Northrim BanCorp Earns $3.1 Million, or $0.44 per Diluted Share in 3Q16

ANCHORAGE, Alaska, Oct. 31, 2016 (GLOBE NEWSWIRE) — Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the “Company”) today reported lower earnings for the third quarter and first nine months of 2016 primarily reflecting a  non-cash accounting correction, higher operating expenses, and a decrease in net interest margin and mortgage income primarily due to slowing loan growth in both the commercial and mortgage market in Alaska compared to the same periods in 2015. Third quarter net income attributable to the Company declined to $3.1 million, or $0.44 per diluted share, compared to $4.4 million, or $0.63 per diluted share, in the second quarter of 2016, and $5.3 million, or $0.77 per diluted share, in the third quarter of 2015.  In the first nine months of 2016, net income attributable to the Company decreased to $10.8 million, or $1.55 per diluted share, compared to $13.7 million, or $1.97 per diluted share in the first nine months of 2015.  Excluding the accounting correction described below, third quarter net income attributable to the Company would have been $4.7 million, or $0.67 per diluted share, and $12.4 million, or $1.78 per diluted share, for the first nine months of 2016.

Although  the non-cash accounting correction covered the period from December 1, 2014, through June 30, 2016, or the seven previous fiscal quarters, the Company made the correction in the third quarter of 2016 on a prospective basis, which resulted in an increase in expenses, net of tax, in the current quarter of $1.4 million, or $0.20 per diluted share relating to the accounting correction for the prior periods.  Prior periods have not been adjusted, consistent with the prospective method, for the change in accounting.  The correction reduced total shareholders’ equity by $1.4 million, reduced goodwill by $7.3 million, and increased regulatory capital ratios as of September 30, 2016. The correction was due to a change in accounting treatment for the earn-out payments associated with the Company’s 2014 acquisition of Residential Mortgage Holding Company, LLC (“RML”).  This change in accounting treatment also reduced net income for the third quarter of 2016 by $213,000, or $0.03 per diluted share, for a total decrease in net income of $1.6 million, or $0.23 per share including the correction for the prior periods. Following the reductions in the balance sheet resulting from the accounting correction, book value per share decreased $0.23 or 1% and tangible book value^* per share grew $0.83, or 3.5% to $24.61 as of September 30, 2016.

“The accounting correction arose due to the complexity of the facts and circumstances and the nuances of accounting guidance for the payments related to our 2014 acquisition of RML, particularly because of the continued employment of some of the selling members of RML. The earn-out payments are based on RML’s pretax income.  This payment, which is now reported as “compensation expense, RML acquisition payments” in the Company’s Income Statement reflects 100% of the payments that the Company will pay to the selling members of RML.  Prior to the accounting correction, the Company had essentially capitalized its estimate of the fair value of all future earn-out payments as part of the price paid to acquire RML. The expenses recorded in prior periods as ‘change in fair value, RML earn-out liability’ represent the increase in payments owed to the sellers of RML in excess of our original estimate at the time of purchase due to higher than anticipated pretax income from RML’s operations.” said Joseph Beedle, Chairman, President and CEO of Northrim Bancorp.  “The cash paid to the sellers of RML for the earn-out payments does not change under this new reporting method, only the way the Company is accounting for it in its financial statements.”

^* References to tax equivalent NIM, 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 measures to GAAP financial measures.

“Under the new accounting treatment, the quarterly net income in prior periods related to the earn-out payments would have decreased by approximately $213,000 per quarter.” said Latosha Frye, Chief Financial Officer.  “As it has since inception and regardless of this change in accounting method, expense related to the earn-out payments will fluctuate based on RML’s pretax income.”

The following table outlines the impact of the accounting correction on the net income attributable to the Company from each of our reporting segments for the third quarter of 2016 and the results from those segments in the third quarter of 2015:

Home mortgage lending contributed $8.3 million to pre-tax revenues and $0.20 to net earnings per share (“EPS”) in the third quarter of 2016, and $22.5 million to pre-tax revenue and $0.50 to net EPS in the first nine months of 2016.

