What changed in this filing

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Item 1A. Risk Factors

2023-03-07 compared with 2022-03-04 · 170 added, 129 removed, 244 unchanged (55% of the section changed)

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should be carefully considered before purchasing our securities.

COVID-19 Pandemic Risk Factors

• The COVID-19 pandemic has materially impacted our business and financial results, and our business and financial results will likely continue to be adversely affected by the pandemic.

Interest Rate Risk Factor

Interest Rate and Inflation Risk Factors

• Changes in market interest rates could adversely impact the Company.

• Inflationary pressures and rising prices may affect our results of operations and financial condition.

Operational, Strategic and Business Risk Factors

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• Our concentration of operations in the Anchorage, Matanuska-Susitna Valley, Fairbanks and Southeast areas of Alaska makes us more sensitive to downturns in those areas.

• Our allowance for credit losses may be insufficient.

• Residential mortgage lending is a market sector that experiences significant volatility and is influenced by many factors beyond our control.

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• Certain hedging strategies that we use to manage interest rate risk may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity.

• Our allowance for credit losses may be insufficient.

• We have a significant concentration in real estate lending.

A downturn in real estate within our markets would have a negative impact on our results of operations.

• Real estate values may decrease leading to additional and greater than anticipated loan charge-offs and valuation writedowns on our other real estate owned (“OREO”) properties.

• We conduct substantially all of our operations through Northrim Bank, our banking subsidiary;

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

• There can be no assurance that the Company will continue to declare cash dividends or repurchase stock.

• Real estate values may decrease leading to additional and greater than anticipated loan charge-offs.

• We may be unable to attract and retain key employees and personnel.

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• A failure of a significant number of our borrowers, guarantors and related parties to perform in accordance with the terms of their loans would have an adverse impact on our results of operations.

• The ongoing COVID-19 pandemic, or a similar health crisis, may adversely impact our business and financial results.

Regulatory, Legislative and Legal Risk Factors

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• Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences.

• Deposit insurance premiums could increase further in the future.

Accounting, Tax and Financial Risk Factors

• Changes in income tax laws and interpretations, or in accounting standards, could materially affect our financial condition or results of operations.

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

General Economic and Market Risk Factors

• The replacement of the London Inter-Bank Offered Rate ("LIBOR") may adversely affect our business.

Stock Ownership Risk Factors

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

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

• The market price for our common stock may be volatile.

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

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

General Risk Factors

• Natural disasters and adverse weather could negatively affect real estate property values and Bank operations.

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

COVID-19 Pandemic Risks

The COVID-19 pandemic has materially impacted our business and financial results, and our business and financial results will likely continue to be adversely affected by the pandemic.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations.

The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of our control, including the scope and duration of the pandemic, the emergence of new variants, the effectiveness of our pandemic response plans, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken, or that may yet be taken, or inaction, by governmental authorities and other third parties in response to the pandemic.

Should the pandemic continue for a more extended period or worsen, we may face additional circumstances such as significant draws on credit lines should customers seek to increase liquidity.

Furthermore, should the pandemic continue, we may experience increased rates of employee illness or unavailability, and may experience challenges recruiting new employees.

Any disruption to our ability to deliver financial products or services to, or interact with, our clients and customers could result in losses or increased operational costs, regulatory fines, penalties and other sanctions, or harm our reputation.

We are also subject to litigation and reputational risk arising from our response to the COVID-19 pandemic.

The length of the pandemic and the efficacy of the measures being put in place to address it are unknown as efforts to combat the virus have been complicated by viral variants and uneven access to, and acceptance and effectiveness of, vaccines globally.

To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this report.

See the section captioned “COVID-19 Issues” in Part II.

Item 7 of this report for further discussion.

In addition, the effects could have a material impact on our results of operations and heighten many of our known risks described in this Part I, Section 1A “Risk Factors”.

Interest Rate Risk

Interest Rate and Inflation Risks

Changes in market interest rates could adversely impact the Company.

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Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, inflationary trends, changes in government spending and debt issuances and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee (“FOMC”) .

