What changed in this filing

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Item 1. Business

2022-03-04 compared with 2021-03-05 · 163 added, 101 removed, 302 unchanged (47% of the section changed)

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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 billion in total deposits and $2.1 billion in total assets at December 31, 2020.

Through our sixteen banking branches and twelve mortgage origination offices, we are accessible to approximately 90% of the Alaskan population.

The Company has grown to be the third largest commercial bank in Alaska in terms of deposits, with $2.4 billion in total deposits and $2.7 billion in total assets at December 31, 2021.

Through our 17 banking branches and 11 mortgage origination offices, we are accessible to approximately 90% of the Alaskan population.

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

and Corporations.

The Bank has sixteen branch locations in Alaska;

eight in Anchorage, one in Wasilla, two in Juneau, one in Fairbanks, one in Ketchikan, one in Sitka, one in Eagle River, and one in Soldotna.

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 and Corporations.

The Bank has 17 branch locations in Alaska;

eight in Anchorage, one in Wasilla, two in Juneau, two in Fairbanks, one in Ketchikan, one in Sitka, one in Eagle River, and one in Soldotna.

Additionally, we have a loan production office in Kodiak.

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• Northrim Investment Services Company (“NISC”) was formed in November 2002.

In the first quarter of 2006, through NISC, we purchased an 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.

Through NISC, we own 24% of the total outstanding equity interest in Pacific Wealth Advisors, LLC (“PWA”), an investment advisory, trust, and wealth management business located in Seattle, Washington.

PWA is a holding company that owns Pacific Portfolio Consulting, LLC and Pacific Portfolio Trust Company;

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• 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 predecessor of RML, Residential Mortgage, LLC, was formed in 1998 and has twelve offices throughout Alaska.

(“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, the parent company of Residential Mortgage, LLC (collectively “RML”).

RML became a wholly-owned subsidiary of NCIC on December 1, 2014.

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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.

"Financial Statements and Supplementary Data", which is incorporated herein by reference.

Measures of the revenues, profit or loss, and total assets for each of the Company's segments are included in Part II.

"Financial Statements and Supplementary Data" of this report, which is incorporated herein by reference.

Business Strategy

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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, which we sell to the secondary market.

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.

We believe that there is

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.

We believe that there is 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.

We have 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, we believe that these strategies will continue to benefit the Company, 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”.)

We believe that these strategies will continue to benefit the Company in 2022, and we intend to continue to grow our balance sheet through increasing our market share.

The Company’s business strategy also stresses the importance of customer deposit relationships to support its lending activities.

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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 information security related to these services.

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, the Company has allocated 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.

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.

As the Company continues 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.

Continued success in maintaining 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

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The Company continues to enhance our company-wide employee training program which focuses on Northrim culture, "Superior Customer First Service", general sales 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.

Employee Profile and Diversity

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.

Employee Profile

We consider our relations with our employees to be highly satisfactory.

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Approximately 4% 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.

We work every day to create an open and respectful environment where everyone can actively contribute, have equal access to opportunities and resources, be themselves, and realize their potential.

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.

To address issues related to pay discrimination, we do not ask potential candidates

about their current or previous compensation during the hiring process, and we incorporate equal and fair pay reviews into every employment compensation decision.

To reinforce our corporate culture of respect, diversity, and inclusion, each of our employees completes anti-harassment training annually.

Diversity, Equity, and Inclusion

We strive to ensure 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 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 about their current or previous compensation during the hiring process, and we incorporate equal and fair pay reviews into every employment compensation decision.

Our annual Affirmative Action Plan continues to focus our diversity, equity, and inclusion efforts on increasing the number of veterans and persons with disabilities in our workforce.

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 either 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 in 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, and part-time hours to assist employees 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.

COVID-19 acted as a catalyst for expanding workforce flexibility options at Northrim.

We have increased the percentage of employees working remotely from less than 8% before the pandemic to approximately 50% of the Company's employees working remotely as of December 31, 2021 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.

However, these remote working schedules are no longer directly due to the COVID-19 pandemic.

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.

The Company expanded tele-health and employee assistance program benefits to help employees manage their physical and emotional health during the pandemic.

