UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
FORM 10-K
(Mark One)
☑    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 20202022
☐    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from_____to____
Commission File Number 000-33501
NORTHRIM BANCORP, INC.
(Exact name of registrant as specified in its charter)
Alaska 92-0175752
(State or other jurisdiction of incorporation or organization)
 (I.R.S. Employer Identification No.)
3111 C Street
Anchorage, Alaska 99503
(Address of principal executive offices)   (Zip Code) 
(907) 562-0062
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par valueThe NASDAQ Stock Market, LLC
(Title of Class)(Name of Exchange on Which Listed)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ¨ Yes  ý No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ¨ Yes  ý No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý Yes  ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ý Yes  ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  
Large Accelerated Filer ¨  Accelerated Filer ý    Non-accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company ¨ Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 12(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in this filing reflect the correction of an error to previously issued financial statements. ¨

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensationreceived by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ¨




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).       Yes  ý No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 20202022 (the last business day of the registrant’s most recently completed second fiscal quarter) was $156,436,340.$221,451,700.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  6,192,0965,700,728 shares of Common Stock, $1.00 par value, as of March 5, 2021.



6, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement on Schedule 14A, relating to the registrant’s annual meeting of shareholders to be held on May 27, 2021,25, 2023, are incorporated by reference into Part III of this Form 10-K.



TABLE OF CONTENTS
   
 
Part  I
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 Part II 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
 Part III 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 Part IV 
Item 15.
 
Item 16.
 

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PART I
 
Cautionary Note Regarding Forward Looking Statements

This Annual Report on Form 10-K includes “forward-looking statements”, within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, which are not historical facts. These forward-looking statements describe management’s expectations about future events and developments such as future operating results, growth in loans and deposits, continued success of the Northrim BanCorp Inc.’s style of banking, and the strength of the local economy in which we operate, and statements related to the expected or potential impact of the novel coronavirus ("COVID-19") pandemic, including any variants of the COVID-19 virus, the timing, availability and efficacy of the COVID-19 vaccines in the jurisdictions in which the Company operates, and related responses of the government that have been, and may in the future be imposed in response to the pandemic.operate. All statements other than statements of historical fact, including statements regarding industry prospects, and future results of operations or financial position, and the expected or potential impact of COVID-19 and related responses of the government that have been, and may in the future be imposed in response to the pandemic, made in this report are forward-looking. We use words such as “anticipate,” “believe,” “expect,” “intend” and similar expressions in part to help identify forward-looking statements. Forward-looking statements reflect management’s current plans and expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations, and those variations may be both material and adverse. Forward-looking statements, whether concerning COVID-19 and the government response related thereto or otherwise, 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: the uncertainties relating toeffect of the novel coronavirus (“COVID-19”) pandemic and other infection illness outbreaks that may arise in the future and the resulting governmental or societal responses; impact of the results of government initiatives on the regulatory landscape, natural resource extraction industries, and capital markets; the impact of COVID-19 on the Company's credit quality, business, operations and employees; the availability and terms of funding from government sources related to COVID-19; the timing of Paycheck Protection Program ("PPP") loan forgiveness; the impact of government response that have been, and maydeclines in the future be imposedreal estate market, high unemployment rates, inflationary pressures and slowdowns in response toeconomic growth; potential further increases in interest rates, inflation, supply-chain constraints, and potential geopolitical instability, including the pandemic, including stimulus programs which could adversely impact lending demand;war in Ukraine; financial stress on borrowers (consumers and businesses) as a result of higher rates or an uncertain economic environment; the general condition of, and changes in, the Alaska economy; our ability to maintain or expand our market share or net interest margin; the sufficiency of our allowance for loan losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to CECLcurrent expected credit losses accounting guidance; our ability to maintain asset quality; our ability to implement our marketing and growth strategies; our ability to identify and address cyber-security risks, including security breaches, “denial of service attacks,” “hacking,” and identity theft; and our ability to execute our business plan. Further, actual results may be affected by competition 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. 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 Item 1A. Risk Factors, and in our 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. In addition, you should note that we do not intend to update any of the forward-looking statements or the uncertainties that may adversely impact those statements, other than as required by law.

ITEM 1.            BUSINESS
    In this document, please note that references to "we", "our", "us", or the "Company" mean Northrim BanCorp, Inc. and its subsidiaries, unless the context suggests otherwise.
General
    We are a publicly traded bank holding company headquartered in Anchorage, Alaska. The Company’s common stock trades on the Nasdaq Global Select Stock Market (“NASDAQ”) under the symbol, “NRIM.” The Company is regulated by the Board of Governors of the Federal Reserve System. We began banking operations in Anchorage in December 1990, and formed the Company as an Alaska corporation in connection with our reorganization into a holding company structure; that reorganization was completed effective December 31, 2001. The Company has grown to be the third largest commercial bank in Alaska and in Anchorage in terms of deposits, with $1.8$2.4 billion in total deposits and $2.1$2.7 billion in total assets at December 31, 2020.2022. Through our sixteen18 banking branches and twelveeight mortgage origination offices, we are accessible to approximately 90% of the Alaskan population.
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    The Company has three direct wholly-owned subsidiaries:
Northrim Bank (the “Bank”), a state chartered, full-service commercial bank headquartered in Anchorage, Alaska. The Bank is regulated by the Federal Deposit Insurance Corporation (the "FDIC") and the State of Alaska Department of Commerce, Community and Economic Development, Division of Banking Securities
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and Corporations.Securities.. The Bank has sixteen18 branch locations in Alaska; eight in Anchorage, one in Wasilla, two in Juneau, onetwo in Fairbanks, one in Ketchikan, one in Sitka, one in Eagle River, one in Nome, and one in Soldotna. Additionally, we have a loan production office in Kodiak. We operate in Washington State through Northrim Funding Services (“NFS”), a factoring business that the Bank started in 2004. We offer a wide array of commercial and consumer loan and deposit products, investment products, and electronic banking services over the Internet;
Northrim Investment Services Company (“NISC”) was formed in November 2002. In the first quarter of 2006, throughThrough NISC, we purchased anown 22% of the total outstanding equity interest in Pacific Wealth Advisors, LLC (“PWA”), an investment advisory, trust, and wealth management business located in Seattle, Washington, in which we hold 24% of PWA's total outstanding equity interests.Washington. PWA is a holding company that owns Pacific Portfolio Consulting, LLC and Pacific Portfolio Trust Company;
Northrim Statutory Trust 2 (“NST2”), an entity that we formed in December of 2005 to facilitate a trust preferred securities offering by the Company.
    The Bank has three direct wholly-owned subsidiaries:
Northrim Capital Investments Co. (“NCIC”) is a wholly-owned subsidiary of the Bank, which holds a 100% interest in a residential mortgage holding company, Residential Mortgage Holding Company, LLC, (“RML”).  The predecessorthe parent company of RML, Residential Mortgage, LLC was formed in 1998 and has twelve offices throughout Alaska.(collectively “RML”). RML became a wholly-owned subsidiary of NCIC on December 1, 2014. Prior to that, the Company held a 23.5% interest in RML. RML holds a 30% investment in Homestate Mortgage, LLC. In March and December of 2005, NCIC purchased ownership interests totaling 50.1% in Northrim Benefits Group, LLC (“NBG”), an insurance brokerage company that focused on the sale and servicing of employee benefit plans. In August 2017, the Company sold all of its interest in the assets of NBG. 
Northrim Building, LLC (“NBL”) is a wholly-owned subsidiary of the Bank that owns and operates the Company’s main office facility at 3111 C Street in Anchorage. 
Northrim Building LO, LLC is a wholly-owned subsidiary of the Bank that owns and operates the Company’s community branch facility at 2270 E. 37th Avenue in Anchorage. 
Segments
    The Company operates in two primary segments: Community Banking and Home Mortgage Lending. Measures of the revenues, profit or loss, and total assets for each of the Company's segments are included in this report, Part II. Item 8. "Financial Statements and Supplementary Data", of this report, which is incorporated herein by reference.
Business Strategy
    The Company’s primary objective is to becomebe Alaska's most trusted financial institution by adding value for our customers, communities, and shareholders. We aspire to be Alaska's premier bank and employer of choice as a leader in financial expertise, products, and services. We value our state, and we are proud to be Alaskan. We embody Alaska's frontier spirit and values, and we support our communities. We have a sincere appreciation for our customers, and we strive to deliver superior customer first service that is reliable, ethical, and secure. We look for growth opportunities for our customers, our institution, and our employees.
    Our strategy is one of value-added growth. Management believes that calculated, sustainable organic and inorganic market share growth coupled with good asset quality, an appropriate core deposit and capital base, operational efficiency, diversified sources of other operating income, and improved profitability is the most appropriate means of increasing shareholder value.
    Our business strategy emphasizes commercial lending products and services through relationship banking with businesses and professional individuals. Additionally, we are a land development and residential construction lender and an active lender in the commercial real estate market in Alaska.  Because of our relatively small size, our experienced senior management team can be more involved with serving customers and making credit decisions, all of which are made in Alaska, allowing us to compete more favorably with larger competitors for business lending relationships. Our business strategy also emphasizes the origination of a variety of home mortgage loan products, most of which we sell to the secondary market. We retain servicing for home mortgages that we originate and sell to the Alaska Housing Finance Corporation.Corporation ("AHFC"). We believe that there is
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opportunity to increase the Company’s loan portfolio, particularly in the commercial portion of the portfolio, in the Company’s current market areas through existing and new customers.
     Management believes that our real estate construction and term real estate loan departments have developed a strong level of expertise and will continue to compete favorably in our markets. We have also targeted the acquisition of new customers in professional fields including physicians, dentists, accountants, and attorneys. In addition to lending products, in many cases commercial customers also require multiple deposit and affiliated services that add franchise value to the Company. While we expect that opportunities for growth in 2021 will be modest mainly due to the impacts of the COVID-19 pandemic and the lower oil prices compared to pre-2020 levels, which has led to a slower economy in Alaska, weWe believe that these strategies will continue to benefit the Company in 2023, and we intend to continue to grow our balance sheet through increasing our market share. The Company benefits from solid capital and liquidity positions, and management believes that this provides a competitive advantage in the current business environment. (See “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.)
    The Company’s business strategy also stresses the importance of customer deposit relationships to support its lending activities. Our guiding principle is to serve our market areas by operating with a “Superior Customer First Service” philosophy, affording our customers the highest priority in all aspects of our operations. We believe that our adherence to this philosophy has created a strong core deposit franchise that provides a stable, low cost funding source for expanded growth in all of our lending areas. We have devoted significant resources to future deposit product development, expansion of electronic services for both personal and business customers, and enhancement of the Company's information security related to providing these services.
    In addition to market share growth, a significant aspect of the Company’s business strategy is focused on managing the credit quality of our loan portfolio. Over the last several years,As the Company has allocatedcontinues to grow, management is committed to allocating more resources to the credit management function of the Bank to provide enhanced financial analysis of our largest, most complex loan relationships to further develop our processes for analyzing and managing various concentrations of credit within the overall loan portfolio, and to develop strategies to improve or collect our existing loans.portfolio. Continued success in maintaining or further improving the credit quality of our loan portfolio and managing our level of other real estate owned is a significant aspect of the Company’s strategy for attaining sustainable, long-term market growth to produce increased shareholder value.
Human Capital Resources
    We believe that we provide a high level of customer service. To achieve our objective of providing “Superior Customer First Service”, in managing its human capital resources, management emphasizes the hiring and retention of competent and highly motivated employees at all levels of the organization. Management believes that a well-trained and highly motivated core of employees allows maximum personal contact with customers in order to understand and fulfill customer needs and preferences. This “Superior Customer First Service” philosophy is combined with our emphasis on personalized, local decision making. The Company continues to enhance our company-wide employee training program which focuses on Northrim culture, Superior"Superior Customer First Service,Service", general sales and management skills, and various technical areas. The Company complies with all applicable state and local laws governing nondiscrimination in employment in every location in which the Company operates. All applicants and employees are treated with the same high level of respect regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender identity, disability or protected veteran status. The Company complies with all applicable state and local laws governing nondiscrimination in employment in every location in which the Company operates.
The Company strives to continuously evaluate our human capital polices for improvement and alignment with current best practices. The Company recently added the Juneteenth National Independence Day and Indigenous People's Day to our lineup of paid holidays for employees. Additionally, effective January 1, 2022 the Company enhanced its paid parental leave program for employees following the birth of a child or the placement of a child in connection with an adoption. In the third quarter of 2022, the Company increased base wages for all Community Banking employees below the level of Senior Vice President. This pay increase was done outside of the normal annual salary review process in order to appropriately respond, in a timely manner, to inflationary and competitive wage pressures. Effective January 1, 2023, the Company increased its sick leave benefit from 32 to 40 hours per year and removed the legacy 3-day wait period to use this benefit.
Approximately 49% of the Company's employees are working remotely as of December 31, 2022 either on a full- or part-time basis, including employees that work remotely part-time and work in the office part-time, which we refer to as a "hybrid" work from home arrangement. Like many other entities, the percentage of the Company's work force that works remotely in some fashion increased during the pandemic and is expected to stay approximately consistent with current levels in the future as the Company has adjusted to the new environment. We also offer our employees other flexible work options, such as variable work hours, condensed workweeks and part-time hours. There have been no material impacts to our operations due to the increase in these alternative working arrangements, and we are pleased to provide our employees with more flexibility to accommodate their needs. In addition, Northrim provides for a strong work/life balance, including generous paid time off and paid parental leave.
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Employee Profile and Diversity
    We consider our relations with our employees to be highly satisfactory.  We had 438469 full-time equivalent employees at December 31, 2020.2022. None of our employees are covered by a collective bargaining agreement.  Of the 438469 full-time equivalent employees, 312336 were Community Banking employees and 126133 were Home Mortgage Lending employees.
Among the Company's full-time equivalent employees as of December 31, 2020, 72%2022, 69% identify as women and 28%31% as men. Approximately 35%33% of the workforce identify as a member of a racial minority, 5%3% identify as individuals with a disability, and 2%1% identify as veterans. In executive and senior management positions, 52%43% identify as women and 48%57% as men as of December 31, 2020.2022. Approximately 4%11% of those in executive and senior management positions identify as a member of a racial minority, 4% identify as individuals with a disability, and 4% identify as veterans.
Diversity, Equity, and Inclusion
We work every daystrive to createensure a respectful, diverse, and inclusive environment and experience for all of our employees. We support and cultivate an open and respectful environment where everyone can actively contribute, have equal access to opportunities and resources, be themselves, and realize their potential. This is reflected in our policies, which encourage individual values, strengths and protections to provide gender diversity and equality in the workplace and are reinforced through our annual anti-harassment training. As an Equal Opportunity Employer, we emphasize inclusion through hiring and compensation practices and consider a pool of diverse candidates for open positions and internal advancement opportunities.opportunities and treat all our applicants with the same high level of respect regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender identity, disability or protected veteran status. To address issues related to pay discrimination, we do not ask potential candidates
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about their current or previous compensation during the hiring process, and we incorporate equal and fair pay reviews into every employment compensation decision. To reinforceOur annual Affirmative Action Plan continues to focus our corporate culture of respect, diversity, equity, and inclusion each of our employees completes anti-harassment training annually.
Support of Human Capital in Response to COVID-19
In response to COVID-19 related state and local government orders to stay at home, since April of 2020 a portion of the Company's employees have worked remotely directly due to the pandemic. As of December 31, 2020, approximately 45% of the Company's employees are working remotely eitherefforts on a full- or part-time basis directly due to COVID-19. These employees primarily hold non-customer facing positions within the Company. Prior to the pandemic, less than 8% of the Company's employees worked remotely. The increase inincreasing the number of employees that work remotely has had no material impact on the Company's operations.
In addition to remote work arrangements, the Company has expanded other flexible work options including variable work hours, condensed work weeks,veterans and part-time hours to assist employeespersons with managing personal matters during the pandemic caused by COVID-19. Lastly, the Company expanded tele-health and employee assistance program benefits to help employees manage their physical and emotional health during the pandemic.disabilities in our workforce.
Products and Services
    Community Banking
    Lending Services: We have an emphasis on commercial and real estate lending.  Our loan products include short and medium-term commercial loans, commercial credit lines, construction and real estate loans, and consumer loans. We emphasize providing financial services to small and medium-sized businesses and to individuals. These types of lending products have provided us with needed market opportunities and generally provide higher net interest margins compared to other types of lending such as consumer lending. However, they also believeinvolve greater risks, including greater exposure to changes in local economic conditions.
Additionally, in 2021 and 2020, we haveoriginated a significant nicheamount of Paycheck Protection Program ("PPP") loans. The Coronavirus Aid, Relief. and Economic Security ("CARES") Act established several new temporary U.S. Small Business Administration (“SBA”) loan programs to assist U.S. small businesses through the COVID-19 pandemic. One of the new loan programs is the PPP, an expansion of the SBA’s 7(a) loan program and the Economic Injury Disaster Loan Program. The American Rescue Plan Act of 2021 ("ARP Act") provided additional funding for the PPP. PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during this emergency. Eligible borrowers need to make a good faith certification that the uncertainty of current economic conditions make requesting assistance necessary to support ongoing operations. Pursuant to the provisions of Section 1106 of the CARES Act, borrowers may apply to the Bank for loan forgiveness of all or a portion of the loan, subject to certain eligibility requirements and conditions. As of December 31, 2022, $606.9 million or 99% of the PPP loans that the Company originated under the program have been forgiven.
Our lending operations are guided by loan policies, approval procedures, and amount limitations. Our loan policies outline the basic policies and procedures by which lending operations are conducted. Generally, the policies address our desired loan types, target markets, underwriting and collateral requirements, terms, interest rate and yield considerations, and compliance with laws and regulations. The policies are reviewed and approved annually by the board of directors of the Bank.  Management has processes in constructionplace to analyze and land development lending in Anchorage, Fairbanks,manage various concentrations of credit within the Matanuska-Susitna Valley,overall loan portfolio. The Credit Administration Department monitors the Kenai Peninsula,procedures and Southeast Alaska.  (See “Loans” in Part II. Item 7 “Management’s Discussionprocesses for both the analysis and Analysisreporting of Financial Conditionproblem loans, and Resultsalso develops strategies to resolve problem loans based on the facts and circumstances for each loan. Finally, our Internal Audit Department also performs an independent review of Operations”.)each loan portfolio for compliance with
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loan policy, as well as a review of credit quality. The Internal Audit review follows the FDIC sampling guidelines and a review of each portfolio is performed on an annual basis. 
    Purchase of accounts receivable:  We provide short-term working capital to customers primarily in our Alaska markets as well as Washington, Oregon and some other states by purchasing their accounts receivable through NFS. Our purchased receivable activity is guided by policies that outline risk management, documentation, and approval limits.  In 2021,2023, we expect NFS to continue to penetrate these markets and to continue to contribute to the Company’s profitability.
      Deposit Services: Our deposit services include business and personal noninterest-bearing checking accounts and interest-bearing time deposits, checking accounts, savings accounts, and individual retirement accounts.  Our interest-bearing accounts generally earn interest at rates established by management based on competitive market factors and management’s desire to increase or decrease certain types or maturities of deposits.  
Several of our deposit services and products are:
A specialized business checking account customized to account activity;
A money market deposit account;
A “Jump-Up” certificate of deposit (“CD”) that allows additional deposits with the opportunity to increase the rate to the current market rate for a similar term CD;
 A savings account that is priced like a money market account that allows additional deposits, quarterly withdrawals without penalty, and tailored maturity dates;
Insured cash sweepIntraFi® Network Deposits℠ and business sweep;

Consumer online banking, mobile app, and mobile deposit;
Business online banking, business mobile app, and business mobile deposit; and
Instantly issued debit cards for business and consumer accounts at account opening.
    Other Services: In addition to our traditional deposit and lending services, we offer our customers several convenience services:  Mobile Web and Text Banking, consumer online account opening, Personal Finance, Online Documents, Consumer Debit Cards, Business Debit Cards, My Rewards for consumer debit cards, retail lockbox services, card controls, Consumer Credit Cards, Business Credit Cards, Business EmployeeCorporate Purchase Cards, Integrated Payables, home equity advantage access cards, telebanking, and
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automated teller services.  Other services include personalized checks at account opening, overdraft protection from a savings account, extended banking hours and commercial drive-up banking at many locations, automatic transfers and payments, People Pay (a peer-to-peer payment functionality), external transfers, Bill Pay, wire transfers, direct payroll deposit, electronic tax payments, Automated Clearing House origination and receipt, remote deposit capture, account reconciliation and positive pay, merchant services, cash management programs and sweep options to meet the needs of business customers, annuity products, and long term investment portfolios. 
    Other Services Provided Through Affiliates and Former Affiliates Whom We Continue To Work With:Affiliates:  Prior to August of 2017, the Company sold and serviced employee benefit plans for small and medium sized businesses in Alaska through NBG, an insurance brokerage company.  In August 2017, we sold our interest in the assets of NBG, but we have continued our relationship with Acrisure, LLC, who purchased the assets of NBG, through an ongoing referral agreement.  Our affiliate PWA provides investment advisory, trust, and wealth management services for customers who are primarily located in the Pacific Northwest and Alaska. We plan to continue to leverage these affiliate relationships to strengthen our existing customer base and bring new customers into the Bank.
    Significant Business Concentrations: No individual or single group of related accounts is considered material in relation to our total assets or total revenues, or to the total assets, deposits or revenues of the Bank, or in relation to our overall business. Based on classification by North American Industry Classification System ("NAICS"), there are no segments that exceed 10% of portfolio loans, except for real estate (see Note 5, Loans and Credit Quality, of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for a breakout of real estate loans). In addition to its review of NAICS codes, the Company has also identified concentrations in various industries that may be adversely impacted by the COVID-19 pandemic and thea decline in oil prices. We estimate that as of December 31, 20202022 the Company had $78.9$126.5 million, or 5%8% of total loans, in the healthcare sector, $96.3 million, or 6% of portfolio loans, in the tourism sector, $56.1$83.4 million, or 6%, in the oil and gas sector, $70.8 million, or 5% of total loans in the fishing sector, $65.1 million, or 4% in the accommodations sector, $50.8 million, or 3% of portfolio loans, in the aviation (non-tourism) sector, $96.9 million, or 7% of total loans, in the healthcare sector, $65.1$54.8 million, or 4%, in the oil and gas sector, $17.4 million, or 1%, in retail loans, and $31.0 million, or 2% in the restaurant sector, and $37.2$46.9 million, or 3% in the accommodations sector. At December 31, 2020, the Company had $78.9 million, or 7% of portfolio loans excluding PPP loans, in the tourism sector, $56.1 million, or 5% of portfolio loans excluding PPP loans, in the aviation (non-tourism) sector, $96.9 million, or 8% of total loans excluding PPP loans, in the healthcare sector, $65.1 million, or 6% of total loans excluding PPP loans, in the oilrestaurants and gas sector, $17.4 million, or 2% of total loans excluding PPP loans, in retail loans and $31.0 million, or 3% of total loans excluding PPP loans in the restaurant sector, and $37.2 million, or 3% of total loans excluding PPP loans in the accommodationsbreweries sector. Additionally, approximately 43%38% of our loan portfolio at December 31, 20202022 is attributable to 3544 large borrowing relationships. Moreover, our business activities are
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currently focused primarily in the state of Alaska. Consequently, our results of operations and financial condition are dependent upon the general trends in the Alaska economy and, in particular, the residential and commercial real estate markets in Anchorage, Juneau, Fairbanks, the Matanuska-Susitna Valley, Ketchikan, Sitka, and to a lesser extent, the Kenai Peninsula. Peninsula, Kodiak and Nome. 
    Home Mortgage Lending
    Lending Services: The Company originates 1-4 family residential mortgages, throughoutthe majority of which are located in Alaska, most of which we sell to the secondary market. Residential mortgage choices include several products from the Alaska Housing Finance CorporationAHFC including first-time homebuyer, veteran's and rural community programs; Federal Housing Authority, or "FHA" loans; Veterans Affairs, or "VA" loans; Jumbo loans; and various conventional mortgages. The Company retains servicing rights on loans sold to the Alaska Housing Finance CorporationAHFC since implementing a new loan servicing program in July 2015.
Alaska Economy
Our growth and operations are impacted by the economic conditions of Alaska and the specific markets we serve. Significant changes in the Alaska economy and the markets we serve eventually could have a positive or negative impact on the Company. Alaska is strategically located on the Pacific Rim, within nine hours by air from 95% of the northern hemisphere, and Anchorage has become a worldwide air cargo and transportation link between the United States and international business in Asia and Europe. The economy of Alaska is dependent upon natural resource industries. Key sectors of the Alaska economy are the oil industry, government and military spending, and the fishing, mining, tourism, air cargo, transportation, and construction industries, as well as health services.
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Recent Economic Developments
After three consecutive years of a mild recession, theThe Alaska economy begancontinued to showrecover in 2022 from the effects of the COVID pandemic. Jobs steadily increased throughout the year and unemployment remains low. Continued high inflation is impacting business activity, and incomes are rising, but not at the same pace as inflation. Average home sales prices were at record highs, but the number of units sold has declined as interest rates rose rapidly. Alaska is enjoying a positive changehealthy rebound in tourism activity and the construction, warehousing and transport sectors are performing well. Energy exploration success is projected to translate into new oil production which could help support Alaska state government budgets in the fourth quarter of 2018, with improvements continuing throughout 2019 and the first part of 2020 until the COVID-19 pandemic caused a significant and sudden negative impact on the economy in Alaska. The State Department of Labor reported a year-over-year loss of 24,100 jobs, or 7.7% in December 2020 compared to December of 2019 following moderate growth of 1,900 jobs, or 0.6%, in December of 2019 compared to December of 2018. future.
The Alaska Department of Labor predicts a recovery("DOL") has released preliminary data through December of 8,6002022. The DOL reports total payroll jobs in Alaska increased 2.1% or an approximately 2.8% increase6,400 jobs compared to December of 2021. Nearly all private sectors showed year over year growth in total employmentjobs with the exception of Manufacturing (down 300) and State Government (down 600). Trade, Transport and Utilities grew 9% in 2022, adding 1,800 job since December of 2021. The Company anticipates this relatively slow growth rate will have an impact on our ability to grow organicallyLeisure and Hospitality also grew by 1,800 jobs in the next few years.same time period, which was 6.2% growth for the tourism dependent sector. Oil and Gas increased by 5.9% or 400 jobs between December of 2021 and 2022. Other Services grew 5.8%; Professional and Business Services added 2.3%; Local Government increased by 2% and Construction grew 1.4% in 2022.

The DOL also reported Alaska’s seasonally adjusted unemployment rate for December of 2022 was 4.3% compared to 3.5% for the U.S.

Alaska’s annualized and seasonally adjusted gross state productGross State Product (“GSP”) was $50.4 billion in the third quarter of 2020, compared2022, was estimated to $54.5be $65.1 billion in the third quarter of 2019,“nominal” terms, according to the Federal Bureau of Economic Analysis ("BEA") in a report released on December 23, 2020.. Alaska’s realinflation adjusted “real” GSP increased by 0.7% in 2018 and 0.6% in 2019. 2020 has been very erratic primarily due to the impact of COVID-19. According to the BEA, Alaska’s GSP declined 6%grew at a seasonally adjustedan annualized rate in the first quarter of 2020 and declined 33.8% in second quarter. However,8.7% in the third quarter of 2020 the GSP in Alaska improved 32.2% at an annualized rate. This is very similar to the nationwide averages for the U.S. which, according to the BEA, saw a decline of 5%2022 in the firstBEA’s most recent report published December 23, 2022. Alaska’s third quarter performance was the highest growth rate of 2020, a lossall 50 states. Real GSP increased in 47 of 31.4%the 50 U.S. states in the second quarter and a positive improvement of 33.4% in the third quarter. In the third quarter of 20202022 at an average rate of 3.2%. Alaska’s real GSP improvement was primarily due to gains in Alaska, the largest improvements came fromOil and Gas sector, followed by growth in Transportation and Warehousing, Government, Health Care and Accommodation and Food Services.Warehousing.

The BEA also calculated Alaska’s seasonally adjusted personal income for the third quarter of 2020 was $48.6 billion compared to $46at $51 billion in the third quarter of 2019, according to a report released by2022, an improvement of 5.8% over the BEAprior quarter on December 17, 2020. In a typical year,an annualized basis. The national average was an increase of 5.3% for the majority of personal income is derived from wage earnings. Additionally, some people receive government transfer payments, such as social security, Medicare and Medicaid. Personal income is further supported by earnings from dividends, interest and rents.same period.

In the second quarterThe price of 2020, Alaska’s personal income rose by $2.6 billion compared to the prior year as government transfer payments rose by $4.9 billion, according to the BEA, mainly from COVID-19 stimulus payments. This was somewhat offset by a $2.2 billion reduction in wage income and a $139 million decrease in investment and rental income. In the third quarter of 2020, these two major segments of income reversed. Wage earnings improved by $2.6 billion and government transfer payments decreased by $3.5 billion compared to the prior quarter. Investment and rental income was relatively unchanged, down $55 million. The net effect of all this movement is that personal income is $2.6 billion or 5.6% higherAlaska North Slope (“ANS”) crude oil averaged $91.41 per barrel in the third quarterState’s fiscal year, which ended June 30, 2022. The Alaska State Department of 2020Revenue (“DOR”) forecasts ANS oil to average $88.45 per barrel in Alaska than where itAlaska's fiscal year 2023 and $81.00 in 2024. The average monthly price for ANS in January of 2023 was $80.87. The DOR calculated ANS crude oil production was 486 thousand barrels per day in Alaska’s fiscal year, ending June 30, 2022. They forecast production to increase to 501 thousand barrels per day in Alaska’s fiscal year 2023 and 512 thousand barrels per day in 2024. This is primarily a result of new production coming on line in the third quarterNPR-A region west of 2019, according to the BEA.Prudhoe Bay.
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    Alaska’s home mortgage delinquency and foreclosure levels continue to be better than most of the nation.
According to the Mortgage Bankers Association, Alaska’s foreclosurehome mortgage delinquency rate was 0.49% at the end of 2022 was 2.9%. This is identical to the third quarterrate in Alaska at the end of 2020.2019. The comparable nationaldelinquency rate increased to 6.2% at the end of 2020 after the effects of COVID impacted jobs. The rate improved to 4.1% at the end of 2021 and has now returned to pre-COVID levels. Alaska’s current delinquency rate of 2.9% compares to the average rate was 0.59% foracross the same time period 2020. U.S. of 3.9%.The national rate continues to improve, while the Alaska rate remains relatively lower. TheMortgage Bankers Association survey also reported that the percentage of delinquent mortgage loansforeclosure inventory in Alaska at the end of 2022 was 6.78%0.54% and the national average was 0.57%.

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 7.7% in 2022 to $456,610. This was the fifth consecutive year of price increases, following growth of 6.9% in 2021 and 5.8% in 2020. Average sales prices in the Matanuska Susitna Borough rose 10% in 2022 to $382,528, continuing a trend of average price increases for more than a decade. Average home prices in the Matanuska Susitna Borough increased 15.6% in 2021 and 9.9% in 2020. These two markets represent where the vast majority of the Bank’s residential lending activity occurs.

The number of housing units sold in Anchorage did slow in 2022 by 21.3% compared to 2021, as reported by the Alaska Multiple Listing Services. The number of units sold in Anchorage had been increasing for the third quarterprior three years, growing by 11.2% in 2021. The Matanuska Susitna Borough also experienced a lower volume of 2020.home sales, down 11.9% in 2022 compared to the prior year. The comparable delinquency ratenumber of units sold in the Matanuska Susitna Borough had been increasing for the entire country was higher at 7.60% for the same time periodprior four years and grew by 11.7% in 2020.2021.

A material portion of our loans at December 31, 2020,2022, were secured by real estate located in greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska. In 2020, 45%2022, 25% of our revenue was derived from the residential housing market in the form of loan fees and interest on residential construction and land development loans and income from RMLour Home Mortgage Lending segment as compared to 31%38% and 29%47% in 20192021 and 2018,2020, respectively. Real estate values generally are affected by economic and other conditions in the area where the real estate is located, fluctuations in interest rates, changes in tax and other laws, and other matters outside of our control. A decline in real estate values in the greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska areas could significantly reduce the value of the real estate collateral securing our real estate loans and could increase the likelihood of defaults under these loans. At December 31, 2020, $780.1 million, or 54%, of our loan portfolio was represented by commercial loans in Alaska.  
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Long Term Economic Factors
We believe the long-term growth of the Alaska economy will most likely be determined by large scale natural resource development projects. Several multi-billion dollar projects can potentially advance in the moderate-term. Some of these projects include copper, gold and molybdenum production at the proposed Donlin mine and continued exploration in the National Petroleum Reserve Alaska. Because of their size, we believe each of these projects faces tremendous challenges. We believe various political decisions need to be made by government regulators, issues need to be resolved in the court system, and multi-billion dollar financial commitments need to be made by the private sector if these large natural resource projects are to advance.  If none of these projects moves forward in the next ten years, we believe state revenues will continue to decline with falling oil production from older fields on the North Slope of Alaska. We anticipate the decline in state revenues will likely have a negative effect on Alaska’s economy.
    The oil industry plays a significant role in the economy of Alaska, but revenues for the State of Alaska are less dependent on the oil industry than they have been historically due to the implementation of a percent of market value ("POMV") concept that has balanced and created more certainty in state revenue streams. Part of the POMV concept creates an allocation of a portion of investment earnings to unrestricted revenue instead of restricted revenue. According to the State of Alaska Department of Revenue, approximately 20% of total state revenues of $8.7 billion in the fiscal year ending June 30, 2020 were generated through various taxes2022 and royalties on the oil industry. Investment earnings were 21% of the total, and federal dollars were 48%. In the fiscal year ending June 30, 2019, 23% of total state revenues were generated through taxes and royalties on the oil industry while investment earnings and federal dollars accounted for 36% and 30%, respectively. However, in 20202021, investment earnings represented 66%$3.0 million, or 43%, and $3.1 million, or 65%, respectively, of unrestricted revenues as compared to 52% in 2019 for the fiscal year ending June 30.revenues. As of December 31, 2019,2022, Alaska's Constitutional Budget Reserve was $1.1 billion and the Alaska Permanent Fund had a balance of $72$74.5 billion.  Investment revenue generated by the Alaska Permanent Fund is also used to pay an annual dividend to every eligible Alaskan citizen.
    Even though we believe that the implementation of the POMV concept is a positive for the state of Alaska's financial well-being, we anticipate that if oil prices remain at their current relatively lowdrop to lower levels in the longer term it will be a concern for Alaska's long-term economic growth. However, we believe Alaska's economy is less sensitive to oil price volatility in the short-termwithin a six- to twelve-month time frame than Alaska's state government budget. While state government revenue from oil royalties is immediately and directly impacted by a drop in oil prices, we believe that the large scale and nature of oil wells in Alaska are such that project commitments that currently exist will most likely not be disrupted by short-term price volatility. We continue to be encouraged by announcements from several oil exploration companies announcing new oil fields on the North Slope resulting from increased exploration activity that began in 2018 that could lead to future increases in oil production over time.     
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    We believe our exposure to the tourism industry diversifies the Company's customer base in the long-term. We believe this helps mitigate the effect that thea decline in natural resource industries, specifically the oil industry, in Alaska has hadwould have on the Company's operations. Southeast Alaska is the primary destination for cruise ships that visit Alaska. Based on the latest information from Rain Coast Data, approximately one million cruise ship tourists have visited Southeast Alaska annually in recent years, except in 2020 when there were no cruise visitors and in 2019, this increased 7%2021 when there were roughly 116,000 cruise visitors according to 1.2 million. However, in 2020, there was essentially no cruise ship activityState of Alaska Department of Labor and Workforce Development ("SOADLWD"). These declines were due to the COVID-19 pandemic and we are uncertain if, or when,pandemic. The SOADLWD reported in its January 2023 issue of Alaska Economic Trends Magazine that the cruise industry brought 1.2 million cruise ship activity will returnvisitors to historical levels.Alaska in 2022, and this total is expected to increase in 2023.

    Alaska’s residents are not subject to any state income or state sales taxes.  For over 3040 years, Alaska residents have received annual distributions payable in October of each year from the Alaska Permanent Fund Corporation, which is supported by royalties from oil production.  The distribution was $992$3,284 per eligible resident in 20202022 for an aggregate distribution of approximately $640 million.$2.1 billion. The Anchorage Economic Development Corporation estimates that, for most Anchorage households, distributions from the Alaska Permanent Fund Corporation exceed other Alaska taxes to which those households are subject (primarily real estate taxes).
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subject.
Competition
    We operate in a highly competitive and concentrated banking environment. We compete not only with other commercial banks, but also with many other financial competitors, including credit unions (including Global Credit Union, formerly Alaska USA Federal Credit Union, one of the nation’s largest credit unions), finance companies, mortgage banks and brokers, securities firms, insurance companies, private lenders, and other financial intermediaries, many of which have a state-wide or regional presence, and in some cases, a national presence. Many of our competitors have substantially greater resources and capital than we do and offer products and services that are not offered by us. Our non-bank competitors also generally operate under fewer regulatory constraints, and in the case of credit unions, are not subject to income taxes. We estimate that credit unions in Alaska have a 44%43% share of total deposits held in banks and credit unions in the state as of June 30, 2020.2022.  Changes in credit union operating practices have effectively eliminated the “common bond” of membership requirement and liberalized their lending authority to include business and real estate loans on par with commercial banks. The differences in resources and regulation may make it harder for us to compete profitably, to reduce the rates that we can earn on loans and investments, to increase the rates we must offer on deposits and other funds, and adversely affect our financial condition and earnings.
    As our industry becomes increasingly dependent on and oriented toward technology-driven delivery systems, permitting transactions to be conducted electronically, non-bank institutions are able to attract funds and provide lending and other financial services even without offices located in our primary service area. Some insurance companies and brokerage firms compete for deposits by offering rates that are higher than may be appropriate for the Company in relation to its asset and liability management objectives.  However, we offer a wide array of deposit products and services and believe we can compete effectively through relationship based pricing and effective delivery of “Superior Customer First Service”. We also compete with full service investment firms for non-bank financial products and services offered by PWA and through retail investment advisory services and annuity investment products that we offer through a third-party vendor.
    Currently, there are seven commercial banks operating in Alaska. At June 30, 2020,2022, the date of the most recently available information, Northrim Bank had approximately a 12%14% share of the Alaska bank deposits, 17%18% in the Anchorage area, 18%23% in Juneau, 15%17% in Matanuska-Susitna, 13%14% in Sitka, 10%12% in Fairbanks, 6%9% in Ketchikan, and 1%8% in the Kenai Peninsula.
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    The following table sets forth market share data for the banks and credit unions having a presence in Alaska as of June 30, 2020,2022, the most recent date for which comparative deposit information is available.
Financial institutionFinancial institutionNumber of branchesTotal deposits (in thousands)Market share of total financial institution depositsMarket share of total bank depositsFinancial institutionNumber of branchesTotal deposits (in thousands)Market share of total financial institution depositsMarket share of total bank deposits
Northrim Bank(1)
Northrim Bank(1)
16$1,752,109 %12.3 %
Northrim Bank(1)
17$2,361,055 %14.0 %
Wells Fargo Bank Alaska(1)
Wells Fargo Bank Alaska(1)
437,152,819 28 %50.3 %
Wells Fargo Bank Alaska(1)
397,536,026 26 %44.5 %
First National Bank Alaska(1)
First National Bank Alaska(1)
272,912,046 12 %20.4 %
First National Bank Alaska(1)
274,161,642 14 %24.6 %
Key Bank(1)
Key Bank(1)
131,082,449 %7.6 %
Key Bank(1)
111,184,196 %7.0 %
First Bank(1)
First Bank(1)
9590,622 %4.2 %
First Bank(1)
9709,329 %4.2 %
Mt. McKinley Bank(1)
Mt. McKinley Bank(1)
5424,901 %3.0 %
Mt. McKinley Bank(1)
5548,045 %3.2 %
Denali State Bank(1)
Denali State Bank(1)
5312,196 %2.2 %
Denali State Bank(1)
5420,098 %2.5 %
Total bank branchesTotal bank branches118$14,227,142 56 %100 %Total bank branches113$16,920,391 57 %100 %
Credit unions(2)
Credit unions(2)
79$10,968,880 44 %NA
Credit unions(2)
86$12,659,034 43 %NA
Total financial institution branchesTotal financial institution branches197$25,196,022 100 %100 %Total financial institution branches199$29,579,425 100 %100 %
 (1) FDIC Summary of Deposits as of June 30, 2020.2022.
 (2) SNL Financial Deposit Market Share Summary as of June 30, 2020.2022.

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Supervision and Regulation
    The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”) registered with and subject to examination by the Board of Governors of the Federal Reserve System (the “FRB”). The Company’s bank subsidiary is an Alaska-state chartered commercial bank and is subject to examination, supervision, and regulation by the Alaska Department of Commerce, Community and Economic Development, Division of Banking Securities and CorporationsSecurities (the “Division”). The FDIC insures the Bank’s deposits and also examines, supervises, and regulates the Bank. The Company’s affiliated investment advisory and wealth management company, Pacific Portfolio Consulting, LLC, is subject to and regulated under the Investment Advisors Act of 1940 and applicable state investment advisor rules and regulations. The Company’s affiliated trust company, Pacific Portfolio Trust Company, is regulated as a non-depository trust company under the trust company laws of the State of Washington and is subject to supervision and examination by the Washington State Department of Financial Institutions of Washington State.Institutions.

The Company’s earnings and activities are affected, among other things, by legislation, by actions of the FRB, the Division, the FDIC and other regulators, by local legislative and administrative bodies, and decisions of courts. These include limitations on the ability of the Bank to pay dividends to the Company, numerous federal and state consumer protection laws imposing requirements on the making, enforcement, and collection of consumer loans, and restrictions on and regulation of the sale of mutual funds and other uninsured investment products to customers.
    Regulation of banks and the financial services industry has been undergoing major changes in recent years, including the enactment in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and several provisions were significantly changed by enactment of the Economic Growth Regulatory Relief and Consumer Protection Act in May 2018.  
The Dodd-Frank Act significantly modifiesmodified and expandsexpanded the legal and regulatory requirements imposed on banks and other financial institutions.
    The Dodd-Frank Act has significantly affected the Bank and its business and operations. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance coverage to $250,000 per depositor and deposit insurance assessments paid by the Bank are now based on the Bank’s total assets. Other Dodd-Frank Act changes include: (i) tightened capital requirements for the Bank and the Company; (ii) new requirements on parties engaged in residential mortgage origination, brokerage, lending and securitization; (iii) expanded restrictions on affiliate and insider transactions; (iv) enhanced restrictions on management compensation and related governance procedures; (v) creation of a federal Consumer Financial Protection Bureau (the "CFPB") with broad authority to regulate consumer financial products and services; and (vi) restrictions and prohibitions on the ability of banking entities to engage in proprietary trading and to invest in or have certain relationships with hedge funds and private equity funds.
The Trump Administration and various members of Congress previously expressed a desire to modify or repeal parts of the Dodd-Frank Act. We cannot predict whether the Biden administration will support any modification or repeal of any portion of the Dodd-Frank Act or whether any modification or repeal will be enacted or, if so, any effect they would have on our business, operation or financial condition or on the financial services industry in general.
In December 2013, the Federal Reserve, the Office of the Comptroller of the Currency, the FDIC, the Securities and Exchange Commission (“SEC”), and the Commodities Futures Trading Commission issued final rules to implement certain provisions of the Dodd-Frank Act commonly known as the “Volcker Rule.” The Volcker Rule, as amended on August 20, 2019, generally prohibits U.S. banks from engaging in proprietary trading and restricts those banking entities from sponsoring, investing in, or having certain relationships with hedge funds and private equity funds. The prohibitions under the Volcker Rule are subject to a number of statutory exemptions, restrictions, and definitions. The Volcker Rule has not had a material impact on the Company’s Consolidated Financial Statements, but we continue to evaluate its application to our current and future operations.
    The Gramm-Leach-Bliley Act (the “GLB Act”), which was enacted in 1999, allows bank holding companies to elect to become financial holding companies, subject to certain regulatory requirements.  In addition to the activities previously permitted bank holding companies, financial holding companies may engage in non-banking activities that are financial in nature, such as securities, insurance, and merchant banking activities, subject to certain limitations.  The Company could utilize this structure to accommodate an expansion of its products and services in the future.
Bank holding companies, such as the Company, are subject to a variety of restrictions on the activities in which they can engage and the acquisitions they can make.The activities or acquisitions of bank holding companies, such as the Company, that are not financial holding companies, are limited to those which constitute banking, managing or controlling banks or which are closely related activities. A bank holding company is required to obtain the prior approval of the FRB for
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the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Nonbank acquisitions and activities of a bank holding company are also generally limited to the acquisition of up to 5% of the outstanding shares of any class of voting securities of a company unless the FRB has previously determined that the nonbank activities are closely related to banking, or prior approval is obtained from the FRB.
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The GLBGramm-Leach-Bliley Act (the “GLB Act”) also included extensive consumer privacy provisions. These provisions, among other things, limit the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated third parties. The Fair and Accurate Credit Transaction Act (“FACT Act”) requires financial institutions to develop and implement an identity theft prevention program to detect, prevent and mitigate identity theft “red flags” to reduce the risk that customer information will be misused to conduct fraudulent financial transactions. As a result of the Dodd-Frank Act, the rule-making authority for the privacy provisions of the GLB Act has been transferred to the CFPB.In addition, the states are permitted to adopt more extensive privacy protections through legislation or regulation.

There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from their banking subsidiaries or engage in certain other transactions with or involving those banking subsidiaries. With certain exceptions, federal law imposes limitations on, and requires collateral for, extensions of credit by insured depository institutions, such as the Bank, to their non-bank affiliates, such as the Company.In addition, new capital rules may affect the Company's ability to pay dividends.

Subject to certain limitations and restrictions, a bank holding company, with prior approval of the FRB, may acquire an out-of-state bank. Banks in states that do not prohibit out-of-state mergers may merge with the approval of the appropriate federal banking agency. A state bank may establish a de novo branch out of state if such branching is permitted by the other state for state banks chartered by such other state.

Among other things, applicable federal and state statutes and regulations which govern a bank’s activities relate to minimum capital requirements, required reserves against deposits, investments, loans, legal lending limits, mergers and consolidations, borrowings, issuance of securities, payment of dividends, establishment of branches and other aspects of its operations. The Division and the FDIC also have authority to prohibit banks under their supervision from engaging in what they consider to be unsafe or unsound practices.

There also are certain limitations on the ability of the Company to pay dividends to its shareholders. It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s current and expected future capital needs, asset quality and overall financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines a bank holding company’s ability to serve as a source of strength to its banking subsidiaries. Additionally, the Alaska Corporations Code generally prohibits the Company from making any distributions to the Company's shareholders unless the amount of the retained earnings of the Company immediately before the distribution equals or exceeds the amount of the proposed distribution. The Alaska Corporations Code also prohibits the Company from making any distribution to the Company's shareholders if the Company or a subsidiary of the Company making the distribution is, or as a result of the distribution would be, likely to be unable to meet its liabilities as they mature. Under Alaska law, the Bank is not permitted to pay or declare a dividend in an amount greater than its undivided profits.

Various federal and state statutory provisions also limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval. The FDIC or the Division could take the position that paying a dividend would constitute an unsafe or unsound banking practice.In addition, newrecent capital rules may affect the Bank's ability to pay dividends.

Under longstanding FRB policy and under the Dodd-Frank Act, a bank holding company is required to act as a source of financial strength for its subsidiary banks. The Company could be required to commit resources to its subsidiary bank in circumstances where it might not do so, absent such requirement.

Both the Company and the Bank are required to maintain minimum levels of regulatory capital. In July 2013, federal banking regulators (including the FDIC and the FRB) adopted new capital requirement rules (the “Rules”). The Rules apply to both depository institutions (such as the Bank) and their holding companies (such as the Company). The Rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act. The Rules have applied to both the Company and the Bank since the beginning of 2015.
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The Rules recognize three types, or tiers, of capital: common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital. Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income ("AOCI"), except to the extent that the Company and the
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Bank exercise a one-time irrevocable option to exclude certain components of AOCI.Additional Tier 1 capital generally includes noncumulative perpetual preferred stock and related surplus subject to certain adjustments and limitations. Tier 2 capital generally includes certain capital instruments (such as subordinated debt) and portions of the amounts of the allowance for loan and lease losses, subject to certain requirements and deductions. The term "Tier 1 capital" means common equity Tier 1 capital plus additional Tier 1 capital, and the term "total capital" means Tier 1 capital plus Tier 2 capital.

The Rules generally measure an institution's capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution's common equity Tier 1 capital to its total risk-weighted assets. The Tier 1 capital ratio is the ratio of the institution's total Tier 1 capital to its total risk-weighted assets. The total capital ratio is the ratio of the institution's total capital to its total risk-weighted assets. The leverage ratio is the ratio of the institution's Tier 1 capital to its average total consolidated assets. To determine risk-weighted assets, assets of an institution are generally placed into a risk category and given a percentage weight based on the relative risk of that category. The percentage weights range from 0% to 1,250%. An asset's risk-weighted value will generally be its percentage weight multiplied by the asset's value as determined under generally accepted accounting principles. In addition, certain off-balance-sheet items are converted to balance-sheet credit equivalent amounts, and each amount is then assigned to one of the risk categories. An institution's federal regulator may require the institution to hold more capital than would otherwise be required under the Rules if the regulator determines that the institution's capital requirements under the Rules are not commensurate with the institution's credit, market, operational or other risks.

Both the Company and the Bank are required to have a common equity Tier 1 capital ratio of 4.5% as well as a Tier 1 leverage ratio of 4.0%, a Tier 1 risk-based ratio of 6.0% and a total risk-based ratio of 8.0%. In addition to the preceding requirements, both the Company and the Bank are required to have a “conservation buffer,” consisting of common equity Tier 1 capital, which is at least 2.5% above each of the preceding common equity Tier 1 capital ratio, the Tier 1 risk-based ratio and the total risk-based ratio. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. When the federal banking regulators initially proposed new capital rules in 2012, the rules would have phased out trust preferred securities as a component of Tier 1 capital. As finally adopted, however, theThe Rules permit holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Rules made changes in the methods of calculating certain risk-based assets, which in turn affects the calculation of risk- based ratios. Higher or more sensitive risk weights are assigned to various categories of assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
    Both the Company and the Bank were required to begin compliance with the Rules on January 1, 2015. The conservation buffer took full effect on January 1, 2019. Certain calculations under the Rules will also have phase-in periods. We believe that the current capital levels of the Company and the Bank are in compliance with the standards under the Rules including the conservation buffer.

Following the enactment of certain federal legislation in 2018, the federal banking regulators (including the FDIC and FRB) proposed a rule intended to simplify capital rules for certain community banks and their holding companies, the Community Bank Leverage Ratio ("CBLR"). Qualifying community banking organizations can elect to opt-into the CBLR and be under a new capital requirement rather than the current capital framework. To be eligible to make this election, the community banking organization would have to have less than $10 billion in assets, have a community bank leverage ratio of at least 9.00% and meet certain other criteria (including limits on off-balance sheet exposures and trading assets and liabilities). The CBLR would generally be the ratio of the organization's total bank equity capital to average assets, subject to certain adjustments. The intent of the CBLR is to simplify but not weaken capital requirements for qualifying community banks. Management has not elected to opt in to these new capital rules.However, the guidelines allow the Company to opt in to the simplification in the future should our assessment change.
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In addition to the minimum capital standards, the federal banking agencies have issued regulations to implement a system of "prompt corrective action." These regulations apply to the Bank but not the Company. The regulations establish five capital categories; under the Rules, a bank generally is:

“well capitalized” if it has a total risk-based capital ratio of 10.0% or more, a Tier 1 risk-based capital ratio of 8.0% or more, a common equity Tier 1 risk-based ratio of 6.5% or more, and a leverage capital ratio of 5.0% or more, and is not subject to any written agreement, order or capital directive to meet and maintain a specific capital level for any capital measure;
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“adequately capitalized” if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a common equity Tier 1 risk-based ratio of 4.5% or more, and a leverage capital ratio of 4.0% or more;

“undercapitalized” if it has a total risk-based capital ratio less than 8.0%, a Tier 1 risk-based capital ratio less than 6.0%, a common equity risk-based ratio less than 4.5% or a leverage capital ratio less than 4.0%;

“significantly undercapitalized” if it has a total risk-based capital ratio less than 6.0%, a Tier 1 risk-based capital ratio less than 4.0%, a common equity risk-based ratio less than 3.0% or a leverage capital ratio less than 3.0%; and

“critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

A bank that, based upon its capital levels, is classified as “well capitalized,” “adequately capitalized” or “undercapitalized” may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for a hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

At each successive lower capital category, a bank is subject to increasing supervisory restrictions. For example, being “adequately capitalized” rather than “well-capitalized” affects a bank’s ability to accept brokered deposits without the prior approval of the FDIC, and may cause greater difficulty obtaining retail deposits. Banks in the “adequately capitalized” classification may have to pay higher interest rates to continue to attract those deposits, and higher deposit insurance rates for those deposits. This status also affects a bank’s eligibility for a streamlined review process for acquisition proposals.

Management intends to maintain capital ratios for the Bank in 20212023 that exceed the FDIC’s requirements for the “well-capitalized” capital requirement classification. The dividends that the Bank pays to the Company will be limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank.
    The capital ratios for the Company exceed those for the Bank primarily because the trust preferred securities offerings that the Company completed in the second quarter of 2003 and in the fourth quarter of 2005 are included in the Company’s capital for regulatory purposes, although they are accounted for as a liability in its consolidated financial statements.  The trust preferred securities are not accounted for on the Bank’s financial statements nor are they included in its capital (although the Company did contribute to the Bank a portion of the cash proceeds from the sale of those securities).  The Company redeemed $8 million in trust preferred securities in August 2017. As a result, the Company has $10 million more in regulatory capital than the Bank at December 31, 2020 and 2019, respectively, which explains most of the difference in the capital ratios for the two entities.
The Bank is required to file periodic reports with the FDIC and the Division and is subject to periodic examinations and evaluations by those regulatory authorities. These examinations must be conducted every 12 months, except that certain “well-capitalized” banks may be examined every 18 months. The FDIC and the Division may each accept the results of an examination by the other in lieu of conducting an independent examination.

In the liquidation or other resolution of a failed insured depository institution, claims for administrative expenses (including certain employee compensation claims) and deposits are afforded a priority over other general unsecured claims, including non-deposit claims, and claims of a parent company such as the Company. Such priority creditors would include the FDIC, which succeeds to the position of insured depositors to the extent it has made payments to such depositors.
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    The Company is also subject to the information, proxy solicitation, insider trading restrictions and other requirements of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act of 1934”), including certain requirements under the Sarbanes-Oxley Act of 2002.
The Bank is subject to the Community Reinvestment Act of 1977 (“CRA”). The CRA requires that the Bank help meet the credit needs of the communities it serves, including low and moderate income neighborhoods, consistent with the safe and sound operation of the institution. The FDIC assigns one of four possible ratings to the Bank’s CRA performance and makes the rating and the examination reports publicly available. The four possible ratings are outstanding, satisfactory, needs to improve and substantial noncompliance. A financial institution’s CRA rating can affect an institution’s future business. For example, a federal banking agency will take CRA performance into consideration when acting on an institution’s application to establish or move a branch, to merge or to acquire assets or assume liabilities of another institution. In its most recent CRA examination, the Bank received a “Satisfactory” rating from the FDIC.

In May 2022, the FDIC, the Office of the Comptroller of the Currency (“OCC”), and the FRB jointly issued an Advance Notice of Proposed Rulemaking (“ANPR”) that invited public comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA. We will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.

The Company is also subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) and the Anti-Money Laundering Act of 2020 (the “AMLA”). Among other things, the USA PATRIOT Act and AMLA require the Company and the Bank to adopt and
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implement specific policies and procedures designed to prevent and defeat money laundering. Management believes the Company is in compliance with the USA PATRIOT Act as in effect on December 31, 2020. The AMLA was passed on January 1, 2021 and regulatory agencies are in the process of finalizing rules and regulations required by the passage of the AMLA.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act into law. The CARES Act established several new temporary U.S. Small Business Administration (“SBA”)SBA loan programs to assist U.S. small businesses through the COVID-19 pandemic. One of the new loan programs is the PPP, an expansion of the SBA’s 7(a) loan program and the Economic Injury Disaster Loan Program.

The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during this emergency. Eligible borrowers need to make a good faith certification that the uncertainty of current economic conditions make requesting assistance necessary to support ongoing operations. Pursuant to the provisions of Section 1106 of the CARES Act, borrowers may apply to the Bank for loan forgiveness of all or a portion of the loan, subject to certain eligibility requirements and conditions. On March 11, 2021, the ARP Act was enacted and, among others, provided additional funding for the PPP and an expansion of the program for the benefit of certain nonprofits.

The Bank is an SBA lender and began accepting applications under the CARES ActPPP via its online application process on April 3, 2020.As of December 31, 2020,2021, the Bank had 2,4981,320 PPP loans totaling $310.5$122.7 million outstanding. As of December 31, 2022, the Bank had 29 PPP loans totaling $7.3 million outstanding.

In March 2022, the Securities and Exchange Commission (“SEC”) published proposed rules relating to risk management, strategy, governance and incident disclosure which would be applicable to public companies in preparing disclosures about cybersecurity risks and incidents. These SEC proposed rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes. If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties.

Recently, in November 2021, the federal banking agencies adopted a Final Rule, with compliance required by May 1, 2022, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or that would impact the stability of the United States.State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.

Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

A number of other federal and state consumer protection laws extensively govern the Bank’s relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, Telephone Consumer Protection Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state and territorial usury laws and laws regarding unfair and deceptive acts and practices. These and other laws subject the Bank to substantial regulatory oversight and, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, and restrict the Bank’s ability to raise interest rates.

The Company is also subject to the information, proxy solicitation, insider trading restrictions and other requirements of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act of 1934”), including certain requirements under the Sarbanes-Oxley Act of 2002.
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Available Information
    The Company’s annual report on Form 10-K and quarterly reports on Form 10-Q, as well as its current reports on Form 8-K and proxy statement filings (and all amendments thereto), which are filed with the SEC, are accessible free of charge at our website at http://www.northrim.com as soon as reasonably practicable after filing with the SEC. By making this reference to our website, the Company does not intend to incorporate into this report any information contained in the website. The website should not be considered part of this report.
    The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC.
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ITEM 1A.            RISK FACTORS
    The material risks and uncertainties that management believes affect the Company are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report.  The risks and uncertainties described below are not the only ones facing the Company.  Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations.  This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment.
Risk Factors Summary
An investment in the Company's common stock is subject to risks inherent to the Company's business. Such risks, including those set forth in the summary of material risks in this Part I. Item 1A. should be carefully considered before purchasing our securities.
COVID-19 PandemicInterest Rate and Inflation Risk Factors

The COVID-19 pandemic has materially impactedChanges in market interest rates could adversely impact the Company.
Inflationary pressures and rising prices may affect our businessresults of operations and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions that have been taken, and may in the future be imposed, by governmental authorities in response to the pandemic.condition.

Operational, Strategic and Business Risk Factors

Current economic conditions in the State of Alaska pose challenges for us and could adversely affect our financial condition and results of operations.
Our concentration of operations in the Anchorage, Matanuska-Susitna Valley, Fairbanks and Southeast areas of Alaska makes us more sensitive to downturns in those areas.
Our allowance for credit losses may be insufficient.
Residential mortgage lending is a market sector that experiences significant volatility and is influenced by many factors beyond our control.
Our information systems or those of our third-party vendors may be subject to an interruption or breach in security, including as a result of cyber-attacks.
A failure in or breach of the Company's operational systems, information systems, or infrastructure, or those of the Company's third-party vendors and other service providers, may result in financial losses, or loss of customers.
Our business is highly reliant on third party vendors.
We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements.
Residential mortgage lending is a market sector that experiences significant volatilityOur business, financial condition and is influenced by many factors beyond our control.results of operations are subject to risk from changes in customer behavior.
If we do not comply with the agreements governing servicing of loans, if these agreements change materially, or if others allege non-compliance, our business and results of operations may be harmed.
Certain hedging strategies that we use to manage interest rate risk may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity.
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Our loan loss allowance may not be adequate to cover future loan losses, which may adversely affect our earnings.
We have a significant concentration in real estate lending. A downturn in real estate within our markets would have a negative impact on our results of operations.
Real estate values may decrease leading to additional and greater than anticipated loan charge-offs and valuation writedowns on our other real estate owned (“OREO”) properties.
We conduct substantially all of our operations through Northrim Bank, our banking subsidiary; our ability to pay dividends, repurchase our shares, or to repay our indebtedness depends upon liquid assets held by the holding company and the results of operations of our subsidiaries and their ability to pay dividends.
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There can be no assurance that the Company will continue to declare cash dividends or repurchase stock.charge-offs.
We may be unable to attract and retain key employees and personnel.
Liquidity risk could impair our ability to fund operations and jeopardize our financial conditions.
A failure of a significant number of our borrowers, guarantors and related parties to perform in accordance with the terms of their loans would have an adverse impact on our results of operations.
The ongoing COVID-19 pandemic, or a similar health crisis, may adversely impact our business and financial results.

Regulatory, Legislative and Legal Risk Factors

We operate in a highly regulated environment and changes of or increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us.
We are subject to more stringent capital and liquidity requirements which may adversely affect our net income and future growth.
Changes in the FRB’s monetary or fiscal policies could adversely affect our results of operations and financial condition.
Changes in market interest rates could adversely impact the Company.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences.
Deposit insurance premiums could increase further in the future.

Accounting, Tax and Financial Risk Factors

Changes in income tax laws and interpretations, or in accounting standards, could materially affect our financial condition or results of operations.
Uncertainty about the continuing availabilityThe replacement of the London Inter-Bank Offered Rate ("LIBOR") may adversely affect our business.

General Economic
Stock Ownership Risk Factors

Our ability to pay dividends, repurchase our shares, or to repay our indebtedness depends upon liquid assets held by the Company and Marketthe results of operations of our subsidiaries and their ability to pay dividends.
There can be no assurance that the Company will continue to repurchase stock.
The market price for our common stock may be volatile.
There may be future sales or other dilution of the Company’s equity, which may adversely affect the market price of our common stock.
The Company’s business or the value of its common stock could be negatively affected as a result of actions by activist shareholders.

General Risk Factors

Natural disasters and adverse weather could negatively affect real estate property values and Bank operations.
The soundness of other financial institutions could adversely affect us.
The financial services business is intensely competitive and our success will depend on our ability to compete effectively.
We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so could materially adversely affect our performance.
Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect our business operations.
Climate change, severe weather, natural disasters, and other external events could significantly impact our business.

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We attempt to mitigate the foregoing risks. However, if we are unable to effectively manage the impact of these and other risks, our financial condition, results of operations, our ability to make distributions to our shareholders, or the market price of our common stock could be materially impacted.

COVID-19 Pandemic
Interest Rate and Inflation Risks

The COVID-19 pandemic has materially impactedChanges in market interest rates could adversely impact the Company.

Our earnings and cash flows are largely dependent upon our businessnet interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and financial results,securities and the ultimate impact will dependinterest expense paid on future developments, whichinterest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly uncertainsensitive to many factors that are beyond our control, including general economic conditions, inflationary trends, changes in government spending and cannotdebt issuances and policies of various governmental and regulatory agencies and, in particular, the FRB. Changes in interest rates affect the demand for new loans, the credit profile of existing loans, the rates received on loans and securities, and rates paid on deposits and borrowings.If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be predicted, includingadversely affected. Earnings could also be adversely affected if the scopeinterest rates received on loans and durationother investments fall more quickly than the interest rates paid on deposits and other borrowings. These impacts may negatively impact our ability to attract deposits, make loans, and achieve satisfactory interest rate spreads, which could adversely affect our financial condition or results of operations. In particular, increases in interest rates have in the pandemicpast and actions that have been taken, and maywill likely in the future reduce RML’s revenues by reducing the market for refinancings, as well as the demand for RML’s other residential loan products.Additionally, increases in interest rates may impact our borrowers' ability to make loan payments, particularly in our commercialloan portfolio.

Interest rates may be imposed,affected by many factors beyond our control, including general and economic conditions and the monetary and fiscal policies of various governmental authoritiesand regulatory authorities. Beginning early in 2022, in response to growing signs of inflation, the pandemic.FRB has increased interest rates rapidly.Although it is expected that the FRB will continue to increase the target federal funds rate in 2023 to combat recent inflationary trends, if interest rates do not rise, or if the FRB were to lower the target federal funds rate to below 0%, these low rates could continue to constrain our interest rate spread and may adversely affect our business forecasts. On the other hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts. All else being equal, if the interest rates on the Company's interest-bearing liabilities increase at a faster pace than the interest rates on our interest-earning assets, the result would be a reduction in net interest income and with it, a reduction in net income. In addition, anticipated changes in interest rates generally impact the mortgage rate market prior to the actual rate change. We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets. Exposure to interest rate risk is managed by monitoring the repricing frequency of our rate-sensitive assets and rate-sensitive liabilities over any given period. Although we believe the current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates could potentially have an adverse effect on our business, financial condition and results of operations.

