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| NRIM > SEC Filings for NRIM > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
reported amount of assets and liabilities, contingent assets and liabilities,
and revenues and expenses included in the consolidated financial statements.
The judgments and assumptions used by management are based on historical
experience and other factors, which are believed to be reasonable under the
circumstances. Circumstances and events that differ significantly from those
underlying the Company's estimates, assumptions and judgments could cause the
actual amounts reported to differ significantly from these estimates.
The Company's critical accounting policies include those that address the
accounting for the allowance for loan losses, the valuation of goodwill and
other intangible assets, and the valuation of other real estate owned. The
Company has not made any significant changes in its critical accounting policies
or its estimates and assumptions from those disclosed in its 2008 Annual Report.
These critical accounting policies are further described in 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
Form 10-K as of December 31, 2008. Management has applied its critical
accounting policies and estimation methods consistently in all periods presented
in these financial statements.
Several new accounting pronouncements became effective for the Company on
January 1, 2009. See Note 2 of this report for a summary of the pronouncements
and discussion of the impact of their adoption on the Company's consolidated
financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See note 2 of the Notes to the Consolidated Financial Statements in this Form
10-Q for further details.
SUMMARY OF THIRD QUARTER RESULTS
At March 31, 2009, the Company had assets of $993 million and gross loans of
$678.7 million, decreases of 1% and 4%, respectively, as compared to the
balances for these accounts at March 31, 2008. As compared to balances at
December 31, 2008, total assets and total loans at March 31, 2009 decreased by
1% and 5%, respectively. The Company's net income and diluted earnings per share
for the three months ended March 31, 2009, were $2.0 million and $0.31,
respectively, decreases of 9% and 9%, respectively, as compared to the same
period in 2008. For the quarter ended March 31, 2009, the Company's net interest
income decreased by $1.0 million, or 8%, its provision for loan losses decreased
by $325,000, or 19%, its other operating income increased $1.2 million, or 48%,
and its other operating expenses increased by $1.1 million, or 11%, as compared
to the first quarter a year ago.
RESULTS OF OPERATIONS
NET INCOME
Net income for the quarter ended March 31, 2009, was $2.0 million, or $0.31 per
diluted share, decreases of 9% each as compared to net income of $2.1 million
and diluted earnings per share of $0.34, respectively, for the first quarter of
2008.
The decrease in net income for the three-month period ending March 31, 2009 as
compared to the same period a year ago is the result of a decrease in net
interest income of $1.0 million and an increase in other operating expense of
$1.1 million as compared to the same period a year ago. The negative effect of
these items was partially offset by a $325,000 decrease in the loan loss
provision, a $1.2 million increase in other operating income, and a $402,000
decrease in tax expense for the three-month period ending March 31, 2009 as
compared to the same period a year ago. The decrease in the Company's net
interest income for the first quarter of 2009 was caused by larger declines in
the yield of its earning assets as compared to decreases in its cost of funds
combined with a shift in earning assets to lower yielding investment securities
from higher yielding loans. The provision for loan losses decreased by $325,000
in the first quarter of 2009 primarily to
account for the decrease in the specific allowance for impaired loans which is due to charge offs and payoffs. The increase in other operating expense for the first quarter of 2009 is primarily the result of a $435,000 increase in insurance expense related to FDIC insurance and a $303,000 increase in expenses related to OREO costs. The decrease in earnings per diluted share for the first quarter of 2009 as compared to the first quarter of 2008 was caused by the decrease in net income in the first quarter of 2009.