Changes in interest rates affect the demand for new loans, the credit profile of existing loans, the rates received on loans and securities, and rates paid on deposits and borrowings.

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Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

These impacts may negatively impact our ability to

attract deposits, make loans, and achieve satisfactory interest rate spreads, which could adversely affect our financial condition or results of operations.

In particular, increases in interest rates will likely reduce RML’s revenues by reducing the market for refinancings, as well as the demand for RML’s other residential loan products.

These impacts may negatively impact our ability to attract deposits, make loans, and achieve satisfactory interest rate spreads, which could adversely affect our financial condition or results of operations.

In particular, increases in interest rates have in the past and will likely in the future reduce RML’s revenues by reducing the market for refinancings, as well as the demand for RML’s other residential loan products.

Additionally, increases in interest rates may impact our borrowers' ability to make loan payments, particularly in our commercial loan portfolio.

Interest rates may be affected by many factors beyond our control, including general and economic conditions and the monetary and fiscal policies of various governmental and regulatory authorities.

The FOMC announced its target to keep the federal funds rate near zero percent in January 2022.

However, the FOMC also indicated that due to rising inflation it expects to raise interest rates in the near term.

Market volatility in interest rates can be difficult to predict, as unexpected interest rate changes may result in a sudden impact while anticipated changes in interest rates generally impact the mortgage rate market prior to the actual rate change.

Beginning early in 2022, in response to growing signs of inflation, the FRB has increased interest rates rapidly.

Although it is expected that the FRB will continue to increase the target federal funds rate in 2023 to combat recent inflationary trends, if interest rates do not rise, or if the FRB were to lower the target federal funds rate to below 0%, these low rates could continue to constrain our interest rate spread and may adversely affect our business forecasts.

On the other hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts.

All else being equal, if the interest rates on the Company's interest-bearing liabilities increase at a faster pace than the interest rates on our interest-earning assets, the result would be a reduction in net interest income and with it, a reduction in net income.

In addition, anticipated changes in interest rates generally impact the mortgage rate market prior to the actual rate change.

We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.

Exposure to interest rate risk is managed by monitoring the repricing frequency of our rate-sensitive assets and rate-sensitive liabilities over any given period.

Although we believe the current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates could potentially have an adverse effect on our business, financial condition and results of operations.

Inflationary pressures and rising prices may affect our results of operations and financial condition .

Inflation has continued rising in 2022 at levels not seen for over 40 years.

Inflationary pressures are currently expected to remain elevated throughout 2022 and are likely to continue into 2023.

Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.

Sustained higher interest rates by the FRB may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.

A deterioration in economic conditions in the United States and our regional markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.

Operational, Strategic and Business Risks

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We are operating in an uncertain economic environment.

The decrease in the price of oil which began in 2014 has led to a significant deficit in the budget for the State of Alaska, which was partially mitigated in 2018 by the implementation of a percent of market value approach allocating a portion of the Alaska Permanent Fund's investment earnings to help fund the state budget.

However, we believe that this has addressed only part of Alaska's structural finance problem and this approach also increased Alaska's exposure to volatility in financial markets.

The pandemic caused a global economic slowdown, and while we have seen economic recovery, continuing supply chain issues, fluctuations in oil prices, labor shortages and inflation risk are affecting the continued recovery.

In the longer term, relatively low oil prices are expected to negatively impact the overall economy in Alaska on a larger scale as we estimate that one third of the Alaskan economy is related to oil.

Financial institutions continue to be affected by changing conditions in the real estate and financial markets, along with an arduous regulatory climate.

Dramatic declines in the United States housing market from 2008 through 2012, with falling home prices and increasing foreclosures and unemployment, resulted in significant writedowns of asset values by financial institutions.

While conditions have improved nationally, a return to a recessionary economy could result in financial stress on our borrowers that would adversely affect our financial condition and results of operations.

Continued economic uncertainty and a recessionary or stagnant economy could result in financial stress on the Bank's borrowers, which could adversely affect our business, financial condition and results of operations.