In December 2019, a novel coronavirus (COVID-19) was reportedInflationary pressures and rising prices may affect our results of operations and financial condition.

Inflation has continued rising in China,2022 at levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout 2022 and are likely to continue into 2023. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk. Sustained higher interest rates by the FRB may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity. A deterioration in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreakeconomic conditions in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United
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States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resultedour regional markets could result in an unprecedented slow-downincrease in economic activityloan delinquencies and non-performing assets, decreases in loan collateral values and a related increasedecrease in unemployment. The national unemployment rate peaked in April 2020 at 14.8%, before declining to a still-elevated level at 6.7% in December 2020, according to the National Bureau of Economic Research. In addition, stock markets have experienced significant volatility in value and, in particular, bank stocks have declined in value. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have resulted in material decreases in oil and gas prices, disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. In addition, the timing, availability and efficacy of the COVID-19 vaccines remains uncertain. These developments as a consequence of the COVID-19 pandemic are materially impacting our business and the businesses of our customers and are expected to have a material adverse effect on our financial results for 2021. If these effects continue for a prolonged period or result in sustained economic stress or recession, such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, loan funding, operations, interest rate risk, and human capital, as described in more detail below.

• Credit Risk

Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s business. Concern about the spread of COVID-19 has caused and is likely to continue to cause volatility in oil and gas prices, business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. In addition, the responses of the government that have been, and may in the future be imposed in response to the pandemic, including stimulus programs could adversely impact lending demand. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to customers. During the current challenging economic environment, our customers are more dependent on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support our communities during the pandemic, we are participating in the PPP program under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at lower interest rates as compared to the loans to customers that we would have otherwise extended credit.

• Strategic Risk

Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changesall of which, in interest rates that may increaseturn, would adversely affect our funding costs, reduced demand for ourbusiness, financial products due to economic conditionscondition and the various responsesresults of governmental and nongovernmental authorities. In recent months, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions have been directed toward curtailing household and business activity to contain COVID-19. For example, in our markets, state and local governments previously acted to temporarily close or restrict the operations of most businesses. The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in loan originations.

• Operational Risk

Current and future restrictions on our customers' and employees’ access to our branches and other facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology
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systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the connectivity, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, and scammers attempting to capitalize on the pandemic have amplified cyber threats including increased phishing, malware, and other cybersecurity attacks. Future consequences from the pandemic could impair our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers. Moreover, we rely on many third parties in our business operations, including appraisers of the real property collateral, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

• Liquidity Risk

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings and other sources could have a substantial negative effect on our liquidity and severely constrain our financial flexibility. Our primary source of funding is deposits gathered through our network of branch offices. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or the economy in general. During the COVID-19 outbreak, our deposits have increased significantly, primarily due to the Company’s PPP efforts during the second and third quarter of 2020. As customers withdraw funds from deposit accounts that were obtained from the Company via PPP loans, the Company may need to borrow funds to meet an immediate liquidity need. Our ability to borrow could be impaired by factors that are not specific to us or our region, such as a disruption in the financial markets, including those caused by COVID-19, or negative views and expectations about the prospects for the financial services industry and unstable credit markets.

• Interest Rate Risk

Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and on January 27, 2021, the Federal Reserve maintained the benchmark fed funds rate to the same target range. The yields on 10 and 30-year treasury notes have declined to historic lows. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. Any future development, including the timing, availability and efficacy of the COVID-19 vaccines, will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the pandemic. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future. In addition, the effects could have a material impact on our results of operations and heighten many of our known risks described in this Part I, Section 1A “Risk Factors”.

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Operational, Strategic and Business Risks


    Current economic conditions in the State of Alaska pose challenges for us and could adversely affect our financial condition and results of operations.
    We are operating in an uncertain economic environment. The decreasepandemic caused a global economic slowdown, and while we have seen economic recovery, continuing supply chain issues, fluctuations in oil prices, labor shortages and inflation risk are affecting the price of oil which began in 2014 has led to a significant deficit in the budget for the State of Alaska, which was partially alleviated by legislative action in 2018 that now allows for the use of a portion of State's investment income from the Alaska Permanent Fund to help fund the state budget. However, we believe that this has solved only part of Alaska's structural finance problem. continued recovery.In the longer term, relatively low oil prices are expected to negatively impact the overall economy in Alaska on a larger scale as we estimate that one third of the Alaskan economy is related to oil. Financial institutions continue to be affected by changing conditions in the real estate and financial markets, along with an arduous regulatory climate. Dramatic declines in the United States housing market from 2008 through 2012, with falling home pricesContinued economic uncertainty and increasing foreclosures and unemployment, resulted in significant writedowns of asset values by financial institutions. While conditions have improved nationally, a return to a recessionary or stagnant economy could result in financial stress on ourthe Bank's borrowers, that wouldwhich could adversely affect our business, financial condition and results of operations. Deteriorating conditions in the regional economies of Anchorage, Matanuska-Susitna Valley, Fairbanks, and the Southeast areas of Alaska served by the Company could drive losses beyond that which is provided for in our allowance for loan losses. We may also face the following risks in connection with events:
Ineffective monetary policy could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition.
Market developments and economic stagnation may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities.
Regulatory scrutiny of the industry could increase, leading to harsh regulation of our industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to the judicial system and the plaintiff’s bar.litigation.
ErosionFurther erosion in the fiscal condition of the U.S. Treasury could lead to new taxes that would limit the ability of the Company to pursue growth and return profits to shareholders.
    If these conditions or similar ones develop, we could experience adverse effects on our financial condition and results of operations.
    Our concentration of operations in the Anchorage, Matanuska-Susitna Valley, Fairbanks and Southeast areas of Alaska makes us more sensitive to downturns in those areas.
    Substantially all of our business is derived from the Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast areas of Alaska.  The majority of our lending has been with Alaska businesses and individuals. At December 31, 2020, approximately 21%2022, less than 1% of the Bank's loans are PPP loans which are 100% guaranteed by the SBA. Of the remaining loan portfolio, excluding PPP loans, approximately 73%69% of loans are secured by real estate and 2%1% are unsecured. Approximately 25%30% are for general commercial uses, including professional, retail, and small businesses, and are secured by non-real estate assets.  Repayment is expected from the borrowers’ cash flow or, secondarily, the collateral. Our exposure to credit loss, if any, is the outstanding amount of the loan if the collateral is proved to be of no value.  These areas rely primarily upon the natural resources industries, particularly oil production, as well as tourism and government and U.S. military spending for their economic success.  In particular, the oil industry plays a significant role in the Alaskan economy. We estimate that one third of Alaska's gross state product is currently derived from the oil industry.
    Our business is and will remain sensitive to economic factors that relate to these industries and local and regional business conditions.  As a result, local or regional economic downturns, or downturns that disproportionately affect one or more of the key industries in regions served by the Company, may have a more pronounced effect upon our business than they might on an institution that is less geographically concentrated.  The extent of the future impact of these events on economic and business conditions cannot be predicted; however, prolonged or acute fluctuations could have a material and adverse impact upon our financial condition and results of operation.
Our allowance for credit losses may be insufficient.
We maintain allowances for credit losses on loans, securities and off-balance sheet credit exposures. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. As a result, the determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers and securities issuers; new information regarding existing loans, credit commitments and securities holdings; the continuation of the COVID-19 pandemic or other global pandemics; natural disasters and risks related
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to climate change; and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the allowances for credit losses on loans, securities and off-balance sheet credit exposures. In addition, bank regulatory agencies periodically review our allowance for credit losses and may require an increase in credit loss expense or the recognition of further loan charge-offs, based on judgments different than those of management. Furthermore, if any charge-offs related to loans, securities or off-balance sheet credit exposures in future periods exceed our allowances for credit losses on loans, securities or off-balance sheet credit exposures, we will need to recognize additional credit loss expense to increase the applicable allowance. Any increase in the allowance for credit losses on loans, securities and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.

     Residential mortgage lending is a market sector that experiences significant volatility and is influenced by many factors beyond our control.
The Company earns revenue from the residential mortgage lending activities primarily in the form of gains on the sale of mortgage loans that we originate and sell to the secondary market.  Residential mortgage lending in general has experienced substantial volatility in recent periods primarily due to changes in interest rates and other market forces beyond our control.     
Interest rate changes, such as rate increases implemented by the FRB, have in the past, and may in the future, result in lower rate locks and closed loan volume, which may adversely impact the earnings and results of operations of RML. In addition, the recent increase and future increase, as is currently expected, in interest rates has in the past, and may in the future, materially and adversely affect our future loan origination volume and margins.
Our information systems or those of our third-party vendors may be subject to an interruption or breach in security, including as a result of cyber attacks.
    The Company’s technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual
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attempts to sophisticated and targeted measures directed at us. These cybersecurity threats and attacks may include, but are not limited to, breaches, unauthorized access, misuse, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events. These types of threats may result from human error, fraud or malice on the part of external or internal parties, or from accidental technological failure. Further, to access our products and services our customers may use computers and mobile devices that are beyond our security control systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
    Our business requires the collection and retention of large volumes of customer data, including payment card numbers and other personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations. The integrity and protection of that customer and company data is important to us. As customer, public, legislative and regulatory expectations and requirements regarding operational and information security have increased, our operations systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns.
    Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, payment card numbers, bank account information or other personal information or to introduce viruses or other malware through “trojan horse” programs to our customers’ computers. These communications may appear to be legitimate messages sent by the Bank or other businesses, but direct recipients to fake websites operated by the sender of the e-mail or request that the recipient send a password or other confidential information via e-mail or download a program. Despite our efforts to mitigate these threats through product improvements, use of encryption and authentication technology to secure online transmission of confidential consumer information, and customer and employee education, such attempted frauds against us or our merchants and our third-party service providers remain a serious issue. The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and continue to evolve. In addition, due to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk. In light of several recent high-profile data breaches at other companies involving customer personal and financial information, we believe the potential impact of a cyber security incident involving the Company, any exposure to consumer losses and the cost of technology investments to improve security could cause customer and/or Bank losses, damage to our brand, and increase our costs.
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    Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk. A security breach or other significant disruption could: disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers;  result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers, including account numbers and other financial information; result in a violation of applicable privacy, data breach and other laws, subjecting the Bank to additional regulatory scrutiny and exposing the Bank to civil litigation, governmental fines and possible financial liability; require significant management attention and resources to remedy the damages that result; or harm our reputation or cause a decrease in the number of customers that choose to do business with us or reduce the level of business that our customers do with us. The occurrence of any such failures, disruptions or security breaches could have a negative impact on our financial condition and results of operations.
A failure in or breach of the Company's operational systems, information systems, or infrastructure, or those of the Company's third party vendors and other service providers, may result in financial losses, or loss of customers.
    The Company relies heavily on communications and information systems to conduct our business. In addition, we rely on third parties to provide key components of our infrastructure, including the processing of sensitive consumer and business customer data, internet connections, and network access. These types of information and related systems are critical to the operation of our business and essential to our ability to perform day-to-day operations, and, in some cases, are critical to the operations of many of our customers. These third parties with which the Company does business or that facilitate our business
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activities, including exchanges, financial intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including breakdowns or failures of their own systems or capacity constraints. Although the Company has implemented safeguards and business continuity plans, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating systems that support our business and our customers, resulting in financial losses or loss of customers.
    Our business is highly reliant on third party vendors.
    We rely on third parties to provide services that are integral to our operations. These vendors provide services that support our operations, including the storage and processing of sensitive consumer and business customer data. The loss of these vendor relationships, or a failure of these vendors' systems, could disrupt the services we provide to our customers and cause us to incur significant expense in connection with replacing these services.
    We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements.
    The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. Many national vendors provide turn-key services to community banks, such as Internet banking and remote deposit capture that allow smaller banks to compete with institutions that have substantially greater resources to invest in technological improvements. We may not be able, however, to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.
     Residential mortgage lending is a market sector that experiences significant volatility and is influenced by many factors beyond our control.
The Company earns revenue from the residential mortgage lending activities primarily in the form of gains on the sale of mortgage loans that we originate and sell to the secondary market.  Residential mortgage lending in general has experienced substantial volatility in recent periods primarily due to changes in interest rates and other market forces beyond our control. Interest rate changes, such as rate increases implemented by the FRB, may result in lower rate locks and closed loan volume, which may adversely impact the earningsOur business, financial condition and results of operations are subject to risk from changes in customer behavior.

Individual, economic, political, industry-specific conditions and other factors outside of RML. In addition, an increaseour control, such as fuel prices, energy costs, real estate values, inflation, taxes or other factors that affect customer income levels, could alter anticipated customer behavior, including borrowing, repayment, investment and deposit practices. Such a change in interest ratesthese practices could materially adversely affect our ability to anticipate business needs and meet regulatory requirements. Further, difficult economic conditions may materiallynegatively affect consumer confidence levels. A decrease in consumer confidence levels would likely
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aggravate the adverse effects of these difficult market conditions on us, our customers and adversely affect our future loan origination volume and margins.

    If we do not comply with the agreements governing servicing of loans, if these agreements change materially, or if others allege non-compliance, our business and results of operations may be harmed.
    We have contractual obligations under the servicing agreements pursuant to which we service mortgage loans. Many of our servicing agreements require adherence to general servicing standards, and certain contractual provisions delegate judgment over various servicing matters to us. If the terms of these servicing agreements change, we may sustain higher costs. Our servicing practices, and the judgments that we make in our servicing of loans, could also be questioned by parties to these agreements. We could also become subject to litigation claims seeking damages or other remedies arising from alleged breaches of our servicing agreements. 
    Additionally, under our loan servicing program we retain servicing rights on mortgage loans originated by RML and sold to the Alaska Housing Finance Corporation.AHFC. If we breach any of the representations and warranties in our servicing agreements with the Alaska Housing Finance Corporation,AHFC, we may be required to repurchase any loan sold under this program and record a loss upon repurchase and/or bear any subsequent loss on the loan. We may not have any remedies available to us against third parties for such losses, or the remedies might not be as broad as the remedies available to the Alaska Housing Finance Corporation against us.
    Certain hedging strategies that we use to manage interest rate risk may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity.
    We use derivative instruments to economically hedge the interest rate risk in our residential mortgage loan commitments. Our hedging strategies are susceptible to prepayment risk, basis risk, market volatility and changes in the shape of the yield curve, among other factors. In addition, hedging strategies rely on assumptions and projections regarding assets and general market factors. If these assumptions and projections prove to be incorrect or our hedging strategies do not adequately
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mitigate the impact of changes in interest rates, we may incur losses that would adversely impact our financial condition and results of operations.
    Our loan loss allowance may not be adequate to cover future loan losses, which may adversely affect our earnings.
We have established a reserve for probable losses we expect to incur in connection with loans in our credit portfolio. This allowance reflects our estimate of the collectability of certain identified loans, as well as an overall risk assessment of total loans outstanding. Our determination of the amount of loan loss allowance is highly subjective; although management personnel apply criteria such as risk ratings and historical loss rates; these factors may not be adequate predictors of future loan performance. Accordingly, we cannot offer assurances that these estimates ultimately will prove correct or that the loan loss allowance will be sufficient to protect against losses that ultimately may occur. If our loan loss allowance proves to be inadequate, we may suffer unexpected charges to income, which would adversely impact our results of operations and financial condition. Moreover, bank regulators frequently monitor banks' loan loss allowances, and if regulators were to determine that the allowance is inadequate, they may require us to increase the allowance, which also would adversely impact our financial condition and results of operations.
    We have a significant concentration in real estate lending. A downturn in real estate within our markets would have a negative impact on our results of operations. 
    Approximately 73%69% of the Bank’s loan portfolio, excluding PPP loans, at December 31, 20202022 consisted of loans secured by commercial and residential real estate located in Alaska. Additionally, all of the Company's loans held for sale are secured by residential real estate. A slowdown in the residential sales cycle in our major markets and a constriction in the availability of mortgage financing, such as what occurred during the financial crisis in the United States housing market from 2008 through 2012, would negatively impact residential real estate sales, which would result in customers’ inability to repay loans.  This would result in an increase in our non-performing assets if more borrowers fail to perform according to loan terms and if we take possession of real estate properties. Additionally, if real estate values decline, the value of real estate collateral securing our loans could be significantly reduced.  If any of these effects continue or become more pronounced, loan losses will increase more than we expect and our financial condition and results of operations would be adversely impacted.
    Further, approximately 36%55% of the Bank’s loan portfolio at December 31, 20202022 consisted of commercial real estate loans.   While our investments in these types of loans have not been as adversely impacted as residential construction and land development loans, there can be no assurance that the credit quality in these portfolios will remain stable.  Commercial construction and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers.  Consequently, an adverse development with respect to one commercial loan or one credit relationship exposes us to significantly greater risk of loss compared to an adverse development with respect to a consumer loan.  The credit quality of these loans may deteriorate more than expected which may result in losses that exceed the estimates that are currently included in our loan loss allowance, which could adversely affect our financial condition and results of operations. 
    Real estate values may decrease leading to additional and greater than anticipated loan charge-offs and valuation writedowns on our other real estate owned (“OREO”) properties.
Real estate owned by the Bank and not used in the ordinary course of its operations is referred to as “other real estate owned” or “OREO” property.  We foreclose on and take title to the real estate serving as collateral for defaulted loans as part of our business.  At December 31, 2020, the Bank held $7.3 million of OREO properties, most of which relate to a commercial real estate loan.   Increased OREO balances lead to greater expenses as we incur costs to manage and dispose of the properties.  Our ability to sell OREO properties is affected by public perception that banks are inclined to accept large discounts from market value in order to quickly liquidate properties.  Any decrease in market prices may lead to OREO writedowns, with a corresponding expense in our income statement.  We evaluate OREO property values periodically and writedown the carrying value of the properties if the results of our evaluations require it.  Further writedowns on OREO or an inability to sell OREO properties could have a material adverse effect on our results of operations and financial condition.
We conduct substantially all of our operations through Northrim Bank, our banking subsidiary; our ability to pay dividends, repurchase our shares, or to repay our indebtedness depends upon liquid assets held by the holding company and the results of operations of our subsidiaries and their ability to pay dividends.
The Company is a separate legal entity from our subsidiaries. It receives substantially all of its revenue from dividends paid from the Bank.  There are legal limitations on the extent to which the Bank may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with us.  Our inability to receive dividends from the Bank could adversely affect our business, financial condition, results of operations and prospects.
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    Our net income depends primarily upon the Bank’s net interest income, which is the income that remains after deducting from total income generated by earning assets the expense attributable to the acquisition of the funds required to support earning assets (primarily interest paid on deposits and borrowings).  The amount of interest income is dependent on many factors including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the levels of nonperforming loans.  All of those factors affect the Bank’s ability to pay dividends to the Company. On January 1, 2019, a requirement to have a capital conservation buffer went into full effect and could adversely affect the Bank's ability to pay dividends.
    Various statutory provisions restrict the amount of dividends the Bank can pay to us without regulatory approval.  Under Alaska law, a bank may not declare or pay a dividend in an amount greater than its net undivided profits then on hand. In addition, the Bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet the “adequately capitalized” level in accordance with regulatory capital requirements.  It is also possible that, depending upon the financial condition of the Bank and other factors, regulatory authorities could conclude that payment of dividends or other payments, including payments to us, is an unsafe or unsound practice and impose restrictions or prohibit such payments.   It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s current and expected future capital needs, asset quality and overall financial condition.  The policy provides that bank holding companies should not maintain a level of cash dividends that undermines a bank holding company’s ability to serve as a source of strength to its banking subsidiaries.
    There can be no assurance that the Company will continue to declare cash dividends or repurchase stock.
During 2020, the Company repurchased 327,000 shares of common stock at an average price of $30.51 per share under its previously announced share repurchase program. On February 1, 2021, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 313,000 shares of common stock. The Company also paid cash dividends of $1.38 per diluted share in 2020. On February 25, 2021, the Board of Directors approved payment of a $0.37 per share dividend on the Company’s outstanding shares.
    Whether we continue, and the amount and timing of, such dividends and/or stock repurchases is subject to capital availability and periodic determinations by our Board. The Company continues to evaluate the potential impact that regulatory proposals may have on our liquidity and capital management strategies, including Basel III and those required under the Dodd-Frank Act. The actual amount and timing of future dividends and share repurchases, if any, will depend on market and economic conditions, applicable SEC rules, federal and state regulatory restrictions, and various other factors. In addition, the amount we spend and the number of shares we are able to repurchase under our stock repurchase program may further be affected by a number of other factors, including the stock price and blackout periods in which we are restricted from repurchasing shares. Our dividend payments and/or stock repurchases may change from time to time, and we cannot provide assurance that we will continue to declare dividends and/or repurchase stock in any particular amounts or at all. A reduction in or elimination of our dividend payments and/or stock repurchases could have a negative effect on our stock price.
We may be unable to attract and retain key employees and personnel.
    We will be dependent for the foreseeable future on the services of Joseph M. Schierhorn, our Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer of the Company; Michael Martin,Huston, our Executive Vice President General Counsel and Corporate Secretary; andChief Lending Officer of Northrim Bank; Jed W. Ballard, our Executive Vice President and Chief Financial Officer.Officer; and Amber Zins, our Executive Vice President and Chief Operating Officer of Northrim Bank. While we maintain keyman life insurance on the lives of Messrs. Schierhorn, Martin,Huston, Ballard and BallardMs. Zins in the amounts of $2.4 million, $2 million, $2 million and $2 million, respectively, we may not be able to timely replace Mr. Schierhorn, Mr. Martin, or Mr. Ballardthese key employees with a person of comparable ability and experience
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should the need to do so arise, causing losses in excess of the insurance proceeds. The unexpected loss of key employees could have a material adverse effect on our business and possibly result in reduced revenues and earnings.
    Liquidity risk could impair our ability to fund operations and jeopardize our financial conditions.
    Liquidity is essential to our business. An inability to raise funds through deposits, borrowings and other sources could have a substantial negative effect on our liquidity and severely constrain our financial flexibility. Our primary source of funding is deposits gathered through our network of branch offices. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or the economy in general. Factors that could negatively impact our access to liquidity sources include:
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a decrease in the level of our business activity as a result of an economic downturn in the markets in which our loans are concentrated;
adverse regulatory actions against us; or
our inability to attract and retain deposits. 
    Our ability to borrow could be impaired by factors that are not specific to us or our region, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry and unstable credit markets. Our access to deposits may also be negatively impacted by, among other factors, continued periods of low interest rates and increased competition for deposits, including from new financial technology competitors.
    A failure of a significant number of our borrowers, guarantors and related parties to perform in accordance with the terms of their loans would have an adverse impact on our results of operations.
    A source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of our allowance for loan losses, which we believe are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance, and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially affect our financial condition and results of operations.
The ongoing COVID-19 pandemic, or a similar health crisis, may adversely impact our business and financial results.

The COVID-19 pandemic has created economic and financial disruptions that may adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic, or a similar health crisis, will negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of our control, including the scope and duration of the pandemic, the emergence of new variants, the effectiveness of our pandemic response plans, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken, or that may yet be taken, or inaction, by governmental authorities and other third parties in response to the pandemic. Should the pandemic continue for a more extended period or worsen, we may face additional circumstances such as significant draws on credit lines should customers seek to increase liquidity. Furthermore, should the pandemic continue, we may experience increased rates of employee illness or unavailability, and may experience challenges recruiting new employees.

Any disruption to our ability to deliver financial products or services to, or interact with, our clients and customers could result in losses or increased operational costs, regulatory fines, penalties and other sanctions, or harm our reputation. We are also subject to litigation and reputational risk arising from our response to the COVID-19 pandemic.

Governments have taken unprecedented steps to partially mitigate the adverse effects of their containment measures. For example, in late March 2020, the CARES Act was enacted to inject more than $2 trillion of financial assistance into the U.S. economy, followed by additional COVID relief legislation of approximately $900 million in December 2020.In March 2021 the ARP Act was enacted to inject an additional $1.9 trillion in financial relief and economic stimulus. Whether the economic stimulus will have a lasting positive effect or whether it will contribute to higher inflation or other economic ill effects is unknown.
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To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this report.

Regulatory, Legislative and Legal Risks
We operate in a highly regulated environment and changes of or significant increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us.
We are subject to extensive regulation, supervision and examination by federal and state banking authorities. In addition, as a publicly-traded company, we are subject to regulation by the SEC and NASDAQ.  Any change in applicable regulations or federal or state legislation or in policies or interpretations or regulatory approaches to compliance and enforcement, income tax laws and accounting principles could have a substantial impact on us and our operations. Changes in laws and regulations may also increase our expenses by imposing additional fees or taxes or restrictions on our operations. Significant changes in SEC regulations, such as the proposed climate change disclosures and other regulatory initiatives, can dramatically shift resources and costs to ensure adequate compliance. Additional legislation and regulations that could significantly affect our authority and operations may be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations. Failure to appropriately comply with any such laws, regulations or principles could result in sanctions by regulatory agencies or damage to our reputation, all of which could adversely affect our business, financial condition or results of operations.

    In that regard, theThe Dodd-Frank Act was enacted in July 2010.  Among other provisions,has had a substantial impact on our industry, including the Dodd-Frank Act createdcreation of the CFPB with broad powers to regulate consumer financial products such as credit cards and mortgages, createdthe creation of a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, has resulted in new capital requirements from federal banking agencies, placed new limits on electronic debit card interchange fees, and requires banking regulators, the SEC and national stock exchanges to adopt significant new corporate governance and executive compensation reforms.
    Certain provisions of these new rules have phase-in periods, including a 2.5% conservation buffer, which began to be phased-in in 2016 and took full effect on January 1, 2019. Further, regulatorsRegulators have significant discretion and authority to prevent or remedy practices that they deem to be unsafe or unsound, or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties.  These powers have been utilized more frequently in recent years due to the serious national economic conditions that faced the financial system in late 2008 and early 2009. The exercise of regulatory authority may have a negative impact on our financial condition and results of operations. Additionally, our business is affected significantly by the fiscal and monetary policies of the U.S. federal government and its agencies, including the FRB.

We cannot accurately predict the full effects of recent or future legislation or the various other governmental, regulatory, monetary and fiscal initiatives which have been and may be enacted on the financial markets and on the Company. The terms and costs of these activities could materially and adversely affect our business, financial condition, results of operations and the trading price of our common stock.
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    We are subject to more stringent capital and liquidity requirements which may adversely affect our net income and future growth.
In July 2013, the FRB and the FDIC announced the new capital rules, which apply to both depository institutions and (subject to certain exceptions not applicable to the Company) their holding companies.  As described in further detail above in “Part I. Item 1 Business - Supervision and Regulation” these rules created increased capital requirements for United States depository institutions and their holding companies. These rules include risk-based and leverage capital ratio requirements, which became effective on January 1, 2015. These rules also revise the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels do not meet certain thresholds. These revisions also became effective January 1, 2015. 
    Our failure to comply with the minimum capital requirements could result in our regulators taking formal or informal actions against us which could restrict our future growth or operations.
Changes in the FRB’s monetary or fiscal policies could adversely affect our results of operations and financial condition.
    Our earnings will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The FRB has, and is likely to continue to have, an important impact on the operating results of depository institutions through its power to implement national monetary policy, among other things, in order to curb inflation or combat a recession. The FRB affects the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. Since December 2015,The FRB raised the FRB has increased short-term interest rates nine times. However, the FRB reducedfederal funds rate target to 4.50%-4.75% in February 2023 and also indicated that due to continuing rising inflation it expects to continue raise interest rates in 2019 and 2020 and announced its target to keep federal funds ratethe near zero percent in January 2021.term. While we expect the FRB to holdraise short-term interest rates stable in 2021,the first half 2023, we cannot predict the nature or impact of future changes in monetary and fiscal policies.
    Changes in market interest rates could adversely impact the Company. 

Our earnings are impacted by changing interest rates.  Changes in interest rates affect the demand for new loans, the credit profile of existing loans, the rates received on loans and securities, and rates paid on deposits and borrowings. These impacts may negatively impact our ability to attract deposits, make loans, and achieve satisfactory interest rate spreads, which could adversely affect our financial condition or results of operations. In particular, increases in interest rates will likely reduce RML’s revenues by reducing the market for refinancings, as well as the demand for RML’s other residential loan products. Additionally, increases in interest rates may impact our borrowers' ability to make loan payments, particularly in our commercial loan portfolio.
     Interest rates may be affected by many factors beyond our control, including general and economic conditions and the monetary and fiscal policies of various governmental and regulatory authorities. Since December 2015, the FRB has increased short-term interest rates nine times. However, the FRB reduced interest rates in 2019 and 2020 and announced its target to keep the federal funds rate near zero percent in January 2021. While we expect the FRB to hold short-term interest rates stable in 2021, market volatility in interest rates can be difficult to predict, as unexpected interest rate changes may result in a sudden impact while anticipated changes in interest rates generally impact the mortgage rate market prior to the actual rate change.  Exposure to interest rate risk is managed by monitoring the repricing frequency of our rate-sensitive assets and rate-sensitive liabilities over any given period.  Although we believe the current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates could potentially have an adverse effect on our business, financial condition and results of operations.
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    Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences.
    Financial institutions are required under the USA PATRIOT Act and Bank Secrecy Act to develop programs to prevent financial institutions from being used for money-laundering and terrorist activities. Financial institutions are also obligated to file suspicious activity reports with the United States Treasury Department’s Office of Financial Crimes Enforcement Network if such activities are detected. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure or the inability to comply with these regulations could result in fines or penalties, intervention or sanctions by regulators, and costly litigation or expensive additional controls and systems. In recent years, several banking institutions have received large fines for non-compliance with these laws and regulations. In addition, the federal government has in place laws and regulations relating to residential and consumer lending, as well as other activities with customers, that create significant compliance burdens and financial risks. We have developed policies and continue to augment procedures and systems designed to assist in compliance with these laws and regulations; however, it is possible for such safeguards to fail or prove deficient during the implementation phase to avoid non-compliance with such laws.
Deposit insurance premiums could increase further in the future.

The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund ("DIF") at a specific level. Historically, unfavorable economic conditions increased bank failures and these additional failures decreased the DIF. In order to restore the DIF to its statutorily mandated minimums the FDIC significantly increased deposit insurance premium rates, including the Bank's. FDIC insurance premiums could increase in the future in response to similar declining economic conditions. More recently, extraordinary growth in insured deposits caused the ratio of the DIF to total insured deposits to fall below the current statutory minimum of 1.35%. The FDIC has also established a higher reserve ratio of 2% as a long term goal and the minimum level needed to withstand future financial crises of the magnitude of past crises. The FDIC may increase the assessment rates or impose additional special assessments in the future to restore and then steadily increase the DIF to these statutory target levels. Any increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations.

Accounting, Tax and Financial Risks
Changes in income tax laws and interpretations, or in accounting standards, could materially affect our financial condition or results of operations.
    Further changes in income tax laws could be enacted, or interpretations of existing income tax laws could change, causing an adverse effect on our financial condition or results of operations. Similarly, our accounting policies and methods are fundamental to how we report our financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of our assets, liabilities, and financial results. Periodically, new accounting standards are issued or existing standards are revised, changing the methods for preparing our financial statements. These changes are not within our control and may significantly impact our financial condition and results of operations.

Uncertainty about the continuing availabilityThe replacement of the London Inter-Bank Offered Rate ("LIBOR") may adversely affect our business.

Certain loans made by us are made at variable rates that use LIBOR as a benchmark for establishing the interest rate. In addition, we also have investments and interest rate derivatives that reference LIBOR. On July 27, 2017, the United Kingdom’s Financial Conduct Authority which regulates("FCA") announced that it intended to stop persuading or compelling banks to submit LIBOR rates after 2021. On November 30, 2020 to facilitate an orderly LIBOR transition the LIBOROffice of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve jointly announced that entering into new contracts using LIBOR as a reference rate after December 31, 2021 it would create a safety and soundness risk. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer compel banksbe representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings. In the United States, efforts to submitidentify a set of alternative U.S. dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee ("ARRC") has recommended the use of a Secured Overnight Funding Rate ("SOFR"). SOFR is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate. These differences could lead to a greater disconnect between the Bank's costs to raise funds for SOFR as compared to LIBOR. For cash products and loans, the ARRC has also recommended Term SOFR, which is a forward looking SOFR based on SOFR futures and may in part reduce
24


differences between SOFR and LIBOR. To further reduce differences between replacement indices and substitute indices market practitioners have also gravitated towards credit sensitive rates, requiredthe leading among them being the Bloomberg Short-term Bank Yield Index (“BSBY”). The ARRC announced on October 21, 2020 that they are not well positioned to calculate LIBOR.  With this announcement there is uncertainty aboutadjudicate the continueddevelopment of a credit sensitive rate and will not criticize firms solely for using reference rates other than SOFR, such as BSBY.

The Company has the ability to originate new loans to customers based on SOFR, Term SOFR, BSBY, Prime and other indices but market acceptance or availability of these or other alternate reference rates remain uncertain. The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers may incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR after 2021.  Ifof the substitute index or indices, which could have an adverse effect on our results of operations. These reforms may cause LIBOR ceases to be available or thecease to exist, new methods of calculating LIBOR change from the current methods, financial products with interest rates tied to LIBOR may be adversely affected.  Even if LIBOR remains available it is uncertain whether it will continue to be viewed asestablished or the establishment of multiple alternative reference rate(s). These consequences cannot be entirely predicted and could have an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR or what the effect of any such changes in views or alternatives may beadverse impact on the marketsmarket value for LIBOR-indexed financial instruments.  We haveor value of LIBOR-linked securities, loans, derivative contracts, and other financial instruments, including debentures relatedobligations or extensions of credit held by or due to our trust preferred securities, with rates that are either directly or indirectly tied to LIBOR.  If any of the foregoing were to occur, the interest rates on these instruments, as well as the revenue and expenses associated with the same, may be adversely affected.us. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.

Stock Ownership Risk Factors

Our ability to pay dividends, repurchase our shares, or to repay our indebtedness depends upon liquid assets held by the Company and the results of operations of our subsidiaries and their ability to pay dividends.

The Company is a separate legal entity from our subsidiaries and does not have significant operations of its own. The availability of dividends from the Bank is limited by the Bank's earnings and capital, as well as various statutes and regulations. Our inability to receive dividends from the Bank could adversely affect our business, financial condition, results of operations and prospects.

Our net income depends primarily upon the Bank’s net interest income, which is the income that remains after deducting from total income generated by earning assets the expense attributable to the acquisition of the funds required to support earning assets (primarily interest paid on deposits and borrowings). The amount of interest income is dependent on many factors including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the levels of nonperforming loans. All of those factors affect the Bank’s ability to pay dividends to the Company.

Various statutory provisions restrict the amount of dividends the Bank can pay to us without regulatory approval. Under Alaska law, a bank may not declare or pay a dividend in an amount greater than its net undivided profits then on hand. In addition, the Bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet the “adequately capitalized” level in accordance with regulatory capital requirements. It is also possible that, depending upon the financial condition of the Bank and other factors, regulatory authorities could conclude that payment of dividends or other payments, including payments to us, is an unsafe or unsound practice and impose restrictions or prohibit such payments. It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s current and expected future capital needs, asset quality and overall financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines a bank holding company’s ability to serve as a source of strength to its banking subsidiaries.If the Bank earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.

There can be no assurance that the Company will continue to repurchase stock.

During 2022, the Company repurchased 333,724 shares of common stock at an average price of $42.42 per share under its previously announced share repurchase program. On January 27, 2023, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 285,000 shares of common stock.

Whether we continue, and the amount and timing of such stock repurchases is subject to capital availability and periodic determinations by our Board. The Company continues to evaluate the potential impact that regulatory proposals may have on our liquidity and capital management strategies, including Basel III and those required under the Dodd-Frank Act. The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, applicable SEC
25


rules, federal and state regulatory restrictions, and various other factors. In addition, the amount we spend and the number of shares we are able to repurchase under our stock repurchase program may further be affected by a number of other factors, including the stock price and blackout periods in which we are restricted from repurchasing shares. Our stock repurchases may change from time to time, and we cannot provide assurance that we will continue to repurchase stock in any particular amounts or at all. A reduction in or elimination of our stock repurchases could have a negative effect on our stock price.

The market price for our common stock may be volatile.

The market price of our common stock could fluctuate substantially in the future in response to a number of factors, including those discussed below. The market price of our common stock has in the past fluctuated significantly. We expect to see additional volatility in the financial markets due to the uncertainty caused by the continuing COVID-19 pandemic, disruption in global supply chains, uncertainty over the U.S. government debt ceiling and changing FRB policy. Some additional factors that may cause the price of our common stock to fluctuate include:

•general conditions in the financial markets and real estate markets.
•macro-economic and political conditions in the U. S. and the financial markets generally (including the effects of the COVID-19 pandemic).
•variations in the operating results of the Company and our competitors.
•events affecting other companies that the market deems comparable to the Company.
•changes in securities analysts' estimates of our future performance and the future performance of our competitors.
•announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships.
•additions or departure of key personnel.
•the presence or absence of short selling of our common stock.
•future sales or other issuances by us of our common stock.

The stock markets in general have experienced substantial price and trading fluctuations. These fluctuations have resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating performance. These broad market fluctuations are expected to continue for the near future, and may adversely affect the trading price of our common stock.

There may be future sales or other dilution of the Company's equity, which may adversely affect the market price of our common stock.

We are not restricted from issuing additional shares of common stock, preferred stock, or securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock. Our Board of Directors has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over the common stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms.

The issuance of any additional shares of common or of preferred stock or convertible securities or the exercise of such securities could be substantially dilutive to existing shareholders. We may also elect to use common stock to fund future acquisitions, which will dilute existing shareholders. Holders of our common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in dilution to our shareholders.

The Company’s business or the value of its common stock could be negatively affected as a result of actions by activist shareholders.

The Company values constructive input from shareholders, and our Board of Directors and management team are committed to acting in the best interests of all of the Company’s shareholders. Activist shareholders who disagree with the composition of the Board of Directors, the Company’s strategic direction, or the way the Company is managed may seek to effect change through various strategies that range from private engagement to public filings, proxy contests, efforts to force transactions not supported by the Board of Directors, and litigation. Responding to some of these actions can be costly and time-consuming, may disrupt the Company’s operations and divert the attention of the Board of Directors and management. Such activities could interfere with the Company’s ability to execute its strategic plan and to attract and retain qualified executive leadership. The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common stock.

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General Economic and Market RisksRisk Factors

    Natural disasters and adverse weather could negatively affect real estate property values and Bank operations.
    Real estate and real estate property values play an important role for the Bank in several ways. The Bank owns or leases many real estate properties in connection with its operations, located in Anchorage, Juneau, Fairbanks, the Matanuska-Susitna Valley, Kodiak, Ketchikan, Sitka, and the Kenai Peninsula. Real estate is also utilized as collateral for many of our loans. A natural disaster could cause property values to fall, which could require the Bank to record an impairment on its financial statements. A natural disaster could also impact collateral values, which would increase our exposure to loan defaults. Our business operations could also suffer to the extent the Bank cannot utilize its branch network due to a natural disaster or other weather-related damage.
26


The soundness of other financial institutions could adversely affect us.
    Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure. There can be no assurance that any such losses would not materially and adversely affect our results of operations.
    The financial services business is intensely competitive and our success will depend on our ability to compete effectively.
    The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in originating loans. We compete for loans principally through the pricing of interest rates and loan fees and the efficiency and quality of services. Increasing levels of competition in the banking and financial services industries may reduce our market share or cause the prices charged for our services to fall.  Improvements in technology, communications, and the internet have intensified competition. As a result, our competitive position could be weakened, which could adversely affect our financial condition and results of operations.
    We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so could materially adversely affect our performance.
    We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results could be materially adversely affected.
Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect our business operations.

Our business may be adversely affected by social, political, and economic instability, unrest, or disruption in a geographic region in which we operate, regardless of cause, including legal, regulatory, and policy changes by a new presidential administration in the U.S., protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection, or social and other political unrest.

Such events may result in restrictions, curfews, or other actions and give rise to significant changes in regional and global economic conditions and cycles, which may adversely affect our financial condition and operations. In 2020, there were protests in cities throughout the U.S. as well as globally, including in Hong Kong, in connection with civil rights, liberties, and social and governmental reform. Looting, vandalism, and fires have occurred in cities such as Seattle, Portland, Los Angeles, Washington, D.C., New York City, and Minneapolis that have led to the imposition of mandatory curfews and, in some locations, deployment of the U.S. National Guard. Government actions in an effort to protect people and property, including curfews and restrictions on business operations, may disrupt operations, harm perceptions of personal well-being, and increase the need for additional expenditures on security resources. In addition, action resulting from such social or political unrest may pose significant risks to our personnel, facilities, and operations. The effect and duration of demonstrations, protests, or other factors is uncertain, and we cannot ensure there will not be further political or social unrest in the future or that there will not be other events that could lead to social, political, and economic
27


disruptions. If such events or disruptions persist for a prolonged period of time, our overall business and results of operations may be adversely affected.

In addition, a new U.S. President, Joseph R. Biden, was elected in November 2020. The aftermath of the November 2020 presidential election, including the January 6, 2021, violent disruption at the Capitol, has left the U.S. in what many consider to be an extremely heightened state of political and social tension, and it is unclear whether this tension will dissipate or intensify in coming months and what resulting impacts may occur to adversely affect our business operations or the safety of our employees, our customers, and the communities in which we operate.

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Changes in federal policy, including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which lead to changes involving the level of oversight and focus on certain industries and corporate entities. The nature, timing, and economic and political effects of potential changes to the current legal and regulatory frameworks affecting the financial services industry remain highly uncertain.
    Climate change, severe weather, natural disasters, and other external events could significantly impact our business.
    Severe weather events of increasing strength and frequency due to climate change cannot be predicted and may be exacerbated by global climate change, natural disasters, including volcanic eruptions and earthquakes, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us. In addition, there is continuing uncertainty over demand for oil and gas in part due to consumer demand and regulatory changes from climate change related policies. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional expenses. Although management has established disaster recovery policies and procedures, there can be no assurance of the effectiveness of such policies and procedures, and the occurrence of any such event could have a material adverse effect on our business, financial condition and results of operations.
    

ITEM 1B.            UNRESOLVED STAFF COMMENTS
    None.
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ITEM 2.            PROPERTIES
    The following sets forth information about our Community Banking branch locations:
LocationsTypeLeased/Owned
Midtown Financial Center: Northrim Headquarters
3111 C Street, Anchorage, AK
TraditionalLand partially leased, partially owned, building owned
SouthSide Financial Center
8730 Old Seward Highway, Anchorage, AK
TraditionalLand leased, building owned
Lake Otis Community Branch
2270 East 37th Avenue, Anchorage, AK
TraditionalLand leased, building owned
Huffman Branch
1501 East Huffman Road, Anchorage, AK
In-storeLeased
Jewel Lake Branch
9170 Jewel Lake Road4000 W. Dimond Boulevard, Suite 101,No. 02, Anchorage, AK
TraditionalLeased
Seventh Avenue Branch
517 West Seventh Avenue, Suite 300, Anchorage, AK
TraditionalLeased
Eastside Community Branch
7905 Creekside Center Drive, Suite 100, Anchorage, AK
TraditionalLeased
West Anchorage Branch
2709 Spenard Road, Anchorage, AK
TraditionalOwned
Eagle River Branch
12812 Old Glenn Highway, Suite C03, Eagle River, AK
TraditionalLeased
Fairbanks West Community Branch
3637 Airport Way, Suite 110, Fairbanks,
AK
TraditionalLeased
Fairbanks Financial Center
360 Merhar Avenue, Fairbanks, AK
TraditionalOwned
Wasilla Financial Center
850 E. USA Circle, Suite A, Wasilla, AK
TraditionalOwned
Soldotna Financial Center
44384 Sterling Highway, Suite 101, Soldotna, AK
TraditionalLeased
Juneau Financial Center
2094 Jordan Avenue, Juneau, AK
TraditionalLeased
Juneau Downtown Branch
301 North Franklin Street, Juneau, AK
TraditionalLeased
Sitka Financial Center
315 Lincoln Street, Suite 206, Sitka, AK
TraditionalLeased
Ketchikan Financial Center
2491 Tongass Avenue, Ketchikan, AK
TraditionalOwned
Nome Branch
110 Front Street, Suite 100, Nome, AK
TraditionalLeased
Kodiak Loan Production Office
2011 Mill Bay Road, #101,#1, Kodiak, AK
Loan ProductionLeased
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    The following sets forth information about our Home Mortgage Lending branch locations, operated by RML:
LocationsLeased/Owned
Main Office at Calais
100 Calais Drive, Anchorage, AK
Leased
ReMax/Dynamic Office
3350 Midtown Place, Suite 101, Anchorage, AK
Leased
Midtown Office
101 W. Benson Boulevard, #201, Anchorage, AK
Leased
Eagle River Office
12812 Old Glenn Highway, Suite C03,C-4, Eagle River, AK
Leased
Fairbanks Office
324 Old Steese Highway, Suite 7, Fairbanks, AK
Leased
Fairbanks Northrim Office
360 Merhar Avenue, Fairbanks, AK
Leased
Fairbanks Office
711 Gaffney Road, Suite 202,
Fairbanks, AK
Leased
Juneau Office
8800 Glacier Highway, #232, Juneau, AK
Leased
Kodiak Office
2011 Mill Bay Road, #101,#1, Kodiak, AK
Leased
Soldotna Office
44384 Sterling Highway, Suite 101,102, Soldotna, AK
Leased
Wasilla Remax Dynamic Branch
892 E USA Circle, Suite 105, Wasilla,
AK
Leased
Wasilla Northrim Branch
850 E USA Circle, Suite B, Wasilla, AK
Leased


ITEM 3.            LEGAL PROCEEDINGS
    The Company from time to time may be involved with disputes, claims and litigation related to the conduct of its banking business. Management does not expect that the resolution of these matters will have a material effect on the Company’s business, financial position, results of operations or cash flows.

ITEM 4.            MINE SAFETY DISCLOSURES
    Not applicable.
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PART II
ITEM 5.                MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
    Our common stock trades on the NASDAQ Global Select Stock Market under the symbol, “NRIM.” At March 5, 2021,6, 2023, the number of shareholders of record of our common stock was 228.212. As many of our shares of common stock are held of record in "street name" by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of beneficial holders of our common stock represented by these record holders.
    The following are high and low closing prices as reported by NASDAQ. Prices do not include retail markups, markdowns or commissions.
  FirstSecondThirdFourth
  QuarterQuarterQuarterQuarter
2020     
 High$40.40$28.75$29.07$34.67
 Low$20.16$19.63$20.90$25.48
2019     
 High$39.60$36.71$41.82$39.79
 Low$32.36$33.22$34.72$36.46
    In 2020, we paid cash dividends of $0.34 per share in the first and second quarters and $0.35 per share in the third and fourth quarters.  In 2019, we paid cash dividends of $0.30 per share in the first and second quarters and $0.33 per share in the third and fourth quarters.  Cash dividends totaled $8.9 million, $8.5 million, and $7.1 million in 2020, 2019, and 2018, respectively.  On February 25, 2021, the Board of Directors approved payment of a $0.37 subject to restrictions on the payment of dividends pursuant to applicable federal and state banking regulations and Alaska corporate law.  The dividends that the Bank pays to the Company are limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank.  Given the fact that the Bank believes it will remain “well-capitalized” and exceed the capital conservation buffer; the Company expects to receive dividends from the Bank in 2021.
Repurchase of Securities
    At December 31, 2020,2022, there were no shares available for repurchase under the previously announced stock repurchase program. The Company repurchased 327,000333,724 shares in 20202022 and 347,676279,276 shares in 2019.2021. The Company did not repurchase any shares during the three-month period ended December 31, 2022. On February 1, 2021,January 27, 2023, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 313,000285,000 shares of common stock. The Company intends to continue to repurchase its stock from time to time depending upon market conditions, but we can make no assurances that we will continue this program.
Equity Compensation Plan Information
    The following table sets forth information regarding securities authorized for issuance under the Company’s equity plans as of December 31, 2020.2022. Additional information regarding the Company’s equity plans is presented in Note 2321 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report.
Plan Category
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) (2)
Weighted-Average Exercise Price of Outstanding Options,
Warrants and Rights
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by security holders1
247,677$22.12236,700
Total247,677$22.12236,700
1Consists of the Company's 2020 Stock Incentive Plan, which replaced the 2017 Stock Incentive Plan (the "2017 Plan")
2 Includes 204,795 options awarded under the 2017 Plan and other previous stock option plans.
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Plan CategoryNumber of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)Weighted-Average Exercise Price of Outstanding Options,
 Warrants and Rights
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by security holders1
158,697$25.91166,318
Total158,697$25.91166,318
1Consists of the Company's 2020 Stock Incentive Plan, which replaced the 2017 Stock Incentive Plan (the "2017 Plan")
    
    We do not have any equity compensation plans that have not been approved by our shareholders.
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Stock Performance Graph
    The graph shown below depicts the total return to shareholders during the period beginning after December 31, 2015,2017, and ending December 31, 2020.2022.  The definition of total return includes appreciation in market value of the stock, as well as the actual cash and stock dividends paid to shareholders.  The comparable indices utilized are the Russell 3000 Index, representing approximately 98% of the U.S. equity market, and the SNL Financial Bank StockS&P U.S. Small Cap Banks Index, comprised of publicly traded banks with assets of $1 billiona market capitalization between $750 million to $5$3.3 billion, which are located in the United States.  The graph assumes that the value of the investment in the Company’s common stock and each of the two indices was $100 on December 31, 2015,2017, and that all dividends were reinvested.
nrim-20201231_g1.jpgnrim-20221231_g1.jpg
Period EndingPeriod Ending
IndexIndex12/31/1512/31/1612/31/1712/31/1812/31/1912/31/20Index12/31/1712/31/1812/31/1912/31/2012/31/2112/31/22
Northrim BanCorp, Inc.Northrim BanCorp, Inc.100.00 122.45 134.83 134.45 162.17 150.84 Northrim BanCorp, Inc.100.00 99.74 120.28 111.65 147.9 193.35 
Russell 3000Russell 3000100.00 112.74 136.56 129.40 169.54 204.95 Russell 3000100.00 94.76 124.15 150.08 188.6 152.37 
SNL Bank $1B-$5B100.00 143.87 153.37 134.37 163.35 138.81 
S&P U.S. SmallCap BanksS&P U.S. SmallCap Banks100.00 83.44 104.69 95.08 132.36 116.69 

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ITEM 6.   SELECTED FINANCIAL DATA(1)     [RESERVED]  
Years Ended December 31,
(In thousands, except per share data and shares outstanding amounts)
202020192018201720162015Five Year Compound Growth Rate
 (Unaudited)
Net interest income$70,665 $64,442 $61,208 $57,678 $56,357 $56,909 %
Provision (benefit) for loan losses2,432 (1,175)(500)3,200 2,298 1,754 NM
Other operating income63,328 37,346 32,167 40,474 43,263 44,608 %
Compensation expense, RML acquisition payments— 468 — 130 4,775 4,094 NM
Other operating expense89,114 76,370 69,800 71,023 71,505 68,551 %
Income before provision for income taxes$42,447 $26,125 $24,075 $23,799 $21,042 $27,118 %
Provision for income taxes9,559 5,434 4,071 10,321 6,052 8,784 %
Net Income32,888 20,691 20,004 13,478 14,990 18,334 12 %
Less: Net income attributable to      
noncontrolling interest— — — 327 579 551 NM
Net income attributable to Northrim Bancorp, Inc.$32,888 $20,691 $20,004 $13,151 $14,411 $17,783 13 %
Year End Balance Sheet
Assets$2,121,798 $1,643,996 $1,502,988 $1,518,596 $1,525,851 $1,498,691 %
Portfolio loans1,444,050 1,043,371 984,346 954,953 974,074 979,682 %
Deposits1,824,981 1,372,351 1,228,088 1,258,283 1,267,653 1,240,792 %
Securities sold under repurchase agreements— — 34,278 27,746 27,607 31,420 (100)%
Borrowings14,817 8,891 7,241 7,362 4,338 2,120 48 %
Junior subordinated debentures10,310 10,310 10,310 10,310 18,558 18,558 (11)%
Shareholders' equity221,575 207,117 205,947 192,802 186,712 177,214 %
Common shares outstanding6,251,004 6,558,809 6,883,216 6,871,963 6,897,890 6,877,140 (2)%
Average Balance Sheet
Assets$1,936,047 $1,555,707 $1,493,385 $1,511,052 $1,506,522 $1,480,913 %
Earning assets1,758,839 1,386,557 1,346,449 1,367,203 1,361,913 1,334,102 %
Portfolio loans1,339,908 1,010,098 971,548 981,001 976,613 968,752 %
Deposits1,638,216 1,276,407 1,227,272 1,248,333 1,250,243 1,219,445 %
Securities sold under repurchase agreements— 15,167 29,940 29,690 27,322 24,447 (100)%
Borrowings25,608 8,071 7,309 5,767 4,215 14,552 12 %
Junior subordinated debentures10,310 10,310 10,310 15,066 18,558 18,558 (11)%
Shareholders' equity211,721 208,602 201,022 193,129 181,628 169,802 %
Basic common shares outstanding6,354,687 6,708,622 6,877,573 6,889,621 6,883,663 6,859,209 (2)%
Diluted common shares outstanding6,431,367 6,808,209 6,981,557 6,977,910 6,974,864 6,948,474 (2)%
Per Common Share Data
Basic earnings$5.18 $3.08 $2.91 $1.91 $2.09 $2.59 15 %
Diluted earnings$5.11 $3.04 $2.86 $1.88 $2.06 $2.56 15 %
Book value per share$35.45 $31.58 $29.92 $28.06 $27.07 $25.77 %
Tangible book value per share(2)
$32.88 $29.12 $27.57 $25.70 $24.70 $22.31 %
Cash dividends per share$1.38 $1.26 $1.02 $0.86 $0.78 $0.74 13 %
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Years Ended December 31,
202020192018201720162015Five Year Compound Growth Rate
 (Unaudited)
Performance Ratios
Return on average assets1.70 %1.33 %1.34 %0.87 %0.96 %1.20 %%
Return on average equity15.53 %9.92 %9.95 %6.81 %7.93 %10.47 %%
Equity/assets10.44 %12.60 %13.70 %12.70 %12.24 %11.82 %(2)%
Tangible common equity/tangible assets(3)
9.76 %11.73 %12.76 %11.75 %11.29 %10.40 %(1)%
Net interest margin4.02 %4.65 %4.55 %4.22 %4.14 %4.27 %(1)%
Net interest margin (tax equivalent)(4)
4.05 %4.70 %4.60 %4.28 %4.20 %4.32 %(1)%
Non-interest income/total revenue47.26 %36.69 %34.45 %41.24 %43.43 %43.94 %%
Efficiency ratio (5)
66.47 %75.43 %74.68 %72.39 %76.44 %71.31 %(1)%
Dividend payout ratio26.66 %40.79 %35.08 %45.44 %37.59 %28.81 %(2)%
Asset Quality
Nonperforming loans, net of government guarantees$10,048 $13,951 $14,694 $21,411 $12,936 $2,125 36 %
Nonperforming assets, net of government guarantees16,289 19,946 22,619 28,729 19,315 5,178 26 %
Nonperforming loans, net of government guarantees/portfolio loans0.70 %1.34 %1.49 %2.24 %1.33 %0.22 %26 %
Net charge-offs (recoveries)/average loans0.03 %(0.07)%0.15 %0.15 %0.08 %0.03 %NM
Allowance for loan losses/portfolio loans1.46 %1.83 %1.98 %2.25 %2.02 %1.85 %(5)%
Nonperforming assets, net of government guarantees/assets0.77 %1.21 %1.50 %1.89 %1.27 %0.35 %17 %
Other Data
Effective tax rate (6)
23 %21 %17 %43 %29 %32 %(6)%
Number of banking offices(7)
17 16 16 14 14 14 %
Number of employees (FTE) (8)
438 431 430 429 451 441 — %
These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.
2Tangible book value per share is a non-GAAP ratio defined as shareholders’ equity, less intangible assets, divided by common shares outstanding. Management believes that tangible book value is a useful measurement of the value of the Company’s equity because it excludes the effect of intangible assets on the Company’s equity.  See reconciliation to book value per share, the most comparable GAAP measurement below.
3Tangible 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. Management believes this ratio is important as it 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. See reconciliation to shareholders' equity to total assets below.

4Tax-equivalent net interest margin 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 28.43% in 2018 through 2020 and 41.11% in all other years presented.  Management believes that tax-equivalent net interest margin is a useful financial measure because it enables investors to evaluate net interest margin excluding tax expense in order to monitor our effectiveness in growing higher interest yielding assets and
34


managing our costs of interest bearing liabilities over time on a fully tax equivalent basis.  See reconciliation to net interest margin, the comparable GAAP measurement below. 
5In managing our business, we review the efficiency ratio exclusive of intangible asset amortization, which is a non-GAAP performance measurement.  Management believes that this is a useful financial measurement because we believe this presentation provides investors with a more accurate picture of our operating efficiency.  The efficiency ratio is calculated by dividing other operating expense, exclusive of intangible asset amortization, by the sum of net interest income and other operating income.  Other companies may define or calculate this data differently.  For additional information see the "Other Operating Expense" section in Part II. Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.  See reconciliation to comparable GAAP measurement below.
6The Company’s 2017 results included the impact of the enactment of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017.  The law includes significant changes to the U.S. corporate tax system, including a Federal corporate rate reduction from 35% to 21%.  In 2017, the Company applied the newly enacted corporate federal income tax rate of 21%, reducing the value of the Company's net deferred tax asset, resulting in approximately a $2.7 million increase in tax expense.  In 2018, the Company finalized changes related to the reduction in the federal tax rate which resulted in a $470,000 reduction in tax expense.
7Number of banking offices does not include RML locations. 2020 number of banking offices includes 16 full service branches and 1 loan production office. 2018 number of banking offices includes 15 full service branches and 1 loan production office.
8FTE includes 312, 311, 320, 314, 321, and 317 Community Banking employees in 2020, 2019, 2018, 2017, 2016 and 2015, respectively. FTE includes 126, 120, 110, 115, 130, and 124 Home Mortgage Lending employees in 2020, 2019, 2018, 2017, 2016 and 2015, respectively.
Reconciliation of Selected Non-GAAP Financial Data to GAAP Financial Measures
These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with "Part II. Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.
Reconciliationoftotal shareholders' equity to tangiblecommonshareholders’equity (Non-GAAP)and total assets totangible assets:
(In Thousands)202020192018201720162015
Total shareholders' equity$221,575 $207,117 $205,947 $192,802 $186,712 $177,214 
Total assets2,121,798 1,643,996 1,502,988 1,518,596 1,525,851 1,498,691 
Total shareholders' equity to total assets ratio10.44 %12.60 %13.70 %12.70 %12.24 %11.82 %
(In Thousands)202020192018201720162015
Total shareholders' equity$221,575 $207,117 $205,947 $192,802 $186,712 $177,214 
Less: goodwill and other intangible assets, net16,046 16,094 16,154 16,224 16,324 23,776 
Tangible common shareholders' equity$205,529 $191,023 $189,793 $176,578 $170,388 $153,438 
Total assets$2,121,798 $1,643,996 $1,502,988 $1,518,596 $1,525,851 $1,498,691 
Less: goodwill and other intangible assets, net16,046 16,094 16,154 16,224 16,324 23,776 
Tangible assets$2,105,752 $1,627,902 $1,486,834 $1,502,372 $1,509,527 $1,474,915 
Tangible common equity to tangible assets ratio9.76 %11.73 %12.76 %11.75 %11.29 %10.40 %
Reconciliation of tangible book value per share (Non-GAAP) to book value per share
(In thousands, except per share data)202020192018201720162015
Total shareholders' equity$221,575 $207,117 $205,947 $192,802 $186,712 $177,214 
Divided by common shares outstanding6,251,004 6,558,809 6,883,216 6,871,963 6,897,890 6,877,140 
Book value per share$35.45 $31.58 $29.92 $28.06 $27.07 $25.77 
35


(In thousands, except per share data)202020192018201720162015
Total shareholders' equity$221,575 $207,117 $205,947 $192,802 $186,712 $164,441 
Less: goodwill and intangible assets, net16,046 16,094 16,154 16,224 16,324 23,776 
 $205,529 $191,023 $189,793 $176,578 $170,388 $140,665 
Divided by common shares outstanding6,251,004 6,558,809 6,883,216 6,871,963 6,897,890 6,877,140 
Tangible book value per share$32.88 $29.12 $27.57 $25.70 $24.70 $20.45 

Reconciliation of tax-equivalent net interest margin (Non-GAAP) to net interest margin
(In Thousands)202020192018201720162015
Net interest income(9)
$70,665 $64,442 $61,208 $57,678 $56,357 $56,909 
Divided by average interest-bearing assets1,758,839 1,386,557 1,346,449 1,367,203 1,361,913 1,334,102 
Net interest margin4.02 %4.65 %4.55 %4.22 %4.14 %4.27 %
(In Thousands)202020192018201720162015
Net interest income(9)
$70,665 $64,442 $61,208 $57,678 $56,357 $56,909 
Plus: reduction in tax expense related to  
tax-exempt interest income613 722 726 872 808 722 
 $71,278 $65,164 $61,934 $58,550 $57,165 $57,631 
Divided by average interest-bearing assets1,758,839 1,386,557 1,346,449 1,367,203 1,361,913 1,334,102 
Tax-equivalent net interest margin4.05 %4.70 %4.60 %4.28 %4.20 %4.32 %

Calculation of efficiency ratio
(In Thousands)202020192018201720162015
Net interest income(9)
$70,665 $64,442 $61,208 $57,678 $56,357 $56,909 
Other operating income63,328 37,346 32,167 40,474 43,263 44,608 
Total revenue133,993 101,788 93,375 98,152 99,620 101,517 
Other operating expense89,114 76,838 69,800 71,153 76,280 72,645 
Less intangible asset amortization48 60 70 100 135 258 
Adjusted other operating expense$89,066 $76,778 $69,730 $71,053 $76,145 $72,387 
Efficiency ratio66.47 %75.43 %74.68 %72.39 %76.44 %71.31 %

9Amount represents net interest income before provision for loan losses.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.  Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of the Company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.
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ITEM 7.            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    This discussionWe have prepared this Management's Discussion and Analysis as an aid to understanding our financial results. It highlights key information as determined by management but may not contain all of the information that is important to you. For a more complete understanding, the followingIt should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto as of December 31, 2020, 2019 and 2018 included in Part II. Item 8 of this report. Discussions of 20182020 items and year-to-year comparisons between 20192021 and 20182020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II,II. Item 7 of our Annual Report on Form 10-K for fiscal year ended December 31, 2019.2021.
    This annual report contains forward-looking statements that involve risks and uncertainties.  Our actual results may differ materially from those indicated in forward-looking statements.  See “Cautionary Note Regarding Forward-Looking Statements.”

Executive Overview

    Net income attributabledecreased 18% to the Company increased 59% to $32.9$30.7 million or $5.11$5.27 per diluted share for the year ended December 31, 2020,2022, from $20.7$37.5 million, or $3.04$6.00 per diluted share, for the year ended December 31, 2019. Significant items contributing to2021. The decrease in net income is primarily the increaseresult of a $11.2 million decrease in 2020 compared to 2019 were:

net income in the Home Mortgage Lending segment, which was only partially offset by an increase in mortgage banking income due to increased mortgage production and refinance activity; and
an$4.5 million increase in net interest income resulting from higher average net interest-earning asset balances.in the Community Banking segment.