NET INTEREST INCOME
The primary component of income for most financial institutions is net interest
income, which represents the institution's interest income from loans and
investment securities minus interest expense, ordinarily on deposits and other
interest bearing liabilities. Both the Company's loans and deposits consist
largely of variable interest rate arrangements, with the result that as loans
and deposits reprice, the Company can expect fluctuations in net interest
income. Net interest income for the first quarter of 2009 decreased
$1.0 million, or 8%, to $11.2 million from $12.2 million in the first quarter of
2008 because of larger reductions in the yields on the Company's loans,
accompanied by a smaller decrease in interest expense. The following table
compares average balances and rates for the quarters ending March 31, 2009 and
2008:
Three Months Ended March 31,
Average Yields/Costs
Average Balances Change Tax Equivalent
2009 2008 $ % 2009 2008 Change
(Dollars in thousands)
Commercial $ 280,342 $ 280,537 ($195 ) 0 % 6.76 % 8.02 % -1.26 %
Construction/development 97,056 135,567 (38,511 ) -28 % 7.20 % 9.43 % -2.23 %
Commercial real estate 271,347 241,576 29,771 12 % 7.05 % 7.86 % -0.81 %
Home equity lines and
other consumer 50,562 51,327 (765 ) -1 % 6.81 % 7.13 % -0.32 %
Real estate loans for
sale 8,101 - 8,101 NA 4.91 % 0.00 % NA
Other loans (1,820 ) (1,725 ) (95 ) 6 %
Total loans 705,588 707,282 (1,694 ) 0 % 6.94 % 8.20 % -1.26 %
Short-term investments 36,640 25,587 11,053 43 % 0.82 % 3.01 % -2.19 %
Long-term investments 134,766 144,617 (9,851 ) -7 % 3.61 % 4.85 % -1.24 %
Total investments 171,406 170,204 1,202 1 % 3.06 % 4.61 % -1.55 %
Interest-earning assets 876,994 877,486 (492 ) 0 % 6.18 % 7.50 % -1.32 %
Nonearning assets 113,099 98,719 14,380 15 %
Total $ 990,093 $ 976,205 $ 13,888 1 %
Interest-bearing
liabilities $ 666,056 $ 668,535 ($2,479 ) 0 % 1.29 % 2.49 % -1.20 %
Demand deposits 208,405 194,298 14,107 7 %
Other liabilities 9,139 10,579 (1,440 ) -14 %
Equity 106,493 102,793 3,700 4 %
Total $ 990,093 $ 976,205 $ 13,888 1 %
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Net tax equivalent margin on earning
assets 5.20 % 5.60 % -0.40 %
Interest-earning assets averaged $877 million and $877.5 million for the three-month periods ending March 31, 2009 and 2008, respectively, a decrease of $492,000, or less than 1%. The tax equivalent yield on interest-earning assets averaged 6.18% and 7.50%, respectively, for the three-month periods ending March 31, 2009 and 2008, respectively, a decrease of 132 basis points. Loans, the largest category of interest-earning assets, decreased by $1.7 million, or less than 1%, to an average of $705.6 million in the first quarter of 2009 from $707.3 million in the first quarter of 2008. Commercial, construction and home equity lines and other consumer decreased by $195,000, $38.5 million and $765,000 on average, respectively, between the first quarters of 2009 and 2008. Commercial real estate loans increased by $29.8 million on average between the first quarters of 2009 and 2008. Additionally, the Company had $8.1 million in real estate loans for sale on average in the three months ended March 31, 2009, and no real estate loans for sale during the same period in 2008. The decline in the loan portfolio resulted from a combination of transfers of loans to OREO for the three-month period ending March 31, 2009, refinance and loan payoff activity, and a decrease in construction loan originations. We expect the loan portfolio to decline slightly in the future with moderate growth in commercial real estate, decreases in commercial and
construction loans, and decreases in home equity lines and other consumer loans
as more of these types of loans are paid off due to the increase in mortgage
refinance activity that has resulted from the declines in long term mortgage
rates that began late in the fourth quarter of 2008. Residential construction
activity in Anchorage, the Company's largest market, is expected to continue to
decline through 2009 due to a decline in available building lots and sales
activity. While the Company believes it has offset a portion of this effect by
acquiring additional residential construction customers, it expects that the
sales activity levels in the real estate markets in Anchorage, the
Matanuska-Susitna Valley, and the Fairbanks areas will continue to decrease from
the prior year and lead to an overall decline in its construction loans. In
addition, management intends to continue to aggressively reduce its loans
measured for impairment and OREO, much of which is secured by residential
construction and land development loans, which should lead to further decreases
in construction loan balances. The yield on the loan portfolio averaged 6.94%
for the first quarter of 2009, a decrease of 126 basis points from 8.20% over
the same quarter a year ago.
Average investments increased $1.2 million, or 1%, to $171.4 million for the
first quarter of 2009 from $170.2 million in the first quarter of 2008. This
increase resulted mainly from decreased loan balances.