“The loan portfolio increased 3% in the third quarter of 2016 compared to the preceding quarter end and 2% year-over-year, mainly reflecting growth in both commercial and commercial real estate loans and offsetting payoffs in several large commercial construction projects in 2016,” said Joe Schierhorn, Northrim Bank’s President and CEO.  “Our commercial real estate (“CRE”) loan portfolio (both owner-occupied and investment properties) generated 13% year-over-year growth compared to the third quarter of 2015, and accounted for 50% of loans at the end of September 2016.

“New construction projects in the Anchorage market are coming in at a slower pace than in the past few years, as the economy contracts mainly due to the effects of continued low oil prices,” Schierhorn continued.  “Construction loans were down 30% year-over-year in the third quarter of 2016, primarily due to approximately $84 million in projects which were completed and termed out in the last twelve months.  Of these construction loans, $55 million converted to the CRE term loan portfolio, which contributed to overall growth of $13.8 million, or 3%, in our CRE portfolio in the third quarter.”  We expect construction loans to decrease by another $10-15 million by the end of 2016.

Financial Highlights

• Year-to-date 2016 net income attributable to the Company totaled $10.8 million, or $1.55 per diluted share, compared to $13.7 million, or $1.97 per diluted share, in the first nine months of 2015.
• Total revenues, which include net interest income plus total other operating income, were relatively flat in the third quarter at $26.1 million, compared to $25.9 million in the preceding quarter and $27.1 million in the third quarter a year ago.
• Net interest income was up 1% in the third quarter of 2016 compared to the second quarter of 2016 and down 3% from the third quarter a year ago, primarily as a result of an increase in average loan balances from the second quarter of 2016, and a decrease in the yield on portfolio loans compared to the same quarter in 2015.
• Other operating income was mostly unchanged at $11.9 million in the third quarter of 2016 compared to the previous quarter and accounted for 46% of total revenues in both quarters.  In the third quarter of 2015, other operating income was $12.4 million and 46% of total revenues and included $683,000 in gains from dispositions of loans acquired and marked to fair value in connection with our acquisition of Alaska Pacific Bancshares, Inc. in 2014.
• Net interest margin (“NIM”) decreased to 4.11% in the third quarter of 2016 compared to 4.21% in the second quarter of 2016 and 4.32% in the third quarter a year ago, while tax equivalent NIM^* also declined compared to those periods, but still remained above the peer average¹ at 4.17% in the third quarter of 2016.  The decrease in both NIM and tax equivalent NIM* in the current quarter compared to a year ago primarily reflects the change in the mix of interest earning assets.
• Northrim paid a quarterly cash dividend of $0.20 per share in September 2016, up from the $0.19 per share dividend paid in September 2015.  The dividend provides an annual yield of approximately 3.3% at current market share prices. 
• Book value per share increased to $26.99 at the end of the third quarter of 2016 compared to $26.75 at the end of the previous quarter and $25.56 at the end of the third quarter of 2015.

¹As of June 30, 2016, the SNL US Bank Index tracked 146 banks with assets between $1 billion and $5 billion with averages for the following ratios: NIM (tax equivalent) 3.60%, return on average assets 0.88%, and return on average equity 8.29%

• Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 14.24% at September 30, 2016, compared to 13.85% at June 30, 2016, and 13.00% a year ago.
• Total shareholders’ equity to total assets was 12.06% at the end of the third quarter of 2016 compared to 12.12% at the end of the prior quarter and 11.39% at the end of the third quarter of 2015, while tangible common equity to tangible assets^* was 11.12% at September 30, 2016, compared to 10.72% at June 30, 2016, and 10.0% a year ago.

Alaska Economic Update

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 “About Northrim” link and then click “Alaska’s Economy”. Information from our website is not incorporated into, and does not form a part of this press release.

“According to the Alaska Department of Labor, preliminary data shows that average employment in the Alaska economy was down an estimated 0.2% or 689 jobs in the first nine months of 2016 as compared to the same period in 2015 as job losses in the oil and gas industry, construction, state government and professional and business services continue to be partially offset by growth in retail trade, health care, and leisure and hospitality jobs.  However, estimated employment as of the end of September 2016 compared to September 2015 was down 1.0% or 3,400 jobs,” said Beedle. “While the decreases in both average and period end estimated employment represent a more moderate overall impact from the decrease in the global price of oil compared to what other energy producing regions in the nation have experienced thus far, this is a larger decline than was originally predicted for 2016. Our loan demand has slowed moderately, as the Alaska economy contracts.” added Beedle.

