NORTHRIM BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS 2 CONSOLIDATED FINANCIAL STATEMENTS NORTHRIM BANCORP, INC. Consolidated Balance Sheets (Unaudited) March 31, 2023 December 31, 2022 (In Thousands, Except Share Data) ASSETS Cash and due from banks $ 28,976 $ 27,747 Interest bearing deposits in other banks 110,235 231,603 Investment securities available for sale, at fair value 677,734 677,029 Marketable equity securities 10,515 10,740 Investment securities held to maturity, at amortized cost 36,750 36,750 Investment in Federal Home Loan Bank stock 3,752 3,816 Loans held for sale 23,985 27,538 Loans 1,535,187 1,501,785 Allowance for credit losses, loans ( 14,157 ) ( 13,838 ) Net loans 1,521,030 1,487,947 Purchased receivables, net 21,190 19,994 Mortgage servicing rights, at fair value 18,303 18,635 Other real estate owned, net 273 — Premises and equipment, net 38,163 37,821 Operating lease right-of-use assets 9,469 9,868 Goodwill 15,017 15,017 Other intangible assets, net 963 967 Other assets 63,682 68,846 Total assets $ 2,580,037 $ 2,674,318 LIABILITIES Deposits: Demand $ 767,772 $ 797,434 Interest-bearing demand 717,910 767,686 Savings 292,857 320,917 Money market 262,478 308,317 Certificates of deposit less than $250,000 149,698 115,330 Certificates of deposit $250,000 and greater 105,558 77,527 Total deposits 2,296,273 2,387,211 Borrowings 13,991 14,095 Junior subordinated debentures 10,310 10,310 Operating lease liabilities 9,466 9,865 Other liabilities 25,572 34,208 Total liabilities 2,355,612 2,455,689 SHAREHOLDERS' EQUITY Preferred stock, $ 1 par value, 2,500,000 shares authorized, none issued or outstanding — — Common stock, $ 1 par value, 10,000,000 shares authorized, 5,672,841 and 5,700,728 issued and outstanding at March 31, 2023 and December 31, 2022, respectively 5,673 5,701 Additional paid-in capital 16,625 17,784 Retained earnings 225,611 224,225 Accumulated other comprehensive loss, net of tax ( 23,484 ) ( 29,081 ) Total shareholders' equity 224,425 218,629 Total liabilities and shareholders' equity $ 2,580,037 $ 2,674,318 See notes to consolidated financial statements 3 NORTHRIM BANCORP, INC. Consolidated Statements of Income (Unaudited) Three Months Ended March 31, (In Thousands, Except Per Share Data) 2023 2022 Interest and Dividend Income Interest and fees on loans and loans held for sale $ 23,694 $ 18,268 Interest on investment securities available for sale 3,934 1,135 Dividends on marketable equity securities 168 112 Interest on investment securities held to maturity 474 273 Dividends on Federal Home Loan Bank stock 36 28 Interest on deposits in other banks 1,489 242 Total Interest and Dividend Income 29,795 20,058 Interest Expense Interest expense on deposits 4,583 575 Interest expense on borrowings 87 86 Interest expense on junior subordinated debentures 93 93 Total Interest Expense 4,763 754 Net Interest Income 25,032 19,304 Provision (benefit) for credit losses 360 ( 150 ) Net Interest Income After Provision (Benefit) for Credit Losses 24,672 19,454 Other Operating Income Mortgage banking income 2,008 6,982 Purchased receivable income 977 402 Bankcard fees 908 804 Service charges on deposit accounts 457 374 Unrealized (loss) gain on marketable equity securities ( 223 ) ( 422 ) Keyman life insurance proceeds — 2,002 Other income 781 681 Total Other Operating Income 4,908 10,823 Other Operating Expense Salaries and other personnel expense 15,484 14,106 Data processing expense 2,355 1,992 Occupancy expense 1,943 1,726 Professional and outside services 722 722 Marketing expense 564 425 Insurance expense 557 566 OREO expense, net rental income and gains on sale 26 ( 12 ) Intangible asset amortization expense 4 6 Other operating expense 1,854 1,570 Total Other Operating Expense 23,509 21,101 Income Before Provision for Income Taxes 6,071 9,176 Provision for income taxes 1,241 1,950 Net Income $ 4,830 $ 7,226 Earnings Per Share, Basic $ 0.85 $ 1.22 Earnings Per Share, Diluted $ 0.84 $ 1.20 Weighted Average Shares Outstanding, Basic 5,691,432 5,938,037 Weighted Average Shares Outstanding, Diluted 5,757,458 5,997,351 See notes to consolidated financial statements 4 NORTHRIM BANCORP, INC. Consolidated Statements of Comprehensive Income (Unaudited) 2010 Three Months Ended March 31, (In Thousands) 2023 2022 Net income $ 4,830 $ 7,226 Other comprehensive income (loss), net of tax: Securities available for sale: Unrealized holding gains (losses) arising during the period $ 8,119 ($ 16,302 ) Derivatives and hedging activities: Unrealized holding (losses) gains arising during the period ( 299 ) 927 Income tax benefit related to unrealized (gains) and losses ( 2,223 ) 4,371 Other comprehensive income (loss), net of tax 5,597 ( 11,004 ) Comprehensive income (loss) $ 10,427 ($ 3,778 ) See notes to consolidated financial statements 