million in the fourth quarter of 2020, compared to $217.6 million in the third quarter of 2020 and decreased compared to $279.8 million in the fourth quarter a year ago. The average net tax equivalent yield on the securities portfolio was 1.73% for the fourth quarter of 2020, down from 2.11% in the preceding quarter and 2.65% in the year ago quarter. The average estimated duration of the investment portfolio at December 31, 2020, was 2.9 years. In an effort to diversify its investment portfolio into higher yielding, longer duration assets, Northrim added $10.0 million of investment securities, classified as held to maturity on the books at December 31, 2020.

“Much of the loan production during the third and fourth quarters resulted from new customers we obtained through the PPP process,” said Ballard. At December 31, 2020, commercial loans represented 33% of total loans, PPP loans represented 21% of total loans, commercial real estate owner occupied loans comprised 11% of total loans, commercial real estate non-owner occupied loans comprised 24% of total loans, and construction loans made up 8% of total loans. Portfolio loans were $1.44 billion at December 31, 2020, down 3% from the preceding quarter and up 38% from a year ago. Portfolio loans excluding the impact from PPP were $1.14 billion at December 31, 2020, up 1% from the preceding quarter and up 9% from a year ago. Average portfolio loans in the fourth quarter of 2020 were $1.49 billion, up 2% from the preceding quarter and up 45% from a year ago. Yields on average portfolio loans in the fourth quarter of 2020 increased to 5.00% from 4.83% in the third quarter of 2020 and decreased compared to 5.94% in the fourth quarter of 2019.

Alaskans continue to account for substantially all of Northrim’s deposit base, which is primarily made up of low-cost transaction accounts. At December 31, 2020, balances in transaction accounts represented 90% of total deposits. Total deposits were $1.82 billion at December 31, 2020, up 1% from $1.81 billion at September 30, 2020, and up 33% from $1.37 billion a year ago. Demand deposits increased 42% year-over-year to $643.8 million at December 31, 2020. Average interest-bearing deposits were up 6% to $1.14 billion with an average cost of 0.40% in the fourth quarter of 2020, compared to $1.08 billion and an average cost of 0.49% in the third quarter of 2020, and up 25% compared to $910.4 million and an average cost of 0.65% in the fourth quarter of 2019.

“In 2020, we captured market share in all of our markets by adding new customer relationships and strong future growth opportunities. Our lenders, retail bankers and commercial cash managers have worked hard to meet the needs of our customers and are contributing to our success,” said Michael Martin, the Bank's Chief Operating Officer and General Counsel.

Shareholders’ equity was $221.6 million, or $35.45 per share, at December 31, 2020, compared to $214.6 million, or $34.18 per share, at September 30, 2020 and $207.1 million, or $31.58 per share, a year ago. Tangible book value per share* was $32.88 at December 31, 2020, compared to $31.62 at September 30, 2020, and $29.12 per share a year ago. Northrim continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with Tier 1 Capital to Risk Adjusted Assets of 14.20% at December 31, 2020, compared to 14.11% at September 30, 2020, and 14.38% at December 31, 2019.

Asset Quality

“Credit quality continued to improve throughout the year, with nonperforming loans at December 31, 2020 decreasing 28% compared to a year ago and decreasing 9% compared to three months earlier,” said Martin. “We are being diligent with monitoring the loan portfolio and working closely with our customers given the current economic environment.”

Nonperforming assets ("NPAs") net of government guarantees were $16.3 million at December 31, 2020, down from $17.9 million at September 30, 2020 and $19.9 million a year ago. Of the NPAs, $6.8 million, or 42% are nonaccrual loans related to five commercial relationships. Two of these relationships, which totaled $2.4 million at December 31, 2020, are businesses in the medical industry.

Net adversely classified loans were $12.8 million at December 31, 2020, as compared to $14.5 million at September 30, 2020, and $22.3 million a year ago. Net loan recoveries were $53,000 in the fourth quarter of 2020, compared to net loan recoveries of $463,000 in the third quarter of 2020, and net loan recoveries of $101,000 in the fourth quarter of 2019. Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees. As of December 31, 2020, $9.9 million, or 78% of net adversely classified loans are attributable to ten relationships with six loans to commercial businesses, two loans to medical businesses, and two loans to oilfield services commercial businesses.

Performing restructured loans that were not included in nonaccrual loans at December 31, 2020, net of government guarantees were $832,000, down from $865,000 three months earlier and from $1.4 million a year ago. Borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations are categorized as restructured loans, unless it is the result of the COVID-19 global pandemic. The Company presents restructured loans that are performing separately from those that are classified as nonaccrual to provide more information on this category of loans and to differentiate between accruing performing and nonperforming restructured loans.