Highlights for the year ended December 31, 20202022 are as follows:  
Total revenues, which include netNet income in the Home Mortgage Lending segment decreased 109%, or $11.2 million, to a loss of $897,000 in 2022 from $10.3 million in 2021 driven by a decrease in production volume to $585.5 million in 2022 from $1.118 billion in 2021 largely due to the significant increase in interest rates in 2022.
Net income in the Community Banking segment increased 16% or $4.5 million, to $31.6 million in 2022 as compared to 2021. This increase was primarily the result of the following:
Net interest income plus other operating income, increased 32%$14.8 million to $134.0$92.9 million in 20202022 from $101.8$78.1 million in 2019. This2021 despite a decrease of $10.7 million in PPP interest and fee income primarily due to the increase mainly reflects increases in net interest incomerates in 2022, and mortgage banking income.due to growth in core loans (excluding PPP loans) and higher average balances in long-term investments and interest-bearing deposits in other banks.
The provision for credit losses increased in 2022 to a provision of $1.8 million from a benefit of $4.1 million in 2021. In 2022, the provision for credit losses included a provision for growth in both unguaranteed loan balances and unfunded commitments, and a provision for a slight increase in projected loss rates. These increases were only partially offset by net recoveries for the year. In 2021, there was a decreasesreversal of the provision for credit losses due to a decrease in purchased receivable incomeprojected loss rates that was only partially offset by growth in unguaranteed loan and unrealized gains on marketable equity securities.unfunded commitment balances and net charge offs for the year.
The net interest margin decreasedincreased to 4.02%3.85% in 20202022 from 4.65%3.58% in 20192021 mostly due to a decreasean increase in average yields on interest earning assets to 4.36%4.06% in 20202022 compared to 5.05%3.74% in 20192021 as a result of lowerhigher interest rates. Additionally, the mix of earning assets, specifically the addition of lower yielding
In 2020 and 2021, Northrim funded approximately 5,800 PPP loans alsototaling approximately $612.6 million to both existing and new customers. Management estimates that Northrim funded approximately 24% of the number and 32% of the value of all Alaska PPP second round loans.
As of December 31, 2022, Northrim's PPP efforts have resulted in approximately 2,300 new customers totaling $135.9 million in new deposit balances and contributed to the decreasegrowth in the net interest margin in 2020 as compared to the prior year.core portfolio loans.

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The provision forCompany implemented assistance to help its customers experiencing financial challenges as a result of COVID-19. The total outstanding principal balance of loan losses increased in 2020 to a provision of $2.4 million from a benefit of $1.2 million in 2019 primarilymodifications due to management's assessmentthe impacts of risks associated with the COVID-19 pandemic, which were only partially offset by improvementas of December 31, 2022 was $1.0 million, down from $8.4 million as of September 30, 2022 and $49.2 million as of December 31, 2021. The $1.0 million of remaining COVID-19 loan accommodations are scheduled to return to normal principal and interest payments in the overall credit qualityfirst quarter of the loan portfolio. Our nonperforming2023.

Nonperforming loans, net of government guarantees, decreased to $10.0$6.4 million at the end of 20202022 compared to $14.0$10.7 million at the end of 2019,2021, while total adversely classified loans, net of government guarantees at December 31, 20202022 decreased to $12.8$7.6 million from $22.3$13.7 million at December 31, 2019.2021. The allowanceAllowance for loan losses (“Allowance”Credit Losses ("ACL") totaled 1.46%0.92% of total portfolio loans at December 31, 2020,2022, compared to 1.83%0.83% at December 31, 2019.2021. This increase is primarily due to a decrease in government loan guarantees resulting from a decrease in PPP loans as a percentage of the Company's loan portfolio. The Allowance compared to nonperformingACL as a percentage of total portfolio loans, net of government guarantees was 210%0.99% at December 31, 20202022 compared to 137% at the end of 2019.
Return on average assets was 1.70% in 2020 compared to 1.33% in 2019.
The Company continued to maintain strong capital ratios with Tier 1 Capital to Risk Adjusted Assets of 14.20%0.93% at December 31, 2020 as compared to 14.38% at December 31, 2019. 2021.
The aggregate cash dividends paid by the Company in 20202022 rose 4%13% to $8.8$10.6 million from $8.5$9.4 million paid in 2019.2021.
The Company repurchased 327,000333,724 shares of its common stock in 20202022 at an average price of $30.51$42.42 per share.
Total shareholders' equity was $218.6 million as of December 31, 2022, up 4% from the preceding quarter, and down 8% from $237.8 million a year ago. Shareholders' equity was negatively impacted by the fair value of the available for sales securities portfolio which decreased $27.4 million in 2022 and, to a lesser extent the share repurchases totaling $14.2 million. The Company continued to maintain strong regulatory capital ratios with Tier 1 Capital to Risk Adjusted Assets of 12.81% at December 31, 2022.


34


Trends in Miscellaneous Financial Data(1)
Years Ended December 31,
(In thousands, except per share data and shares outstanding amounts)
202220212020201920182017Five Year Compound Growth Rate
 (Unaudited)
Net interest income$95,115 $80,827 $70,665 $64,442 $61,208 $57,678 11 %
Provision (benefit) for credit losses1,846 (4,099)2,432 (1,175)(500)3,200 (10)%
Other operating income34,077 52,263 63,328 37,346 32,167 40,474 (3)%
Compensation expense, RML acquisition payments— — — 468 — 130 (100)%
Other operating expense88,852 89,196 89,114 76,370 69,800 71,023 %
Income before provision for income taxes$38,494 $47,993 $42,447 $26,125 $24,075 $23,799 10 %
Provision for income taxes7,753 10,476 9,559 5,434 4,071 10,321 (6)%
Net Income30,741 37,517 32,888 20,691 20,004 13,478 18 %
Less: Net income attributable to      
noncontrolling interest— — — — — 327 (100)%
Net income attributable to Northrim Bancorp, Inc.$30,741 $37,517 $32,888 $20,691 $20,004 $13,151 19 %
Year End Balance Sheet
Assets$2,674,318 $2,724,719 $2,121,798 $1,643,996 $1,502,988 $1,518,596 12 %
Loans1,501,785 1,413,886 1,444,050 1,043,371 984,346 954,953 %
Deposits2,387,211 2,421,631 1,824,981 1,372,351 1,228,088 1,258,283 14 %
Shareholders' equity218,629 237,817 221,575 207,117 205,947 192,802 %
Common shares outstanding5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 6,871,963 (4)%
Average Balance Sheet
Assets$2,641,008 $2,432,599 $1,936,047 $1,555,707 $1,493,385 $1,511,052 12 %
Earning assets2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 1,367,203 13 %
Loans1,415,125 1,478,318 1,339,908 1,010,098 971,548 981,001 %
Deposits2,354,881 2,125,080 1,638,216 1,276,407 1,227,272 1,248,333 14 %
Shareholders' equity224,773 239,214 211,721 208,602 201,022 193,129 %
Basic common shares outstanding5,765,088 6,180,801 6,354,687 6,708,622 6,877,573 6,889,621 (4)%
Diluted common shares outstanding5,829,412 6,249,313 6,431,367 6,808,209 6,981,557 6,977,910 (4)%
Per Common Share Data
Basic earnings$5.33 $6.07 $5.18 $3.08 $2.91 $1.91 23 %
Diluted earnings$5.27 $6.00 $5.11 $3.04 $2.86 $1.88 23 %
Book value per share$38.35 $39.54 $35.45 $31.58 $29.92 $28.06 %
Tangible book value per share(2)
$35.55 $36.88 $32.88 $29.12 $27.57 $25.70 %
Cash dividends per share$1.82 $1.50 $1.38 $1.26 $1.02 $0.86 16 %
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Years Ended December 31,
202220212020201920182017Five Year Compound Growth Rate
 (Unaudited)
Performance Ratios
Return on average assets1.16 %1.54 %1.70 %1.33 %1.34 %0.87 %%
Return on average equity13.68 %15.68 %15.53 %9.92 %9.95 %6.81 %15 %
Equity/assets8.18 %8.73 %10.44 %12.60 %13.70 %12.70 %(8)%
Tangible common equity/tangible assets(3)
7.62 %8.19 %9.76 %11.73 %12.76 %11.75 %(8)%
Net interest margin3.85 %3.58 %4.02 %4.65 %4.55 %4.22 %(2)%
Net interest margin (tax equivalent)(4)
3.89 %3.60 %4.05 %4.70 %4.60 %4.28 %(2)%
Non-interest income/total revenue26.38 %39.27 %47.26 %36.69 %34.45 %41.24 %(9)%
Efficiency ratio (5)
68.76 %66.99 %66.47 %75.43 %74.68 %72.39 %(1)%
Dividend payout ratio34.17 %25.02 %26.66 %40.79 %35.08 %45.44 %(6)%
Asset Quality
Nonperforming loans, net of government guarantees$6,430 $10,672 $10,048 $13,951 $14,694 $21,411 (21)%
Nonperforming assets, net of government guarantees6,430 15,031 16,289 19,946 22,619 28,729 (26)%
Nonperforming loans, net of government guarantees/portfolio loans0.43 %0.75 %0.70 %1.34 %1.49 %2.24 %(28)%
Net charge-offs (recoveries)/average loans(0.08)%0.07 %0.03 %(0.07)%0.15 %0.15 %NM
Allowance for credit losses/portfolio loans0.92 %0.83 %1.46 %1.83 %1.98 %2.25 %(16)%
Nonperforming assets, net of government guarantees/assets0.24 %0.55 %0.77 %1.21 %1.50 %1.89 %(34)%
Other Data
Effective tax rate (6)
20 %22 %23 %21 %17 %43 %(14)%
Number of banking offices(7)
19 18 17 16 16 14 %
Number of employees (FTE) (8)
469 451 438 431 430 429 %
These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with Part II Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.
2Tangible book value per share is a non-GAAP ratio defined as shareholders’ equity, less intangible assets, divided by common shares outstanding. Management believes that tangible book value is a useful measurement of the value of the Company’s equity because it excludes the effect of intangible assets on the Company’s equity. See reconciliation to book value per share, the most comparable GAAP measurement below.
3Tangible 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. Management believes this ratio is important as it 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. See reconciliation to shareholders' equity to total assets below.

4Tax-equivalent net interest margin 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 28.43% in 2018 through 2022 and 41.11% in 2017.  Management believes that tax-equivalent net interest margin is a useful financial measure because it enables investors to evaluate net interest margin excluding tax expense in order to monitor our effectiveness in growing higher interest yielding assets and managing our costs of
36


interest bearing liabilities over time on a fully tax equivalent basis.  See reconciliation to net interest margin, the comparable GAAP measurement below. 
5In managing our business, we review the efficiency ratio exclusive of intangible asset amortization, which is a non-GAAP performance measurement. Management believes that this is a useful financial measurement because we believe this presentation provides investors with a more accurate picture of our operating efficiency. The efficiency ratio is calculated by dividing other operating expense, exclusive of intangible asset amortization, by the sum of net interest income and other operating income. Other companies may define or calculate this data differently. For additional information see the "Other Operating Expense" section in Part II. Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.  See reconciliation to comparable GAAP measurement below.
6The Company’s 2017 results included the impact of the enactment of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate tax system, including a Federal corporate rate reduction from 35% to 21%.  In 2017, the Company applied the newly enacted corporate federal income tax rate of 21%, reducing the value of the Company's net deferred tax asset, resulting in approximately a $2.7 million increase in tax expense. In 2018, the Company finalized changes related to the reduction in the federal tax rate which resulted in a $470,000 reduction in tax expense.
7Number of banking offices does not include RML locations. 2022 number of banking offices includes 18 full service branches and 1 loan production office. 2021 number of banking offices includes 17 full service branches and 1 loan production office. 2020 number of banking offices includes 16 full service branches and 1 loan production office. 2018 number of banking offices includes 15 full service branches and 1 loan production office.
8FTE includes 336, 321, 312, 311, 320, and 314 Community Banking employees in 2022, 2021, 2020, 2019, 2018 and 2017, respectively. FTE includes 133, 130, 126, 120, 110, and 115 Home Mortgage Lending employees in 2022, 2021, 2020, 2019, 2018 and 2017, respectively.
Reconciliation of Selected Non-GAAP Financial Data to GAAP Financial Measures
These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with "Part II. Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.
37



Reconciliation
oftotal shareholders' equity to tangiblecommonshareholders’equity (Non-GAAP)and total assets totangible assets:
COVID-19 Issues:
(In Thousands)202220212020201920182017
Total shareholders' equity$218,629 $237,817 $221,575 $207,117 $205,947 $192,802 
Total assets2,674,318 2,724,719 2,121,798 1,643,996 1,502,988 1,518,596 
Total shareholders' equity to total assets ratio8.18 %8.73 %10.44 %12.60 %13.70 %12.70 %
Industry Exposure: Northrim has identified various industries that may be adversely impacted by the COVID-19 pandemic and the decline in oil prices that occurred in 2020. Though the industries affected may change through the progression
(In Thousands)202220212020201920182017
Total shareholders' equity$218,629 $237,817 $221,575 $207,117 $205,947 $192,802 
Less: goodwill and other intangible assets, net15,984 16,009 16,046 16,094 16,154 16,224 
Tangible common shareholders' equity$202,645 $221,808 $205,529 $191,023 $189,793 $176,578 
Total assets$2,674,318 $2,724,719 $2,121,798 $1,643,996 $1,502,988 $1,518,596 
Less: goodwill and other intangible assets, net15,984 16,009 16,046 16,094 16,154 16,224 
Tangible assets$2,658,334 $2,708,710 $2,105,752 $1,627,902 $1,486,834 $1,502,372 
Tangible common equity to tangible assets ratio7.62 %8.19 %9.76 %11.73 %12.76 %11.75 %
Reconciliation of the pandemic, the following sectors for which the Company has exposure, as a percent of the total loan portfolio as of December 31, 2020 are being impacted: Tourism (5%), Oil and Gas (4%), Aviation (non-tourism) (4%), Healthcare (7%), Accommodations (3%), Retail (1%) and Restaurants (2%). The Company's exposure as a percent of the total loan portfolio excluding PPP loans as of December 31, 2020 are: Tourism (7%), Oil and Gas (6%), Aviation (non-tourism) (5%), Healthcare (8%), Accommodations (3%), Retail (2%) and Restaurants (3%).tangible book value per share (Non-GAAP) to book value per share

(In thousands, except per share data)202220212020201920182017
Total shareholders' equity$218,629 $237,817 $221,575 $207,117 $205,947 $192,802 
Divided by common shares outstanding5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 6,871,963 
Book value per share$38.35 $39.54 $35.45 $31.58 $29.92 $28.06 
Customer Accommodations: The Company has implemented several forms of assistance to help customers experiencing financial challenges as a result of COVID-19 in addition to our participation in PPP lending. The provisions of the CARES Act included an election to not apply the guidance on accounting for certain troubled debt restructurings related to COVID-19 and allow certain accommodations to borrowers. These accommodations include interest only and deferral options on loan payments, as well as the waiver of various fees related to loans, deposits and other services. The Company has elected to adopt these provisions of the CARES Act. The outstanding principal balance of loan modifications due to the economic impacts of COVID-19 for the periods below were as follows:
Loan Modifications due to COVID-19 as of December 31, 2020
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$43,379 $22,165 $65,544 
Number of modifications23 11 34 
Loan Modifications due to COVID-19 as of September 30, 2020
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$46,056 $74,337 $120,393 
Number of modifications16 59 75 
Loan Modifications due to COVID-19 as of June 30, 2020
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$64,298 $293,224 $357,522 
Number of modifications76 403 479 
Consumer loans represent less than 1% of total loan modifications identified above. Of the $65.5 million and 34 loan modifications as of December 31, 2020, approximately $53.9 million and 31 loans have entered into a second modification.
Loan Loss Reserve: The Company booked a loan loss provision of $2.4 million in 2020 compared to a benefit for loan loss provisions of $1.2 million in 2019.

Credit Quality: Net adversely classified loans were $12.8 million at December 31, 2020, compared to $22.3 million at December 31, 2019.

Branch Operations: All branches are fully operational, while a number of customer and employee safety measure continue to be implemented.

Growth and Paycheck Protection Program:
Northrim funded 2,888 PPP loans totaling $375.6 million to both existing and new customers in 2020.
According to the SBA, the Company originated more PPP loans in the State of Alaska than any other financial institution, funding 23% of the number and 28% of the value of all Alaska PPP loans for the period ending September 30, 2020.
As of December 31, 2020, Northrim customers had received forgiveness through the SBA on 537 PPP loans totaling $65.1 million.
The Company initially utilized the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility (the "PPPLF") to fund PPP loans, but paid those funds back in full during the second quarter and has since funded the PPP loans through core deposits and maturity of long-term investments.
(In thousands, except per share data)202220212020201920182017
Total shareholders' equity$218,629 $237,817 $221,575 $207,117 $205,947 $192,802 
Less: goodwill and intangible assets, net15,984 16,009 16,046 16,094 16,154 16,224 
Tangible book value$202,645 $221,808 $205,529 $191,023 $189,793 $176,578 
Divided by common shares outstanding5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 6,871,963 
Tangible book value per share$35.55 $36.88 $32.88 $29.12 $27.57 $25.70 

38


Reconciliation of tax-equivalent net interest margin (Non-GAAP) to net interest margin
(In Thousands)202220212020201920182017
Net interest income(9)
$95,115 $80,827 $70,665 $64,442 $61,208 $57,678 
Divided by average interest-bearing assets2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 1,367,203 
Net interest margin3.85 %3.58 %4.02 %4.65 %4.55 %4.22 %
(In Thousands)202220212020201920182017
Net interest income(9)
$95,115 $80,827 $70,665 $64,442 $61,208 $57,678 
Plus: reduction in tax expense related to  
tax-exempt interest income939 489 613 722 726 872 
 $96,054 $81,316 $71,278 $65,164 $61,934 $58,550 
Divided by average interest-bearing assets2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 1,367,203 
Tax-equivalent net interest margin3.89 %3.60 %4.05 %4.70 %4.60 %4.28 %

Calculation of efficiency ratio
(In Thousands)202220212020201920182017
Net interest income(9)
$95,115 $80,827 $70,665 $64,442 $61,208 $57,678 
Other operating income34,077 52,263 63,328 37,346 32,167 40,474 
Total revenue129,192 133,090 133,993 101,788 93,375 98,152 
Other operating expense88,852 89,196 89,114 76,838 69,800 71,153 
Less intangible asset amortization25 37 48 60 70 100 
Adjusted other operating expense$88,827 $89,159 $89,066 $76,778 $69,730 $71,053 
Efficiency ratio68.76 %66.99 %66.47 %75.43 %74.68 %72.39 %

9Capital Management:Amount represents net interest income before provision for loan losses.

    Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.  Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of the Company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.

RESULTS OF OPERATIONS
Income Statement
    Net Income
    Our results of operations are dependent to a large degree on our net interest income.  We also generate other income primarily through mortgage banking income, purchased receivables products, service charges and fees, and bankcard fees.  Our operating expenses consist in large part of salaries and other personnel costs, data processing, occupancy, marketing, and professional services expenses. Interest income and cost of funds, or interest expense, and mortgage banking income are affected significantly by general economic conditions, particularly changes in market interest rates, by government policies and the actions of regulatory authorities, and by competition in our markets.
    We earned net income of $30.7 million in 2022, compared to net income of $37.5 million in 2021.  During these periods, net income per diluted share was $5.27 and $6.00, respectively.  The following sections present discussion of the components that make up net income.
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    Net Interest Income / Net Interest Margin
    Net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings. Changes in net interest income result from changes in volume and spread, which in turn affect our margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Changes in net interest income are influenced by yields and the level and relative mix of interest-earning assets and interest-bearing liabilities.
    Net interest income in 2022 was $95.1 million, compared to $80.8 million in 2021.  The increase in 2022 as compared to 2021 was primarily the result of increased interest on core loans (excluding PPP loans), investments, and interest bearing deposits in other banks which was only partially offset by a decrease in loan interest and fee income from PPP loans. Interest income on PPP loans was $405,000 and $2.9 million in 2022 and 2021, respectively. Loan fee income on PPP loans was $4.3 million and $12.5 million in 2022 and 2021, respectively. Loan fee income on PPP loans is largely made up of fees fully recognized upon loan forgiveness from the SBA. Loan fee income decreased due to decreased recognition of the deferred PPP loan fees upon forgiveness through the SBA in 2022 compared to 2021. Interest income on core loans increased $26.5 million in 2022 as compared to 2021 due to an increase in interest rates and higher net average interest-earning asset balances. Interest expense increased $1.4 million as a result of higher interest rates and average higher interest-bearing deposit balances. During 2022 and 2021, net interest margins were 3.85% and 3.58%, respectively. The increase in net interest margin in 2022 as compared to 2021 is primarily the result of higher yields on earning-assets and higher average core portfolio loan balances and long-term and short-term investment balances.

40


    The following table sets forth for the periods indicated information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities.  Average yields or costs, net interest income, and net interest margin are also presented. Average yields or costs are not calculated on a tax-equivalent basis:
Years ended December 31,202220212020
 Average outstanding balanceInterest income / expenseAverage Yield / CostAverage outstanding balanceInterest income / expenseAverage Yield / CostAverage outstanding balanceInterest income / expenseAverage Yield / Cost
 
(In Thousands)
Loans (1),(2)
$1,415,125 $80,549 5.69 %$1,478,318 $76,392 5.17 %$1,339,908 $67,876 5.07 %
Loans held for sale51,537 2,236 4.34 %101,752 2,849 2.80 %105,287 3,215 3.05 %
Taxable long-term investments(3)
617,972 11,860 1.92 %368,319 4,900 1.33 %245,148 5,234 2.14 %
Non-taxable long-term investments(3)
810 18 2.22 %853 18 2.11 %2,236 82 3.67 %
Interest-bearing deposits in other banks(4)
383,939 5,665 1.48 %311,536 447 0.14 %66,260 309 0.47 %
Total interest-earning assets(5)
2,469,383 100,328 4.06 %2,260,778 84,606 3.74 %1,758,839 76,716 4.36 %
Noninterest-earning assets171,625   171,821   177,208   
Total$2,641,008   $2,432,599   $1,936,047   
Interest-bearing demand$701,679 $2,091 0.30 %$575,298 $484 0.08 %$387,417 $622 0.16 %
Savings deposits344,349 563 0.16 %323,131 499 0.15 %257,292 717 0.28 %
Money market deposits318,375 785 0.25 %264,344 418 0.16 %219,024 708 0.32 %
Time deposits169,931 1,046 0.62 %178,215 1,676 0.94 %176,873 3,232 1.83 %
Total interest-bearing deposits1,534,334 4,485 0.29 %1,340,988 3,077 0.23 %1,040,606 5,279 0.51 %
Borrowings24,623 728 2.96 %24,993 702 2.81 %35,918 772 2.15 %
Total interest-bearing  liabilities1,558,957 5,213 0.33 %1,365,981 3,779 0.28 %1,076,524 6,051 0.56 %
Noninterest-bearing demand deposits820,547   784,092   597,610   
Other liabilities36,731   43,312   50,192   
Equity224,773   239,214   211,721   
Total$2,641,008   $2,432,599   $1,936,047   
Net interest income $95,115   $80,827   $70,665  
Net interest margin  3.85 %  3.58 %  4.02 %
Average portfolio loans to average-earnings assets57.31 %65.39 %76.18 %
Average portfolio loans to average total deposits60.09 %69.57 %81.79 %
Average non-interest deposits to average total deposits34.84 %36.90 %36.48 %
Average interest-earning assets to average interest-bearing liabilities158.40 %165.51 %163.38 %
1Interest income includes loan fees.  Loan fees recognized during the period and included in the yield calculation totaled $8.5 million, $16.2 million and $8.9 million for 2022, 2021 and 2020, respectively.

2Nonaccrual loans are included with a zero effective yield.  Average nonaccrual loans included in the computation of the average loans were $8.6 million, $12.3 million, and $13.8 million in 2022, 2021 and 2020, respectively.

3Consists of investment securities available for sale, investment securities held to maturity, marketable equity securities, and investment in Federal Home Loan Bank stock. Taxable long-term investments consist of U.S. treasury and government sponsored entities, corporate bonds, collateral loan obligations, marketable equity securities, and Federal Home Loan Bank stock. Non-taxable long-term investments consist of municipal securities.
4Consists of interest bearing deposits in other banks and domestic CDs.
5The Company does not have any fed funds sold or securities purchased with agreements to resell to disclose as part of its total interest-earning assets in the periods presented.


41


    The following table sets forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates.  Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes due to volume and the changes due to interest rate:
 2022 compared to 20212021 compared to 2020
 Increase (decrease) due toIncrease (decrease) due to
(In Thousands)VolumeRateTotalVolumeRateTotal
Interest Income:      
Loans($3,363)$7,520 $4,157 $7,186 $1,330 $8,516 
Loans held for sale(1,772)1,159 (613)(105)(261)(366)
Taxable long-term investments4,210 2,750 6,960 2,064 (2,398)(334)
Non-taxable long-term investments(1)— (38)(26)(64)
Interest-bearing deposits in other banks128 5,090 5,218 170 (32)138 
Total interest income($798)$16,520 $15,722 $9,277 ($1,387)$7,890 
Interest Expense:      
Interest-bearing demand$80 $1,527 $1,607 $229 ($367)($138)
Savings deposits50 14 64 154 (372)(218)
Money market deposits58 309 367 125 (415)(290)
Time deposits(75)(555)(630)25 (1,581)(1,556)
Interest-bearing deposits309 1,099 1,408 1,236 (3,438)(2,202)
Borrowings(10)36 26 29 (99)(70)
Total interest expense$299 $1,135 $1,434 $1,265 ($3,537)($2,272)
Provision for Credit Losses 
    The Company adopted ASU 2016-13 effective January 1, 2021. The provision for credit loss expense is the amount of expense that, based on our judgment, is required to maintain the ACL at an appropriate level under the current expected credit loss methodology ("CECL"). The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the notes to Consolidated Financial Statements included in Part II. Item 8 of this report for detailed discussion regarding ACL methodologies for loans, available for sale debt securities, held to maturity securities, loans held for investment, unfunded commitments, and purchased receivables.
The following table presents the major categories of credit loss expense for the periods presented:

(In Thousands)20222021
Credit loss expense on loans held for investment$972 ($3,779)
Credit loss expense on unfunded commitments874 (320)
Credit loss expense on available for sale debt securities— — 
Credit loss expense on held to maturity securities— — 
Credit loss expense on purchased receivables— — 
Total credit loss expense$1,846 ($4,099)

As noted above, the provision for credit losses was recorded in accordance with CECL in 2022 and 2021. In general the increase in the provision for credit losses in 2022 as compared to 2021 is primarily the result of increased portfolio loan and unfunded commitment balances, and, to a lesser extent, an increase in projected loss rates. In 2021, there was a reversal of the provision primarily due to a decrease in projected loss rates following the uncertainty of the impacts of the COVID-19 pandemic in 2020 and the first half of 2021. The ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration.

42


See the “Loans and Lending Activity” section under “Financial Condition” and Note 5 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for further discussion of these decreases and changes in the Company’s ACL. 

Other Operating Income
    The following table details the major components of other operating income for the years ended December 31:
(In Thousands)2022$ Change% Change2021$ Change% Change2020
Other Operating Income       
Mortgage banking income$21,572 ($20,572)(49)%$42,144 ($10,491)(20)%$52,635 
Bankcard fees3,697 308 %3,389 552 19 %2,837 
Purchased receivable income2,002 (257)(11)%2,259 (391)(15)%2,650 
Keyman insurance proceeds2,002 2,002 NM— — NM— 
Commercial servicing revenue1,628 1,322 432 %306 (221)(42)%527 
Service charges on deposit accounts1,611 314 24 %1,297 195 18 %1,102 
Interest rate swap income157 (295)(65)%452 (497)(52)%949 
Gain (loss) on sale of securities— (67)(100)%67 (31)100 %98 
(Loss) gain on marketable equity securities(1,119)(1,018)(1,008)%(101)(162)266 %61 
Other income2,527 77 %2,450 (19)(1)%2,469 
     Total other operating income$34,077 ($18,186)(35)%$52,263 ($11,065)(17)%$63,328 

    2022 Compared to 2021
    The most significant decreases in other operating income in 2022 was a decrease in mortgage banking income, followed by a decrease in the fair market value of marketable equity securities, a decrease in interest rate swap income, and a decrease in purchased receivable income. These decreases were partially offset by life insurance proceeds received in connections with the death of the Company's former Executive Vice President, General Counsel and Corporate Secretary who passed away on November 11, 2021, as well as increases in commercial servicing revenue, service charges on deposit accounts, and bankcard fees.
Mortgage banking income consists of gross income from the origination and sale of mortgages as well as mortgage loan servicing fees and is the largest component of other operating income at 63% of total other operating income in 2022 and 81% in 2021. Mortgage banking income decreased in 2022 compared to 2021 mainly due to a decrease in mortgage loans originated and sold as this volume decreased to $585.5 million in 2022 from $1.12 billion in 2021. The overall decrease in mortgage originations in 2022 as compared to the prior year is primarily the result of the changes in interest rates during the year that led to decreased activity.
Interest rate swap income decreased in 2022 as compared to 2021 due to a decrease in the origination of new swap contracts with commercial loan customers. The Company executed new customer swap contracts with a notional value of $11.7 million in 2022 as compared to new customer swap contracts with a notional value of $15.7 million in 2021.
Purchased receivable income decreased in 2022 as compared to 2021 due to customers reportedly using PPP funds instead of selling receivables to fund their operating cash needs.
Commercial servicing revenue increased in 2022 as compared to 2021 primarily resulting from an increase in the fair value of our commercial servicing rights, which generally increase when interest rates rise causing the expected life of the servicing asset, and the resulting cash flow to the Company, to increase.
Bankcard fees and service charges on deposit accounts increased in 2022 due an increase in the number of the Company's deposit customers, as well as due to the cessation of COVID-19 quarantine restrictions, which both led to higher transaction volume as compared to 2021.
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Other Operating Expense
    The following table details the major components of other operating expense for the years ended December 31:
(In Thousands)2022$ Change% Change2021$ Change% Change2020
Other Operating Expense       
Salaries and other personnel expense$58,172 ($2,240)(4)%$60,412 ($725)(1)%$61,137 
Data processing expense8,926 359 %8,567 899 12 %7,668 
Occupancy expense6,915 (163)(2)%7,078 454 %6,624 
Professional and outside services2,993 192 %2,801 (356)(11)%3,157 
Marketing expense2,747 — %2,741 421 18 %2,320 
Insurance expense2,054 461 29 %1,593 365 30 %1,228 
Intangible asset amortization25 (12)(32)%37 (11)(23)%48 
OREO (income) expense, net rental income and gains on sale: 
   OREO operating expense634 (143)(18)%777 119 18 %658 
   Rental income on OREO(548)(24)(5)%(524)(15)(3)%(509)
   Losses (gains) on sale of OREO414 1,099 160 %(685)(294)NM(391)
         Subtotal500 932 216 %(432)(190)79 %(242)
Other expenses6,520 121 %6,399 (775)(11)%7,174 
     Total other operating expense$88,852 ($344)— %$89,196 $82 — %$89,114 
    2022 Compared to 2021
    Other operating expense decreased by less than 1% in 2022 as compared to 2021. The largest decrease was in salaries and other personnel expense primarily related to mortgage banking operations, which fluctuate with production volumes. Occupancy expense and intangible asset expense also decreased slightly in 2022 compared to 2021 due to lower repairs and maintenance costs. These decreases were mostly offset by increases in OREO expense, insurance expense, data processing expense, and professional and outside services. OREO expense increased in 2022 primarily due to increased losses on sale of OREO properties as compared to 2021. Insurance expense, data processing expense, and professional and outside services increased in 2022 as compared to 2021 due to increased FDIC insurance costs associated with asset growth, increased customer and transaction volume, and increased investment management fees attributable to the growth in our investment portfolio.
    Income Taxes
    The provision for income taxes decreased $2.7 million or 26%, to $7.8 million in 2022 as compared to 2021.  The decrease in 2022 is primarily due to lower pretax income. The Company's effective tax rate decreased to 20.1% in 2022 from 21.8% in 2021, primarily due to an increase in tax exempt income and low income housing tax credits as a percentage of pre-tax income in 2022 compared to 2021.


FINANCIAL CONDITION
Investment Securities
    The composition of our investment securities portfolio, which includes securities available for sale, held-to-maturity investments, and marketable equity securities, reflects management’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of interest income. The investment securities portfolio also mitigates interest rate and credit risk inherent in the loan portfolio, while providing a vehicle for the investment of available funds, a source of liquidity (by pledging as collateral or through repurchase agreements), and collateral for certain public funds deposits. Investment securities designated as available for sale comprised 93% of the portfolio as of December 31, 2022 and are available to meet liquidity requirements in a contingency situation. 
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    Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, collateralized loan obligations, and municipal securities.  Investment securities at December 31, 2022 increased $269.4 million, or 59%, to $724.5 million from $455.1 million at December 31, 2021. The increase at December 31, 2022 as compared to December 31, 2021 came from the investment of short-term funds included in interest bearing deposits in other banks. The average maturity of the investment portfolio was approximately three and a quarter years at December 31, 2022. Investment securities may be pledged as collateral to secure public deposits or borrowings. At December 31, 2020,2022 and 2021, $59.3 million and $59.5 million in securities were pledged for deposits and borrowings, respectively. 

45


    The following tables set forth the composition of our investment portfolio at December 31 for the years indicated:
(In Thousands)Amortized CostFair Value
Securities Available for Sale:  
2022:  
    U.S. Treasury and government sponsored entities$634,582 $595,161 
    Municipal Securities820 795 
    Corporate Bonds24,281 23,644 
    Collateralized Loan Obligations59,434 57,429 
            Total$719,117 $677,029 
   2021:  
    U.S. Treasury and government sponsored entities$345,514 $341,480 
    Municipal Securities820 840 
    Corporate Bonds32,721 32,946 
    Collateralized Loan Obligations51,431 51,418 
             Total$430,486 $426,684 
   2020:  
    U.S. Treasury and government sponsored entities$173,318 $174,601 
    Municipal Securities820 856 
    Corporate Bonds29,951 30,492 
    Collateralized Loan Obligations41,782 41,684 
             Total$245,871 $247,633 
Marketable Equity Securities:
   2022:
    Preferred Stock$11,303 $10,740 
             Total$11,303 $10,740 
   2021:
    Preferred Stock$7,865 $8,420 
             Total$7,865 $8,420 
   2020:
    Preferred Stock$8,395 $9,052 
             Total$8,395 $9,052 
Securities Held to Maturity:  
2022:  
    Corporate Bonds$36,750 $32,639 
             Total$36,750 $32,639 
   2021:  
    Corporate Bonds$20,000 $19,164 
            Total$20,000 $19,164 
   2020:  
    Corporate Bonds$10,000 $10,000 
            Total$10,000 $10,000 
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    The following table sets forth the market value, maturities, and weighted average pretax yields of our investment portfolio as of December 31, 2022:
 Maturity
 Within  Over 
(In Thousands)1 Year1-5 Years5-10 Years10 YearsTotal
Securities Available for Sale:     
    U.S. Treasury and government sponsored entities     
         Balance$65,541 $529,620 $— $— $595,161 
         Weighted average yield(1)
2.68 %2.91 %— %— %2.89 %
    Municipal securities     
         Balance$— $795 $— $— $795 
         Weighted average yield(1)
— %2.14 %— %— %2.14 %
    Corporate bonds     
         Balance$— $23,644 $— $— $23,644 
         Weighted average yield(1)
— %4.43 %— %— %4.43 %
    Collateralized loan obligations
         Balance$4,751 $— $26,401 $26,277 $57,429 
         Weighted average yield(1)
5.86 %— %5.40 %5.39 %5.43 %
    Total     
         Balance$70,292 $554,059 $26,401 $26,277 $677,029 
         Weighted average yield(1)
2.90 %2.97 %5.40 %5.39 %3.15 %
Securities Held to Maturity
    Corporate bonds
         Balance$— $8,870 $23,769 $— $32,639 
         Weighted average yield(1)
— %5.50 %5.01 %— %5.15 %
Marketable Equity Securities     
    Preferred Stock
         Balance$— $— $— $10,740 $10,740 
         Weighted average yield(1)
— %— %— %5.88 %— %
(1) Weighted average yields have been calculated on an amortized cost basis and not on a tax-equivalent basis.
    The Company’s investment in marketable equity securities does not have a maturity date but it has been included in the over 10 years column above.
Loans and Lending Activities
All of our loans and credit lines are subject to approval procedures and amount limitations.  These limitations apply to the borrower’s total outstanding indebtedness and commitments to us, including the indebtedness of any guarantor. Generally, we are permitted to make loans to one borrower of up to 15% of the unimpaired capital and surplus of the Bank. The legal lending limit for the Bank was $32.1 million at December 31, 2022. At December 31, 2022, the Company had two relationships whose total direct and indirect commitments exceeded $32.1 million; however, no individual direct relationship exceeded the loans-to-one borrower limitation.  
     The Company's loans have grown significantly in recent history, in part due to PPP loans, but over the last 3 years, core loans have also increased significantly. Management attributes higher growth in core loans in 2022 and 2021 to our ability to attract new customers through our outreach to the community. The Company's "Land and Expand" program was designed to increase both loans and deposits as we attract a broader customer base and convert new PPP customers into full banking relationships.
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The following table presents growth information for loans and loans excluding PPP loans:
Years Ended December 31,
(In Thousands)202220212020201920182017Five Year Compound Growth Rate
Loans$1,501,785$1,413,886$1,444,050$1,043,371$984,346$954,953 %
Less: PPP loans7,110118,229304,587— NM
Loans, excluding PPP loans$1,494,675$1,295,657$1,139,463$1,043,371$984,346$954,953 %
Percent change, Loans excluding PPP loans15 %14 %%%%

    The following table sets forth the composition of our loan portfolio by loan segment as of the dates indicated:
December 31, 2022December 31, 2021
Dollar AmountPercent of TotalDollar AmountPercent of Total
(In Thousands)
Commercial & industrial loans$358,128 23.8 %$448,338 31.7 %
Commercial real estate:
Owner occupied properties349,973 23.3 %300,200 21.2 %
Non-owner occupied and multifamily properties482,270 32.2 %435,311 30.8 %
Residential real estate:
1-4 family residential properties secured by first liens73,381 4.9 %32,542 2.3 %
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens20,259 1.3 %19,610 1.4 %
1-4 family residential construction loans44,000 2.9 %36,222 2.6 %
Other construction, land development and raw land loans99,182 6.6 %88,094 6.2 %
Obligations of states and political subdivisions in the US32,539 2.2 %16,403 1.2 %
Agricultural production, including commercial fishing34,099 2.3 %27,959 2.0 %
Consumer loans4,335 0.3 %4,801 0.3 %
Other loans3,619 0.2 %4,406 0.3 %
Total portfolio loans$1,501,785 $1,413,886 
The following table presents the maturity distribution of our loan portfolio and the rate sensitivity of these loans to changes in interest rates as of December 31, 2022:
 By Maturity Loans Over One Year By Rate Sensitivity
(In Thousands)Within 1 Year1-5 Years5-15 YearsOver 15 YearsTotalFixed Interest RateVariable Interest Rate
Commercial & industrial loans$74,235 $147,790 $136,103 $— $358,128 $134,161 $149,732 
Commercial real estate31,783 133,758 581,802 84,900 832,243 232,824 567,636 
Residential real estate42,702 6,862 26,071 62,077 137,712 39,413 55,597 
Other construction39,121 22,110 35,169 2,710 99,110 21,132 38,857 
Consumer and other4,760 5,882 63,941 74,592 41,774 28,058 
Total$192,601 $316,402 $843,086 $149,696 $1,501,785 $469,304 $839,880 


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Information about industry concentrations:
Management utilizes the loan segments included in the tables above within the Company's CECL methodology to assess credit risk. These segments are largely determined by type of loan collateral. The Company also separately monitors concentrations in the loan portfolio based on industries, and these industry concentration are discussed below.
The Company defines "direct exposure" to the oil and gas industry as companies that it has identified as significantly reliant upon activity related to the oil and gas industry, such as oil producers or drilling and exploration companies, and companies who provide oilfield services, lodging, equipment rental, transportation, and other logistic services specific to the industry. The Company estimates that $83.4 million, or approximately 6% of loans as of December 31, 2022 have direct exposure to the oil and gas industry as compared to $63.6 million, or approximately 4% of loans as of December 31, 2021. The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $51.8 million and $66.4 million at December 31, 2022 and 2021, respectively. The portion of the Company's ACL that related to the loans with direct exposure to the oil and gas industry was estimated at $786,000 and $684,000 as of December 31, 2022 and 2021, respectively.
    The following table details loan balances by loan segment and class of financing receivable for loans with direct oil and gas exposure as of the dates indicated:
(In Thousands)December 31, 2022December 31, 2021
  
Commercial & industrial loans$66,864 $45,338 
Commercial real estate:
Owner occupied properties9,108 10,244 
Non-owner occupied and multifamily properties6,013 6,564 
Other loans1,431 1,495 
        Total loans$83,416 $63,641 
The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions. At December 31, 2022, the Company had $126.5 million, or 8% of total portfolio loans, in the Healthcare sector; $96.3 million, or 6% of portfolio loans, in the Tourism sector; $70.8 million, or 5% in the Fishing sector; $65.1 million, or 4% in the Accommodations sector; $54.8 million, or 4% in Retail loans; $50.8 million, or 3% of portfolio loans, in the Aviation (non-tourism) sector; and $46.9 million, or 3% in the Restaurants and Breweries sector.
The portion of the Company's ACL that related to the loans with exposure to these industries is estimated at the following amounts as of December 31, 2022:
(In Thousands)TourismAviation (non-tourism)HealthcareRetailFishingRestaurants and BreweriesAccommodationsTotal
ACL$570 $397 $1,096 $525 $503 $388 $569 $4,048 
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Credit Quality and Nonperforming Assets
    The following table sets forth information regarding our nonperforming loans and total nonperforming assets:
December 31,December 31,
(In Thousands)20222021
Nonaccrual loans$7,076$11,650
Loans 90 days past due and accruing
Total nonperforming loans$7,076$11,650
Nonperforming loans guaranteed by government($646)($978)
Net nonperforming loans$6,430$10,672
Other real estate owned$5,638
Other real estate owned guaranteed by government($1,279)
Net nonperforming assets$6,430$15,031
Nonperforming loans, net of government guarantees / portfolio loans0.43 %0.75 %
Nonperforming loans, net of government guarantees / portfolio loans, net of government guarantees0.46 %0.88 %
Nonperforming assets, net of government guarantees / total assets0.24 %0.55 %
Nonperforming assets, net of government guarantees / total assets net of government guarantees0.25 %0.60 %
Performing restructured loans$291 $2,355 
Performing restructured loans guaranteed by government— ($2,518)
Net performing restructured loans$291 $773 
Nonperforming loans plus performing restructured loans, net of government guarantees$6,721 $11,445 
Nonperforming loans plus performing restructured loans, net of government
     guarantees / portfolio loans0.45 %0.81 %
Nonperforming loans plus performing restructured loans, net of government
     guarantees / portfolio loans, net of government guarantees0.48 %0.94 %
Nonperforming assets plus performing restructured loans, net of government
     guarantees / total assets0.25 %0.58 %
Nonperforming assets plus performing restructured loans, net of government
     guarantees / total assets, net of government guarantees0.26 %0.63 %
Adversely classified loans, net of government guarantees$7,581 $13,739 
Special mention loans, net of government guarantees$4,760 $22,110 
Loans 30-89 days past due and accruing, net of government guarantees /portfolio loans0.01 %— %
Loans 30-89 days past due and accruing, net of government guarantees /
     portfolio loans, net of government guarantees0.01 %— %
Allowance for credit losses / portfolio loans0.92 %0.83 %
Allowance for credit losses / portfolio loans, net of government guarantees0.99 %0.97 %
Allowance for credit losses / nonperforming loans, net of government
     guarantees215 %110 %
Gross loan charge-offs for the quarter$— $1,179 
Gross loan recoveries for the quarter($87)($53)
Net loan (recoveries) charge-offs for the quarter($87)$1,126 
Net loan (recoveries) charge-offs year-to-date($1,127)$1,107 
Net loan (recoveries) charge-offs for the quarter / average loans, for the quarter(0.01)%0.08 %
Net loan (recoveries) charge-offs year-to-date / average loans,
     year-to-date annualized(0.08)%0.07 %
    The Company’s nonperforming assets, net of government guarantees decreased to $6.4 million at December 31, 2022 as compared to $15.0 million at December 31, 2021. This decrease was mostly due to principal paydowns on nonaccrual loans
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which were only partially offset by additions to nonaccrual loans in 2022. There was interest income of $2.2 million and $1.6 million recognized in net income for 2022 and 2021, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero. Additionally, the sale of the only OREO property held by the Company for all of 2022 reduced OREO to zero as of December 31, 2022 from $4.4 million, net of government guarantees, at December 31, 2021. The Company holds a government guarantee related to the OREO property that was sold in December 2022; however, the value of this guarantee has not been included in the Company's financial statements in 2022 due to uncertainty as to the total amount that will be received from the guarantee. For the fourth quarter of 2022, a loss from the sale of OREO of $414,000 is included in OREO expense, net of rental income in the income statement. We expect to receive proceeds related to this government guarantee in 2023.  
     The Company had $291,000 and $773,000 in loans classified as TDRs, net of government guarantees that were performing as of December 31, 2022 and 2021, respectively.  Additionally, there were $4.8 million and $6.5 million in TDRs included in nonaccrual loans at December 31, 2022 and 2021, respectively, for total TDRs, net of government guarantees of $5.1 million and $7.3 million at December 31, 2022 and 2021, respectively.  The decrease in TDRs at December 31, 2022 as compared to 2021 was primarily due to payoffs and paydowns on loans classified as TDRs in 2022.  See Note 5 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for further discussion of TDRs.
    At December 31, 2022, management had identified potential problem loans of $1.6 million as compared to potential problem loans of $2.1 million at December 31, 2021.  Potential problem loans are loans which are currently performing that have developed negative indications that the borrower may not be able to comply with present payment terms and which may later be included in nonaccrual, past due, or impaired loans.  The decrease in potential problem loans at December 31, 2022 from December 31, 2021 was primarily due to paydowns and credit risk upgrades to existing potential problem loans that were partially offset by the addition of new potential problem loans in 2022.
    The Company acquired a vessel totaling $231,000 in the third quarter of 2019 through foreclosure proceedings related to one lending relationship that was sold in the second quarter of 2021.
    The following summarizes OREO activity for the periods indicated:
(In Thousands)202220212020
Balance, beginning of the year$5,638 $7,289 $7,043 
Transfers from loans— 274 652 
Proceeds from the sale of other real estate owned(5,224)(2,610)(797)
(Loss) Gain on sale of other real estate owned, net(414)685 391 
Balance, end of year— 5,638 7,289 
Government guarantees— (1,279)(1,279)
Balance, end of year, net of government guarantees$— $4,359 $6,010 
     The Company made a $1.0 million loan in 2021 to facilitate the sale of OREO in 2021, but did not make any loans to facilitate the sale of OREO in 2022. Our underwriting policies and procedures for loans to facilitate the sale of OREO are no different than our standard loan policies and procedures.
Allowance for Credit Losses 
    The Company adopted ASU 2016-13 effective January 1, 2021. The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the notes to Consolidated Financial
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Statements included in Part II. Item 8 of this report for detailed discussion regarding the ACL methodology for loans and unfunded commitments.
The following tables show the allocation of the ACL and the percent of loans in each category to total loans and the ratio of net loan charge-offs to average loans outstanding by loan segment for the years indicated:  
2022
 
% of Loans(1)
Net loan charge-offs (recoveries) to average loans
(In Thousands)Amount
Commercial & industrial loans$2,914 25 %(0.26)%
Commercial real estate:
Owner occupied properties3,094 23 %(0.02)%
Non-owner occupied and multifamily properties3,615 32 %— %
Residential real estate:
1-4 family residential properties secured by first liens1,413 %(0.01)%
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens389 %(0.19)%
1-4 family residential construction loans312 %— %
Other construction, land development and raw land loans1,803 %— %
Obligations of states and political subdivisions in the US79 %— %
Agricultural production, including commercial fishing145 %(0.05)%
Consumer loans68 — %(0.02)%
Other loans— %— %
Total$13,838 100 %(0.08)%
1Represents percentage of this category of loans to total portfolio loans.

2021
 
% of Loans(1)
Net loan charge-offs (recoveries) to average loans
(In Thousands)Amount
Commercial & industrial loans$3,027 33 %0.21 %
Commercial real estate:
Owner occupied properties3,176 21 %— %
Non-owner occupied and multifamily properties2,930 31 %— %
Residential real estate:
1-4 family residential properties secured by first liens439 %— %
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens215 %(0.21)%
1-4 family residential construction loans120 %— %
Other construction, land development and raw land loans1,635 %— %
Obligations of states and political subdivisions in the US32 %— %
Agricultural production, including commercial fishing91 %(0.15)%
Consumer loans67 — %(0.27)%
Other loans— %— %
Total$11,739 100 %0.07 %
1Represents percentage of this category of loans to total portfolio loans.

    The ACL for loans increased to $13.8 million at December 31, 2022 compared to $11.7 million at December 31, 2021 primarily due to an increase in loan balances, net of guarantees, as well as a slight increase in expected future loss rates. The Company determined that an ACL of $13.8 million, or 0.92% of portfolio loans, is appropriate as of December 31, 2022 based on our analysis of the current credit quality of the portfolio and forecasted economic conditions. The ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration.

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The following table sets forth information regarding changes in the ACL for unfunded commitments for the years indicated:
(In Thousands)20222021
Balance at beginning of period$1,096 $187 
Impact of adopting ASC 326— 1,229 
Adjusted balance, beginning of period1,096 1,416 
(Benefit) provision for credit losses874 (320)
Balance at end of period$1,970 $1,096 
    While management believes that it uses the best information available to determine the ACL, unforeseen market conditions and other events could result in an adjustment to the ACL, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination of the ACL.
Purchased Receivables
    Purchased receivable balances increased at December 31, 2022 to $20.0 million from $7.0 million at December 31, 2021, and year-to-date average purchased receivable balances were $7.0 million and $12.4 million in 2022 and 2021, respectively. Purchased receivable income was $2.0 million and $2.3 million in 2022 and 2021, respectively. Purchased receivable income in 2022 decreased from 2021 due to customers reportedly using PPP loans to fund liquidity needs instead of selling receivables.
    The following table sets forth information regarding changes in the purchased receivable ACL for the years indicated: 
(In Thousands)202220212020
Balance at beginning of year$— $73 $94 
Cumulative effect of adopting ASU 2016-13— (73)— 
   Charge-offs— — — 
   Recoveries— — — 
Charge-offs net of recoveries— — — 
Reserve for (recovery from) purchased receivables— — (21)
Balance at end of year$— $— $73 
Ratio of net charge-offs (recoveries) to average purchased receivables during the period— %— %— %
Deposits
    Deposits are our primary source of funds. Total deposits decreased 1% to $2.39 billion at December 31, 2022 from $2.42 billion at December 31, 2021. Our deposits generally are expected to fluctuate according to the level of our market share, economic conditions, and normal seasonal trends. 
    The following table sets forth the average balances outstanding and average interest rates for each major category of our deposits, for the periods indicated:
 202220212020
 Average balanceAverage rate paidAverage balanceAverage rate paidAverage balanceAverage rate paid
(In Thousands)
Interest-bearing demand accounts$701,679 0.30 %$575,298 0.08 %$387,416 0.16 %
Money market accounts318,375 0.25 %264,344 0.16 %219,025 0.32 %
Savings accounts344,349 0.16 %323,131 0.15 %257,292 0.28 %
Certificates of deposit169,931 0.62 %178,215 0.94 %176,873 1.83 %
Total interest-bearing accounts1,534,334 0.29 %1,340,988 0.23 %1,040,606 0.51 %
Noninterest-bearing demand accounts820,547  784,092  597,610  
Total average deposits$2,354,881  $2,125,080  $1,638,216  
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The Company's mix of deposits continues to contribute to a low cost of funds with balances in transaction accounts representing 92% of total deposits at December 31, 2022 and 93% at December 31, 2021.
The only deposit category with stated maturity dates is certificates of deposit. At December 31, 2022, we had $192.9 million in certificates of deposit, of which $128.4 million, or 67%, are scheduled to mature in 2023. The Company’s certificates of deposit increased to $192.9 million during 2022 as compared to $178.0 million at December 31, 2021.  The aggregate amount of certificates of deposit in amounts of $250,000 or more at December 31, 2022 and 2021, was $77.5 million and $77.1 million, respectively.  The following table sets forth the amount outstanding of certificates of deposits in amounts of $250,000 or more by time remaining until maturity and percentage of total deposits as of December 31, 2022:
 Time Certificates of Deposits
 of $250,000 or More
  Percent of Total Deposits
  
(In Thousands)Amount
Amounts maturing in:  
Three months or less$20,964 27 %
Over 3 through 6 months6,613 %
Over 6 through 12 months20,321 26 %
Over 12 months29,629 38 %
Total$77,527 100 %
    The Company offers the Certificate of Deposit Account Registry Service® (CDARS®) as a member of Promontory Interfinancial Network, LLCSM (Network). When a Network member places a deposit using CDARS, that certificate of deposit is divided into amounts under the standard FDIC insurance maximum ($250,000) and is allocated among member banks, making the large deposit eligible for FDIC insurance. The Company had $30.2 million CDARS certificates of deposits at December 31, 2022 and $24.0 million CDARS certificates of deposits at December 31, 2021.

Borrowings
FHLB: The Bank is a member of the Federal Home Loan Bank of Des Moines (the "FHLB"). As a member, the Bank is eligible to obtain advances from the FHLB. FHLB advances are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Company’s assets.  At December 31, 2022, our maximum borrowing line from the FHLB was $1.195 billion, approximately 45% of the Bank’s assets, subject to the FHLB’s collateral requirements. The Company has outstanding advances of $14.1 million as of December 31, 2022 which were originated to match fund low income housing projects that qualify for long term fixed interest rates. These advances have original terms of either 18 or 20 years with 30 year amortization periods and fixed interest rates ranging from 1.23% to 3.25%.
Federal Reserve BankThe Federal Reserve Bank of San Francisco (the "Federal Reserve Bank") is holding $44.3 million of loans as collateral to secure advances made through the discount window as of December 31, 2022.  There were no discount window advances outstanding at December 31, 2022 or 2021. The Company paid less than $1,000 in interest in 2022 and 2021 on this agreement.
Other Short and Long-term Borrowings:  The Company had no short or long-term borrowings outstanding other than the FHLB advances noted above as of December 31, 2022 or 2021.
The Company is subject to provisions under Alaska state law which generally limits the amount of outstanding debt to 35% of total assets or $929.3 million at December 31, 2021 and 35% of total assets or $948.0 million at December 31, 2021.
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Junior Subordinated Debentures
On December 16, 2005, the Company’s subsidiary, NST2, issued trust preferred securities in the principal amount of $10 million.  These securities carry an interest rate of 90-day LIBOR plus 1.37% per annum that was initially set at 5.86% adjusted quarterly.  The securities have a maturity date of March 15, 2036, and are callable by the Company on or after March 15, 2011. These securities are treated as Tier 1 capital by the Company’s regulators for capital adequacy calculations.  The interest cost to the Company of these securities was $326,000 in 2022.  At December 31, 2022, the securities had an interest rate of 6.14%. The Company entered into an interest rate swap in the third quarter of 2017 to hedge the variability in cash flows arising out of its junior subordinated debentures, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $10 million of junior subordinated debentures held under NST2 at 3.72% through its maturity date. Net of the impact of the interest rate swap, interest expense on these securities was $387,000 in 2022 and $382,000 in 2021.

Liquidity and Capital Resources
    The Company is a single bank holding company and its primary ongoing source of liquidity is from dividends received from the Bank. Such dividends arise from the cash flow and earnings of the Bank. Banking regulations and regulatory authorities may limit the amount of, or require the Bank to obtain certain approvals before paying, dividends to the Company. Given that the Bank currently meets and the Bank anticipates that it will continue to meet, all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards, the Company expects to continue to receive dividends from the Bank during 2023. Other available sources of liquidity for the bank holding company include the issuance of debt and the issuance of common or preferred stock. As of December 31, 2022, the Company has 10.0 million authorized shares of common stock, of which 5.7 million are issued and outstanding, leaving 4.3 million shares available for issuance. Additionally, the Company has 2.5 million authorized shares of preferred stock available for issuance.
    The Bank manages its liquidity through its Asset and Liability Committee. The Bank's primary source of funds are customer deposits. These funds, together with loan repayments, loan sales, maturity of investment securities, borrowed funds, and retained earnings are used to make loans, to acquire securities and other assets, and to fund deposit flows and continuing operations. The primary sources of demands on our liquidity are customer demands for withdrawal of deposits and borrowers’ demands that we advance funds against unfunded lending commitments.  
The Company had cash and cash equivalents of $259.4 million, or 10% of total assets at December 31, 2022 compared to $645.8 million, or 24% of total assets as of December 31, 2021. The decrease in cash and cash equivalents is primarily due to increases in investment securities and loans. While down from December 31, 2021, this level of cash and cash equivalents is still elevated as compared to historical norms both in balance and as a percentage of total assets. The Company had cumulative other comprehensive losses, net of tax, of $29.1 million in 2022 primarily due to unrealized holding losses on available for sale securities due to increases in interest rates. Management does not believe that liquidation of these securities, which would result in realized losses, will occur prior to maturity of these securities. Furthermore, management expects that the Company's elevated level of liquidity will continue into 2023 and potentially into subsequent years. Accordingly, management has invested in slightly longer term investment securities in 2021 and 2022 as compared to the last several years. As of December 31, 2022, the weighted average maturity of available for sale securities is 3.3 years compared to 4.1 years at December 31, 2021 and 2.6 years at December 31, 2020. At December 31, 2022, $70.3 million available for sale securities mature within one year, $167.8 million mature in 2024, and $138.6 million mature in 2025. Our total unfunded commitments to fund loans and letters of credit at December 31, 2022 were $497.7 million. We do not expect that all of these loans are likely to be fully drawn upon at any one time. At December 31, 2022, certificates of deposit totaling $128.4 million and $52.1 million, respectively, contractually mature in 2023 and 2024, and may be withdrawn from the Bank. Similar to loans, we do not expect that these maturing certificates of deposit, or other non-maturity deposits, to be withdrawn from the Bank in a manner that will strain liquidity; however, unforeseen future circumstances or events may cause higher than anticipated withdrawal of deposits or draws of unfunded commitments to fund new loans. Management believes that cash requirements to fund future non-deposit liabilities, including operating lease liabilities, other liabilities, or borrowings as of December 31, 2022, are not material to the Company's liquidity position as of December 31, 2022.
The Company has other available sources of liquidity to fund unforeseen liquidity needs. These include borrowings available through our correspondent banking relationships and our credit lines with the Federal Reserve Bank and the FHLB.  At December 31, 2022, our liquid assets were $570.7 million and our funds available for borrowing under our existing lines of credit were $1.24 billion. Given these sources of liquidity and our expectations for customer demands for cash and for our operating cash needs, we believe our sources of liquidity to be sufficient in the foreseeable future.  
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    As shown in the Consolidated Statements of Cash Flows included in Part II. Item 8 of this report, net cash provided by operating activities was $78.1 million in 2022 and $112.0 million in 2021, respectively. The primary source of cash provided by operating activities for both periods was proceeds from the sale of loans held for sale net of proceeds used in originations, as well as positive net income. In 2022, proceeds from the sale of loans held for sale net of proceeds used in originations decreased as compared to 2021 as refinance and purchase activity slowed. Net cash used by investing activities was $405.6 million in 2022 primarily due to purchases of available for sale and held to maturity securities and to a lesser extent, increases in loans and purchased receivables. Net cash used by investing activities was $159.1 million in 2021 primarily due to purchases of available for sale and held to maturity securities, net of proceeds from the maturity of available for sale securities. Financing activities used cash of $59.0 million in 2022 and provided cash of $577.0 million in 2021. Financing activities used cash in 2022 due to a decrease in deposits as wells as payment of cash dividends to shareholders and the repurchase of shares of the Company's common stock. Financing activities provided cash in 2021 due to increases in deposits that were only partially offset by the payment of cash dividends to shareholders and the repurchase of shares of the Company's common stock.
    Throughout our history, the Company has periodically repurchased for cash a portion of its shares of common stock in the open market. The following table presents the amount of common shares repurchased and the weighted average price paid per share for the periods indicated:
Years Ending:Common Shares RepurchasedWeighted Average Price
2022333,724$42.42
2021279,276$41.30
2020327,000$30.51
2019347,676$36.15
201815,468$31.90
At December, 31, 2022, there were no shares available under the previously announced stock repurchase program. However, on January 27, 2023 the Company announced that its Board of Directors authorized the repurchase of up to an additional 285,000 shares of common stock. The Company intends to continue to repurchase our stock from time-to-time depending upon market conditions, but we can make no assurances that we will continue this program or that we will authorize additional shares for repurchase.
The table below shows the cumulative effect the repurchase of common shares since the inception of the Company on diluted earnings per share: 
Years Ending:Diluted
EPS as
Reported
Diluted EPS without Stock Repurchase
2022$5.27$3.92
2021$6.00$4.79
2020$5.11$4.22
2019$3.04$2.59
2018$2.86$2.56
Regulatory Capital Requirements: We are subject to minimum capital requirements. Federal banking agencies have adopted regulations establishing minimum requirements for the capital adequacy of Northrimbanks and bank holding companies. The requirements address both risk-based capital and leverage capital.  We believe as of December 31, 2022, that the Company and the Bank (the "Bank") was wellmet all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards.
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    The table below illustrates the capital requirements in excesseffect in 2022 for the Company and the Bank and the actual capital ratios for each entity that exceed these requirements. Management intends to maintain capital ratios for the Bank in 2023 exceeding the FDIC’s requirements for the “well-capitalized” classification. The capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offering is included in the Company’s capital for regulatory purposes, although they are accounted for as a long-term debt in our consolidated financial statements. The trust preferred securities are not accounted for on the Bank’s financial statements nor are they included in its capital.  As a result, the Company has $10 million more in regulatory capital than the Bank at December 31, 2022 and 2021, respectively, which explains most of all regulatory requirements.the difference in the capital ratios for the two entities.
  Minimum Required Capital Well-CapitalizedActual Ratio CompanyActual Ratio Bank
 
December 31, 2022
Total risk-based capital8.00%10.00%13.64%11.42%
Tier 1 risk-based capital6.00%8.00%12.81%10.58%
Common equity tier 1 capital4.50%6.50%12.29%10.59%
Leverage ratio4.00%5.00%9.01%7.42%

See Note 22 of the Consolidated Financial Statements included in Part II. Item 8 of this report for a detailed discussion of the capital ratios. The requirements for "well-capitalized" come from the Prompt Correction Action rules. See Part I. Item 1 Supervision and Regulation. These rules apply to the Bank but not to the Company. Under the rules of the Federal Reserve Bank, a bank holding company such as the Company is generally defined to be "well capitalized" if its Tier 1 risk-based capital ratio is 8.0% or more and its total risk-based capital ratio is 10.0% or more.


Critical Accounting Policies

    The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments often as a result of the need to make "critical accounting estimates", which are estimates aboutthat involve estimation uncertainty that has had or is reasonably likely to have a material impact on the effectCompany's financial condition or results of matters that are inherently uncertain and may change in future periods.operations. Our significant accounting policies are described in Note 1 in the Notes to Consolidated Financial Statements in Part II. Item 8 of this report. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments orcritical accounting estimates. Management believes that the following accounting policies would be considered critical under the SEC's definition. The following discussion is intended to supplement, but not duplicate, information provided in Note 1 in the Notes to Consolidated Financial Statements in Part II. Item 8 of this report for these policies.
    Allowance for loan losses:Credit Losses Policy: The Company maintains an Allowance to reflect inherent lossesadopted CECL on January 1, 2021. The Company's Executive Loan Management Committee and Asset Liability Committee are both involved in its loan portfolio asmonitoring various aspects of the balance sheet date.Company's ACL methodology. The Company performs regular credit reviewsCompany's Audit Committee provides board oversight of the loan portfolioACL process and reviews and approves the ACL methodology on a quarterly basis.
CECL is not prescriptive in the methodology used to determine the expected credit qualityloss estimate. Therefore, management has flexibility in selecting the methodology. However, the expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments, utilizing quantitative and adherence to underwriting standards. When loans are originated, they are assigned a risk ratingqualitative factors. The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that is reassessed periodically duringaffect the termcollectability of the loan throughreported amounts. Historical loss experience is the starting point for estimating expected credit review process. The Company'slosses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. These risk ratings are then consolidated into five classes, which include pass, special mention, substandard, doubtful and loss. These classes are a primary factor in determining an appropriate amount for the allowance for loan losses. Each class is assessed an inherent credit loss factor that determines an amount of allowance for loan losses provided for that group of loans. This allowance is then adjusted for qualitative factors, by segment and class.  Qualitative factors are based on management’s assessment of current trends that may cause losses inherent in the current loan portfolio to differ significantly from historical losses.  Some factors that management considers in determining the qualitative adjustment to the general reserve include loan quality trends in our own portfolio, the degree of concentrations of large borrowers in our loan portfolio, national and local economic trends, business conditions, underwriting policies and standards, trends in local real estate markets, effects of various political activities, peer group data, and internal factorscharacteristics, such as underwriting policiesstandards, portfolio mix or asset terms, and expertisedifferences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the Company’s employees. financial asset it has estimated expected credit losses for the remaining life after the forecasted period using an approach that reverts to historical credit loss information.

