Northrim BanCorp, Inc. (NRIM) is a respected community bank holding company that has been serving the financial needs of Alaskans for over three decades. Headquartered in Anchorage, the company's wholly-owned subsidiary, Northrim Bank, operates a network of 20 branches throughout Alaska, catering to both business and consumer customers. Northrim's story is one of consistent growth, prudent risk management, and a steadfast commitment to supporting the communities it serves.

Business Overview A Storied History of Alaskan Banking

Northrim BanCorp's origins trace back to 1990, when a group of Alaskan business leaders recognized the need for a locally-focused community bank to serve the state's unique financial landscape. The company was founded with the goal of providing personalized banking services and tailored solutions to individuals and businesses across Alaska. In its early years, Northrim Bank focused on building a strong presence in the Anchorage market, opening additional branches and expanding its customer base. The bank successfully weathered the economic challenges of the early 1990s, including the aftermath of the 1986 oil price collapse that significantly impacted Alaska's economy.

In 2005, Northrim BanCorp completed a $10 million trust preferred securities offering, further strengthening the company's capital position. This strategic move allowed Northrim Bank to continue expanding its reach across Alaska, opening new branches and growing its commercial and retail banking operations. The company also pursued strategic acquisitions to enhance its capabilities, such as the 2015 purchase of Residential Mortgage, LLC, which bolstered its mortgage banking services.

Throughout its history, Northrim has faced various challenges, including the 2008 financial crisis and its impact on Alaska's economy. However, the company's focus on prudent risk management and dedication to delivering quality banking services to its customers have enabled it to successfully navigate these turbulent times and emerge as a prominent player in the state's banking industry.

Northrim's Community Banking Segment Serving Alaskan Businesses and Individuals

The company's Community Banking segment is the backbone of its operations, accounting for the majority of its revenues and earnings. This segment offers a comprehensive suite of banking products and services, including commercial and consumer loans, deposit accounts, and cash management solutions. Northrim's strong local market presence, deep understanding of the Alaska economy, and commitment to building long-term relationships with its customers have been key drivers of its success in this segment.

As of September 30, 2024, the Community Banking segment operated 20 branches throughout Alaska. This segment generated net interest income of $74.39 million and income before provision for income taxes of $29.80 million in the first nine months of 2024, compared to $71.50 million and $25.94 million, respectively, in the same period of 2023. The increase in net interest income and pre-tax income was primarily attributable to growth in the loan portfolio and higher yields on earning assets.

Home Mortgage Lending A Complementary Growth Engine

In addition to its community banking activities, Northrim also operates a Home Mortgage Lending segment through its subsidiary, Residential Mortgage, LLC. This division focuses on the origination and sale of mortgage loans for 1-4 family residential properties. The Home Mortgage Lending segment has been a consistent contributor to Northrim's overall profitability, particularly during periods of strong housing market activity.

In the first nine months of 2024, the Home Mortgage Lending segment reported net interest income of $7.95 million and income before provision for income taxes of $3.90 million, compared to $5.02 million and $2.67 million, respectively, in the same period of 2023. The improvement in performance was driven by a $6.63 million increase in mortgage banking income, reflecting higher mortgage loan origination and sales volume due to increased home purchase activity.

Financial Strength and Prudent Risk Management

Financials

Northrim BanCorp's financial performance has been consistently strong, with the company reporting net income of $25.39 million in the fiscal year ended December 31, 2023, up from $30.74 million in the previous year. The company's net interest margin, a key measure of profitability, was 4.17% in 2023, reflecting its ability to effectively manage its interest rate risk and funding costs.

For the most recent quarter, Northrim reported revenue of $39,416,000 and net income of $8,825,000. The company's operating cash flow (OCF) for the quarter was -$54,153,000, while free cash flow (FCF) stood at -$52,219,000. The increase in revenue and net income compared to the prior year quarter was primarily due to an increase in mortgage banking income and higher net interest income, which was only partially offset by higher other operating expenses and a higher provision for credit losses.

Loans held for investment, excluding loans held for sale, grew by $218.10 million, or 12%, to $2.01 billion as of September 30, 2024, compared to $1.79 billion as of December 31, 2023. This growth was seen across nearly all loan segments, including commercial industrial, commercial real estate, and residential real estate. The allowance for credit losses on loans increased to $19.53 million as of September 30, 2024, from $17.27 million as of December 31, 2023, primarily due to the higher loan balances.

Liquidity

Northrim's balance sheet is also well-capitalized, with a total risk-based capital ratio of 12.50% as of September 30, 2024, well above the regulatory requirement of 10.00% for a "well-capitalized" institution. This solid capital position provides the company with the financial flexibility to support its growth initiatives and navigate any potential economic headwinds.

As of September 30, 2024, Northrim reported cash holdings of $102,880,000. Total deposits increased by $140.50 million, or 6%, to $2.63 billion as of September 30, 2024, compared to $2.49 billion as of December 31, 2023. The deposit mix remained favorable, with 83% of total deposits in transaction accounts as of September 30, 2024. The company's net interest margin improved to 4.29% in the third quarter of 2024, compared to 4.15% in the third quarter of 2023, driven by higher yields on earning assets and a favorable change in the mix of earning assets.

Dividend Growth and Shareholder Returns

In addition to its strong financial performance, Northrim BanCorp has also demonstrated a commitment to rewarding its shareholders through a growing dividend. The company recently increased its quarterly cash dividend by 1.6% to $0.62 per share, marking the tenth time it has raised its dividend in the last five years. With an annualized dividend growth rate of 17.18% over the past five years, Northrim has proven itself to be a reliable source of income for its investors.

Navigating Challenges and Seizing Opportunities

Northrim BanCorp has not been immune to the challenges faced by the banking industry, including the low-interest-rate environment and increased regulatory scrutiny. However, the company's management team has consistently demonstrated its ability to adapt and capitalize on emerging opportunities.

For instance, during the COVID-19 pandemic, Northrim played a crucial role in supporting its local community by actively participating in the Paycheck Protection Program (PPP), providing much-needed financial assistance to small businesses. This commitment to its customers and community has been a hallmark of Northrim's approach and has helped solidify its reputation as a trusted financial partner.

Looking ahead, Northrim remains focused on driving organic growth, strengthening its risk management practices, and exploring strategic initiatives that can further enhance its competitive position. The company's diversified business model, conservative lending practices, and strong capital base position it well to navigate the evolving banking landscape and continue delivering value to its shareholders.

Conclusion

Northrim BanCorp's story is one of resilience, adaptability, and a steadfast commitment to serving the financial needs of Alaskans. With its deep roots in the local community, prudent risk management, and a track record of consistent financial performance, the company has established itself as a reliable and trusted financial institution in the state. As Northrim continues to navigate the challenges and seize the opportunities that lie ahead, investors can take comfort in the company's proven ability to deliver long-term shareholder value.

Overall, Northrim BanCorp's performance in the first nine months of 2024 was characterized by solid loan and deposit growth, improved net interest income and margins, and strong mortgage banking activity, which contributed to a 38.5% increase in net income compared to the same period in 2023. These positive trends underscore the company's ability to thrive in a dynamic economic environment and reinforce its position as a leading community bank in Alaska.