Excluding SBA PPP loans, Northrim had $78.9 million, or 7% of portfolio loans, in the tourism sector; $56.1 million, or 5% of portfolio loans, in the aviation (non-tourism) sector; $96.9 million, or 8% of total portfolio loans, in the healthcare sector; $37.2 million, or 3% in the accommodations sector; $17.4 million, or 2% in retail loans; and $31.0 million, or 3% in the restaurant sector, as of December 31, 2020.

Northrim estimates that $65.1 million, or approximately 6% of portfolio loans excluding SBA PPP loans, had direct exposure to the oil and gas industry in Alaska, as of December 31, 2020, and $1.4 million of these loans are adversely classified. As of December 31, 2020, Northrim has an additional $63.5 million in unfunded commitments to companies with direct exposure to the oil and gas industry in Alaska, and none of these unfunded commitments are considered to be adversely classified loans. Northrim defines direct exposure to the oil and gas sector as loans to borrowers that provide oilfield services and other companies that have been identified as significantly reliant upon activity in Alaska related to the oil and gas industry, such as lodging, equipment rental, transportation and other logistics services specific to this industry.

About Northrim BanCorp

Northrim BanCorp, Inc. is the parent company of Northrim Bank, an Alaska-based community bank with 16 branches in Anchorage, the Matanuska Valley, Soldotna, Juneau, Fairbanks, Ketchikan, and Sitka, and a loan production office in Kodiak, serving 90% of Alaska’s population; and an asset based lending division in Washington; and a wholly-owned mortgage brokerage company, Residential Mortgage Holding Company, LLC. The Bank differentiates itself with its detailed knowledge of Alaska’s economy and its “Customer First Service” philosophy. Pacific Wealth Advisors, LLC is an affiliated company of Northrim BanCorp.

www.northrim.com

Forward-Looking Statement

This release may contain “forward-looking statements” as that term is defined for purposes of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are, in effect, management’s attempt to predict future events, and thus are subject to various risks and uncertainties. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. All statements, other than statements of historical fact, regarding our financial position, business strategy, management’s plans and objectives for future operations, and statements related to the expected or potential impact of the novel coronavirus (COVID-19) pandemic and the related responses of the government are forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words or phrases of similar meaning, as they relate to Northrim and its management are intended to help identify forward-looking statements. Although we believe that management’s expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. Forward looking statements, whether concerning the COVID-19 pandemic and the government responses related thereto or otherwise, 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 uncertainties relating to the impact of COVID-19 on the Company's credit quality, business, operations and employees; the availability and terms of funding from government sources related to COVID-19; the timing of PPP loan forgiveness; our ability to maintain strong asset quality and to maintain or expand our market share or net interest margins; and our ability to execute our business plan. Further, actual results may be affected by our ability to compete 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 as those factors relate to our cost of funds and return on assets. In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and from time to time are disclosed in our other filings with the Securities and Exchange Commission. 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. These forward-looking statements are made only as of the date of this release, and Northrim does not undertake any obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this release.

References:

https://www.bea.gov/

http://almis.labor.state.ak.us/

http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx

http://www.tax.state.ak.us/

www.mba.org

https://www.alaskarealestate.com/MLSMember/RealEstateStatistics.aspx

https://fred.stlouisfed.org/series/MORTGAGE30US

Income Statement

(Dollars in thousands, except per share data)

Three Months Ended

Year-to-date

(Unaudited)

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

Interest Income:

Interest and fees on loans

$

19,587

$

18,691

$

15,957

$

71,091

$

62,150

Interest on portfolio investments

967

1,086

1,774

5,316

7,011

Interest on deposits in banks

25

17

331

309

922

Total interest income

20,579

19,794

18,062

76,716

70,083

Interest Expense:

Interest expense on deposits

1,144

1,320

1,484

5,279

4,961

Interest expense on borrowings

211

180

168

772

680

Total interest expense

1,355

1,500

1,652

6,051

5,641

Net interest income

19,224

18,294

16,410

70,665

64,442

Provision (benefit) for loan losses

(599

)

567

(150

)

2,432

(1,175

)

Net interest income after provision (benefit) for

loan losses

19,823

17,727

16,560

68,233

65,617

Other Operating Income:

Mortgage banking income

14,811

17,932

6,388

52,635

24,201

Purchased receivable income

538

516

916

2,650

3,271

Bankcard fees

743

770

762

2,837

2,976

Gain on marketable equity securities

408

375

129

61

911

Service charges on deposit accounts

300

269

333

1,102

1,557

Interest rate swap income

206

726

230

949

964

Gain on sale of securities

98

23

Other income

726

1,040

977

2,996

3,443

Total other operating income

17,732

21,628

9,735

63,328

37,346

Other Operating Expense:

Salaries and other personnel expense

16,826

16,418

13,884

61,137

51,317

Data processing expense

2,015

1,851

1,804

7,668

7,128

Occupancy expense

1,701

1,648

1,618

6,624

6,607

Professional and outside services

951

884

681

3,157

2,531

Marketing expense

739

302

764

2,320

2,373

Insurance expense

300

315

(35

)

1,228

557

Intangible asset amortization expense

12

12

15

48

60

Compensation expense RML acquisition payments, net

468

468

OREO expense, net rental income and gains on sale

(250

)

23

(7

)

(242

)

(193

)

Other operating expense

1,853

2,053

1,423

7,174

5,990

Total other operating expense

24,147

23,506

20,615

89,114

76,838

Income before provision for income taxes

13,408

15,849

5,680

42,447

26,125

Provision for income taxes

3,308

3,994

1,100

9,559

5,434

Net income

$

10,100

$

11,855

$

4,580

$

32,888

$

20,691

Basic EPS

$

1.61

$

1.87

$

0.70

$

5.18

$

3.08

Diluted EPS

$

1.59

$

1.84

$

0.69

$

5.11

$

3.04

Weighted average shares outstanding, basic

6,245,254

6,338,465

6,552,471

6,354,687

6,708,622

Weighted average shares outstanding, diluted

6,324,461

6,413,221

6,647,510

6,431,367

6,808,209



Balance Sheet

(Dollars in thousands)

(Unaudited)

December 31,

September 30,

December 31,

2020

2020

2019

Assets:

Cash and due from banks

$

23,304

$

31,165

$

20,518

Interest bearing deposits in other banks

92,661

69,964

74,906

Investment securities available for sale

247,633

215,369

276,138

Marketable equity securities

9,052

8,534

7,945

Investment securities held to maturity

10,000

Investment in Federal Home Loan Bank stock

2,551

2,508

2,138

Loans held for sale

146,178

128,105

67,834

Portfolio loans

1,444,050

1,492,720

1,043,371

Allowance for loan losses

(21,136

)

(21,683

)

(19,088

)

Net portfolio loans

1,422,914

1,471,037

1,024,283

Purchased receivables, net

13,922

13,520

24,373

Mortgage servicing rights, at fair value

11,218

10,589

11,920

Other real estate owned, net

7,289

6,962

7,043

Premises and equipment, net

38,102

38,615

38,422

Lease right of use asset

12,440

12,943

14,306

Goodwill and intangible assets, net

16,046

16,058

16,094

Other assets

68,488

72,369

58,076

Total assets

$

2,121,798

$

2,097,738

$

1,643,996

Liabilities:

Demand deposits

$

643,825

$

697,363

$

451,896

Interest-bearing demand

459,095

427,811

320,264

Savings deposits

308,725

272,624

229,918

Money market deposits

237,705

227,106

205,801

Time deposits

175,631

181,229

164,472

Total deposits

1,824,981

1,806,133

1,372,351

Other borrowings

14,817

13,737

8,891

Junior subordinated debentures

10,310

10,310

10,310

Lease liability

12,378

12,881

14,229

Other liabilities

37,737

40,061

31,098

Total liabilities

1,900,223

1,883,122

1,436,879

Shareholders' Equity:

Total shareholders' equity

221,575

214,616

207,117

Total liabilities and shareholders' equity

$

2,121,798

$

2,097,738

$

1,643,996


Additional Financial Information
(Dollars in thousands)
(Unaudited)