    Regular credit reviewsDepending on the nature and size of the portfolio also identify loans that are considered potentially impaired. A loan is considered impaired when based on current information and events, we determine that we will probably not be able to collect all amounts due according topool of financial assets with similar risk characteristics, the loan contract, including scheduled interest payments. When we identifyCompany uses a loan as impaired, we measure the impairment using discounted cash flows, except when the soleflow (“DCF”) method or a weighted average remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of the collateral, less selling costs, instead of discounted cash flows. The analysis of collateral dependent loans includes appraisals on loans secured by real property, management’s assessment of the current market, recent payment history and an evaluation of other sources of repayment.  The Company obtains appraisals on real and personal property that secure its loans during the loan origination process in accordance with regulatory guidance and its loan policy.  The Company obtains updated appraisals on loans secured by real or personal property based upon its assessment of changes in the current market or particular projects or properties, information from other current appraisals and other sources of information.life method to estimate expected credit losses quantitatively. The Company uses the information provided in these updated appraisals along with its evaluation of all other information available on a particular property as it assesses the collateral coverage on its performing and nonperforming loans and the impact that may have on the adequacyDCF method for 8 of its Allowance. 
    If we determine that the value11 loan pools, which represent 95% of the impairedamortized cost basis of total loan pools at December 31, 2022. The weighted average remaining life method is less thanused for the recorded investment inremaining 3 loan pools primarily because loan level data constraints preclude the loan, we either recognize an impairment reserve as a specific component to be provided for in the Allowance or charge-off the impaired balance on collateral dependent loans if it is determined that such amount represents a confirmed loss. The combinationuse of the risk rating-based allowance component and the impairment reserve allowance component lead to an allocated allowance for loan losses.     DCF model.
    Finally, the Company assesses the overall adequacy of the Allowance based on several factors including the level of the Allowance as compared to total loans and nonperforming loans in light of current economic conditions.  This portion of the Allowance is deemed “unallocated” because it is not allocated to any segment or class of the loan portfolio.  This portion of the Allowance provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk rating-based component or in the specific impairment component of the Allowance and acknowledges the inherent imprecision of all loss prediction models.
    The unallocated portion of the Allowance is based upon management’s evaluation of various factors that are not directly measured in the determination of the allocated portions of the Allowance.  Such factors include uncertainties in identifying triggering events that directly correlate to subsequent loss rates, uncertainties in economic conditions, risk factors that have not yet manifested themselves in loss allocation factors, and historical loss experience data that may not precisely correspond to the current portfolio.  In addition, the unallocated reserve may fluctuate based upon the direction of various risk indicators.  Examples of such factors include the risk as to current economic conditions, the level and trend of charge offs or
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recoveries,Under the DCF method, the Company utilizes complex models to obtain reasonable and supportable forecasts to calculate two predictive metrics, the riskprobability of heightened imprecisiondefault ("PD") and loss given default ("LGD"). The PD measures the probability that a loan will default within a given time horizon and is an assumption derived from regression models which determine the relationship between historical defaults and certain economic variables. The Company's regression models for PD utilize the Company's actual historical loan level default data. The Company determines a reasonable and supportable forecast and applies that forecast to the regression model to estimate defaults over the forecast period. Management leverages economic projections from a reputable and independent third-party to inform its loss driver forecasts over the Company's four quarter forecast period.

As of December 31, 2021, management utilized and forecasted Alaska unemployment as a loss driver for all of the loans pools that utilize the DCF method. Management also utilized and forecasted either one-year percentage change in the Alaska home price index or inconsistency of appraisals usedthe one-year percentage change in estimatingthe national commercial real estate values.  Althoughprice index as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics. Additionally, the Company's regression models for PD as of December 31, 2021 utilized the Company's actual historical loan level default data.

As of January 1, 2022, management utilizes and forecasts U.S. unemployment as the sole loss driver for all of the loan pools that utilize the DCF method. The Company's regression models for PD as of January 1, 2022 utilize peer historical loan level default data. Peers for this allocation process may not accurately predict credit losses by loan type or in aggregate, the total allowance for credit losses is available to absorb losses that may arise from any loan type or category.  Due to the subjectivity involvedpurpose include banks in the determination of the unallocated portion of the Allowance, the relationship of the unallocated component to theUnited States with total Allowance may fluctuate from period to period.
    Based on our methodologyassets between $1 billion and its components, management believes the resulting Allowance is adequate and appropriate for the risk identified in$5 billion whose loan portfolios share certain characteristics with the Company's loan portfolio. Given current processes employedPeers differ by loan segment; a bank is included in the peer group for each loan segment under the following circumstances:

• The percentage the balance of the loan segment compared to total loans over a five year look back period is within 1.5 standard deviations of the Company's data;
• The percentage of total charge offs for the loan segment over a five year look back period is within 1 standard deviation of the Company's data; and
• The percentage of total charge offs for the loan segment during the recessionary period from the fourth quarter of 2008 to the fourth quarter of 2012 is within 1 standard deviation of the Company's data.

For all periods presented, following the forecast period, the economic variables used to calculate PD revert to a historical average at a constant rate over an eight quarter reversion period. Other assumptions relevant to the discounted cash flow model to derive the quantitative allowance include the LGD, which is the estimate of loss for a defaulted loan, prepayment speeds, and the discount rate applied to future cash flows. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses over the contractual term of the loan, adjusted for prepayments. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses under CECL as adopted by the Company management believes the segments, classes,on January 1, 2021, which are unchanged as of December 31, 2022:
Commercial & industrial - Commercial loans are loans for commercial, corporate and estimated loss rates currently assigned are appropriate.  It is possible that others, given the same information, may at any point in time reach different reasonable conclusions that could be material to the Company's financial statements.  In addition, current loan classes and fair value estimates of collateral are subject to change as we continue to review loans within our portfolio and as our borrowers are impacted by economic trends within their market areas.  Although we have established an Allowance that we consider adequate, there can be no assurance that the established Allowance will be sufficient to offset losses on loans in the future. In addition, a substantial percentage of ourbusiness purposes. The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, and other business loans for working capital and operational purposes. Commercial loans are generally secured by accounts receivable, inventory and other business assets. Also included in commercial loans are our PPP loans originated during 2020 and 2021. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Commercial real estate - This category of loans consists of the following loan types:

Owner occupied - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including owner occupied commercial real estate loans primarily secured by commercial office or industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. Repayment terms vary considerably, interest rates are fixed or variable, and are structured for full, partial, or no amortization of principal. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Non-owner occupied and multifamily - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including investment real estate loans that are primarily secured by office and
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industrial buildings, warehouses or retail buildings where the owner of the building does not occupy the property, non-owner occupied apartment or multifamily residential buildings, and various special purpose properties. Repayment terms vary considerably, interest rates are fixed or variable, and are structured for full, partial, or no amortization of principal. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Residential real estate - This category of loans consists of the following loan types:

1-4 family residential properties secured by first liens - This category of loans includes term loans secured by first liens on residential real estate. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

1-4 family residential properties secured by junior liens and revolving credit lines secured by 1-4 family first liens - This category of loans includes term loans primarily secured by junior liens on residential real estate and revolving credit lines that are secured by first liens on residential real estate. Home equity revolving lines of credit and home equity term loans are included in this group of loans. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

1-4 family residential construction - This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of 1-4 family residential properties which will secure the loan. These loans may also be secured by tracts or individual parcels of land on which 1-4 family residential properties are being constructed. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Other construction, land development, and raw land - This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of owner occupied and non-owner occupied commercial properties, and loans secured by raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party. Repayment of land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Agricultural production, including commercial fishing - These loans are for the purpose of financing agricultural production, including growing and storing of crops, and for the purpose of financing fisheries and forestries, including loans to commercial fishermen. These loans may be secured or unsecured, but any loans for these purposes that are secured by real estate; asestate are included in a result, a significant decline in real estate market valuescategory. The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.

Consumer - Loans used for personal use, which may require an increasebe secured or unsecured, and customer overdrafts. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Obligations of states and political subdivisions in the Allowance.US - This category of loans includes all loans made to states, counties municipalities, school districts, drainage and sewer districts, and Indian tribes in the U.S. These loans maybe be secured by any type of collateral, including real estate. The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.

Other - This category of loans includes all other loans that cannot properly be reported in one of the preceding categories. The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.

In addition to the quantitative portion of the ACL derived using either the DCF or weighted average remaining life method, the Company also considers the effects of the following qualitative factors in its calculation of expected losses in the loan portfolio:

Lending strategy, policies, and procedures;
Quality of internal loan review;
Lending management and staff;
Trends in underlying collateral values;
Competition, legal, and regulatory changes;
Economic and business conditions including fluctuations in the price of Alaska North slope crude oil;
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Inflation and monetary policy in the United States;
Changes in trends, volume and severity of adversely classified loans, nonaccrual loans, and delinquencies;
Concentration of credit; and
Changes in the nature and volume of the loan portfolio.

    Valuation of goodwill and other intangibles:  Goodwill and other intangible assets with indefinite lives are not amortized but instead are periodically tested for impairment.  Management performs an impairment analysis for the intangible assets with indefinite lives on an annual basis as of December 31. Additionally, goodwill and other intangible assets with indefinite lives are evaluated on an interim basis when events or circumstances indicate impairment potentially exists. The impairment analysis requires management to make subjective judgments. Events and factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures, technology, changes in discount rates and specific industry and market conditions. There can be no assurance that changes in circumstances, estimates or assumptions may result in additional impairment of all, or some portion of, goodwill or other intangible assets. The Company performed its annual goodwill impairment testing at December 31, 20202022 and 20192021 in accordance with the policy described in Note 1 to the financial statements included within Part II. Item 8 of this report.  At December 31, 2020,2022, the Company performed its annual impairment test by performing a quantitativequalitative assessment. The Company estimatedSignificant positive inputs to the qualitative assessment included the Company’s increasing net income as compared to historical trends; the Company's increasing market share for deposits in our markets; results of regulatory examinations; peer comparisons of the Company's net interest margin; trends in the Company’s cash flows; improvements in the Alaskan economy in 2022; increases in the Company's market share of mortgage originations; and increases in the Company's stock price. Significant negative inputs to the qualitative assessment included the muted pace of growth in the Alaska economy and a decline in home mortgage originations. We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs for both of the Company's operating segments, and we therefore concluded that it is more likely than not that the fair value of the Company using two valuation methodologies including a control premium approach and a discounted cash flow approach. We then compared the estimated fair value of each segment to theexceeds its carrying value at December 31, 2022 and concluded that no potential impairment existed at of December 31, 2020that time.

    Valuation of OREO:  OREO represents properties acquired through foreclosure or its equivalent.  Prior to foreclosure, the carrying value is adjusted to the fair value, less cost to sell, of the real estate to be acquired by an adjustment to the allowance for loan loss.  The amount by which the fair value less cost to sell is greater than the carrying amount of the loan plus amounts previously charged off is recognized in earnings.  Any subsequent reduction in the carrying value is charged against earnings. Management's evaluation of fair value is based on appraisals or discounted cash flows of anticipated sales. The amounts ultimately recovered from the sale of OREO may differ from the carrying value of the assets because of market factors beyond the Company's control or due to changes in the Company's strategies for recovering the investment.
    Servicing rights:  The Company measures mortgage servicing rights ("MSRs") and commercial servicing rights ("CSRs") at fair value on a recurring basis with changes in fair value going through earnings in the period in which the change occurs. Changes in the fair value of MSRs are recorded in mortgage banking income, and changes in the fair value of CSRs are recorded in commercial servicing revenue. Fair value adjustments encompass market-driven valuation changes and the decrease in value that occurs from the passage of time, which are separately reported. Retained servicing rights are measured at fair value as of the date of sale. Initial and subsequent fair value measurements are determined using a discounted cash flow model. In order to determine the fair value of servicing rights, the present value of expected net future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates and ancillary fee income net of servicing costs. The model assumptions for MSRs are also compared to publicly filed information from several large MSR holders, as available.
    Fair Value:   A hierarchical disclosure framework associated with the level of pricing observability is utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction.
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Impact of accounting pronouncements to be implemented in future periods
    In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13” or "CECL"). ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates, but will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASU 2016-13 is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2019, and must be applied prospectively. However, on October 16, 2019 the FASB voted to delay ASU 2016-13 for Smaller Reporting Companies. The Company has elected Small Reporting Company status, which changes the effective date for ASU 2016-13 for the Company to fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2022. Early application was permitted for specified periods. The Company early adopted ASU 2016-13 on January 1, 2021 after finalizing data and model validation and our internal governance framework. The guidance was applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at January 1, 2021. However, certain provisions of the guidance are only required to be applied on a prospective basis.
Adoption of CECL as of January 1, 2021 resulted in an allowance for loan losses of $16.6 million, which is a $4.5 million decrease in the allowance under the incurred loss model as of December 31, 2020. This decrease will increase the Company's total shareholder's equity by $3.2 million. The reduction reflects a decrease for all loan segments given their short contractual maturities. The Company does not hold a material amount of residential mortgage loans with long or indeterminate maturities as of December 31, 2020. In most instances the Company believes that the ACL for residential mortgage loans with long or indeterminate maturities would lead to an increase in the ACL.
Adoption of CECL as of January 1, 2021 resulted in a reserve for unfunded commitments of $1.4 million, which is a $1.2 million increase in the reserve under the incurred loss model as of December 31, 2020. This increase will decrease the Company's total shareholder's equity by $880,000.
See the “Accounting pronouncements to be implemented in future periods” section in Note 1 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for further discussion of the Company's implementation of CECL.


RESULTS OF OPERATIONS
Income Statement
    Net Income
    Our results of operations are dependent to a large degree on our net interest income.  We also generate other income primarily through mortgage banking income, purchased receivables products, service charges and fees, and bankcard fees.  Our operating expenses consist in large part of salaries and other personnel costs, occupancy, data processing, marketing, and professional services expenses. Interest income and cost of funds, or interest expense, are affected significantly by general economic conditions, particularly changes in market interest rates, by government policies and the actions of regulatory authorities, and by competition in our markets.
    We earned net income of $32.9 million in 2020, compared to net income of $20.7 million in 2019.  During these periods, net income per diluted share was $5.11 and $3.04, respectively.  The increase in net income in 2020 compared to 2019 was primarily due to increases in other operating income, specifically mortgage banking income, as well as improved net interest income.
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    Net Interest Income / Net Interest Margin
    Net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings.  Changes in net interest income result from changes in volume and spread, which in turn affect our margin.  For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets.  Changes in net interest income are influenced by yields and the level and relative mix of interest-earning assets and interest-bearing liabilities.
    Net interest income in 2020 was $70.7 million, compared to $64.4 million in 2019.  The increase in 2020 as compared to 2019 was the result of higher net average interest-earning asset balances which was only partially offset by a decrease in net interest income as a result of decreased interest rates. Additionally, the Company recognized $5.6 million in loan fee income from PPP loans in 2020. During 2020 and 2019, net interest margins were 4.02% and 4.65%, respectively. The decrease in net interest margin in 2020 as compared to 2019 is the result of decreases in the spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities which was impacted by a decrease in interest rates.  
    The following table sets forth for the periods indicated information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities.  Average yields or costs, net interest income, and net interest margin are also presented:
Years ended December 31,202020192018
 Average outstanding balanceInterest income / expenseAverage Yield / CostAverage outstanding balanceInterest income / expenseAverage Yield / CostAverage outstanding balanceInterest income / expenseAverage Yield / Cost
 
(In Thousands)
Loans (1),(2)
$1,339,908 $67,876 5.07 %$1,010,098 $59,919 5.93 %$971,548 $55,526 5.72 %
Loans held for sale105,287 3,215 3.05 %56,344 2,231 3.96 %46,089 2,016 4.37 %
Long-term Investments(3)
247,384 5,316 2.15 %273,711 7,011 2.56 %286,426 5,829 2.04 %
Short-term investments(4)
66,260 309 0.47 %46,404 922 1.99 %42,386 806 1.90 %
Total interest-earning assets$1,758,839 $76,716 4.36 %$1,386,557 $70,083 5.05 %$1,346,449 $64,177 4.77 %
Noninterest-earning assets177,208   169,150   146,936   
Total$1,936,047   $1,555,707   $1,493,385   
Interest-bearing deposits$1,040,606 $5,279 0.51 %$850,202 $4,961 0.58 %$809,808 $2,307 0.28 %
Borrowings35,918 772 2.15 %33,730 680 1.37 %47,570 662 1.39 %
Total interest-bearing  liabilities$1,076,524 $6,051 0.56 %$883,932 $5,641 0.64 %$857,378 $2,969 0.35 %
Noninterest-bearing demand deposits597,610   426,205   417,464   
Other liabilities50,192   36,968   17,521   
Equity211,721   208,602   201,022   
Total$1,936,047   $1,555,707   $1,493,385   
Net interest income $70,665   $64,442   $61,208  
Net interest margin  4.02 %  4.65 %  4.55 %
Average portfolio loans to average-earnings assets76.18 %72.85 %72.16 %
Average portfolio loans to average total deposits81.79 %79.14 %79.16 %
Average non-interest deposits to average total deposits36.48 %33.39 %34.02 %
Average interest-earning assets to average interest-bearing liabilities163.38 %156.86 %157.04 %
1Interest income includes loan fees.  Loan fees recognized during the period and included in the yield calculation totaled $8.9 million, $3.3 million and $3.0 million for 2020, 2019 and 2018, respectively.

2Nonaccrual loans are included with a zero effective yield.  Average nonaccrual loans included in the computation of the average loans were $13.8 million, $16.9 million, and $17.5 million in 2020, 2019 and 2018, respectively.

3Consists of investment securities available for sale, investment securities held to maturity, marketable equity securities, and investment in Federal Home Loan Bank stock.
4Consists of interest bearing deposits in other banks and domestic CDs.
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    The following table sets forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates.  Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes due to volume and the changes due to interest rate:
 2020 compared to 20192019 compared to 2018
 Increase (decrease) due toIncrease (decrease) due to
(In Thousands)VolumeRateTotalVolumeRateTotal
Interest Income:      
Loans$17,590 ($9,633)$7,957 $2,246 $2,147 $4,393 
Loans held for sale1,336 (352)984 374 (159)215 
Long-term investments(634)(1,061)(1,695)(245)1,427 1,182 
Short term investments779 (1,392)(613)79 37 116 
Total interest income$19,071 ($12,438)$6,633 $2,454 $3,452 $5,906 
Interest Expense:      
Interest-bearing deposits$763 ($445)$318 $120 $2,534 $2,654 
Borrowings83 92 (29)47 18 
Total interest expense$772 ($362)$410 $91 $2,581 $2,672 
Provision for Loan Losses 
    We recorded a provision for loan losses in 2020 of $2.4 million, compared to a benefit for loan losses of $1.2 million in 2019.  The loan loss provision increased in 2020 compared to 2019 primarily due to an increase in the loan portfolio, excluding loans that are guaranteed by the government, and management's assessment about increased risks in the loan portfolio association with the economic impacts of COVID-19. See the “Allowance for Loan Losses” section under “Financial Condition” and Note 6 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for further discussion of these decreases and changes in the Company’s Allowance. 
Other Operating Income
    The following table details the major components of other operating income for the years ended December 31:
(In Thousands)2020$ Change% Change2019$ Change% Change2018
Other Operating Income       
Mortgage banking income$52,635 $28,434 117 %$24,201 $3,357 16 %$20,844 
Bankcard fees2,837 (139)(5)%2,976 165 %2,811 
Purchased receivable income2,650 (621)(19)%3,271 16 — %3,255 
Service charges on deposit accounts1,102 (455)(29)%1,557 49 %1,508 
Interest rate swap income949 (15)(2)%964 880 1,048 %84 
Commercial servicing revenue527 (97)(16)%624 (798)(56)%1,422 
Rental income278 (219)(44)%497 (195)(28)%692 
Gain (loss) on sale of securities98 75 326 %23 23 100 %— 
Gain (loss) on marketable equity securities61 (850)(93)%911 1,536 246 %(625)
Other income2,191 (131)(6)%2,322 146 %2,176 
     Total other operating income$63,328 $25,982 70 %$37,346 $5,179 16 %$32,167 

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    2020 Compared to 2019
    The most significant change in other operating income in 2020 was an increase in mortgage banking income which was only partially offset by decreases in gains on marketable equity securities, as well as decreases in purchased receivable income and service charges on deposit accounts. Mortgage banking income consists of gross income from the origination and sale of mortgages as well as mortgage loan servicing fees and is the largest component of other operating income at 83% of total other operating income in 2020. Mortgage banking income increased in 2020 compared to 2019 mainly due to an increase in mortgage loans originated and sold as this volume increased to $1.30 billion in 2020 from $684 million in 2019. The overall increase in mortgage originations in 2020 as compared to the prior year is primarily the result of the decrease in interest rates during the year that led to increased refinance activity. The Company recognized $61,000 in unrealized gains on marketable equity securities in 2020, an $850,000 decrease as compared to 2019, due to market volatility. Purchased receivable income and service charges on deposit accounts saw significant decreases as compared to 2019. Purchased receivable income decreased as customers reportedly used PPP loans to fund liquidity needs, resulting in decreased outstanding purchased receivable balances. Service charges on deposit accounts decreased due to customer accommodations made by the Company for customers impacted by COVID-19.
Other Operating Expense
    The following table details the major components of other operating expense for the years ended December 31:
(In Thousands)2020$ Change% Change2019$ Change% Change2018
Other Operating Expense       
Salaries and other personnel expense$61,137 $9,820 19 %$51,317 $6,667 15 %$44,650 
Data processing expense7,668 540 %7,128 1,093 18 %6,035 
Occupancy expense6,624 17 — %6,607 471 %6,136 
Professional and outside services3,157 626 25 %2,531 78 %2,453 
Marketing expense2,320 (53)(2)%2,373 55 %2,318 
Insurance expense1,228 671 120 %557 (305)(35)%862 
Compensation expense - RML acquisition payments— (468)(100)%468 468 100 %— 
Intangible asset amortization48 (12)(20)%60 (10)(14)%70 
OREO (income) expense, net rental income and gains on sale: 
   OREO operating expense658 (35)(5)%693 (109)(14)%802 
   Rental income on OREO(509)(3)(1)%(506)35 %(541)
   Gains on sale of OREO(391)(11)(3)%(380)(377)NM(3)
         Subtotal(242)(49)(25)%(193)(451)(175)%258 
Other expenses7,174 1,184 20 %5,990 (1,028)(15)%7,018 
     Total other operating expense$89,114 $12,276 16 %$76,838 $7,038 10 %$69,800 
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    2020 Compared to 2019
    Other operating expense increased by $12.3 million to $89.1 million in 2020 as compared to $76.8 million in the prior year primarily due to increases in salaries and other personnel expense, as well as smaller increases in insurance expense, professional and outside services, and data processing expense. These increases were only partially offset by a decrease in compensation expense related to RML acquisition payments. The fourth quarter of 2019 marked the end of the five-year period following the acquisition of RML during which the Company was required to make additional payments to the former owners of RML when profitability hit certain targets. Per the terms of the purchase agreement, no further payments are required, and therefore no additional expense for RML acquisition payments will be recorded in the future. The $9.8 million increase in salaries and other personnel expense in 2020 as compared to 2019 is the result of the following items. Originator commission expenses increased $5.2 million, or approximately 82% in 2020 compared to 2019 due to increased mortgage production in the home mortgage lending segment. Additionally, overtime expense increased $1 million, or 309% in 2020 compared to 2019 due to increased mortgage production. Salaries increased $1.6 million, or 5%, in 2020 as compared to 2019 due to salary increases and an increase in full-time equivalent employees. Smaller increases also occurred in bonus payments and profit share expense due to the increased mortgage production in the Home Mortgage Lending segment and increased net income for the Community Banking segment. These increases were only partially offset by a $1.6 million increase in salary deferral related to loan production costs and a $696,000 decrease in group medical insurance expense due to lower medical claims associated with the Company's self-insured employee health benefit plan. Insurance expense increased $671,000 primarily as a result of increased FDIC insurance costs associated with asset growth. Professional and outside services increased $626,000 due to costs associated with increased mortgage production volume. Lastly, data processing expense increased $540,000 in 2020 as compared to 2019 due to costs for improved functionality for digital products and services and the addition of various software applications related to our lending activities.
    Income Taxes
    The provision for income taxes increased $4.1 million or 76%, to $9.6 million in 2020 as compared to 2019.  The increase in 2020 is primarily due to higher pretax income. The Company's effective tax rates were 23% and 21% in 2020 and 2019, respectively. The changes in the Company's effective tax rates for 2020 and 2019 are primarily due to lower tax-exempt income and fewer low income housing tax credits as a percentage of pre-tax income as compared to 2019.

FINANCIAL CONDITION
Investment Securities
    The composition of our investment securities portfolio, which includes securities available for sale and marketable equity securities, reflects management’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of interest income.  The investment securities portfolio also mitigates interest rate and credit risk inherent in the loan portfolio, while providing a vehicle for the investment of available funds, a source of liquidity (by pledging as collateral or through repurchase agreements), and collateral for certain public funds deposits. Investment securities designated as available for sale comprised 93% of the portfolio as of December 31, 2020 and are available to meet liquidity requirements. 
    Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, collateralized loan obligations, and municipal securities.  Investment securities at December 31, 2020 decreased $17.4 million, or 6%, to $266.7 million from $284.1 million at December 31, 2019.  The decrease at December 31, 2020 as compared to December 31, 2019 is primarily due to proceeds from sales, maturities, and security calls being used for loan fundings. The average maturity of the investment portfolio was approximately three years at December 31, 2020.
    Investment securities may be pledged as collateral to secure public deposits or borrowings.  At December 31, 2020 and 2019, $77.9 million and $30.6 million in securities were pledged for deposits and borrowings, respectively.  Pledged securities increased at December 31, 2020 as compared to December 31, 2019 primarily due to increased pledges to the FHLB to increase the Company's immediate borrowing capacity at December 31, 2020.

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    The following tables set forth the composition of our investment portfolio at December 31 for the years indicated:
(In Thousands)Amortized CostFair Value
Securities Available for Sale:  
2020:  
    U.S. Treasury and government sponsored entities$173,318 $174,601 
    Municipal Securities820 856 
    Corporate Bonds29,951 30,492 
    Collateralized Loan Obligations41,782 41,684 
            Total$245,871 $247,633 
   2019:  
    U.S. Treasury and government sponsored entities$210,756 $211,852 
    Municipal Securities3,288 3,297 
    Corporate Bonds34,764 35,066 
    Collateralized Loan Obligations25,980 25,923 
             Total$274,788 $276,138 
   2018:  
    U.S. Treasury and government sponsored entities$209,908 $208,860 
    Municipal Securities9,089 9,084 
    Corporate Bonds40,139 39,780 
    Collateralized Loan Obligations13,990 13,886 
             Total$273,126 $271,610 
Marketable Equity Securities:
   2020:
    Preferred Stock$8,395 $9,052 
             Total$8,395 $9,052 
   2019:
    Preferred Stock$7,349 $7,945 
             Total$7,349 $7,945 
   2018:
    Preferred Stock$7,580 $7,265 
             Total$7,580 $7,265 
Securities Held to Maturity:  
2020:  
    Corporate Bonds$10,000 $10,000 
             Total$10,000 $10,000 
   2019:  
    Corporate Bonds$— $— 
            Total$— $— 
   2018:  
    Corporate Bonds$— $— 
            Total$— $— 
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    The following table sets forth the market value, maturities, and weighted average pretax yields of our investment portfolio as of December 31, 2020:
 Maturity
 Within  Over 
(In Thousands)1 Year1-5 Years5-10 Years10 YearsTotal
Securities Available for Sale:     
    U.S. Treasury and government sponsored entities     
         Balance$44,601 $130,000 $— $— $174,601 
         Weighted average yield2.06 %0.82 %— %— %1.14 %
    Municipal securities     
         Balance$— $856 $— $— $856 
         Weighted average yield— %2.14 %— %— %2.14 %
    Corporate bonds     
         Balance$2,257 $28,235 $— $— $30,492 
         Weighted average yield1.23 %1.36 %— %— %1.35 %
    Collateralized loan obligations
         Balance$— $— $8,720 $32,964 $41,684 
         Weighted average yield— %— %1.70 %1.60 %1.62 %
    Total     
         Balance$46,858 $159,091 $8,720 $32,964 $247,633 
         Weighted average yield2.02 %0.92 %1.70 %1.60 %1.25 %
Security Held to Maturity
    Corporate bonds
         Balance$— $— $10,000 $— $10,000 
         Weighted average yield— %— %5.00 %— %5.00 %
Marketable Equity Securities     
    Preferred Stock
         Balance$— $— $— $9,052 $9,052 
         Weighted average yield— %— %— %5.08 %5.08 %
    The Company’s investment in marketable equity securities does not have a maturity date but it has been included in the over 10 years column above. At December 31, 2020, we held no securities of any single issuer (other than government sponsored entities) that exceeded 10% of our shareholders’ equity.
Loans
    Our loan products include short and medium-term commercial loans, commercial credit lines, construction and real estate loans, and consumer loans. To a lesser extent, through our wholly-owned subsidiary RML, we also originate mortgage loans which we sell to the secondary market. We retain servicing rights on mortgage loans originated by RML and sold to the Alaska Housing Finance Corporation ("AHFC").  We emphasize providing financial services to small and medium-sized businesses and to individuals. From our inception, we have emphasized commercial, land development and home construction, and commercial real estate lending.  These types of lending have provided us with needed market opportunities and generally provide higher net interest margins compared to other types of lending such as consumer lending.  However, they also involve greater risks, including greater exposure to changes in local economic conditions. Additionally in 2020, we originated a significant amount of PPP loans and we expect to originate additional PPP loans in 2021.
    All of our loans and credit lines are subject to approval procedures and amount limitations.  These limitations apply to the borrower’s total outstanding indebtedness and commitments to us, including the indebtedness of any guarantor.  Generally, we are permitted to make loans to one borrower of up to 15% of the unimpaired capital and surplus of the Bank.  The loan-to-one-borrower limitation for the Bank was $29.9 million at December 31, 2020.  At December 31, 2020, the Company had three relationships whose total direct and indirect commitments exceeded $29.9 million; however, no individual direct relationship exceeded the loans-to-one borrower limitation.  See “Management’s Discussion and Analysis of Financial Condition and
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Results of Operations – Provision for Loan Losses” for further discussion of the Company's concentration of loans to large borrowers.
    Our lending operations are guided by loan policies, which outline the basic policies and procedures by which lending operations are conducted.  Generally, the policies address our desired loan types, target markets, underwriting and collateral requirements, terms, interest rate and yield considerations, and compliance with laws and regulations. The policies are reviewed and approved annually by the board of directors of the Bank. Our Quality Assurance Department provides a detailed financial analysis of our largest, most complex loans. In addition, the Quality Assurance Department, along with the Chief Credit Officer of the Bank, have developed processes to analyze and manage various concentrations of credit within the overall loan portfolio. The Credit Administration Department monitors the procedures and processes for both the analysis and reporting of problem loans, and also develops strategies to resolve problem loans based on the facts and circumstances for each loan.  Finally, our Internal Audit Department also performs an independent review of each loan portfolio for compliance with loan policy as well as a review of credit quality. The Internal Audit review follows the FDIC sampling guidelines, and a review of each portfolio is performed on an annual basis. 
    The following table sets forth the composition of our loan portfolio by loan segment:
 December 31, 2020December 31, 2019December 31, 2018December 31, 2017December 31, 2016
 Dollar AmountPercent of TotalDollar AmountPercent of TotalDollar AmountPercent of TotalDollar AmountPercent of TotalDollar AmountPercent of Total
(In Thousands)
Commercial$780,058 54.0 %$412,690 39.5 %$342,420 34.8 %$313,514 32.8 %$277,802 28.5 %
Real estate construction one-to-four family38,467 2.7 %38,818 3.7 %37,111 3.8 %31,201 3.3 %26,061 2.7 %
Real estate construction other80,315 5.6 %61,808 5.9 %72,256 7.3 %80,093 8.4 %72,159 7.4 %
Real estate term owner occupied163,597 11.3 %138,891 13.3 %126,414 12.8 %132,042 13.8 %152,112 15.6 %
Real estate term non-owner occupied309,074 21.4 %312,960 30.0 %325,720 33.1 %319,313 33.4 %356,411 36.6 %
Real estate term other46,620 3.2 %42,506 4.1 %42,039 4.3 %40,411 4.2 %45,402 4.7 %
Consumer secured by 1st deeds of trust15,585 1.1 %16,198 1.6 %19,228 2.0 %22,616 2.4 %23,280 2.4 %
Consumer other22,069 1.5 %24,585 2.4 %23,645 2.4 %19,919 2.1 %25,281 2.6 %
Subtotal$1,455,785  $1,048,456  $988,833  $959,109  $978,508  
Less: Unearned origination fee,          
net of origination costs(11,735)(0.8)%(5,085)(0.5)%(4,487)(0.5)%(4,156)(0.4)%(4,434)(0.5)%
Total portfolio loans$1,444,050  $1,043,371  $984,346  $954,953  $974,074  
Commercial Loans: Our commercial loan portfolio includes both secured and unsecured loans for working capital and expansion.  Short-term working capital loans generally are secured by accounts receivable, inventory, or equipment. We also make longer-term commercial loans secured by equipment and real estate.  We also make commercial loans that are guaranteed in large part by the SBA or the Bureau of Indian Affairs and to a lesser extent guaranteed by the United States Department of Agriculture, as well as commercial real estate loans that are purchased by the Alaska Industrial Development and Export Authority (“AIDEA”). Commercial loans increased to $780.1 million at December 31, 2020 from $412.7 million at December 31, 2019 and represented approximately 54% and 40% of our total loans outstanding as of December 31, 2020 and December 31, 2019, respectively. The increase in commercial loans at the end of 2020 is primarily due to $310.5 million in PPP loans. The Company originated $375.6 million PPP loans in 2020. As of December 31, 2020, $65.1 million in PPP loans had been forgiven by the SBA. Commercial loans reprice more frequently than other types of loans, such as real estate loans.  More frequent repricing means that interest cash flows from commercial loans are more sensitive to changes in interest rates.  In a rising interest rate environment, our philosophy is to emphasize the pricing of loans on a floating rate basis, which allows these loans to reprice more frequently and to contribute positively to our net interest margin. 
Commercial Real Estate:We are an active lender in the commercial real estate market.  At December 31, 2020, commercial real estate loans increased to $519.3 million from $494.4 million at December 31, 2019, and represented approximately 36% and 47% of our loan portfolio as of December 31, 2020 and December 31, 2019, respectively.  These loans are typically secured by office buildings, apartment complexes or warehouses.  Loan amortization periods range from 10 to 25 years and generally have a maximum maturity of 10 years.
    We may sell all or a portion of a commercial real estate loan to two State of Alaska entities, AIDEA and AHFC, which were both established to provide long-term financing in the State of Alaska.  The loans that AIDEA purchases typically feature a maturity twice that of the loans retained by us and bear a lower interest rate. The blend of our and AIDEA’s loan terms allows
48


us to provide competitive long-term financing to our customers, while reducing the risk inherent in this type of lending.  We also originate and sell to AHFC loans secured by multifamily residential units. Typically, 100% of these loans are sold to AHFC and we provide ongoing servicing of the loans for a fee. AIDEA and AHFC make it possible for us to originate these commercial real estate loans and enhance fee income while reducing our exposure to interest rate risk. 
Construction Loans:We provide construction lending for commercial real estate projects.  Such loans generally are made only when the Company has also committed to finance the completed project with a commercial real estate loan, or if there is a firm take-out commitment upon completion of the project by a third party lender.  Additionally, we provide land development and residential subdivision construction loans.  We also originate one-to-four-family residential and condominium construction loans to builders for construction of homes. The Company’s construction loans increased in 2020 to $118.8 million, up from $100.6 million in 2019, and represented approximately 8% and 10% of our loan portfolio in December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020, approximately $6.0 million or 5%, of the Company's construction loans were for low income housing tax credit projects as compared to $24.0 million or 24% as of December 31, 2019.
Consumer Loans:We provide personal loans for automobiles, recreational vehicles, boats, and other larger consumer purchases.  We provide both secured and unsecured consumer credit lines to accommodate the needs of our individual customers, with home equity lines of credit serving as the major product in this area.
Loans Directly Exposed to the Oil and Gas Industry: The Company defines "direct exposure" to the oil and gas industry as companies that it has identified as significantly reliant upon activity related to the oil and gas industry, such as oil producers or drilling and exploration companies, and companies who provide oilfield services, lodging, equipment rental, transportation, and other logistic services specific to the industry. The Company estimates that $65.1 million, or approximately 4% of loans as of December 31, 2020 have direct exposure to the oil and gas industry as compared to $79.2 million, or approximately 8% of loans as of December 31, 2019. The Company's exposure as a percent of the total loan portfolio excluding PPP loans as of December 31, 2020 was 6%. The Company has no loans to oil producers or drilling and exploration companies as of the end of 2020 or 2019, but the $65.1 million outstanding as of December 31, 2020 noted above does include $3.0 million related to the construction of an oil drilling rig. The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $63.5 million and $31.1 million at December 31, 2020 and 2019, respectively. The portion of the Company's allowance for loan losses that related to the loans with direct exposure to the oil and gas industry was estimated at $1.2 million and $1.6 million as of December 31, 2020 and 2019, respectively.
    The following table details loan balances by loan segment asset quality rating ("AQR") and class of financing receivable for loans with direct oil and gas exposure as of the dates indicated:
(In Thousands)CommercialReal estate construction one-to-four familyReal estate construction otherReal estate term owner occupiedReal estate term non-owner occupiedReal estate term otherConsumer secured by 1st deeds of trustConsumer otherTotal
December 31, 2020         
AQR Pass$46,943 $— $— $4,023 $— $— $— $— $50,966 
AQR Special Mention4,597 — — 1,541 6,606 — — — 12,744 
AQR Substandard1,412 — — — — — — — 1,412 
        Total loans$52,952 $— $— $5,564 $6,606 $— $— $— $65,122 
December 31, 2019         
AQR Pass$62,345 $— $— $4,153 $— $— $— $361 $66,859 
AQR Special Mention450 — — 1,900 6,916 — — — 9,266 
AQR Substandard3,070 — — — — — — — 3,070 
        Total loans$65,865 $— $— $6,053 $6,916 $— $— $361 $79,195 
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Supplemental information about significant COVID-19 exposure on directly impacted industries:In addition, at December 31, 2020, the Company had $78.9 million, or 5% of portfolio loans, in the tourism sector, $56.1 million, or 4% of portfolio loans, in the aviation (non-tourism) sector, $96.9 million, or 7% of total loans, in the healthcare sector, $17.4 million, or 1%, in retail loans and $31.0 million, or 2% in the restaurant sector, and $37.2 million, or 3% in the accommodations sector. At December 31, 2020, the Company had $78.9 million, or 7% of portfolio loans excluding PPP loans, in the tourism sector, $56.1 million, or 5% of portfolio loans excluding PPP loans, in the aviation (non-tourism) sector, $96.9 million, or 8% of total loans excluding PPP loans, in the healthcare sector, $17.4 million, or 2% of total loans excluding PPP loans, in retail loans and $31.0 million, or 3% of total loans excluding PPP loans in the restaurant sector, and $37.2 million, or 3% of total loans excluding PPP loans in the accommodations sector.The portion of the Company's Allowance that related to the loans with exposure to these industries is estimated at the following amounts as of December 31, 2020:
(In Thousands)TourismAviation (non-tourism)HealthcareRetailRestaurantAccommodationsTotal
Allowance$1,481 $1,049 $1,758 $309 $581 $695 $5,873 

Maturities and Sensitivities of Loans to Change in Interest Rates: The following table presents the aggregate maturity data of our loan portfolio, excluding loans held for sale, at December 31, 2020:
 Maturity 
(In Thousands)Within 1 Year1-5 YearsOver 5 YearsTotal
Commercial$133,528 $418,031 $228,499 $780,058 
Real estate construction one-to-four family36,673 1,794 — 38,467 
Real estate construction other40,665 5,439 34,211 80,315 
Real estate term owner occupied7,344 30,579 125,674 163,597 
Real estate term non-owner occupied10,073 78,453 220,548 309,074 
Real estate term other9,283 10,322 27,015 46,620 
Consumer secured by 1st deeds of trust208 834 14,543 15,585 
Consumer other1,196 4,330 16,543 22,069 
Total$238,970 $549,782 $667,033 $1,455,785 
Fixed interest rate$92,040 $391,531 $175,677 $659,248 
Floating interest rate146,930 158,251 491,356 796,537 
Total$238,970 $549,782 $667,033 $1,455,785 

     At December 31, 2020, 59% of the portfolio was scheduled to mature or reprice in 2021 with 36% scheduled to mature or reprice between 2022 and 2025.
    As of December 31, 2020, approximately 44% of commercial loans are variable rate loans, of which 57% reprice within one year. Approximately 38% of variable rate commercial loans reprice to an index based upon the prime rate of interest, 30% reprice based the respective Federal Home Loan Bank of Boston (the "Boston FHLB") rate, and 29% reprice based on one-month LIBOR.  The Company also uses floors in its commercial loan pricing as loans are originated or renewed during the year.
    At December 31, 2020, the interest rates for approximately 85% of commercial real estate loans are variable, of which 41% reset within one year. Approximately 38% of commercial real estate variable rate loans reprice in greater than one year but within three years.  The indices for these loans include the prime rate of interest or the respective Treasury or FHLB-Boston rate.  The Company also uses floors in its commercial real estate loan pricing as loans are originated or renewed during the year. 
Loans Held for Sale and Mortgage Servicing Rights ("MSRs"): The Company originates residential mortgage loans and sells them in the secondary market through our wholly-owned subsidiary, RML. All residential mortgage loans originated and sold in 2020 and 2019 were newly originated loans that did not affect nonperforming loans. The Company also has a mortgage servicing portfolio which is comprised of 1-4 family loans serviced for Freddie Mac Home Loan Corporation ("FHLMC") and AHFC. The Company retains servicing rights on all mortgage loans originated by RML and sold to AHFC. Mortgages originated by RML and sold to AHFC represented approximately 16% and 23% of the mortgages originated by RML in 2020 and 2019, respectively. MSRs are adjusted to fair value quarterly with the change recorded in mortgage banking income. The
50


value of MSRs at December 31, 2020 and 2019 were $11.2 million and $11.9 million, respectively. The value of MSRs is impacted by market rates for mortgage loans primarily due to how changes in interest rates affect prepayments of mortgage loans. To the extent loans are prepaid sooner than estimated at the time servicing assets are originally recorded, it is possible that certain residential MSR assets may decrease in value. Generally, the fair value of our residential MSRs is expected to increase as market rates for mortgage loans rise and decrease if market rates fall.

Credit Quality and Nonperforming Assets
    Nonperforming assets consist of nonaccrual loans, accruing loans that are 90 days or more past due, repossessed assets and OREO.  The following table sets forth information regarding our nonperforming loans and total nonperforming assets:
(In Thousands)20202019201820172016
Nonperforming loans     
Nonaccrual loans$11,120 $15,356 $15,210 $21,626 $13,893 
Loans 90 days past due and accruing449 — — 252 456 
Government guarantees on nonperforming loans(1,521)(1,405)(516)(467)(1,413)
Net nonperforming loans$10,048 $13,951 $14,694 $21,411 $12,936 
Other real estate owned7,289 7,043 7,962 8,651 6,574 
Repossessed assets231 231 1,242 — — 
Other real estate owned guaranteed by government(1,279)(1,279)(1,279)(1,333)(195)
Net nonperforming assets$16,289 $19,946 $22,619 $28,729 $19,315 
Nonperforming loans, net of government guarantees
to portfolio loans
0.70 %1.34 %1.49 %2.24 %1.33 %
Nonperforming assets, net of government guarantees to total assets0.77 %1.21 %1.50 %1.89 %1.27 %
Performing restructured loans, net of government guarantees$832 $1,448 $3,413 $7,668 $6,131 
Nonperforming loans plus performing restructured loans, net of government guarantees$10,880 $15,399 $18,107 $29,079 $19,067 
Nonperforming loans plus performing restructured loans, net of government guarantees to portfolio loans0.75 %1.48 %1.84 %3.05 %1.96 %
Nonperforming assets plus performing restructured loans, net of government guarantees to total assets0.81 %1.30 %1.73 %2.40 %1.67 %
Adversely classified loans, net of government guarantees$12,768 $22,330 $27,217 $33,845 $35,634 
Loans 30-89 days past due and accruing, net of government guarantees to portfolio loans0.05 %0.15 %0.36 %0.22 %0.22 %
Allowance for loan losses to portfolio loans1.46 %1.83 %1.98 %2.25 %2.02 %
Allowance for loan losses to nonperforming loans, net of government guarantees210 %137 %133 %100 %152 %
    The Company’s nonperforming loans, net of government guarantees decreased in 2020 to $10.0 million as compared to $14.0 million in 2019. This decrease was mostly due to a large nonaccrual loan payoff, as well as principal paydowns and charge-offs on nonaccrual loans in 2020. There was interest income of $924,000 and $301,000 recognized in net income for 2020 and 2019, respectively, related to interest collected on nonaccrual loans whose principal has been paid down to zero. The Company had four relationships that each represented more than 10% of nonaccrual loans as of December 31, 2020.
     The Company had $832,000 and $1.4 million in loans classified as troubled debt restructuring loans ("TDRs"), net of government guarantees that were performing as of December 31, 2020 and 2019, respectively.  Additionally, there were $4.5 million and $8.7 million in TDRs included in nonaccrual loans at December 31, 2020 and 2019 for total TDRs, net of government guarantees of $5.3 million and $10.1 million at December 31, 2020 and 2019, respectively.  The decrease in TDRs at December 31, 2020 as compared to 2019 was primarily due to payoffs and paydowns on loans classified as TDRs that were only partially offset by additions to TDRs in 2020.  See Note 5 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for further discussion of TDRs.
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    At December 31, 2020, management had identified potential problem loans of $6.1 million as compared to potential problem loans of $9.0 million at December 31, 2019.  Potential problem loans are loans which are currently performing that have developed negative indications that the borrower may not be able to comply with present payment terms and which may later be included in nonaccrual, past due, or impaired loans.  The $2.9 million decrease in potential problem loans at December 31, 2020 from December 31, 2019 was primarily due to paydowns and additional government guarantees that were partially offset by the addition of new potential problem loans in 2020.
    The Company acquired other assets consisting of aircraft totaling $1.2 million in the fourth quarter of 2018 through foreclosure proceedings related to one lending relationship. These assets were sold in the third quarter of 2019. The Company acquired a vessel totaling $231,000 in the third quarter of 2019 through foreclosure proceedings related to one lending relationship that is still held as of the end of 2020.
    The following summarizes OREO activity for the periods indicated:
(In Thousands)202020192018
Balance, beginning of the year$7,043 $7,962 $8,651 
Transfers from loans652 — 686 
Investment in other real estate owned— — 144 
Proceeds from the sale of other real estate owned(797)(1,299)(1,522)
Gain on sale of other real estate owned, net391 380 
Impairment on other real estate owned— — — 
Balance, end of year7,289 7,043 7,962 
Government guarantees(1,279)(1,279)(1,279)
Balance, end of year, net of government guarantees$6,010 $5,764 $6,683 
    At December 31, 2020 and 2019 the Company held $6.0 million and $5.8 million, respectively, of OREO assets, net of government guarantees.  At December 31, 2020, OREO consists of $1.2 million in residential lots in various stages of development, a $5.6 million commercial building, and $490,000 of undeveloped land.  All OREO property is located in Alaska.  The Bank initiates foreclosure proceedings to recover and sell collateral pledged by a debtor to secure a loan based on various events of default and circumstances related to loans that are secured by either commercial or residential real property.  These events and circumstances include delinquencies, the Company’s relationship with the borrower, and the borrower’s ability to repay the loan via a source other than the collateral.  If the loan has not yet matured, the debtors may cure the events of default up to the time of sale to retain their interest in the collateral.  Failure to cure the defaults will result in the debtor losing ownership interest in the property, which is taken by the creditor, or high bidder at a foreclosure sale. 
    During 2020, the Company transferred two loans to OREO totaling $652,000. During 2020, the Company received approximately $797,000 in proceeds from the sale of OREO.  The Company recognized $391,000 and $380,000 in gains and no losses on the sale of OREO properties in 2020 and 2019, respectively.  The Company had remaining accumulated deferred gains on the sale of OREO properties of $123,000 and $231,000 at December 31, 2020 and 2019, respectively.    
    The Company did not make any loans to facilitate the sale of OREO in 2020 or 2019.  Our underwriting policies and procedures for loans to facilitate the sale of OREO are no different than our standard loan policies and procedures.
    The Company recognized impairments of zero in both 2020 and 2019 due to adjustments to the Company’s estimate of the fair value of certain properties based on changes in estimated costs to complete the projects, decrease in expected sales prices, and changes in the Anchorage and the Southeastern Alaska real estate markets.   
Allowance for Loan Losses 
    The Company maintains an Allowance to reflect management's assessment of probable, estimable losses inherent in the loan portfolio.  The Allowance is increased by provisions for loan losses and loan recoveries and decreased by loan charge-offs.  The size of the Allowance is determined through quarterly assessments of probable estimated losses in the loan portfolio.  Our methodology for making such assessments and determining the adequacy of the Allowance includes the following key elements:
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A specific allocation for impaired loans. Management determines the fair value of the majority of these loans based on the underlying collateral values. This analysis is based upon a specific analysis for each impaired loan, including external appraisals on loans secured by real property, management’s assessment of the current market, recent payment history, and an evaluation of other sources of repayment.  In-house evaluations of fair value are used in the impairment analysis in some situations.  Inputs to the in-house evaluation process include information about sales of comparable properties in the appropriate markets and changes in tax assessed values.  The Company obtains appraisals on real and personal property that secure its loans during the loan origination process in accordance with regulatory guidance and its loan policy. The Company obtains updated appraisals on loans secured by real or personal property based upon its assessment of changes in the current market or particular projects or properties, information from other current appraisals, and other sources of information.  Appraisals may be adjusted downward by the Company based on its evaluation of the facts and circumstances on a case by case basis.  External appraisals may be discounted when management believes that the absorption period used in the appraisal is unrealistic, when expected liquidation costs exceed those included in the appraisal, or when management’s evaluation of deteriorating market conditions warrants an adjustment.  Additionally, the Company may also adjust appraisals in the above circumstances between appraisal dates. The Company uses the information provided in these updated appraisals along with its evaluation of all other information available on a particular property as it assesses the collateral coverage on its performing and nonperforming loans and the impact that may have on the adequacy of its Allowance. The specific allowance for impaired loans, as well as the overall Allowance, may increase based on the Company’s assessment of updated appraisals. See Note 26 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for further discussion of the Company’s estimation of impaired loans measured at fair value.    
When the Company determines that a loss has occurred on an impaired loan, a charge-off equal to the difference between carrying value and fair value is recorded.  If a specific allowance is deemed necessary for a loan, and then that loan is partially charged off, the loan remains classified as a nonperforming loan after the charge-off is recognized.  

A general allocation - The Company has identified segments and classes of loans not considered impaired for purposes of establishing the general allocation allowance. The Company disaggregates the loan portfolio into segments and classes based on its assessment of how different pools of loans with like characteristics in the portfolio behave over time. This determination is based on historical experience and management’s assessment of how current facts and circumstances are expected to affect the loan portfolio. 
The Company first disaggregates the loan portfolio into the following eight segments: commercial, real estate construction one-to-four family, real estate construction other, real estate term owner occupied, real estate term non-owner occupied, real estate term other, consumer secured by first deeds of trust, and other consumer loans.  
After division of the loan portfolio into segments, the Company then further disaggregates each of the segments into classes. The Company has a total of five classes, which are based off of the Company's loan risk grading system known as the Asset Quality Rating (“AQR”) system. The risk ratings are discussed in Note 5 to the Consolidated Financial Statements included in Part II. Item 8 of this report. There are five loan classes: pass (pass AQR grades, which are grades 1 – 6), special mention, substandard, doubtful, and loss. There have been no changes to these loan classes in 2020. 
After the portfolio has been disaggregated into segments and classes, the Company calculates a general reserve for each segment and class based on the average loss history for each segment and class. The Company utilizes a look-back period of five years in the calculation of average historical loss rates.
After the Company calculates a general allocation using our loss history, the general reserve is then adjusted for qualitative factors by segment and class. Qualitative factors are based on management’s assessment of current trends that may cause losses inherent in the current loan portfolio to differ significantly from historical losses.  Some factors that management considers in determining the qualitative adjustment to the general reserve include our concentration of large borrowers; national and local economic trends; general business conditions; trends in local real estate markets; economic, political, and industry specific factors that affect resource development in Alaska; effects of various political activities; peer group data; and internal factors such as underwriting policies and expertise of the Company’s employees. 

An unallocated reserve - The unallocated portion of the Allowance provides for other credit losses inherent in our loan portfolio that may not have been contemplated in the specific and general components of the Allowance, and
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it acknowledges the inherent imprecision of all loss prediction models.  The unallocated component is reviewed periodically based on trends in credit losses and overall economic conditions.   At December 31, 2020 and 2019, the unallocated allowance as a percentage of the total Allowance was 10% and 11%, respectively. 
    The following table shows the allocation of the Allowance for the years indicated:  
 20202019201820172016
  
% of Loans(1)
 
% of Loans(1)
 
% of Loans(1)
 
% of Loans(1)
 
% of Loans(1)
(In Thousands)AmountAmountAmountAmountAmount
Commercial$7,973 39 %$6,604 39 %$5,660 35 %$6,172 34 %$5,535 28 %
Real estate construction one-to-four family679 %643 %675 %629 %550 %
Real estate construction other1,179 %1,017 %1,275 %1,566 %1,465 %
Real estate term owner occupied2,625 11 %2,188 13 %2,027 13 %2,194 14 %2,358 16 %
Real estate term non-owner occupied5,133 21 %5,180 30 %5,799 33 %6,043 33 %6,853 37 %
Real estate term other779 %671 %716 %725 %819 %
Consumer secured by 1st deeds of trust261 %270 %306 %315 %313 %
Consumer other400 %436 %426 %307 %408 %
Unallocated2,107 — %2,079 — %2,635 — %3,510 — %1,396 — %
Total$21,136 100 %$19,088 100 %$19,519 100 %$21,461 100 %$19,697 100 %
1Represents percentage of this category of loans to total portfolio loans.

    The following table sets forth information regarding changes in our Allowance for the years indicated: 
(In Thousands)20202019201820172016
Balance at beginning of year$19,088 $19,519 $21,461 $19,697 $18,153 
Charge-offs: 
Commercial(1,021)(195)(1,716)(1,611)(903)
Real estate construction one-to-four family— — — — (535)
Real estate term owner occupied(85)— — — — 
Real estate term other— — (28)(5)— 
Consumer secured by 1st deeds of trust— (4)(143)(85)(36)
Consumer other(15)(18)(39)(43)(8)
Total charge-offs(1,121)(217)(1,926)(1,744)(1,482)
Recoveries:     
Commercial710 908 442 293 699 
Real estate term other28 — 
Consumer secured by 1st deeds of trust— — 12 — 
Consumer other25 25 27 11 29 
Total recoveries737 961 484 308 728 
Net, (charge-offs) recoveries(384)744 (1,442)(1,436)(754)
Provision (benefit) for loan losses2,432 (1,175)(500)3,200 2,298 
Balance at end of year$21,136 $19,088 $19,519 $21,461 $19,697 
Ratio of net charge-offs (recoveries) to average loans     
outstanding during the period0.03 %(0.07)%0.15 %0.15 %0.08 %

    In accordance with GAAP, loans acquired in connection with our acquisition of Alaska Pacific on April 1, 2014 were recorded at their fair value at the acquisition date. Credit discounts were included in the determination of fair value; therefore, an allowance for loan losses was not recorded at the acquisition date. Purchased credit impaired loans were evaluated on a loan by loan basis and the valuation allowance for these loans was netted against the carrying value. Loans acquired from Alaska Pacific have been classified as impaired loans and evaluated for specific impairment using the same methodology as all other
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loans since April 1, 2014. A general allowance for loans acquired from Alaska Pacific was established if there was deterioration in credit quality of the acquired loans subsequent to acquisition from April 1, 2014 through December 31, 2017. As of December 31, 2020, 2019 and 2018, loans acquired from Alaska Pacific are included in the Company's general allowance using the same methodology as all other loans as described above due to the amount of time that has passed since the loans were purchased. There was no specific impairment on acquired loans at December 31, 2020 or 2019. The purchase discount related to acquired credit impaired loans was $328,000 and $345,000 as of December 31, 2020 and 2019, respectively.
    The provision for loan losses in 2020 as compared to 2019 increased $3.6 million to provision for loan losses of $$2.4 million compared to a benefit of $1.2 million in 2019. This increase is primarily due to management's assessment of risk associated with the economic impacts of the COVID-19 pandemic, the reduction in oil prices and a slowing Alaska economy, as well as growth in the unguaranteed portion of the loan portfolio. The Company determined that an Allowance of $21.1 million, or 1.46% of portfolio loans, is appropriate as of December 31, 2020 based on our analysis of the current credit quality of the portfolio and current economic conditions. The provision for loan losses in 2019 as compared to 2018 decreased $675,000 to a benefit of $1.2 million compared to a benefit of $500,000 in 2018. This decrease is primarily due to net recoveries on loans and a decrease in qualitative factors mostly due to strengthening in the Alaska economy in 2019. The provision for loan losses in 2018 as compared to 2017 decreased $3.7 million to a benefit of $500,000 compared to a provision of $3.2 million in 2017. This decrease is primarily due to a decrease in nonperforming loans and the portion of the Allowance specific to impaired loans. The provision for loan losses in 2017 as compared to 2016 increased $902,000 to $3.2 million compared to $2.3 million in 2016. This increase was primarily due to an increase in nonperforming loans and the portion of the Allowance specific to impaired loans.
    While management believes that it uses the best information available to determine the Allowance, unforeseen market conditions and other events could result in an adjustment to the Allowance, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination of the Allowance.
Purchased Receivables
    We purchase accounts receivable from our business customers and provide them with short-term working capital.  We provide this service to our customers in Alaska, Washington, Oregon, and some other states through NFS.
      Our purchased receivable activity is guided by policies that outline risk management, documentation, and approval limits.  The policies are reviewed and approved annually by the Company's Board of Directors. Purchased receivables are recorded on the balance sheet net of a reserve for purchased receivable losses. 
    Purchased receivable balances decreased at December 31, 2020 to $13.9 million from $24.4 million at December 31, 2019, and year-to-date average purchased receivable balances were $14.5 million and $18.8 million in 2020 and 2019, respectively. Purchased receivable income was $2.7 million and $3.3 million in 2020 and 2019, respectively. Purchased receivable income in 2020 decreased from 2019 due to decreased average balances due to customers reportedly using PPP loans to fund liquidity needs instead of selling receivables.
    The following table sets forth information regarding changes in the purchased receivable reserve for the years indicated: 
(In Thousands)202020192018
Balance at beginning of year$94 $190 $200 
   Charge-offs— — — 
   Recoveries— — — 
Net recoveries (charge-offs)— — — 
Reserve for (recovery from) purchased receivables(21)(96)(10)
Balance at end of year$73 $94 $190 
Ratio of net charge-offs (recoveries) to average purchased receivables during the period— %— %— %
Deposits
    Deposits are our primary source of funds.  Total deposits increased 33% to $1.825 billion at December 31, 2020 from $1.372 billion at December 31, 2019. This increase is primarily due to funding PPP loans, but is also due to new client relationships as a result of the Company's significant PPP efforts during 2020. Our deposits generally are expected to fluctuate according to the level of our market share, economic conditions, and normal seasonal trends. 
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    The following table sets forth the average balances outstanding and average interest rates for each major category of our deposits, for the periods indicated:
 202020192018
 Average balanceAverage rate paidAverage balanceAverage rate paidAverage balanceAverage rate paid
(In Thousands)
Interest-bearing demand accounts$387,416 0.16 %$272,895 0.17 %$243,000 0.07 %
Money market accounts219,025 0.32 %209,245 0.55 %225,014 0.31 %
Savings accounts257,292 0.28 %233,057 0.46 %241,807 0.31 %
Certificates of deposit176,873 1.83 %135,005 1.67 %99,987 0.70 %
Total interest-bearing accounts1,040,606 0.51 %850,202 0.58 %809,808 0.28 %
Noninterest-bearing demand accounts597,610  426,205  417,464  
Total average deposits$1,638,216  $1,276,407  $1,227,272  
Certificates of Deposit: The only deposit category with stated maturity dates is certificates of deposit.  At December 31, 2020, we had $175.6 million in certificates of deposit, of which $129.0 million, or 73%, are scheduled to mature in 2021. The Company’s certificates of deposit increased to $175.6 million during 2020 as compared to $164.5 million at December 31, 2019.  The aggregate amount of certificates of deposit in amounts of $100,000 or more at December 31, 2020 and 2019, was $133.3 million and $118.9 million, respectively.  The following table sets forth the amount outstanding of certificates of deposits in amounts of $100,000 or more by time remaining until maturity and percentage of total deposits as of December 31, 2020:
 Time Certificates of Deposits
 of $100,000 or More
  Percent of Total Deposits
  
(In Thousands)Amount
Amounts maturing in:  
Three months or less$26,748 20 %
Over 3 through 6 months20,893 16 %
Over 6 through 12 months52,528 39 %
Over 12 months33,113 25 %
Total$133,282 100 %
    The Company offers the Certificate of Deposit Account Registry Service® (CDARS®) as a member of Promontory Interfinancial Network, LLCSM (Network). When a Network member places a deposit using CDARS, that certificate of deposit is divided into amounts under the standard FDIC insurance maximum ($250,000) and is allocated among member banks, making the large deposit eligible for FDIC insurance. The Company had $9.4 million CDARS certificates of deposits at December 31, 2020 and $1.2 million CDARS certificates of deposits at December 31, 2019.

Borrowings
FHLB: The Bank is a member of the Federal Home Loan Bank of Des Moines (the "FHLB"). As a member, the Bank is eligible to obtain advances from the FHLB. FHLB advances are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Company’s assets.  At December 31, 2020, our maximum borrowing line from the FHLB was $946.2 million, approximately 45% of the Bank’s assets, subject to the FHLB’s collateral requirements. The Company has outstanding advances of $14.8 million as of December 31, 2020 which were originated to match fund low income housing projects that qualify for long term fixed interest rates. These advances have original terms of either 18 or 20 years with 30 year amortization periods and fixed interest rates ranging from 1.23% to 3.25%.
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Federal Reserve BankThe Federal Reserve Bank of San Francisco (the "Federal Reserve Bank") is holding $79.5 million of loans as collateral to secure advances made through the discount window as of December 31, 2020.  There were no discount window advances outstanding at December 31, 2020 or 2019. The Company $2,000 in interest in 2020 and paid less than $1,000 in interest in 2019 on this agreement. The Company utilized the Federal Reserve Bank's PPPLF to fund SBA PPP loans during the second quarter of 2020, but has repaid those funds in full as of June 30, 2020. This advance had an interest rate of 0.35%.
Other Short-term Borrowings:   Securities sold under agreements to repurchase were zero as of December 31, 2020 and 2019, respectively.  The average balance outstanding of securities sold under agreements to repurchase during 2020 and 2019 was zero and $15.2 million, respectively, and the maximum outstanding at any month-end was zero and $36.6 million, respectively, during the same time periods.  The securities sold under agreements to repurchase were held by the FHLB under the Company’s control.
    The Company is subject to provisions under Alaska state law which generally limit the amount of outstanding debt to 35% of total assets or $736.0 million at December 31, 2020 and 15% of total assets or $244.7 million at December 31, 2019. As of April 7, 2020, the State of Alaska increased this limit to 35% of total assets.
Long-term Borrowings:    The Company had no long-term borrowings outstanding other than the FHLB advances noted above as of December 31, 2020 or 2019.

