Northrim BanCorp Inc.
07/28/2025 | Press release | Distributed by Public on 07/28/2025 10:43
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the unaudited consolidated financial statements of Northrim BanCorp, Inc. (the "Company") and the notes thereto presented elsewhere in this report and with the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
Except as otherwise noted, references to "we", "our", "us" or "the Company" refer to Northrim BanCorp, Inc. and its subsidiaries that are consolidated for financial reporting purposes.
Note Regarding Forward Looking-Statements
This quarterly report on Form 10-Q includes "forward-looking statements," as that term is defined for purposes of Section 21E of the Securities Exchange Act of 1934, as amended, which are not historical facts. These forward-looking statements describe management's expectations about future events and developments such as future operating results, growth in loans and deposits, continued success of the Company's style of banking, and the strength of the local economy. All statements, other than statements of historical fact, regarding our financial position, business strategy, management's plans and objectives for future operations are forward-looking statements. We use words such as "anticipate," "believe," "expect," "intend" and similar expressions in part to help identify forward-looking statements. Forward-looking statements reflect management's current plans and expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations, and those variations may be both material and adverse. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: descriptions of the financial condition, results of operations, asset based lending volumes, asset and credit quality trends and profitability and statements about the expected financial benefits and other effects of the acquisition of Sallyport Commercial Finance, LLC ("Sallyport") by Northrim Bank; expected cost savings, synergies and other financial benefits from the acquisition of Sallyport by Northrim Bank might not be realized within the expected time frames and costs or difficulties relating to integration matters might be greater than expected; the ability of Northrim and Sallyport to execute their respective business plans; potential further increases in interest rates; the value of securities held in our investment portfolio; impact of the results of government initiatives, including tariffs, on the regulatory landscape, natural resource extraction industries, and capital markets; the impact of declines in the value of commercial and residential real estate markets, high unemployment rates, inflationary pressures and slowdowns in economic growth; changes in banking regulation or actions by bank regulators; potential further increases in inflation, supply-chain constraints, and potential geopolitical instability, including the war in Ukraine and the conflicts in the Middle East; financial stress on borrowers (consumers and businesses) as a result of higher rates or an uncertain economic environment; the general condition of, and changes in, the Alaska economy; our ability to maintain or expand our market share or net interest margin; the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to current expected credit losses accounting guidance; our ability to maintain asset quality; our ability to implement our marketing and growth strategies; our ability to identify and address cyber-security risks, including security breaches, "denial of service attacks," "hacking," and identity theft; disease outbreaks; and our ability to execute our business plan. Further, actual results may be affected by competition on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy. 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 Part II. Item 1A Risk Factors of this report and Part I. Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, as well as 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. In addition, you should note that forward looking statements are made only as of the date of this report and that we do not intend to update any of the forward-looking statements or the uncertainties that may adversely impact those statements, other than as required by law.
Update on Economic Conditions
The Alaska Department of Labor ("DOL") has reported Alaska's seasonally adjusted unemployment rate in May of 2025 was 4.7% compared to the U.S. rate of 4.2%. The rate has held steady in Alaska at 4.7% for eight consecutive months. The total number of payroll jobs in Alaska, not including uniformed military, increased 1.1% or 3,800 jobs between May of 2024 and May of 2025.
According to the DOL, the Oil and Gas sector had the largest growth rate in new jobs of 8.8% through May of this year compared to the prior year, up 700 direct jobs. The Construction sector added 700 positions for a year-over-year growth rate of 3.7% through May of 2025. The larger Health Care sector grew by 1,200 jobs for an annual growth rate of 2.9%. Transportation, Warehousing and Utilities added 600 jobs for a 2.3% growth rate over the same period. Professional and Business Services increased 500 jobs year-over-year through May of 2025, up 1.7%.
The Government sector grew by 200 jobs for 0.2% growth, adding 400 State positions while losing 200 Federal jobs in Alaska over the same period. Declining sectors between May 2024 and May 2025 were Information down 100 jobs or (-2.3%), Manufacturing (primarily seafood processing) shrinking 200 positions (-2.1%), Wholesale Trade lost 100 jobs (-1.5%) and Financial Activities, down 100 jobs (-0.9%).
Alaska's seasonally adjusted personal income was $57.4 billion in the first quarter of 2025 according to the Federal Bureau of Economic Analysis ("BEA"). This was an annualized improvement in the first quarter of 6.4% for Alaska, compared to the national average of 6.7%. Alaska enjoyed an annual personal income improvement of 6% in 2024 compared to the U.S. increase of 5.4%, ranking Alaska 6thbest in the nation. The $885 million increase in personal income in the first quarter of 2025 in Alaska came from a $352 million increase in net earnings from wages, $440 million growth in government transfer receipts, and a $92 million increase in investment income.
Alaska's Gross State Product ("GSP") in the first quarter of 2025 reached $72 billion according to the BEA. Alaska's inflation adjusted "real" GSP increased 1.5% in 2024 and decreased -1.8% annualized in the first quarter of 2025. The average U.S. GDP growth rate was 2.8% for 2025 and -0.5% in the first quarter of 2025. Alaska's real GSP decrease in the first quarter of 2025 was primarily caused by a decrease in the Mining, Oil & Gas sector, somewhat offset by improvements in the Construction sector.
Alaska exported $5.9 billion in goods to foreign countries in 2024 according to the U.S. International Trade Administration. China is the largest importer of Alaska's products at $1.5 billion, followed by Australia at $804 million, Japan at $674 million and South Korea at $634 million in 2024. Fish and related maritime products accounted for the largest volume at $2.1 billion, followed by minerals and ores at $2 billion, and primary metals at $992 million in 2024. Oil & Gas exports are $380 million because the majority of Alaska's production is refined and consumed in the United States.
According to the US Bureau of Labor Statistics, the Consumer Price Index ("CPI") for the U.S. increased 2.7% between June of 2024 and June of 2025. In Alaska, the rate of CPI increase was lower at 1.6% for the same time period. Food and beverage, housing costs, and medical care costs were the largest causes for inflation.Declining motor fuel prices, transportation, recreation and household furnishing costs have helped moderate inflationary pressures in Alaska.
The monthly average price of Alaska North Slope ("ANS") crude oil has ranged between $76.39 a barrel in January of 2025 and $67.07 in May of the prior year. The June 2025 average was $72.62. The Alaska Department of Revenue ("DOR") calculated ANS crude oil production was 461 thousand barrels per day ("bpd") in Alaska's fiscal year ending June 30, 2024. Production rose to 469 thousand bpd in fiscal year ending June 30, 2025. In the Spring 2025 Revenue Forecastpublished March 12, 2025, the DOR expects production to continue to grow to 663 thousand bpd by fiscal year 2034. This is primarily a result of new production coming on-line in and around the NPR-A region west of Prudhoe Bay. A partnership between Santos and Repsol is constructing the new Pikka field and ConocoPhillips is developing the large new Willow field. There are also a number of smaller new fields in the ANS that are contributing to the State of Alaska's production growth estimates.
The Alaska Permanent Fund is seeded annually by the oil wealth the State continues to save each year and has grown significantly over 40 years of successful investment. As of May 31, 2025 the fund's value was $83.13 billion. According to the DOR it is scheduled to contribute $3.7 billion to Alaska General Fund in fiscal year 2025 for general government spending and to pay the annual dividend to Alaskan residents.
According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 6.2% in 2024 to $510,064, following a 5.2% increase in 2023. This was the seventh consecutive year of price increases. Through June of 2025 prices have continued to increase on average 2.6% to $523,059.
The average sales price for single family homes in the Matanuska Susitna Borough rose 3.8% in 2024 to $412,859, after increasing 4% in 2023. This continues a trend of average price increases for more than a decade in the region. Through June of 2025 prices have continued to increase on average 6.9% to $441,463. These two markets represent where the vast majority of residential lending activity of Northrim Bank (the "Bank") occurs.