Review of Income Statement

Consolidated Income Statement

In the first nine months of 2016, Northrim generated a return on average assets of 0.96% and a return on average equity of 7.93%, as compared to a 0.88% return on average assets and 8.29% return on average equity posted by the 146 banks that make up the SNL U.S. Bank Index with assets between $1 billion and $5 billion as of June 30, 2016.  The accounting correction resulted in the Company’s return on average equity and return on average assets being lower by 0.25% and 1.80%, respectively, than they would have been without the accounting correction. NIM and tax equivalent NIM* for the first nine months of 2016 were 4.18% and 4.24%, respectively, compared to 3.60% tax equivalent NIM for the index peers. ¹

Net Interest Income/Net Interest Margin

Net interest income grew slightly to $14.2 million in the third quarter of 2016 as compared to $14.1 million in the previous quarter, primarily due to an increase in average portfolio loans, and fell 3% from $14.7 million in the year ago quarter mainly reflecting changes in the mix of earning assets.  In addition, net interest margin was boosted in the third quarter a year ago by the recovery of $267,000 in nonaccrual interest from a nonperforming loan that was paid off during that period.  Net interest income was unchanged in the first nine months of 2016 at $42.5 million compared to the first nine months of 2015 as an increase in earning assets was offset by changes in the mix of earning assets, as well as $646,000 in recoveries of nonaccrual interest from nonperforming loans that paid off in 2015 compared to $89,000 of recoveries in the first nine months of 2016.

NIM and tax equivalent NIM* decreased in both the third quarter and first nine months of 2016 compared to prior year periods.  “We have experienced a gradual decline in our NIM primarily as a result of the flattening of the yield curve, slower growth in loan balances, and higher securities holdings,” said Schierhorn.

Northrim tax equivalent NIM*, which is primarily comprised of activities in the community banking segment, remained well above the average for the 146 banks in the SNL U.S. Bank Index with assets between $1 billion and $5 billion of 3.60% as of June 30, 2016.  “We are lowering our expectations for both our NIM and our tax equivalent NIM^* to stabilize in the 4.00% to 4.10% range for our NIM and the 4.05% and 4.15% range for our tax equivalent NIM^*, primarily due to our expectation that the mix of our earning assets will continue to shift towards higher balances in investment securities, as we believe growth in the higher-yielding loan portfolio will continue to be adversely affected by the expected weakness of the Alaskan economy. We believe both NIM and tax equivalent NIM should both benefit in the event interest rates rise another 25 basis points or the yield curve steepens, and would be adversely affected if interest rates fall and the yield curve continues to flatten,” said Frye.

Provision for Loan Losses

The provision for loan losses was $652,000 in the third quarter of 2016 compared to $200,000 in the second quarter of 2016 and $676,000 in the third quarter of 2015.  The increase in the third quarter of 2016 as compared to the second quarter of 2016 was primarily due to a $332,000 increase in the specific impairment allocated to one $5.9 million residential land development project that was moved to nonaccrual loans in the second quarter of 2016 as well as growth in the overall loan portfolio during the quarter. The allowance for loan losses to portfolio loans at the end of the third quarter of 2016 increased to 1.95% from 1.90% at June 30, 2016 and 1.83% at September 30, 2015.

Other Operating Income

In addition to home mortgage lending, Northrim has interests in other businesses that complement its core community banking activities.  It provides financial services to businesses and individuals through these interests, including purchased receivables financing, employee benefit plans, and wealth management.  These complementary business activities contributed $1.6 million, or 6% of total revenues in the third quarter of 2016, $1.5 million or 6% of revenues in the second quarter of 2016, and $1.6 million, or 6% of revenues in the third quarter a year ago.