The Company's philosophy towards employee accommodations related to current and future consequences related to COVID-19 is to be as flexible as possible while balancing the Company's operational needs.

Throughout the pandemic, we have continued to follow all CDC approved COVID-19 safety measures to ensure the safety and wellness of our employees, customers and vendors.

We provide employees paid time off to receive their COVID-19 vaccinations and recover from vaccination side effects that prevent them from working.

Products and Services

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We have an emphasis on commercial and real estate lending.

We also believe we have a significant niche in construction and land development lending in Anchorage, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and Southeast Alaska.

(See “Loans” in Part II.

Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.)

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 involve greater risks, including greater exposure to changes in local economic conditions.

Additionally in 2021 and 2020, we originated a significant amount 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.

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.

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.

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 2022, we expect NFS to continue to penetrate these markets and to continue to contribute to the Company’s profitability.

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• 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 sweep and business sweep;

• IntraFi® Network Deposits℠ and business sweep;

• Consumer online banking, mobile app, and mobile deposit;

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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 Employee Purchase Cards, home equity advantage access cards, telebanking, and

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 include personalized checks at account opening, overdraft protection from a savings account, 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:

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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.

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.

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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 the decline in oil prices.

We estimate that as of 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, $65.1 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 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 oil 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 accommodations sector.

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 a decline in oil prices.

We estimate that as of December 31, 2021 the Company had $117.0 million, or 8% of total loans, in the healthcare sector, $94.4 million, or 7% of portfolio loans, in the tourism sector, $63.6 million, or 4%, in the oil and gas sector, $59.6 million, or 4% of portfolio loans, in the aviation (non-tourism) sector, $55.8 million, or 4% of total loans in the fishing sector, $54.1 million, or 4% in the accommodations sector, and $46.6 million, or 3% in the restaurants and breweries sector and $31.9 million, or 2%, in retail loans.

Additionally, approximately 33% of our loan portfolio at December 31, 2021 is attributable to 32 large borrowing relationships.

Moreover, our business activities are 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.

Home Mortgage Lending

Lending Services:

The Company originates 1-4 family residential mortgages throughout Alaska which we sell to the secondary market.

Residential mortgage choices include several products from the Alaska Housing Finance Corporation including first-time homebuyer, veteran's and rural community programs;

The Company originates 1-4 family residential mortgages throughout Alaska most of which we sell to the secondary market.

Residential mortgage choices include several products from the Alaska Housing Finance Corporation ("AHFC") including first-time homebuyer, veteran's and rural community programs;

Federal Housing Authority, or "FHA" loans;

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Recent Economic Developments

After three consecutive years of a mild recession, the Alaska economy began to show a positive change 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.

The Alaska Department of Labor predicts a recovery of 8,600 jobs, or an approximately 2.8% increase in total employment in 2021.

The Company anticipates this relatively slow growth rate will have an impact on our ability to grow organically in the next few years.

Alaska’s annualized and seasonally adjusted gross state product (“GSP”) was $50.4 billion in the third quarter of 2020, compared to $54.5 billion in the third quarter of 2019, according to the Federal Bureau of Economic Analysis ("BEA") in a report released on December 23, 2020.

Alaska’s 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% at a seasonally adjusted annualized rate in the first quarter of 2020 and declined 33.8% in second quarter.

However, 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% in the first quarter of 2020, a loss of 31.4% in the second quarter and a positive improvement of 33.4% in the third quarter.

In the third quarter of 2020 in Alaska, the largest improvements came from Transportation and Warehousing, Government, Health Care and Accommodation and Food Services.

Alaska’s seasonally adjusted personal income for the third quarter of 2020 was $48.6 billion compared to $46 billion in the third quarter of 2019, according to a report released by the BEA on December 17, 2020.

In a typical year, 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.

In the second quarter 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% higher in the third quarter of 2020 in Alaska than where it was in the third quarter of 2019, according to the BEA.

The Alaska economy showed broad improvements in 2021 as it rebounded from the pandemic lows of 2020.

Management noted that a steady recovery of jobs in nearly every sector in 2021 resulted from improved independent tourism, rising oil prices, a strong housing market and consumer liquidity from government stimulus programs.