5 NORTHRIM BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss), net of Tax Total Number of Shares Par Value (In Thousands) Balance as of January 1, 2022 6,015 $ 6,015 $ 31,162 $ 204,046 ($ 3,406 ) $ 237,817 Cash dividend on common stock ($ 0.41 per share) — — — ( 2,471 ) — ( 2,471 ) Stock-based compensation expense — — 187 — — 187 Repurchase of common stock ( 133 ) ( 133 ) ( 5,790 ) — — ( 5,923 ) Other comprehensive loss, net of tax — — — — ( 11,004 ) ( 11,004 ) Net income — — — 7,226 — 7,226 Balance as of March 31, 2022 5,882 $ 5,882 $ 25,559 $ 208,801 ($ 14,410 ) $ 225,832 Cash dividend on common stock ($ 0.41 per share) — — — ( 2,364 ) — ( 2,364 ) Stock-based compensation expense — — 190 — — 190 Other comprehensive loss, net of tax — — — — ( 4,930 ) ( 4,930 ) Net income — — — 4,795 — 4,795 Balance as of June 30, 2022 5,681 $ 5,681 $ 17,716 $ 211,232 ($ 19,340 ) $ 215,289 Cash dividend on common stock ($ 0.50 per share) — — — ( 2,858 ) — ( 2,858 ) Stock-based compensation expense — — 191 — — 191 Other comprehensive loss, net of tax — — — — ( 12,048 ) ( 12,048 ) Net income — — — 10,125 — 10,125 Balance as of September 30, 2022 5,681 $ 5,681 $ 17,907 $ 218,499 ($ 31,388 ) $ 210,699 Cash dividend on common stock ($ 0.50 per share) — — — ( 2,869 ) — ( 2,869 ) Stock-based compensation expense — — 174 — — 174 Exercise of stock options and vesting of restricted stock units, net 20 20 ( 297 ) — — ( 277 ) Other comprehensive loss, net of tax — — — — 2,307 2,307 Net income — — — 8,595 — 8,595 Balance as of December 31, 2022 5,701 $ 5,701 $ 17,784 $ 224,225 ($ 29,081 ) $ 218,629 See notes to consolidated financial statements 6 NORTHRIM BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity (Continued) (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss), net of Tax Total Number of Shares Par Value (In Thousands) Balance as of January 1, 2023 5,701 $ 5,701 $ 17,784 $ 224,225 ($ 29,081 ) $ 218,629 Cash dividend on common stock ($ 0.60 per share) — — — ( 3,444 ) — ( 3,444 ) Stock-based compensation expense — — 140 — — 140 Repurchase of common stock ( 28 ) ( 28 ) ( 1,299 ) — — ( 1,327 ) Other comprehensive loss, net of tax — — — — 5,597 5,597 Net income — — — 4,830 — 4,830 Balance as of March 31, 2023 5,673 $ 5,673 $ 16,625 $ 225,611 ($ 23,484 ) $ 224,425 See notes to consolidated financial statements 7 NORTHRIM BANCORP, INC. Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (In Thousands) 2023 2022 Operating Activities: Net income $ 4,830 $ 7,226 Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities: Depreciation and amortization of premises and equipment 789 798 Amortization of software 287 293 Intangible asset amortization 4 6 Amortization of investment security premium, net of discount accretion 130 174 Unrealized loss on marketable equity securities 223 422 Stock-based compensation 140 187 Deferred loan fees and amortization, net of costs 15 ( 2,162 ) Provision (benefit) for credit losses 360 ( 150 ) Additions to home mortgage servicing rights carried at fair value ( 463 ) ( 987 ) Change in fair value of home mortgage servicing rights carried at fair value 795 ( 711 ) Change in fair value of commercial servicing rights carried at fair value 123 134 Gain on sale of loans ( 1,305 ) ( 3,921 ) Proceeds from the sale of loans held for sale 55,583 171,166 Origination of loans held for sale ( 50,725 ) ( 143,575 ) Proceeds from keyman life insurance — ( 2,002 ) Net changes in assets and liabilities: (Increase) decrease in accrued interest receivable ( 941 ) ( 319 ) Decrease in other assets 1,222 1,149 (Decrease) in other liabilities ( 6,718 ) ( 7,883 ) Net Cash Provided by Operating Activities 4,349 19,845 Investing Activities: Investment in securities: Purchases of investment securities available for sale ( 6,000 ) ( 78,139 ) Purchases of FHLB stock ( 6 ) ( 726 ) Purchases of investment securities held to maturity — ( 4,750 ) Proceeds from sales/calls/maturities of securities available for sale 13,285 — Proceeds from redemption of FHLB stock 70 5 (Increase) in purchased receivables, net ( 1,196 ) ( 1,565 ) (Increase) decrease in loans, net ( 33,630 ) 38,399 Proceeds from keyman life insurance — 2,002 Purchases of software ( 90 ) — Purchases of premises and equipment ( 1,131 ) ( 1,050 ) Net Cash (Used) by Investing Activities ( 28,698 ) ( 45,824 ) Financing Activities: (Decrease) in deposits ( 90,938 ) ( 78,565 ) (Decrease) in borrowings ( 104 ) ( 104 ) Repurchase of common stock ( 1,327 ) ( 5,923 ) Cash dividends paid ( 3,421 ) ( 2,448 ) Net Cash Used by Financing Activities ( 95,790 ) ( 87,040 ) Net Change in Cash and Cash Equivalents ( 120,139 ) ( 113,019 ) Cash and Cash Equivalents at Beginning of Period 259,350 645,827 Cash and Cash Equivalents at End of Period $ 139,211 $ 532,808 8 Supplemental Information: Interest paid $ 4,650 $ 