Deteriorating conditions in the regional economies of Anchorage, Matanuska-Susitna Valley, Fairbanks, and the Southeast areas of Alaska served by the Company could drive losses beyond that which is provided for in our allowance for loan losses.

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▪ Ineffective monetary policy could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition.

▪ Market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities.

▪ Regulatory scrutiny of the industry could increase, leading to harsh regulation of our industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to the judicial system and the plaintiff’s bar.

▪ Erosion in the fiscal condition of the U.S.

▪ Market developments and economic stagnation may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities.

▪ Further erosion in the fiscal condition of the U.S.

Treasury could lead to new taxes that would limit the ability of the Company to pursue growth and return profits to shareholders.

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The majority of our lending has been with Alaska businesses and individuals.

At December 31, 2021, approximately 9% of the Bank's loans are PPP loans which are 100% guaranteed by the SBA.

At December 31, 2022, less than 1% of the Bank's loans are PPP loans which are 100% guaranteed by the SBA.

Of the remaining loan portfolio, excluding PPP loans, approximately 69% of loans are secured by real estate and 1% are unsecured.

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These areas rely primarily upon the natural resources industries, particularly oil production, as well as tourism and government and U.S.

military spending for their

economic success.

military spending for their economic success.

In particular, the oil industry plays a significant role in the Alaskan economy.

We estimate that one third of Alaska's gross state product is currently derived from the oil industry.

Our business is and will remain sensitive to economic factors that relate to these industries and local and regional business conditions.

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however, prolonged or acute fluctuations could have a material and adverse impact upon our financial condition and results of operation.

Our allowance for credit losses may be insufficient.

We maintain allowances for credit losses on loans, securities and off-balance sheet credit exposures.

The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument.

Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts.

As a result, the determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes.

Continuing deterioration in economic conditions affecting borrowers and securities issuers;

new information regarding existing loans, credit commitments and securities holdings;

the continuation of the COVID-19 pandemic or other global pandemics;

natural disasters and risks related

to climate change;

and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the allowances for credit losses on loans, securities and off-balance sheet credit exposures.

In addition, bank regulatory agencies periodically review our allowance for credit losses and may require an increase in credit loss expense or the recognition of further loan charge-offs, based on judgments different than those of management.

Furthermore, if any charge-offs related to loans, securities or off-balance sheet credit exposures in future periods exceed our allowances for credit losses on loans, securities or off-balance sheet credit exposures, we will need to recognize additional credit loss expense to increase the applicable allowance.

Any increase in the allowance for credit losses on loans, securities and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.

Residential mortgage lending is a market sector that experiences significant volatility and is influenced by many factors beyond our control.

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Residential mortgage lending in general has experienced substantial volatility in recent periods primarily due to changes in interest rates and other market forces beyond our control.

Interest rate changes, such as rate increases implemented by the FRB, may result in lower rate locks and closed loan volume, which may adversely impact the earnings and results of operations of RML.

In addition, an increase, as is currently expected, in interest rates may materially and adversely affect our future loan origination volume and margins.

Interest rate changes, such as rate increases implemented by the FRB, have in the past, and may in the future, result in lower rate locks and closed loan volume, which may adversely impact the earnings and results of operations of RML.

In addition, the recent increase and future increase, as is currently expected, in interest rates has in the past, and may in the future, materially and adversely affect our future loan origination volume and margins.

Our information systems or those of our third-party vendors may be subject to an interruption or breach in security, including as a result of cyber attacks.

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We could also become subject to litigation claims seeking damages or other remedies arising from alleged breaches of our servicing agreements.

Additionally, under our loan servicing program we retain servicing rights on mortgage loans originated by RML and sold to the Alaska Housing Finance Corporation.

If we breach any of the representations and warranties in our servicing agreements with the Alaska Housing Finance Corporation, we may be required to repurchase any loan sold under this program and record a loss upon repurchase and/or bear any subsequent loss on the loan.

Additionally, under our loan servicing program we retain servicing rights on mortgage loans originated by RML and sold to AHFC.