Composition of Portfolio Investments

December 31, 2020

September 30, 2020

December 31, 2019

Balance

% of total

Balance

% of total

Balance

% of total

U.S. Treasury securities

$

37,547

14.1

%

$

37,691

16.8

%

$

57,480

20.2

%

U.S. Agency securities

137,054

51.4

%

119,861

53.6

%

154,372

54.4

%

Corporate securities

40,492

15.2

%

27,215

12.2

%

35,066

12.3

%

Marketable equity securities

9,052

3.4

%

8,534

3.8

%

7,945

2.8

%

Collateralized loan obligations

41,684

15.6

%

28,266

12.6

%

25,923

9.1

%

Alaska municipality, utility, or state bonds

856

0.3

%

2,336

1.0

%

3,297

1.2

%

Total portfolio investments

$

266,685

$

223,903

$

284,083


Composition of Portfolio Loans

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Balance

% of total

Balance

% of total

Balance

% of total

Balance

% of total

Balance

% of total

Commercial loans

$

469,540

33

%

$

460,542

31

%

$

426,675

29

%

$

434,832

40

%

$

412,690

39

%

SBA Payment Protection loans

310,518

21

%

375,636

25

%

353,485

24

%

%

%

CRE owner occupied loans

163,597

11

%

148,993

10

%

154,741

11

%

146,453

13

%

138,891

13

%

CRE nonowner occupied loans

355,694

24

%

364,232

24

%

360,533

25

%

355,753

33

%

355,466

34

%

Construction loans

118,782

8

%

120,619

8

%

114,464

8

%

109,849

10

%

100,626

10

%

Consumer loans

37,654

3

%

37,183

2

%

38,310

3

%

39,923

4

%

40,783

4

%

Subtotal

1,455,785

1,507,205

1,448,208

1,086,810

1,048,456

Unearned loan fees, net

(11,735

)

(14,485

)

(15,007

)

(4,937

)

(5,085

)

Total portfolio loans

$

1,444,050

$

1,492,720

$

1,433,201

$

1,081,873

$

1,043,371


Composition of Deposits

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Balance

% of total

Balance

% of total

Balance

% of total

Balance

% of total

Balance

% of total

Demand deposits

$

643,825

35

%

$

697,363

38

%

$

680,033

40

%

$

453,003

33

%

$

451,896

33

%

Interest-bearing demand

459,095

25

%

427,811

24

%

400,138

23

%

333,352

24

%

320,264

23

%

Savings deposits

308,725

17

%

272,624

15

%

261,934

15

%

228,383

16

%

229,918

17

%

Money market deposits

237,705

13

%

227,106

13

%

215,735

12

%

207,418

15

%

205,801

15

%

Time deposits

175,631

10

%

181,229

10

%

179,519

10

%

173,336

12

%

164,472

12

%

Total deposits

$

1,824,981

$

1,806,133

$

1,737,359

$

1,395,492

$

1,372,351


Additional Financial Information
(Dollars in thousands)
(Unaudited)

Asset Quality

December 31,

September 30,

December 31,

2020

2020

2019

Nonaccrual loans

$

11,120

$

12,647

$

15,356

Loans 90 days past due and accruing

449

Total nonperforming loans

11,569

12,647

15,356

Nonperforming loans guaranteed by government

(1,521

)

(1,600

)

(1,405

)

Net nonperforming loans

10,048

11,047

13,951

Other real estate owned

7,289

6,962

7,043

Repossessed assets

231

779

231

Nonperforming purchased receivables

410

Other real estate owned guaranteed by government

(1,279

)

(1,279

)

(1,279

)

Net nonperforming assets

$

16,289

$

17,919

$

19,946

Nonperforming loans, net of government guarantees / portfolio loans

0.70

%

0.74

%

1.34

%

Nonperforming loans, net of government guarantees / portfolio loans,

net of government guarantees

0.92

%

1.02

%

1.38

%

Nonperforming assets, net of government guarantees / total assets

0.77

%

0.85

%

1.21

%

Nonperforming assets, net of government guarantees / total assets

net of government guarantees

0.92

%

1.06

%

1.24

%

Performing restructured loans

$

2,355

$

2,367

$

1,448

Performing restructured loans guaranteed by government

(1,523

)

(1,502

)

Net performing restructured loans

$

832

$

865

$

1,448

Nonperforming loans plus performing restructured loans, net of government

guarantees

$

10,880

$

11,912

$

15,399

Nonperforming loans plus performing restructured loans, net of government

guarantees / portfolio loans

0.75

%

0.80

%

1.48

%

Nonperforming loans plus performing restructured loans, net of government

guarantees / portfolio loans, net of government guarantees

0.99

%

1.10

%

1.52

%

Nonperforming assets plus performing restructured loans, net of government

guarantees / total assets

0.81

%

0.90

%

1.30

%

Nonperforming assets plus performing restructured loans, net of government

guarantees / total assets, net of government guarantees

0.97

%

1.12

%

1.33

%

Adversely classified loans, net of government guarantees

$

12,768

$

14,492

$

22,330

Special mention loans, net of government guarantees

$

19,063

$

18,141

$

19,748

Loans 30-89 days past due and accruing, net of government guarantees /

portfolio loans

0.05

%

0.16

%

0.15

%

Loans 30-89 days past due and accruing, net of government guarantees /

portfolio loans, net of government guarantees

0.07

%

0.22

%

0.15

%

Allowance for loan losses / portfolio loans

1.46

%

1.45

%

1.83

%

Allowance for loan losses / portfolio loans, net of government guarantees

1.93

%

2.00

%

1.88

%

Allowance for loan losses / nonperforming loans, net of government guarantees

210

%

196

%

137

%

Gross loan charge-offs for the quarter

$

11

$

141

$

11

Gross loan recoveries for the quarter

$

64

($

604

)

