Northrim Widens Margin as Deposit Costs Ease
Net interest income reached a record $37.1 million as tax-equivalent NIM expanded 24 bps QoQ to 5.01%.
Northrim Bancorp (NRIM), the Alaska-based community bank, widened its tax-equivalent net interest margin by 24 bps QoQ and 29 bps YoY to 5.01%, accelerating from a 2-bps expansion in the first quarter. Net interest income rose 7% QoQ and 11% YoY to a record $37.1 million, reversing the prior quarter’s sequential decline.
Deposit costs provided much of the lift. The average cost of interest-bearing deposits fell 6 bps QoQ and 33 bps YoY to 1.71% as higher-priced time deposits matured, reducing quarterly deposit interest expense to $8.8 million. Total deposits rose 2% QoQ and 4% YoY to $2.92 billion, with noninterest-bearing balances accounting for 28% of deposits.
Community Banking drove the earnings increase, with segment net income rising to $11.7 million from $10.5 million QoQ and $7.7 million YoY. Its net interest income reached $33.2 million, up 4% QoQ and 11% YoY. Portfolio loans increased 1% QoQ and 8% YoY to $2.39 billion, a slower sequential pace than the 3% growth recorded in each of the previous two quarters.
Fee revenue also improved sequentially as mortgage activity picked up. Other operating income rose to $16.7 million from $14.9 million, while mortgage banking income increased to $7.1 million as loans funded for sale nearly doubled QoQ to $239.1 million. A $928,000 negative mortgage-servicing-rights valuation adjustment absorbed part of that production benefit.
Revenue growth outpaced the expense increase, lowering the efficiency ratio to 59.44% from 61.81% QoQ and 64.68% YoY. Operating expenses rose to $32.0 million from $30.6 million in the first quarter, reflecting higher mortgage-originator commissions and group-medical costs, and remained below the year-earlier level.
Capital continued to build as tangible common equity increased to 8.82% of tangible assets from 8.63% QoQ and 7.50% YoY. Total equity reached 10.18% of assets. Northrim held its quarterly dividend at $0.16 a share, unchanged throughout 2025 and the first half of 2026.
Credit costs moved higher alongside a concentrated deterioration in nonperforming assets. Provision for credit losses rose to $1.6 million from $960,000 QoQ, while nonperforming assets increased to $23.0 million from $15.3 million, largely because of one well-collateralized Community Banking relationship containing commercial-real-estate and commercial loans. Allowance coverage of nonperforming loans fell to 117% from 175%.
Forward margin indicators remained favorable: new-loan yields increased to 7.25% from 6.70% QoQ, and the investment-portfolio yield rose to 3.79% from 3.44%. Specialty Finance average purchased-receivable and loan balances grew 7% QoQ and 14% YoY to $141.5 million. Higher borrowing costs from the $60 million subordinated-note issuance continued to offset part of the benefit from cheaper deposits.