What changed in this filing

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Item 1. Business

2023-03-07 compared with 2022-03-04 · 102 added, 144 removed, 321 unchanged (43% of the section changed)

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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, 2022.

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

Through our 18 banking branches and eight 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 18 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.

eight in Anchorage, one in Wasilla, two in Juneau, two 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.

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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.

• Northrim Statutory Trust 2 (“NST2”), an entity that we formed in December 2005 to facilitate a trust preferred securities offering by the Company.

The Bank has three direct wholly-owned subsidiaries:

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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.

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Business Strategy

The Company’s primary objective is to become Alaska's most trusted financial institution by adding value for our customers, communities, and shareholders.

The Company’s primary objective is to be 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.

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Our business strategy emphasizes commercial lending products and services through relationship banking with businesses and professional individuals.

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.

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 retain servicing for home mortgages that we originate and sell to the Alaska Housing Finance Corporation ("AHFC").

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.

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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 Customer First Service", general sales skills, and various technical areas.

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

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.

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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.

Employee Profile

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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

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.

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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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.

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.

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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.

Management has processes in place 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.

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.

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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.

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, Corporate Purchase Cards, Integrated Payables, home equity advantage access cards, telebanking, and automated teller services.

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:

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.

affiliate PWA provides investment advisory, trust, and wealth management services for customers who are primarily located in the Pacific Northwest and Alaska.

Other Services Provided Through Affiliates:

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.

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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.

We estimate that as of December 31, 2022 the Company had $126.5 million, or 8% of total loans, in the healthcare sector, $96.3 million, or 6% of portfolio loans, in the tourism sector, $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, $54.8 million, or 4%, in retail loans, and $46.9 million, or 3% in the restaurants and breweries sector.

Additionally, approximately 38% of our loan portfolio at December 31, 2022 is attributable to 44 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 and Kodiak.

Moreover, our business activities are

currently focused primarily in the state of Alaska.

Home Mortgage Lending

Lending Services:

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;

The Company originates 1-4 family residential mortgages, the majority of which are located in Alaska, most of which we sell to the secondary market.

Residential mortgage choices include several products from AHFC including first-time homebuyer, veteran's and rural community programs;

Federal Housing Authority, or "FHA" loans;

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and various conventional mortgages.

The Company retains servicing rights on loans sold to the Alaska Housing Finance Corporation since implementing a new loan servicing program in July 2015.

The Company retains servicing rights on loans sold to AHFC since implementing a loan servicing program in July 2015.

Alaska Economy

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Recent Economic Developments

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 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.

The Alaska economy continued to recover 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 healthy 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 future.

The Alaska Department of Labor ("DOL") has released preliminary data through December of 2022.

The DOL reports total payroll jobs in Alaska increased 2.1% or 6,400 jobs compared to December of 2021.

Nearly all private sectors showed year over year growth in jobs 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.

Leisure and Hospitality also grew by 1,800 jobs in the 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 Gross State Product (“GSP”) in the third quarter of 2022, was estimated to be $65.1 billion in “nominal” terms, according to the Federal Bureau of Economic Analysis ("BEA").

Alaska’s inflation adjusted “real” GSP grew at an annualized rate of 8.7% in the third quarter of 2022 in the BEA’s most recent report published December 23, 2022.

Alaska’s third quarter performance was the highest growth rate of all 50 states.

Real GSP increased in 47 of the 50 U.S.

states in the third quarter of 2022 at an average rate of 3.2%.

Alaska’s real GSP improvement was primarily due to gains in the Oil and Gas sector, followed by growth in Transportation and Warehousing.

The BEA also calculated Alaska’s seasonally adjusted personal income at $51 billion in the third quarter of 2022, an improvement of 5.8% over the prior quarter on an annualized basis.

The national average was an increase of 5.3% for the same period .

The price of Alaska North Slope (“ANS”) crude oil averaged $91.41 per barrel in the State’s fiscal year, which ended June 30, 2022.

The Alaska State Department of Revenue (“DOR”) forecasts ANS oil to average $88.45 per barrel in Alaska'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 NPR-A region west of Prudhoe Bay.

According to the Mortgage Bankers Association, Alaska’s home mortgage delinquency rate at the end of 2022 was 2.9%.

This is identical to the rate in Alaska at the end of 2019.

The delinquency 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 across the U.S.

The Mortgage Bankers Association survey also reported that the mortgage foreclosure inventory in Alaska at the end of 2022 was 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.

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

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 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%.

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 prior three years, growing by 11.2% in 2021.

The Matanuska Susitna Borough also experienced a lower volume of home sales, down 11.9% in 2022 compared to the prior year.

The number of units sold in the Matanuska Susitna Borough had been increasing for the prior four years and grew by 11.7% in 2021.

A material portion of our loans at December 31, 2022, were secured by real estate located in greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska.

In 2021, 36% 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 RML as compared to 45% and 31% in 2020 and 2019, respectively.

In 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 our Home Mortgage Lending segment as compared to 38% and 47% in 2021 and 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.

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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 5% of total state revenues of $29.8 billion in the fiscal year ending June 30, 2021 were generated through various taxes and royalties on the oil industry.

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

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.

According to the State of Alaska Department of Revenue, in 2022 and 2021, investment earnings represented $3.0 million, or 43%, and $3.1 million, or 65%, respectively, of unrestricted revenues.

As of December 31, 2022, Alaska's Constitutional Budget Reserve was $1.1 billion and the Alaska Permanent Fund had a balance of $74.5 billion.

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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 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.

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 2021 when there were roughly 116,000 cruise visitors according to State of Alaska Department of Labor and Workforce Development ("SOADLWD").

These declines were due to the COVID-19 pandemic.

The SOADLWD reported in its January 2023 issue of Alaska Economic Trends Magazine that the cruise industry brought 1.2 million cruise ship visitors to 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 40 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 $1,114 per eligible resident in 2021 for an aggregate distribution of approximately $700 million.

The distribution was $3,284 per eligible resident in 2022 for an aggregate distribution of approximately $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.

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 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.

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.

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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 Corporations (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 Department of Financial Institutions of Washington State.

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.

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 modifies and expands 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 significantly modified and expanded the legal and regulatory requirements imposed on banks and other financial institutions.

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.

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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.

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.

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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.

The GLB Act also included extensive consumer privacy provisions.

The Gramm-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.

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The FDIC or the Division could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

In addition, new capital rules may affect the Bank's ability to pay dividends.

In addition, recent 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.

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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.

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 Bank exercise a one-time irrevocable option to exclude certain components of AOCI.

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.

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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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, the 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 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.

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under the Rules, a bank generally is:

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;

“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;

“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 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).

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.

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.

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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.

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”).

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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.

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 implement specific policies and procedures designed to prevent and defeat money laundering.

Among other things, the USA PATRIOT Act and AMLA require the Company and the Bank to adopt and

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 CARES Act into law.

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

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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.

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.

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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.

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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.

Available Information

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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