Other operating income was $11.9 million, or 46% of total revenues in the third quarter of 2016, which represented a decline of 4% from $12.4 million, or 46% of third quarter 2015 revenues. Impacting the quarter was lower other income generated from gains on the disposition of loans acquired in 2014.  On a year-to-date basis, other operating income decreased 5% to $32.9 million from $34.5 million in the first nine months of 2015, primarily due to high refinancing activity in the second quarter of 2015 and lower other income for the reasons indicated above.

Other Operating Expenses

Operating expenses increased to $21.2 million in the third quarter of 2016 compared to $19.4 million in the second quarter of 2016 and $18.2 million in the third quarter of 2015.  The increase from the previous quarters was primarily the result of the change in the accounting treatment for the earn-out payments, including the correction for the prior periods, that added $2.6 million to pre-tax expenses in the current quarter, combined with higher salaries and other personnel expenses during the quarter.  These increases were partially offset by lower expenses associated with other real estate owned and a decrease in losses on the sale of premises and equipment in the third quarter of 2016 as compared to the second quarter of 2016.  The Company sold one branch location in the second quarter of 2016, but simultaneously entered into a long-term lease of the same branch location.

Community Banking

Net income attributable to the Company for the community banking segment totaled $1.7 million, compared to $2.8 million in the second quarter of 2016 and $3.7 million in the third quarter of 2015, which represented a 39% and 54% decline in the current quarter compared to the second quarter of 2016 and the third quarter of 2015, respectively. Excluding the $1.6 million in additional after-tax expenses that resulted from the change in accounting, including the correction for prior periods in the third quarter of 2016, net income attributable to the Company in the current quarter would have increased 15% from the preceding quarter and decreased by 11% compared to the third quarter a year ago.  Lower other operating expenses, specifically due to the loss on the sale of the branch noted above in the second quarter of 2016 as well as lower expenses for other real estate owned in the third quarter of 2016 were primarily the reason that net income attributable to the Company would have been higher in the current quarter compared to the previous quarter if the accounting correction had not been applied.  Slower loan growth and lower gains from the sale of previously acquired loans primarily accounted for the year-over-year decline in the third quarter, outside of the effects of the accounting correction. Year-to-date, net income attributable to the Company for the community banking segment totaled $7.3 million, or $1.05 per diluted share for the first nine months of 2016, down 22% from $9.3 million in the first nine months of 2015.  Excluding the $1.6 million in additional after-tax expenses resulting from the change in accounting, net income attributable to the Company would have decreased by 5% from the same period in 2015.  Additionally, lower income from the Company’s loan portfolio and lower other income from gains on the disposition of loans acquired in 2014 combined with increased personnel costs of $1.3 million in the first nine months of 2016, mainly consisting of salary and medical expenses, primarily accounted for the decline year-over-year.

“RML continues to outperform our original projections made when we purchased the business at the end of 2014.  The accounting correction created a great deal of noise in the quarter for both the income statements and balance sheet. Excluding the effects of the accounting correction, third quarter earnings in the community banking segment increased compared to the prior quarter while profits were down year-over-year primarily due to a decreased yield on our loan portfolio, decreased gains from the disposition of loans from a previous acquisition, and increased salaries and other personnel expenses,” said Frye.  “While we are actively managing costs, we recognize a need to continue to invest to keep pace with compliance and risk management expectations.”

The accounting correction related to the acquisition of RML is an obligation of Northrim Bank and is included in the community banking segment results.

The following table provides highlights of the community banking segment of Northrim:

Home Mortgage Lending

Total mortgage production revenue in the third quarter of 2016 was $7.2 million compared to $7.6 million in the preceding quarter and $7.5 million a year ago.  “Although net realized gains on the sale of mortgage loans increased during the third quarter from the second quarter, the change in the fair value of our mortgage loan commitments generated a loss in the third quarter compared to a gain in the prior quarter primarily due to the decrease in total loan commitments in the third quarter as compared to the increase in commitments in the second quarter.  The fluctuation in commitments is primarily driven by normal seasonality,” said Schierhorn.   Third quarter 2016 mortgage lending volumes increased as compared to the second quarter, which is also a normal seasonal fluctuation, with refinancing activity accounting for 24% of total loans funded in the current quarter.  Refinancing activity accounted for 18% of loans funded in the second quarter of 2016 and 10% of third quarter 2015 production. “Seasonality also accounts for the 27% decline in mortgage commitments in the current quarter compared to the previous quarter,” Schierhorn noted.

