Northrim Impairs $20 Million Specialty Finance Credit
Net interest income reached a record $38.9 million as a $7.7 million provision cut third-quarter earnings to $14.4 million, or $0.63 a share.
Northrim BanCorp (NRIM), the Alaska-focused community bank, recorded a $7.7 million provision for credit losses in the third quarter of 2026, versus $1.6 million in the second quarter, as it took an $8.8 million individual impairment on a $20.0 million Specialty Finance credit.
Net income was $14.4 million, or $0.63 a diluted share. The year-over-year decline versus $27.1 million, or $1.20 a share, in the third quarter of 2025 was mostly due to the higher provision and a gain on sale of certain assets by Pacific Wealth Advisors a year earlier.
The impairment sat at Northrim Funding Services. Management cited customer receivable payment disputes tied to potential quality-control issues with the customer’s wholesale products, uncertainty around pending insurance claims, and the need to liquidate commercial and residential real estate and equipment collateral. The company continues to pursue contractual, collateral, guaranty, insurance, collection and legal remedies, and ultimate collection will take several quarters. It had no additional exposure in that industry as of September 30, 2026.
Nonperforming assets, net of government guarantees, rose to $42.9 million from $23.0 million at June 30, 2026, mostly in Specialty Finance and mostly attributable to the same relationship. The allowance for credit losses on loans was 1.46% of portfolio loans, net of guarantees, versus 1.13% three months earlier. Community Banking recorded a $134,000 benefit to the provision.
The core franchise kept expanding. Net interest income rose 5% to $38.9 million from $37.1 million in the second quarter, after a 7% sequential increase in that quarter, and 10% versus $35.3 million a year earlier. President and Chief Executive Officer Mike Huston said record net interest income, strong deposit growth and a net interest margin above 5% drove a 21% increase in pre-provision net revenue.
Net interest margin on a tax-equivalent basis was 5.02%, up 14 basis points from 4.88% a year earlier. The year-over-year expansion primarily reflected a mix shift toward higher loan balances as a share of earning assets. The investment-portfolio yield increased to 4.22% from 3.79% in the second quarter. The weighted average rate on new loans booked was 7.08%.
Total deposits were $3.05 billion at September 30, 2026, up 5% from the preceding quarter and 5% from $2.91 billion a year earlier. Non-interest-bearing demand deposits were $833.7 million, or 27% of total deposits. The average cost of interest-bearing deposits was 1.69%. Portfolio loans were $2.40 billion, up 8% from a year ago; core loans excluding consumer mortgages were $2.16 billion.
Community Banking net interest income was $35.8 million, up 11% from $32.3 million a year earlier, on higher loan and investment interest income and lower deposit interest expense, partially offset by higher borrowing costs after fourth-quarter 2025 subordinated debt. Segment net income was $15.2 million.
Other operating income was $20.8 million, or 35% of revenues, including a $1.9 million gain on sale of VISA shares and a $1.6 million increase in mortgage banking income mostly from higher fair value of mortgage servicing rights. Mortgage loans funded for sale were $189.0 million. Average purchased receivables and loan balances for Specialty Finance were $164.3 million.
Operating expenses were $33.2 million, including $993,000 of merger and acquisition costs related to the proposed PBCO acquisition. The efficiency ratio was 55.62%. The dividend increased to $0.17 a share.
On July 22, 2026, Northrim entered a definitive all-stock merger agreement to acquire PBCO Financial Corporation, the holding company for People’s Bank of Commerce, at 1.16 Northrim shares per PBCO share. The transaction is expected to close in the first quarter of 2027, subject to shareholder and regulatory approvals, and is intended to create a company with more than $4 billion in assets.