726 Transfer of loans to other real estate owned $ 273 $ — Non-cash lease liability arising from obtaining right of use assets $ 160 $ — Cash dividends declared but not paid $ 23 $ 23 See notes to consolidated financial statements 9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Significant Accounting Policies The accompanying unaudited consolidated financial statements and corresponding footnotes have been prepared by Northrim BanCorp, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The year-end Consolidated Balance Sheet data was derived from the Company's audited financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company owns a 100% interest in Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively "RML") and consolidates their balance sheets and income statement into its financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company determined that it operates in two primary operating segments: Community Banking and Home Mortgage Lending. The Company has evaluated subsequent events and transactions for potential recognition or disclosure. Operating results for the interim period ended March 31, 2023 are not necessarily indicative of the results anticipated for the year ending December 31, 2023. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The Company’s significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in our application of these accounting policies in 2023. Reclassification of Prior Period Presentation Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or total shareholders' equity. Recent Accounting Pronouncements Accounting pronouncements implemented in 2023 In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings ("TDRs") by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs which includes an assessment of whether the creditor has granted a concession, an entity must evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6. The Company adopted ASU 2022-02 on January 1, 2023. The Company elected to adopt the updated guidance on TDR recognition and measurement prospectively; therefore the guidance is applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures must be adopted prospectively. The adoption of ASU 2022-02 did not have a material impact on the Company's consolidated financial position or results of operations. Accounting pronouncements to be implemented in future periods In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Report of Financial Reporting ("ASU 2020-04"). ASU 2020-04 was issued to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. The last expedient is a one-time election to sell or transfer debt securities classified as held to maturity. The expedients are in effect from March 12, 2020, through December 31, 2022. The Company will be able to use the expedients in 10 this guidance to manage through the transition away from LIBOR, specifically for our loan portfolio, derivative contracts, and bond portfolio. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, ("ASU 2021-01"). The amendments in ASU 2021-01 are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments clarify certain optional expedients and exceptions in Topic 848 for contract modifications apply to derivatives that are affected by the discounting transition. LIBOR is a widely-referenced benchmark rate, which is published in five currencies and a range of tenors, and seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. The administrator of LIBOR, ICE Benchmark Administration, ceased the publication of one-week and two-month LIBOR, as well as all non-US Dollar LIBOR tenors as of January 1, 2022. 1-month, 3-month, 6-month, and 12-month US Dollar LIBOR will continue to be published and will remain available for use in legacy contracts or as otherwise enumerated by financial regulators until June 30, 2023. The Company has some assets and liabilities referenced to 1-month, 3-month, and 12-month US Dollar LIBOR, such as commercial loans, derivatives, debt securities, and junior subordinated debentures. As of March 31, 2023, we had approximately $ 133.0 million of assets, including $ 78.2 million in commercial loans and $ 54.8 million in debt securities, and $ 10.0 million of liabilities in the form of our junior subordinated debentures linked to USD LIBOR. These amounts exclude derivative assets and liabilities on our consolidated balance sheet. As of March 31, 2023, the notional amount of our USD LIBOR-linked interest rate derivative contracts was $ 145.0 million. Of this amount, $ 67.5 million in notional value represent commercial loan interest rate swap agreements with commercial banking customers. An additional $ 67.5 million in notional value represent corresponding swap agreements with third party financial institutions that offset the commercial loan swaps. The Company has one additional