In the fourth quarter of 2015, Northrim began servicing the loans RML originates for the Alaska Housing Finance Corporation, which account for approximately 20% of loans originated by RML in 2016.  Northrim now services 970 loans in its $231.2 million servicing portfolio, which has more than doubled in size over the past year.  Servicing income contributed $782,000 to third quarter mortgage banking income, compared to $510,000 for the second quarter of 2016 and $308,000 in the third quarter a year ago.

Operating expenses in the home mortgage lending segment increased to $6.3 million in the third quarter of 2016 compared to $6.2 million in the second quarter of 2016 and $5.6 million in the third quarter a year ago.  “In addition to higher commission costs, which increase when production increases, the increase in operating expenses for the home mortgage lending segment in the third quarter of 2016 compared to the third quarter of 2015 is primarily the result of increasing fixed costs for technology needs and additional staff in marketing and loan management, as well as increased employee medical costs, similar to the community banking segment,” said Frye.

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

Balance Sheet Review

Northrim’s assets were $1.54 billion at September 30, 2016, mostly unchanged from a year ago and up 1% from $1.52 billion three months ago.  The mix of assets at each period end continued to shift from short term assets to portfolio investments and loans.

Average investment securities decreased 1% from the preceding quarter and increased 24% from a year ago.  The investment portfolio generated an average net tax equivalent yield of 1.42% for the third quarter of 2016 and the average estimated duration of the investment portfolio was 1.2 years at September 30, 2016.

Average loans held for sale increased 36% to $66.6 million in the third quarter of 2016 compared to the preceding  quarter, and increased 18% from the same quarter a year ago, primarily reflecting the seasonality of the mortgage business and the continuing steady demand for home loans in the Alaska marketplace.

Year-over-year, portfolio loans increased 2% to $997.1 million at September 30, 2016, and average portfolio loans increased 1% to $976.3 million in the first nine months of 2016 compared to the same period a year ago. Construction and land development loans, which are by nature short-term, grew 13% in the third quarter of 2016 and fell 30% year-over year.  Partially offsetting this decline was the increase in commercial real estate term loans which grew 3% in the third quarter of 2016 and 13% year-over-year.

Alaskans account for substantially all of Northrim’s deposit base, which is primarily made up of low-cost transaction accounts.  Balances in transaction accounts at September 30, 2016, represented 90% of total deposits.  At September 30, 2016, total deposits were $1.28 billion, up slightly from $1.26 billion both from the immediate prior quarter and the same quarter a year ago.  Year-over-year, average non-interest bearing deposits grew 7% in 2016 and average interest-bearing deposits increased 3%, bringing average total deposits up 3% to $1.26 billion at the end of the third quarter of 2016 compared to $1.23 billion at the end of the third quarter a year ago.

Other borrowings declined to $4.4 million at September 30, 2016, down substantially from $12.5 million at September 30, 2015, as Northrim is now funding RML’s short term borrowings from its internally generated liquidity.

Shareholders’ equity increased 6% to $185.8 million, or $26.99 per share, at September 30, 2016, compared to $175.3 million, or $25.56 per share, a year ago.  Tangible book value per share^* was $24.61 at September 30, 2016, compared to $22.09 per share a year ago.  Northrim remains well-capitalized with Tier 1 Capital to Risk Adjusted Assets of 14.24% at September 30, 2016.

Asset Quality

“The ratio of nonperforming assets to total assets, net of government guarantees decreased during the third quarter of 2016 to 0.78% of assets from 0.80% of assets at June 30, 2016, but increased from 0.37% a year ago primarily due to the addition of two lending relationships to non-accrual loans totaling $8.2 million in the second quarter 2016,” said Frye.  “One $5.9 million relationship is related to a residential land development project in the greater Anchorage market and has been included in adversely classified loans since December 31, 2015.  The other $2.3 million relationship is made up of three loans to a commercial business in the transportation industry, which was added to adversely classified loans in the second quarter of 2016.”