Contractual Obligations
    The following table references contractual obligations of the Company for the periods indicated. This table does not include interest payments:
 Payments Due by Period
 Within 1 Year 1-3 Years 3-5 YearsOver 5 Years 
(In Thousands)Total
December 31, 2020:     
Certificates of deposit$128,970 $44,237 $630 $1,794 $175,631 
Long-term borrowings312 833 872 12,800 14,817 
Junior subordinated debentures— — — 10,310 10,310 
Operating lease obligations2,619 4,140 3,527 4,875 15,161 
Other long-term liabilities(1)
9,482 1,654 778 4,291 16,205 
Capital commitments71 — — — 71 
Total$141,454 $50,864 $5,807 $34,070 $232,195 
December 31, 2019:     
Certificates of deposit$90,554 $70,734 $1,390 $1,794 $164,472 
Long-term borrowings187 444 471 7,789 8,891 
Junior subordinated debentures— — — 10,310 10,310 
Operating lease obligations2,665 4,718 3,592 6,453 17,428 
Other long-term liabilities2,937 9,484 1,341 4,001 17,763 
Capital commitments1,389 — — — 1,389 
Total$97,732 $85,380 $6,794 $30,347 $220,253 

(1) Includes principal payments related to employee benefit plans. If a benefit payment schedule is established, payments are recorded in the corresponding dates listed in the table above. Unscheduled payments for all remaining benefits are recorded "Over 5 Years". Additional information about employee benefit plans is provided in Note 19 of the Notes to the Consolidated Financial Statements in Part II. Item 8 below.
    Short and long-term borrowings included in the table above are described in the "Borrowings" section above. Junior subordinated debentures include $10.3 million that was originated on December 16, 2005, matures on March 15, 2036, and bears interest at a rate of 90-day LIBOR plus 1.37%, adjusted quarterly. The Company entered into an interest rate swap in the
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third quarter of 2017 to hedge the variability in cash flows arising out of its junior subordinated debentures, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $10 million of junior subordinated debentures held under Northrim Statutory Trust 2 ("NST2") at 3.72% through its maturity date. Operating lease obligations are more fully described in Note 12 of the Company’s Consolidated Financial Statements included in Item 8 of this report.  Other long-term liabilities consist of amounts that the Company owes for its investments in Delaware limited partnerships that develop low-income housing projects throughout the United States. Additional information about these partnerships is included at Note 8 of the Company’s Consolidated Financial Statements included in Part II. Item 8 of this report.  The Company purchased a $10.7 million interest in R4 Frontier Housing Partners L.P., Coronado Park Senior Village L.P. ("R4-Coronado") in March 2013.  The investment in R4-Coronado was 99% funded at the end of 2020 and is expected to be fully funded in 2029. The Company purchased an $8.5 million interest in R4 Frontier Housing Partners L.P., Mountain View Village V L.P. ("R4-MVV") in May 2014. The investment in R4-MVV was 98% funded at the end of 2020 and is expected to be fully funded in 2030. The Company purchased a $6.8 million interest in R4 Frontier Housing Partners L.P., PJ33 L.P. ("R4-PJ33") in June 2016. The investment in R4-PJ33 was 95% funded at the end of 2020 and is expected to be fully funded in 2032. The Company purchased a $7.3 million interest in R4 Frontier Housing Partners L.P., Parkscape L.P. ("R4-Coronado II") in June 2019. The investment in R4-Coronado II was 23% funded at the end of 2020 and is expected to be fully funded in 2035. The Company also purchased a $4.0 million interest in R4 Frontier Housing Partners L.P., Duke Apartments L.P. ("R4-Duke") in November 2019. The investment in R4-Duke was 9% funded at the end of 2020 and is expected to be fully funded in 2035.

Off-Balance Sheet Arrangements
    The Company is a party to financial instruments with off-balance sheet risk.  Among the off-balance sheet items entered into in the ordinary course of business are commitments to extend credit, commitments to originate loans held for sale and the issuance of letters of credit.  These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheet.  Certain commitments are collateralized.  We apply the same credit standards to these commitments as in all of our lending activities and include these commitments in our lending risk evaluations.
    As of December 31, 2020, we had commitments to extend credit of $375.1 million, which were not reflected on our balance sheet, compared to $301.9 million as of December 31, 2019.  Commitments to extend credit are agreements to lend to customers.  These commitments have specified interest rates and generally have fixed expiration dates but may be terminated by the Company if certain conditions of the contract are violated.  Collateral held relating to these commitments varies, but generally includes real estate, inventory, accounts receivable, and equipment.  Our exposure to credit loss under commitments to extend credit is represented by the amount of these commitments.  Since many of the commitments are expected to expire without being drawn upon, these total commitment amounts do not necessarily represent future cash requirements.  

    As of December 31, 2020, we had commitments to originate loans held for sale of $150.3 million, which were not reflected in the balance sheet compared to $48.8 million as of December 31, 2019. Mortgage loans sold to investors may be sold with servicing rights released, for which the Company makes only standard legal representations and warranties as to meeting certain underwriting and collateral documentation standards. In the past two years, the Company has had to repurchase one loan due to deficiencies in underwriting or loan documentation and has not realized significant losses related to this repurchase. Management currently believes that any liabilities that may result from such recourse provisions are not significant.

As of December 31, 2020, we had standby letters of credit of $2.3 million, which were not reflected on our balance sheet compared to $2.0 million as of December 31, 2019.  Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Credit risk arises in these transactions from the possibility that a customer may not be able to repay the Company upon default of performance.  Collateral held for standby letters of credit is based on an individual evaluation of each customer’s creditworthiness. 

    Our total unfunded lending commitments at December 31, 2020, which includes commitments to extend credit, commitments to originate loans held for sale and standby letters of credit, were $527.7 million, compared to $352.7 million as of December 31, 2019.  We do not expect that all of these commitments are likely to be fully drawn upon at any one time.  The Company has established reserves of $187,000 and $152,000 at December 31, 2020 and 2019, respectively, for estimated losses related to these commitments that are recorded in other liabilities on the consolidated balance sheet.

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    Additional information regarding Off-Balance Sheet Arrangements is included in Notes 20 and 21 of the Notes to the Company’s Consolidated Financial Statements included in Part II. Item 8 of this report.
Liquidity and Capital Resources
    Our shareholders’ equity at December 31, 2020, was $221.6 million, as compared to $207.1 million at December 31, 2019.  The Company earned net income of $32.9 million, issued 19,195 shares of common stock through the vesting of restricted stock units and repurchased 327,000 shares during 2020.  At December 31, 2020, the Company had approximately 6.3 million shares of its common stock outstanding.
    The Company is a single bank holding company and its primary ongoing source of liquidity is from dividends received from the Bank.  Such dividends arise from the cash flow and earnings of the Bank. Banking regulations and regulatory authorities may limit the amount of, or require the Bank to obtain certain approvals before paying, dividends to the Company.  Given that the Bank currently meets and the Bank anticipates that it will continue to meet, all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards, including the conservation buffer that is now in full effect, the Company expects to continue to receive dividends from the Bank during 2021.
    The Bank manages its liquidity through its Asset and Liability Committee.  Our primary sources of funds are customer deposits and advances from the FHLB.  These funds, together with loan repayments, loan sales, other borrowed funds, retained earnings, and equity are used to make loans, to acquire securities and other assets, and to fund deposit flows and continuing operations.  The primary sources of demands on our liquidity are customer demands for withdrawal of deposits and borrowers’ demands that we advance funds against unfunded lending commitments.  Our total unfunded commitments to fund loans, loans held for sale, and letters of credit at December 31, 2020, were $527.7 million.  We do not expect that all of these loans are likely to be fully drawn upon at any one time.  Additionally, as noted above, our total deposits at December 31, 2020, were $1.8 billion.
    As shown in the Consolidated Statements of Cash Flows, net cash used by operating activities was $36.5 million in 2020 and net cash used by operating activities was $821,000 in 2019.  The primary source of cash provided by operating activities for all periods presented was positive net income; however, in 2020 and 2019 the origination of loans held for sale exceeded proceeds from the sale of loans held for sale which is the primary reason that operating cash flow is negative in both years. Net cash used by investing activities was $382.8 million in 2020 primarily due to increases in loans, in particular PPP loans. Net cash used by investing activities was $71.9 million in 2019 primarily due to the fact that purchases of investment securities and net investments in loans and purchased receivables exceeded proceeds from sales and maturities of securities available for sale. Financing activities provided cash of $439.8 million in 2020 and $90.6 million in 2019. Financing activities provided cash in 2020 due to an increase in deposits largely due to funding PPP loans that was done via deposit into customer accounts. This increase was only partially offset by the repurchase of 327,000 shares of the Company's common stock for $10.0 million and the payment of dividends to shareholders. Financing activities provided cash in 2019 due to an increase in deposits that was only partially offset by a decrease in securities sold under repurchase agreements, repurchase of 347,676 shares of the Company's common stock for $12.6 million, and the payment of cash dividends to shareholders.
    The sources by which we meet the liquidity needs of our customers are current assets and borrowings available through our correspondent banking relationships and our credit lines with the Federal Reserve Bank and the FHLB.  At December 31, 2020, our current assets were $423.8 million and our funds available for borrowing under our existing lines of credit were $1.01 billion. Additionally, the Company can obtain additional nonrecourse borrowings under the Federal Reserve Bank's newly created PPPLF as a source of additional liquidity in order to meet liquidity needs created by the origination of PPP loans without excessive usage of the Company's other existing liquidity sources. The Company had $216.0 million in PPP loans eligible to be pledged for the PPPLF program as of December 31, 2020. the Company has not obtained any other new borrowing lines or other new sources of liquidity other than the PPPLF program resulting from anticipated liquidity challenges from COVID-19. Given these sources of liquidity and our expectations for customer demands for cash and for our operating cash needs, we believe our sources of liquidity to be sufficient in the foreseeable future.  
    During 2020, the Company's Board of Directors approved a quarterly cash dividend of $0.34 per common share for the first and second quarters and $0.35 per common share for the third and fourth quarters. These dividends were made pursuant to our existing dividend policy and in consideration of, among other things, earnings, regulatory capital levels, liquidity, asset quality, and the overall payout ratio. We expect that dividend payments will be reassessed on a quarterly basis by the Board of Directors in accordance with the dividend policy. The payment of cash dividends is subject to regulatory limitations as described under the Supervision and Regulation section of Part I. Item 1 of this report. There is no assurance that future cash dividends on common shares will be declared or increased.
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    On February 25, 2021, the Board of Directors approved payment of a $0.37 per share dividend on March 19, 2021, to shareholders of record on March 11, 2021.  This dividend is $0.02, or 6%, higher than the Company’s dividend of $0.35 that was paid in the fourth quarter of 2020.
    In September 2002, our Board of Directors approved a plan whereby we would periodically repurchase for cash up to approximately 5% of our shares of common stock in the open market.  We purchased an aggregate of 688,442 shares of our common stock under this program through December 31, 2009 at a total cost of $14.2 million at an average price of $20.65 per share, which left a balance of 227,242 shares available under the stock repurchase program. The Company did not repurchase any of its shares in 2010 through 2016.  In 2017, we purchased an aggregate of 58,341 shares at an average price of $27.56 per share. In 2018, we purchased an aggregate of 15,468 shares at an average price of $31.90 per share. In April 2019, the Company’s Board of Directors approved a plan whereby it would periodically repurchase for cash up to approximately 5% of its shares of common stock in the open market where 340,000 shares were available for repurchase. In 2019 we purchased an aggregate of 347,676 shares at an average price of $36.15 per share. On January 27, 2020, the Board authorized the repurchase of up to an additional 327,000 shares of common stock. In 2020, the Company repurchased 327,000 shares at an average price of $30.51. At December, 31, 2020, there were zero shares available under the stock repurchase program. On February 1, 2021, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 313,000 shares of common stock. We intend to continue to repurchase our stock from time-to-time depending upon market conditions, but we can make no assurances that we will continue this program or that we will authorize additional shares for repurchase. The table below shows this effect on diluted earnings per share. 
Years Ending:Diluted
EPS as
Reported
Diluted EPS without Stock Repurchase
2020$5.11$4.22
2019$3.04$2.59
2018$2.86$2.56
2017$1.88$1.69
2016$2.06$1.87
    On December 16, 2005, the Company’s subsidiary, NST2, issued trust preferred securities in the principal amount of $10 million.  These securities carry an interest rate of 90-day LIBOR plus 1.37% per annum that was initially set at 5.86% adjusted quarterly.  The securities have a maturity date of March 15, 2036, and are callable by the Company on or after March 15, 2011.  These securities are treated as Tier 1 capital by the Company’s regulators for capital adequacy calculations.  The interest cost to the Company of these securities was $219,000 in 2020.  At December 31, 2020, the securities had an interest rate of 1.59%. The Company entered into an interest rate swap in the third quarter of 2017 to hedge the variability in cash flows arising out of its junior subordinated debentures, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $10 million of junior subordinated debentures held under NST2 at 3.72% through its maturity date. Net of the impact of the interest rate swap, interest expense on these securities was $385,000 in 2020 and $389,000 in 2019.
    We are subject to minimum capital requirements.  Federal banking agencies have adopted regulations establishing minimum requirements for the capital adequacy of banks and bank holding companies.  The requirements address both risk-based capital and leverage capital.  We believe as of December 31, 2020, that the Company and the Bank met all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards.
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    The table below illustrates the capital requirements in effect in 2020 for the Company and the Bank and the actual capital ratios for each entity that exceed these requirements.  Management intends to maintain capital ratios for the Bank in 2021, exceeding the FDIC’s new requirements for the “well-capitalized” classification.  The capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offering that the Company completed in the fourth quarter of 2005 is included in the Company’s capital for regulatory purposes, although they are accounted for as a long-term debt in our consolidated financial statements.  The trust preferred securities are not accounted for on the Bank’s financial statements nor are they included in its capital.  As a result, the Company has $10 million more in regulatory capital than the Bank at December 31, 2020 and 2019, respectively, which explains most of the difference in the capital ratios for the two entities.
  Minimum Required Capital Well-CapitalizedActual Ratio CompanyActual Ratio Bank
 
December 31, 2020
Total risk-based capital8.00%10.00%15.46%13.13%
Tier 1 risk-based capital6.00%8.00%14.20%11.88%
Common equity tier 1 capital4.50%6.50%13.57%11.89%
Leverage ratio4.00%5.00%10.25%8.55%

See Note 24 of the Consolidated Financial Statements included in Part II. Item 8 of this report for a detailed discussion of the capital ratios. The requirements for "well-capitalized" come from the Prompt Correction Action rules. See Part I. Item 1 Supervision and Regulation. These rules apply to the Bank but not to the Company. Under the rules of the Federal Reserve Bank, a bank holding company such as the Company is generally defined to be "well capitalized" if its Tier 1 risk-based capital ratio is 8.0% or more and its total risk-based capital ratio is 10.0% or more.

Effects of Inflation and Changing Prices: The primary impact of inflation on our operations is increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution’s performance than the effects of general levels of inflation.  Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates, which could affect the degree and timing of the repricing of our assets and liabilities.  In addition, inflation has an impact on our customers’ ability to repay their loans. See additional discussion below in Part II. Item 7A of this report regarding how various market risks affect the Company.

ITEM 7A.            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Market risk is defined as the sensitivity of income, expense, fair value measurements, and capital to changes in interest rates, foreign currency rates, commodity prices, and other relevant market rates or prices. The primary market risks that we are exposed to are interest rate and price risks, in addition to risk in the Alaska economy due to our community banking focus. Price risk is the risk to current or future earnings or capital arising from changes in the value of either assets or liabilities that are entered into as part of distributing or managing risk. Interest rate risk is the risk to current or future earnings or capital arising from changes in interest rates. Generally, there are four sources of interest rate risk as described below:
Re-pricing Risk:  Generally, re-pricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect an institution’s assets and liabilities.
Basis Risk:  Basis risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different instruments with the same maturity.
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Yield Curve Risk: Also called yield curve twist risk, yield curve risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different maturities for the same instrument. 
Option Risk:  In banking, option risks are known as borrower options to prepay loans and depositor options to make deposits, withdrawals, and early redemptions.  Option risk arises whenever bank products give customers the right, but not the obligation, to alter the quantity of the timing of cash flows.

    The Company is exposed to price and interest rate risks in the financial instruments and positions we hold. This includes investment securities, loans, loans held for sale, mortgage servicing rights, deposits, borrowings, and derivative
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financial instruments. Market risks such as foreign currency exchange risk and commodity price risk do not arise in the normal course of the Company's business.

    The Company's price and interest rate risks are managed by the Asset and Liability Committee, a management committee that identifies and manages the sensitivity of earnings and capital to changing interest rates to achieve our overall financial objectives. Based on economic conditions, asset quality and various other considerations, the Asset and Liability Committee establishes overall balance sheet management policies as well as tolerance ranges for interest rate sensitivity and manages within these ranges.

    A number of measures are used to monitor and manage interest rate risk, including interest sensitivity (gap) analysis and income simulations.  An income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates.  Key assumptions in the model include loan and deposit volumes and pricing, prepayment speeds on fixed rate assets, and cash flows and maturities of investment securities.  These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, changes in market conditions and management strategies, among other factors.
    Although analysis of interest rate gap (the difference between the repricing of interest-earning assets and interest-bearing liabilities during a given period of time) is one standard tool for the measurement of exposure to interest rate risk, we believe that because interest rate gap analysis does not address all factors that can affect earnings performance it should not be used as the primary indicator of exposure to interest rate risk and the related volatility of net interest income in a changing interest rate environment. Interest rate gap analysis is primarily a measure of liquidity based upon the amount of change in principal amounts of assets and liabilities outstanding, as opposed to a measure of changes in the overall net interest margin.
    The Company uses derivatives in the Home Mortgage Lending segment, including commitments to originate residential mortgage loans at fixed prices, and it enters into forward delivery contracts to sell mortgage-backed securities to broker/dealers at specific prices and dates in order to hedge the interest rate risk in its residential mortgage loan commitments. The Company does not use derivatives outside of these activities in the Home Mortgage Lending segment to manage our interest rate risk exposures. However, the Company does enter into commercial loan interest rate swap agreements in its Community Banking segment in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Commercial loan interest rate swap agreements are offset with corresponding swap agreements with a third party swap dealer in order to offset the Company's exposure on the fixed component of the customer’s interest rate swap. Additional information regarding the Company’s customer interest rate swap program is presented in Note 2119 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report.
    The following table sets forth the estimated maturity or repricing, and the resulting interest rate gap, of our interest-earning assets (which exclude nonaccrual loans)loans and net unearned loan fees) and interest-bearing liabilities at December 31, 2020.2022. The amounts shown below could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawals of deposits, and competition.
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Estimated maturity or repricing at December 31, 2020 Estimated maturity or repricing at December 31, 2022
(In Thousands)(In Thousands)Within 1 year1-5 years>5 yearsTotal(In Thousands)Within 1 year1-5 years>5 yearsTotal
Interest -Earning Assets:Interest -Earning Assets:    Interest -Earning Assets:    
Interest bearing deposits in other banksInterest bearing deposits in other banks$92,661 $— $— $92,661 Interest bearing deposits in other banks$231,603 $— $— $231,603 
Portfolio investments and FHLB Stock242,121 27,115 — 269,236 
Portfolio loans854,010 526,679 63,976 1,444,665 
Investments securities and FHLB StockInvestments securities and FHLB Stock173,874 554,461 — 728,335 
LoansLoans548,907 800,277 154,135 1,503,319 
Loans held for saleLoans held for sale146,178 — — 146,178 Loans held for sale27,538 — — 27,538 
Total interest-earning assetsTotal interest-earning assets$1,334,970 $553,794 $63,976 $1,952,740 Total interest-earning assets$981,922 $1,354,738 $154,135 $2,490,795 
Percent of total interest-earning assetsPercent of total interest-earning assets68.36 %28.36 %3.28 %100.00 %Percent of total interest-earning assets39.42 %54.39 %6.19 %100.00 %
Interest-Bearing Liabilities:Interest-Bearing Liabilities:    Interest-Bearing Liabilities:    
Interest-bearing demand accountsInterest-bearing demand accounts$459,095 $— $— $459,095 Interest-bearing demand accounts$767,686 $— $— $767,686 
Money market accountsMoney market accounts237,705 — — 237,705 Money market accounts308,317 — — 308,317 
Savings accountsSavings accounts308,725 — — 308,725 Savings accounts320,917 — — 320,917 
Certificates of depositCertificates of deposit130,968 43,345 1,318 175,631 Certificates of deposit130,892 60,648 1,317 192,857 
Securities sold under repurchase agreementsSecurities sold under repurchase agreements— — — — Securities sold under repurchase agreements— — — — 
BorrowingsBorrowings764 3,334 10,719 14,817 Borrowings882 3,751 9,462 14,095 
Junior subordinated debenturesJunior subordinated debentures— — 10,310 10,310 Junior subordinated debentures— — 10,310 10,310 
Total interest-bearing liabilitiesTotal interest-bearing liabilities$1,137,257 $46,679 $22,347 $1,206,283 Total interest-bearing liabilities$1,528,694 $64,399 $21,089 $1,614,182 
Percent of total interest-bearing liabilitiesPercent of total interest-bearing liabilities94.28 %3.87 %1.85 %100.00 %Percent of total interest-bearing liabilities94.70 %3.99 %1.31 %100.00 %
Interest sensitivity gapInterest sensitivity gap$197,713 $507,115 $41,629 $746,457 Interest sensitivity gap($546,772)$1,290,339 $133,046 $876,613 
Cumulative interest sensitivity gapCumulative interest sensitivity gap$197,713 $704,828 $746,457  Cumulative interest sensitivity gap($546,772)$743,567 $876,613  
Cumulative interest sensitivity gap as a percentageCumulative interest sensitivity gap as a percentage    Cumulative interest sensitivity gap as a percentage    
of total interest-earning assets of total interest-earning assets10.1 %36.1 %38.2 %  of total interest-earning assets(22.0)%29.9 %35.2 % 
 
    As stated previously, certain shortcomings, including those described below, are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets have features that restrict changes in their interest rates, both on a short-term basis and over the lives of the assets. Further, in the event of a change in market interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in calculating the tables as can the relationship of rates between different loan and deposit categories. Moreover, the ability of many borrowers to service their adjustable-rate debt may decrease in the event of an increase in market interest rates.
    While the analysis above sets forth the estimated maturity or repricing and the resulting interest rate gap of our interest-earning assets and interest-bearing liabilities, the following tables show the estimated impact on net interest income and net income at one and two year time horizons with instantaneous parallel rate shocks of up 100, 200, 300 and 400 basis points upand down 100, 200, 300 and 400 basis points, up 200 basis points, up 100 basis points, and up 50 basis points. The Company did not perform analyses for rate shock scenarios where interest rates instantaneously drop as of December 31, 2020 because those scenarios do not produce meaningful results in the current low interest rate environment.point. Due to the various assumptions used for this modeling and potential balance sheet strategies management may implement to mitigate interest rate risk, no assurance can be given that projections will reflect actual results.
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    The following table shows the estimated impact on net interest income under the stated interest rate scenarios:
1st Year Change in net interest income from base scenario Percentage change2nd Year Change in net interest income from base scenario Percentage change 1st Year Change in net interest income from base scenario Percentage change2nd Year Change in net interest income from base scenario Percentage change
(In Thousands)(In Thousands)(In Thousands)
Scenario:Scenario:   Scenario:   
Up 400 basis pointsUp 400 basis points$8,214 11.66 %$24,825 18.16 %Up 400 basis points$4,191 3.81 %$19,456 16.31 %
Up 300 basis pointsUp 300 basis points$6,790 9.64 %$20,029 14.65 %Up 300 basis points$3,163 2.87 %$14,571 12.22 %
Up 200 basis pointsUp 200 basis points$4,420 6.28 %$13,252 9.69 %Up 200 basis points$2,128 1.93 %$9,729 8.16 %
Up 100 basis pointsUp 100 basis points$2,248 3.19 %$6,826 4.99 %Up 100 basis points$1,105 1.00 %$4,907 4.11 %
Up 50 basis points$2,332 3.96 %$3,808 6.80 %
Down 50 basis pointsNMNMNM
Down 100 basis pointsDown 100 basis pointsNMNMNMDown 100 basis points($4,646)(4.22)%($8,749)(7.34)%
Down 200 basis pointsDown 200 basis points($9,605)(8.73)%($17,946)(15.05)%
Down 300 basis pointsDown 300 basis points($14,351)(13.04)%($27,180)(22.79)%
Down 400 basis pointsDown 400 basis points($17,812)(16.18)%($32,080)(26.90)%

    The following table shows the estimated impact on net income under the stated interest rate scenarios. The trends in the estimated impact on net income under the stated interest rate scenarios differ from the table above primarily due to the inclusion of the estimated impact of changes in other operating income and expense related to mortgage banking activities:
 1st Year Change in net income from base scenario Percentage change2nd Year Change in net income from base scenario Percentage change
 
(In Thousands)
Scenario:    
Up 400 basis points($663)(4.02)%$6,337 23.85 %
Up 300 basis points$1,434 8.69 %$8,998 33.86 %
Up 200 basis points$854 5.17 %$6,216 23.39 %
Up 100 basis points$429 2.60 %$3,711 13.97 %
Up 50 basis points$951 5.77 %$3,014 29.91 %
Down 50 basis pointsNMNMNMNM
Down 100 basis pointsNMNMNMNM

 1st Year Change in net income from base scenario Percentage change2nd Year Change in net income from base scenario Percentage change
 
(In Thousands)
Scenario:    
Up 400 basis points($1,658)(4.37)%$10,417 23.68 %
Up 300 basis points($1,228)(3.24)%$7,796 17.72 %
Up 200 basis points($803)(2.12)%$5,209 11.84 %
Up 100 basis points($369)(0.97)%$2,636 6.00 %
Down 100 basis points($576)(1.52)%($3,815)(8.67)%
Down 200 basis points($1,401)(3.69)%($7,983)(18.15)%
Down 300 basis points($2,056)(5.42)%($12,181)(27.69)%
Down 400 basis points($1,690)(4.45)%($12,955)(29.45)%


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ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    The following report, audited consolidated financial statements and the notes thereto are set forth in this Annual Report on Form 10-K on the pages indicated:
For the Years Ended December 2020, 20192022, 2021 and 2018:2020:
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Report of Independent Registered Public Accounting Firm

To theThe Shareholders and the Board of Directors of
Northrim BanCorp, Inc. and Subsidiaries

Opinions on the Financial Statements and Internal Control over Financial Reporting


We have audited the accompanying consolidated balance sheets of Northrim BanCorp, Inc. and subsidiaries (the “Company”) as of December 31, 20202022 and 2019,2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20202022 and 2019,2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.


Basis for Opinions


The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.


Definition and Limitations of Internal Control Over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
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expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Critical Audit Matter


The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


Allowance for LoanCredit Losses

- Loans

As described in Notes 1 and 65 to the consolidated financial statements, the Company’s allowance for loancredit losses - loans balance was $21.1$13.8 million at December 31, 2020.2022. The allowance for loancredit losses – loans is management’s best estimate of probablecurrent expected credit losses inherent in its loan portfolio and is estimated using either a discounted cash flow method or a weighted average remaining life method, depending on the nature and size of the loan pool. The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of loans. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience by loan segment and class with adjustments for current events and conditions. These factors include, among others, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, specific credit risks, industry concentrations, and unidentified losses inherentto reflect differences in the current loan portfolio.asset-specific risk characteristics using qualitative factors.

We identified management’s asset quality ratings of loans, determination of qualitative factors, including the estimation and application of the unallocated general valuation allowance componentforecast of the allowance for loan losses, which is based on general economic conditions and other qualitative risk factors both internal and external toused in the Company, bothcalculation of which are usedprobabilities of default in the allowance for loancredit losses calculation,– loans as a critical audit matter. The Company uses credit quality indicators, including internally determined asset quality risk ratings, to stratify loans into pools and to estimate inherent loss rates for eachforecast of the loan pools, which are used in the calculationeconomic conditions component of the allowance for loan losses. Determinationcredit losses - loans is used to compare the conditions that existed during the historical period to current conditions and future expectations, and to make adjustments to the historical data accordingly. Auditing management’s judgments regarding the estimation and application of the asset quality ratings involves significant management judgement. The unallocated general valuation allowanceforecasted economic conditions portion of the allowance for loancredit losses is used to estimate losses- loans involved significant audit effort, as well as especially challenging and is based on management’s evaluationsubjective auditor judgement when performing audit procedures and evaluating the results of various factors that are not captured in the historical credit loss factors utilized in the asset quality risk rating-based component or on the specific impairment component. Such factors include uncertainties in identifying triggering events that directly correlate to subsequent loss rates, uncertainties in economic conditions, risk factors that have not yet manifested themselves in loss allocation factors, and historical loss experience data that may not precisely correspond to the current portfolio. In addition, the unallocated reserve may fluctuate based upon the direction of various risk indicators, such as the risk as to current economic conditions, the level and trend of charge offs or recoveries, and the risk of heightened imprecision or inconsistency of appraisals used in estimating real estate values. Auditing management’s judgments regarding the determination of asset quality ratings and unallocated general valuation allowance portion of the allowance for loan losses involved a high degree of subjectivity.those procedures.

The primary procedures we performed to address the critical audit matters included:

Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for loancredit losses – loans, including controls over the accuracy of asset quality ratings of loansestimation and the determinationapplication of the qualitative factors, including the unallocated general valuation allowance componentforecast of the allowance for loan losses.

Testing a risk-based targeted selection of loans to gain substantive evidence that the Company is appropriately rating these loans in accordance with its policies, and that the asset quality ratings for the loans are reasonable.economic conditions.

Obtaining management’s analysis and supporting documentation related to the qualitative factors, includingforecast of economic conditions used to determine the unallocated general valuation allowance,probabilities of default, and testingevaluating whether the generalforecast of economic conditions and other qualitative risk factors both internal and external to the Company used in the calculation of the allowance for loancredit losses - loans are in accordance with the Company’s policiesreasonable and are supported by the analysis provided by management.supportable.

67


TestingEvaluating the appropriateness of the methodology and assumptions used in the calculation of the allowance for loancredit losses – loans, and testing the calculation itself, including completeness and accuracy of the data used in the calculation, and the application of the loan asset quality ratings determined by management andforecast of economic conditions used in the calculation applicationto determine probabilities of the qualitative factors, including the unallocated general valuation allowance determined by management and used in the calculation, and recalculation of the allowance for loan losses balance.

Performing an independent sensitivity analysis to evaluate the reasonableness of the qualitative factors, including the unallocated general valuation allowance used by management to account for inherent losses that are not captured in the calculation of the allowance for loan losses based on historical loss rates alone.default.


/s/ Moss Adams LLP

Everett, Washington
March 5, 20216, 2023

We have served as the Company’s auditor since 2010.




6866


CONSOLIDATED FINANCIAL STATEMENTS

NORTHRIM BANCORP, INC.
Consolidated Balance Sheets
December 31, 20202022 and 20192021
December 31,
2020
December 31,
2019
December 31,
2022
December 31,
2021
(In Thousands, Except Share Data)(In Thousands, Except Share Data)(In Thousands, Except Share Data)
ASSETSASSETS  ASSETS  
Cash and due from banksCash and due from banks$23,304 $20,518 Cash and due from banks$27,747 $20,805 
Interest bearing deposits in other banksInterest bearing deposits in other banks92,661 74,906 Interest bearing deposits in other banks231,603 625,022 
Investment securities available for sale, at fair valueInvestment securities available for sale, at fair value247,633 276,138 Investment securities available for sale, at fair value677,029 426,684 
Marketable equity securitiesMarketable equity securities9,052 7,945 Marketable equity securities10,740 8,420 
Investment securities held to maturity10,000 
Total portfolio investments266,685 284,083 
Investment in Federal Home Loan Bank stock2,551 2,138 
Investment securities held to maturity, at amortized costInvestment securities held to maturity, at amortized cost36,750 20,000 
Investment in Federal Home Loan Bank stock, at costInvestment in Federal Home Loan Bank stock, at cost3,816 3,107 
Loans held for saleLoans held for sale146,178 67,834 Loans held for sale27,538 73,650 
LoansLoans1,444,050 1,043,371 Loans1,501,785 1,413,886 
Allowance for loan losses(21,136)(19,088)
Allowance for credit losses, loansAllowance for credit losses, loans(13,838)(11,739)
Net loansNet loans1,422,914 1,024,283 Net loans1,487,947 1,402,147 
Purchased receivables, netPurchased receivables, net13,922 24,373 Purchased receivables, net19,994 6,987 
Mortgage servicing rights, at fair valueMortgage servicing rights, at fair value11,218 11,920 Mortgage servicing rights, at fair value18,635 13,724 
Other real estate owned, netOther real estate owned, net7,289 7,043 Other real estate owned, net— 5,638 
Premises and equipment, netPremises and equipment, net38,102 38,422 Premises and equipment, net37,821 37,164 
Operating lease right-of-use assetsOperating lease right-of-use assets12,440 14,306 Operating lease right-of-use assets9,868 11,001 
GoodwillGoodwill15,017 15,017 Goodwill15,017 15,017 
Other intangible assets, netOther intangible assets, net1,029 1,077 Other intangible assets, net967 992 
Other assetsOther assets68,488 58,076 Other assets68,846 54,361 
Total assetsTotal assets$2,121,798 $1,643,996 Total assets$2,674,318 $2,724,719 
LIABILITIESLIABILITIES  LIABILITIES  
Deposits:Deposits:  Deposits:  
DemandDemand$643,825 $451,896 Demand$797,434 $887,824 
Interest-bearing demandInterest-bearing demand459,095 320,264 Interest-bearing demand767,686 692,683 
SavingsSavings308,725 229,918 Savings320,917 348,164 
Money marketMoney market237,705 205,801 Money market308,317 314,996 
Certificates of deposit less than $250,000Certificates of deposit less than $250,00092,047 90,702 Certificates of deposit less than $250,000115,330 100,851 
Certificates of deposit $250,000 and greaterCertificates of deposit $250,000 and greater83,584 73,770 Certificates of deposit $250,000 and greater77,527 77,113 
Total depositsTotal deposits1,824,981 1,372,351 Total deposits2,387,211 2,421,631 
BorrowingsBorrowings14,817 8,891 Borrowings14,095 14,508 
Junior subordinated debenturesJunior subordinated debentures10,310 10,310 Junior subordinated debentures10,310 10,310 
Operating lease liabilitiesOperating lease liabilities12,378 14,229 Operating lease liabilities9,865 10,965 
Other liabilitiesOther liabilities37,737 31,098 Other liabilities34,208 29,488 
Total liabilitiesTotal liabilities1,900,223 1,436,879 Total liabilities2,455,689 2,486,902 
COMMITMENTS AND CONTINGENCIES (NOTE 20)00
COMMITMENTS AND CONTINGENCIES (NOTE 18)COMMITMENTS AND CONTINGENCIES (NOTE 18)
SHAREHOLDERS' EQUITYSHAREHOLDERS' EQUITY  SHAREHOLDERS' EQUITY  
Preferred stock, $1 par value, 2,500,000 shares authorized, NaN issued or outstanding
Common stock, $1 par value, 10,000,000 shares authorized, 6,251,004 and 6,558,809 shares
issued and outstanding at December 31, 2020 and December 31, 2019, respectively
6,251 6,559 
Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstandingPreferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding— — 
Common stock, $1 par value, 10,000,000 shares authorized, 5,700,728 and 6,014,813 shares
issued and outstanding at December 31, 2022 and December 31, 2021, respectively
Common stock, $1 par value, 10,000,000 shares authorized, 5,700,728 and 6,014,813 shares
issued and outstanding at December 31, 2022 and December 31, 2021, respectively
5,701 6,015 
Additional paid-in capitalAdditional paid-in capital41,808 50,512 Additional paid-in capital17,784 31,162 
Retained earningsRetained earnings173,498 149,615 Retained earnings224,225 204,046 
Accumulated other comprehensive income, net of tax18 431 
Accumulated other comprehensive (loss), net of taxAccumulated other comprehensive (loss), net of tax(29,081)(3,406)
Total shareholders' equityTotal shareholders' equity221,575 207,117 Total shareholders' equity218,629 237,817 
Total liabilities and shareholders' equityTotal liabilities and shareholders' equity$2,121,798 $1,643,996 Total liabilities and shareholders' equity$2,674,318 $2,724,719 
See notes to consolidated financial statements
6967


NORTHRIM BANCORP, INC.
Consolidated Statements of Income
Years Ended December 31, 2020, 2019,2022, 2021, and 20182020
(In Thousands, Except Share and Per Share Data)(In Thousands, Except Share and Per Share Data)202020192018(In Thousands, Except Share and Per Share Data)202220212020
Interest and Dividend IncomeInterest and Dividend Income   Interest and Dividend Income   
Interest and fees on loans and loans held for saleInterest and fees on loans and loans held for sale$71,091 $62,150 $57,542 Interest and fees on loans and loans held for sale$82,785 $79,241 $71,091 
Interest on investment securities available for saleInterest on investment securities available for sale4,832 6,572 5,481 Interest on investment securities available for sale9,679 3,339 4,832 
Dividends on marketable equity securitiesDividends on marketable equity securities466 439 348 Dividends on marketable equity securities563 440 466 
Interest on investment securities held to maturityInterest on investment securities held to maturity18 Interest on investment securities held to maturity1,511 1,037 18 
Dividends on Federal Home Loan Bank stockDividends on Federal Home Loan Bank stock84 76 64 Dividends on Federal Home Loan Bank stock125 102 84 
Interest on deposits in other banksInterest on deposits in other banks225 846 742 Interest on deposits in other banks5,665 447 225 
Total Interest IncomeTotal Interest Income76,716 70,083 64,177 Total Interest Income100,328 84,606 76,716 
Interest ExpenseInterest Expense   Interest Expense   
Interest expense on depositsInterest expense on deposits5,279 4,961 2,307 Interest expense on deposits4,485 3,077 5,279 
Interest expense on securities sold under agreements to repurchase40 50 
Interest expense on borrowingsInterest expense on borrowings387 251 223 Interest expense on borrowings339 320 387 
Interest expense on junior subordinated debenturesInterest expense on junior subordinated debentures385 389 389 Interest expense on junior subordinated debentures389 382 385 
Total Interest Expense Total Interest Expense6,051 5,641 2,969  Total Interest Expense5,213 3,779 6,051 
Net Interest IncomeNet Interest Income70,665 64,442 61,208 Net Interest Income95,115 80,827 70,665 
Provision (benefit) for loan losses2,432 (1,175)(500)
Net Interest Income After Provision (Benefit) for Loan Losses68,233 65,617 61,708 
Provision (benefit) for credit lossesProvision (benefit) for credit losses1,846 (4,099)2,432 
Net Interest Income After Provision (Benefit) for Credit LossesNet Interest Income After Provision (Benefit) for Credit Losses93,269 84,926 68,233 
Other Operating IncomeOther Operating Income   Other Operating Income   
Mortgage banking incomeMortgage banking income52,635 24,201 20,844 Mortgage banking income21,572 42,144 52,635 
Bankcard feesBankcard fees2,837 2,976 2,811 Bankcard fees3,697 3,389 2,837 
Purchased receivable incomePurchased receivable income2,650 3,271 3,255 Purchased receivable income2,002 2,259 2,650 
Keyman insurance proceedsKeyman insurance proceeds2,002 — — 
Commercial servicing revenueCommercial servicing revenue1,628 306 527 
Service charges on deposit accountsService charges on deposit accounts1,102 1,557 1,508 Service charges on deposit accounts1,611 1,297 1,102 
Interest rate swap incomeInterest rate swap income949 964 84 Interest rate swap income157 452 949 
Commercial servicing revenue527 624 1,422 
Gain on sale of marketable equity securities, netGain on sale of marketable equity securities, net98 Gain on sale of marketable equity securities, net— 67 98 
Unrealized gain (loss) on marketable equity securities61 911 (625)
Gain on sale of investment securities available for sale, net23 
Unrealized (loss) gain on marketable equity securitiesUnrealized (loss) gain on marketable equity securities(1,119)(101)61 
Other incomeOther income2,469 2,819 2,868 Other income2,527 2,450 2,469 
Total Other Operating IncomeTotal Other Operating Income63,328 37,346 32,167 Total Other Operating Income34,077 52,263 63,328 
Other Operating ExpenseOther Operating Expense   Other Operating Expense   
Salaries and other personnel expenseSalaries and other personnel expense61,137 51,317 44,650 Salaries and other personnel expense58,172 60,412 61,137 
Data processing expenseData processing expense7,668 7,128 6,035 Data processing expense8,926 8,567 7,668 
Occupancy expenseOccupancy expense6,624 6,607 6,136 Occupancy expense6,915 7,078 6,624 
Professional and outside servicesProfessional and outside services3,157 2,531 2,453 Professional and outside services2,993 2,801 3,157 
Marketing expenseMarketing expense2,320 2,373 2,318 Marketing expense2,747 2,741 2,320 
Insurance expenseInsurance expense1,228 557 862 Insurance expense2,054 1,593 1,228 
OREO (income) expense, net of rental income and gains on saleOREO (income) expense, net of rental income and gains on sale500 (432)(242)
Intangible asset amortization expenseIntangible asset amortization expense48 60 70 Intangible asset amortization expense25 37 48 
Compensation expense - RML acquisition payments468 
Impairment of equity method investment804 
OREO (income) expense, net of rental income and gains on sale(242)(193)258 
Other operating expenseOther operating expense7,174 5,990 6,214 Other operating expense6,520 6,399 7,174 
Total Other Operating ExpenseTotal Other Operating Expense89,114 76,838 69,800 Total Other Operating Expense88,852 89,196 89,114 
Income Before Provision for Income TaxesIncome Before Provision for Income Taxes42,447 26,125 24,075 Income Before Provision for Income Taxes38,494 47,993 42,447 
Provision for income taxesProvision for income taxes9,559 5,434 4,071 Provision for income taxes7,753 10,476 9,559 
Net IncomeNet Income$32,888 $20,691 $20,004 Net Income$30,741 $37,517 $32,888 
Earnings Per Share, BasicEarnings Per Share, Basic$5.18 $3.08 $2.91 Earnings Per Share, Basic$5.33 $6.07 $5.18 
Earnings Per Share, DilutedEarnings Per Share, Diluted$5.11 $3.04 $2.86 Earnings Per Share, Diluted$5.27 $6.00 $5.11 
Weighted Average Shares Outstanding, BasicWeighted Average Shares Outstanding, Basic6,354,687 6,708,622 6,877,573 Weighted Average Shares Outstanding, Basic5,765,088 6,180,801 6,354,687 
Weighted Average Shares Outstanding, DilutedWeighted Average Shares Outstanding, Diluted6,431,367 6,808,209 6,981,557 Weighted Average Shares Outstanding, Diluted5,829,412 6,249,313 6,431,367 
See notes to consolidated financial statements
68


NORTHRIM BANCORP, INC.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2022, 2021, and 2020
2010
(In Thousands)202220212020
Net income$30,741 $37,517 $32,888 
Other comprehensive income (loss), net of tax:   
Securities available for sale:   
         Unrealized holding (losses) gains arising during the period($38,283)($5,564)$411 
Derivatives and hedging activities:
          Unrealized holding gains (losses) during the period2,409 780 (1,201)
     Income tax benefit (expense) related to unrealized gains and losses10,199 1,360 377 
Other comprehensive (loss) income, net of tax(25,675)(3,424)(413)
      Comprehensive income$5,066 $34,093 $32,475 
See notes to consolidated financial statements

69


NORTHRIM BANCORP, INC.
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2022, 2021, and 2020
 Common StockAdditional Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Total
 Number of SharesPar Value
(In Thousands)
Balance at January 1, 20206,559 $6,559 $50,512 $149,615 $431 $207,117 
Cash dividend declared— — — (8,866)— (8,866)
Stock-based compensation expense— — 943 — — 943 
Exercise of stock options and vesting of restricted stock units, net19 19 (137)— — (118)
Repurchase of common stock(327)(327)(9,649)— — (9,976)
Other comprehensive (loss), net of tax— — — — (413)(413)
Cumulative effect of adoption of accounting principles related to equity compensation expense— — 139 (139)— — 
Net income— — — 32,888 — 32,888 
Balance at December 31, 20206,251 $6,251 $41,808 $173,498 $18 $221,575 
Cash dividend declared— — — (9,369)— (9,369)
Stock-based compensation expense— — 1,073 — — 1,073 
Exercise of stock options and vesting of restricted stock units, net43 43 (464)— — (421)
Repurchase of common stock(279)(279)(11,255)— — (11,534)
Other comprehensive (loss), net of tax— — — — (3,424)(3,424)
Cumulative effect of adoption of ASU 2016-13— — — 2,400 — 2,400 
Net income— — — 37,517 — 37,517 
Balance at December 31, 20216,015 $6,015 $31,162 $204,046 ($3,406)$237,817 
Cash dividend declared— — — (10,562)— (10,562)
Stock-based compensation expense— — 742 — — 742 
Exercise of stock options and vesting of restricted stock units, net20 20 (297)— — (277)
Repurchase of common stock(334)(334)(13,823)— — (14,157)
Other comprehensive (loss), net of tax— — — — (25,675)(25,675)
Net income— — — 30,741 — 30,741 
Balance at December 31, 20225,701 $5,701 $17,784 $224,225 ($29,081)$218,629 
See notes to consolidated financial statements
70


NORTHRIM BANCORP, INC.
Consolidated Statements of Comprehensive IncomeCash Flows
Years Ended December 31, 2020, 2019,2022, 2021, and 20182020
2010
(In Thousands)202020192018
Net income$32,888 $20,691 $20,004 
Other comprehensive income (loss), net of tax:   
   Securities available for sale:   
         Unrealized holding gains (losses) arising during the period$411 $2,866 ($692)
         Reclassification of net gains included in net income (net of tax   
          expense of $0, $7, and $0 in 2020, 2019, and 2018,
          respectively)(16)
   Derivatives and hedging activities:
         Unrealized holding (losses) gains arising during the period(1,201)(1,142)423 
         Income tax benefit (expense) related to unrealized gains and losses377 (757)210 
Other comprehensive (loss) income, net of tax(413)951 (59)
      Comprehensive income$32,475 $21,642 $19,945 
See notes to consolidated financial statements

(In Thousands)202220212020
Operating Activities:   
Net income$30,741 $37,517 $32,888 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:   
Gain on sale of securities, net— (67)(98)
Loss on sale of premises and equipment— — 22 
Depreciation and amortization of premises3,139 3,276 3,147 
Amortization of software1,164 1,161 1,104 
Intangible asset amortization25 37 48 
Amortization of investment security premium, net of discount accretion630 529 19 
Unrealized loss (gain) on marketable equity securities1,119 101 (61)
Deferred tax (income) expense2,110 (1,298)555 
Stock-based compensation742 1,073 943 
Deferral of loan fees and amortization, net of costs(2,933)(192)6,650 
Provision (benefit) for credit losses1,846 (4,099)2,432 
Benefit for purchased receivables— — (21)
Additions to home mortgage servicing rights carried at fair value(4,623)(6,088)(4,824)
Change in fair value of home mortgage servicing rights carried at fair value(288)3,582 5,526 
Change in fair value of commercial servicing rights carried at fair value(809)437 99 
Gain on sale of loans(13,873)(36,436)(46,258)
Proceeds from the sale of loans held for sale645,518 1,227,150 1,263,325 
Origination of loans held for sale(585,533)(1,118,186)(1,295,411)
Loss (gain) on sale of other real estate owned414 (685)(391)
Net changes in assets and liabilities:   
(Increase) decrease in accrued interest receivable(3,091)1,133 (3,467)
Decrease (increase) in other assets5,528 12,739 (15,096)
(Decrease) increase in other liabilities(3,703)(9,695)12,415 
Net Cash Provided (Used) by Operating Activities78,123 111,989 (36,454)
Investing Activities:   
Investment in securities:   
Purchases of investment securities available for sale(302,668)(320,501)(160,423)
Purchases of marketable equity securities(3,934)(493)(1,552)
Purchases of FHLB stock(730)(573)(5,931)
Purchases of investment securities held to maturity(16,750)(10,000)(10,000)
Proceeds from sales/calls/maturities of securities available for sale13,417 135,365 189,323 
Proceeds from sales of marketable equity securities488 1,084 601 
Proceeds from redemption of FHLB stock21 17 5,518 
(Increase) decrease in purchased receivables, net(13,007)6,935 10,472 
(Increase) decrease in loans, net(83,839)28,975 (408,365)
Proceeds from sale of other real estate owned5,224 2,610 797 
Purchases of software(51)(170)(416)
Purchases of premises and equipment(3,796)(2,338)(2,849)
Net Cash (Used) Provided by Investing Activities(405,625)(159,089)(382,825)
Financing Activities:   
Increase in deposits(34,420)596,650 452,630 
Proceeds from borrowings— — 110,610 
Repayments of borrowings(413)(309)(104,684)
Proceeds from the issuance of common stock586 1,543 84 
Repurchase of common stock(14,157)(11,534)(9,976)
Cash dividends paid(10,571)(9,388)(8,844)
Net Cash (Used) Provided by Financing Activities(58,975)576,962 439,820 
Net Change in Cash and Cash Equivalents(386,477)529,862 20,541 
Cash and Cash Equivalents at Beginning of Year645,827 115,965 95,424 
Cash and Cash Equivalents at End of Year$259,350 $645,827 $115,965 
71


NORTHRIM BANCORP, INC.
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2020, 2019, and 2018
 Common StockAdditional Paid-in Capital Retained EarningsAccumulated Other Comprehensive Income (Loss) Total
 Number of SharesPar Value
(In Thousands)
Balance at January 1, 20186,872 $6,872 $61,793 $124,407 ($270)$192,802 
Cash dividend declared— — — (7,088)— (7,088)
Stock-based compensation expense— — 816 — — 816 
Exercise of stock options and vesting of restricted stock units, net27 27 — — 28 
Repurchase of common stock(16)(16)(478)— — (494)
Other comprehensive loss, net of tax— — — — (59)(59)
Cumulative effect of adoption of accounting principles related to premium amortization of investment securities— — — (62)(62)
Reclassification for cumulative effect of adoption of accounting principles related to fair value measurement of equity securities— — — 191 (191)
Net income— — — 20,004 — 20,004 
Balance at December 31, 20186,883 $6,883 $62,132 $137,452 ($520)$205,947 
Cash dividend declared— — — (8,528)— (8,528)
Stock-based compensation expense— — 832 — — 832 
Exercise of stock options and vesting of restricted stock units, net24 24 (231)— — (207)
Repurchase of common stock(348)(348)(12,221)— — (12,569)
Other comprehensive income, net of tax— — — — 951 951 
Net income— — — 20,691 — 20,691 
Balance at December 31, 20196,559 $6,559 $50,512 $149,615 $431 $207,117 
Cash dividend declared— — — (8,866)— (8,866)
Stock-based compensation expense— — 943 — — 943 
Exercise of stock options and vesting of restricted stock units, net19 19 (137)— — (118)
Repurchase of common stock(327)(327)(9,649)— — (9,976)
Other comprehensive (loss), net of tax— — — — (413)(413)
Cumulative effect of adoption of accounting principles related to equity compensation expense— — 139 (139)— 
Net income— — — 32,888 — 32,888 
Balance at December 31, 20206,251 $6,251 $41,808 $173,498 $18 $221,575 
Supplemental Information:   
Income taxes paid$2,015 $6,380 $7,790 
Interest paid$5,190 $3,813 $6,009 
Transfer of loans to other real estate owned$— $274 $652 
Loans made to facilitate sales of other real estate owned$— $1,012 $— 
Non-cash lease liability arising from obtaining right of use assets$1,128 $79 $370 
Cash dividends declared but not paid$85 $92 $98 
Cumulative effect adjustment to retained earnings$— $2,400 ($139)
 
See notes to consolidated financial statements
72


NORTHRIM BANCORP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019, and 2018
(In Thousands)202020192018
Operating Activities:   
Net income$32,888 $20,691 $20,004 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:   
Gain on sale of securities, net(98)(23)
Loss on sale of premises and equipment22 
Depreciation and amortization of premises3,147 2,986 2,283 
Amortization of software1,104 1,019 911 
Intangible asset amortization48 60 70 
Amortization of investment security premium, net of discount accretion19 (15)199 
Unrealized (gain) loss on marketable equity securities(61)(911)625 
Deferred tax expense555 711 3,014 
Stock-based compensation943 832 816 
Deferral of loan fees and amortization, net of costs6,650 598 331 
Provision (benefit) for loan losses2,432 (1,175)(500)
Benefit for purchased receivables(21)(96)(10)
Additions to home mortgage servicing rights carried at fair value(4,824)(3,707)(3,641)
Change in fair value of home mortgage servicing rights carried at fair value5,526 2,608 125 
Change in fair value of commercial servicing rights carried at fair value99 (6)(972)
Gain on sale of loans(46,258)(19,813)(14,822)
Proceeds from the sale of loans held for sale1,263,325 670,986 551,607 
Origination of loans held for sale(1,295,411)(684,297)(527,516)
Gain on sale of other real estate owned(391)(380)(3)
Impairment on equity method investment804 
Net changes in assets and liabilities:   
(Increase) decrease in accrued interest receivable(3,467)305 (432)
(Increase) decrease in other assets(15,096)6,395 (2,512)
Increase (decrease) in other liabilities12,415 2,411 (5,233)
Net Cash (Used) Provided by Operating Activities(36,454)(821)25,150 
Investing Activities:   
Investment in securities:   
Purchases of investment securities available for sale(160,423)(132,104)(88,139)
Purchases of marketable equity securities(1,552)(2,992)
Purchases of FHLB stock(5,931)(880)
Purchases of investment securities held to maturity(10,000)
Proceeds from sales/calls/maturities of securities available for sale189,323 130,482 122,644 
Proceeds from sales of marketable equity securities601 229 783 
Proceeds from redemption of FHLB stock5,518 843 14 
Decrease (increase) in purchased receivables, net10,472 (9,871)7,835 
Increase in loans, net(408,365)(58,879)(31,852)
Proceeds from sale of other real estate owned797 1,299 1,522 
Investment in other real estate owned(144)
Purchases of software(416)(721)(517)
Proceeds from sales of premises and equipment
Purchases of premises and equipment(2,849)(2,318)(3,511)
Net Cash (Used) Provided by Investing Activities(382,825)(71,920)5,646 
Financing Activities:   
Increase (decrease) in deposits452,630 144,263 (30,195)
(Decrease) increase in securities sold under repurchase agreements(34,278)6,532 
Proceeds from borrowings110,610 1,817 
Repayments of borrowings(104,684)(167)(121)
Proceeds from the issuance of common stock84 73 243 
Repurchase of common stock(9,976)(12,569)(494)
Cash dividends paid(8,844)(8,512)(7,064)
Net Cash Provided (Used) by Financing Activities439,820 90,627 (31,099)
Net Change in Cash and Cash Equivalents20,541 17,886 (303)
Cash and Cash Equivalents at Beginning of Year95,424 77,538 77,841 
Cash and Cash Equivalents at End of Year$115,965 $95,424 $77,538 
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Supplemental Information:   
Income taxes paid$7,790 $1,658 $1,766 
Interest paid$6,009 $5,640 $2,971 
Noncash commitments to invest in Low Income Housing Tax Credit Partnerships$0 $11,267 $0 
Transfer of loans to other real estate owned$652 $0 $686 
Non-cash lease liability arising from obtaining right of use assets$370 $1,234 $— 
Cash dividends declared but not paid$98 $89 $72 
See notes to consolidated financial statements
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -    Summary of Significant Accounting Policies
Nature of Operations: Northrim BanCorp, Inc. (the “Company”), is a publicly traded bank holding company headquartered in Anchorage, Alaska that is primarily engaged in the delivery of business and personal banking services through its wholly-owned banking subsidiary, Northrim Bank ("the Bank"). The Bank also engages in retail mortgage origination services through its wholly-owned subsidiary, Residential Mortgage Holding Company, LLC, (“RML”the parent company of Residential Mortgage, LLC (collectively “RML”). Additionally, the Bank through its wholly-owned subsidiary, Northrim Funding Services ("NFS"), operates a factoring division in Bellevue, Washington.  Related companies include Pacific Wealth Advisors, LLC (“PWA”) and Homestate Mortgage Company, LLC ("Homestate"). The Company has an equity investment in PWA through its wholly owned subsidiary, Northrim Investment Services Company ("NISC"), and the Company has an equity investment in Homestate through RML.
Use of Estimates:  The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States and prevailing practices within the banking industry. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income, gains, expenses, and losses during the reporting periods. Actual results could differ from those estimates. Significant estimates include the allowance for loancredit losses (“Allowance”ACL”), valuation of goodwill and other intangibles, valuation of other real estate owned (“OREO”), valuation of mortgage servicing rights (“MSRs”), and fair value disclosures.  
Consolidation: The Company consolidates affiliates in which we have a controlling interest. The accompanying consolidated financial statements include the accounts of the Company, the Bank, RML, and NISC.  Significant intercompany balances have been eliminated in consolidation. As of December 31, 2020,2022, the Company had 1one wholly-owned business trust subsidiary, Northrim Statutory Trust 2 ("Trust 2"), that was formed to issue trust preferred securities and related common securities of Trust 2. The Company has not consolidated the accounts of Trust 2 in its consolidated financial statements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“FASB”ASC”) ASC 810, Consolidation (“ASC 810”). As a result, the junior subordinated debentures issued by the Company to Trust 2 are reflected on the Company’s consolidated balance sheet as junior subordinated debentures. The Company has determined that PWA and Homestate are not variable interest entities and therefore, the Company does not consolidate the balance sheets and income statements of PWA or Homestate into its financial statements. The Company's investmentsCompany owns a 22% interest in PWA and a 30% interest in Homestate Mortgage Company, LLC, and these investments are accounted for as equity method investments. Results of PWA and Homestate are included in "Other income" in our Consolidated Statements of Income. Investments in associatedother companies are presented on a one-line basis in the caption “Other assets” in our Consolidated Balance Sheets.    
Operating Segments: In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM"), or decision making group, in deciding how to allocate resources and in assessing performance. The Company uses the "management approach" in determining reportable operating segments. The management approach considers the internal organization and reporting used the by the Company's CODM for making operating decisions and assessing performance as the source for determining the Company's reportable segments. Management, including the CODM, review operating results by the revenue of different services. For the year ended December 31, 20202022 and 2019,2021, the Company has 2two operating business lines; Community Banking and Home Mortgage Lending. Information about the Company's operating segments is included in Note 2725 of the Notes to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report.
Reclassifications: Certain reclassifications have been made to prior year amounts to maintain consistency with the current year with no impact on net income or total shareholders’ equity.
Subsequent Events: The Company has evaluated events and transactions subsequent to December 31, 20202022 for potential recognition or disclosure.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits with other banks, federal funds sold, and securities with original maturities of less than 90 days at acquisition.
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MarketableEquity Securities: Marketable securities are equity investments excluding those accounted for under the equity method of accounting or those that result in consolidation of the investee. Marketable securities are stated at fair value. Changes in fair value are included in "Unrealized gain (loss) on marketable equity securities" in our Consolidated Statements of Income.
Non-marketable equity securities are accounted for under the equity method of accounting and are included in other assets in our Consolidated Balance Sheets. The Company performs an impairment analysis on its non-marketable equity securities when events or circumstances indicate impairment potentially exists.
Investment Securities: Debt securities are classified as available for sale if the Company intends and has the ability to hold those securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a debt security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Premiums and discounts are amortized over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.
Securities available for sale are stated at fair value with unrealizedvalue. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Unrealized holding gains andor losses net of tax, excluded from earnings and reportedare included in other comprehensive income as a separate component of other comprehensive income, unless an unrealized loss is deemed other than temporary.  Gains and losses on available for sale securities sold are determined on a specific identification basis.shareholders' equity, net of tax.
    Held to maturity securities are stated at cost, adjusted for amortization of premium and accretion of discount on a level-yield basis.  The Company has the ability and intent to hold these securities to maturity.
    The Company amortizes purchase premiums for callable debt securities to the earliest call date.date and discounts are accreted over the contractual life.    
    A decline in the market value of anyAllowance for Credit Losses - Investment Securities: For available for sale or held to maturity security below cost that is deemed other than temporary resultsdebt securities in a charge to earnings andan unrealized loss position, the establishment of a new cost basis forCompany evaluates the security. Unrealized investment securities losses are evaluated at least quarterly on a specific identification basis to determine whether such declines in value should be considered "other than temporary" and therefore be subject to immediate loss recognition in income. Although these evaluations involve significant judgment, an unrealized lossthe decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. The ACL may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in such a situation.
In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.

Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is generally deemed to be temporaryconfirmed or when the fair valueeither of the criteria regarding intent or requirement to sell is met.

The ACL on held to maturity securities is estimated on a collective basis by major security type. At December 31, 2022, the Company’s held to maturity securities consisted of investments in corporate bonds. Expected credit losses for these securities are estimated using a discounted cash flow ("DCF") methodology which considers historical credit loss information that is belowadjusted for current conditions and reasonable and supportable forecasts.

Accrued interest receivable is excluded from the carrying value primarily due to changes in interest rates and there has not been significant deterioration in the financial condition of the issuer.  Other factors that may be considered in determining whether a decline in the value is "other than temporary" include the financial condition, capital strength, and near-term prospects of the issuer; actions of commercial banks or other lenders relative to the continued extensionestimate of credit facilities to the issuer of the security; recommendations of investment advisors or market analysts; and ratings by recognized rating agencies.losses.

Federal Home Loan Bank Stock: The Company’s investment in Federal Home Loan Bank of Des Moines (“FHLB”) stock is carried at par value because the shares can only be redeemed with the FHLB at par. The Company is required to maintain a minimum level of investment in FHLB stock based on the Company’s total Bank assets and outstanding advances. FHLB stock is carried at cost and is subject to recoverability testing at least annually.
Loans held for sale:  The Company designates loans held for sale as either carried at fair value or the lower of cost or fair value at loan level at origination. Loans held for sale include residential mortgage loans that have been originated for sale in the secondary market. Related gains or losses on the sale of these loans are recognized in mortgage banking income.
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Loans: Loans are carried at their principal amount outstanding, net of charge-offs, unamortized fees, and direct loan origination costs.  Loan origination fees received in excess of direct origination costs are deferred and accreted to interest income using the interest method in accordance with ASC 310 over the life of the loan. Loan balances are charged-off to the AllowanceACL when management believes that collection of principal is unlikely. Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status. All classes of loans are placed on nonaccrual when management believes doubt exists as to the collectability of the interest or principal. Cash payments received on nonaccrual loans are directly applied to the principal balance. Generally, a loan may be returned to accrual status when the delinquent principal and interest is brought current in accordance with the terms of the loan agreement and certain ongoing performance criteria have been met. Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms.
    The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, unless the loan is collateral dependent, in which case the impairment is measured by using the fair value of the loan’s collateral.  Nonperforming loans greater than $50,000 are individually evaluated for impairment based upon the borrower’s overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors.
    The Company uses either in-house evaluations or external appraisals to estimate the fair value of collateral-dependent impaired loans as of each reporting date. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the estimated value of the collateral, the location and type of collateral to be valued, and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience, and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers, and equipment specialists.
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    The Company uses external appraisals to estimate fair value for projects that are not fully constructed as of the date of valuation. These projects are generally valued as if complete, with an appropriate allowance for cost of completion, including contingencies developed from external sources such as vendors, engineers, and contractors.
    The Company classifies fair value measurements on loans as level 3 valuations in the fair value hierarchy because of their use of unobservable inputs..
    When the fair value measurement of the impaired loan is less than the recorded amount of the loan, an impairment is recognized by recording a charge-off to the Allowance or by designating a specific reserve in accordance with GAAP.  The Company’s policy is to record cash payments received on impaired loans that are not also nonaccrual loans in the same manner that cash payments are applied to performing loans.
    A loan is classified as a troubled debt restructuring ("TDR") when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include interest rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of at least six months to demonstrate that the borrower can meet the restructured terms. If the borrower's performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan. Interest on TDRs will be accrued at the restructured rates when it is anticipated that no loss of original principal will occur, and the interest can be collected, which is generally after a period of six months.
The Company classifies fair value measurements on loans as level 3 valuations in the fair value hierarchy because of their use of unobservable inputs.
Acquired Loans: Loans purchased without more-than-insignificant credit deterioration are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date. Purchased loans are evaluated upon acquisition and classified as eitherLoans purchased credit impaired or purchased non-credit-impaired. Purchased credit impaired loans reflectwith more-than-insignificant credit deterioration since origination such that it is probable at acquisition thatwill be recorded with their applicable ACL to determine amortized cost basis.
Allowance for Credit Losses - Loans: Under the current expected credit loss model adopted by the Company will be unableon January 1, 2021, the ACL on loans is a valuation allowance estimated at each balance sheet date that is deducted from the loans’ amortized cost basis to collect all contractually required payments.
    Purchased credit impaired loans were individually evaluated for credit impairment at acquisition using expected future cash flows orpresent the estimated value of underlying collateral. A purchased credit impaired loan will be removed from impaired loans only if the loan is sold, foreclosed, or assets are received in full satisfaction of the loan, and it will be removed from impaired loans at its carrying value. If an individual loan is removed, the difference between its relative carryingnet amount and its cash, fair value of the collateral, or other assets received will be recognized in other income immediately as a gain and would not affect the effective yield used to recognize the accretable yield on purchased credit impaired loans.
    The excess of the undiscounted contractual balances due over the cash flows expected to be collected on the loans.
The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is consideredthe amount at which the loan is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the ACL through a provision for or (reversal) of credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the nonaccretable difference.appropriate amount is written off and the ACL is reduced by the same amount. The nonaccretable difference represents our estimateCompany applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible when management believes that collection of principal is unlikely. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature and size of the pool of financial assets with similar risk characteristics, the Company uses either a DCF method or a weighted average remaining life method to estimate expected credit losses quantitatively. The weighted average remaining life method uses exposure at default, along with the expected credit losses adjusted for prepayments to occurcalculate the required allowance. The Company utilizes peer historical loss data to estimate credit losses under the weighted average remaining life method. Under the DCF method, the Company utilizes complex models to obtain reasonable and was considered in determiningsupportable forecasts to calculate two predictive metrics, the fair valueprobability of default ("PD") and loss given default ("LGD"). Under the DCF method the combination of adjustments for the credit expectations PD and LGD, and timing expectations (prepayment, curtailment, and time to recovery), produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the purchased credit impaired loans asimpacts of prepayment assumptions, and the acquisition date. Subsequent to the acquisition date, any increases ininstrument expected cash flows over thoseare then discounted at that effective yield to produce an instrument-level net present value of expected at purchase date in excess of fair value are adjusted through an increase to the accretable yield on a prospective basis. The purchased credit impaired loans are and will continue to be subject to the Company’s internal and external credit review and monitoring. If credit deteriorationcash flows (“NPV”). An ACL is experienced subsequent to the initial acquisition fair value amount, such deterioration will be measured, and a charge-off will be recorded.
    For purchased non-credit-impaired loans,established for the difference between the fair valueinstrument’s NPV and unpaid principal balanceamortized cost basis.