If we breach any of the representations and warranties in our servicing agreements with AHFC, we may be required to repurchase any loan sold under this program and record a loss upon repurchase and/or bear any subsequent loss on the loan.

We may not have any remedies available to us against third parties for such losses, or the remedies might not be as broad as the remedies available to the Alaska Housing Finance Corporation against us.

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If these assumptions and projections prove to be incorrect or our hedging strategies do not adequately mitigate the impact of changes in interest rates, we may incur losses that would adversely impact our financial condition and results of operations.

Our allowance for credit losses may be insufficient.

We maintain allowances for credit losses on loans, securities and off-balance sheet credit exposures.

Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts.

Continuing deterioration in economic conditions affecting borrowers and securities issuers;

new information regarding existing loans, credit commitments and securities holdings;

the continuation of the COVID-19 pandemic or other global pandemics;

natural disasters and risks related to climate change;

We have a significant concentration in real estate lending.

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Additionally, all of the Company's loans held for sale are secured by residential real estate.

A slowdown in the residential sales cycle in our major markets and a constriction in the availability of mortgage financing, such as what occurred during the financial crisis in the United States housing market from 2008 through 2012, would negatively impact residential real estate sales, which would result in customers’ inability to repay loans.

A slowdown in the residential sales cycle in our major markets and a constriction in the availability of mortgage financing, would negatively impact residential real estate sales, which would result in customers’ inability to repay loans.

This would result in an increase in our non-performing assets if more borrowers fail to perform according to loan terms and if we take possession of real estate properties.

Additionally, if real estate values decline, the value of real estate collateral

securing our loans could be significantly reduced.

Additionally, if real estate values decline, the value of real estate collateral securing our loans could be significantly reduced.

If any of these effects continue or become more pronounced, loan losses will increase more than we expect and our financial condition and results of operations would be adversely impacted.

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The credit quality of these loans may deteriorate more than expected which may result in losses that exceed the estimates that are currently included in our loan loss allowance, which could adversely affect our financial condition and results of operations.

Real estate values may decrease leading to additional and greater than anticipated loan charge-offs and valuation writedowns on our other real estate owned (“OREO”) properties.

Real estate owned by the Bank and not used in the ordinary course of its operations is referred to as “other real estate owned” or “OREO” property.

We foreclose on and take title to the real estate serving as collateral for defaulted loans as part of our business.

At December 31, 2021, the Bank held $5.6 million of OREO properties, most of which relate to a commercial real estate loan.

Increased OREO balances lead to greater expenses as we incur costs to manage and dispose of the properties.

Our ability to sell OREO properties is affected by public perception that banks are inclined to accept large discounts from market value in order to quickly liquidate properties.

Any decrease in market prices may lead to OREO writedowns, with a corresponding expense in our income statement.

We evaluate OREO property values periodically and writedown the carrying value of the properties if the results of our evaluations require it.

Further writedowns on OREO or an inability to sell OREO properties could have a material adverse effect on our results of operations and financial condition.

We conduct substantially all of our operations through Northrim Bank, our banking subsidiary;

The Company is a separate legal entity from our subsidiaries.

It receives substantially all of its revenue from dividends paid from the Bank.

There are legal limitations on the extent to which the Bank may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with us.

Our inability to receive dividends from the Bank could adversely affect our business, financial condition, results of operations and prospects.

Our net income depends primarily upon the Bank’s net interest income, which is the income that remains after deducting from total income generated by earning assets the expense attributable to the acquisition of the funds required to support earning assets (primarily interest paid on deposits and borrowings).

The amount of interest income is dependent on many factors including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the levels of nonperforming loans.

All of those factors affect the Bank’s ability to pay dividends to the Company.

On January 1, 2019, a requirement to have a capital conservation buffer went into full effect and could adversely affect the Bank's ability to pay dividends.

Various statutory provisions restrict the amount of dividends the Bank can pay to us without regulatory approval.

Under Alaska law, a bank may not declare or pay a dividend in an amount greater than its net undivided profits then on hand.