The Alaska Multiple Listing Services reported a 3.4% increase in the number of units sold in Anchorage when comparing 2024 to 2023. The first six months of 2025 has seen a 4.8% increase in home sales compared to the first half of 2024 in Anchorage.
There was virtually no change in the number of homes sold in the Matanuska Susitna Borough, with only four fewer homes sold in 2024 than in 2023 or -0.2%. In the first six months of 2025 the number of units sold has increased 13.1% in the Matanuska Susitna Borough compared to the first half of 2024 according to the Alaska Multiple Listing Services.
The Board of Governors of the Federal Reserve System left its benchmark interest rate target unchanged at 4.25%-4.50% as of both June 30, 2025 and December 31, 2024. The prime rate of interest is 7.50% as of both June 30, 2025 and December 31, 2024.
Highlights and Summary of Performance - Second Quarter of 2025
The Company reported net income and earnings per diluted share of $11.8 million and $2.09, respectively, for the second quarter of 2025 compared to net income and earnings per diluted share of $9.0 million and $1.62, respectively, for the second quarter of 2024. The Company reported net income and earnings per diluted share of $25.1 million and $4.47, respectively for the first six months of 2025 compared to net income and earnings per diluted share of $17.2 million and $3.10, respectively, for the first six months of 2024. The increase in net income for both periods in 2025 compared to the same periods last year is primarily attributable to higher net interest income, an increase in purchased receivable income and increased mortgage banking income, which were only partially offset by higher operating expenses and an increase in the provision for credit losses.
•Net interest margin was 4.66% for the second quarter of 2025, up 42-basis points from the second quarter a year ago.
•Return on average assets ("ROAA") was 1.48% and return on average equity ("ROAE") was 16.37% for the second quarter of 2025. ROAA was 1.31% and ROAE was 14.84% for the second quarter of 2024.
•Portfolio loans were $2.20 billion at June 30, 2025, up 17% from a year ago, primarily due to new customer relationships and expanding market share, as well as retaining certain mortgages originated by Residential Mortgage, a subsidiary of the Bank. The Company sold $61 million in consumer mortgages in the second quarter of 2025 to reduce the concentration of residential real estate loans and to provide additional liquidity for future commercial and construction loan growth.
•Total deposits were $2.81 billion at June 30, 2025, up 14% from $2.46 billion a year ago. Non-interest bearing demand deposits increased 10% year-over-year to $777.9 million at June 30, 2025 and represent 28% of total deposits.
•The average cost of interest-bearing deposits was 2.04% at June 30, 2025, down from 2.21% at June 30, 2024.
•Mortgage loan originations were $277.1 million in the second quarter of 2025, up from $181.5 million in the second quarter a year ago. Mortgage loans funded for sale were $249.7 million in the second quarter of 2025, compared to $152.3 million in the second quarter of 2024.
Other financial measures are shown in the table below:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||
| Return on average assets, annualized | 1.48 | % | 1.31 | % | 1.61 | % | 1.25 | % | ||||||
| Return on average shareholders' equity, annualized | 16.37 | % | 14.84 | % | 17.99 | % | 14.35 | % | ||||||
| Dividend payout ratio | 30.43 | % | 37.62 | % | 28.51 | % | 39.38 | % | ||||||
Nonperforming assets:Nonperforming assets, net of government guarantees were $11.9 million at June 30, 2025 and $11.6 million at December 31, 2024. Other Real Estate Owned ("OREO"), net of government guarantees was zero at both June 30, 2025 and December 31, 2024. Repossessed assets were $50,000 as of June 30, 2025 and $297,000 as of December 31, 2024. Nonperforming loans, net of government guarantees increased $258,000 or 3% to $7.8 million as of June 30, 2025 from $7.5 million as of December 31, 2024, primarily due to the addition of four loans in the first six months of 2025. Nonperforming purchased receivables increased $249,000 or 7% to $4.0 million as of June 30, 2025 from $3.8 million as of December 31, 2024. Of the nonperforming assets at June 30, 2025, $4.2 million are attributable to the Community Banking segment, $197,000 are attributable to the Home Mortgage Lending segment, and $7.5 million are attributable to the Specialty Finance segment.
Potential problem assets:Potential problem loans are loans which are currently performing in accordance with contractual terms but that have developed negative indications that the borrower may not be able to comply with present payment terms and which may later be included in nonaccrual or past due. These loans are closely monitored and their performance is reviewed by management on a regular basis. At June 30, 2025, management had identified $28.0 million potential problem loans, up from $1.6 million at December 31, 2024.
RESULTS OF OPERATIONS
Net Income
Net income for the second quarter of 2025 increased $2.8 million to $11.8 million as compared to $9.0 million for the same period in 2024. The increase in net income in the second quarter of 2025 as compared to the same quarter a year ago is largely attributable to a $6.5 million increase in net interest income, a $4.7 million increase in purchased receivable income, and a $1.5 million increase in mortgage banking income. These increases were only partially offset by a $7.3 million increase in other operating expenses and a $2.1 million increase in the provision for credit losses.
Net income for the first six months of 2025 increased $7.9 million to $25.1 million as compared to $17.2 million for the same period in 2024. The increase in net income in the first six months of 2025 as compared to the same period a year ago is largely attributable to a $11.4 million increase in net interest income, a $9.5 million increase in purchased receivable income, and a $1.7 million increase in mortgage banking income. These increases were only partially offset by a $11.8 million increase in other operating expenses and a $0.5 million increase in the provision for credit losses.
Analysis of Business Segments
Our business segments are defined as Community Banking, Home Mortgage Lending, and Specialty Finance. The following table summarizes net income from our segments. Additional information about segment performance is presented in Note 10 included in Part I - Item 1 "Financial Statements" of this report.
| (In Thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |||||||||||||||||||
| Community Banking | $7,743 | $7,098 | $18,531 | $14,440 | |||||||||||||||||||
| Home Mortgage Lending | 1,929 | 1,366 | 2,733 | 1,528 | |||||||||||||||||||
| Specialty Finance | 2,106 | 556 | 3,838 | 1,251 | |||||||||||||||||||
| Net income (loss) | $11,778 | $9,020 | $25,102 | $17,219 | |||||||||||||||||||
Community Banking
Net income in the Community Banking segment increased $645,000 or 9% in the second quarter of 2025 compared to the same period a year ago primarily due to an increase in net interest income which totaled $30.0 million in the second quarter of 2025, and $24.3 million in the second quarter of 2024. Net interest income increased $5.7 million or 23% in the second quarter of 2025 as compared to the second quarter of 2024 mostly due to higher interest income on loans. This increase was only partially offset by lower interest income on investments and higher interest expense on deposits and borrowings.
The provision for credit losses in the Community Banking segment was $1.3 million in the second quarter of 2025 compared to a benefit to the provision for credit losses of $184,000 in the same quarter a year ago. The increase to the provision for credit losses in the Community Banking segment in the second quarter of 2025 as compared to the same quarter a year ago was primarily a result of increased loan balances as well as an increase in estimated loss rates due to less favorable economic forecasts and trends in qualitative factors.
Other operating expenses in the Community Banking segment totaled $21.8 million in the second quarter of 2025, up $3.7 million or 20% from $18.1 million in the second quarter a year ago. The increase in the second quarter of 2025 as compared to the same quarter a year ago was mostly due to increases in salaries and other personnel expense, including $667,000 in higher salary expense, $873,000 increase in group medical expenses, as well as increases in profit share expense and payroll taxes. Additionally, marketing expense increased due to timing of annual charitable contributions.