($

112

)

Net loan (recoveries) charge-offs for the quarter

($

53

)

($

463

)

($

101

)

Net loan (recoveries) charge-offs year-to-date

$

384

$

436

($

744

)

Net loan (recoveries) charge-offs for the quarter / average loans, for the quarter

0.00

%

(0.03

)

%

(0.01

)

%

Net loan (recoveries) charge-offs year-to-date / average loans,

year-to-date annualized

0.03

%

0.05

%

(0.07

)

%



Additional Financial Information
(Dollars in thousands)
(Unaudited)

Nonperforming Assets Rollforward

Writedowns

Transfers to

Transfers to

Balance at September 30, 2020

Additions this quarter

Payments this quarter

/Charge-offs
this quarter

OREO/ REPO

Performing Status
this quarter

Sales this quarter

Balance at December 31, 2020

Commercial loans

$6,831

$—

($754

)

($11

)

($490

)

$—

$—

$5,576

Commercial real estate

4,940

449

(267

)

5,122

Construction loans

702

702

Consumer loans

174

(5

)

169

Non-performing loans guaranteed by government

(1,600

)

79

(1,521

)

Total non-performing loans

11,047

449

(947

)

(11

)

(490

)

10,048

Other real estate owned

6,962

490

(163

)

7,289

Repossessed assets

779

(548

)

231

Nonperforming purchased

receivables

410

(410

)

Other real estate owned guaranteed

by government

(1,279

)

(1,279

)

Total non-performing assets,

net of government guarantees

$17,919

$939

($947

)

($11

)

($490

)

$—

($711

)

$16,289

The following table details loan charge-offs, by industry:

Loan Charge-offs by Industry

Three Months Ended

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Charge-offs:

Support for oil and gas operations

$—

$—

$—

$36

$—

Food service contractors

99

Retail sales

16

Offices of physicians

11

Excavation and construction

33

Health care and social assistance

108

804

Consumer

14

11

Total charge-offs

$11

$141

$804

$165

$11



Additional Financial Information
(Dollars in thousands)
(Unaudited)

Average Balances, Yields, and Rates

Three Months Ended

December 31, 2020

September 30, 2020

December 31, 2019

Average

Average

Average

Average

Tax Equivalent

Average

Tax Equivalent

Average

Tax Equivalent

Balance

Yield/Rate

Balance

Yield/Rate

Balance

Yield/Rate

Assets

Interest bearing deposits in other banks

$

84,872

0.12

%

$

60,504

0.11

%

$

79,076

1.64

%

Portfolio investments

231,867

1.73

%

217,599

2.11

%

279,841

2.65

%

Loans held for sale

135,776

2.79

%

122,994

3.11

%

68,111

3.76

%

Portfolio loans

1,489,029

5.00

%

1,465,839

4.83

%

1,027,728

5.94

%

Total interest-earning assets

1,941,544

4.24

%

1,866,936

4.25

%

1,454,756

4.97

%

Nonearning assets

175,413

172,853

176,871

Total assets

$

2,116,957

$

2,039,789

$

1,631,627

Liabilities and Shareholders' Equity

Interest-bearing deposits

$

1,140,327

0.40

%

$

1,077,193

0.49

%

$

910,402

0.65

%

Borrowings

24,819

3.35

%

23,574

3.02

%

19,226

3.42

%

Total interest-bearing liabilities

1,165,146

0.46

%

1,100,767

0.54

%

929,628

0.70

%

Noninterest-bearing demand deposits

679,924

672,974

451,384

Other liabilities

51,363

52,611

42,650

Shareholders' equity

220,524

213,437

207,965

Total liabilities and shareholders' equity

$

2,116,957

$

2,039,789

$

1,631,627

Net spread

3.78

%

3.71

%

4.27

%

NIM

3.94

%

3.90

%

4.48

%

NIMTE*

3.96

%

3.93

%

4.52

%

Average portfolio loans to average

interest-earning assets

76.69

%

78.52

%

70.65

%

Average portfolio loans to average total deposits

81.80

%

83.75

%

75.47

%

Average non-interest deposits to average