Interest-bearing liabilities averaged $666.1 million for the first quarter of
2009, a decrease of $2.5 million, or less than 1%, compared to $668.5 million
for the same period in 2008. The average cost of interest-bearing liabilities
decreased 120 basis points to 1.29% for the first quarter of 2009 compared to
2.49% for the first quarter of 2008. The decrease in the average cost of funds
in 2009 as compared to 2008 is largely due to the interest rate cuts by the
Federal Reserve that were made throughout 2008. As a result, many other interest
rates declined during the year, which contributed to a decline in deposit rates.
The Company's net interest income as a percentage of average interest-earning
assets (net tax-equivalent margin) was 5.20% for the three-month period ending
March 31, 2009 as compared to 5.60% for the same period in 2008. During the
three-month period ending March 31, 2009, the yield on the Company's loans
decreased due to lower yields in all loan categories while its funding costs
also experienced a decrease due to a decline in interest rates as noted above.
In the three-month period ending March 31, 2009, the yield on the Company's
earning assets declined by more than the cost of its interest-bearing
liabilities. As loan volume declined, investment volume increased as compared to
the same period a year ago. However, the yields on the Company's investments
averaged 3.06% for the three-month period ending March 31, 2009, as compared to
average yield on its loans of 6.94%. This shift from higher yielding to lower
yielding assets together with increased OREO and nonaccrual loan balances had a
negative effect on the Company's net tax equivalent margin in the first quarter
of 2009.
OTHER OPERATING INCOME
Other operating income consists of earnings on service charges, purchased
receivable income, equity in earnings from the Company's mortgage affiliate,
gains from the sale of other real estate owned and other items. Set forth below
is the change in Other Operating Income between the three-month periods ending
March 31, 2009 and 2008:
Three Months Ended March 31,
2009 2008 $ Chg % Chg
(Dollars in thousands)
Equity in earnings from mortgage affiliate $ 848 $ 33 $ 815 2470 %
Purchased receivable income 758 529 229 43 %
Service charges on deposit accounts 703 862 (159 ) -18 %
Employee benefit plan income 366 307 59 19 %
Electronic banking fees 310 246 64 26 %
Rental income 206 10 196 1960 %
Loan servicing fees 136 124 12 10 %
Merchant credit card transaction fees 83 106 (23 ) -22 %
Equity in loss from Elliott Cove (65 ) (37 ) (28 ) 76 %
Gain on sale of other real estate owned, net 108 - 108 NA
Other income 129 242 (113 ) -47 %
Total $ 3,582 $ 2,422 $ 1,160 48 %
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Total other operating income for the first quarter of 2009 was $3.6 million, an
increase of $1.2 million from $2.4 million in the first quarter of 2008. This
increase is due primarily to increases in income from our equity in earnings
from our mortgage affiliate and purchased receivable income.
The Company's share of the earnings from its 24% interest in its mortgage
affiliate, RML, increased by $815,000 to $848,000 during the three-month period
ending March 31, 2009 as compared to $33,000 in the same period in 2008. The
increase in earnings resulted from increased refinance activity that began in
the fourth quarter of 2008 and continued through the first quarter of 2009. The
Company expects that the level of mortgage refinance activity will decrease in
future periods in 2009, which will result in the Company receiving a lower level
of earnings from its interest in RML.
Income from the Company's purchased receivable products increased by $229,000,
or 43%, to $758,000 for the three-month period ending March 31, 2009 as compared
to $529,000 for the same period ending in March 31, 2008. The Company uses these
products to purchase accounts receivable from its customers and provide them
with working capital for their businesses. While the customers are responsible
for collecting these receivables, the Company mitigates this risk with extensive
monitoring of the customers' transactions and control of the proceeds from the
collection process. The Company expects the income level from this product to
fluctuate as the Company adds new customers while some of its existing customers
will move into different products to meet their working capital needs. For
example, at the end of the three month period ending March 31, 2009, one of the
Company's purchased receivable customers sold a portion of its business and used
those proceeds to repay its purchased receivable balance which accounted for a
large part of the decrease in purchased receivable balances at March 31, 2009 as
compared to the balances at March 31, 2008.