Net income in the Community Banking segment increased $4.1 million or 28% in the first six months of 2025 as compared to the same period a year ago primarily due to increases in net interest income primarily due to higher interest income due to higher earning-asset balances and higher yields. Additionally, there was a decrease in the provision for loan losses due to a decrease in estimated loss rates resulting from changes in the Company's loss rate regression models for commercial, commercial real estate, and construction loans that was only partially offset by higher loan balances and an increase in estimated loss rates due to less favorable economic forecasts and trends in qualitative factors. Other operating income also increased primarily due to higher merchant fees and an increase in commercial servicing rights resulting from higher balances. These changes were only partially offset by higher other operating expenses, primarily due to higher salaries and other personnel expenses, data processing expenses, marketing expenses, OREO expenses net of gains on sale.
Home Mortgage Lending
Net income in the Home Mortgage Lending segment increased $563,000 or 41% in the second quarter of 2025 compared to the same period a year ago primarily due higher net interest income due to higher balances of both consumer mortgage loans held for sale and consumer mortgage loans held for investment, as well as higher mortgage banking income due to higher mortgage loans funded for sale. During the second quarter of 2025, mortgage loans funded for sale were $249.7 million, compared to $152.3 million in the second quarter of 2024. These increases were partially offset by increases in the provision for credit losses and other operating expenses.
The provision for credit losses in the Home Mortgage Lending segment was $639,000 in the second quarter of 2025 compared to a provision for credit loses of $64,000 in the second quarter of 2024. The increase in the provision for credit losses in the second quarter of 2025 in the Home Mortgage Lending segment as compared to the same quarter a year ago was primarily a result of increased loan balances.
Other operating expenses in the Home Mortgage Lending segment totaled $7.6 million in the second quarter of 2025 compared to $6.7 million in the second quarter a year ago. The increase in the second quarter of 2025 as compared to the same quarter a year ago was mostly due to increases in salaries and other personnel expense due to higher commissions paid to mortgage originators due to higher volume.
The Arizona, Colorado, and Pacific Northwest mortgage expansion markets were responsible for 22% of Residential Mortgage's $216 million total production in the second quarter of 2025 and 22% of $182 million total production in the second quarter of 2024.
The Company reclassified $100 million in consumer mortgages held for investment to held for sale in the first quarter of 2025 and recorded unrealized losses of $1.2 related to this portfolio in the first quarter of 2025. In the second quarter of 2025, the Company sold $61 million of the $100 million that was reclassified to loans held for sale in the first quarter of 2025 for a total realized loss $545,000.
As of June 30, 2025, Northrim serviced 6,458 loans in its $1.55 billion home-mortgage-servicing portfolio, a 41% increase from the $1.10 billion serviced a year ago.
Net income in the Home Mortgage Lending segment increased $1.2 million or 79% in the first six months of 2025 as compared to the same period a year ago primarily due to higher net interest income due to higher balances of both consumer mortgage loans held for sale and consumer mortgage loans held for investment, as well as higher mortgage banking income due to higher mortgage loans funded for sale. These increases were only partially offset by a higher provision for credit losses due to loan growth and higher other operating expenses primarily due to higher originator commissions.
Specialty Finance
The Company reevaluated our reportable operating segments in the fourth quarter of 2024 concurrent with the acquisition of Sallyport Commercial Finance, LLC ("Sallyport"), which resulted in the addition of the Specialty Finance segment. The Company's Specialty Finance segment includes Northrim Funding Services and Sallyport. Northrim Funding Services is a division of the Bank and has offered factoring solutions to small businesses since 2004. Sallyport is a leading provider of factoring, asset-based lending and alternative working capital solutions to small and medium sized enterprises in the United States, Canada, and the United Kingdom that the Company acquired on October 31, 2024 in an all cash transaction valued at approximately $53.9 million. The composition of revenues for the Specialty Finance segment are primarily purchased receivable income, but also includes interest income from loans and other fee income.
Net income in the Specialty Finance segment increased $1.6 million or 279% in the second quarter of 2025 compared to the same period a year ago primarily due to the acquisition of Sallyport in the fourth quarter of 2024. Total pre-tax income for Sallyport for the second quarter of 2025 was $1.3 million.
Net income in the Specialty Finance segment increased $2.6 million or 207% in the first six months of 2025 as compared to the same period a year ago primarily due to the acquisition of Sallyport. Total pre-tax income for Sallyport for the first six months of 2025 was $2.6 million.
Average purchased receivables and loan balances at Sallyport were $71.0 million for the second quarter of 2025 and a yield of 27.23% compared to average balances of $59.9 million for the first quarter of 2025 and a yield of 35.8%. The yield in the first quarter of 2025 included the recognition of $899,000 in fee income collected during the quarter related to two nonperforming receivables that was previously deferred and the collection of a $350,000 line termination fee. The yield excluding these items for the first quarter of 2025 was 27.4%.
Net Interest Income/Net Interest Margin
Net interest income for the second quarter of 2025 increased 24% or $6.5 million, to $33.6 million as compared to $27.1 million for the second quarter of 2024. The net interest margin increased 42 basis points to 4.66% in the second quarter of 2025 as compared to 4.24% in the second quarter of 2024. The increase in net interest income in the second quarter of 2025 compared to the same period in 2024 was primarily the result of increased interest on loans and interest bearing deposits in other banks which was only partially offset by a decrease in interest income on investments, as well as an increase in interest expense on interest-bearing deposits and borrowings. The increase in net interest margin in the second quarter of 2025 as compared to the same period of 2024 was primarily due to a favorable change in the mix of earning-assets towards higher loan balances as a percentage of total earning-assets and higher yields on those assets which were only partially offset by an increase in borrowings.
Net interest income for the first six months of 2025 increased 21% or $11.4 million, to $64.9 million as compared to $53.5 million for the first six months of 2024. The net interest margin increased 41 basis points to 4.61% in the first six months of 2025 as compared to 4.20% in the first six months of 2024. The increase in net interest income in the first six of 2025 compared to the same period in 2024 was primarily the result of increased interest on loans which was only partially offset by a decrease in interest income on investments and interest bearing deposits in other banks, as well as an increase in interest expense on interest-bearing deposits and borrowings. The increase in net interest margin in the first six months of 2025 as compared to the same period of 2024 was primarily due to a favorable change in the mix of earning-assets towards higher loan balances as a percentage of total earning-assets and higher yields on those assets, as well as a decrease in the cost of interest-bearing liabilities.
Components of Net Interest Margin
The following table compares average balances and rates as well as margins on earning assets for the three-month periods ended June 30, 2025 and 2024. Average yields or costs are calculated on a tax-equivalent basis.