interest rate swap agreement with a third party institution for $ 10.0 million in notional value related to our junior subordinated debentures. Each of the USD LIBOR-linked amounts referenced above are expected to vary in future periods as current contracts expire with potential replacement contracts using an alternative reference rate. In an effort to mitigate the risks associated with a transition away from LIBOR, our Asset Liability Committee has undertaken initiatives to: (i) develop more robust fallback language and disclosures related to the LIBOR transition, (ii) develop a plan to seek to amend legacy contracts to reference such fallback language or alternative reference rates, (iii) enhance systems to support commercial loans, securities, and derivatives linked to the Secured Overnight Financing Rate and other alternative reference rates, (iv) develop and evaluate internal guidance, policies and procedures focused on the transition away from LIBOR to alternative reference rate products, and (v) prepare and disseminate internal and external communications regarding the LIBOR transition. ASU 2021-01 is not expected to have a material impact on the Company's consolidated financial statements. In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02"). Under current GAAP, an entity can only elect to apply the proportional amortization method to investments in low income housing tax credit ("LIHTC") structures. The amendments in ASU 2023-02 allow entities to elect to account for equity investments made primarily for the purpose of receiving income tax credits using the proportional amortization method, regardless of the tax credit program through which the investment earns income tax credits, if certain conditions are met. ASU 2023-02 provides amendments to paragraph 323-740-25-1, which sets forth the conditions needed to apply the proportional amortization method. The amendments make certain limited changes to those conditions to clarify their application to a broader group of tax credit investment programs. However, the conditions in substance remain consistent with current GAAP. The amendments in this ASU 2023-02 also eliminate certain LIHTC-specific guidance to align the accounting more closely for LIHTCs with the accounting for other equity investments in tax credit structures and require that the delayed equity contribution guidance in paragraph 323-740-25-3 apply only to tax equity investments accounted for using the proportional amortization method. ASU 2023-02 is effective for the Company for fiscal years beginning after December 15, 2023 and must be applied on either a modified retrospective or a retrospective basis. The Company does not have any equity investments made primarily for the purpose of receiving income tax credits except for LIHTC structures, which it accounts for using the proportional amortization method. The Company does not believe that ASU 2023-02 will have a material impact on the Company's consolidated financial statements. 11 2. Investment Securities Marketable Equity Securities The Company held marketable equity securities with fair values of $ 10.5 million and $ 10.7 million at March 31, 2023 and December 31, 2022, respectively. The gross realized and unrealized gains (losses) recognized on marketable equity securities in other operating income in the Company's Consolidated Statements of Income were as follows: Three Months Ended March 31, (In Thousands) 2023 2022 Unrealized gain (loss) on marketable equity securities ($ 223 ) ($ 422 ) Gain on sale of marketable equity securities, net — — Total ($ 223 ) ($ 422 ) Debt securities Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, estimated fair value, and the Allowance for Credit Losses ("ACL") of debt securities and the corresponding amounts of gross unrealized gains and losses of available-for-sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities at the periods indicated: (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value March 31, 2023 Securities available for sale U.S. Treasury and government sponsored entities $ 634,456 $ 178 ($ 32,260 ) $ — $ 602,374 Municipal securities 820 — ( 18 ) — 802 Corporate bonds 16,018 10 ( 613 ) — 15,415 Collateralized loan obligations 60,407 — ( 1,264 ) — 59,143 Total securities available for sale $ 711,701 $ 188 ($ 34,155 ) $ — $ 677,734 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value March 31, 2023 Securities held to maturity Corporate bonds $ 36,750 $ — ($ 4,219 ) $ 32,531 Allowance for credit losses — — — — Total securities held to maturity, net of ACL $ 36,750 $ — ($ 4,219 ) $ 32,531 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value December 31, 2022 Securities available for sale U.S. Treasury and government sponsored entities $ 634,582 $ 1 ($ 39,422 ) $ — $ 595,161 Municipal securities 820 — ( 25 ) — 795 Corporate bonds 24,281 37 ( 674 ) — 23,644 Collateralized loan obligations 59,434 — ( 2,005 ) — 57,429 Total securities available for sale $ 719,117 $ 38 ($ 42,126 ) $ — $ 677,029 12 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2022 Securities held to maturity Corporate bonds $ 36,750 $ — ($ 4,111 ) $ 32,639 Allowance for credit losses — — — — Total securities held to maturity, net of ACL $ 36,750 $ — ($ 4,111 ) $ 32,639 Gross unrealized losses on available for sale securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2023 and December 31, 2022 were as follows: Less Than 12 Months More Than 12 Months Total (In Thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses March 31, 2023 Securities available for sale U.S. Treasury and government sponsored entities $ 212,079 ($ 3,947 ) $ 375,028 ($ 28,313 ) $ 587,107 ($ 32,260 ) Corporate bonds 4,936 ( 62 ) 4,471 ( 551 ) 9,407 ( 613 ) Collateralized loan obligations 5,987 ( 13 ) 53,156 ( 1,251 ) 59,143 ( 1,264 ) Municipal securities — — 802 ( 18 ) 802 ( 18 ) Total $ 223,002 ($ 4,022 ) $ 433,457 ($ 30,133 ) $ 656,459 ($ 34,155 ) December 31, 2022: Securities available for sale U.S. Treasury and government sponsored entities $ 282,319 ($ 8,876 ) $ 302,840 ($ 30,546 ) $ 585,159 ($ 39,422 ) Corporate bonds 13,216 ( 43 ) 4,394 ( 631 ) 17,610 ( 674 ) Collateralized loan obligations 22,309 ( 632 ) 35,120 ( 1,373 ) 57,429 ( 2,005 ) Municipal securities 795 ( 25 ) — — 795 ( 25 ) Total $ 318,639 ($ 9,576 ) $ 342,354 ($ 32,550 ) $ 660,993 ($ 42,126 ) Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At March 31, 2023, the Company had 85 available for sale securities in an unrealized loss position without an ACL. At March 31, 2023, the Company had five held to maturity securities in an unrealized loss position without an ACL. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of March 31, 2023, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, primarily changes in interest rates, and therefore no losses have been recognized in the Company's Consolidated Statements of Income. At March 31, 2023 and December 31, 2022, carrying amounts of $ 108.2 million and $ 59.3 million in securities were pledged for deposits and borrowings, respectively. The amortized cost and estimated fair values of debt securities at March 31, 2023, are distributed by contractual maturity as shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 13 (In Thousands) Amortized Cost Fair Value US Treasury and government sponsored entities Within 1 year $ 105,712 $ 103,821 1-5 years 528,744 498,553 Total $ 634,456 $ 602,374 Corporate bonds Within 1 year $ 2,000 $ 1,951 1-5 years 24,018 22,570 5-10 years 26,750 23,425 Total $ 52,768 $ 47,946 Collateralized loan obligations 5-10 years $ 24,914 $ 24,561 Over 10 years 35,493 34,582 Total $ 60,407 $ 59,143 Municipal securities Within 1 year $ 820 $ 802 Total $ 820 $ 802 There were no proceeds from sales of investment securities for the three-month periods ending March 31, 2023 and 2022. A summary of interest income for the three-month periods ending March 31, 2023 and 2022, on available for sale investment securities are as follows: Three Months Ended March 31, (In Thousands) 2023 2022 US Treasury and government sponsored entities $ 2,795 $ 806 Other 1,135 325 Total taxable interest income $ 3,930 $ 1,131 Municipal securities $ 4 $ 4 Total tax-exempt interest income $ 4 $ 4 Total $ 3,934 $ 1,135 14 3. Loans and Allowance for Credit Losses Loans Held for Sale Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of March 31, 2023 and December 31, 2022. Loans Held for Investment The following table presents amortized cost and unpaid principal balance of loans, categorized by the segments used in the Company's CECL methodology to assess credit risk, for the periods indicated: March 31, 2023 December 31, 2022 (In Thousands) Amortized Cost Unpaid Principal Difference Amortized Cost Unpaid Principal Difference Commercial & industrial loans $ 364,109 $ 365,824 ($ 1,715 ) $ 358,128 $ 359,900 ($ 1,772 ) Commercial real estate: Owner occupied properties 343,162 344,734 ( 1,572 ) 349,973 351,580 ( 1,607 ) Non-owner occupied and multifamily properties 473,227 476,897 ( 3,670 ) 482,270 486,021 ( 3,751 ) Residential real estate: 1-4 family residential properties secured by first liens 112,214 112,758 ( 544 ) 73,381 73,674 ( 293 ) 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 23,027 22,864 163 20,259 20,103 156 1-4 family residential construction loans 40,652 40,881 ( 229 ) 44,000 44,314 ( 314 ) Other construction, land development and raw land loans 91,712 92,615 ( 903 ) 99,182 100,075 ( 893 ) Obligations of states and political subdivisions in the US 42,257 42,258 ( 1 ) 32,539 32,540 ( 1 ) Agricultural production, including commercial fishing 37,429 37,615 ( 186 ) 34,099 34,263 ( 164 ) Consumer loans 4,661 4,617 44 4,335 4,293 42 Other loans 2,737 2,749 ( 12 ) 3,619 3,632 ( 13 ) Total 1,535,187 1,543,812 ( 8,625 ) 1,501,785 1,510,395 ( 8,610 ) Allowance for credit losses ( 14,157 ) ( 13,838 ) $ 1,521,030 $ 1,543,812 ($ 8,625 ) $ 1,487,947 $ 1,510,395 ($ 8,610 ) The difference between the amortized cost and unpaid principal balance is net deferred origination fees totaling $ 8.6 million at both March 31, 2023 and December 31, 2022. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 6.5 million and $ 5.5 million at March 31, 2023 and December 31, 2022, respectively, and was included in other assets in the Consolidated Balance Sheets. Amortized cost in the above table includes $ 4.2 million and $ 7.1 million as of March 31, 2023 and December 31, 2022, respectively, in Paycheck Protection Program loans administered by the U.S. Small Business Administration ("SBA") within the Commercial & industrial loan segment. 15 Allowance for Credit Losses The activity in the ACL related to loans held for investment is as follows: Three Months Ended March 31, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance (In Thousands) 2023 Commercial & industrial loans $ 2,914 $ 101 $ — $ 65 $ 3,080 Commercial real estate: Owner occupied properties 3,094 ( 316 ) — — 2,778 Non-owner occupied and multifamily properties 3,615 ( 441 ) — — 3,174 Residential real estate: 1-4 family residential properties secured by first liens 1,413 813 — — 2,226 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 389 ( 4 ) — 7 392 1-4 family residential construction loans 312 ( 52 ) — — 260 Other construction, land development and raw land loans 1,803 122 — — 1,925 Obligations of states and political subdivisions in the US 79 27 — — 106 Agricultural production, including commercial fishing 145 5 — — 150 Consumer loans 68 5 ( 14 ) 2 61 Other loans 6 ( 1 ) — — 5 Total $ 13,838 $ 259 ($ 14 ) $ 74 $ 14,157 2022 Commercial & industrial loans $ 3,027 $ 156 ($ 295 ) $ 13 $ 2,901 Commercial real estate: Owner occupied properties 3,176 ( 663 ) — — 2,513 Non-owner occupied and multifamily properties 2,930 133 — — 3,063 Residential real estate: 1-4 family residential properties secured by first liens 439 71 — — 510 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 215 74 — 12 301 1-4 family residential construction loans 120 90 — — 210 Other construction, land development and raw land loans 1,635 ( 85 ) — — 1,550 Obligations of states and political subdivisions in the US 32 20 — — 52 Agricultural production, including commercial fishing 91 29 — 8 128 Consumer loans 67 8 — — 75 Other loans 7 — — — 7 Total $ 11,739 ($ 167 ) ($ 295 ) $ 33 $ 11,310 16 The following table shows gross charge-offs by grade and by year of loan origination for the periods indicated: Three Months Ended March 31, (In Thousands) 2023 2022 2021 2020 2019 Prior Total 2023 Commercial & industrial loans $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Owner occupied properties — — — — — — — Non-owner occupied and multifamily properties — — — — — — — Residential real estate: 1-4 family residential properties secured by first liens — — — — — — — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — — — — — — 1-4 family residential construction loans — — — — — — — Other construction, land development and raw land loans — — — — — — — Obligations of states and political subdivisions in the US — — — — — — — Agricultural production, including commercial fishing — — — — — — — Consumer loans — 1 — — — 13 14 Other loans — — — — — — — Total $ — $ 1 $ — $ — $ — $ 13 $ 14 Credit Quality Information As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management utilizes a loan risk grading system called the Asset Quality Rating (“AQR”) system to assign a risk classification to each of its loans. The risk classification is a dual rating system that contemplates both probability of default and risk of loss given default. Loans are graded on a scale of 1 to 10 and, loans graded 1 – 6 are considered “pass” grade loans. Loans graded 7 or higher are considered "classified" loans. A description of the general characteristics of the AQR risk classifications are as follows: Pass grade loans – 1 through 6: The borrower demonstrates sufficient cash flow to fund debt service, including acceptable profit margins, cash flows, liquidity and other balance sheet ratios. Historic and projected performance indicates that the borrower is able to meet obligations under most economic circumstances. The borrower has competent management with an acceptable track record. The category does not include loans with undue or unwarranted credit risks that constitute identifiable weaknesses. Classified loans: Special Mention – 7: A "special mention" credit has weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset at some future date. Substandard – 8: A "substandard" credit is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Northrim Bank will sustain some loss if the deficiencies are not corrected. Doubtful – 9: An asset classified "doubtful" has all the weaknesses inherent in one that is classified "substandard-8" with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. The loan has substandard characteristics, and available information suggests that it is unlikely that the loan will be repaid in its entirety. 