In addition, the Bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet the “adequately capitalized” level in accordance with regulatory capital requirements.

It is also possible that, depending upon the financial condition of the Bank and other factors, regulatory authorities could conclude that payment of dividends or other payments, including payments to us, is an unsafe or unsound practice and impose restrictions or prohibit such payments.

It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s current and expected future capital needs, asset quality and overall financial condition.

The policy provides that bank holding companies should not maintain a level of cash dividends that undermines a bank holding company’s ability to serve as a source of strength to its banking subsidiaries.

There can be no assurance that the Company will continue to declare cash dividends or repurchase stock.

During 2021, the Company repurchased 279,276 shares of common stock at an average price of $41.30 per share under its previously announced share repurchase program.

On January 28, 2022, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 300,000 shares of common stock.

The Company also paid cash dividends of $1.50 per diluted share in 2021.

On February 24, 2022, the Board of Directors approved payment of a $0.41 per share dividend on the Company’s outstanding shares.

Whether we continue, and the amount and timing of, such dividends and/or stock repurchases is subject to capital availability and periodic determinations by our Board.

The Company continues to evaluate the potential impact that regulatory proposals may have on our liquidity and capital management strategies, including Basel III and those required under the Dodd-Frank Act.

The actual amount and timing of future dividends and share repurchases, if any, will depend on market and economic conditions, applicable SEC rules, federal and state regulatory restrictions, and various other factors.

In addition, the amount we spend and the number of shares we are able to repurchase under our stock repurchase program may further be affected by a number of other factors, including the stock price and blackout periods in which we are restricted from repurchasing shares.

Our dividend payments and/or stock repurchases may change from time to time, and we cannot provide assurance that we will continue to declare dividends and/or repurchase stock in any particular amounts or at all.

A reduction in or elimination of our dividend payments and/or stock repurchases could have a negative effect on our stock price.

We may be unable to attract and retain key employees and personnel.

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Schierhorn, our Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer of the Company;

Michael Huston, our President and Chief Lending Officer of Northrim Bank;

Ballard, our Executive Vice President and Chief Financial Officer;

and Amber Zins, our Executive Vice President and Chief Operating Officer of Northrim Bank.

While we maintain keyman life insurance on the lives of Messrs.

Schierhorn and Ballard in the amounts of $2.4 million and $2 million, respectively, we may not be able to timely replace Mr.

Schierhorn or Mr.

Ballard with a person of comparable ability and experience should the need to do so arise, causing losses in excess of the insurance proceeds.

Schierhorn, Huston, Ballard and Ms.

Zins in the amounts of $2.4 million, $2 million, $2 million and $2 million, respectively, we may not be able to timely replace these key employees with a person of comparable ability and experience

should the need to do so arise, causing losses in excess of the insurance proceeds.

The unexpected loss of key employees could have a material adverse effect on our business and possibly result in reduced revenues and earnings.

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These policies and procedures, however, may not prevent unexpected losses that could materially affect our financial condition and results of operations.

The ongoing COVID-19 pandemic, or a similar health crisis, may adversely impact our business and financial results.

The COVID-19 pandemic has created economic and financial disruptions that may adversely affect, our business, financial condition, liquidity and results of operations.

The extent to which the COVID-19 pandemic, or a similar health crisis, will negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of our control, including the scope and duration of the pandemic, the emergence of new variants, the effectiveness of our pandemic response plans, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken, or that may yet be taken, or inaction, by governmental authorities and other third parties in response to the pandemic.

Should the pandemic continue for a more extended period or worsen, we may face additional circumstances such as significant draws on credit lines should customers seek to increase liquidity.

Furthermore, should the pandemic continue, we may experience increased rates of employee illness or unavailability, and may experience challenges recruiting new employees.

We are also subject to litigation and reputational risk arising from our response to the COVID-19 pandemic.

Governments have taken unprecedented steps to partially mitigate the adverse effects of their containment measures.

For example, in late March 2020, the CARES Act was enacted to inject more than $2 trillion of financial assistance into the U.S.

economy, followed by additional COVID relief legislation of approximately $900 million in December 2020.