| (Dollars in Thousands) | Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| Interest income/ | Average Tax Equivalent | ||||||||||||||||||||||||||||||||||
| Average Balances | Change | expense | Change |
Yields/Costs6
|
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| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | 2025 | 2024 | Change | |||||||||||||||||||||||||
|
Interest-bearing deposits in other banks1
|
$27,216 | $17,352 | $9,864 | 57 | % | $515 | $232 | $283 | 122 | % | 7.60 | % | 5.27 | % | 2.33 | % | |||||||||||||||||||
|
Taxable long-term investments2
|
515,916 | 639,980 | (124,064) | (19) | % | 3,765 | 4,310 | (545) | (13) | % | 3.07 | % | 2.82 | % | 0.25 | % | |||||||||||||||||||
| Loans held for sale | 173,675 | 65,102 | 108,573 | 167 | % | 2,824 | 990 | 1,834 | 185 | % | 6.50 | % | 6.08 | % | 0.42 | % | |||||||||||||||||||
|
Loans3,4
|
2,172,482 | 1,845,832 | 326,650 | 18 | % | 37,695 | 31,377 | 6,318 | 20 | % | 6.99 | % | 6.87 | % | 0.12 | % | |||||||||||||||||||
|
Interest-earning assets5
|
2,889,289 | 2,568,266 | 321,023 | 12 | % | 44,799 | 36,909 | 7,890 | 21 | % | 6.27 | % | 5.83 | % | 0.44 | % | |||||||||||||||||||
| Nonearning assets | 306,206 | 204,509 | 101,697 | 50 | % | ||||||||||||||||||||||||||||||
| Total | $3,195,495 | $2,772,775 | $422,720 | 15 | % | ||||||||||||||||||||||||||||||
| Interest-bearing demand | $1,193,344 | $888,633 | $304,711 | 34 | % | $6,007 | $4,357 | $1,650 | 38 | % | 2.02 | % | 1.97 | % | 0.05 | % | |||||||||||||||||||
| Savings deposits | 250,580 | 242,594 | 7,986 | 3 | % | 355 | 264 | 91 | 34 | % | 0.57 | % | 0.44 | % | 0.13 | % | |||||||||||||||||||
| Money market deposits | 192,123 | 201,025 | (8,902) | (4) | % | 801 | 827 | (26) | (3) | % | 1.67 | % | 1.65 | % | 0.02 | % | |||||||||||||||||||
| Time deposits | 393,053 | 392,761 | 292 | - | % | 3,141 | 4,028 | (887) | (22) | % | 3.21 | % | 4.12 | % | (0.91) | % | |||||||||||||||||||
| Total interest-bearing deposits | 2,029,100 | 1,725,013 | 304,087 | 18 | % | 10,304 | 9,476 | 828 | 9 | % | 2.04 | % | 2.21 | % | (0.17) | % | |||||||||||||||||||
| Borrowings | 86,404 | 38,390 | 48,014 | 125 | % | 903 | 380 | 523 | 138 | % | 4.14 | % | 3.92 | % | 0.22 | % | |||||||||||||||||||
| Total interest-bearing liabilities | 2,115,504 | 1,763,403 | 352,101 | 20 | % | 11,207 | 9,856 | 1,351 | 14 | % | 2.12 | % | 2.25 | % | (0.13) | % | |||||||||||||||||||
| Non-interest bearing demand deposits | 737,112 | 706,339 | 30,773 | 4 | % | ||||||||||||||||||||||||||||||
| Other liabilities | 54,320 | 58,549 | (4,229) | (7) | % | ||||||||||||||||||||||||||||||
| Equity | 288,559 | 244,484 | 44,075 | 18 | % | ||||||||||||||||||||||||||||||
| Total | $3,195,495 | $2,772,775 | $422,720 | 15 | % | ||||||||||||||||||||||||||||||
| Net interest income | $33,592 | $27,053 | $6,539 | 24 | % | ||||||||||||||||||||||||||||||
| Net interest margin | 4.66 | % | 4.24 | % | 0.42 | % | |||||||||||||||||||||||||||||
| Average loans to average interest-earning assets | 75.19 | % | 71.87 | % | |||||||||||||||||||||||||||||||
| Average loans to average total deposits | 78.54 | % | 75.92 | % | |||||||||||||||||||||||||||||||
| Average non-interest deposits to average total deposits | 26.65 | % | 29.05 | % | |||||||||||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 136.58 | % | 145.64 | % | |||||||||||||||||||||||||||||||
1Consists of interest bearing deposits in other banks and domestic CDs.
2Consists of investment securities available for sale, investment securities held to maturity, marketable equity securities, and investment in Federal Home Loan Bank stock.
3Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $1.2 million and $1.2 million in the second quarter of 2025 and 2024, respectively.
4Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were $8.1 million and $5.0 million in the second quarter of 2025 and 2024, respectively.
5The Company does not have any fed funds sold or securities purchased with agreements to resell to disclose as part of its total interest-earning assets in the periods presented.
6Tax-equivalent yields/costs assume a federal tax rate of 21% and state tax rate of 7.43% for a combined tax rate of 28.43%.
The following tables set forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates for the three-month periods ending June 30, 2025 and 2024. Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes due to volume and the changes due to interest rates. The Company did not have any fed funds sold or securities purchased with agreements to resell for the three-month periods ending June 30, 2025 and 2024.
| (In Thousands) | Three Months Ended June 30, 2025 vs. 2024 | ||||||||||
| Increase (decrease) due to | |||||||||||
| Volume | Rate | Total | |||||||||
| Interest Income: | |||||||||||
| Short-term investments | $160 | $123 | $283 | ||||||||
| Taxable long-term investments | (982) | 437 | (545) | ||||||||
| Loans held for sale | 1,771 | 63 | 1,834 | ||||||||
| Loans | 5,758 | 560 | 6,318 | ||||||||
| Total interest income | $6,707 | $1,183 | $7,890 | ||||||||
| Interest Expense: | |||||||||||
| Interest-bearing demand | $1,549 | $100 | $1,649 | ||||||||
| Savings deposits | 9 | 83 | 92 | ||||||||
| Money market deposits | (35) | 9 | (26) | ||||||||
| Time deposits | 3 | (890) | (887) | ||||||||
| Interest-bearing deposits | 1,526 | (698) | 828 | ||||||||
| Borrowings | 504 | 19 | 523 | ||||||||
| Total interest expense | $2,030 | ($679) | $1,351 | ||||||||
The following table compares average balances and rates as well as margins on earning assets for the six-month periods ended June 30, 2025 and 2024. Average yields or costs are calculated on a tax-equivalent basis.
| (Dollars in Thousands) | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| Interest income/ | Average Tax Equivalent | ||||||||||||||||||||||||||||||||||
| Average Balances | Change | expense | Change |
Yields/Costs6
|
|||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | 2025 | 2024 | Change | |||||||||||||||||||||||||
|
Interest-bearing deposits in other banks1
|
$32,563 | $39,457 | ($6,894) | (17) | % | $931 | $1,070 | ($139) | (13) | % | 5.77 | % | 5.36 | % | 0.41 | % | |||||||||||||||||||
|
Taxable long-term investments2
|
519,813 | 655,458 | (135,645) | (21) | % | 7,440 | 8,830 | (1,390) | (16) | % | 3.02 | % | 2.82 | % | 0.20 | % | |||||||||||||||||||
| Loans held for sale | 110,301 | 48,868 | 61,433 | 126 | % | 3,502 | 1,490 | 2,012 | 135 | % | 6.35 | % | 6.10 | % | 0.25 | % | |||||||||||||||||||
|
Loans3,4
|
2,172,950 | 1,819,629 | 353,321 | 19 | % | 74,487 | 61,327 | 13,160 | 21 | % | 6.94 | % | 6.81 | % | 0.13 | % | |||||||||||||||||||
|
Interest-earning assets5
|
2,835,627 | 2,563,412 | 272,215 | 11 | % | 86,360 | 72,717 | 13,643 | 19 | % | 6.19 | % | 5.76 | % | 0.43 | % | |||||||||||||||||||
| Nonearning assets | 299,848 | 202,819 | 97,029 | 48 | % | ||||||||||||||||||||||||||||||
| Total | $3,135,475 | $2,766,231 | $369,244 | 13 | % | ||||||||||||||||||||||||||||||
| Interest-bearing demand | $1,173,057 | $897,340 | $275,717 | 31 | % | $11,438 | $8,783 | $2,655 | 30 | % | 1.97 | % | 1.97 | % | - | % | |||||||||||||||||||
| Savings deposits | 250,955 | 246,582 | 4,373 | 2 | % | 717 | 544 | 173 | 32 | % | 0.58 | % | 0.44 | % | 0.14 | % | |||||||||||||||||||
| Money market deposits | 193,039 | 208,515 | (15,476) | (7) | % | 1,608 | 1,664 | (56) | (3) | % | 1.68 | % | 1.60 | % | 0.08 | % | |||||||||||||||||||
| Time deposits | 398,869 | 376,031 | 22,838 | 6 | % | 6,476 | 7,665 | (1,189) | (16) | % | 3.27 | % | 4.10 | % | (0.83) | % | |||||||||||||||||||
| Total interest-bearing deposits | 2,015,920 | 1,728,468 | 287,452 | 17 | % | 20,239 | 18,656 | 1,583 | 8 | % | 2.02 | % | 2.17 | % | (0.15) | % | |||||||||||||||||||
| Borrowings | 61,879 | 31,167 | 30,712 | 99 | % | 1,232 | 561 | 671 | 120 | % | 3.96 | % | 3.55 | % | 0.41 | % | |||||||||||||||||||
| Total interest-bearing liabilities | 2,077,799 | 1,759,635 | 318,164 | 18 | % | 21,471 | 19,217 | 2,254 | 12 | % | 2.08 | % | 2.19 | % | (0.11) | % | |||||||||||||||||||
| Non-interest bearing demand deposits | 717,432 | 705,736 | 11,696 | 2 | % | ||||||||||||||||||||||||||||||
| Other liabilities | 58,809 | 59,478 | (669) | (1) | % | ||||||||||||||||||||||||||||||
| Equity | 281,435 | 241,382 | 40,053 | 17 | % | ||||||||||||||||||||||||||||||
| Total | $3,135,475 | $2,766,231 | $369,244 | 13 | % | ||||||||||||||||||||||||||||||
| Net interest income | $64,889 | $53,500 | $11,389 | 21 | % | ||||||||||||||||||||||||||||||
| Net interest margin | 4.61 | % | 4.20 | % | 0.41 | % | |||||||||||||||||||||||||||||
| Average loans to average interest-earning assets | 76.63 | % | 70.98 | % | |||||||||||||||||||||||||||||||
| Average loans to average total deposits | 79.50 | % | 74.75 | % | |||||||||||||||||||||||||||||||
| Average non-interest deposits to average total deposits | 26.25 | % | 28.99 | % | |||||||||||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 136.47 | % | 145.68 | % | |||||||||||||||||||||||||||||||
1Consists of interest bearing deposits in other banks and domestic CDs.