17 Loss – 10: An asset classified "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future. The following tables present the Company's portfolio of risk-rated loans by grade and by year of origination. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. March 31, 2023 2023 2022 2021 2020 2019 Prior Total (In Thousands) Commercial & industrial loans Pass $ 26,360 $ 152,979 $ 76,827 $ 35,707 $ 14,276 $ 38,286 $ 344,435 Classified — 2,110 2,323 296 82 14,863 19,674 Total commercial & industrial loans $ 26,360 $ 155,089 $ 79,150 $ 36,003 $ 14,358 $ 53,149 $ 364,109 Commercial real estate: Owner occupied properties Pass $ 6,838 $ 71,615 $ 69,568 $ 80,727 $ 31,920 $ 76,882 $ 337,550 Classified — — — 1,225 — 4,387 5,612 Total commercial real estate owner occupied properties $ 6,838 $ 71,615 $ 69,568 $ 81,952 $ 31,920 $ 81,269 $ 343,162 Non-owner occupied and multifamily properties Pass $ 2,270 $ 90,117 $ 86,571 $ 70,530 $ 57,437 $ 156,716 $ 463,641 Classified — — — — — 9,586 9,586 Total commercial real estate non-owner occupied and multifamily properties $ 2,270 $ 90,117 $ 86,571 $ 70,530 $ 57,437 $ 166,302 $ 473,227 Residential real estate: 1-4 family residential properties secured by first liens Pass $ 41,478 $ 51,491 $ 4,066 $ 5,399 $ 2,502 $ 7,078 $ 112,014 Classified — — — — — 200 200 Total residential real estate 1-4 family residential properties secured by first liens $ 41,478 $ 51,491 $ 4,066 $ 5,399 $ 2,502 $ 7,278 $ 112,214 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens Pass $ 2,476 $ 7,050 $ 3,892 $ 1,902 $ 2,650 $ 4,818 $ 22,788 Classified — — — — — 239 239 Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ 2,476 $ 7,050 $ 3,892 $ 1,902 $ 2,650 $ 5,057 $ 23,027 1-4 family residential construction loans Pass $ 2,912 $ 22,906 $ 2,871 $ 420 $ — $ 11,434 $ 40,543 Classified — — — — — 109 109 Total residential real estate 1-4 family residential construction loans $ 2,912 $ 22,906 $ 2,871 $ 420 $ — $ 11,543 $ 40,652 Other construction, land development and raw land loans Pass $ 3,300 $ 39,120 $ 28,668 $ 8,756 $ 1,594 $ 8,458 $ 89,896 Classified — — — — — 1,816 1,816 Total other construction, land development and raw land loans $ 3,300 $ 39,120 $ 28,668 $ 8,756 $ 1,594 $ 10,274 $ 91,712 Obligations of states and political subdivisions in the US Pass $ — $ 33,467 $ 6,866 $ 1,739 $ — $ 185 $ 42,257 Classified — — — — — — — Total obligations of states and political subdivisions in the US $ — $ 33,467 $ 6,866 $ 1,739 $ — $ 185 $ 42,257 Agricultural production, including commercial fishing Pass $ 2,431 $ 10,376 $ 18,196 $ 3,655 $ 599 $ 2,172 $ 37,429 18 Classified — — — — — — — Total agricultural production, including commercial fishing $ 2,431 $ 10,376 $ 18,196 $ 3,655 $ 599 $ 2,172 $ 37,429 Consumer loans Pass $ 964 $ 1,292 $ 327 $ 493 $ 324 $ 1,261 $ 4,661 Classified — — — — — — — Total consumer loans $ 964 $ 1,292 $ 327 $ 493 $ 324 $ 1,261 $ 4,661 Other loans Pass $ 257 $ 216 $ 325 $ 1,523 $ 360 $ 56 $ 2,737 Classified — — — — — — — Total other loans $ 257 $ 216 $ 325 $ 1,523 $ 360 $ 56 $ 2,737 Total loans Pass $ 89,286 $ 480,629 $ 298,177 $ 210,851 $ 111,662 $ 307,346 $ 1,497,951 Classified — 2,110 2,323 1,521 82 31,200 37,236 Total loans $ 89,286 $ 482,739 $ 300,500 $ 212,372 $ 111,744 $ 338,546 $ 1,535,187 Total pass loans $ 89,286 $ 480,629 $ 298,177 $ 210,851 $ 111,662 $ 307,346 $ 1,497,951 Government guarantees ( 2,850 ) ( 24,594 ) ( 33,665 ) ( 9,395 ) ( 12,711 ) ( 8,147 ) ( 91,362 ) Total pass loans, net of government guarantees $ 86,436 $ 456,035 $ 264,512 $ 201,456 $ 98,951 $ 299,199 $ 1,406,589 Total classified loans $ — $ 2,110 $ 2,323 $ 1,521 $ 82 $ 31,200 $ 37,236 Government guarantees — — ( 2,096 ) ( 1,103 ) — ( 11,269 ) ( 14,468 ) Total classified loans, net government guarantees $ — $ 2,110 $ 227 $ 418 $ 82 $ 19,931 $ 22,768 December 31, 2022 2022 2021 2020 2019 2018 Prior Total (In Thousands) Commercial & industrial loans Pass $ 157,555 $ 86,543 $ 37,147 $ 17,881 $ 9,844 $ 40,571 $ 349,541 Classified 137 4,879 397 91 2,737 346 8,587 Total commercial & industrial loans $ 157,692 $ 91,422 $ 37,544 $ 17,972 $ 12,581 $ 40,917 $ 358,128 Commercial real estate: Owner occupied properties Pass $ 66,955 $ 70,777 $ 90,496 $ 32,564 $ 13,233 $ 69,701 $ 343,726 Classified — — 1,261 — 165 4,821 6,247 Total commercial real estate owner occupied