In March 2021 the ARP Act was enacted to inject an additional $1.9 trillion in financial relief and economic stimulus.

Whether the economic stimulus will have a lasting positive effect or whether it will contribute to higher inflation or other economic ill effects is unknown.

Regulatory, Legislative and Legal Risks

We operate in a highly regulated environment and changes of or increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us.

We operate in a highly regulated environment and changes of or significant increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us.

We are subject to extensive regulation, supervision and examination by federal and state banking authorities.

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Changes in laws and regulations may also increase our expenses by imposing additional fees or taxes or restrictions on our operations.

Significant changes in SEC regulations, such as the proposed climate change disclosures and other regulatory initiatives, can dramatically shift resources and costs to ensure adequate compliance.

Additional legislation and regulations that could significantly affect our authority and operations may be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations.

Failure to appropriately comply with any such laws, regulations or principles could result in sanctions by regulatory agencies or damage to our reputation, all of which could adversely affect our business, financial condition or results of operations.

In that regard, the Dodd-Frank Act was enacted in July 2010.

Among other provisions, the Dodd-Frank Act created the CFPB with broad powers to regulate consumer financial products such as credit cards and mortgages, created a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, has resulted in new capital requirements from federal banking agencies, placed new limits on electronic debit card interchange fees, and requires banking regulators, the SEC and national stock exchanges to adopt significant new corporate governance and executive compensation reforms.

Certain provisions of these new rules have phase-in periods, including a 2.5% conservation buffer, which began to be phased-in in 2016 and took full effect on January 1, 2019.

Further, regulators have significant discretion and authority to prevent or remedy practices that they deem to be unsafe or unsound, or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties.

These powers have been utilized more frequently in recent years due to the serious national economic conditions that faced the financial system in late 2008 and early 2009.

The Dodd-Frank Act has had a substantial impact on our industry, including the creation of the CFPB with broad powers to regulate consumer financial products such as credit cards and mortgages, the creation of a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, has resulted in new capital requirements from federal banking agencies, placed new limits on electronic debit card interchange fees, and requires banking regulators, the SEC and national stock exchanges to adopt significant new corporate governance and executive compensation reforms.

Regulators have significant discretion and authority to prevent or remedy practices that they deem to be unsafe or unsound, or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties.

The exercise of regulatory authority may have a negative impact on our financial condition and results of operations.

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The FRB affects the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject.

The FOMC announced its target to keep the federal funds rate near zero percent in January 2022.

However, the FOMC also indicated that due to rising inflation it expects to raise interest rates in the near term.

While we expect the FRB to raise short-term interest rates in 2022, we cannot predict the nature or impact of future changes in monetary and fiscal policies.

The FRB raised the federal funds rate target to 4.50%-4.75% in February 2023 and also indicated that due to continuing rising inflation it expects to continue raise interest rates in the near term.

While we expect the FRB to raise short-term interest rates in the first half 2023, we cannot predict the nature or impact of future changes in monetary and fiscal policies.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences.

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however, it is possible for such safeguards to fail or prove deficient during the implementation phase to avoid non-compliance with such laws.

Deposit insurance premiums could increase further in the future.

The FDIC insures deposits at FDIC-insured financial institutions, including the Bank.

The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund ("DIF") at a specific level.

Historically, unfavorable economic conditions increased bank failures and these additional failures decreased the DIF.

In order to restore the DIF to its statutorily mandated minimums the FDIC significantly increased deposit insurance premium rates, including the Bank's.

FDIC insurance premiums could increase in the future in response to similar declining economic conditions.

More recently, extraordinary growth in insured deposits caused the ratio of the DIF to total insured deposits to fall below the current statutory minimum of 1.35%.

The FDIC has also established a higher reserve ratio of 2% as a long term goal and the minimum level needed to withstand future financial crises of the magnitude of past crises.

The FDIC may increase the assessment rates or impose additional special assessments in the future to restore and then steadily increase the DIF to these statutory target levels.