2Consists of investment securities available for sale, investment securities held to maturity, marketable equity securities, and investment in Federal Home Loan Bank stock.
3Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $2.3 million and $2.2 million in the first sixmonths of 2025 and 2024, respectively.
4Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were $7.8 million and $5.4 million in the first sixmonths of 2025 and 2024, respectively.
5The Company does not have any fed funds sold or securities purchased with agreements to resell to disclose as part of its total interest-earning assets in the periods presented.
6Tax-equivalent yields/costs assume a federal tax rate of 21% and state tax rate of 7.43% for a combined tax rate of 28.43%.
The following tables set forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates for the six-month periods ending June 30, 2025 and 2024. Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes due to volume and the changes due to interest rates. The Company did not have any fed funds sold or securities purchased with agreements to resell for the six-month periods ending June 30, 2025 and 2024.
| (In Thousands) | Six Months Ended June 30, 2025 vs. 2024 | ||||||||||
| Increase (decrease) due to | |||||||||||
| Volume | Rate | Total | |||||||||
| Interest Income: | |||||||||||
| Short-term investments | ($208) | $69 | ($139) | ||||||||
| Taxable long-term investments | (2,112) | 722 | (1,390) | ||||||||
| Loans held for sale | 1,954 | 58 | 2,012 | ||||||||
| Loans | 12,001 | 1,159 | 13,160 | ||||||||
| Total interest income | $11,635 | $2,008 | $13,643 | ||||||||
| Interest Expense: | |||||||||||
| Interest-bearing demand | $2,664 | ($9) | $2,655 | ||||||||
| Savings deposits | 10 | 163 | 173 | ||||||||
| Money market deposits | (130) | 74 | (56) | ||||||||
| Time deposits | 513 | (1,702) | (1,189) | ||||||||
| Interest-bearing deposits | 3,057 | (1,474) | 1,583 | ||||||||
| Borrowings | 616 | 55 | 671 | ||||||||
| Total interest expense | $3,673 | ($1,419) | $2,254 | ||||||||
Provision for Credit Losses
The provision or benefit for credit loss is the amount of expense or benefit that, based on our judgment, is required to maintain the Allowance for Credit Losses ("ACL") at an appropriate level under the Company's Current Expected Credit Losses ("CECL") model. The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. The following table presents the major categories of credit loss expense for the three and six-month periods ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| (In Thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||
|
Credit loss (benefit) expense on loans held for investment
|
$1,803 | $135 | $671 | $356 | ||||||||||
|
Credit loss (benefit) expense on unfunded commitments
|
155 | (255) | (168) | (327) | ||||||||||
| Credit loss expense on available for sale debt securities | - | - | - | - | ||||||||||
| Credit loss expense on held to maturity securities | - | - | - | - | ||||||||||
| Credit loss expense on purchased receivables | 18 | - | 64 | - | ||||||||||
|
Total credit loss (benefit) expense
|
$1,976 | ($120) | $567 | $29 | ||||||||||
The increase to the provision for credit losses on loans in the second quarter of 2025 and in in the first six months of 2025as compared to the same periods a year ago was primarily a result of increased loan balances as well as an increase in estimated loss rates due to less favorable economic forecasts and trends in qualitative factors. The increase to the provision for unfunded commitments in the second quarter of 2025and in the first six months of 2025compared to the same periods a year ago was primarily due to an increase in estimated loss rates which was only partially offset by changes in mix of unfunded commitments.
Fluctuations in the provision for credit losses in the future will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration.
Other Operating Income
Other operating income for the three-month period ended June 30, 2025 increased $7.1 million, or 74%, to $16.6 million as compared to $9.6 million for the same period in 2024, primarily due to a $4.7 million increase in purchased receivable income, as well as a $1.5 million increase in mortgage banking income in the second quarter of 2025 compared to the same quarter a year ago. The fair value of marketable equity securities also increased $138,000 in the second quarter of 2025 compared to the same quarter a year ago. The increase in purchased receivable income in the three-month period ended June 30, 2025 as compared to the same period in 2024 was primarily due to the acquisition of Sallyport in the fourth quarter of 2024.
Other operating income for the six-month period ended June 30, 2025 increased $12.3 million, or 70%, to $29.7 million as compared to $17.4 million for the same period in 2024, primarily due to a $9.5 million increase in purchased receivable income, as well as a $1.7 million increase in mortgage banking income in the first six-months of 2025 compared to the same period a year ago. The increase in purchased receivable income in the first six-months of 2025 compared to the same period a year ago was primarily due to the acquisition of Sallyport in the fourth quarter of 2024.
Other Operating Expense
Other operating expense for the second quarter of 2025 increased $7.3 million, or 29%, to $32.5 million as compared to $25.2 million for the same period in 2024. Other operating expense for the six-month period ended June 30, 2025 increased $11.8 million, or 24%, to $60.7 million as compared to $48.8 million for the same period in 2024. The increases in both periods were primarily due to increases in salaries and other personnel expense, compensation expense for Sallyport acquisition payments, and an increase in data processing expense. Total other operating expense increased $2.1 million in the Specialty Finance segment in the second quarter of 2025 compared to the second quarter of 2024 from the addition of Sallyport on October 31, 2024.
Income Taxes
For the second quarter of 2025, Northrim recorded a higher effective tax rate as compared to the same period in 2024 as a result of a decrease in tax credits and tax exempt interest income as a percentage of pre-tax income in 2025. In the second quarter of 2025, Northrim recorded $4.0 million in state and federal income tax expense, for an effective tax rate of 25.30% compared to $2.5 million and 21.95% for the same period in 2024. In the six-month period ended June 30, 2025, Northrim recorded $8.2 million in state and federal income tax expense, for an effective tax rate of 24.72% compared to $4.8 million and 21.94% for the same period in 2024.
ANALYSIS OF FINANCIAL CONDITION
Balance Sheet Overview
Investment Securities
Investment Securities include investment securities available for sale, investment securities held to maturity, and marketable equity securities, at June 30, 2025 decreased 9% to $474.9 million from $524.1 million at December 31, 2024 primarily due to maturities and calls of available for sale securities during the first six months of 2025.