We believe that the potential effects of rising interest rates, high inflation, and supply chain disruptions are the most pressing issues at the start of 2022.

The Alaska Department of Labor ("DOL") reports total payroll jobs in Alaska in December 2021 increased 2.7% or 8,000 jobs compared to December of 2020.

Tourism related jobs were the hardest hit from travel restrictions and have also been the fastest to recover.

According to the DOL, the Leisure and Hospitality sector improved 14% between December of 2020 and December of 2021.

This is now only 4,500 jobs lower than the total of 31,400 jobs in this sector in December of 2019.

Other major sectors showing improvement over the last 12 months include Oil & Gas (+9.8%);

Trade, Transport, and Utilities (+3.1%);

Construction (+2.8%);

Financing Activities (+1.9%);

Professional & Business Services (+0.8%) and Health Care (+0.8%).

The Information sector was the only private sector to not show growth in 2021.

It remained flat at 4,800 jobs at the end of 2020 and 2021.

The Government sector was steady at 77,700 jobs.

Based on the DOL report, gains in federal and local government employment offset declines in state government positions.

Alaska’s Gross State Product (“GSP”) seasonally adjusted at annualized rates for the third quarter of 2021 was $55.5 billion, compared to $49.7 billion in the third quarter of 2020, according to the Federal Bureau of Economic Analysis ("BEA")

in a report that was released December 23, 2021.

Alaska’s GSP declined 0.6% in the third quarter of 2021 after increasing 1.8% in the second quarter of 2021.

Alaska’s seasonally adjusted personal income for the third quarter of 2021 was $48.5 billion compared to $46.0 billion seasonally adjusted at annualized rates in the third quarter of 2020, according to the BEA.

Alaska’s personal income grew 2.4% in the third quarter of 2021, over the second quarter, primarily due to a $662 million increase in wage earnings.

This resulted from inflationary pressure on salaries and an improvement in the total number of jobs.

Wage gains more than offset the $413 million decrease in government transfer payments to Alaskans in the third quarter of 2021.

The price of Alaska North Slope crude oil began 2021 averaging $55.56 in January and climbed steadily throughout the year to a monthly average high of $84.36 a barrel in October.

The monthly average for December 2021 was $76.02.

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 foreclosure rate was 0.49% at the end of the third quarter of 2020.

The comparable national average rate was 0.59% for the same time period 2020.

The national rate continues to improve, while the Alaska rate remains relatively lower.

The survey also reported that the percentage of delinquent mortgage loans in Alaska was 6.78% for the third quarter of 2020.

The comparable delinquency rate for the entire country was higher at 7.60% for the same time period in 2020.

According to the Mortgage Bankers Association, Alaska’s foreclosure rate improved from 0.63% at the end of 2019 to 0.45% at the end of 2020.

The foreclosure rate continued to improve in each of the first three quarters of 2021 to 0.33% in the third quarter of 2021.

The comparable national average rate was higher than Alaska at 0.46% in the third quarter of 2021.

We believe that the foreclosure rates are somewhat misleading because the recently ended federal moratorium on foreclosure activity on occupied homes led to declining foreclosure numbers, even though job losses strained the economy and borrowers' ability to pay.

The Mortgage Bankers Association survey reported that the percentage of delinquent mortgage loans at the end of 2019 in Alaska was 2.9%.

This increased to 6.2% at the end of 2020 after the effects of COVID-19 impacted jobs.

In the first quarter of 2021 it improved to 5.4% in Alaska and again in the second quarter to 5.1%.

The most recent data available is the third quarter of 2021, which improved to 4.77%.

According to the survey, the comparable delinquency rate for the entire country remains higher than Alaska at 5.04% in the third quarter of 2021.

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 6.9% in 2021 to $424,266.

Average sales prices in the Matanuska Susitna Borough rose 15.6% in 2021 to $347,962, continuing a decade of consecutive price gains.

These two markets represent where the vast majority of the Bank’s residential lending activity occurs.

The number of housing units sold in Anchorage was up significantly in 2021 by 11%, following an increase of 19.6% in 2020, as reported by the Alaska Multiple Listing Services.

The Matanuska Susitna Borough also had strong sales activity, up 11.5% in 2021 and 9.7% in 2020.