In addition to the quantitative portion of the loan atACL derived using either the acquisition date is amortizedDCF or accreted to interest income overweighted average remaining life method, the estimated lifeCompany also considers the effects of the loans.
    For the purpose of estimating the Allowance, as of December 31, 2018, the Company evaluated the credit quality of purchased non-credit-impaired loans separately from loans that were originated by the Company and applied different qualitative factors to these loans. For the purposein its calculation of estimating the subsequent to December 31, 2018, the Company evaluated the credit quality of purchased non-credit-impaired loans together with loans that were originated by the Company. Purchased non-credit-impaired loans that have been identified as impaired subsequent to the merger are includedexpected losses in the Company's normal process for reporting impaired loans and calculation of a specific valuation allowance.
Allowance for Loan Losses:  The Allowance for Loan Losses is management’s best estimate of probable losses inherent in its loan portfolio as of the balance sheet date.  The Allowance methodology is based on historical loss experience by loan segment and class with adjustments for current events and conditions.  The Company’s process for determining the appropriate level of the Allowance for probable loan losses is designed to account for credit deterioration as it occurs.  The provision for loan losses reflects loan quality trends, including levels of and trends related to past due and nonaccrual loans, net charge-offs or recoveries, and other factors. The Company has identified the following segments: commercial, real estate construction one-to-four family, real estate construction other, real estate term owner occupied, real estate term non-owner occupied, real estate
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term other, consumer loans secured by 1st deedsportfolio. The qualitative factor methodology is based on quantitative metrics, but also includes a high degree of trust,subjectivity and other consumer loans.  Then the Company further disaggregates each segment into the following classes, which are also known as asset quality ratings: pass (grades 1-6), special mention (grade 7), substandard (grade 8), doubtful (grade 9), and loss (grade 10).
    The levelchanges in any of the Allowance reflects management’s continuing evaluationmetrics could have a significant impact on our calculation of loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, specific credit risks, industry concentrations, and unidentified losses inherentthe allowance.

Loans that do not share risk characteristics with other loans in the current loan portfolio. Portionsportfolio are individually evaluated for expected credit losses and are not included in the collective evaluation. Loans are identified for individual evaluation during regular credit reviews of the allowance mayportfolio. A loan is generally identified for individual evaluation when management determines that we will probably not be allocatedable to collect all amounts due according to the loan contract, including scheduled interest payments. When we identify a loan for specific credits; however,individual evaluation, we measure expected credit losses using DCF, except when the entire allowance is available for any credit that, in management’s judgment, should be charged off.  While management utilizes its best judgment and information available, the ultimate adequacysole remaining source of the Allowancerepayment for the loan is dependent upon a variety of factors beyond the Company’s control including, among other things, the performanceliquidation of the Company’s loan portfolio,collateral. In these cases, we use the economy, changes in interest rates, and the viewcurrent fair value of the regulatory authorities toward loan classification.
collateral, less selling costs, instead of DCF. The Company’s Allowance consistsanalysis of three elements: (1) specific valuation allowances based on probable losses on specific loans, (2) general valuation allowances based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted as necessary to reflect the impact of current conditions, and (3) unallocated general valuation allowances based on general economic conditions and other qualitative risk factors both internal and external to the Company.
    The specific valuation allowance is an allocated allowance for impaired loans.  This analysis is based upon a specific analysis for each impaired loan that is collateral dependent includingloans includes external appraisals andor in-house evaluations on loans secured by real property, management’s assessment of the current market, recent payment history and an evaluation of other sources of repayment. The Company’s determination of which method to use is based upon several factors. The Company obtains appraisals on realtakes into account compliance with legal and personal property that secure its loans duringregulatory guidelines, the amount of the loan, origination processthe estimated value of the collateral, the location and type of collateral to be valued, and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience, and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers, and equipment specialists. The Company uses external appraisals to estimate fair value for projects that are not fully constructed as of the date of valuation. These projects are generally valued as if complete, with an appropriate allowance for cost of completion, including contingencies developed from external sources such as vendors, engineers, and contractors.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with regulatory guidancetheir modified contractual terms for a reasonable period of time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

If we determine that the value of an individually evaluated loan is less than the recorded investment in the loan, we either recognize an ACL specific to that loan, or charge-off the deficit balance on collateral dependent loans if it is determined that such amount represents a confirmed loss. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.

Paycheck Protection Program ("PPP") and other loans guaranteed by the U.S. government: With the passage of the PPP, the Company has actively participated in assisting its loan policy.   customers with applications for loans through the program. Loans funded through the PPP program are fully guaranteed by the U.S. government subject to certain representations and warranties. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. ASC 326 requires credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans and other loans guaranteed by the U.S. government. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information on any of our guaranteed loans, the Company does not carry an ACL on its PPP and other loans guaranteed by the U.S. government.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company then estimatesenters into various types of transactions that involve financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit issued to meet customer financing needs. We apply the same credit standards to these commitments as in all of our lending activities and include these commitments in our lending risk evaluations. The Company’s exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a general allocated allowancecharge to provision for all other loans that were not impaired ascredit loss expense in the Company’s consolidated statements of theincome. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date using a formula-based approach that includes average historical loss factors that are adjusted for quantitative and qualitative factors.  Afterunder the portfolio has been disaggregated into segments and classes, the Company calculates a general reserve for each segment and class based on the average five year loss history for each segment and class. This general reserve is then adjusted for qualitative factors, by segment and class. Qualitative factors are based on management’s assessment of current trends that may cause losses inherent in the current loan portfolio to differ significantly from historical losses.  Some factors that management considers in determining the qualitative adjustment to the general reserve include our concentration of large borrowers; national and local economic trends; general business conditions; economic, political, and industry specific factors that affect resource development in Alaska; underwriting policies and standards; trends in local real estate markets; effects of various political activities; peer group data; and internal factors such as underwriting policies and expertise of the Company’s employees. 
    The unallocated general valuation portion of the Allowance is based on several factors, including the level of the Allowance as compared to total loans and nonperforming loans in light of current economic conditions. This portion of the Allowance is based upon management’s evaluation of various factors that are not directly measured in the determination of the allocated portions of the Allowance and it is deemed “unallocated” because it is not allocated to any segment or class of the loan portfolio. This portion of the Allowance provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk rating-based component or in the specific impairment component of the Allowance and acknowledges the inherent imprecision of all loss prediction models.  Such factors include uncertainties in identifying triggering events that directly correlate to subsequent loss rates, uncertainties in economic conditions, risk factors that have not yet manifested themselves in loss allocation factors, and historical loss experience data that may not precisely correspond to the current portfolio.  In addition, the unallocated reserve may fluctuate based upon the direction of various risk indicators.  Examples of such factors include the risk as to current economic conditions, the level and trend of charge offs or recoveries, and the risk of heightened imprecision or inconsistency of appraisals used in estimating real estate values.  Although this allocation process may not accurately predict credit losses by loan type or in aggregate, the total allowance for credit losses is available to absorb losses that may arise from any loan type or category. 
    Based on our methodology and its components, management believes the resulting Allowance is adequate and appropriate for the risk identified in the Company's loan portfolio. While management believes that it uses the best information available to determine the Allowance, unforeseen market conditions and other events could result in adjustment to the Allowance, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination. Our banking regulators, as an integral part of their examination process, periodically review the Company's Allowance. Our regulators may require the Company to recognize additions to the Allowance based on their judgments related to information available to them at the time of their examinations.
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Reserve for Unfunded Loan Commitmentscurrent expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and Letters of Credit: The Company maintains a separate reserve for losses related to unfunded loan commitments and letters of credit. The determination of the adequacy of the reserve is based on periodic evaluations of the unfunded credit facilities including assessment of historical losses and current economic conditions. The allowance for unfunded loan commitments and letters of credit is included in other liabilities on the Consolidated Balance Sheets, with changes to theCompany’s consolidated balance charged against other operating expense.sheets.
Purchased Receivables:Receivables and related Allowance for Credit Losses: The Bank, through NFS,Company purchases accounts receivable from its customers. The purchased receivables are carried at their principal amount outstanding,amortized cost, net of a reservean ACL. Management measures expected credit losses on purchased receivables by evaluating each receivable individually. Each quarter, management reviews purchased receivable asset balances compared to assets eligible for anticipated lossesadvancement of funds in order to determine the exposure to loss for the Company. Exposure is zero when outstanding balances exceed assets eligible for advancement. Management may determine that have not yet been identified.an ACL is appropriate for individual purchased receivables based on asset specific facts and circumstances. Fees charged to the customer are earned while the balances of the purchases are outstanding, which is typically less than one year. The Company maintains a separate reserve for losses related to purchased receivable assets. The determination of the adequacy of the reserve is based on periodic evaluations of purchased receivable assets including an assessment of historical losses and current economic conditions. The reserve for purchased receivable assets is includedChanges in the balance of these accounts on a net basis on the consolidated balance sheets, with changes to the balance charged against other operatingACL are recorded as provision for (or reversal of) credit loss expense.
Other Real Estate Owned: Other real estate owned ("OREO")OREO represents properties acquired through foreclosure or its equivalent. Prior to foreclosure, the carrying value is adjusted to the fair value, less cost to sell, of the real estate to be acquired by an adjustment to the Allowance.ACL for loans. Management’s evaluation of fair value is based on appraisals or discounted cash flows of anticipated sales. After foreclosure, any subsequent reduction in the carrying value is charged against earnings. Operating expenses associated with OREO are charged to earnings in the period they are incurred. Operating expenses associated with OREO are recorded net of rental income and gain on sales associated with OREO.
Premises and Equipment: Premises and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization expense for financial reporting purposes is computed using the straight-line method based upon the shorter of the lease term or the estimated useful lives of the assets that vary according to the asset type and include; furniture and equipment ranging between 3 and 7 years, leasehold improvements ranging between 2 and 15 years, and buildings at 39 years. Maintenance and repairs are charged to current operations, while renewals and betterments are capitalized. Long-lived assets such as premises and equipment are reviewed for impairment at least annually or whenever events or changes in business circumstances indicate that the remaining useful life may warrant revision, or that the carrying amount of the long-lived asset may not be fully recoverable. If impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.
Operating Leases: The Company leases branch locations, corporate office space, and equipment under non-cancelable leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all of the leases provide the Company with one or more options to renew, with renewal terms that can extend the lease term from one to ten years or more. The exercise of lease renewal options is at management's sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition to annual impairment reviews, management reviews right-of-use assets anytime a change in circumstances indicates the carrying amount of these assets may not be recoverable.
Goodwill and Other Intangible Assets: Intangible assets are comprised of goodwill and other intangibles acquired in business combinations. Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with definite useful lives are amortized to their estimated residual values over their respective useful lives, and are also reviewed for impairment. Amortization of intangible assets is included in other operating expense in the Consolidated Statements of Income. The Company performs a goodwill impairment analysis at the segment leveleach reporting unit on an annual basis. Additionally, the Company performs a goodwill impairment evaluation on an interim basis when events or circumstances indicate impairment potentially exists.
Low Income Housing Tax Credit Partnerships: The Company earns a return on its investments in these partnerships in the form of tax credits and deductions that flow through to it as a limited partner. The Company amortizes these investments in tax expense over the period during which tax benefits are received.
Servicing Rights: Mortgage and commercial servicing rights associated with loans originated and sold, where servicing is retained, are measured at fair value and changes in fair value are reported through earnings. Changes in the fair value of servicing rights occur primarily due to the collection/realization of expected cash flows, as well as changes in valuation inputs and assumptions. Under the fair value method, servicing rights are carried on the balance sheet at fair value and the changes in fair value are reported in earnings in other operating income in the period in which the change occurs. Fair value measurements are determined using a discounted cash flow model. In order to determine the fair value of servicing rights, the present value of net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds,
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escrow calculations, delinquency rates, and ancillary fee income net of servicing costs. For mortgage servicing rights ("MSRs"),MSRs, the model assumptions are also compared to publicly filed information from several large MSR holders, as available.
Other Assets: Other assets include purchased software and prepaid expenses. Purchased software is carried at amortized cost and is amortized using the straight-line method over its estimated useful life or the term of the agreement. Also included in other assets is the net deferred tax asset, bank owned life insurance carried at cash surrender value, net of premium charges, accrued interest receivable, taxes receivable, and rate lock derivatives, and the Company’s equity method investments.Thederivatives.
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Company performs an impairment analysis on it's equity method investments when events or circumstances indicate impairment potentially exists.
Derivatives: The Company records all derivatives on the Consolidated Balance Sheets at fair value. The accounting for change in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate the derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Interest rate swaps that are designated as a cash flow hedge and satisfy the hedge accounting requirements involve the receipt of variable amounts from a counter-party in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. For derivatives which are designed as cash flow hedges and satisfy hedge accounting requirements, the effective portion of changes in the fair value of the derivative is recorded in accumulated other comprehensive income (loss). The fair value of the Company's derivatives is determined using discounted cash flowDCF analysis using observable market based inputs. The Company considers all free-standing derivatives not designated in a hedging relationship as economic hedges and recognizes these derivatives as either assets or liabilities in the balance sheet. These assets and liabilities are measured at fair value, and changes in fair value are recorded in earnings. By using derivatives, the Company is exposed to counterparty credit risk, which is the risk that counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet, net of cash collateral received. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. For derivative instruments executed with the same counterparty under a master netting arrangement, we do not offset fair value amounts of interest rate swaps in liability positions with interest rate swaps in asset positions. For further detail, see Note 21.19 of the notes to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report.
Transfers or sales of financial assets: For transfers of entire financial assets or a participating interest in an entire financial asset recorded as sales, we recognize and initially measure at fair value all assets obtained and liabilities incurred. We record a gain or loss in other operating income for the difference between the carrying amount and the fair value of the assets sold. Fair values are based on quoted market prices, quoted market prices for similar assets, or if market prices are not available, then the fair value is estimated using discounted cash flow analysis with assumptions for credit losses, prepayments and discount rates that are corroborated by and verified against market observable data, where possible.
Revenue Recognition: The majority of the Company's revenues come from interest income on loans and investment securities, as well as other non-interest income including mortgage banking income, bankcard fees, purchased receivable income, and service charges on deposits. The Company recognizes income in accordance with the applicable accounting guidance for these revenue sources. The Company's revenues that are within the scope of ASC Topic 606 (“Topic 606”) are presented within other operating income and include bankcard fees, service charges on deposits, and other non-interest income including merchant services fees, commissions from sales of mutual funds and other investments, safety deposit box rental fees, bank check and other check fees, and other miscellaneous revenue streams.
Bankcard fees are primarily comprised of debit card income and ATM fees. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit cards are processed through card payment networks such as Visa or MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. The Company’s performance obligation for bankcard fees are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payments are typically received immediately or in the following month.
Service charges on deposit accounts consist of general service fees for monthly account maintenance, activity- or transaction-based fees, and account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), and other deposit account related fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed. Payments for service charges on deposit accounts are primarily received immediately or in the following month through a direct charge to customers’ accounts.

Other operating income consists of other recurring revenue streams such as merchant services income, commissions from sales of mutual funds and other investments, safety deposit box rental fees, bank check and other check fees, unrealized gains and
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losses on marketable securities, and other miscellaneous revenue streams. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company’s performance obligation for merchant services income is largely satisfied, and related revenue recognized, when the transactions have been completed. Payment is typically received immediately or in the following month. The Company earns commissions from the sale of mutual funds as periodic service fees (i.e., trailers) from Elliott Cove Capital Management typically based on a percentage of net asset value. Trailer revenue is recorded over time, quarterly, as net asset value is determined. The Company also earns commission income from the sale of annuity products. The Company acts as an intermediary between the Company's customer and Elliott Cove Investment Advisors for these transactions, and commissions from annuity product sales are recorded when the Company’s performance obligation is satisfied, which is generally upon the issuance of the annuity policy. The Company does not earn trailer fees on annuity sales. Payment for commissions from sales of mutual funds and other investments and annuity sales is typically received in the following quarter. Other service charges include revenue from safety deposit box rental fees, processing wire transfers, bank check and other check fees, and other services. The Company’s performance obligations for these other revenue streams are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payments are typically received immediately or in the following month.

Revenue within the contracts with customers guidance is recognized when obligations under the terms of a contract with customers are satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. When the amount of consideration is variable, the Company will only recognize revenue to the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in the future. Substantially all of the Company's contracts with customers have expected durations of one year or less and payments are typically due when or as the services are rendered or shortly thereafter. When third parties are involved in providing services to customers, the Company recognizes revenue on a gross basis when it has control over those services being provided to the customer; otherwise, revenue is recognized for the net amount of any fee or commission.
Advertising: Advertising, promotion, and marketing costs are expensed as incurred. The Company reported total expenses in these areas of $2.3$2.7 million, $2.4$2.7 million, and $2.3 million for each of the years ending December 31, 2020, 2019,2022, 2021, and 2018,2020, respectively.
Stock Incentive Plans: The Company has stock-based employee compensation plans as more fully discussed in Note 23,21, Stock-Based Compensation.Compensation to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report. Compensation cost is recognized for stock options and restricted stock units issued to employees based on the fair value of these awards at the date of grant. A Black Scholes model is utilized to estimate the fair value of stock options, while the market price for the Company's common stock at the date of grant issued is utilized for restricted stock awards. The Company recognizes compensation expense over the vesting period of each award. The Company's accounting policy changed during the year ended December 31, 2020 and now recognizes forfeitures as they occur.
Income Taxes: The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Our policy is to recognize interest and penalties on unrecognized tax benefits in “Other operating expense" in the Consolidated Statements of Income.  
Earnings Per Share: Earnings per share is calculated using the weighted average number of shares and dilutive common stock equivalents outstanding during the period. Stock options and restricted stock units, as described in Note 23,21 of the notes to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report, are considered to be common stock equivalents. Potentially dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. Anti-dilutive shares outstanding related to options to acquire common stock for the year ended December 31, 2020 totaled 45,062 and for the year ended December 31, 2018 totaled 44,721.45,062. There were 0no anti-dilutive shares outstanding related to options to acquire common stock in 2019.

2022 or 2021.
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    Information used to calculate earnings per share was as follows:
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
Net incomeNet income$32,888 $20,691 $20,004 Net income$30,741 $37,517 $32,888 
Basic weighted average common shares outstandingBasic weighted average common shares outstanding6,355 6,709 6,878 Basic weighted average common shares outstanding5,765 6,181 6,355 
Dilutive effect of potential common shares from awards granted under equity incentive programDilutive effect of potential common shares from awards granted under equity incentive program76 99 104 Dilutive effect of potential common shares from awards granted under equity incentive program64 68 76 
TotalTotal6,431 6,808 6,982 Total5,829 6,249 6,431 
Earnings per common shareEarnings per common share Earnings per common share 
BasicBasic$5.18 $3.08 $2.91 Basic$5.33 $6.07 $5.18 
DilutedDiluted$5.11 $3.04 $2.86 Diluted$5.27 $6.00 $5.11 

Comprehensive Income: Comprehensive income consists of net income, net unrealized gains (losses) on securities available for sale after the tax effect, and net unrealized gains (losses) on derivative and hedging activities.activities after the tax effect.
Concentrations: Substantially all of the Company’s business is derived from the Anchorage, Matanuska-Susitna Valley, Fairbanks, Kenai Peninsula, Nome, and Southeast areas of Alaska. As such, the Company’s growth and operations depend upon the economic conditions of Alaska and these specific markets. These areas rely primarily upon the natural resources industries, particularly oil production, as well as tourism, government and U.S. military spending for their economic success. A significant majority of the unrestricted revenues of the Alaska state government are currently funded through various taxes and royalties on the oil industry. The Company’s business is and will remain sensitive to economic factors that relate to these industries and local and regional business conditions. As a result, local or regional economic downturns, or downturns that disproportionately affect one or more of the key industries in regions served by the Company, may have a more pronounced effect upon its business than they might on an institution that is less geographically concentrated. The extent of the future impact of these events on economic and business conditions cannot be predicted; however, prolonged or acute fluctuations could have a material and adverse impact upon the Company’s results of operation and financial condition.
    At December 31, 20202022 and 2019,2021, the Company had $898.8$501.3 million and $513.3$572.7 million, respectively, in commercial and construction loans.  At December 31, 2020, commercial loans included $310.5 million in Payment Protection Program ("PPP") loans administered by the U.S. Small Business Administration ("SBA"). Additionally, the Company continues to have a concentration in large borrowing relationships. At December 31, 2020, 43%2022, 38% of the Company’s loan portfolio is attributable to 3544 large borrowing relationships. The Company has additional unfunded commitments to these borrowers of $137.9$231.9 million at December 31, 2020.2022.
Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies. In accordance with GAAP, the Company groups its assets and liabilities measured at fair value into the following three levels:
Level 1:  Valuation is based upon quoted prices for identical instruments traded in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value.
Level 2:  Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3:  Valuation is generated from model-based techniques that use significant assumptions not observable in the market, or inputs that require significant management judgment or estimation, some of which may be internally developed.  
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Recent Accounting Pronouncements
    Accounting pronouncements to be implemented in 2020
    In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including allowing entities to elect an accounting policy to account for forfeitures as they occur by reversing compensation expense when the award is forfeited instead of estimating future forfeitures that will occur when recognizing compensation expense related to share-based payment awards. The Company elected to account for forfeitures as they occur in accordance with the guidance in ASU 2016-09 on January 1, 2020, which resulted in a $139,000 decrease in beginning retained earnings through a cumulative-effect adjustment.
    In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (“ASU 2017-04”). ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The Company adopted ASU 2017-04 on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial position or results of operations.
    In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial position or results of operations.periods
    In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Report of Financial Reporting ("ASU 2020-04"). ASU 2020-04 was issued to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts,contract modifications and hedging relationships, and other transactionssubject to meeting certain criteria, that reference LIBORLondon Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued becausediscontinued. The last expedient is a one-time election to sell or transfer debt securities classified as held to maturity. In March 2021, the UK Financial Conduct Authority announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of LIBOR had been changed from December 31, 2021 to June 30, 2023. In response to this change, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("ASU 2022-06"). ASU 2022-06 effectively amends ASU 2020-04 so that the expedients are in effect from March 12, 2020, through December 31, 2024. The Company will be able to use the expedients in this guidance to continue to manage through the transition away from LIBOR, specifically for our loan portfolio, derivative contracts, and bond portfolio.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, ("ASU 2021-01"). The amendments in ASU 2021-01 are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments clarify certain optional expedients and exceptions provided by ASU 2020-04 do notin Topic 848 for contract modifications apply to contract modifications madederivatives that are affected by the discounting transition.

LIBOR is a widely-referenced benchmark rate, which is published in five currencies and hedging relationships entered into or evaluateda range of tenors, and seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. The administrator of LIBOR, ICE Benchmark Administration, published a consultation in December 2020 regarding its intention to cease the publication of LIBOR after December 31, 2022, except2021, with the exception of certain tenors of U.S. dollar (USD) LIBOR that it proposed would remain available for hedging relationships existinguse in legacy contracts or as otherwise enumerated by financial regulators until June 30, 2023. The Company has some assets and liabilities referenced to LIBOR, such as commercial loans, derivatives, debt securities, and junior subordinated debentures. As of December 31, 2022, we had approximately $151.2 million of assets, including $83.7 million in commercial loans and $67.5 million in debt securities, and $10.0 million of liabilities in the form of our junior subordinated debentures linked to USD LIBOR. These amounts exclude derivative assets and liabilities on our consolidated balance sheet. As of December 31, 2022, the notional amount of our USD LIBOR-linked interest rate derivative contracts was $146.6 million. Of this amount, $68.3 million in notional value represent commercial loan interest rate swap agreements with commercial banking customers. An additional $68.3 million in notional value represent corresponding swap agreements with third party financial institutions that an entityoffset the commercial loan swaps. The Company has elected certain optional expedientsone additional interest rate swap agreement with a third party institution for and that are retained through the end$10.0 million in notional value related to our junior subordinated debentures. Each of the hedging relationship. The Company adopted USD LIBOR-linked amounts referenced above are expected to vary in future periods as current contracts expire with potential replacement contracts using an alternative reference rate.

In an effort to mitigate the risks associated with a transition away from LIBOR, our Asset Liability Committee has undertaken initiatives to: (i) develop more robust fallback language and disclosures related to the LIBOR transition, (ii) develop a plan to seek to amend legacy contracts to reference such fallback language or alternative reference rates, (iii) enhance systems to support commercial loans, securities, and derivatives linked to the Secured Overnight Financing Rate and other alternative reference rates, (iv) develop and evaluate internal guidance, policies and procedures focused on the transition away from LIBOR to alternative reference rate products, and (v) prepare and disseminate internal and external communications regarding the LIBOR transition.

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ASU 2020-04 as of March 31, 2020. The adoption of ASU 2020-04 did2021-01 is not expected to have a material impact on the Company’sCompany's consolidated financial position or results of operations because no contract modifications have been made to date.
    Accounting pronouncements to be implemented in future periodsstatements.

In June 2016,March 2022, the FASB issued ASU 2016-13, 2022-02, Financial Instruments - Credit Losses (“ (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2016-13” or "CECL"2022-02"). The amendments in ASU 2016-132022-02 eliminate the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is intended to improveexperiencing financial reporting by requiring timelier recordingdifficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs which includes an assessment of credit losses on loans and other financial instruments held by financial institutions and other organizations. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates but will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASU 2016-13 requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well aswhether the credit quality and underwriting standardscreditor has granted a concession, an entity must evaluate whether the modification represents a new loan or a continuation of an organization's portfolio. These disclosures include qualitativeexisting loan. The amendments enhance existing disclosure requirements and quantitativeintroduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that provide additional information aboutan entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the amounts recordedscope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the financial statements. In addition,vintage disclosures required by paragraph 326-20-50-6. ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
ASU 2016-132022-02 is effective for the Company for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2019, and must be applied prospectively. However, on October 16, 2019 the FASB voted to delay ASU 2016-13 for Smaller Reporting Companies. The Company has elected Small Reporting Company status, which changes the effective date for ASU 2016-13 for the Company to fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2022. Early application was permitted for specified periods. The Company early adopted ASU 2016-13may elect to apply the updated guidance on January 1, 2021 after finalizing dataTDR recognition and model validation and our internal governance framework. The guidance was applied onmeasurement by using a modified retrospective basis with the cumulative effect of initially applyingtransition method, which would result in a cumulative-effect adjustment to retained earnings, or to adopt the amendments recognized in retained earnings at January 1, 2021. However, certain provisions ofprospectively. The Company intends to elect to adopt the updated guidance on TDR recognition and measurement prospectively; therefore the guidance are only required towill be applied to modifications occurring after the date of adoption. The amendments on a prospective basis.
CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Therefore, management has flexibility in selecting the methodology. The expected credit lossesTDR disclosures and vintage disclosures must be estimated overadopted prospectively. The Company does not believe that ASU 2022-02 will have a material impact on the Company's consolidated financial asset's contractual term, adjusted for prepayments utilizing quantitative and qualitative factors. There are also specific considerationsstatements.
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for purchased credit-deteriorated, troubled debt restructured, and collateral dependent loans. CECL also applies to the reserve for unfunded commitments.
The combination of the current expected credit loss, qualitative factors, collateral dependent, troubled debt restructuring, purchased credit deteriorated, and the reserve for unfunded commitments represent the allowance for credit losses ("ACL").
The estimate of expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics – e.g. underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life using an approach that reverts to historical credit loss information.
The Company utilizes complex models to obtain reasonable and supportable forecasts; most of the models calculate two predictive metrics, the probability of default ("PD") and loss given default ("LGD"). The PD measures the probability that a loan will default within a given time horizon and primarily measures the adequacy of the debtor's cash flow as the primary source of repayment of the loan. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral. The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company has selected models at the portfolio level using a risk-based approach, with larger, more complex portfolios having more complex models.
For ACL calculation purposes, management considered the financial and economic environment at the time of assessment and different economic scenarios that differed in the levels of severity and sensitivity to the ACL results. Management determined the use of a third-party baseline economic forecast was reasonable and supportable as it is from a credible subject matter experts and institution. In this baseline scenario, the probability that the economy will perform better than this consensus is equal to the probability that it will perform worse.
Loss factors from the models, prepayment speeds, and qualitative factors are inputs into the Company's CECL accounting application. Once this information is aggregated, the Company uses two methods to calculate the current expected credit loss: 1) the discounted cash flow ("DCF") method, which is used for approximately 97% of all loans and the reserve for unfunded commitments and 2) a weighted average remaining life method for the remainder of the loan portfolio where loan level data constraints preclude the use of the DCF method. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses adjusted for prepayments. The difference in the net present value and the amortized cost of the asset will result in the required allowance. The weighted average remaining life method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.
Adoption of CECL as of January 1, 2021 resulted in an allowance for loan losses of $16.6 million, which is a $4.5 million decrease in the allowance under the incurred loss model as of December 31, 2020. This decrease will increase the Company's total shareholder's equity by $3.2 million.
Adoption of CECL as of January 1, 2021 resulted in a reserve for unfunded commitments of $1.4 million, which is a $1.2 million increase in the reserve under the incurred loss model as of December 31, 2020. This increase will decrease the Company's total shareholder's equity by $880,000.
    We will recognize an ACL for available-for-sale and held-to-maturity debt securities. The ACL on available-for-sale debt securities will be subject to a limitation based on the fair value of the debt securities. Based on the credit quality of our existing debt securities portfolio, we do not expect the ACL for held-to-maturity and available-for-sale debt securities to be significant. As of December 31, 2020, the Company holds one newly issued debt security that is classified as held-to-maturity.
        

NOTE 2 – Cash and Due from Banks
    The Company is no longer required to maintain minimum cash balances or deposits with the Federal Reserve Bank of San Francisco ("Federal Reserve Bank") sufficient to meet its statutory reserve requirements and for purposes of settling financial transactions and charges for Federal Reserve Bank services. The average reserve requirement for the maintenance period, which included December 31, 2020, was 0.
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    The Company is required to maintain a $250,000$300,000 balance with a correspondent bank for outsourced servicing of ATMs.ATMs at both December 31, 2022 and 2021.
    The Company is required to maintain a $100,000 and $30,000 balance with a correspondent bank to collateralize the initial margin and the fair value exposure of one of its interest rate swaps, respectively, at December 31, 2022. The Company was required to maintain a $100,000 and $2.8 million balance with a correspondent bank to collateralize the initial margin and the fair value exposure of one of its interest rate swaps, respectively.respectively, at December 31, 2021.

NOTE 3 - Interest Bearing Deposits in Other Banks
    All interest bearing deposits in other banks have a maturity of one year or less.  Balances at December 31 for the respective years are as follows:
(In Thousands)(In Thousands)20202019(In Thousands)20222021
Interest bearing deposits at Federal Reserve BankInterest bearing deposits at Federal Reserve Bank$54,488 $48,200 Interest bearing deposits at Federal Reserve Bank$231,186 $622,034 
Interest bearing deposits at FHLBInterest bearing deposits at FHLB133 36 Interest bearing deposits at FHLB287 138 
Other interest bearing deposits at other institutionsOther interest bearing deposits at other institutions38,040 26,670 Other interest bearing deposits at other institutions130 2,850 
TotalTotal$92,661 $74,906 Total$231,603 $625,022 
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NOTE 4 - Investment Securities
Marketable Equity Securities
The carrying values and approximateCompany held marketable equity securities with fair values of investment$10.7 million and $8.4 million at December 31, 2022 and 2021, respectively. The gross realized and unrealized gains (losses) recognized on marketable equity securities in other operating income in the Company's Consolidated Statements of Income for the periods indicated were as follows:    
(In Thousands)202220212020
Unrealized (loss) gain on marketable equity securities($1,119)($101)$61 
Gain on sale of marketable equity securities, net— 67 98 
Total($1,119)($34)$159 
Debt securities
Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, estimated fair value, and ACL of debt securities and the corresponding amounts of gross unrealized gains and losses of available for sale securities recognized in accumulated other comprehensive income (loss) and unrecognized gains and losses of held to maturity securities at the periods indicated are presented below:indicated:
(In Thousands)(In Thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value(In Thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesAllowance for Credit LossesFair Value
December 31, 2020    
Securities available for sale    
U.S. Treasury and government sponsored entities$173,318 $1,330 ($47)$174,601 
Municipal securities820 36 856 
Corporate bonds29,951 546 (5)30,492 
Collateralized loan obligations41,782 44 (142)41,684 
Total securities available for sale$245,871 $1,956 ($194)$247,633 
Securities held to maturity    
Corporate bonds$10,000 $0 $0 $10,000 
Total securities held to maturity$10,000 $0 $0 $10,000 
December 31, 2019    
December 31, 2022December 31, 2022    
Securities available for saleSecurities available for sale    Securities available for sale    
U.S. Treasury and government sponsored entitiesU.S. Treasury and government sponsored entities$210,756 $1,133 ($37)$211,852 U.S. Treasury and government sponsored entities$634,582 $1 ($39,422)$— $595,161 
Municipal securitiesMunicipal securities3,288 3,297 Municipal securities820 — (25)— 795 
Corporate bondsCorporate bonds34,764 302 35,066 Corporate bonds24,281 37 (674)— 23,644 
Collateralized loan obligationsCollateralized loan obligations25,980 (57)25,923 Collateralized loan obligations59,434 — (2,005)— 57,429 
Total securities available for saleTotal securities available for sale$274,788 $1,444 ($94)$276,138 Total securities available for sale$719,117 $38 ($42,126)$— $677,029 
December 31, 2021December 31, 2021
Securities available for saleSecurities available for sale
U.S. Treasury and government sponsored entitiesU.S. Treasury and government sponsored entities$345,514 $333 ($4,367)$— $341,480 
Municipal securitiesMunicipal securities820 20 — — 840 
Corporate bondsCorporate bonds32,721 302 (77)— 32,946 
Collateralized loan obligationsCollateralized loan obligations51,431 (22)— 51,418 
Total securities available for saleTotal securities available for sale$430,486 $664 ($4,466)$— $426,684 
(In Thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
December 31, 2022   
Securities held to maturity
Corporate bonds$36,750 $— ($4,111)$32,639 
Allowance for credit losses— — — — 
Total securities held to maturity, net of ACL$36,750 $— ($4,111)$32,639 
December 31, 2021
Securities held to maturity
Corporate bonds$20,000 $— ($836)$19,164 
Allowance for credit losses— — — — 
Total securities held to maturity, net of ACL$20,000 $— ($836)$19,164 

83



    Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 20202022 and 2019,2021, were as follows:
Less Than 12 MonthsMore Than 12 MonthsTotal Less Than 12 MonthsMore Than 12 MonthsTotal
(In Thousands)(In Thousands)Fair
Value
Unrealized LossesFair
Value
Unrealized LossesFair
Value
Unrealized Losses(In Thousands)Fair
Value
Unrealized LossesFair
Value
Unrealized LossesFair
Value
Unrealized Losses
2020 
20222022 
Securities Available for SaleSecurities Available for Sale Securities Available for Sale 
U.S. Treasury and government sponsored entitiesU.S. Treasury and government sponsored entities$31,270 ($47)$0 $0 $31,270 ($47)U.S. Treasury and government sponsored entities$282,319 ($8,876)$302,840 ($30,546)$585,159 ($39,422)
Corporate bondsCorporate bonds3,198 (5)3,198 (5)Corporate bonds13,216 (43)4,394 (631)17,610 (674)
Municipal securitiesMunicipal securities795 (25)— — 795 (25)
Collateralized loan obligationsCollateralized loan obligations23,670 (118)2,967 (24)26,637 (142)Collateralized loan obligations22,309 (632)35,120 (1,373)57,429 (2,005)
TotalTotal$58,138 ($170)$2,967 ($24)$61,105 ($194)Total$318,639 ($9,576)$342,354 ($32,550)$660,993 ($42,126)
2019 
20212021 
Securities Available for SaleSecurities Available for Sale Securities Available for Sale 
U.S. Treasury and government sponsored entitiesU.S. Treasury and government sponsored entities$39,797 ($33)$2,996 ($4)$42,793 ($37)U.S. Treasury and government sponsored entities$292,845 ($4,012)$21,743 ($355)$314,588 ($4,367)
Corporate bondsCorporate bonds4,953 (77)— — 4,953 (77)
Collateralized loan obligationsCollateralized loan obligations14,972 (17)7,951 (40)22,923 (57)Collateralized loan obligations29,470 (22)— — 29,470 (22)
TotalTotal$54,769 ($50)$10,947 ($44)$65,716 ($94)Total$327,268 ($4,111)$21,743 ($355)$349,011 ($4,466)
    
    TheManagement evaluates available for sale debt securities in unrealized losses on investmentsloss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in both periods were caused by changesthe security for a period of time sufficient to allow for any anticipated recovery in interest rates.  fair value.    

At December 31, 20202022 and 2019,2021, there were 1238 and 841 available for sale securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for less than twelve months. There were 147 and 3 available for sale securities without an ACL with unrealized losses at December 31, 20202022 and 2019,2021, respectively, that have been at a loss position for more than twelve months. The contractual termsAt December 31, 2022 and 2021, there were three and two held to maturity securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for less than twelve months. At December 31, 2022 and 2021, there were two and zero held to maturity securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for more than twelve months. Management does not have the intent to sell any of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.  The Company does not intend to sell, nor is it more likely than notand believes that it will be required to sell, securities whose market value is less than carrying value. Because it is more likely than not that the Company will hold thesenot have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments until adecline. Accordingly, as of December 31, 2022, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market price recovery or maturity, these investments are not considered other-than-temporarily impaired.conditions, and therefore no losses have been recognized in the Company's Consolidated Statements of Income.

85


    At December 31, 20202022 and 2019, $77.92021, $59.3 million and $30.6$59.5 million in securities were pledged for deposits and borrowings, respectively. 

84


    The amortized cost and fair values of available for sale and held to maturity debt securities at December 31, 2020,2022, are distributed by contractual maturity as shown below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.  
(In Thousands)(In Thousands)Amortized CostFair ValueWeighted Average Yield(In Thousands)Amortized CostFair ValueWeighted Average Yield
U.S. Treasury and government sponsored entitiesU.S. Treasury and government sponsored entities   U.S. Treasury and government sponsored entities   
Within 1 yearWithin 1 year$44,044 $44,601 2.06 %Within 1 year$66,562 $65,541 2.68 %
1-5 years1-5 years129,274 130,000 0.82 %1-5 years568,020 529,620 2.91 %
TotalTotal$173,318 $174,601 1.14 %Total$634,582 $595,161 2.89 %
Corporate bondsCorporate bonds   Corporate bonds   
Within 1 year$2,241 $2,257 1.23 %
1-5 years1-5 years27,710 28,235 1.36 %1-5 years$34,281 $32,514 4.74 %
5-10 years5-10 years10,000 10,000 5.00 %5-10 years26,750 23,769 5.01 %
TotalTotal$39,951 $40,492 2.26 %Total$61,031 $56,283 4.86 %
Collateralized loan obligationsCollateralized loan obligations   Collateralized loan obligations   
Within 1 yearWithin 1 year$5,000 $4,751 5.86 %
5-10 years5-10 years$8,783 $8,720 1.70 %5-10 years26,941 26,401 5.40 %
Over 10 yearsOver 10 years32,999 32,964 1.60 %Over 10 years27,493 26,277 5.39 %
TotalTotal$41,782 $41,684 1.62 %Total$59,434 $57,429 5.43 %
Municipal securitiesMunicipal securities   Municipal securities   
1-5 years1-5 years820 856 2.14 %1-5 years$820 $795 2.14 %
TotalTotal$820 $856 2.14 %Total$820 $795 2.14 %

    The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the years ending December 31, 2020, 2019,2022, 2021, and 2018,2020, respectively, are as follows: 
(In Thousands)ProceedsGross GainsGross Losses
2020   
Available for sale securities$0 $0 $0 
2019   
Available for sale securities$4,219 $23 $0 
2018   
Available for sale securities$0 $0 $0 
(In Thousands)ProceedsGross GainsGross Losses
2022
Available for sale securities$— $— $— 
2021
Available for sale securities$— $— $— 
2020
Available for sale securities$— $— $— 

    A summary of interest income for the years ending December 31, 2020, 2019,2022, 2021, and 20182020 on available for sale investment securities is as follows:
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
U.S. Treasury and government sponsored entitiesU.S. Treasury and government sponsored entities$3,396 $4,170 $3,682 U.S. Treasury and government sponsored entities$7,030 $2,203 $3,396 
OtherOther1,354 2,282 1,532 Other2,631 1,118 1,354 
Total taxable interest incomeTotal taxable interest income$4,750 $6,452 $5,214 Total taxable interest income$9,661 $3,321 $4,750 
Municipal securitiesMunicipal securities$82 $120 $267 Municipal securities$18 $18 $82 
Total tax-exempt interest incomeTotal tax-exempt interest income$82 $120 $267 Total tax-exempt interest income$18 $18 $82 
TotalTotal$4,832 $6,572 $5,481 Total$9,679 $3,339 $4,832 


85


NOTE 5 - Loans and Allowance for Credit Losses
Loans Held for Sale
Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of December 31, 2022 and 2021.
Loans Held for Investment
The following table presents amortized cost and unpaid principal balance of loans for the periods indicated:
December 31, 2022December 31, 2021
(In Thousands)Amortized CostUnpaid PrincipalDifferenceAmortized CostUnpaid PrincipalDifference
Commercial & industrial loans$358,128 $359,900 ($1,772)$448,338 $454,106 ($5,768)
Commercial real estate:
Owner occupied properties349,973 351,580 (1,607)300,200 301,623 (1,423)
Non-owner occupied and multifamily properties482,270 486,021 (3,751)435,311 438,631 (3,320)
Residential real estate:
1-4 family residential properties secured by first liens73,381 73,674 (293)32,542 32,602 (60)
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens20,259 20,103 156 19,610 19,489 121 
1-4 family residential construction loans44,000 44,314 (314)36,222 36,542 (320)
Other construction, land development and raw land loans99,182 100,075 (893)88,094 88,604 (510)
Obligations of states and political subdivisions in the US32,539 32,540 (1)16,403 16,565 (162)
Agricultural production, including commercial fishing34,099 34,263 (164)27,959 28,082 (123)
Consumer loans4,335 4,293 42 4,801 4,763 38 
Other loans3,619 3,632 (13)4,406 4,422 (16)
Total1,501,785 1,510,395 (8,610)1,413,886 1,425,429 (11,543)
Allowance for credit losses(13,838)(11,739)
$1,487,947 $1,510,395 ($8,610)$1,402,147 $1,425,429 ($11,543)
The difference between the amortized cost and unpaid principal balance is primarily net deferred origination fees totaling $8.6 million and $11.5 million at December 31, 2022 and 2021, respectively.
Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $5.5 million at both December 31, 2022 and 2021, and was included in other assets in the Consolidated Balance Sheets.
Amortized cost in the above table includes $7.1 million and $118.2 million as of December 31, 2022 and 2021, respectively, in PPP loans administered by the U.S. Small Business Administration (“SBA”) within the Commercial & industrial loan segment.
At December 31, 2022, approximately 69% of the Company’s loans, excluding PPP loans, are secured by real estate and 1% are unsecured. Approximately 30% are for general commercial uses, including professional, retail, and small businesses.  Repayment is expected from the borrowers’ cash flow or, secondarily, the collateral.  The Company’s exposure to credit loss, if any, is the outstanding amount of the loan if the collateral is determined to be of no value.    

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NOTE 5 - LoansAllowance for Credit Losses
The activity in the ACL related to loans held for investment for the periods indicated is as follows:
Beginning BalanceCredit Loss Expense (Benefit)Charge-offsRecoveriesEnding Balance
(In Thousands)
2022    
Commercial & industrial loans$3,027 ($1,124)($506)$1,517 $2,914 
Commercial real estate:
Owner occupied properties3,176 (137)— 55 3,094 
Non-owner occupied and multifamily properties2,930 685 — — 3,615 
Residential real estate:
1-4 family residential properties secured by first liens439 969 — 1,413 
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens215 134 — 40 389 
1-4 family residential construction loans120 192 — — 312 
Other construction, land development and raw land loans1,635 168 — — 1,803 
Obligations of states and political subdivisions in the US32 47 — — 79 
Agricultural production, including commercial fishing91 39 — 15 145 
Consumer loans67 — (3)68 
Other loans(1)— — 
Total$11,739 $972 ($509)$1,636 $13,838 
Beginning BalanceCredit Loss Expense (Benefit)Charge-offsRecoveriesEnding Balance
(In Thousands)
2021    
Commercial & industrial loans$4,348 ($122)($1,452)$253 $3,027 
Commercial real estate:— 
Owner occupied properties3,579 (412)— 3,176 
Non-owner occupied and multifamily properties4,944 (2,014)— — 2,930 
Residential real estate:
1-4 family residential properties secured by first liens673 (234)— — 439 
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens419 (242)— 38 215 
1-4 family residential construction loans454 (334)— — 120 
Other construction, land development and raw land loans1,994 (359)— — 1,635 
Obligations of states and political subdivisions in the US44 (12)— — 32 
Agricultural production, including commercial fishing49 11 — 31 91 
Consumer loans118 (65)— 14 67 
Other loans— — 
Total$16,625 ($3,779)($1,452)$345 $11,739 
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As of December 31, 2022 the ACL increased to $13.8 million, or 0.92% of portfolio loans and 0.99% of portfolio loans, net of government guarantees from $11.7 million, or 0.83% of portfolio loans and 0.97% of portfolio loans, net of government guarantees at December 31, 2021. The Company primarily uses a DCF method to estimate the ACL for loans and generally does not record an ACL for the government guaranteed portion of loans. The increase in the ACL for loans at December 31, 2022, as compared to December 31, 2021 is primarily due to an increase in non-government guaranteed loan balances. Additionally, the Company forecasted a slight increase in future unemployment rates as of December 31, 2022 as compared to the forecast at December 31, 2021.

Credit Quality Information
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends in past due and nonaccrual loans, gross and net charge-offs, and movement in loan balances within the risk classifications.  The Company utilizes a loan risk grading system called the Asset Quality Rating (“AQR”) system to assign a risk classification to each of its loans. The risk classification is a dual rating system that contemplates both probability of default and risk of loss given default. Loans are graded on a scale of 1 to 10 and, loans graded 1 – 6 are considered “pass” grade loans. Loans graded 7 or higher are considered "classified" loans. A description of the general characteristics of the AQR risk classifications are as follows:
Pass grade loans – 1 through 6:The borrower demonstrates sufficient cash flow to fund debt service, including acceptable profit margins, cash flows, liquidity andother balance sheet ratios. Historic and projected performance indicates that the borrower is able to meet obligations under most economic circumstances. The companyCompany has competent management with an acceptable track record. The category does not include loans with undue or unwarranted credit risks that constitute identifiable weaknesses.

Classified loans:
Special Mention – 7: A "special mention" credit has weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of either the repayment prospects for the asset or the Bank's credit position at some future date.  Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.  Loans are currently protected, but are weak due to negative trends in the balance sheet and income statement.  Current cash flow may be insufficient to meet debt service, with prospects that the condition may not be temporary.  Profitability and key balance sheet ratios are below peers.  There is a lack of effective control over collateral or there are documentation deficiencies as well as a potential risk of payment default.  Collateral coverage is minimal in gross dollars or due to quality issues.  Financial information may be inadequate to show the recent condition of borrower.  The loan would not be approved as a new credit, and new loans would not be granted.  Management may not be adequately qualified or may have very limited prior experience with similar activities or markets.  The ability of management to cope with current conditions is questionable.  Internal conflict and turnover in key positions may be present.  Succession is unclear.  The borrower's asset quality is below average.  The capital base may be insufficient to cover capital losses.  Leverage is above average or increasing.  The industry outlook is generally negative but there are reasonable expectations of a turnaround within 12-18 months.  The firm may be new, resulting in competitive deficiencies in comparison to the older, more established firms in the industry.  Over-capacity may be evident in the industry.  Collateral and guarantor strength are comparable to Management Attention-6, but agings and certifications of accounts receivable and inventory are required and are not being provided on a regular basis.

Substandard – 8: A "substandard" credit is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.  Loans have well-defined weaknesses where a payment default and/or a loss are possible, but not yet probable.  Cash flow is insufficient to service debt, with prospects that the condition is permanent.  Assets classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower, and there is a likelihood that collateral will have to be liquidated and/or the guarantor called upon to repay the debt.  Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage.  Loan(s) may have been restructured at less than market terms or have been partially charged off.  If deficiencies are not corrected quickly, there is a probability of loss and the borrower’s ability to operate as a going concern may be deemed questionable/is questionable.  Management has no prior experience with similar activities, demonstrating inability to realistically address problems and meet commitments.  The borrower’s asset quality is poor.  The capital base is weak and insufficient to absorb continuing losses, and leverage is significantly above peers.  Liquidity is poor with significant reliance on short-term borrowing to support trade debt.  Key balance sheet ratios are substantially inferior to industry norms.  The industry is currently trending downward or demonstrating recovery from an adverse cycle. The outlook is generally negative at this time.  Timing of recovery is unclear, but expectations are that market conditions will improve within 18-24 months.  The borrower has substantial competitive deficiencies when compared to other firms, such as excess capacity and over-supply, resulting in frequent and significant concessions and discounting.  Business failures are prevalent.  Collateral coverage is marginal or non-existent.  Collateral may be located outside the borrower’s market area.  There are no agings or certifications of accounts receivable and inventory being received from the borrower, and collateral has doubtful marketability/convertibility.  If guaranteed, the guarantor has limited outside worth and is highly leveraged with a poor credit report, which may reflect liens, collection problems, or lawsuits.

Doubtful – 9: An asset classified "doubtful" has all the weaknesses inherent in one that is classified "substandard-8" with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. The loan has substandard characteristics, and available
87


information suggests that it is unlikely that the loan will be repaid in its entirety.  Cash flow is insufficient to service debt.  The company has had a series of substantial losses.  If the current material adverse trends continue, it is unlikely the borrower will have the ability to meet the terms of the loan agreement.  It may be difficult to predict the exact amount of loss, but the probability of some loss is greater than 50%.  Loans are to be placed on non-accrual status when any portion is classified as doubtful.  Non-accrual loans would not be classified "doubtful" as long as the collateral appears adequate to retire the outstanding balance.  Management is clearly unable to address problems and meet commitments, and there is little expectation either of improvement or for sustaining the relationship with current management. The company is highly illiquid with excessive leverage.  Key balance sheet ratios are at unacceptable levels, and downturn is severe.  Timing of recovery is undeterminable.  The company is unable to compete; collateral and guarantees provide limited support.

Loss – 10: An asset classified "loss" is considered uncollectableuncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future.

The following tables present the Company's portfolio of risk-rated loans by grade and by year of origination. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan has doubtful characteristics, butconstitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the loan will definitely not be repaid in full.  Debt service coverage clearly reflects the company's inability to service debt.  The borrower cannot generate sufficient cash flow to cover fixed charges.  All near-termpoint of renewal and long-term trends concerning cash flow and earnings are negative.  The damage to the financial conditionconsidered current period originations for purposes of the Company cannot be reversed at this point in time.  Collateral and guarantees provide no support.
    The composition of the loan portfolio as of the periods indicated is as follows:
(In Thousands)CommercialReal estate construction one-to-four familyReal estate construction otherReal estate term owner occupiedReal estate term non-owner occupiedReal estate term otherConsumer secured by 1st deeds of trustConsumer otherTotal
December 31, 2020         
AQR Pass$765,952 $37,380 $80,315 $153,607 $291,382 $43,290 $15,441 $21,963 $1,409,330 
AQR Special Mention6,241 385 3,028 17,097 2,154 28,905 
AQR Substandard6,378 702 6,962 595 1,176 144 106 16,063 
AQR Doubtful1,487 1,487 
Subtotal$780,058 $38,467 $80,315 $163,597 $309,074 $46,620 $15,585 $22,069 $1,455,785 
Less: Unearned origination fees, net of origination costs  (11,735)
        Total loans        $1,444,050 
December 31, 2019         
AQR Pass$394,107 $34,132 $61,808 $129,959 $295,482 $38,771 $15,860 $24,464 $994,583 
AQR Special Mention2,279 3,337 3,828 17,478 2,559 179 29,660 
AQR Substandard16,304 1,349 5,104 1,176 159 121 24,213 
Subtotal$412,690 $38,818 $61,808 $138,891 $312,960 $42,506 $16,198 $24,585 $1,048,456 
Less: Unearned origination fees, net of origination costs  (5,085)
        Total loans        $1,043,371 
    The above table includes $310.5 million in PPP loans administered by the SBA within the Commercial loan segment as of December 31, 2020. Additionally, unearned origination fees, net of origination costs includes $5.9 million associated with SBA PPP loans as of December 31, 2020.
    At December 31, 2020, approximately 73% of the Company’s loans, excluding PPP loans, are secured by real estate and 2% are unsecured. Approximately 25% are for general commercial uses, including professional, retail, and small businesses.  Repayment is expected from the borrowers’ cash flow or, secondarily, the collateral.  The Company’s exposure to credit loss, if any, is the outstanding amount of the loan if the collateral is determined to be of no value.    below.

December 31, 202220222021202020192018PriorTotal
(In Thousands)
Commercial & industrial loans
Pass$157,555 $86,543 $37,147 $17,881 $9,844 $40,571 $349,541 
Classified137 4,879 397 91 2,737 346 8,587 
Total commercial & industrial loans$157,692 $91,422 $37,544 $17,972 $12,581 $40,917 $358,128 
Commercial real estate:
Owner occupied properties
Pass$66,955 $70,777 $90,496 $32,564 $13,233 $69,701 $343,726 
Classified— — — — 165 6,082 6,247 
Total commercial real estate owner occupied properties$66,955 $70,777 $90,496 $32,564 $13,398 $75,783 $349,973 
88


Non-owner occupied and multifamily properties
Pass$94,412 $82,352 $71,407 $58,033 $16,905 $149,223 $472,332 
Classified— — — 274 9,661 9,938 
Total commercial real estate non-owner occupied and multifamily properties$94,412 $82,352 $71,407 $58,307 $16,908 $158,884 $482,270 
Residential real estate:
1-4 family residential properties secured by first liens
Pass$52,117 $5,088 $6,001 $2,535 $462 $6,968 $73,171 
Classified— — — 79 131 210 
Total residential real estate 1-4 family residential properties secured by first liens$52,117 $5,088 $6,001 $2,535 $541 $7,099 $73,381 
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens
Pass$6,992 $3,376 $2,041 $2,763 $2,781 $2,060 $20,013 
Classified— — — — 239 246 
Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens$6,992 $3,376 $2,041 $2,763 $3,020 $2,067 $20,259 
1-4 family residential construction loans
Pass$26,860 $3,897 $61 $— $— $13,073 $43,891 
Classified— — — — — 109 109 
Total residential real estate 1-4 family residential construction loans$26,860 $3,897 $61 $— $— $13,182 $44,000 
Other construction, land development and raw land loans
Pass$38,673 $42,448 $5,740 $1,713 $3,675 $5,112 $97,361 
Classified— — — — 369 1,452 1,821 
Total other construction, land development and raw land loans$38,673 $42,448 $5,740 $1,713 $4,044 $6,564 $99,182 
Obligations of states and political subdivisions in the US
Pass$32,319 $— $— $— $219 $1 $32,539 
Classified— — — — — — — 
Total obligations of states and political subdivisions in the US$32,319 $— $— $— $219 $1 $32,539 
Agricultural production, including commercial fishing
Pass$9,748 $17,692 $3,740 $604 $879 $1,436 $34,099 
Classified— — — — — — — 
Total agricultural production, including commercial fishing$9,748 $17,692 $3,740 $604 $879 $1,436 $34,099 
Consumer loans
Pass$1,513 $363 $481 $345 $235 $1,391 $4,328 
Classified— — — — — 
Total consumer loans$1,513 $363 $481 $345 $235 $1,398 $4,335 
Other loans
Pass$1,291 $330 $1,547 $384 $— $67 $3,619 
Classified— — — — — — — 
Total other loans$1,291 $330 $1,547 $384 $— $67 $3,619 
Total loans
Pass$488,435 $312,866 $218,661 $116,822 $48,233 $289,603 $1,474,620 
Classified137 4,879 397 365 3,592 17,795 27,165 
Total loans$488,572 $317,745 $219,058 $117,187 $51,825 $307,398 $1,501,785 
Total pass loans$488,435 $312,866 $218,661 $116,822 $48,233 $289,603 $1,474,620 
Government guarantees(25,172)(36,531)(9,751)(12,885)(2,964)(5,314)(92,617)
Total pass loans, net of government guarantees$463,263 $276,335 $208,910 $103,937 $45,269 $284,289 $1,382,003 
Total classified loans$137 $4,879 $397 $365 $3,592 $17,795 $27,165 
89


Government guarantees— (4,396)(1,135)— — (9,293)(14,824)
Total classified loans, net government guarantees$137 $483 ($738)$365 $3,592 $8,502 $12,341 

December 31, 202120212020201920182017PriorTotal
(In Thousands)
Commercial & industrial loans
Pass$227,376 $54,478 $29,846 $37,339 $23,205 $44,554 $416,798 
Classified18,853 714 3,564 3,118 517 4,774 31,540 
Total commercial & industrial loans$246,229 $55,192 $33,410 $40,457 $23,722 $49,328 $448,338 
Commercial real estate:
Owner occupied properties
Pass$81,533 $83,975 $39,254 $14,841 $14,452 $57,717 $291,772 
Classified— 1,399 — 522 — 6,507 8,428 
Total commercial real estate owner occupied properties$81,533 $85,374 $39,254 $15,363 $14,452 $64,224 $300,200 
Non-owner occupied and multifamily properties
Pass$77,205 $77,961 $61,147 $34,307 $19,833 $154,561 $425,014 
Classified— — — 10 10,286 10,297 
Total commercial real estate non-owner occupied and multifamily properties$77,205 $77,961 $61,147 $34,317 $30,119 $154,562 $435,311 
Residential real estate:
1-4 family residential properties secured by first liens
Pass$7,756 $8,023 $3,689 $531 $1,466 $8,812 $30,277 
Classified417 1,077 472 90 — 209 2,265 
Total residential real estate 1-4 family residential properties secured by first liens$8,173 $9,100 $4,161 $621 $1,466 $9,021 $32,542 
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens
Pass$5,806 $2,535 $3,229 $3,464 $259 $4,046 $19,339 
Classified— — — 259 — 12 271 
Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens$5,806 $2,535 $3,229 $3,723 $259 $4,058 $19,610 
1-4 family residential construction loans
Pass$21,409 $1,056 $1,707 $62 $— $11,879 $36,113 
Classified— — — — 109 — 109 
Total residential real estate 1-4 family residential construction loans$21,409 $1,056 $1,707 $62 $109 $11,879 $36,222 
Other construction, land development and raw land loans
Pass$39,624 $26,458 $11,044 $3,315 $139 $5,544 $86,124 
Classified— — — 460 — 1,510 1,970 
Total other construction, land development and raw land loans$39,624 $26,458 $11,044 $3,775 $139 $7,054 $88,094 
Obligations of states and political subdivisions in the US
Pass$4,120 $812 $1,875 $343 $2,733 $6,520 $16,403 
Classified— — — — — — — 
Total obligations of states and political subdivisions in the US$4,120 $812 $1,875 $343 $2,733 $6,520 $16,403 
Agricultural production, including commercial fishing
Pass$19,970 $3,929 $810 $1,118 $741 $1,391 $27,959 
Classified— — — — — — — 
Total agricultural production, including commercial fishing$19,970 $3,929 $810 $1,118 $741 $1,391 $27,959 
Consumer loans
Pass$873 $815 $653 $403 $291 $1,766 $4,801 
Classified— — — — — — — 
90


Total consumer loans$873 $815 $653 $403 $291 $1,766 $4,801 
Other loans
Pass$2,028 $1,645 $430 $95 $— $208 $4,406 
Classified— — — — — — — 
Total other loans$2,028 $1,645 $430 $95 $— $208 $4,406 
Total loans
Pass$487,700 $261,687 $153,684 $95,818 $63,119 $296,998 $1,359,006 
Classified19,270 3,190 4,036 4,459 10,912 13,013 54,880 
Total loans$506,970 $264,877 $157,720 $100,277 $74,031 $310,011 $1,413,886 
Total pass loans$487,700 $261,687 $153,684 $95,818 $63,119 $296,998 $1,359,006 
Government guarantees(145,713)(12,725)(14,429)(3,299)(306)(6,562)(183,034)
Total pass loans, net of government guarantees$341,987 $248,962 $139,255 $92,519 $62,813 $290,436 $1,175,972 
Total classified loans$19,270 $3,190 $4,036 $4,459 $10,912 $13,013 $54,880 
Government guarantees(7,201)(1,259)— — — (10,571)(19,031)
Total classified loans, net government guarantees$12,069 $1,931 $4,036 $4,459 $10,912 $2,442 $35,849 





91


Past Due Loans

The following tables present an aging of contractually past due loans as of the periods indicated:

(In Thousands)30-59 Days
Past Due
60-89 Days
Past Due
Greater Than
90 Days Past Due
Total Past
Due
CurrentTotalGreater Than 90 Days Past Due Still Accruing
December 31, 2022      
Commercial & industrial loans$37 $521 $56 $614 $357,514 $358,128 $— 
Commercial real estate:
     Owner occupied properties— — 798 798 349,175 349,973 — 
     Non-owner occupied and multifamily properties— — 274 274 481,996 482,270 — 
Residential real estate:
     1-4 family residential properties secured by first liens60 79 72 211 73,170 73,381 — 
     1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens112 — 127 239 20,020 20,259 — 
     1-4 family residential construction loans— — 109 109 43,891 44,000 — 
Other construction, land development and raw land loans— — 1,545 1,545 97,637 99,182 — 
Obligations of states and political subdivisions in the US— — — — 32,539 32,539 — 
Agricultural production, including commercial fishing— — — — 34,099 34,099 — 
Consumer loans80 — 86 4,249 4,335 — 
Other loans— — — — 3,619 3,619 — 
Total$215 $680 $2,981 $3,876 $1,497,909 $1,501,785 $— 
December 31, 2021
Commercial & industrial loans$206 $51 $469 $726 $447,612 $448,338 $— 
Commercial real estate:
     Owner occupied properties12 — 1,176 1,188 299,012 300,200 — 
     Non-owner occupied and multifamily properties— — — — 435,311 435,311 — 
Residential real estate:
     1-4 family residential properties secured by first liens— — 90 90 32,452 32,542 — 
     1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens— — 139 139 19,471 19,610 — 
     1-4 family residential construction loans— — 109 109 36,113 36,222 — 
Other construction, land development and raw land loans— — 1,636 1,636 86,458 88,094 — 
Obligations of states and political subdivisions in the US— — — — 16,403 16,403 — 
Agricultural production, including commercial fishing— — — — 27,959 27,959 — 
Consumer loans— — — — 4,801 4,801 — 
Other loans— — — — 4,406 4,406 — 
Total$218 $51 $3,619 $3,888 $1,409,998 $1,413,886 $— 
92



Nonaccrual Loans
    Nonaccrual loans net of government guarantees totaled $9.6$6.4 million and $14.0$10.7 million at December 31, 20202022 and December 31, 2019,2021, respectively. The following table presents loans on nonaccrual status and loans on nonaccrual status for which there was no related ACL:
December 31, 2022December 31, 2021
(In  Thousands)NonaccrualNonaccrual With No ACLNonaccrualNonaccrual With No ACL
Commercial & industrial loans$3,294 $3,287 $4,350 $4,298 
Commercial real estate:
     Owner occupied properties1,457 1,457 3,506 3,506 
Residential real estate:
     1-4 family residential properties secured by first liens151 144 1,778 1,778 
     1-4 family residential properties secured by junior liens
      and revolving secured by 1-4 family first liens
246 198 271 215 
     1-4 family residential construction loans109 109 109 109 
Other construction, land development and raw land loans1,545 1,545 1,636 1,636 
Consumer loans— — — — 
Total nonaccrual loans7,076 7,014 11,650 11,542 
Government guarantees on nonaccrual loans(646)(646)(978)(978)
Net nonaccrual loans$6,430 $6,368 $10,672 $10,564 

Interest income which would have been earned on nonaccrual loans for 2020, 2019,2022, 2021, and 20182020 amounted to $434,000, $744,000, and $856,000, $1.3 million,respectively. 