The table below details portfolio investment balances by portfolio investment type for the periods indicated:
| June 30, 2025 | December 31, 2024 | |||||||||||||
| Dollar Amount | Percent of Total | Dollar Amount | Percent of Total | |||||||||||
| (In Thousands) | ||||||||||||||
| Balance | % of total | Balance | % of total | |||||||||||
| U.S. Treasury and government sponsored entities | $384,040 | 80.9 | % | $432,931 | 82.6 | % | ||||||||
| U.S. Agency mortgage-backed securities | 4,976 | 1.0 | % | - | 0.0 | % | ||||||||
| Corporate bonds | 41,624 | 8.8 | % | 45,545 | 8.7 | % | ||||||||
| Collateralized loan obligations | 35,531 | 7.5 | % | 36,891 | 7.0 | % | ||||||||
| Preferred stock | 8,747 | 1.8 | % | 8,719 | 1.7 | % | ||||||||
| Total | $474,918 | $524,086 | ||||||||||||
The average estimated duration of the investment portfolio at June 30, 2025, was approximately 2.4 years. As of June 30, 2025, $55.7 million of available for sale securities with a weighted average yield of 1.40% are scheduled to mature in the next six months, $106.8 million with a weighted average yield of 1.28% are scheduled to mature in six months to one year, and $145.0 million with a weighted average yield of 1.96% are scheduled to mature in the following year, representing a total of $307.5 million or 11% of earning assets that are scheduled to mature in the next 24 months.
Loans and Lending Activities
The following table presents the concentration distribution of the loan portfolio, net of deferred fees and costs, as of the dates indicated:
| June 30, 2025 | December 31, 2024 | |||||||||||||
| Dollar Amount | Percent of Total | Dollar Amount | Percent of Total | |||||||||||
| (In Thousands) | ||||||||||||||
| Commercial & industrial loans | $486,231 | 22.1 | % | $437,922 | 20.6 | % | ||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied properties | 445,497 | 20.2 | % | 418,092 | 19.6 | % | ||||||||
| Non-owner occupied and multifamily properties | 692,573 | 31.6 | % | 615,662 | 28.8 | % | ||||||||
| Residential real estate: | ||||||||||||||
| 1-4 family residential properties secured by first liens | 206,825 | 9.4 | % | 270,966 | 12.7 | % | ||||||||
| 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens | 60,611 | 2.8 | % | 49,160 | 2.3 | % | ||||||||
| 1-4 family residential construction loans | 35,777 | 1.6 | % | 39,516 | 1.9 | % | ||||||||
| Other construction, land development and raw land loans | 186,007 | 8.4 | % | 212,561 | 10.0 | % | ||||||||
| Obligations of states and political subdivisions in the US | 31,479 | 1.4 | % | 29,471 | 1.4 | % | ||||||||
| Agricultural production, including commercial fishing | 46,340 | 2.1 | % | 45,840 | 2.2 | % | ||||||||
| Consumer loans | 7,663 | 0.3 | % | 7,638 | 0.4 | % | ||||||||
| Other loans | 3,112 | 0.1 | % | 2,435 | 0.1 | % | ||||||||
| Total loans | $2,202,115 | $2,129,263 | ||||||||||||
Loans increased by $72.9 million, to $2.202 billion at June 30, 2025 from $2.129 billion at December 31, 2024, primarily as a result of increases in commercial real estate and commercial and industrial loans. These increases were only partially offset by the sale of 1-4 family residential loans secured by first liens in the first six month of 2025.
Information about industry concentrations
The Company defines "direct exposure" to the oil and gas industry as companies that it has identified as significantly reliant upon activity related to the oil and gas industry, such as oilfield services, lodging, equipment rental, transportation, and other logistic services specific to the industry. The Company estimates that $105.9 million, or approximately 5% of loans as of June 30, 2025 have direct exposure to the oil and gas industry as compared to $99.7 million, or approximately 5% of loans as of December 31, 2024. The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $76.9 million and $45.8 million at June 30, 2025 and December 31, 2024, respectively. The portion of the Company's ACL that related to the loans with direct exposure to the oil and gas industry was estimated at $1.4 million as of June 30, 2025 and $1.1 million as of December 31, 2024.
The following table details loan balances by loan segment and class of financing receivable for loans with direct oil and gas exposure as of the dates indicated:
| (In Thousands) | June 30, 2025 | December 31, 2024 | ||||||
| Commercial & industrial loans | $94,311 | $87,935 | ||||||
| Commercial real estate: | ||||||||
| Owner occupied properties | 5,874 | 5,611 | ||||||
| Non-owner occupied and multifamily properties | 4,512 | 4,828 | ||||||
| Other loans | 1,243 | 1,282 | ||||||
| Total | $105,940 | $99,656 | ||||||
The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions. At June 30, 2025, the Company had $141.2 million, or 6% of portfolio loans, in the Healthcare sector, $127.2 million, or 6% of portfolio loans, in the Tourism sector, $121.0 million, or 5% of portfolio loans, in the Accommodations sector, $93.4 million, or 4% of portfolio loans, in the Retail sector, $84.2 million, or 4% of portfolio loans, in the Aviation (non-tourism) sector, $76.2 million, or 3% of portfolio loans, in the Fishing sector, and $59.5 million, or 3% in the Restaurant sector.
The portion of the Company's ACL that related to the loans with exposure to these industries is estimated at the following amounts as of June 30, 2025:
| (In Thousands) | Tourism | Aviation (non-tourism) | Healthcare | Retail | Fishing | Restaurant | Accommodations | Total | ||||||||||||||||||
| ACL | $736 | $806 | $928 | $815 | $423 | $421 | $815 | $4,944 | ||||||||||||||||||
Credit Quality and Nonperforming Assets
The following table sets forth information regarding our nonperforming loans and total nonperforming assets for the periods indicated:
| June 30, | December 31, | |||||||
| (In Thousands) | 2025 | 2024 | ||||||
| Nonaccrual loans | $7,861 | $7,516 | ||||||
| Loans 90 days past due and accruing | - | 17 | ||||||
| Total nonperforming loans | $7,861 | $7,533 | ||||||
| Nonperforming loans guaranteed by government | 70 | - | ||||||
| Net nonperforming loans | $7,791 | $7,533 | ||||||
| Repossessed assets | 50 | 297 | ||||||
| Nonperforming purchased receivables | 4,017 | 3,768 | ||||||
| Net nonperforming assets | $11,858 | $11,598 | ||||||
| Nonperforming loans, net of government guarantees / portfolio loans | 0.35 | % | 0.35 | % | ||||
| Nonperforming loans, net of government guarantees / portfolio loans, net of government guarantees | 0.38 | % | 0.38 | % | ||||
| Nonperforming assets, net of government guarantees / total assets | 0.37 | % | 0.38 | % | ||||
| Nonperforming assets, net of government guarantees / total assets net of government guarantees | 0.38 | % | 0.40 | % | ||||
| Adversely classified loans, net of government guarantees | $35,835 | $9,636 | ||||||
| Special mention loans, net of government guarantees | $4,756 | $19,769 | ||||||
| Loans 30-89 days past due and accruing, net of government guarantees /portfolio loans | 0.06 | % | 0.03 | % | ||||
| Loans 30-89 days past due and accruing, net of government guarantees / | ||||||||
| portfolio loans, net of government guarantees | 0.06 | % | 0.03 | % | ||||
| Allowance for credit losses / portfolio loans | 1.03 | % | 1.03 | % | ||||
| Allowance for credit losses / portfolio loans, net of government guarantees | 1.10 | % | 1.10 | % | ||||
| Allowance for credit losses / nonperforming loans, net of government | ||||||||
| guarantees | 290 | % | 292 | % | ||||
| Gross loan charge-offs for the quarter | $155 | $149 | ||||||
| Gross loan recoveries for the quarter | ($15) | ($200) | ||||||
| Net loan (recoveries) charge-offs for the quarter | $140 | ($51) | ||||||
| Net loan (recoveries) charge-offs year-to-date | $106 | ($215) | ||||||
| Net loan (recoveries) charge-offs for the quarter / average loans, for the quarter | 0.01 | % | - | % | ||||
| Net loan (recoveries) charge-offs year-to-date / average loans, | ||||||||
| year-to-date annualized | 0.01 | % | - | % | ||||
Allowance for Credit Losses
The following table sets forth information regarding changes in the ACL for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
| (In Thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||