We believe that the low interest rate environment has been a major factor in the strength of the housing market.

According to the Federal Reserve Bank of St.

Louis, the average 30 year fixed rate mortgage in the U.S.

hit an all-time record low in 2020.

Rates began 2020 at 3.7% in the first week of January and fell one percent to 2.7% by the end of the year.

Rates began to rise slightly in 2021 and finished the year at 3.11%.

A material portion of our loans at December 31, 2021, were secured by real estate located in greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska.

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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.

Long Term Economic Factors

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Investment earnings were 66% of the total, and federal dollars were 26%.

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 2020 investment earnings represented 66% of unrestricted revenues as compared to 52% in 2019 for the fiscal year ending June 30.

In the fiscal year ending June 30, 2020, approximately 20% of total state revenues of $8.7 billion were generated through various taxes and royalties on the oil industry while investment earnings and federal dollars accounted for 21% and 48%, respectively.

In 2021 and 2020, investment earnings represented 65% and 66%, respectively, of unrestricted revenues.

As of December 31, 2021, Alaska's Constitutional Budget Reserve was $1.1 billion and the Alaska Permanent Fund had a balance of $82 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 low 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-term than Alaska's state government budget.

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 drop 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 within 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.

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 the decline in natural resource industries, specifically the oil industry, in Alaska has had on the Company's operations.

We believe this helps mitigate the effect that a decline in natural resource industries, specifically the oil industry, in Alaska would 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 and in 2019, this increased 7% to 1.2 million.

However, in 2020, there was essentially no cruise ship activity due to the COVID-19 pandemic and we are uncertain if, or when, cruise ship activity will return to historical levels.

However, in 2020, there was essentially no cruise ship activity and in 2021 there were approximately 116,000 cruise ship visitors in Alaska according to the State of Alaska Department of Labor and Workforce Development..

The decrease in 2020 and 2021 is primarily due to the COVID-19 pandemic.

However, the State of Alaska Department of Labor and Workforce Development reported in its January 2022 issue of Alaska Economic Trends Magazine that the cruise industry expects 1.5 million cruise ship visitors in Alaska in 2022, which would be an all time high if ships reach capacity.

Alaska’s residents are not subject to any state income or state sales taxes.

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The distribution was $1,114 per eligible resident in 2021 for an aggregate distribution of approximately $700 million.

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).

We operate in a highly competitive and concentrated banking environment.

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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.

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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

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.

A bank holding company is required to obtain the prior approval of the FRB for 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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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.

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.

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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;

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;

“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;

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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 capital ratios for the Company exceed those for the Bank primarily because the 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 it is accounted for as a liability in the Company's 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, 2021 and 2020, respectively, which explains most of the difference in the capital ratios for the two entities.

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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.

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.

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In its most recent CRA examination, the Bank received a “Satisfactory” rating from the FDIC.

In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) jointly proposed rules that would significantly change existing CRA regulations.

The proposed rules are intended to increase bank activity in low- and moderate-income communities where there is significant need for credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure.

The proposals change four key areas:

(i) clarifying what activities qualify for CRA credit;

(ii) updating where activities count for CRA credit;

(iii) providing a more transparent and objective method for measuring CRA performance;

and (iv) revising CRA-related data collection, record keeping, and reporting.

However, the FRB did not join in that proposed rulemaking.

In June 2020, the OCC issued its final CRA rule, effective October 1, 2020, while the FDIC did not finalize any revisions to its CRA rule.

In September 2020, the FRB 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.

The ANPR sought feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access.

In December 2021, the OCC issued a final rule to rescind its June 2020 final rule in favor of working with other agencies to put forward a joint rule.

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”).

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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”) loan programs to assist U.S.

On March 27, 2020, President Trump signed the CARES Act into law.

The CARES Act established several new temporary SBA loan programs to assist U.S.

small businesses through the COVID-19 pandemic.

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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.

The Bank is an SBA lender and began accepting applications under the CARES Act via its online application process on April 3, 2020.

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 PPP via its online application process on April 3, 2020.

As of December 31, 2021, the Bank had 1,320 PPP loans totaling $122.7 million outstanding.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

These SEC guidelines, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business