There was $10,000 in interest on nonaccrual loans reversed through interest income in both 2022 and $1.3 million, respectively.  Additionally,2021. There was no interest earned on nonaccrual loans with a principal balance during 2022 or 2021. However, the Company recognized interest income of $2.2 million, $1.6 million, and $924,000 $301,000,in 2022, 2021, and $159,000 in 2020, 2019, and 2018, respectively, related to interest collected on nonaccrual loans whose principal has been paid down to zero. Nonaccrual loans at the periods indicated, by segment are presented below:
(In  Thousands)30-59 Days
Past Due
60-89 Days
Past Due
Greater Than
90 Days Past Due
CurrentTotal
December 31, 2020
Commercial$48 $229 $3,673 $1,626 $5,576 
Real estate construction one-to-four family702 702 
Real estate term owner occupied1,520 1,977 3,497 
Real estate term other1,176 1,176 
Consumer secured by 1st deeds of trust63 63 
Consumer other20 86 106 
    Total nonaccrual loans68 229 7,071 3,752 11,120 
Government guarantees on nonaccrual loans(35)(258)(1,228)(1,521)
Net nonaccrual loans$33 ($29)$7,071 $2,524 $9,599 
December 31, 2019
Commercial$270 $385 $2,862 $5,636 $9,153 
Real estate construction one-to-four family1,349 1,349 
Real estate term owner occupied1,641 623 1,225 3,489 
Real estate term other1,176 1,176 
Consumer secured by 1st deeds of trust68 68 
Consumer other26 89 121 
    Total nonaccrual loans1,937 474 6,010 6,935 15,356 
Government guarantees on nonaccrual loans(268)(1,137)(1,405)
Net nonaccrual loans$1,669 $474 $6,010 $5,798 $13,951 

89


Past Due Loans
    There was 1 past are classified as collateral dependent when it it probable that the Company will be unable to collect the scheduled payments of principal and interest when due, loan greater than 90 days and still accruing interest atrepayment is expected to be provided substantially through the sale of the collateral. As of December 31, 20202022 and 0 past due loans greater than 90 days and still accruing interest at December 31, 2019.  Past due loans and nonaccrual loans at the periods indicated2021, there are presented below by loan class:
(In Thousands)30-59 Days
Past Due
Still
Accruing
60-89 Days
Past Due
Still
Accruing
Greater Than
90 Days
Still
Accruing
Total Past
Due
NonaccrualCurrentTotal
December 31, 2020       
Commercial$387 $0 $0 $387 $5,576 $774,095 $780,058 
Real estate construction one-to-four family702 37,765 38,467 
Real estate construction other80,315 80,315 
Real estate term owner occupied449 449 3,497 159,651 163,597 
Real estate term non-owner occupied309,074 309,074 
Real estate term other1,176 45,444 46,620 
Consumer secured by 1st deed of trust483 483 63 15,039 15,585 
Consumer other18 18 106 21,945 22,069 
Subtotal$888 $0 $449 $1,337 $11,120 $1,443,328 $1,455,785 
Less: Unearned origination fees,  net of origination costs  (11,735)
     Total      $1,444,050 
December 31, 2019       
Commercial$270 $0 $0 $270 $9,153 $403,267 $412,690 
Real estate construction one-to-four family1,349 37,469 38,818 
Real estate construction other61,808 61,808 
Real estate term owner occupied338 338 3,489 135,064 138,891 
Real estate term non-owner occupied312,960 312,960 
Real estate term other26 26 1,176 41,304 42,506 
Consumer secured by 1st deed of trust750 750 68 15,380 16,198 
Consumer other150 150 121 24,314 24,585 
Subtotal$1,534 $0 $0 $1,534 $15,356 $1,031,566 $1,048,456 
Less: Unearned origination fees,  net of origination costs  (5,085)
     Total      $1,043,371 

90


Impaired Loans
    At December 31, 2020 and 2019, the recorded investment in loans that are considered to be impaired was $18.0 million and $24.7 million, respectively.  The following table presents information about impaired loans by class for the years ended December 31, 2020 and 2019:
(In Thousands)Recorded InvestmentUnpaid Principal BalanceRelated Allowance
December 31, 2020   
With no related allowance recorded   
Commercial - AQR substandard$6,299 $6,979 $— 
Commercial - AQR doubtful1,179 1,308 — 
Real estate construction one-to-four family - AQR substandard702 702 — 
Real estate term owner occupied - AQR substandard6,962 7,047 — 
Real estate term non-owner occupied - AQR pass176 176 — 
Real estate term non-owner occupied - AQR substandard595 595 — 
Real estate term other - AQR pass291 291 — 
Real estate term other - AQR substandard1,176 1,176 — 
Consumer secured by 1st deeds of trust - AQR pass114 114 — 
Consumer secured by 1st deeds of trust - AQR substandard144 144 — 
Consumer other - AQR substandard82 87 — 
          Subtotal$17,720 $18,619 $— 
With an allowance recorded   
Commercial - AQR doubtful$308 $308 $13 
  Subtotal$308 $308 $13 
Commercial - AQR substandard$6,299 $6,979 $0 
Commercial - AQR doubtful1,487 1,616 13 
Real estate construction one-to-four family - AQR substandard702 702 
Real estate term owner-occupied - AQR substandard6,962 7,047 
Real estate term non-owner occupied - AQR pass176 176 
Real estate term non-owner occupied - AQR substandard595 595 
Real estate term other - AQR pass291 291 
Real estate term other - AQR substandard1,176 1,176 
Consumer secured by 1st deeds of trust - AQR pass114 114 
Consumer secured by 1st deeds of trust - AQR substandard144 144 
Consumer other - AQR substandard82 87 
  Total$18,028 $18,927 $13 
91


(In Thousands)Recorded InvestmentUnpaid Principal BalanceRelated Allowance
December 31, 2019   
With no related allowance recorded   
Commercial - AQR substandard$15,517 $15,582 $— 
Real estate construction one-to-four family - AQR substandard1,349 1,349 — 
Real estate term owner occupied - AQR substandard5,104 5,104 — 
Real estate term non-owner occupied - AQR pass178 178 — 
Real estate term other - AQR pass417 417 — 
Real estate term other - AQR substandard1,176 1,176 — 
Consumer secured by 1st deeds of trust - AQR pass122 122 — 
Consumer secured by 1st deeds of trust - AQR substandard159 163 — 
Consumer other - AQR substandard90 94 — 
  Subtotal$24,112 $24,185 $— 
With an allowance recorded   
Commercial - AQR substandard$561 $561 $17 
         Subtotal$561 $561 $17 
Commercial - AQR substandard$16,078 $16,143 $17 
Real estate construction one-to-four family - AQR substandard1,349 1,349 
Real estate term owner-occupied - AQR substandard5,104 5,104 
Real estate term non-owner occupied - AQR pass178 178 
Real estate term other - AQR pass417 417 
Real estate term other - AQR substandard1,176 1,176 
Consumer secured by 1st deeds of trust - AQR pass122 122 
Consumer secured by 1st deeds of trust - AQR substandard159 163 
Consumer other - AQR substandard90 94 
  Total$24,673 $24,746 $17 

    The unpaid principal balance included in the table above represents the recorded investment at the dates indicated, plus amounts charged-off for book purposes. 
92


    The following table summarizes our average recorded investment and interest income recognized on impairedno collateral dependent loans for years ended December 31, 2020 and 2019, respectively:
Year Ended December 31,20202019
(In Thousands)Average Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
With no related allowance recorded
     Commercial - AQR pass$0 $0 $532 $35 
     Commercial - AQR substandard9,111 139 16,892 405 
     Commercial - AQR doubtful433 
     Real estate construction one-to-four family - AQR substandard781 1,933 
     Real estate term owner occupied - AQR substandard6,739 125 5,747 113 
     Real estate term non-owner occupied - AQR pass177 10 251 19 
     Real estate term non-owner occupied - AQR substandard385 19 230 
     Real estate term other - AQR pass362 20 448 31 
     Real estate term other - AQR substandard1,189 1,046 
     Consumer secured by 1st deeds of trust - AQR pass118 126 13 
     Consumer secured by 1st deeds of trust - AQR substandard148 202 
     Consumer secured by 1st deeds of trust - AQR loss33 
     Consumer other - AQR substandard86 70 
         Subtotal$19,562 $325 $27,477 $623 
With an allowance recorded
     Commercial - AQR substandard$1,343 $8 $683 $0 
     Commercial - AQR doubtful77 
     Real estate term other - AQR substandard163 
     Consumer secured by 1st deeds of trust - AQR substandard72 
         Subtotal$1,420 $8 $918 $0 
Total
     Commercial - AQR pass$0 $0 $532 $35 
     Commercial - AQR substandard10,454 147 17,575 405 
     Commercial - AQR doubtful510 
     Real estate construction one-to-four family - AQR substandard781 1,933 
     Real estate term owner-occupied - AQR substandard6,739 125 5,747 113 
     Real estate term non-owner occupied - AQR pass177 10 251 19 
     Real estate term non-owner occupied - AQR substandard385 19 230 
     Real estate term other - AQR pass362 20 448 31 
     Real estate term other - AQR substandard1,189 1,209 
     Consumer secured by 1st deeds of trust - AQR pass118 126 13 
     Consumer secured by 1st deeds of trust - AQR substandard148 274 
     Consumer secured by 1st deeds of trust - AQR loss33 
     Consumer other - AQR substandard86 70 
         Total Impaired Loans$20,982 $333 $28,395 $623 
    The average recorded investment was $34.7 million, and interest income recognized on impaired loans was $847,000 for the year ended December 31, 2018.    

93


which foreclosure is probable.
Troubled Debt Restructurings
    Loans classified as TDRs totaled $7.9$5.1 million and $10.1$10.6 million at December 31, 20202022 and 2019,2021, respectively.  A TDR is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession of some kind. that it would not grant otherwise.
93


The provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company has elected to adopt these provisions of the CARES Act. As of December 301 2020,31, 2022 and 2021, the Company has made the following types of loan modifications related to COVID-19, which are not classified as TDRs with principal balance outstanding of:
Loan Modifications due to COVID-19 as of December 31, 2022Loan Modifications due to COVID-19 as of December 31, 2022
(Dollars in thousands)(Dollars in thousands)Interest OnlyFull Payment DeferralTotal(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loansPortfolio loans$43,379 $22,165 $65,544 Portfolio loans$999 $— $999 
Number of modificationsNumber of modifications23 11 34 Number of modifications— 
Loan Modifications due to COVID-19 as of December 31, 2021
(Dollars in thousands)Interest OnlyFull Payment DeferralTotal
Portfolio loans$49,219 $— $49,219 
Number of modifications16 — 16 
 
The Company has granted a variety of concessions to borrowers in the form of loan modifications.  The modifications granted can generally be described in the following categories:

Rate Modification:  A modification in which the interest rate is changed.
Term Modification:  A modification in which the maturity date, timing of payments, or frequency of payments is changed.
Payment Modification:  A modification in which the dollar amount of the payment is changed, or in which a loan is converted to interest only payments for a period of time is included in this category.
Combination Modification:  Any other type of modification, including the use of multiple categories above. 
    AQR pass graded loans included above in the impaired loan data are loans classified as TDRs.  By definition, TDRs are considered impaired loans.  All of the Company’s TDRs are included in impaired loans.
94


    The following table presents the breakout betweenThere were no newly restructured loans that occurred during 2020 and restructured loans that occurred prior to 2020 that are still included in portfolio loans. As discussed above, the CARES Act provided banks an option to elect to not account for certain loan modifications related to COVID-19 as TDRs as long as the borrowers were not more than 30 days past due as of December 31, 2019.2022. The below disclosed restructurings were not related to COVID-19 modifications:
 Accrual StatusNonaccrual StatusTotal Modifications
(In Thousands)
New Troubled Debt Restructurings   
Commercial - AQR substandard$1,590 $161 $1,751 
Subtotal$1,590 $161 $1,751 
Existing Troubled Debt Restructurings765 5,344 6,109 
Total$2,355 $5,505 $7,860 
 Accrual StatusNonaccrual StatusTotal Modifications
(In Thousands)
Troubled Debt Restructurings$291 $4,844 $5,135 
Total$291 $4,844 $5,135 

    The following tables present newly restructured loans that occurred during 2020 and 2019,2021, by concession (terms modified):
December 31, 2020
(In Thousands)Number of ContractsRate ModificationTerm ModificationPayment ModificationCombination ModificationTotal Modifications
Pre-Modification Outstanding Recorded Investment: 
Commercial - AQR substandard2$0 $3,249 $164 $0 $3,413 
Total2$0 $3,249 $164 $0 $3,413 
Post-Modification Outstanding Recorded Investment: 
Commercial - AQR substandard2$0 $1,590 $161 $0 $1,751 
Total2$0 $1,590 $161 $0 $1,751 
December 31, 2019December 31, 2021
(In Thousands)(In Thousands)Number of ContractsRate ModificationTerm ModificationPayment ModificationCombination ModificationTotal Modifications(In Thousands)Number of ContractsRate ModificationTerm ModificationPayment ModificationCombination ModificationTotal Modifications
Pre-Modification Outstanding Recorded Investment:Pre-Modification Outstanding Recorded Investment: Pre-Modification Outstanding Recorded Investment: 
Commercial - AQR substandard7$0 $0 $509 $2,585 $3,094 
Real estate term owner occupied - AQR substandard1192 192 
Commercial & industrial loansCommercial & industrial loans2$— $3,792 $— $— $3,792 
Commercial real estate:Commercial real estate:
Owner occupied propertiesOwner occupied properties1— 360 — — 360 
Residential real estate:Residential real estate:
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens1— — 139 — 139 
Other construction, land development and raw land loansOther construction, land development and raw land loans1— 577 — — 577 
TotalTotal7$0 $0 $701 $2,585 $3,286 Total5$— $4,729 $139 $— $4,868 
Post-Modification Outstanding Recorded Investment:Post-Modification Outstanding Recorded Investment: Post-Modification Outstanding Recorded Investment: 
Commercial - AQR substandard7$0 $0 $408 $2,561 $2,969 
Real estate term owner occupied - AQR substandard1182 182 
Commercial & industrial loansCommercial & industrial loans1$— $3,118 $— $— $3,118 
Commercial real estate:Commercial real estate:
Owner occupied propertiesOwner occupied properties1— 350 — — 350 
Residential real estate:Residential real estate:
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens1— — 139 — 139 
Other construction, land development and raw land loansOther construction, land development and raw land loans1— 577 — — 577 
TotalTotal7$0 $0 $590 $2,561 $3,151 Total4$— $4,045 $139 $— $4,184 


    The Company had 0no commitments to extend additional credit to borrowers owing receivables whose terms have been modified in TDRs at December 31, 2020.2022.  There were 0zero charge-offs in 20202022 and 2021 on loans that were later classified as a TDR and there were $64,000 of charge-offs in 2019 on loans that were later classified as a TDR in 2019.
    All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the Allowance. There was 1 TDR with specific impairment at December 31, 2020 and NaN at December 31, 2019, respectively.
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TDR.
    There were 0no loans that were restructured during 20202022, 2021, or 2019,2020 that also subsequently defaulted within the first twelve months of restructure in those same periods. The following table presents TDRs that occurred during 2018 that subsequently defaulted during the twelve-months ended December 31, 2018:
  December 31, 2018
 Number of ContractsRecorded Investment
(In  Thousands)
Troubled Debt Restructurings that Subsequently Defaulted:  
Commercial - AQR substandard4$1,166
Real estate term owner occupied - AQR substandard21,694 
Total6$2,860
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Loans to Related Parties
    Certain directors, and companies of which directors are principal owners, have loans and other transactions such as architectural fees with the Company.  Such transactions are made on substantially the same terms, including interest rates and collateral required, as those prevailing for similar transactions of unrelated parties.  An analysis of the loan transactions for the years indicated follows:
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
Balance, beginning of the yearBalance, beginning of the year$309 $0 $0 Balance, beginning of the year$191 $217 $309 
Loans madeLoans made309 Loans made1,886 — — 
RepaymentsRepayments92 Repayments81 26 92 
Balance, end of yearBalance, end of year$217 $309 $0 Balance, end of year$1,996 $191 $217 
 
    The Company had $15,000$110,000 of unfunded loan commitments to these directors or their related interests on December 31, 20202022 and 2019.$115,000 of unfunded loan commitments on December 31, 2021.
Pledged Loans
    At December 31, 20202022 and 2019,2021, there were 0no loans pledged as collateral to secure public deposits.

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NOTE6 - Allowance for Loan Losses
    The following table details activity in the Allowance for the periods indicated:
(In Thousands)CommercialReal estate construction one-to-four familyReal estate construction otherReal estate term owner occupiedReal estate term non-owner occupiedReal estate term otherConsumer secured by 1st deed of trustConsumer otherUnallocatedTotal
2020          
Balance, beginning of period$6,604 $643 $1,017 $2,188 $5,180 $671 $270 $436 $2,079 $19,088 
Charge-Offs(1,021)(85)(15)(1,121)
Recoveries710 25 737 
Provision (benefit)1,680 36 162 522 (47)106 (9)(46)28 2,432 
Balance, end of period$7,973 $679 $1,179 $2,625 $5,133 $779 $261 $400 $2,107 $21,136 
Balance, end of period:         
Individually evaluated         
for impairment$13 $0 $0 $0 $0 $0 $0 $0 $0 $13 
Balance, end of period:         
Collectively evaluated         
for impairment$7,960 $679 $1,179 $2,625 $5,133 $779 $261 $400 $2,107 $21,123 
2019          
Balance, beginning of period$5,660 $675 $1,275 $2,027 $5,799 $716 $306 $426 $2,635 $19,519 
Charge-Offs(195)(4)(18)(217)
Recoveries908 28 25 961 
Provision (benefit)231 (32)(258)161 (619)(73)(32)(556)(1,175)
Balance, end of period$6,604 $643 $1,017 $2,188 $5,180 $671 $270 $436 $2,079 $19,088 
Balance, end of period:         
Individually evaluated         
for impairment$17 $0 $0 $0 $0 $0 $0 $0 $0 $17 
Balance, end of period:         
Collectively evaluated         
for impairment$6,587 $643 $1,017 $2,188 $5,180 $671 $270 $436 $2,079 $19,071 
2018 
Balance, beginning of period$6,172 $629 $1,566 $2,194 $6,043 $725 $315 $307 $3,510 $21,461 
Charge-Offs(1,716)(28)(143)(39)(1,926)
Recoveries442 012 27 484 
Provision (benefit)762 46 (291)(167)(244)16 122 131 (875)(500)
Balance, end of period$5,660 $675 $1,275 $2,027 $5,799 $716 $306 $426 $2,635 $19,519 
Balance, end of period:         
Individually evaluated         
for impairment$14 $0 $0 $0 $0 $0 $0 $0 $0 $14 
Balance, end of period:         
Collectively evaluated         
for impairment$5,646 $675 $1,275 $2,027 $5,799 $716 $306 $426 $2,635 $19,505 
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    The following is a detail of the recorded investment, including unearned origination fees, net of origination costs, in the loan portfolio, segregated by amounts evaluated individually or collectively in the Allowance at the periods indicated:
(In Thousands)CommercialReal estate construction one-to-four familyReal estate construction otherReal estate term owner occupiedReal estate term non-owner occupiedReal estate term otherConsumer secured by 1st deed of trustConsumer otherTotal
December 31, 2020         
Balance, end of period$772,468 $38,180 $79,403 $162,724 $307,247 $46,230 $15,548 $22,250 $1,444,050 
Balance, end of period:         
Individually evaluated         
for impairment$7,786 $702 $0 $6,962 $770 $1,467 $259 $82 $18,028 
Balance, end of period:         
Collectively evaluated         
for impairment$764,682 $37,478 $79,403 $155,762 $306,477 $44,763 $15,289 $22,168 $1,426,022 
December 31, 2019         
Balance, end of period$411,327 $38,503 $60,906 $138,181 $311,302 $42,200 $16,191 $24,761 $1,043,371 
Balance, end of period:         
Individually evaluated         
for impairment$16,077 $1,349 $0 $5,104 $178 $1,594 $281 $90 $24,673 
Balance, end of period:         
Collectively evaluated         
for impairment$395,250 $37,154 $60,906 $133,077 $311,124 $40,606 $15,910 $24,671 $1,018,698 
    The following represents the balance of the Allowance for the periods indicated segregated by segment and class:
(In Thousands)TotalCommercialReal estate construction 1-4 familyReal estate construction otherReal estate term owner occupiedReal estate term non-owner occupiedReal estate term otherConsumer secured by 1st deeds of trustConsumer otherUnallocated
December 31, 2020          
Individually evaluated for impairment         
AQR Doubtful$13 $13 $0 $0 $0 $0 $0 $0 $0 $0 
Collectively evaluated for impairment:         
AQR Pass18,626 7,801 672 1,179 2,573 5,001 742 261 397 
AQR Special Mention384 156 52 132 37 
AQR Substandard
Unallocated2,107 2,107 
 $21,136 $7,973 $679 $1,179 $2,625 $5,133 $779 $261 $400 $2,107 
December 31, 2019          
Individually evaluated for impairment:         
AQR Substandard$17 $17 $0 $0 $0 $0 $0 $0 $0 $0 
Collectively evaluated for impairment:         
AQR Pass16,399 6,514 588 1,017 2,125 4,829 629 266 431 
AQR Special Mention579 64 55 63 351 42 
AQR Substandard14 
Unallocated2,079 2,079 
 $19,088 $6,604 $643 $1,017 $2,188 $5,180 $671 $270 $436 $2,079 


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NOTE 76 - Purchased Receivables
    We purchase accounts receivable from our business customers and provide them with short-term working capital.  We provide this service to our customers in Alaska and in Washington and the greater west coast through NFS.  Our purchased receivable activity is guided by policies that outline risk management, documentation, and approval limits.  The policies are reviewed and approved annually by the Board of Directors.
    Purchased receivables are carried at their principal amount outstanding, net of a reserve for inherent losses that have not yet been identified,an ACL, and have a maturity of less than one year.  Purchased receivable balances are charged against this reserve when management believes that collection of principal is unlikely.  Management evaluates the adequacy of the reserve for purchased receivable losses based on historical loss experience by segment and class of receivable and its assessment of current economic conditions.  As of December 31, 2020, the Company has 1 segment and class of purchased receivables.  There are 0no purchased receivables past due at December 31, 20202022 or 2019, and there were 0 restructured purchased receivables in 2020, 2019, or 2018.
2021. Income on purchased receivables is accrued and recognized on the balance outstanding using an effective interest method except when management believes doubt exists as to the collectability of the income or principal.  AsThere were no nonperforming purchased receivables as of December 31, 2020, the Company is accruing income on all purchased receivable balances outstanding.2022 or 2021.
    The following table summarizes the components of net purchased receivables at December 31, for the years indicated:
(In Thousands)(In Thousands)20202019(In Thousands)20222021
Purchased receivablesPurchased receivables$13,995 $24,467 Purchased receivables$19,994 $6,987 
Reserve for purchased receivable losses(73)(94)
Allowance for credit losses - purchased receivablesAllowance for credit losses - purchased receivables— — 
TotalTotal$13,922 $24,373 Total$19,994 $6,987 
    
    The following table sets forth information regarding changes in the ACL on purchased receivable reservereceivables for the periods indicated: 
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
Balance at beginning of yearBalance at beginning of year$94 $190 $200 Balance at beginning of year$— $73 $94 
Reserve for (recovery from) purchased receivables(21)(96)(10)
Impact of adopting ASC 326Impact of adopting ASC 326— (73)— 
Charge-offs Charge-offs— — — 
Recoveries Recoveries— — — 
Charge-offs net of recoveriesCharge-offs net of recoveries— — — 
Benefit for purchased receivablesBenefit for purchased receivables— — (21)
Balance at end of yearBalance at end of year$73 $94 $190 Balance at end of year$— $— $73 

    The Company recorded 0 charge-offs of purchased receivables in 2020, 2019, or 2018.

NOTE8 - Other Real Estate Owned
    At December 31, 2020 and 2019, the Company held $7.3 million and $7.0 million, respectively, as OREO.  The following table details net operating (income) expense related to OREO for the years indicated:
Years Ended December 31,
(In Thousands)202020192018
OREO (income) expense, net rental income and gains on sale: 
OREO operating expense$658 $693 $802 
Impairment on OREO
Rental income on OREO(509)(506)(541)
Gains on sale of OREO(391)(380)(3)
     Total($242)($193)$258 
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NOTE9 - Premises and Equipment
    The following summarizes the components of premises and equipment at December 31 for the years indicated:
(In Thousands)Useful Life20202019
Land $5,137 $5,137 
Furniture and equipment3-7 years13,157 11,778 
Tenant improvements2-15 years9,182 9,161 
Buildings39 years37,618 36,205 
Total Premises and Equipment 65,094 62,281 
Accumulated depreciation and amortization (26,992)(23,859)
Total Premises and Equipment, Net $38,102 $38,422 
    Depreciation expense and amortization of leasehold improvements was $3.1 million, $3.0 million, and $2.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Related Party Transactions: The Company made 0 payments to related parties in 2020 or 2019 and $49,000 in payments to related parties for design consultation for Bank branches for the year ended December 31, 2018.

NOTE10 7 - Servicing Rights
Mortgage servicing rights
    The following table details the activity in the Company's MSR for the year indicated:
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
Balance, beginning of periodBalance, beginning of period$11,920 $10,821 $7,305 Balance, beginning of period$13,724 $11,218 $11,920 
Additions for new MSR capitalizedAdditions for new MSR capitalized4,824 3,707 3,641 Additions for new MSR capitalized4,623 6,088 4,824 
Changes in fair value:Changes in fair value:Changes in fair value:
Due to changes in model inputs of assumptions (1)
Due to changes in model inputs of assumptions (1)
(2,701)(1,313)591 
Due to changes in model inputs of assumptions (1)
1,615 (1,181)(2,701)
Other (2)
Other (2)
(2,825)(1,295)(716)
Other (2)
(1,327)(2,401)(2,825)
Carrying value, December 31Carrying value, December 31$11,218 $11,920 $10,821 Carrying value, December 31$18,635 $13,724 $11,218 

(1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
(2) Represents changes due to collection/realization of expected cash flows over time.

    The following table details information related to our serviced mortgage loan portfolio:portfolio as of the dates indicated:
(In Thousands)(In Thousands)December 31, 2020December 31, 2019(In Thousands)December 31, 2022December 31, 2021
Balance of mortgage loans serviced for othersBalance of mortgage loans serviced for others$683,117 $659,048 Balance of mortgage loans serviced for others$898,840 $772,764 
MSR as a percentage of serviced loansMSR as a percentage of serviced loans1.64 %1.81 %MSR as a percentage of serviced loans2.07 %1.78 %

    The Company recognized servicing fees of $3.3 million, $2.9 million, and $2.7 million $2.4 million,during 2022, 2021, and $1.9 million during 2020, 2019, and 2018, respectively, which includes contractually specified servicing fees and ancillary fees which are included in "Mortgage banking income" as a component of other noninterest income in the Company's Consolidated Statements of Income.

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    The following table outlines the key assumptions used in measuring the fair value of mortgage servicing rights as of December 31, 20202022 and 2019:2021:
2020201920222021
Average constant prepayment rateAverage constant prepayment rate13.05 %10.61 %Average constant prepayment rate6.64 %11.80 %
Average discount rateAverage discount rate7.75 %8.52 %Average discount rate11.25 %8.00 %

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    Key economic assumptions and the sensitivity of the current fair value for mortgage servicing rights to immediate adverse changes in those assumptions at December 31, 20202022 and 20192021 were as follows:
(In Thousands)(In Thousands)December 31, 2020December 31, 2019(In Thousands)December 31, 2022December 31, 2021
Aggregate portfolio principal balanceAggregate portfolio principal balance$683,117 $659,048 Aggregate portfolio principal balance$898,840 $772,764 
Weighted average rate of noteWeighted average rate of note3.62 %3.90 %Weighted average rate of note3.47 %3.31 %
December 31, 2020Base1.0% Adverse Rate Change2.0% Adverse Rate Change
December 31, 2022December 31, 2022Base1.0% Adverse Rate Change2.0% Adverse Rate Change
Conditional prepayment rateConditional prepayment rate13.05 %26.11 %38.97 %Conditional prepayment rate6.64 %13.28 %19.92 %
Discount rateDiscount rate7.75 %6.75 %5.75 %Discount rate11.25 %10.25 %9.25 %
Fair value MSRFair value MSR$11,218 $7,455 $5,404 Fair value MSR$18,635 $14,763 $11,796 
Percentage of MSRPercentage of MSR1.64 %1.09 %0.79 %Percentage of MSR2.07 %1.64 %1.31 %
December 31, 2019
December 31, 2021December 31, 2021
Conditional prepayment rateConditional prepayment rate10.61 %26.25 %28.39 %Conditional prepayment rate11.80 %23.59 %34.57 %
Discount rateDiscount rate8.52 %7.52 %6.52 %Discount rate8.00 %7.00 %6.00 %
Fair value MSRFair value MSR$11,920 $7,005 $6,625 Fair value MSR$13,724 $9,612 $7,256 
Percentage of MSRPercentage of MSR1.81 %1.06 %1.01 %Percentage of MSR1.78 %1.24 %0.94 %

    The above tables show the sensitivity to market rate changes for the par rate coupon for a conventional one-to-four family Alaska Housing Finance Corporation/AHFC/FNMA/FHLMC serviced home loan. The above tables reference a 100 basis point and 200 basis point decrease in notediscount rates.

    These sensitivities are hypothetical and should be used with caution as the tables above demonstrate the Company’s methodology for estimating the fair value of MSR is highly sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in these tables, the effects of a variation in a particular assumption on the fair value of the MSR is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.

Commercial servicing rights
    Commercial servicing right assets ("CSRs") have a carrying value of $1.3$2.1 million and $1.2$1.1 million at December 31, 20202022 and 2019,2021, respectively, and total commercial loans serviced for others were $274.6$285.3 million and $252.9$259.8 million at December 31, 20202022 and 2019,2021, respectively. Key assumptions used in measuring the fair value of CSRs as of December 31, 20202022 and 20192021 include aan average conditional prepayment rate of 9.66%10.19% and 12.25%16.08% and a discount rate of 9.46%12.00% and 11.70%9.94%, respectively.

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NOTE 8 - Other Real Estate Owned
    At December 31, 2022 and 2021, the Company held zero and $5.6 million, respectively, as OREO.  The following table details net operating (income) expense related to OREO for the years indicated:
Years Ended December 31,
(In Thousands)202220212020
OREO (income) expense, net rental income and gains on sale: 
OREO operating expense$634 $777 $658 
Rental income on OREO(548)(524)(509)
Losses/ (gains) on sale of OREO414 (685)(391)
     Total$500 ($432)($242)

NOTE11 9 - GoodwillPremises and Intangible AssetsEquipment
    A summary    The following summarizes the components of goodwillpremises and intangible assetsequipment at December 31 2020 and 2019, is as follows:for the years indicated:
(In Thousands)20202019
Intangible assets:  
Goodwill$15,017 $15,017 
Core deposit intangible79 127 
Trade name intangible950 950 
Total$16,046 $16,094 

(In Thousands)Useful Life20222021
Land $5,376 $5,137 
Furniture and equipment3-7 years15,778 14,287 
Tenant improvements2-15 years10,409 10,394 
Buildings39 years39,333 37,283 
Total Premises and Equipment 70,896 67,101 
Accumulated depreciation and amortization (33,075)(29,937)
Total Premises and Equipment, Net $37,821 $37,164 
 The Company performed goodwill impairment testing at March 31, 2020, December 31, 2020 and December 31, 2019 in accordance with the policy described in Note 1 to the financial statements. The Company's policy dictates that the Company will perform interim impairment testing when a triggering event occurs. The Company performed the interim impairment test as of March 31, 2020 using a discounted cash flow approach. The estimated fair value of each of the Company's segments exceeded its carrying value as of March 31, 2020, and management therefore concluded that no impairment existed at that time.
At December 31, 2020, the Company performed its annual impairment test using a quantitative assessment. The Company estimated the fair value of the Company using two valuation methodologies including a control premium approach and a discounted cash flow approach. We then compared the estimated fair value of each segment to the carrying value at December 31, 2020 and concluded that no impairment existed at that time.
    The Company recordedDepreciation and amortization expense of its intangible assets of $48,000, $60,000,was $3.1 million, $3.3 million, and $70,000$3.1 million for the years ended December 31, 2022, 2021, and 2020, 2019, and 2018, respectively.  Accumulated amortization for intangible assets was $6.0 million and $5.9 million at December 31, 2020 and 2019. 
    The future amortization expense required on these assets is as follows:
(In Thousands) 
2021$37 
202225 
202314 
2024
2025
Thereafter
Total$79 

NOTE 1210 – Leases
    We adopted ASU 2016-02 Leases (Topic 842) ("ASU 2016-02") using the modified retrospective approach with an effective date asThe Company's lease commitments consist primarily of January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below. We elected the package of transition provisions available for expired or existing contracts, which allowed usagreements to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company also elected the practical expedient on not separating lease components from nonlease components for all operating leases. Additionally, the Company has elected to not apply ASU 2016-02 to short-term leases. Short-term leases are those leases that, at the lease commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

    The Company has lease agreements for land and office facilities that it occupies to operate several of its retail branch locations as well as one storage facility, that are classified as operating leases and are recognized on the balance sheet as right-of-use ("ROU") assetsasset and lease liabilities. Most of these leases contain options to extend the duration of the leases at management's discretion. Management has recognized these renewal options as part of its ROU asset and lease liabilities when management is reasonably certain to exercise these options. Whether or not management is reasonably certain to exercise such
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an option is determined based on facts and circumstances for each individual lease. However, if a renewal option is offered at below market terms, management considers the exercise of that option to be reasonably certain for the purposes of calculating its ROU assets and lease liabilities. None of the Company's leases include residual value guarantees, and there are no restrictions or covenants imposed by these leases that impose significant additional financial obligations on the Company. The Company uses the rate implicit in each lease as the discount rate to determine the lease liability, which is the present value of lease payments not yet paid at the lease commencement date. If the rate implicit in each lease is not readily determinable, which is often the case, the Company uses its incremental borrowing rate as the discount rate. The incremental borrowing rate is the rate that the Company would have incurred to borrow the funds necessary to purchase the leased asset over a similar term.

As of December 31, 2020,2022, the Company has operating lease ROU assets of $12.4$9.9 million and operating lease liabilities of $12.4$9.9 million. As of December 31, 2019,2021, the Company has operating lease ROU assets of $14.3$11.0 million and operating lease liabilities of $14.2$11.0 million. The Company does not have any agreements that are classified as finance leases.

    The following table presents additional information about the Company's operating leases:
(In Thousands)(In Thousands)20202019(In Thousands)20222021
Lease CostLease CostLease Cost
Operating lease cost(1)
Operating lease cost(1)
$2,819 $2,704 
Operating lease cost(1)
$2,737 $2,773 
Short term lease cost(1)
Short term lease cost(1)
35 35 
Short term lease cost(1)
37 27 
Total lease costTotal lease cost$2,854 $2,739 Total lease cost$2,774 $2,800 
Other informationOther informationOther information
Operating leases - operating cash flowsOperating leases - operating cash flows$2,681 $2,684 Operating leases - operating cash flows$2,545 $2,614 
Weighted average lease term - operating leases, in yearsWeighted average lease term - operating leases, in years10.7210.82Weighted average lease term - operating leases, in years10.5210.55
Weighted average discount rate - operating leasesWeighted average discount rate - operating leases3.29 %3.32 %Weighted average discount rate - operating leases3.30 %3.21 %
(1)Expenses are classified within occupancy expense on the Consolidated Statements of Income.
(1)Expenses are classified within occupancy expense on the Consolidated Statements of Income.
(1)Expenses are classified within occupancy expense on the Consolidated Statements of Income.
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    The table below reconciles the remaining undiscounted cash flows for the next five years for each twelve-month period presented and the total of the subsequent remaining years to the operating lease liabilities recorded on the balance sheet:
(In Thousands)(In Thousands)Operating Leases(In Thousands)Operating Leases
2021$2,619 
20222,215 
202320231,925 2023$2,476 
202420241,795 20242,187 
202520251,732 20251,995 
20262026861 
20272027500 
ThereafterThereafter4,875 Thereafter4,082 
Total minimum lease paymentsTotal minimum lease payments$15,161 Total minimum lease payments$12,101 
Less: amount of lease payment representing interestLess: amount of lease payment representing interest(2,783)Less: amount of lease payment representing interest(2,236)
Present value of future minimum lease paymentsPresent value of future minimum lease payments$12,378 Present value of future minimum lease payments$9,865 


NOTE 11 - Goodwill and Intangible Assets
    A summary of goodwill and intangible assets at December 31, 2022 and 2021, is as follows:
(In Thousands)20222021
Intangible assets:  
Goodwill$15,017 $15,017 
Core deposit intangible17 42 
Trade name intangible950 950 
Total$15,984 $16,009 

    The Company performed goodwill impairment testing at December 31, 2022 and December 31, 2021 in accordance with the policy described in Note 1 to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report. 
At December 31, 2022, the Company performed its annual impairment test using a qualitative assessment. Significant positive inputs to the qualitative assessment included the Company’s increasing net income as compared to historical trends; the Company's increasing market share for deposits in our markets; results of regulatory examinations; peer comparisons of the Company's net interest margin; trends in the Company’s cash flows; improvements in the Alaskan economy in 2022; increases in the Company's market share of mortgage originations; and increases in the Company's stock price. Significant negative inputs to the qualitative assessment included the muted pace of growth in the Alaskan economy and a decline in home mortgage originations. We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs, and we therefore concluded that it is more likely than not that no impairment existed at that time.
    The Company recorded amortization expense of its intangible assets of $25,000, $37,000, and $48,000 for the years ended December 31, 2022, 2021, and 2020, respectively.  Accumulated amortization for intangible assets was $6.0 million at both December 31, 2022 and 2021. 
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    The future amortization expense required on these assets is as follows:
(In Thousands) 
2023$14 
2024
2025— 
2026— 
2027— 
Thereafter— 
Total$17 

NOTE 1312 - Other Assets
    A summary of other assets as of December 31, 20202022 and 2019,2021, is as follows:
(In Thousands)20202019
Other assets:  
Investment in Low Income Housing Partnerships$24,142 $27,841 
Accrued interest receivable7,979 4,512 
Interest rate swaps not designated as hedging instruments7,387 2,950 
Bank owned life insurance, net6,520 6,393 
Taxes receivable4,083 1,429 
Interest rate lock commitments4,034 810 
Software3,905 4,590 
Equity method investments2,462 2,232 
Prepaid expenses2,404 1,649 
Deferred taxes, net1,980 2,535 
Commercial servicing rights1,310 1,214 
Repossessed assets231 231 
Other assets2,051 1,690 
Total$68,488 $58,076 
Equity Method Investments: The Company applies the equity method of accounting for the following related entities:
The Company owns a 24% interest in PWA, an investment advisory, trust, and wealth management business located in Seattle, Washington.     
The Company owns a 30% interest in Homestate Mortgage Company, LLC, a mortgage origination business located in Anchorage, Alaska.
(In Thousands)20222021
Other assets:  
Investment in Low Income Housing Partnerships$17,289 $20,640 
Interest rate swaps not designated as hedging instruments, at fair value12,725 6,030 
Deferred taxes, net11,367 3,278 
Accrued interest receivable9,937 6,846 
Bank owned life insurance, net4,345 4,293 
Prepaid expenses2,358 2,210 
Commercial servicing rights, at fair value2,129 1,084 
Equity method investments1,925 2,219 
Taxes receivable1,749 1,994 
Software1,741 2,855 
Interest rate lock commitments440 1,387 
Other assets2,841 1,525 
Total$68,846 $54,361 
Low Income Housing Partnerships: The following table shows the Company's commitments to invest in various low income housing tax credit partnerships. The Company earns a return on its investments in the form of tax credits and deductions that flow through to it as a limited partner in these partnerships.  The Company recognized amortization expense of $3.4 million, $3.5 million, $2.7 million, and $2.7$3.5 million in 2020, 2019,2022, 2021, and 2018,2020, respectively.  The Company expects to fund its remaining $9.9$1.0 million in commitments on these investments through 2030.
(In Thousands)(In Thousands)Date of original commitmentYears over which tax benefits are earnedOriginal commitment amountLess: life to date contributionsRemaining commitment amount(In Thousands)Date of original commitmentYears over which tax benefits are earnedOriginal commitment amountLess: life to date contributionsRemaining commitment amount
USA 57USA 57December 2006153,000 (3,000)USA 57December 2006153,000 (3,000)— 
WNCWNCDecember 2012162,500 (2,500)WNCDecember 2012162,500 (2,500)— 
R4 - CoronadoR4 - CoronadoMarch 20131710,729 (10,616)113 R4 - CoronadoMarch 20131710,729 (10,642)87 
R4 - MVVR4 - MVVMay 2014178,528 (8,328)200 R4 - MVVMay 2014178,528 (8,368)160 
R4 - PJ33R4 - PJ33June 2016176,835 (6,512)323 R4 - PJ33June 2016176,835 (6,547)288 
R4 - Coronado IIR4 - Coronado IIJuly 2019177,282 (1,665)5,617 R4 - Coronado IIJuly 2019177,302 (7,034)268 
R4 - Duke ApartmentsR4 - Duke ApartmentsNovember 2019173,985 (372)3,613 R4 - Duke ApartmentsNovember 2019173,985 (3,755)230 
TotalTotal$42,859 ($32,993)$9,866 Total$42,879 ($41,846)$1,033 

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NOTE 1413 - Deposits
Deposits: At December 31, 2020,2022, the scheduled maturities of certificates of deposit are as follows:
(In Thousands)(In Thousands)(In Thousands)
2021$128,970 
202237,347 
202320236,890 2023$128,413 
20242024495 202452,077 
20252025135 202510,205 
20262026260 
20272027145 
ThereafterThereafter1,794 Thereafter1,757 
TotalTotal$175,631 Total$192,857 
 
    The Company offers the Certificate of Deposit Account Registry Service® (CDARS®) and Insured Cash Sweep® (ICS®) serviceIntraFi® Network DepositsSM as a member of Promontory InterfinancialIntraFi® Network LLCSM SM (Network). When a Network member places a deposit using CDARS,IntraFi Network Deposits, that certificate of deposit or deposit account is divided into amounts under the standard FDIC insurance maximum ($250,000) and is allocated among member banks, making the large deposit eligible for FDIC insurance. The ICS service allows the Company to place customers’ funds through the Network into demand deposit accounts and/or money market accounts at FDIC-insured banks that are also members of the ICS Network in increments below the standard FDIC insurance maximum ($250,000) so that both principal and interest are eligible for FDIC insurance. In addition to customer deposit placement, the CDARS and ICS serviceIntraFi Network Deposits also allows placement of the Bank's own investment dollars. The Company had $9.4$30.2 million CDARSin IntraFi Network Deposits certificates of deposits and $86.5$209.0 million ICS depositsin IntraFi Network Deposits in deposit accounts at December 31, 20202022 and $1.2$24.0 million CDARSin IntraFi Network Deposits certificates of deposits and $44.5$223.7 million ICS depositsin IntraFi Network Deposits in deposit accounts at December 31, 2019.2021.

    At December 31, 20202022 and 2019,2021, the Company held $4.6$3.8 million and $1.6$3.6 million, respectively, in deposits for related parties, including directors, executive officers, and their affiliates.
Interest expense:     Interest expense onAt December 31, 2022 and 2021, the Company reclassified $1.3 million and $163,000, respectively, in overdrafts from deposits is presented below:
(In Thousands)202020192018
Interest-bearing demand accounts$108 $182 $8 
Money market accounts1,222 1,435 855 
Savings accounts717 1,083 744 
Certificates of deposit $250,000 and greater1,823 1,310 472 
Certificates of deposit less than $250,0001,409 951 228 
Total$5,279 $4,961 $2,307 
to loans.

NOTE 1514 - Borrowings
    The Company has a maximum line of credit with the FHLB approximating 45% of eligible assets.  FHLB advances are subject to collateral criteria that require the Company to pledge assets under a blanket pledge arrangement as collateral for its borrowings from the FHLB.  Based on assets currently pledged and advances currently outstanding at December 31, 2020,2022, the Company's available borrowing line is $232.7$315.3 million, representing approximately 11%12% of total assets. Additional advances of up to 45% of eligible assets, or $946.2 million,$1.19 billion, are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Company’s assets.  The Company has outstanding FHLB advances of $14.8$14.1 million and $8.9$14.5 million as of December 31, 20202022 and 2019,2021, respectively, which were originated to match fund low income housing projects that qualify for long-term fixed interest rates. These advances have original terms of either 18 or 20 years with 30 year amortization periods and fixed interest rates ranging from 1.23% to 3.25%.
    The Federal Reserve Bank is holding $79.5$44.3 million of loans as collateral to secure available borrowing lines through the discount window of $46.4$31.6 million at December 31, 2020.2022.  There were 0no discount window advances outstanding at December 31, 20202022 and 2019.2021.  The Company paid less than $1,000 in interest in 20202022 and 20192021 on this agreement. The
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Company utilized the Federal Reserve Bank's PPPLF to fund SBA PPP loans during the second quarter of 2020, but has repaid those funds in full as of June 30, 2020. This advance had an interest rate of 0.35%.
    The Company is subject to provisions under Alaska state law, which generally limit the amount of the Bank's outstanding debt to 35% of total assets or $736.0$929.3 million at December 31, 20202022 and 15% of total assets $244.7$948.0 million at December 31, 2019.2021.
    Securities sold under agreements to repurchase were 0zero for both December 31, 20202022 and 2019.  The average balance outstanding of securities sold under agreement to repurchase during 2020 and 2019 was 0 and $15.2 million, respectively, and the maximum outstanding at any month-end was 0 and $36.6 million, respectively, during the same time periods.  The securities sold under agreement to repurchase were held by the FHLB under the Company’s control.    2021. 
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    The future principal payments that are required on the Company’s borrowings as of December 31, 2020,2022, are as follows:
(In Thousands)(In Thousands)(In Thousands)
2021$312 
20222022412 2022$421 
20232023421 2023431 
20242024431 2024441 
20252025441 2025453 
20262026462 
ThereafterThereafter12,800 Thereafter11,887 
TotalTotal$14,817 Total$14,095 
    
    The Company recognized interest expense of $387,000, $291,000,$320,000, $320,000, and $273,000$387,000 on borrowings and securities sold under repurchase agreements in 2020, 2019,2022, 2021, and 2018,2020, respectively. The average interest rates paid on long-term debt in the same periods was 3.12%2.92%, 3.39%2.90%, and 3.39%3.12%, respectively.

NOTE 1615 - Junior Subordinated Debentures
    In December of 2005, the Company formed a wholly-owned Connecticut statutory business trust subsidiary, Northrim Statutory Trust 2 (the “Trust 2”), which issued $10 million of guaranteed undivided beneficial interests in the Company’s Junior Subordinated Deferrable Interest Debentures (“Trust Preferred Securities 2”). These debentures qualify as Tier 1 capital under Federal Reserve Board guidelines.  All of the common securities of Trust 2 are owned by the Company. The proceeds from the issuance of the common securities and the Trust Preferred Securities 2 were used by Trust 2 to purchase $10.3 million of junior subordinated debentures of the Company. Trust 2 is not consolidated in the Company’s financial statements in accordance with GAAP; therefore, the Company has recorded its investment in Trust 2 as an other asset and the subordinated debentures as a liability. The debentures, which represent the sole asset of Trust 2, accrue and pay distributions quarterly at a variable rate of 90-day LIBOR plus 1.37% per annum, adjusted quarterly, of the stated liquidation value of $1,000 per capital security.  The interest rate on these debentures was 1.59%6.14% at December 31, 2020.2022 compared to 1.57% at December 31, 2021. The interest cost to the Company on these debentures was $326,000, $160,000, and $219,000 $398,000,in 2022, 2021, and $368,000 in 2020, 2019, and 2018, respectively. The Company has entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment of: (i) accrued and unpaid distributions required to be paid on the Trust Preferred Securities 2; (ii) the redemption price with respect to any Trust Preferred Securities 2 called for redemption by Trust 2; and (iii) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of Trust 2.  The Trust Preferred Securities 2 are mandatorily redeemable upon maturity of the debentures on March 15, 2036, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by Trust 2 in whole or in part, on or after March 15, 2011. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. 
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NOTE 1716 – Accumulated Other Comprehensive Income (Loss)
    The following table shows changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2020, 2019,2022, 2021, and 2018:2020:
(In Thousands)Unrealized gains (losses) on securities available for saleUnrealized gains (losses) on derivatives and hedgingTotal
Balance at December 31, 2017($454)$184 ($270)
Other comprehensive income (loss), net of tax expense of $210(482)423 (59)
Reclassification for cumulative effect of adoption of accounting principles related to fair value measurement of equity securities(191)(191)
Balance at December 31, 2018($1,127)$607 ($520)
Other comprehensive income (loss), net of tax benefit of $(757)2,092 (1,141)951 
Balance at December 31, 2019$965 ($534)$431 
Other comprehensive income (loss), net of tax expense of $1,600294 (707)(413)
Balance at December 31, 2020$1,259 ($1,241)$18 

NOTE18 – Revenue
    The Company's revenue is included in net interest income and other operating income on its Consolidated Statements of Income. Topic 606 in the Accounting Standards Codification ("Topic 606") includes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of our ongoing revenue-generating transactions are not subject to Topic 606, including revenue associated with financial instruments and revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with MSRs, purchased receivable income, financial guarantees, and derivatives are also not in scope of the guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant services income, and commissions from the sales of mutual funds and other investments. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s non-interest revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Bankcard fees

Bankcard fees are primarily comprised of debit card income and ATM fees. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit cards are processed through card payment networks such as Visa or MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. The Company’s performance obligation for bankcard fees are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payments are typically received immediately or in the following month.

Service charges on deposit accounts

Service charges on deposit accounts consist of general service fees for monthly account maintenance, activity- or transaction-based fees, and account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), and other deposit account related fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed. Payments for service
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charges on deposit accounts are primarily received immediately or in the following month through a direct charge to customers’ accounts.

Other

Other operating income consists of other recurring revenue streams such as merchant services income, commissions from sales of mutual funds and other investments, safety deposit box rental fees, bank check and other check fees, unrealized gains and losses on marketable securities, and other miscellaneous revenue streams. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company’s performance obligation for merchant services income is largely satisfied, and related revenue recognized, when the transactions have been completed. Payment is typically received immediately or in the following month. The Company earns commissions from the sale of mutual funds as periodic service fees (i.e., trailers) from Elliott Cove Capital Management typically based on a percentage of net asset value. Trailer revenue is recorded over time, quarterly, as net asset value is determined. The Company also earns commission income from the sale of annuity products. The Company acts as an intermediary between the Company's customer and Elliott Cove Investment Advisors for these transactions, and commissions from annuity product sales are recorded when the Company’s performance obligation is satisfied, which is generally upon the issuance of the annuity policy. The Company does not earn trailer fees on annuity sales. Payment for commissions from sales of mutual funds and other investments and annuity sales is typically received in the following quarter. Other service charges include revenue from safety deposit box rental fees, processing wire transfers, bank check and other check fees, and other services. The Company’s performance obligations for these other revenue streams are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payments are typically received immediately or in the following month.

The following presents other operating income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2020, 2019 and 2018:
(In Thousands)December 31,
Other operating income202020192018
In-scope of Topic 606:
Bankcard fees$2,837 $2,976 $2,811 
Service charges on deposit accounts1,102 1,557 1,508 
Other1,528 1,664 1,592 
Other operating income (in-scope of Topic 606)$5,467 $6,197 $5,911 
Other operating income (out-of-scope of Topic 606)57,861 31,149 26,256 
Total other operating income$63,328 $37,346 $32,167 

    Gains on the sale of OREO are also within the scope of Topic 606 and are recorded within other operating expense on the Company's Consolidated Statements of Income. Gains on the sale of OREO properties were $391,000, $380,000, and $3,000 for the years ended December 31, 2020, 2019, and 2018, respectively.
(In Thousands)Unrealized gains (losses) on securities available for saleUnrealized gains (losses) on derivatives and hedgingTotal
Balance at December 31, 2019$965 ($534)$431 
Other comprehensive income (loss), net of tax expense of $1,600294 (707)(413)
Balance at December 31, 2020$1,259 ($1,241)$18 
Other comprehensive income (loss), net of tax benefit of $1,360(3,982)558 (3,424)
Balance at December 31, 2021($2,723)($683)($3,406)
Other comprehensive income (loss), net of tax expense of $10,199(27,399)1,724 (25,675)
Balance at December 31, 2022($30,122)$1,041 ($29,081)


NOTE 1917 - Employee Benefit Plans
    Employees of the Company are eligible to participate in the Company's 401(k) plan immediately upon date of hire. Employees may elect to have a portion of their salary contributed to the 401(k) plan in accordance with Section 401(k) of the Internal Revenue Code of 1986.1986 (the “Code”). The Company provides for a mandatory $1.00 match for each $1.00 contributed by employees of Northrimthe Bank up to 5.5% of the employee’s eligible salary.  The Company provides for a mandatory $1.00 match for each $1.00 contributed by employees of RML up to 2%3% of the employee’s eligible salary. NorthrimThe Bank or RML may increase the matching contribution at the discretion of the Board of Directors. The Company expensed $2.1 million, $1.8 million, and $1.7 million, $1.4 million,in 2022, 2021, and $1.4 million, in 2020, 2019, and 2018, respectively, for 401(k) contributions and included this expense in "Salaries and other personal expense" in the Consolidated Statements of Income.
    On July 1, 1994, Northrimthe Bank implemented a Supplemental Executive Retirement Plan for executive officers of Northrimthe Bank whose retirement benefits under the 401(k) plan have been limited under provisions of the Internal Revenue Code. Contributions to this plan totaled $264,000, $281,000, and $290,000, $262,000,in 2022, 2021, and $247,000, in 2020, 2019, and 2018, respectively.  These expenses are included in "Salaries and other personnel expense" in the Consolidated Statements of Income.  At December 31,
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2020 2022 and 2019,2021, the balance of the accrued liability for this plan was included in "Other liabilities" and totaled $2.1 million and $2.1$2.2 million, respectively.
    RML has established a Supplemental Executive Retirement Plan ("SERP"), under which RML has agreed to make payment to certain key executives, based on contributions made by RML to the plan and a variable rate of return. The SERP's assets primarily consist of the cash surrender value of life insurance policies.plan. Contributions and earnings made to the participant accounts to the SERP are vested over ten years. The Company recorded expenses of $516,000, $959,000, and $997,000 $580,000,in 2022, 2021, and $489,000 in 2020, 2019, and 2018, respectively. RML's recorded obligation under the SERP amounted to $2.6$3.1 million and $2.8$3.0 million at December 31, 20202022 and 2019,2021, respectively, and was included in "Other liabilities".
    In February of 2002, Northrim Bank implemented a non-qualified deferred compensation plan in which certain of the executive officers participate.  Northrim Bank's net liability under this plan is dependent upon market gains and losses on assets held in the plan.  Northrim Bank recognized a decrease in its liability of $51,000 in 2022, an increase in its liability of $173,000 in 2021, and an increase in its liability of $78,000 in 2020, an increase in its liability of $36,000 in 2019, and an increase in its liability of $52,000 in 2018.2020. These changes are included in "Salaries and other personnel expense" in the Consolidated Statements of Income.  At both December 31, 20202022 and 2019,2021, the balance of the accrued liability for this plan was included in "Other liabilities" and totaled $1.6 million and $1.6 million, respectively.$1.8 million.
    In November of 2011, Northrim Bank implemented a Profit Sharing Plan.  All employees of the Bank employed on the last day of the calendar year are eligible and will participate in the Profit Sharing Plan. The aggregate amount to be paid to employees under the Profit Sharing Plan is determined using Company-wide performance goals that are established by the Compensation Committee of the Board of Directors. If the performance goals are met for the year, profit sharing for the period
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is calculated based on a formula that is also approved by the Compensation Committee each year. The Compensation Committee has complete discretion to designate an employee as ineligible for profit sharing, or to adjust the amount of profit share payments by individual employee or in aggregate. The Compensation Committee approved management’s recommendation based upon the calculated payout under the Profit Sharing Plan’s methodology resulting in aggregate payouts of $3.8 million, $4.2 million, and $3.7 million $2.9for 2022, 2021, and 2020, respectively. 
At December 31, 2022 and 2021, the Company had accrued $1.4 million and $1.3$1.5 million, respectively, related to employee's paid time off benefit. The balance of the accrued liability for 2020, 2019, and 2018, respectively. this plan was included in "Other liabilities"

NOTE 2018 - Commitments and Contingencies
    Employee benefit plans: The Company is self-insured for medical, dental, and vision plan benefits provided to employees.  The Company has obtained stop-loss insurance to limit total medical claims in any one year to $175,000 per covered individual. The Company has established a liability for outstanding incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the liability, it is subject to change due to claim experience, type of claims, and rising medical costs.
    Legal proceedings: The Company from time to time may be involved with disputes, claims, and litigation related to the conduct of its banking business. In the opinion of management, the resolution of these matters will not have a material effect on the Company’s financial position, results of operations, or cash flows.
    Financial Instruments with Off-Balance Sheet Risk: In the ordinary course of business, the Company enters into various types of transactions that involve financial instruments with off-balance sheet risk. These instruments include commitments to extend credit and standby letters of credit and are not reflected in the accompanying balance sheets.  These transactions may involve to varying degrees credit and interest rate risk in excess of the amount, if any, recognized in the balance sheets. Certain commitments are collateralized. We apply the same credit standards to these commitments as in all of our lending activities and include these commitments in our lending risk evaluations. Management does not anticipate any loss as a result of these commitments.
    The Company’s off-balance sheet credit risk exposure is the contractual amount of commitments to extend credit and standby letters of credit. The Company applies the same credit standards to these contracts as it uses in its lending process. The following table presents the off-balance sheet commitments as of December 31, 2022 and December 31, 2021:
(In Thousands)20202019
Off-balance sheet commitments:  
Commitments to extend credit$375,065 $301,911 
Commitments to originate loans held for sale$150,276 $48,796 
Standby letters of credit$2,333 $2,006 
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(In Thousands)20222021
Off-balance sheet commitments:  
Commitments to extend credit$464,972 $361,915 
Commitments to originate loans held for sale$29,065 $81,617 
Standby letters of credit$3,679 $2,364 
     Commitments to extend credit are agreements to lend to customers.  These commitments have specified interest rates and generally have fixed expiration dates but may be terminated by the Company if certain conditions of the contract are violated. Our exposure to credit loss under commitments to extend credit is represented by the amount of these commitments. Although currently subject to draw down, many of the commitments do not necessarily represent future cash requirements. Collateral held relating to these commitments varies, but generally includes real estate, inventory, accounts receivable, and equipment.
    Mortgage loans sold to investors may be sold with servicing rights released, for which the Company makes only standard legal representations and warranties as to meeting certain underwriting and collateral documentation standards. In the past two years, the Company has had to repurchase 1 loansixteen loans due to deficiencies in underwriting or loan documentation and has not realized significant losses related to thisthese loans. Management believes that any liabilities that may result from such recourse provisions are not significant.
    Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Credit risk arises in these transactions from the possibility that a customer may not be able to repay the Company upon default of performance. Collateral held for standby letters of credit is based on an individual evaluation of each customer’s creditworthiness.
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    Total unfunded commitments were $527.7$497.7 million and $352.7$445.9 million at December 31, 20202022 and 2019,2021, respectively. The Company does not expect that all of these commitments are likely to be fully drawn upon at any one time. The Company has a reserve for lossesan ACL related to these commitments and letters of credit that is recorded in "Other liabilities" on the Consolidated Balance Sheets. The reserveACL for unfunded commitments was $187,000$2.0 million and $152,000$1.1 million as of December 31, 20202022 and 2019,2021, respectively.
    Capital Expenditures and Commitments: At December 31, 2020,2022, the Company has $594,000 capital commitments related to the planned improvements of two of the Company’s existing branches, as well as a new branch location. At December 31, 2020 the Company considers these commitments to be immaterial.construction. There were no other material changes outside of the ordinary course of business to any of our material contractual obligations during 2020.2022.
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Contingencies: At December 31, 2022, the Company holds a government guarantee related to the OREO property that was sold in December 2022, however, the value of this guarantee has not been included in the Company's financial statements in 2022 due to uncertainty as to the total amount that will be received from the guarantee. The Company expects to receive proceeds related to this government guarantee in 2023, which will be recorded in other operating income upon receipt.



NOTE 2119 - Derivatives
Interest rate swaps related to community banking activities
    The Company enters into commercial loans interest rate swaps with commercial banking customers which are offset with a corresponding swap agreement with a third party financial institution (“counterparty”). The Company has agreements with its counterparties that contain provisions that provide that if the Company fails to maintain its status as a well-capitalized"well-capitalized" institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. These agreements also require that the Company and the counterparty collateralize any fair value shortfalls that exceed $250,000 with eligible collateral, which includes cash and securities backed with the full faith and credit of the federal government. Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels. The Company pledged $10.7 million$553,000 and $4.7$8.2 million in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements as of December 31, 20202022 and 2019,2021, respectively.    
    The Company had interest rate swaps related to commercial loans with an aggregate notional amount of $196.0$226.2 million and $94.4$212.6 million at December 31, 20202022 and 2019,2021, respectively. At December 31, 2020,2022, the notional amount of interest rate swaps is made up of 1621 variable to fixed rate swaps to commercial loan customers totaling $98.0$113.1 million, and 1621 fixed to variable rate swap with a counterparty totaling $98.0$113.1 million. Changes in fair value from these NaN42 interest rate swaps offset each other in 2020both 2022 and 2019.2021. The Company recognized $949,000, $964,000,$157,000, $452,000, and $84,000$949,000 in fee income related to interest rate swaps in 20202022 and 2019,2021, and 2018,2020, respectively. Interest rate swap income is recorded in "Other income"other operating income on the Consolidated Statements of Income. None of these interest rate swaps are designated as hedging instruments.
    The Company has an interest rate swap to hedge the variability in cash flows arising out of its junior subordinated debentures, which is floating rate debt, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $10.0 million of junior subordinated debentures held under Trust 2 at 3.72% through its maturity date. The floating rate that the dealer pays is equal to the three month LIBOR plus 1.37%, which reprices quarterly on the payment date. This rate was 1.59%6.14% as of December 31, 2020.2022. The Company pledged $2.9 million$130,000 and $1.3$2.9 million in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of December 31, 20202022 and 2019,2021, respectively. Changes in the fair value of this interest rate swap are reported in other comprehensive income. The unrealized gain on this interest rate swap was $1.5 million and the unrealized loss on this interest rate swap was $1.7$1.0 million and $534,000 as of December 31, 20202022 and 2019,2021, respectively.
Interest rate swaps related to home mortgage lending activities
    The Company also uses derivatives to hedge the risk of changes in the fair values of interest rate lock commitments. The Company enters into commitments to originate residential mortgage loans at specific rates; the value of these commitments are detailed in the table below as "interest rate lock commitments". The Company also hedges the interest rate risk associated with its residential mortgage loan commitments, using interest rate swaps, which are referred to as "retail interest rate contracts" in the table below. Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates. At December 31, 20202022 and 2019,2021, RML had commitments to originate mortgage loans held for sale
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totaling $150.3$29.1 million and $48.8$81.6 million, respectively. Changes in the value of RML's interest rate derivatives are recorded in "Mortgagemortgage banking income"income on the Consolidated Statements of Income. None of these home mortgage lending derivatives are designated as hedging instruments.
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    The following table presents the fair value of derivatives not designated as hedging instruments:instruments as of the dates noted:
(In Thousands)(In Thousands)Asset Derivatives(In Thousands)Asset Derivatives
December 31, 2020December 31, 2019December 21, 2022December 31, 2021
Balance Sheet LocationFair ValueFair ValueBalance Sheet LocationFair ValueFair Value
Interest rate swapsInterest rate swapsOther assets$7,387 $2,950 Interest rate swapsOther assets$12,725 $6,030 
Interest rate lock commitmentsInterest rate lock commitmentsOther assets4,034 810 Interest rate lock commitmentsOther assets440 1,387 
Retail interest rate contractsRetail interest rate contractsOther assets— 166 
TotalTotal$11,421 $3,760 Total$13,165 $7,583 
(In Thousands)(In Thousands)Liability Derivatives(In Thousands)Liability Derivatives
December 31, 2020December 31, 2019December 31, 2022December 31, 2021
Balance Sheet LocationFair ValueFair ValueBalance Sheet LocationFair ValueFair Value
Interest rate swapsInterest rate swapsOther liabilities$7,387 $2,950 Interest rate swapsOther liabilities$12,725 $6,030 
Retail interest rate contractsRetail interest rate contractsOther liabilities880 71 Retail interest rate contractsOther liabilities— 
TotalTotal$8,267 $3,021 Total$12,728 $6,030 
    The following table presents the net gains (losses) of derivatives not designated as hedging instruments:instruments as of the dates noted:
(In Thousands)(In Thousands)Income Statement LocationDecember 31, 2020December 31, 2019(In Thousands)Income Statement LocationDecember 31, 2022December 31, 2021
Retail interest rate contractsRetail interest rate contractsMortgage banking income($7,980)($922)Retail interest rate contractsMortgage banking income$4,335 $1,930 
Interest rate lock commitmentsInterest rate lock commitmentsMortgage banking income3,062 (170)Interest rate lock commitmentsMortgage banking income(866)(2,529)
TotalTotal($4,918)($1,092)Total$3,469 ($599)
    Our derivative transactions with counterparties under International Swaps and Derivative Association master agreements that include “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes.