| Balance at beginning of period | $20,922 | $17,533 | $22,020 | $17,270 | ||||||||||||||||
| Charge-offs: | ||||||||||||||||||||
| Commercial & industrial loans | (152) | - | (189) | - | ||||||||||||||||
| Agricultural production, including commercial fishing | - | - | - | (25) | ||||||||||||||||
| Consumer loans | (3) | - | (16) | |||||||||||||||||
| Total charge-offs | (155) | - | (205) | (25) | ||||||||||||||||
| Recoveries: | ||||||||||||||||||||
| Commercial & industrial loans | 5 | 17 | 79 | 77 | ||||||||||||||||
| Residential real estate: | ||||||||||||||||||||
|
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens |
7 | 4 | 14 | 10 | ||||||||||||||||
| Agricultural production, including commercial fishing | 1 | 5 | 3 | 5 | ||||||||||||||||
| Consumer loans | 2 | - | 3 | 1 | ||||||||||||||||
| Total recoveries | 15 | 26 | 99 | 93 | ||||||||||||||||
| Net, recoveries | (140) | 26 | (106) | 68 | ||||||||||||||||
|
(Benefit) provision for credit losses
|
1,803 | 135 | 671 | 356 | ||||||||||||||||
| Balance at end of period | $22,585 | $17,694 | $22,585 | $17,694 | ||||||||||||||||
The following table sets forth information regarding changes in the ACL for unfunded commitments for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
| (In Thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||
| Balance at beginning of period | $1,987 | $2,346 | $2,310 | $2,418 | ||||||||||||||||
| (Benefit) provision for credit losses | 168 | (255) | (155) | (327) | ||||||||||||||||
| Balance at end of period | $2,155 | $2,091 | $2,155 | $2,091 | ||||||||||||||||
The ACL for loans held for investment at June 30, 2025 increased $565,000 from December 31, 2024 primarily due to increases in loan balances as well as an increase in estimated loss rates due to less favorable economic forecasts and trends in qualitative factors. While management believes that it uses the best information available to determine the ACL, unforeseen market conditions and other events could result in adjustment to the ACL, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination of the ACL.
Deposits
Deposits are the Company's primary source of funds. Total deposits increased $129.0 million, or 5%, to $2.81 billion as of June 30, 2025 compared to $2.68 billion as of December 31, 2024, primarily due to new deposit relationships and normal seasonal fluctuations. The following table summarizes the Company's composition of deposits as of the periods indicated:
| June 30, 2025 | December 31, 2024 | |||||||||||||
| (In thousands) | Balance | % of total | Balance | % of total | ||||||||||
| Demand deposits | $777,948 | 28 | % | $706,225 | 27 | % | ||||||||
| Interest-bearing demand | 1,196,048 | 42 | % | 1,108,404 | 41 | % | ||||||||
| Savings deposits | 248,141 | 9 | % | 250,900 | 9 | % | ||||||||
| Money market deposits | 196,166 | 7 | % | 196,290 | 7 | % | ||||||||
| Time deposits | 390,867 | 14 | % | 418,370 | 16 | % | ||||||||
| Total deposits | $2,809,170 | $2,680,189 | ||||||||||||
The Company's mix of deposits continues to contribute to a low cost of funds with balances in transaction accounts representing 86% of total deposits at June 30, 2025 and 84% of total deposits at December 31, 2024.
The only deposit category with stated maturity dates is certificates of deposit. At June 30, 2025, the Company had $390.9 million in certificates of deposit as compared to certificates of deposit of $418.4 million at December 31, 2024. At June 30, 2025, $356.9 million, or 91%, of the Company's certificates of deposits are scheduled to mature over the next 12 months as compared to $369.7 million, or 88%, of total certificates of deposit at December 31, 2024. The aggregate amount of certificates of deposit in amounts of $250,000 and greater at June 30, 2025 and December 31, 2024, was $195.6 million and $217.1 million, respectively. The following table sets forth the amount outstanding of deposits in amounts of $250,000 and greater by time remaining until maturity and percentage of total deposits as of June 30, 2025:
| Time Certificates of Deposit | ||||||||
| of $250,000 or More | ||||||||
| Percent of Total Deposits | ||||||||
| (In Thousands) | Amount | |||||||
| Amounts maturing in: | ||||||||
| Three months or less | $43,653 | 22 | % | |||||
| Over 3 through 6 months | 76,354 | 39 | % | |||||
| Over 6 through 12 months | 59,953 | 31 | % | |||||
| Over 12 months | 15,615 | 8 | % | |||||
| Total | $195,575 | 100 | % | |||||
At June 30, 2025, 75% of total deposits were held in business accounts and 25% of deposit balances were held in consumer accounts. Northrim had approximately 34,000 deposit customers with an average balance of $60,000 as of June 30, 2025. Northrim had 27 customers with balances over $10 million as of June 30, 2025 which accounted for $731.1 million, or 27%, of total deposits.
Uninsured deposits totaled approximately $1.02 billion or 36% of total deposits as of June 30, 2025 compared to $1.1 billion or 40% of total deposits as of December 31, 2024. There was no unusual deposit activity during the first six months of 2025.
Borrowings
FHLB: The Bank is a member of the Federal Home Loan Bank of Des Moines (the "FHLB"). As a member, the Bank is eligible to obtain advances from the FHLB. FHLB advances are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Bank's assets. At June 30, 2025, our maximum borrowing line from the FHLB was approximately 45% of the Bank's assets, subject to the FHLB's collateral requirements. Based on the Company's current collateral pledged to the FHLB, less outstanding advances, the Company's borrowing line is $343.3 million as of June 30, 2025. The Company has outstanding advances of $13.0 million as of June 30, 2025 which were originated to match fund low income housing projects that qualify for long term fixed interest rates. These advances have original terms of either 18 or 20 years with 30 year amortization periods and fixed interest rates ranging from 1.23% to 3.25%. Additionally, the Company has a short-term $50.0 million advance from the FHLB outstanding as of June 30, 2025 at an interest rate of 4.48% which matures in August 2025.
Federal Reserve Bank: The Federal Reserve Bank of San Francisco (the "Federal Reserve Bank") is holding $65.0 million of securities as collateral to secure the Company's ability to take advances through the discount window on June 30, 2025. There were no discount window advances outstanding at either June 30, 2025 or December 31, 2024.
Other Short-term Borrowings: The Company is subject to provisions under Alaska state law, which generally limit the amount of outstanding debt to 35% of total assets or $1.13 billion at June 30, 2025 and $1.06 billion at December 31, 2024.
At June 30, 2025 and December 31, 2024, the Company had no short-term (original maturity of one year or less) borrowings that exceeded 30% of shareholders' equity.
Long-term Borrowings. The Company had no long-term borrowing outstanding other than the FHLB advances noted above as of June 30, 2025 or December 31, 2024.
Liquidity and Capital Resources
The Company is a single bank holding company and its primary ongoing source of liquidity is from dividends received from the Bank. Such dividends arise from the cash flow and earnings of the Bank. Banking regulations and regulatory authorities may limit the amount of, or require the Bank to obtain certain approvals before paying, dividends to the Company. Given that the Bank currently meets and the Bank anticipates that it will continue to meet, all applicable capital adequacy requirements for a "well-capitalized" institution by regulatory standards, the Company expects to continue to receive dividends from the Bank during the remainder of 2025. Other available sources of liquidity for the bank holding company include the issuance of debt and the issuance of common or preferred stock. As of June 30, 2025, the Company has 10.0 million authorized shares of common stock, of which approximately 5.5 million are issued and outstanding, leaving approximately 4.5 million shares available for issuance. Additionally, the Company has 2.5 million authorized shares of preferred stock available for issuance.