“While adversely classified assets remain elevated at the end of the third quarter as compared to one year ago, we had a decrease in charge-offs in the third quarter of 2016 compared to the third quarter of 2015 and did not have any charge-offs related to the oil sector,” said Schierhorn. The following table details loan charge-offs, by industry:

Net non-performing loans were 0.93% of portfolio loans compared to 1.00% at the end of the preceding quarter and 0.22% a year ago.  The increase compared to the same quarter of 2015 was primarily the result of the increase in nonaccrual loans that was discussed above.

Performing restructured loans, that were not included in nonaccrual loans at the end of the third quarter of 2016, increased to $14.9 million from $11.2 million at the end of the second quarter primarily due to the restructuring of one $4.2 million oil sector relationship that included a concession for interest-only payment terms for one year.  Performing restructured loans were $3.2 million at the end of the third quarter a year ago, and the increase as of the third quarter of 2016 is primarily due to the addition of the oilfield services commercial business noted above and one medical business. The maturities of the loans to the medical business were extended to allow the amortization schedules for the loans to more closely mirror the cash flow of this business.  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. 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.  At September 30, 2016, performing restructured loans plus nonperforming loans, net of government guarantees, increased to 2.43% of total assets from 2.15% at the end of the preceding quarter and 0.55% a year ago.

Other real estate owned (“OREO”) increased slightly to $2.8 million at the end of the third quarter of 2016, compared to $2.6 million the preceding quarter and declined from $3.5 million a year ago.

The allowance for loan losses was 1.95% of portfolio loans at September 30, 2016, compared to 1.90% at June 30, 2016, and 1.83% at the end of the third quarter of 2015.  Adversely classified loans totaled $41.5 million, or 4% of portfolio loans, at the end of the third quarter of 2016, compared to 4% at June 30, 2016, and 3% at the end of the third quarter of 2015.  Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees.  As of September 30, 2016, $34.7 million, or 84% of adversely classified loans net of government guarantees are attributable to five relationships in the following sectors; one retail commercial business, one commercial real estate construction project, one medical business, one residential land development project, and one oilfield services commercial business.

Northrim estimates that $51.9 million, or approximately 5% of portfolio loans as of September 30, 2016, have direct exposure to the oil and gas industry in Alaska, and $4.2 million of these loans are adversely classified.  Northrim has an additional $44.4 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.  “We continue to have no loans to oil producers or exploration companies,” said Frye.  “We define direct exposure to the oil and gas sector as loans to borrowers that provide oilfield services and other companies that we have 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 14 branches in Anchorage, the Matanuska Valley, Juneau, Fairbanks, Ketchikan, and Sitka 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. Affiliated companies include Northrim Benefits Group, LLC; and Pacific Wealth Advisors, LLC.

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 and Exchange Act.  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 and management’s plans and objectives for future operations 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 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: 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, 2015, 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:

http://labor.alaska.gov/trends/jan16.pdf 
http://live.laborstats.alaska.gov/ces/ces.cfm?at=01&a=000000&adj=0 
http://labor.alaska.gov/news/2016/news16-33.pdf 

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*Non-GAAP Financial Measures
(Dollars in thousands, except per share data)
(Unaudited)

Tax equivalent NIM

Tax equivalent NIM is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax equivalent basis using a combined federal and state statutory rate of  41.11% in both 2016 and 2015. The most comparable GAAP measure is net interest margin and the following table sets forth the reconciliation of tax equivalent NIM to net interest margin.

²Calculated using actual days in the quarter divided by 366 for quarters ended in 2016 and actual days in the quarter divided by 365 for quarters ended in 2015.

³Calculated using actual days in the year divided by 366 for year-to-date period ended in 2016 and actual days in the year divided by 365 for year-to-date period ended in 2015.

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(Unaudited)

Tangible Book Value

Tangible book value is a non-GAAP measure defined as shareholders’ equity, less intangible assets, divided by shares outstanding.  The following table sets forth the reconciliation of tangible book value per share and book value per share.

Tangible Common Equity to Tangible Assets

Tangible common equity to tangible assets is a non-GAAP ratio that represents total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets. This ratio has received more attention over the past several years from stock analysts and regulators.  The most comparable GAAP measure of shareholders’ equity to total assets is calculated by dividing total shareholders’ equity by total assets.