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    The following table summarizes the derivatives that have a right of offset as of December 31, 20202022 and 2019:2021:
December 31, 2020Gross amounts not offset in the Statement of Financial Position
December 31, 2022December 31, 2022Gross amounts not offset in the Statement of Financial Position
(In Thousands)(In Thousands)Gross amounts of recognized assets and liabilitiesGross amounts offset in the Statement of Financial PositionNet amounts of assets and liabilities presented in the Statement of Financial PositionFinancial InstrumentsCollateral PostedNet Amount(In Thousands)Gross amounts of recognized assets and liabilitiesGross amounts offset in the Statement of Financial PositionNet amounts of assets and liabilities presented in the Statement of Financial PositionFinancial InstrumentsCollateral PostedNet Amount
Asset DerivativesAsset DerivativesAsset Derivatives
Interest rate swapsInterest rate swaps$7,387$0 $7,387$0 $0 $7,387Interest rate swaps$12,725$— $12,725$— $— $12,725
Liability DerivativesLiability DerivativesLiability Derivatives
Interest rate swapsInterest rate swaps$7,387$0 $7,387$0 $7,387$0 Interest rate swaps$12,725$— $12,725$— $12,725$— 
Retail interest rate contractsRetail interest rate contracts880 880 880 Retail interest rate contracts— — — 
December 31, 2019Gross amounts not offset in the Statement of Financial Position
December 31, 2021December 31, 2021Gross amounts not offset in the Statement of Financial Position
(In Thousands)(In Thousands)Gross amounts of recognized assets and liabilitiesGross amounts offset in the Statement of Financial PositionNet amounts of assets and liabilities presented in the Statement of Financial PositionFinancial InstrumentsCollateral PostedNet Amount(In Thousands)Gross amounts of recognized assets and liabilitiesGross amounts offset in the Statement of Financial PositionNet amounts of assets and liabilities presented in the Statement of Financial PositionFinancial InstrumentsCollateral PostedNet Amount
Asset DerivativesAsset DerivativesAsset Derivatives
Interest rate swapsInterest rate swaps$2,950$0 $2,950$0 $0 $2,950Interest rate swaps$6,030$— $6,030$— $— $6,030
Retail interest rate contractsRetail interest rate contracts166 — 166 — — 166 
Liability DerivativesLiability DerivativesLiability Derivatives
Interest rate swapsInterest rate swaps$2,950$0 $2,950$0 $2,950$0 Interest rate swaps$6,030$— $6,030$— $6,030$— 
Retail interest rate contracts71 71 71 

NOTE 2220 - Common Stock
    Quarterly cash dividends were paid aggregating to $10.6 million, $9.4 million, and $8.8 million, $8.5 million,or $1.82 per share, $1.50 per share, and $7.1 million, or $1.38 per share, $1.26 per share,in 2022, 2021, and $1.02 per share, in 2020, 2019, and 2018, respectively.  On February 25, 2021,24, 2023, the Company announced that its Board of Directors declared a $0.37$0.60 per share cash dividend payable on March 19, 2021,17, 2023, to shareholders of record on March 11, 2021.9, 2023.  Federal and State regulations place certain limitations on the payment of dividends by the Company.
    In January 2020, the Company’s Board of Directors approved a plan whereby it would periodically repurchase for cash up to approximately 5% of its shares of common stock in the open market. At December, 31, 2020,2022, there were 0no shares available under the stock repurchase program. However, on February 1, 2021January 27, 2023 the Company announced that its Board of Directors authorized the repurchase of up to an additional 313,000285,000 shares of common stock. The Company intends to continue to repurchase its stock from time to time depending upon market conditions. The Company can make no assurances that it will continue this program or that it will authorize additional shares for repurchase.  During 2022, 2021 and 2020, 2019333,724, 279,276 and 2018, 327,000 347,676 and 15,468 shares of common stock were repurchased, respectively.

NOTE 2321 - Stock-Based Compensation
    The Company adopted the 2020 Stock Option Plan (“2020 Plan”) following shareholder approval of the 2020 Plan at the 2020 Annual Meeting. Subsequent to the adoption of the 2020 Plan, 0no additional grants may be issued under the prior plans. The 2020 Plan provides for grants of up to 325,000 shares, which includes any shares subject to stock awards under the Company's previous stock option plans.
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    Stock Options:  Under the 2020 Plan and previous plans, certain key employees have been granted the option to purchase set amounts of common stock at the market price on the day the option was granted. Optionees, at their own discretion, may pay cash to cover the cost of exercise, may cover the cost of exercise through the exchange at the then fair value of already owned shares of the Company’s stock, or they may cover the cost of exercise through net settlement of a portion of the stock options exercised in satisfaction of the exercise price and applicable tax withholding requirements. The two latter options are referred to as cashless stock option exercises. Options are granted for a 10-year period and vest on a pro-rata basis over the initial three years from the grant date.
    The Company measures the fair value of each stock option at the date of grant using the Black-Scholes option pricing model using assumptions noted in the following table. Expected volatility is based on the historical volatility of the price of the Company’s common stock. The Company uses historical data to estimate option exercise and stock option forfeiture rates within the valuation model. The expected term of options granted is determined based on historical experience with similar options and represents the period of time that options granted are expected to be outstanding. The expected dividend yield is based on dividend trends and the market value of the Company’s common stock at the time of grant. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
    The following assumptions were used to determine the fair value of stock options as of the grant date to determine compensation expense for the years ended December 31, 2020, 2019,2022, 2021, and 2018:2020:
Stock Options:Stock Options:202020192018Stock Options:202220212020
Grant date fair valueGrant date fair value$6.55 $5.34 $7.69 Grant date fair valueNA$10.27 $6.55 
Expected life of optionsExpected life of options8 years8 years8 yearsExpected life of optionsNA8 years8 years
Risk-free interest rateRisk-free interest rate0.79 %1.74 %3.01 %Risk-free interest rateNA1.33 %0.79 %
Dividend yield rateDividend yield rate4.55 %4.11 %2.91 %Dividend yield rateNA3.86 %4.55 %
Price volatilityPrice volatility35.44 %24.34 %23.47 %Price volatilityNA36.46 %35.44 %
    
    The following table summarizes stock option activity during 2020:2022: 
 Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Life, in Years  Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Life, in Years
Outstanding at January 1, 2020158,620 $30.45  
Outstanding at January 1, 2022Outstanding at January 1, 2022136,819 $33.53  
GrantedGranted20,173 32.09  Granted— —  
ForfeitedForfeited Forfeited— —  
ExercisedExercised Exercised(16,624)28.57  
Outstanding at December 31, 2020178,793 $30.64 6.29
Outstanding at December 31, 2022Outstanding at December 31, 2022120,195 $34.21 5.64
 
    At December 31, 2020, 2019,2022, 2021, and 2018,2020, there were 136,038, 112,319,106,714, 107,553, and 100,824136,038 options exercisable, with weighted average exercise prices of $29.42, $28.17,$33.78, $32.63, and $26.50,$29.42, respectively.    
    The aggregate intrinsic value of the stock options is the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on December 31, 20202022 and the exercise price, times the number of shares) that would have been received by the option holders had all the option holders exercised their options on December 31, 2020.2022.  This amount changes based on the fair value of the Company’s stock. The total intrinsic value of options outstanding and exercisable as of December 31, 2022, 2021, and 2020 2019, and 2018 was $682,000, $1.1$2.2 million, $1.2 million, and $646,000,$682,000, respectively. The total intrinsic value of options exercised for the years ended December 31, 2022, 2021, and 2020 2019,was $307,000, $969,000, and 2018 was 0, $203,000, and $383,000,zero, respectively.
    As noted above, the Company allows stock options to be exercised through cash or cashless transactions. In 2020, 2019,each of 2022, 2021, and 20182020 the Company received no cash of 0, 0, and $195,000, respectively, for cash stock option exercises. In 2020, 2019,2022, 2021, and 20182020 the Company net settled 0, $282,000,$475,000, $1.4 million, and $193,000zero respectively, for cashless stock option exercises. The Company withheld 0, $317,000,$559,000, $1.7 million, and $227,000zero to pay for stock option exercises or income taxes that resulted from the exercise of stock options in 2020, 2019,2022, 2021, and 2018,2020, respectively.
    For the years ended December 31, 2020, 20192022, 2021 and 2018,2020, the Company recognized $148,000, $143,000,$108,000, $173,000, and $183,000,$148,000, respectively, in stock option compensation expense as a component of "Salaries and other personnel expense".  As of
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December 31, 2020,2022, there was approximately $258,000$110,000 of total unrecognized compensation expense related to non-vested options, which is expected to be recognized over the weighted-average vesting period of 2.21.6 years.
    Restricted Stock Units:  Under the 2020 Plan and previous plans, the Company grants restricted stock units to certain key employees periodically. Recipients of restricted stock units do not pay any cash consideration to the Company for the shares and receive all dividends with respect to such shares when the shares vest. Restricted stock units cliff vest at the end of a three-year time period. 
    The following table summarizes restricted stock unit activity during 2020:2022:
 Number of SharesWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual Life, in Years  Number of SharesWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual Life, in Years
Outstanding at January 1, 202071,952 $34.16  
Outstanding at January 1, 2022Outstanding at January 1, 202256,215 $34.74  
GrantedGranted22,709 32.09  Granted— —  
Dividend equivalents awardedDividend equivalents awarded3,688 27.65 Dividend equivalents awarded2,139 — 
VestedVested(25,532)29.75  Vested(19,852)32.19  
ForfeitedForfeited Forfeited— —  
Outstanding at December 31, 202072,817 $33.33 2.21
Outstanding at December 31, 2022Outstanding at December 31, 202238,502 $34.12 1.61
 
    The total intrinsic value of restricted stock units vested for the years ended December 31, 2022, 2021, and 2020 2019,was $1.1 million, $1.3 million, and 2018 was $735,000, $906,000, and $654,000, respectively.
    For the years ended December 31, 2020, 20192022, 2021 and 2018,2020, the Company recognized $795,000, $689,000,$634,000, $900,000, and $633,000,$795,000, respectively, in restricted stock unit compensation expense as a component of "Salaries and other personnel expense".  As of December 31, 2020,2022, there was approximately $1.5 million$629,000 of total unrecognized compensation expense related to non-vested options, which is expected to be recognized over the weighted-average vesting period of 2.21.6 years.

NOTE 2422 - Regulatory Matters
    The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on a company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk weightings, and other factors.
    Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total capital, Tier 1 capital, and common equity Tier 1 to risk-weighted assets, and of Tier 1 capital to average assets (as defined in the regulations).

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    The tables below illustrate the capital requirements for the Company and the Bank and the actual capital ratios for each entity that exceed these requirements.  The dividends that the Bank pays to the Company are limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank. The capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offerings that the Company completed in the fourth quarter of 2005 are included in the Company’s capital for regulatory purposes although they are accounted for as a liability in its financial statements. The trust preferred securities are not included in the Bank's capital ratios.  
Northrim BanCorp, Inc.Northrim BanCorp, Inc.ActualAdequately-CapitalizedWell-CapitalizedNorthrim BanCorp, Inc.ActualAdequately-CapitalizedWell-Capitalized
(In Thousands)(In Thousands)AmountRatioAmountRatioAmountRatio(In Thousands)AmountRatioAmountRatioAmountRatio
As of December 31, 2020:      
As of December 31, 2022:As of December 31, 2022:      
Common equity tier 1 capital (to risk-weighted assets)Common equity tier 1 capital (to risk-weighted assets)$205,717 13.75 %$67,326 ≥ 4.5 %NANACommon equity tier 1 capital (to risk-weighted assets)$231,920 12.29 %$84,918 ≥ 4.5 %NANA
Total Capital (to risk-weighted assets)Total Capital (to risk-weighted assets)$234,363 15.46 %$121,275 ≥ 8 %NANATotal Capital (to risk-weighted assets)$257,425 13.64 %$150,982 ≥ 8 %NANA
Tier I Capital (to risk-weighted assets)Tier I Capital (to risk-weighted assets)$215,380 14.20 %$91,006 ≥ 6 %NANATier I Capital (to risk-weighted assets)$241,617 12.81 %$113,170 ≥ 6 %NANA
Tier I Capital (to average assets)Tier I Capital (to average assets)$215,380 10.25 %$84,051 ≥ 4 %NANATier I Capital (to average assets)$241,617 9.01 %$107,266 ≥ 4 %NANA
As of December 31, 2019:      
As of December 31, 2021As of December 31, 2021      
Common equity tier 1 capital (to risk-weighted assets)Common equity tier 1 capital (to risk-weighted assets)$190,807 13.69 %$62,720 ≥ 4.5 %NANACommon equity tier 1 capital (to risk-weighted assets)$225,412 13.50 %$75,137 ≥ 4.5 %NANA
Total Capital (to risk-weighted assets)Total Capital (to risk-weighted assets)$217,912 15.63 %$111,535 ≥ 8 %NANATotal Capital (to risk-weighted assets)$246,836 14.79 %$133,515 ≥ 8 %NANA
Tier I Capital (to risk-weighted assets)Tier I Capital (to risk-weighted assets)$200,465 14.38 %$83,643 ≥ 6 %NANATier I Capital (to risk-weighted assets)$235,097 14.08 %$100,183 ≥ 6 %NANA
Tier I Capital (to average assets)Tier I Capital (to average assets)$200,465 12.41 %$64,614 ≥ 4 %NANATier I Capital (to average assets)$235,097 9.03 %$104,140 ≥ 4 %NANA
Northrim BankNorthrim BankActualAdequately-CapitalizedWell-CapitalizedNorthrim BankActualAdequately-CapitalizedWell-Capitalized
(In Thousands)(In Thousands)AmountRatioAmountRatioAmountRatio(In Thousands)AmountRatioAmountRatioAmountRatio
As of December 31, 2020:
As of December 31, 2022:As of December 31, 2022:
Common equity tier 1 capital (to risk-weighted assets)Common equity tier 1 capital (to risk-weighted assets)$178,532 11.89 %$67,569 ≥ 4.5 %$97,599 ≥ 6.5 %Common equity tier 1 capital (to risk-weighted assets)$198,034 10.59 %$84,150 ≥ 4.5 %$121,551 ≥ 6.5 %
Total Capital (to risk-weighted assets)Total Capital (to risk-weighted assets)$197,233 13.13 %$120,172 ≥ 8 %$150,216 ≥ 10 %Total Capital (to risk-weighted assets)$213,745 11.42 %$149,734 ≥ 8 %$187,167 ≥ 10 %
Tier I Capital (to risk-weighted assets)Tier I Capital (to risk-weighted assets)$178,429 11.88 %$90,116 ≥ 6 %$120,154 ≥ 8 %Tier I Capital (to risk-weighted assets)$197,937 10.58 %$112,252 ≥ 6 %$149,669 ≥ 8 %
Tier I Capital (to average assets)Tier I Capital (to average assets)$178,429 8.55 %$83,476 ≥ 4 %$104,344 ≥ 5 %Tier I Capital (to average assets)$197,937 7.42 %$106,705 ≥ 4 %$133,381 ≥ 5 %
As of December 31, 2019:     
As of December 31, 2021:As of December 31, 2021:     
Common equity tier 1 capital (to risk-weighted assets)Common equity tier 1 capital (to risk-weighted assets)$165,963 11.98 %$62,340 ≥ 4.5 %$90,047 ≥ 6.5 %Common equity tier 1 capital (to risk-weighted assets)$189,447 11.43 %$74,585 ≥ 4.5 %$107,735 ≥ 6.5 %
Total Capital (to risk-weighted assets)Total Capital (to risk-weighted assets)$183,299 13.24 %$110,755 ≥ 8 %$138,443 ≥ 10 %Total Capital (to risk-weighted assets)$201,087 12.13 %$132,621 ≥ 8 %$165,777 ≥ 10 %
Tier I Capital (to risk-weighted assets)Tier I Capital (to risk-weighted assets)$165,963 11.98 %$83,120 ≥ 6 %$110,827 ≥ 8 %Tier I Capital (to risk-weighted assets)$189,348 11.42 %$99,482 ≥ 6 %$132,643 ≥ 8 %
Tier I Capital (to average assets)Tier I Capital (to average assets)$165,963 10.36 %$64,078 ≥ 4 %$80,098 ≥ 5 %Tier I Capital (to average assets)$189,348 7.31 %$103,610 ≥ 4 %$129,513 ≥ 5 %

    As of the most recent notification from its regulatory agencies, the Bank was categorized as well-capitalized"well-capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s regulatory capital category. Management believes, as of December 31, 2020,2022, that the Company and Bank meets all capital adequacy requirements to which they are subject.

    The Company and Bank are required to have a “conservation buffer,” consisting of a common equity Tier 1 capital amount equal to 2.5% of risk-weighted assets. An institution that does not meet the conservation buffer requirement will be subject to restrictions on certain activities including payment of dividends, stock repurchases, and discretionary bonuses to executive officers. Management believes, as of December 31, 2020, that the Company and Bank meet all conservation buffer requirements to which they are subject.


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NOTE 2523 - Income Taxes
    Components of the provision for income taxes are as follows: 
(In Thousands)(In Thousands)Current Tax Expense (Benefit)Deferred Expense (Benefit)Total Expense(In Thousands)Current Tax Expense (Benefit)Deferred Expense (Benefit)Total Expense
2022:2022:   
FederalFederal$1,412 $1,412 $2,824 
StateState860 698 1,558 
Amortization of investment in low income housing tax credit partnershipsAmortization of investment in low income housing tax credit partnerships3,371 — 3,371 
TotalTotal$5,643 $2,110 $7,753 
2021:2021:   
FederalFederal$5,090 ($869)$4,221 
StateState3,182 (429)2,753 
Amortization of investment in low income housing tax credit partnershipsAmortization of investment in low income housing tax credit partnerships3,502 — 3,502 
TotalTotal$11,774 ($1,298)$10,476 
2020:2020:   2020:   
FederalFederal$3,607 $371 $3,978 Federal$3,607 $371 $3,978 
StateState1,891 184 2,075 State1,891 184 2,075 
Amortization of investment in low income housing tax credit partnershipsAmortization of investment in low income housing tax credit partnerships3,506 3,506 Amortization of investment in low income housing tax credit partnerships3,506 — 3,506 
TotalTotal$9,004 $555 $9,559 Total$9,004 $555 $9,559 
2019:   
Federal$1,078 $476 $1,554 
State977 235 1,212 
Amortization of investment in low income housing tax credit partnerships2,668 2,668 
Total$4,723 $711 $5,434 
2018:   
Federal($1,549)$2,017 $468 
State(85)997 912 
Amortization of investment in low income housing tax credit partnerships2,691 2,691 
Total$1,057 $3,014 $4,071 

    The actual expense for 2020, 2019,2022, 2021, and 2018,2020, differs from the “expected” tax expense (computed by applying the U.S. Federal Statutory Tax Rate of 21% for the years ended December 31, 2020, 20192022, 2021 and 2018)2020) as follows: 
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
Computed “expected” income tax expenseComputed “expected” income tax expense$8,914 $5,486 $5,056 Computed “expected” income tax expense$8,084 $10,079 $8,914 
State income taxes, netState income taxes, net1,639 957 720 State income taxes, net1,231 2,175 1,639 
Tax-exempt interest on investment securities and loansTax-exempt interest on investment securities and loans(358)(238)(256)
Amortization of investment in low income housing tax credit partnerships, netAmortization of investment in low income housing tax credit partnerships, net3,191 3,163 2,712 
Low income housing creditsLow income housing credits(3,725)(3,694)(3,168)
Tax-exempt interest on investment securities and loans(256)(300)(307)
Amortization of investment in low income housing tax credit partnerships3,506 2,668 2,691 
Low income housing credits(3,168)(2,721)(2,821)
Revaluation of deferred tax assets(470)
OtherOther(1,076)(656)(798)Other(670)(1,009)(282)
TotalTotal$9,559 $5,434 $4,071 Total$7,753 $10,476 $9,559 
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    The components of the net deferred tax asset are as follows:
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
Deferred Tax Asset:Deferred Tax Asset:   Deferred Tax Asset:   
Allowance for loan losses Allowance for loan losses$5,772 $5,190 $5,313  Allowance for loan losses$4,263 $3,126 $5,772 
Other real estate owned69 58 160 
Loan fees, net of costs Loan fees, net of costs778 1,956 (635)
Interest income, nonaccrual loans Interest income, nonaccrual loans370 482 419 
Deferred compensation Deferred compensation1,130 1,224 1,121  Deferred compensation1,822 1,344 1,130 
Equity compensation Equity compensation481 429 435  Equity compensation404 406 481 
Loan discount93 98 79 
Fair market value adjustment on certificates of deposit76 100 123 
Operating lease liabilities Operating lease liabilities3,519 4,045 —  Operating lease liabilities2,805 3,117 3,519 
Accrued liabilities Accrued liabilities1,286 1,826 1,391 
Unrealized loss on available for sale investment securities Unrealized loss on available for sale investment securities11,976 1,270 54 
Unrealized loss on marketable equity securities Unrealized loss on marketable equity securities178 — — 
Other Other2,330 1,866 1,069  Other285 837 1,258 
Total Deferred Tax AssetTotal Deferred Tax Asset$13,470 $13,010 $8,300 Total Deferred Tax Asset$24,167 $14,364 $13,389 
Deferred Tax Liability:Deferred Tax Liability:   Deferred Tax Liability:   
Intangible amortization Intangible amortization($1,022)($587)($288) Intangible amortization($1,886)($1,453)($1,022)
Mortgage servicing rights Mortgage servicing rights(3,530)(3,767)(3,424) Mortgage servicing rights(5,789)(4,172)(3,530)
Depreciation and amortization Depreciation and amortization(2,066)(1,848)(1,873) Depreciation and amortization(1,261)(1,515)(2,066)
FHLB stock repurchase and dividends(30)(174)(178)
Operating lease right-of-use assets Operating lease right-of-use assets(3,537)(4,067)—  Operating lease right-of-use assets(2,806)(3,128)(3,537)
Loan fees, net of costs(635)741 818 
Unrealized loss on available for sale investment securities, net(187)(384)270 
Unrealized gain on available for sale investment securities Unrealized gain on available for sale investment securities(11)(189)(554)
Unrealized gain on marketable equity securities Unrealized gain on marketable equity securities(18)(159)(187)
Other Other(483)(389)(379) Other(1,029)(470)(513)
Total Deferred Tax LiabilityTotal Deferred Tax Liability($11,490)($10,475)($5,054)Total Deferred Tax Liability($12,800)($11,086)($11,409)
Net Deferred Tax Asset Net Deferred Tax Asset$1,980 $2,535 $3,246  Net Deferred Tax Asset$11,367 $3,278 $1,980 
    A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.  The primary source of recovery of the deferred tax asset will be future taxable income.  Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset.  The deferred tax asset is included in "Other assets" in the Consolidated Balance Sheets.
    As of December 31, 2020,2022, the Company had 0no unrecognized tax benefits. In 2020 the Company reversed an accrual of $454,000 for a potential increase in tax expense that was recorded in 2019 related to an audit that was performed in 2018 by the State of Alaska for tax years 2014-2016. The Company has appealed the State of Alaska'sinitial audit decision on this matter and reversed this accrual in the second quarter of 2020 because the Company believes that it is more likely than not that the court will ruleappeal was ruled in the Company's favor. In 2019favor in the Company reversed an accrualfirst quarter of $250,000 related to interest and penalties that was recognized in 2018.2021.
The tax years subject to examination by federal taxing authorities are the years ending December 31, 2022, 2021, 2020, 2019, 2018, and 2017.2019. The tax years subject to examination by the State of Alaska are the years ending December 31, 2022, 2021, 2020, 2019, 2018 2017, 2016 and 2015.2017.

NOTE 2624 - Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Investment securities available for sale and marketable securitiesequity securities: : Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Servicing rights: MSRsMSR and CSRsCSR are measured at fair value on a recurring basis. These assets are classified as Level 3 as quoted prices are not available. In order to determine the fair value of MSRsMSR and CSRs,CSR, the present value of net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations,
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delinquency rates, and ancillary fee income net of servicing costs. The model assumptions are also compared to publicly filed information from several large MSR holders, as available.

Derivative instruments:The fair value of the interest rate lock commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. Interest rate contracts are valued in a model, which uses as its basis a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Company has determined that the majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as ofDecember 31, 2020,2022, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives. As a result, the Company has classified its interest rate derivative valuations in Level 2 of the fair value hierarchy.

Commitments to extend credit and standby letters of credit: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.

Assets Subject to Nonrecurring Adjustment to Fair Value:

    The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets, loans held for sale, impaired loans, and OREO at fair value on a nonrecurring basis in accordance with GAAP. Any nonrecurring adjustments to fair value usually result from the writedown of individual assets.

    The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and impaired loansloan individually evaluated for credit losses as of each reporting date. In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists.

    The Company uses external sources to estimate fair value for projects that are not fully constructed as of the date of valuation. These projects are generally valued as if complete, with an appropriate allowance for cost of completion, including contingencies developed from external sources such as vendors, engineers and contractors. The Company believes that recording other real estate owned that is not fully constructed based on as if complete values is more appropriate than recording other real estate owned that is not fully constructed using as is values. We concluded that as-is-complete values are appropriate for these types of projects based on the accounting guidance for capitalization of project costs and subsequent measurement of the value of real estate. GAAP specifically states that estimates and cost allocations must be reviewed at the end of each reporting period and reallocated based on revised estimates. The Company adjusts the carrying value of other real estate owned in accordance with this guidance for increases in estimated cost to complete that exceed the fair value of the real estate at the end of each reporting period.

Limitations

    Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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    Estimated fair values as of the periods indicated are as follows:
December 31, 2020December 31, 2019 December 31, 2022December 31, 2021
(In Thousands)(In Thousands)Carrying AmountFair  ValueCarrying AmountFair  Value(In Thousands)Carrying AmountFair  ValueCarrying AmountFair  Value
Financial assets:Financial assets: Financial assets: 
Level 1 inputs:Level 1 inputs: Level 1 inputs: 
Cash, due from banks and deposits in other banks Cash, due from banks and deposits in other banks$115,965 $115,965 $95,424 $95,424  Cash, due from banks and deposits in other banks$259,350 $259,350 $645,827 $645,827 
Investment securities available for sale Investment securities available for sale58,865 58,865 75,456 75,456  Investment securities available for sale356,837 356,837 141,531 141,531 
Marketable equity securities Marketable equity securities9,052 9,052 7,945 7,945  Marketable equity securities10,740 10,740 8,420 8,420 
Level 2 inputs:Level 2 inputs: Level 2 inputs: 
Investment securities available for sale Investment securities available for sale188,768 188,768 200,682 200,682  Investment securities available for sale320,192 320,192 285,153 285,153 
Investment in Federal Home Loan Bank Stock Investment in Federal Home Loan Bank Stock2,551 2,551 2,138 2,138  Investment in Federal Home Loan Bank Stock3,816 3,816 3,107 3,107 
Loans held for sale Loans held for sale27,538 27,538 73,650 73,650 
Accrued interest receivable Accrued interest receivable7,979 7,979 4,512 4,512  Accrued interest receivable9,937 9,937 6,846 6,846 
Interest rate swaps Interest rate swaps7,387 7,387 2,950 2,950  Interest rate swaps14,179 14,179 6,030 6,030 
Retail interest rate contracts Retail interest rate contracts— — 166 166 
Level 3 inputs:Level 3 inputs: Level 3 inputs: 
Investment securities held to maturity Investment securities held to maturity10,000 10,000  Investment securities held to maturity36,750 32,639 20,000 19,164 
Loans and loans held for sale1,590,229 1,560,357 1,111,205 1,095,031 
Loans Loans1,501,785 1,408,350 1,413,886 1,396,486 
Purchased receivables, net Purchased receivables, net13,922 13,922 24,373 24,373  Purchased receivables, net19,994 19,994 6,987 6,987 
Interest rate lock commitments Interest rate lock commitments4,034 4,034 810 810  Interest rate lock commitments440 440 1,387 1,387 
Mortgage servicing rights Mortgage servicing rights11,218 11,218 11,920 11,920  Mortgage servicing rights18,635 18,635 13,724 13,724 
Commercial servicing rights Commercial servicing rights1,310 1,310 1,214 1,214  Commercial servicing rights2,129 2,129 1,084 1,084 
Financial liabilities:Financial liabilities: Financial liabilities: 
Level 2 inputs:Level 2 inputs: Level 2 inputs: 
Deposits Deposits$1,824,981 $1,826,990 $1,372,351 $1,373,647  Deposits$2,387,211 2,383,975 $2,421,631 $2,422,215 
Borrowings Borrowings14,817 15,538 8,891 9,216  Borrowings14,095 12,382 14,508 14,727 
Accrued interest payable Accrued interest payable65 65 23 23  Accrued interest payable54 54 31 31 
Interest rate swaps Interest rate swaps9,122 9,122 3,484 3,484  Interest rate swaps12,725 12,725 6,985 6,985 
Retail interest rate contractsRetail interest rate contracts880 880 71 71 Retail interest rate contracts— — 
Level 3 inputs:Level 3 inputs:Level 3 inputs:
Junior subordinated debentures Junior subordinated debentures10,310 10,475 10,310 11,000  Junior subordinated debentures10,310 11,266 10,310 9,727 

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    The following table sets forth the balances as of the periods indicated of assets measured at fair value on a recurring basis:
(In Thousands)(In Thousands)TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)(In Thousands)TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
December 31, 2020    
Assets:
Available for sale securities    
U.S. Treasury and government sponsored entities$174,601 $37,548 $137,053 $0 
Municipal securities856 856 
Corporate bonds30,492 21,317 9,175 
Collateralized loan obligations41,684 41,684 
Total available for sale securities$247,633 $58,865 $188,768 $0 
Marketable equity securities$9,052 $9,052 $0 $0 
Total marketable equity securities$9,052 $9,052 $0 $0 
Corporate bonds$10,000 $0 $0 $10,000 
Total held to maturity securities$10,000 $0 $0 $10,000 
Interest rate swaps$7,387 $0 $7,387 $0 
Interest rate lock commitments4,034 4,034 
Mortgage servicing rights11,218 11,218 
Commercial servicing rights1,310 1,310 
Total other assets$23,949 $0 $7,387 $16,562 
Liabilities:
Interest rate swaps$9,122 $0 $9,122 $0 
Retail interest rate contracts880 880 
Total other liabilities$10,002 $0 $10,002 $0 
December 31, 2019    
December 31, 2022December 31, 2022    
Assets:Assets:Assets:
Available for sale securities Available for sale securities     Available for sale securities    
U.S. Treasury and government sponsored entities U.S. Treasury and government sponsored entities$211,852 $57,480 $154,372 $0  U.S. Treasury and government sponsored entities$595,161 $333,193 $261,968 $— 
Municipal securities Municipal securities3,297 3,297  Municipal securities795 — 795 — 
Corporate bonds Corporate bonds35,066 17,976 17,090  Corporate bonds23,644 23,644 — — 
Collateralized loan obligations Collateralized loan obligations25,923 25,923  Collateralized loan obligations57,429 — 57,429 — 
Total available for sale securities Total available for sale securities$276,138 $75,456 $200,682 $0  Total available for sale securities$677,029 $356,837 $320,192 $— 
Marketable equity securities Marketable equity securities$7,945 $7,945 $0 $0  Marketable equity securities$10,740 $10,740 $— $— 
Total marketable equity securities Total marketable equity securities$7,945 $7,945 $0 $0  Total marketable equity securities$10,740 $10,740 $— $— 
Interest rate swapsInterest rate swaps$2,950 $0 $2,950 $0 Interest rate swaps$14,178 $— $14,178 $— 
Interest rate lock commitmentsInterest rate lock commitments810 810 Interest rate lock commitments440 — — 440 
Mortgage servicing rightsMortgage servicing rights11,920 11,920 Mortgage servicing rights18,635 — — 18,635 
Commercial servicing rightsCommercial servicing rights1,214 1,214 Commercial servicing rights2,129 — — 2,129 
Total other assets Total other assets$16,894 $0 $2,950 $13,944  Total other assets$35,382 $— $14,178 $21,204 
Liabilities:Liabilities:Liabilities:
Interest rate swapsInterest rate swaps$3,484 $0 $3,484 $0 Interest rate swaps$12,725 $— $12,725 $— 
Retail interest rate contractsRetail interest rate contracts71 71 Retail interest rate contracts— — 
Total other liabilities Total other liabilities$3,555 $0 $3,555 $0  Total other liabilities$12,728 $— $12,728 $— 
December 31, 2021December 31, 2021    
Assets:Assets:
Available for sale securities Available for sale securities    
U.S. Treasury and government sponsored entities U.S. Treasury and government sponsored entities$341,480 $115,686 $225,794 $— 
Municipal securities Municipal securities840 — 840 — 
Corporate bonds Corporate bonds32,946 25,845 7,101 — 
Collateralized loan obligations Collateralized loan obligations51,418 — 51,418 — 
Total available for sale securities Total available for sale securities$426,684 $141,531 $285,153 $— 
Marketable equity securities Marketable equity securities$8,420 $8,420 $— $— 
Total marketable equity securities Total marketable equity securities$8,420 $8,420 $— $— 
Interest rate swapsInterest rate swaps$6,030 $— $6,030 $— 
Interest rate lock commitmentsInterest rate lock commitments1,387 — — 1,387 
Mortgage servicing rightsMortgage servicing rights13,724 — — 13,724 
Commercial servicing rightsCommercial servicing rights1,084 — — 1,084 
Retail interest rate contractsRetail interest rate contracts166 — 166 — 
Total other assets Total other assets$22,391 $— $6,196 $16,195 
Liabilities:Liabilities:
Interest rate swaps Interest rate swaps$6,985 $— $6,985 $— 
Total other liabilities Total other liabilities$6,985 $— $6,985 $— 
 
121116


    The following table provides a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the years ended December 31, 20202022 and 2019:2021:
(In Thousands)(In Thousands)Beginning balanceChange included in earningsPurchases and issuancesSales and settlementsEnding balance(In Thousands)Beginning balanceChange included in earningsPurchases and issuancesSales and settlementsEnding balance
December 31, 2020 
Investment securities held to maturity$0 $0 $10,000 $0 $10,000 
December 31, 2022December 31, 2022 
Interest rate lock commitmentsInterest rate lock commitments810 (5,680)49,186 (40,282)4,034 Interest rate lock commitments$1,387 ($1,515)$12,140 ($11,572)$440 
Mortgage servicing rightsMortgage servicing rights11,920 (5,526)4,824 11,218 Mortgage servicing rights13,724 288 4,623 — 18,635 
Commercial servicing rightsCommercial servicing rights1,214 (99)195 1,310 Commercial servicing rights1,084 809 236 — 2,129 
TotalTotal$13,944 ($11,305)$64,205 ($40,282)$26,562 Total$16,195 ($418)$16,999 ($11,572)$21,204 
December 31, 2019
December 31, 2021December 31, 2021
Interest rate lock commitmentsInterest rate lock commitments$978 ($1,942)$15,904 ($14,130)$810 Interest rate lock commitments$4,034 ($3,389)$28,229 ($27,487)$1,387 
Mortgage servicing rightsMortgage servicing rights10,821 (2,608)3,707 11,920 Mortgage servicing rights11,218 (3,582)6,088 — 13,724 
Commercial servicing rightsCommercial servicing rights1,030 178 1,214 Commercial servicing rights1,310 (437)211 — 1,084 
TotalTotal$12,829 ($4,544)$19,789 ($14,130)$13,944 Total$16,562 ($7,408)$34,528 ($27,487)$16,195 
    
    During 2020As of and 2019,for the years ending December 31, 2022 and 2021, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis, except for certain assets as shown in the following table.basis. For loans individually measured for impairment,credit losses, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy.    
(In Thousands)TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
December 31, 2020    
  Loans measured for impairment$308 $0 $0 $308 
Total$308 $0 $0 $308 
December 31, 2019    
  Loans measured for impairment$561 $0 $0 $561 
Total$561 $0 $0 $561 
(In Thousands)TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
December 31, 2022
  Loans individually measured for credit losses$— $— $— $— 
Total$— $— $— $— 
December 31, 2021
  Loans individually measured for credit losses$— $— $— $— 
Total$— $— $— $— 

    The following table presents the (income)(gains) losses resulting from nonrecurring fair value adjustments for the periods ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively:
(In Thousands)(In Thousands)202020192018(In Thousands)202220212020
Loans measured for impairment($4)$3 ($952)
Loans individually measured for credit losses Loans individually measured for credit losses$— ($13)($4)
Other operating expense - impairment on equity method investment804 
Total (income) loss from nonrecurring measurementsTotal (income) loss from nonrecurring measurements($4)$3 ($148)Total (income) loss from nonrecurring measurements$— ($13)($4)


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Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
    The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at December 31, 20202022 and 2019:2021:
Financial InstrumentValuation TechniqueUnobservable InputWeighted Average or Rate Range
December 31, 20202022
Loans measured for impairmentIn-house valuation of collateralDiscount rate30 %
Interest rate lock commitmentExternal pricing modelPull through rate90.6593.18 %
Mortgage servicing rightsDiscounted cash flowConstant prepayment rate7.77%6.62% - 13.17%7.43%
Discount rate7.75%11.25%
Commercial servicing rightsDiscounted cash flowConstant prepayment rate7.38%4.19% - 9.94%22.87%
Discount rate9.4612.00 %
December 31, 20192021
Loans measured for impairmentIn-house valuation of collateralDiscount rate25 %
Interest rate lock commitmentExternal pricing modelPull through rate92.6593.27 %
Mortgage servicing rightsDiscounted cash flowConstant prepayment rate9.11%9.25% - 9.87%14.21%
Discount rate8.51% - 10.47%8.00%
Commercial servicing rightsDiscounted cash flowConstant prepayment rate7.64%12.30% - 15.67%16.57%
Discount rate11.709.94 %






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NOTE 2725 - Segment Information
    The Company's operations are managed along 2two operating segments: Community Banking and Home Mortgage Lending. The Community Banking segment's principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas. As of December 31, 2020,2022, the Community Banking segment operated 1618 branches throughout Alaska. The Home Mortgage Lending segment's principal business focus is the origination and sale of mortgage loans for 1-4 family residential properties.
    Summarized financial information for the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:
December 31, 2020
December 31, 2022December 31, 2022
(In Thousands)(In Thousands)Community BankingHome Mortgage LendingConsolidated(In Thousands)Community BankingHome Mortgage LendingConsolidated
Interest incomeInterest income$73,435 $3,281 $76,716 Interest income$98,078 $2,250 $100,328 
Interest expenseInterest expense5,788 263 6,051 Interest expense5,156 57 5,213 
Net interest income Net interest income67,647 3,018 70,665  Net interest income92,922 2,193 95,115 
Provision for loan losses2,432 2,432 
Provision for credit lossesProvision for credit losses1,846 — 1,846 
Other operating incomeOther operating income10,693 52,635 63,328 Other operating income12,505 21,572 34,077 
Other operating expenseOther operating expense57,614 31,500 89,114 Other operating expense63,902 24,950 88,852 
Income before provision for income taxes Income before provision for income taxes18,294 24,153 42,447  Income before provision for income taxes39,679 (1,185)38,494 
Provision for income taxesProvision for income taxes2,694 6,865 9,559 Provision for income taxes8,041 (288)7,753 
Net incomeNet income$15,600 $17,288 $32,888 Net income$31,638 ($897)$30,741 
Total assetsTotal assets$1,935,871 $185,927 $2,121,798 Total assets$2,550,578 $123,740 $2,674,318 
Loans held for saleLoans held for sale$0 $146,178 $146,178 Loans held for sale$— $27,538 $27,538 
December 31, 2019
December 31, 2021December 31, 2021
(In Thousands)(In Thousands)Community BankingHome Mortgage LendingConsolidated(In Thousands)Community BankingHome Mortgage LendingConsolidated
Interest incomeInterest income$67,770 $2,313 $70,083 Interest income$81,703 $2,903 $84,606 
Interest expenseInterest expense4,569 1,072 5,641 Interest expense3,623 156 3,779 
Net interest income Net interest income63,201 1,241 64,442  Net interest income78,080 2,747 80,827 
Benefit for loan losses(1,175)(1,175)
Benefit for credit lossesBenefit for credit losses(4,099)— (4,099)
Other operating incomeOther operating income13,145 24,201 37,346 Other operating income10,119 42,144 52,263 
Compensation expense, RML acquisition payments468 468 
Other operating expenseOther operating expense54,520 21,850 76,370 Other operating expense58,647 30,549 89,196 
Income before provision for income taxes Income before provision for income taxes22,533 3,592 26,125  Income before provision for income taxes33,651 14,342 47,993 
Provision for income taxesProvision for income taxes4,408 1,026 5,434 Provision for income taxes6,468 4,008 10,476 
Net incomeNet income$18,125 $2,566 $20,691 Net income$27,183 $10,334 $37,517 
Total assetsTotal assets$1,540,869 $103,127 $1,643,996 Total assets$2,603,682 $121,037 $2,724,719 
Loans held for saleLoans held for sale$0 $67,834 $67,834 Loans held for sale$— $73,650 $73,650 
124119


December 31, 2018
(In Thousands)Community BankingHome Mortgage LendingConsolidated
Interest income$62,097 $2,080 $64,177 
Interest expense2,370 599 2,969 
   Net interest income59,727 1,481 61,208 
Provision for loan losses(500)(500)
Other operating income11,323 20,844 32,167 
Other operating expense49,956 19,844 69,800 
   Income before provision for income taxes21,594 2,481 24,075 
Provision for income taxes3,361 710 4,071 
Net income$18,233 $1,771 $20,004 
Total assets$1,443,745 $59,243 $1,502,988 
Loans held for sale$0 $34,710 $34,710 

December 31, 2020
(In Thousands)Community BankingHome Mortgage LendingConsolidated
Interest income$73,435 $3,281 $76,716 
Interest expense5,788 263 6,051 
   Net interest income67,647 3,018 70,665 
Provision for credit losses2,432 — 2,432 
Other operating income10,693 52,635 63,328 
Compensation expense, RML acquisition payments— — — 
Other operating expense57,614 31,500 89,114 
   Income before provision for income taxes18,294 24,153 42,447 
Provision for income taxes2,694 6,865 9,559 
Net income$15,600 $17,288 $32,888 
Total assets$1,922,245 $199,553 $2,121,798 
Loans held for sale$— $146,178 $146,178 


NOTE 2826 - Parent Company Information
Balance Sheets at December 31,Balance Sheets at December 31,20202019Balance Sheets at December 31,20222021
(In Thousands) (In Thousands) (In Thousands)
AssetsAssets  Assets  
Cash and cash equivalentsCash and cash equivalents$24,742 $25,294 Cash and cash equivalents$30,883 $35,546 
Marketable equity securitiesMarketable equity securities9,052 7,945 Marketable equity securities10,740 8,420 
Investment in Northrim BankInvestment in Northrim Bank196,002 183,285 Investment in Northrim Bank184,148 202,819 
Investment in NISCInvestment in NISC1,472 1,530 Investment in NISC1,245 1,336 
Investment in NST2Investment in NST2310 310 Investment in NST2310 310 
Taxes receivable, netTaxes receivable, net1,973 Taxes receivable, net463 603 
Other assetsOther assets497 Other assets1,435 358 
Total AssetsTotal Assets$234,048 $218,370 Total Assets$229,224 $249,392 
LiabilitiesLiabilities  Liabilities  
Junior subordinated debenturesJunior subordinated debentures$10,310 $10,310 Junior subordinated debentures$10,310 $10,310 
Other liabilitiesOther liabilities2,163 943 Other liabilities285 1,265 
Total LiabilitiesTotal Liabilities12,473 11,253 Total Liabilities10,595 11,575 
Shareholders' EquityShareholders' Equity  Shareholders' Equity  
Common stockCommon stock6,251 6,559 Common stock5,701 6,015 
Additional paid-in capitalAdditional paid-in capital41,808 50,512 Additional paid-in capital17,784 31,162 
Retained earningsRetained earnings173,498 149,615 Retained earnings224,225 204,046 
Accumulated other comprehensive income18 431 
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income(29,081)(3,406)
Total Shareholders' EquityTotal Shareholders' Equity221,575 207,117 Total Shareholders' Equity218,629 237,817 
Total Liabilities and Shareholders' EquityTotal Liabilities and Shareholders' Equity$234,048 $218,370 Total Liabilities and Shareholders' Equity$229,224 $249,392 
125120


Statements of Income for Years Ended:Statements of Income for Years Ended:202020192018Statements of Income for Years Ended:202220212020
(In Thousands) (In Thousands) (In Thousands)
IncomeIncome   Income   
Interest incomeInterest income$599 $635 $477 Interest income$698 $551 $599 
Equity in undistributed earnings from Northrim BankEquity in undistributed earnings from Northrim Bank33,570 20,680 20,888 Equity in undistributed earnings from Northrim Bank32,853 38,625 33,570 
Equity in undistributed earnings from NISCEquity in undistributed earnings from NISC174 218 166 Equity in undistributed earnings from NISC120 66 174 
Income (loss) on marketable equity securities61 911 (625)
Gain on sale of marketable equity securities, netGain on sale of marketable equity securities, net— 67 98 
Unrealized gain (loss) on marketable equity securitiesUnrealized gain (loss) on marketable equity securities(1,119)(101)61 
Other incomeOther income108 44 Other income— 151 10 
Total IncomeTotal Income$34,512 $22,488 $20,911 Total Income$32,552 $39,359 $34,512 
ExpenseExpense   Expense   
Interest expenseInterest expense385 389 389 Interest expense389 382 385 
Administrative and other expensesAdministrative and other expenses2,748 2,168 2,524 Administrative and other expenses2,830 2,754 2,748 
Total ExpenseTotal Expense3,133 2,557 2,913 Total Expense3,219 3,136 3,133 
Income Before Benefit from Income TaxesIncome Before Benefit from Income Taxes31,379 19,931 17,998 Income Before Benefit from Income Taxes29,333 36,223 31,379 
Benefit from income taxesBenefit from income taxes(1,509)(760)(2,006)Benefit from income taxes(1,408)(1,294)(1,509)
Net IncomeNet Income$32,888 $20,691 $20,004 Net Income$30,741 $37,517 $32,888 
Statements of Cash Flows for Years Ended:Statements of Cash Flows for Years Ended:202020192018Statements of Cash Flows for Years Ended:202220212020
(In Thousands) (In Thousands) (In Thousands)
Operating Activities:Operating Activities:   Operating Activities:   
Net incomeNet income$32,888 $20,691 $20,004 Net income$30,741 $37,517 $32,888 
Adjustments to Reconcile Net Income to Net Cash:Adjustments to Reconcile Net Income to Net Cash:  Adjustments to Reconcile Net Income to Net Cash:  
Gain on sale of securities, netGain on sale of securities, net(98)Gain on sale of securities, net— (67)(98)
Equity in undistributed earnings from subsidiariesEquity in undistributed earnings from subsidiaries(33,744)(20,897)(20,920)Equity in undistributed earnings from subsidiaries(32,732)(38,691)(33,744)
Change in fair value marketable equity securitiesChange in fair value marketable equity securities(61)(911)625 Change in fair value marketable equity securities1,119 101 (61)
Stock-based compensationStock-based compensation943 832 816 Stock-based compensation742 1,073 943 
Changes in other assets and liabilitiesChanges in other assets and liabilities(2,118)8,556 (6,428)Changes in other assets and liabilities(1,268)(2,167)(2,118)
Net Cash Used from Operating ActivitiesNet Cash Used from Operating Activities(2,190)8,271 (5,903)Net Cash Used from Operating Activities(1,398)(2,234)(2,190)
Investing Activities:Investing Activities:   Investing Activities:   
Purchases of marketable equity securitiesPurchases of marketable equity securities(1,552)(3,000)Purchases of marketable equity securities(3,934)(493)(1,552)
Proceeds from sales/calls/maturities of marketable equity securitiesProceeds from sales/calls/maturities of marketable equity securities503 229 783 Proceeds from sales/calls/maturities of marketable equity securities488 1,016 503 
Investment in Northrim Bank, NISC & NST2Investment in Northrim Bank, NISC & NST221,423 19,488 17,877 Investment in Northrim Bank, NISC & NST224,323 31,894 21,423 
Net Cash Provided by Investing ActivitiesNet Cash Provided by Investing Activities20,374 19,717 15,660 Net Cash Provided by Investing Activities20,877 32,417 20,374 
Financing Activities:Financing Activities:   Financing Activities:   
Dividends paid to shareholdersDividends paid to shareholders(8,844)(8,512)(7,064)Dividends paid to shareholders(10,571)(9,388)(8,844)
Proceeds from issuance of common stockProceeds from issuance of common stock84 73 243 Proceeds from issuance of common stock586 1,543 84 
Repurchase of common stockRepurchase of common stock(9,976)(12,569)(494)Repurchase of common stock(14,157)(11,534)(9,976)
Net Cash Used from Financing ActivitiesNet Cash Used from Financing Activities(18,736)(21,008)(7,315)Net Cash Used from Financing Activities(24,142)(19,379)(18,736)
Net change in Cash and Cash EquivalentsNet change in Cash and Cash Equivalents(552)6,980 2,442 Net change in Cash and Cash Equivalents(4,663)10,804 (552)
Cash and Cash Equivalents at beginning of yearCash and Cash Equivalents at beginning of year25,294 18,314 15,872 Cash and Cash Equivalents at beginning of year35,546 24,742 25,294 
Cash and Cash Equivalents at end of yearCash and Cash Equivalents at end of year$24,742 $25,294 $18,314 Cash and Cash Equivalents at end of year$30,883 $35,546 $24,742 

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NOTE 27 - Subsequent Events

In February 2023, Homestate Mortgage, LLC (“Homestate”) announced that it has ceased operations and the business has closed. As discussed in Note 1 above, the Company accounts for it's 30% interest in Homestate using the equity method of accounting. As of December 31, 2022, the Company's investment in Homestate is $556,000. As of December 31, 2022, Homestate has total assets of $2.1 million, total liabilities of $285,000, and total equity of $1.9 million. Pretax (loss) income from Homestate included in the Company's Statements of Consolidated Net Income for 2022, 2021, and 2020 is ($191,000), $302,000, and $492,000, respectively. As of March 6, 2023, the Company has no liabilities related to the closing of Homestate, and we expect to recover the book value of our investment when Homestate is legally dissolved and its assets liquidated over the statutory three-year winding up period. The Company does not consider the disposition of its investment in Homestate to be significant to the Company's operations, and it does not have a material impact on the Company's consolidated financial statements.

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NOTE 29 - Quarterly Results of Operations (Unaudited)
2020 Quarter EndedDec. 31Sept. 30June 30March 31
 (In Thousands Except Per Share Amounts)
Total interest income$20,579 $19,794 $19,004 $17,339 
Total interest expense1,355 1,500 1,547 1,649 
Net interest income19,224 18,294 17,457 15,690 
(Benefit) provision for loan losses(599)567 404 2,060 
Other operating income17,732 21,628 17,535 6,433 
Other operating expense24,147 23,506 22,674 18,787 
Income before provision for income taxes13,408 15,849 11,914 1,276 
Provision for income taxes3,308 3,994 2,014 243 
Net income$10,100 $11,855 $9,900 $1,033 
Earnings per share, basic$1.62 $1.87 $1.54 $0.16 
Earnings per share, diluted$1.59 $1.84 $1.52 $0.16 
2019 Quarter EndedDec. 31Sept. 30June 30March 31
 (In Thousands Except Per Share Amounts)
Total interest income$18,062 $17,837 $17,306 $16,878 
Total interest expense1,652 1,531 1,349 1,109 
Net interest income16,410 16,306 15,957 15,769 
(Benefit) provision for loan losses(150)(2,075)300 750 
Other operating income9,735 10,509 9,569 7,533 
Compensation expense, RML acquisition payments468 
Other operating expense20,147 19,324 19,819 17,080 
Income before provision for income taxes5,680 9,566 5,407 5,472 
Provision for income taxes1,100 2,028 1,146 1,160 
Net income$4,580 $7,538 $4,261 $4,312 
Earnings per share, basic$0.70 $1.13 $0.62 $0.63 
Earnings per share, diluted$0.69 $1.11 $0.62 $0.62 
2018 Quarter EndedDec. 31Sept. 30June 30March 31
(In Thousands Except Per Share Amounts)
Total interest income$17,207 $16,580 $15,595 $14,795 
Total interest expense1,070 761 606 532 
Net interest income16,137 15,819 14,989 14,263 
Benefit for loan losses(200)(300)
Other operating income7,718 8,673 8,314 7,462 
Other operating expense18,300 18,099 16,606 16,795 
Income before provision for income taxes5,755 6,393 6,997 4,930 
Provision for income taxes907 1,129 1,167 868 
Net income$4,848 $5,264 $5,830 $4,062 
Earnings per share, basic$0.70 $0.77 $0.85 $0.59 
Earnings per share, diluted$0.69 $0.75 $0.84 $0.58 
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ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
    None.

ITEM 9A. CONTROLS AND PROCEDURES 
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
    As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934).  Our principal executive and financial officers supervised and participated in this evaluation.  Based on this evaluation, our principal executive and financial officers each concluded that our disclosure controls and procedures were effective in timely alerting them to material information required to be included in our periodic reports to the SEC. The design of any system of controls is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any of our plans, products, services or procedures will succeed in achieving their intended goals under future conditions. 
Changes in Internal Control
    There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15f and 15d-15(f) of the Securities Exchange Act of 1934) that occurred during the period covered by this report that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
    Management of the Company is responsible for establishing and maintaining internal control over financial reporting as defined in Rules 13a-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934.  The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.    
    Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.    
    Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.2022.  In making this assessment management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework.
    Based on our assessment and the criteria discussed above, management believes that, as of December 31, 2020,2022, the Company maintained effective internal control over financial reporting.
    The Company’s independent registered public accounting firm has issued an attestation report on the Company’s effectiveness of internal control over financial reporting.  This report appears under Part II. Item 8 of this report.

ITEM 9B.            OTHER INFORMATION
    None.
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ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

    None.
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PART III

ITEM 10.            DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
    Information concerning the officers and directors of the Company required to be included in this item is incorporated by reference from the Company’s definitive proxy statement for its annual meeting of shareholders to be held in 20212023 which will be filed with the Securities and Exchange Commission (the "SEC") within 120 days of our most recently completed fiscal year.

ITEM 11.            EXECUTIVE COMPENSATION
    Information concerning executive compensation and director compensation and certain matters regarding participation in the Company’s compensation committee required by this item is incorporated by reference from the Company’s definitive proxy statement for its annual meeting of shareholders to be held in 20212023 which will be filed with the SEC within 120 days of our most recently completed fiscal year.

ITEM 12.            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    Information concerning the security ownership of certain beneficial owners and management required by this item is incorporated by reference from the Company’s definitive proxy statement for its annual meeting of shareholders to be held in 20212023 which will be filed with the SEC within 120 days of our most recently completed fiscal year.

ITEM 13.            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    Information concerning certain relationships and related transactions required by this item is incorporated by reference from the Company’s definitive proxy statement for its annual meeting of shareholders to be held in 20212023 which will be filed with the SEC within 120 days of our most recently completed fiscal year.

ITEM 14.            PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
    Information concerning fees paid to our independent auditors required by this item is incorporated by reference from the Company’s definitive proxy statement for its annual meeting of shareholders to be held in 20212023 which will be filed with the SEC within 120 days of our most recently completed fiscal year.
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PART IV

ITEM 15.            EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
(a) The following documents are filed as part of this Annual Report on Form 10-K:
    Consolidated Balance Sheets as of December 31, 20202022 and 20192021
    Consolidated Statements of Income for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
    Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
    Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
    Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
    Notes to Consolidated Financial Statements

Exhibits

3.1    Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company's Form 8-A filed with the SEC on January 14, 2002.)       
3.2    Articles of Amendment to the Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.3 of the Company’s Form 10-Q for the quarter ended June 30, 2009, filed with the SEC on August 10, 2009.)
3.3     Bylaws of Northrim BanCorp, Inc. as amended (Incorporated by reference to Exhibit 3.43.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 22, 2016.April 16, 2020.)
4.1     Description of Securities (Incorporated by reference to Exhibit 4.1 of the Company's Form 10-K for the year ended December 31, 2019, filed with the SEC on March 6, 2020.)
4.2    Pursuant to Item 601 (b)(4)(iii)(A) of Regulation S-K, copies of instruments defining rights of holders of long-term debt and preferred securities are not filed. The Company agrees to furnish a copy thereof to the SEC upon request.
4.3      Indenture dated as of December 16, 2005 (Incorporated by reference to Exhibit 4.3 of the Company’s Form 10-K for the year ended December 31, 2005, filed with the SEC on March, 16, 2006.)
4.4    Form of Junior Subordinated Debt Security due 2036 (Incorporated by reference to Exhibit 4.4 of the Company’s Form 10-K for the year ended December 31, 2005, filed with the SEC on March, 16, 2006.)
10.01  Northrim Bancorp, Inc. 2010 Stock Incentive Plan (Incorporated by reference to Exhibit A to Northrim Bancorp, Inc.’s definitive proxy statement on Schedule 14A filed with the SEC on March 15, 2010.)
10.02Northrim Bancorp, Inc. 2014 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Company’s Form S-8 filed with the SEC on July 8, 2014.)
10.0310.02   Northrim Bancorp, Inc. 2017 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Company’s Form S-8 filed with the SEC on June 6, 2017.)
10.0410.03  Northrim Bancorp, Inc. Profit Sharing Plan (Incorporated by reference to Exhibit 10.4110.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 22, 2011.April 28, 2020.)
10.0510.04   Employment Agreement with Joseph M. Schierhorn dated January 1, 20213 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on January 3, 204, 202123.)
10.0610.05   Employment Agreement with Michael MartinJed Ballard dated January 1, 20202213 (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on January 4,3, 20213.)
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10.0710.06   Employment Agreement with Jed W. BallardMichael Huston dated January 1, 20213 (Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed on January 4,3, 20213.)
126


10.0810.07   Employment Agreement with Michael HustonBenjamin Craig dated January 1, 20213 (Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed on January 4,3, 20213.)
10.0910.08   Employment Agreement with Benjamin CraigMichael Baldwin dated January 1, 20213 (Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K, filed on January 4,3, 20213.)
10.1010.09    Supplemental Executive Retirement Plan originally effective as of July 1, 1994, amended effective as of January 6, 2000, January 8, 2004, January 1, 2005 and January 1, 2015 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on September 2, 2015).
10.1110.10     Supplemental Executive Retirement Deferred Compensation Plan originally effective as of February 1, 2002, amended effective as of January 1, 2005 and January 1, 2015 (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on September 2, 2015).
10.1210.11     Northrim BanCorp,BanCorp, Inc. 2020 Stock Incentive Plan (Incorporated by reference to Exhibit D to the Company'sCompany's Proxy Statement filed with the SEC on AprilApril 27, 2020.)
21.1     Subsidiaries 
23.1     Consent of Moss Adams LLP
24.1     Power of Attorney
31.1     Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2     Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2     Certification of the Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Labels Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104The cover page for the Company's Annual Report on 10-K for the year ended December 31, 20202022 - formatted in Inline XBRL (included in Exhibit 101)
 
ITEM 16.            FORM 10-K SUMMARY

Not applicable.

131127




Annual Report on Form 10-K
Annual Report Under Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2020.2022.
Commission File Number 0-33501
Northrim BanCorp, Inc.
State of Incorporation: Alaska
Employer ID Number: 92-0175752
3111 C Street
Anchorage, Alaska 99503
Telephone Number: (907) 562-0062

Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value
Northrim BanCorp, Inc. has filed all reports required to be filed by Section 13 of the Securities and Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.
Northrim BanCorp, Inc. has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
Northrim BanCorp, Inc. is an accelerated filer and a smaller reporting company within the meaning of Rule 12b-2 promulgated under the Securities Exchange Act.
Northrim BanCorp, Inc. is not a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Northrim BanCorp, Inc. is required to file reports pursuant to Section 13 of the Securities Exchange Act.
Northrim BanCorp, Inc. is not a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).
The aggregate market value of common stock held by non-affiliates of Northrim BanCorp, Inc. at June 30, 2020,2022, was $156,436,340.$221,451,700.
The number of shares of Northrim BanCorp Inc.’s common stock outstanding at March 5, 2021,6, 2023, was 6,192,096.5,700,728.
This Annual Report on Form 10-K incorporates into a single document the requirements of the accounting profession and the SEC.  Only those sections of the Annual Report required in the following cross reference index and the information under the caption “Forward Looking Statements” are incorporated into this Form 10-K.
132128


Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 5, 2021.6, 2023.
    Northrim BanCorp, Inc.
By/s/ Joseph M. Schierhorn
Joseph M. Schierhorn
Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on March 5, 2021.6, 2023.
    Principal Executive Officer:
By/s/ Joseph M. Schierhorn
Joseph M. Schierhorn
Chairman, President and Chief Executive Officer
    
    Principal Financial Officer and Principal Accounting Officer:
By/s/ Jed W. Ballard
Jed W. Ballard
Executive Vice President, Chief Financial Officer

Jed W. Ballard, pursuant to the power of attorney filed with this Annual Report on Form 10-K as Exhibit 24.1, has signed this report on March 5, 2021,6, 2023, as attorney-in-fact for the following directors who constitute a majority of the Board of Directors.
Joseph M. SchierhornDavid J. McCambridge
Larry S. CashKrystal M. Nelson
Anthony J. DrabekJohn C. Swalling    
Karl L. HannemanLinda C. Thomas
David W. KarpDavid G. Wight
Aaron M. SchuttJoseph P. Marushack
By/s/ Jed W. Ballard
Jed W. Ballard
as Attorney-in-fact
March 5, 20216, 2023
133129


Investor Information
Annual Meeting
Date:Thursday, May 27, 202125, 2023
Time:9 a.m.
Location:Live Webcast
www.virtualshareholdermeeting.com/NRIM2021NRIM2023

Stock Symbol
Northrim BanCorp, Inc.’s stock is traded on the Nasdaq Global Select Stock Market under the symbol, NRIM.
Auditor
Moss Adams LLP
Transfer Agent and Registrar
American Stock Transfer & Trust Company: 1-800-937-5449 info@amstock.com
Legal Counsel
Accretive Legal, PLLC
Davis Wright Tremaine LLP

Information Requests
Below are options for obtaining Northrim’s investor information:
Visit our home page, www.northrim.com, and click on the “About Northrim” and then "Investor Relations" for stock information and copies of earnings and dividend releases.
If you would like to have investor information mailed to you, please call our Corporate Secretary at (907) 562-0062.
Written requests should be mailed to the following address:
Corporate Secretary
Northrim Bank
P.O. Box 241489
Anchorage, Alaska 99524-1489
 
Telephone: (907) 562-0062
Fax: (907) 562-1758
Web site: http://www.northrim.com
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