The Bank manages its liquidity through its Asset and Liability Committee. The Bank's primary source of funds are customer deposits. These funds, together with loan repayments, loan sales, maturity and sale of investment securities, borrowed funds, and retained earnings are used to make loans, to acquire securities and other assets, and to fund deposit flows and continuing operations. The primary sources of demands on our liquidity are customer demands for withdrawal of deposits and borrowers' demands that we advance funds against unfunded lending commitments.
The Company had cash and cash equivalents of $141.3 million, or 4% of total assets at June 30, 2025 compared to $62.7 million, or 2% of total assets as of December 31, 2024. The increase in cash and cash equivalents since the end of 2024 is primarily due to an increase in deposits and borrowings. The Company had other comprehensive income, net of tax, of $2.0 million for the six-month period ending June 30, 2025 primarily due to unrealized holding gains on available for sale securities. Accumulated unrealized losses, net of income taxes on available for sale securities, which are recorded in total shareholders' equity, are $3.6 million as of June 30, 2025. Accumulated unrealized losses, net of income taxes on held to maturity securities, which are not recorded in shareholders' equity, are $509,000 as of June 30, 2025. Management does not believe that liquidation of these securities, which would result in realized losses, will occur prior to maturity of these securities. As of both June 30, 2025 and December 31, 2024, the weighted average maturity of available for sale securities is 2.4 years. At June 30, 2025, $162.5 million available for sale securities mature within one year, $145.0 million mature within one to two years, and $27.0 million mature within two to three years. Our total unfunded commitments to fund loans and letters of credit at June 30, 2025 were $535.3 million. We do not expect that all of these loans are likely to be fully drawn upon at any one time. At June 30, 2025, certificates of deposit totaling $356.9 million are scheduled to mature over the next 12 months and may be withdrawn from the Bank. Similar to loans, we do not expect that these maturing certificates of deposit, or other non-maturity deposits, to be withdrawn from the Bank in a manner that will strain liquidity; however, unforeseen future circumstances or events may cause higher than anticipated withdrawal of deposits or draws of unfunded commitments to fund new loans. Management believes that cash requirements to fund future non-deposit and non-borrowing liabilities, including operating lease liabilities and other liabilities, as of June 30, 2025, are not material to the Company's liquidity position as of June 30, 2025.
The Company has other available sources of liquidity to fund unforeseen liquidity requirements. These include borrowings available through our correspondent banking relationships and our credit lines with the Federal Reserve Bank and the FHLB. At June 30, 2025, our liquid assets, which include investments and loans maturing within a year, were $1.15 billion. Our funds available for borrowing under our existing lines of credit based on loans currently pledged and investments available to be pledged as collateral were $507.9 million. Given these sources of liquidity and our expectations for customer demands for cash and for our operating cash needs, we believe our sources of liquidity to be sufficient for the foreseeable future.
As shown in the Consolidated Statements of Cash Flows included in Part I - Item 1 "Financial Statements" of this report, net cash provided by operating activities was $12.1 million for the first six months of 2025, primarily due to net proceeds from the sale of loans held for sale and cash provided by net income, which was only partially offset by cash used in connection with the origination of loans held for sale. Net cash used by investing activities was $95.5 million for the same period, primarily due to an increase in loans and purchased receivables which were only partially offset by maturities and calls of available for sale securities. Net cash provided by financing activities in the first six months of 2025 was $161.9 million, primarily due to increases in deposits and borrowings which was only partially offset by cash dividends paid to shareholders.
Throughout our history, the Company has periodically repurchased for cash a portion of its shares of common stock in the open market. At June 30, 2025, there are no shares remaining under the repurchase program, and we did not repurchase any shares in the first or second quarters of 2025. The Company currently has no plans to repurchase shares of its common stock in 2025.
Capital Requirements and Ratios
We are subject to minimum capital requirements. Federal banking agencies have adopted regulations establishing minimum requirements for the capital adequacy of banks and bank holding companies. The requirements address both risk-based capital and leverage capital. We believe as of June 30, 2025, that the Company and the Bank met all applicable capital adequacy requirements for a "well-capitalized" institution by regulatory standards.
The table below illustrates the capital requirements in effect for the periods noted for the Company and the Bank and the actual capital ratios for each entity that exceed these requirements. Management intends to maintain capital ratios for the Bank in 2025, exceeding the FDIC's requirements for the "well-capitalized" classification. The capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offering completed in the fourth quarter of 2005 is included in the Company's capital for regulatory purposes, although they are accounted for as a long-term debt in our financial statements. The trust preferred securities are not accounted for on the Bank's financial statements nor are they included in its capital. As a result, the Company has $10 million more in regulatory capital than the Bank at June 30, 2025, which explains most of the difference in the capital ratios for the two entities.
| Minimum Required Capital | Well-Capitalized | Actual Ratio Company | Actual Ratio Bank | ||||||||||||||||||||
| June 30, 2025 | |||||||||||||||||||||||
| Total risk-based capital | 8.00% | 10.00% | 10.71% | 10.24% | |||||||||||||||||||
| Tier 1 risk-based capital | 6.00% | 8.00% | 9.80% | 9.32% | |||||||||||||||||||
| Common equity tier 1 capital | 4.50% | 6.50% | 9.42% | 9.32% | |||||||||||||||||||
| Leverage ratio | 4.00% | 5.00% | 7.99% | 7.60% | |||||||||||||||||||
See Note 23 of the Consolidated Financial Statements in Part II. Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2024 for a detailed discussion of the capital ratios. The requirements for "well-capitalized" come from the Prompt Corrective Action rules. See Part I. Item 1 - Business - Supervision and Regulation in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. These rules apply to the Bank but not to the Company. Under the rules of the Federal Reserve Bank, a bank holding company such as the Company is generally defined to be "well capitalized" if its Tier 1 risk-based capital ratio is 8.0% or more and its total risk-based capital ratio is 10.0% or more.
Critical Accounting Estimates
SEC guidance requires disclosure of "critical accounting estimates." The SEC defines "critical accounting estimates" as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.
Our critical accounting estimates are described in detail in Part II. Item 7, Management's Discussion and Analysis, and in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to the valuation techniques or assumptions within the models that affect our estimates during the first or second quarters of 2025.
Allowance for Credit Losses Policy: Management performs a hypothetical sensitivity analysis of our ACL quarterly to understand the impact of a change in a key input on our ACL. As of June 30, 2025, if the four-quarter U.S. unemployment rate forecast had been approximately 3% higher and the four-quarter annualized growth rate in the U.S. Gross Domestic Product had been approximately 38% lower, our ACL for loans would have increased $$791,000, or 4%. As of June 30, 2025, if the four-quarter national unemployment rate forecast had been approximately 30% higher and the four-quarter annualized growth rate in the U.S. Gross Domestic Product had been approximately 46% higher, which represents management's estimate of long-term mean rates for these economic factors, our ACL for loans would have increased $1.6 million, or 8%. As of June 30, 2025, if the estimated prepayment and curtailment rates are doubled (with a maximum rate of 100%), our ACL for loans would have decreased $2.0 million, or 9%. As of June 30, 2025, if the estimated prepayment and curtailment rates are cut in half, our ACL for loans would have increased $1.5 million, or 7%. These sensitivity analyses include the impact to both the quantitative and qualitative components of our ACL. Changes in quantitative inputs and qualitative loss factors may not occur in the same direction or magnitude across all segments of our loan portfolio and deterioration in some quantitative inputs and qualitative loss factors may offset improvement in others. This sensitivity analysis does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the sensitivity of the ACL to a change in a key input. This sensitivity analysis does not incorporate changes to management's judgment of qualitative loss factors.
Northrim BanCorp Inc. published this content on July 28, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on July 28, 2025 at 16:44 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]