Any increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations.

Accounting, Tax and Financial Risks

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These changes are not within our control and may significantly impact our financial condition and results of operations.

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

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates the LIBOR announced that after December 31, 2021 it would no longer compel banks to submit the rates required to calculate LIBOR.

With this announcement there is uncertainty about the continued availability of LIBOR after 2021.

If LIBOR ceases to be available or the methods of calculating LIBOR change from the current methods, financial products with interest rates tied to LIBOR may be adversely affected.

Even if LIBOR remains available it is uncertain whether it will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments.

We have loans, derivative contracts, and other financial instruments, including debentures related to our trust preferred securities, with rates that are either directly or indirectly tied to LIBOR.

If any of the foregoing were to occur, the interest rates on these instruments, as well as the revenue and expenses associated with the same, may be adversely affected.

The replacement of the London Inter-Bank Offered Rate ("LIBOR") may adversely affect our business.

Certain loans made by us are made at variable rates that use LIBOR as a benchmark for establishing the interest rate.

In addition, we also have investments and interest rate derivatives that reference LIBOR.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority ("FCA") announced that it intended to stop persuading or compelling banks to submit LIBOR rates after 2021.

On November 30, 2020 to facilitate an orderly LIBOR transition the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve jointly announced that entering into new contracts using LIBOR as a reference rate after December 31, 2021 would create a safety and soundness risk.

On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S.

dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S.

dollar LIBOR settings.

In the United States, efforts to identify a set of alternative U.S.

dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee ("ARRC") has recommended the use of a Secured Overnight Funding Rate ("SOFR").

SOFR is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate.

These differences could lead to a greater disconnect between the Bank's costs to raise funds for SOFR as compared to LIBOR.

For cash products and loans, the ARRC has also recommended Term SOFR, which is a forward looking SOFR based on SOFR futures and may in part reduce

differences between SOFR and LIBOR.

To further reduce differences between replacement indices and substitute indices market practitioners have also gravitated towards credit sensitive rates, the leading among them being the Bloomberg Short-term Bank Yield Index (“BSBY”).

The ARRC announced on October 21, 2020 that they are not well positioned to adjudicate the development of a credit sensitive rate and will not criticize firms solely for using reference rates other than SOFR, such as BSBY.

The Company has the ability to originate new loans to customers based on SOFR, Term SOFR, BSBY, Prime and other indices but market acceptance or availability of these or other alternate reference rates remain uncertain.

The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers may incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.

These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established or the establishment of multiple alternative reference rate(s).

These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us .

Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.

General Economic and Market Risks

Stock Ownership Risk Factors

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

The Company is a separate legal entity from our subsidiaries and does not have significant operations of its own.

The availability of dividends from the Bank is limited by the Bank's earnings and capital, as well as various statutes and regulations.

Our inability to receive dividends from the Bank could adversely affect our business, financial condition, results of operations and prospects.

All of those factors affect the Bank’s ability to pay dividends to the Company.

Various statutory provisions restrict the amount of dividends the Bank can pay to us without regulatory approval.

Under Alaska law, a bank may not declare or pay a dividend in an amount greater than its net undivided profits then on hand.

If the Bank earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.

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

During 2022, the Company repurchased 333,724 shares of common stock at an average price of $42.42 per share under its previously announced share repurchase program.

On January 27, 2023, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 285,000 shares of common stock.

Whether we continue, and the amount and timing of such stock repurchases is subject to capital availability and periodic determinations by our Board.

The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, applicable SEC

rules, federal and state regulatory restrictions, and various other factors.

Our stock repurchases may change from time to time, and we cannot provide assurance that we will continue to repurchase stock in any particular amounts or at all.

A reduction in or elimination of our stock repurchases could have a negative effect on our stock price.

The market price for our common stock may be volatile.

The market price of our common stock could fluctuate substantially in the future in response to a number of factors, including those discussed below.

The market price of our common stock has in the past fluctuated significantly.