Service charges on the Company's deposit accounts decreased by $159,000, or 18%,
to $703,000 for the three-month period ending March 31, 2009, as compared to
$862,000 for the three-month period ending March 31, 2008. The decrease in
service charges is primarily the result of a decrease in fees collected on
non-sufficient funds transactions due to a decrease the number of transactions
processed during the first quarter of 2009.
Employee benefit plan income from NBG was $366,000 and $307,000 for the
three-month periods ending March 31, 2009 and 2008, respectively, for an
increase of $59,000, or 19%. This increase is a reflection of NBG's ability to
provide additional products and services to an increasing client base.
The Company's electronic banking revenue increased by $64,000, or 26%, to
$310,000 at March 31, 2009 from $246,000 at March 31, 2008. This increase
resulted from additional fees collected from increased point-of-sale and ATM
transactions. The point-of-sale and ATM fees have increased as a result of the
increased number of deposit accounts that the Company has acquired through the
marketing of the high performance checking ("HPC") product and overall continued
increased usage of point-of-sale by the entire customer base.
Rental income increased by $196,000, or 1960%, to $206,000 at March 31, 2009
from $10,000 at March 31, 2008. This increase resulted from the purchase of the
Company's main office facility through NBL in July 2008. The Company leases
approximately 40% of the building to other companies and earned $187,000 from
these leases in the first quarter of 2009.
Merchant credit card transaction fees decreased by $23,000, or 22%, to $83,000
at March 31, 2009 from $106,000 at March 31, 2008. This decrease resulted from
both a decrease in the number of transactions processed by merchants and a
decrease in average transaction fees due to competitive pressures.
The Company's share of losses from its 48% interest in Elliott Cove increased by
$28,000, or 76%, to a loss of $65,000 at March 31, 2009 from a loss of $37,000
at March 31, 2008. The increased losses from Elliott Cove resulted from a
decrease in Elliott Cove's revenues that was caused by a decrease in its assets
under management for the first quarter in 2009 as compared to 2008.
The Company recognized $108,000 in net gains on the sale of $2 million in other
real estate owned in the three-month period ending March 31, 2009. During this
period, the Company sold four houses, two condominiums, and a number of
developed residential lots with most of the property located in the greater
Anchorage area. There were no sales of other real estate owned in the three
months ended March 31, 2008.
Other income decreased by $113,000 or 47%, during the first quarter of 2009 to
$129,000 from $242,000 in the first quarter of 2008. This decrease is primarily
the result of the fact that the Company received $56,000 in proceeds in the
first quarter of 2008 for the mandatory partial redemption of the Company's
Class B common stock in VISA Inc. Additionally, the Company's commissions from
the sale of Elliott Cove products also decreased in the three-month period
ending March 31, 2009 by $30,000 to $43,000, as compared to $73,000 in the same
period in 2008.
EXPENSES
Other Operating Expense
The following table breaks out the components of and changes in Other Operating
Expense between the three-month periods ending March 31, 2009 and 2008:
Three Months Ended March 31,
2009 2008 $ Chg % Chg
(Dollars in thousands)
Salaries and other personnel expense $ 5,451 $ 5,403 $ 48 1 %
Occupancy 915 824 91 11 %
Insurance expense 805 370 435 118 %
OREO expense, including impairment 396 93 303 326 %
Professional and outside services 378 309 69 22 %
Marketing 318 390 (72 ) -18 %
Equipment, net 304 296 8 3 %
Intangible asset amortization 82 88 (6 ) -7 %
Purchased receivable losses (16 ) (13 ) (3 ) N/A
Other expense 1,887 1,705 182 11 %
Total $ 10,520 $ 9,465 $ 1,055 11 %
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Total other operating expense for the first quarter of 2009 was $10.5 million,
an increase of $1.0 million from $9.5 million in the first quarter of 2008. This
increase is primarily due to a $435,000 increase in insurance costs, a $303,000
increase in expenses related to OREO, a $91,000 increase in occupancy costs and
a $69,000 increase in professional fees and outside services.
Salaries and benefits increased by $48,000, or 1%, for the three-month period
ending March 31, 2009 as compared to the same period a year ago due to salary
increases driven by competitive market pressures.
Occupancy expense increased by $91,000, or 11%, for the three-month period
ending March 31, 2009 as compared to the same period in 2008 largely due to the
Company's acquisition of its main office facility for $12.9 million on July 1,
2008.
. . .
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