We expect to see additional volatility in the financial markets due to the uncertainty caused by the continuing COVID-19 pandemic, disruption in global supply chains, uncertainty over the U.S.

government debt ceiling and changing FRB policy.

Some additional factors that may cause the price of our common stock to fluctuate include:

•general conditions in the financial markets and real estate markets.

•macro-economic and political conditions in the U.

and the financial markets generally (including the effects of the COVID-19 pandemic).

•variations in the operating results of the Company and our competitors.

•events affecting other companies that the market deems comparable to the Company.

•changes in securities analysts' estimates of our future performance and the future performance of our competitors.

•announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships.

•additions or departure of key personnel.

•the presence or absence of short selling of our common stock.

•future sales or other issuances by us of our common stock.

The stock markets in general have experienced substantial price and trading fluctuations.

These fluctuations have resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating performance.

These broad market fluctuations are expected to continue for the near future, and may adversely affect the trading price of our common stock.

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

We are not restricted from issuing additional shares of common stock, preferred stock, or securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock.

Our Board of Directors has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over the common stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms.

The issuance of any additional shares of common or of preferred stock or convertible securities or the exercise of such securities could be substantially dilutive to existing shareholders.

We may also elect to use common stock to fund future acquisitions, which will dilute existing shareholders.

Holders of our common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in dilution to our shareholders.

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

The Company values constructive input from shareholders, and our Board of Directors and management team are committed to acting in the best interests of all of the Company’s shareholders.

Activist shareholders who disagree with the composition of the Board of Directors, the Company’s strategic direction, or the way the Company is managed may seek to effect change through various strategies that range from private engagement to public filings, proxy contests, efforts to force transactions not supported by the Board of Directors, and litigation.

Responding to some of these actions can be costly and time-consuming, may disrupt the Company’s operations and divert the attention of the Board of Directors and management.

Such activities could interfere with the Company’s ability to execute its strategic plan and to attract and retain qualified executive leadership.

The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common stock.

General Risk Factors

Natural disasters and adverse weather could negatively affect real estate property values and Bank operations.

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Such events may result in restrictions, curfews, or other actions and give rise to significant changes in regional and global economic conditions and cycles, which may adversely affect our financial condition and operations.

In 2020, there were protests in cities throughout the U.S.

as well as globally, including in Hong Kong, in connection with civil rights, liberties, and social and governmental reform.

Looting, vandalism, and fires have occurred in cities such as Seattle, Portland, Los Angeles, Washington, D.C., New York City, and Minneapolis that have led to the imposition of mandatory curfews and, in some locations, deployment of the U.S.

National Guard.

Government actions in an effort to protect people and property, including curfews and restrictions on business operations, may disrupt operations, harm perceptions of personal well-being, and increase the need for additional expenditures on security resources.

In addition, action resulting from such social or political unrest may pose significant risks to our personnel, facilities, and operations.

The effect and duration of demonstrations, protests, or other factors is uncertain, and we cannot ensure there will not be further political or social unrest in the future or that there will not be other events that could lead to social, political, and economic disruptions.

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

In addition, a new U.S.

President, Joseph R.

Biden, was elected in November 2020.

The aftermath of the November 2020 presidential election, including the January 6, 2021, violent disruption at the Capitol, has left the U.S.

in what many consider to be an extremely heightened state of political and social tension, and it is unclear whether this tension will dissipate or intensify in coming months and what resulting impacts may occur to adversely affect our business operations or the safety of our employees, our customers, and the communities in which we operate.

Changes in federal policy, including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which lead to changes involving the level of oversight and focus on certain industries and corporate entities.

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Severe weather events of increasing strength and frequency due to climate change cannot be predicted and may be exacerbated by global climate change, natural disasters, including volcanic eruptions and earthquakes, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us.

In addition, there is continuing uncertainty over demand for oil and gas in part due to regulatory changes from climate change related policies.

In addition, there is continuing uncertainty over demand for oil and gas in part due to consumer demand and regulatory changes from climate change related policies.

Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional expenses.

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What changed 10-K

Item 1A. Risk Factors