properties $ 66,955 $ 70,777 $ 91,757 $ 32,564 $ 13,398 $ 74,522 $ 349,973 Non-owner occupied and multifamily properties Pass $ 94,412 $ 82,352 $ 71,407 $ 58,033 $ 16,905 $ 149,223 $ 472,332 Classified — — — 274 3 9,661 9,938 Total commercial real estate non-owner occupied and multifamily properties $ 94,412 $ 82,352 $ 71,407 $ 58,307 $ 16,908 $ 158,884 $ 482,270 Residential real estate: 1-4 family residential properties secured by first liens Pass $ 52,117 $ 5,088 $ 6,001 $ 2,535 $ 462 $ 6,968 $ 73,171 Classified — — — — 79 131 210 Total residential real estate 1-4 family residential properties secured by first liens $ 52,117 $ 5,088 $ 6,001 $ 2,535 $ 541 $ 7,099 $ 73,381 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens Pass $ 6,992 $ 3,376 $ 2,041 $ 2,763 $ 2,781 $ 2,060 $ 20,013 Classified — — — 239 7 246 Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ 6,992 $ 3,376 $ 2,041 $ 2,763 $ 3,020 $ 2,067 $ 20,259 1-4 family residential construction loans Pass $ 26,860 $ 3,897 $ 61 $ — $ — $ 13,073 $ 43,891 19 Classified — — — — — 109 109 Total residential real estate 1-4 family residential construction loans $ 26,860 $ 3,897 $ 61 $ — $ — $ 13,182 $ 44,000 Other construction, land development and raw land loans Pass $ 38,673 $ 42,448 $ 5,740 $ 1,713 $ 3,675 $ 5,112 $ 97,361 Classified — — — — 369 1,452 1,821 Total other construction, land development and raw land loans $ 38,673 $ 42,448 $ 5,740 $ 1,713 $ 4,044 $ 6,564 $ 99,182 Obligations of states and political subdivisions in the US Pass $ 32,319 $ — $ — $ — $ 219 $ 1 $ 32,539 Classified — — — — — — — Total obligations of states and political subdivisions in the US $ 32,319 $ — $ — $ — $ 219 $ 1 $ 32,539 Agricultural production, including commercial fishing Pass $ 9,748 $ 17,692 $ 3,740 $ 604 $ 879 $ 1,436 $ 34,099 Classified — — — — — — — Total agricultural production, including commercial fishing $ 9,748 $ 17,692 $ 3,740 $ 604 $ 879 $ 1,436 $ 34,099 Consumer loans Pass $ 1,513 $ 363 $ 481 $ 345 $ 235 $ 1,391 $ 4,328 Classified — — — — — 7 7 Total consumer loans $ 1,513 $ 363 $ 481 $ 345 $ 235 $ 1,398 $ 4,335 Other loans Pass $ 1,291 $ 330 $ 1,547 $ 384 $ — $ 67 $ 3,619 Classified — — — — — — — Total other loans $ 1,291 $ 330 $ 1,547 $ 384 $ — $ 67 $ 3,619 Total loans Pass $ 488,435 $ 312,866 $ 218,661 $ 116,822 $ 48,233 $ 289,603 $ 1,474,620 Classified 137 4,879 1,658 365 3,592 16,534 27,165 Total loans $ 488,572 $ 317,745 $ 220,319 $ 117,187 $ 51,825 $ 306,137 $ 1,501,785 Total pass loans $ 488,435 $ 312,866 $ 218,661 $ 116,822 $ 48,233 $ 289,603 $ 1,474,620 Government guarantees ( 25,172 ) ( 36,531 ) ( 9,751 ) ( 12,885 ) ( 2,964 ) ( 5,314 ) ( 92,617 ) Total pass loans, net of government guarantees $ 463,263 $ 276,335 $ 208,910 $ 103,937 $ 45,269 $ 284,289 $ 1,382,003 Total classified loans $ 137 $ 4,879 $ 1,658 $ 365 $ 3,592 $ 16,534 $ 27,165 Government guarantees — ( 4,396 ) ( 1,135 ) — — ( 9,293 ) ( 14,824 ) Total classified loans, net government guarantees $ 137 $ 483 $ 523 $ 365 $ 3,592 $ 7,241 $ 12,341 20 Past Due Loans: The following tables present an aging of contractually past due loans as of the periods presented: (In Thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Greater Than 90 Days Past Due Still Accruing March 31, 2023 Commercial & industrial loans $ 238 $ — $ 449 $ 687 $ 363,422 $ 364,109 $ — Commercial real estate: Owner occupied properties — 129 293 422 342,740 343,162 — Non-owner occupied and multifamily properties 236 — — 236 472,991 473,227 — Residential real estate: 1-4 family residential properties secured by first liens 134 — 62 196 112,018 112,214 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — 165 165 22,862 23,027 — 1-4 family residential construction loans — — 109 109 40,543 40,652 — Other construction, land development and raw land loans 308 — 1,545 1,853 89,859 91,712 — Obligations of states and political subdivisions in the US — — — — 42,257 42,257 — Agricultural production, including commercial fishing — — — — 37,429 37,429 — Consumer loans 15 — — 15 4,646 4,661 — Other loans — — — — 2,737 2,737 — Total $ 931 $ 129 $ 2,623 $ 3,683 $ 1,531,504 $ 1,535,187 $ — December 31, 2022 Commercial & industrial loans $ 37 $ 521 $ 56 $ 614 $ 357,514 $ 358,128 $ — Commercial real estate: Owner occupied properties — — 798 798 349,175 349,973 — Non-owner occupied and multifamily properties — — 274 274 481,996 482,270 — Residential real estate: 1-4 family residential properties secured by first liens 60 79 72 211 73,170 73,381 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 112 — 127 239 20,020 20,259 — 1-4 family residential construction loans — — 109 109 43,891 44,000 — Other construction, land development and raw land loans — — 1,545 1,545 97,637 99,182 — Obligations of states and political subdivisions in the US — — — — 32,539 32,539 — Agricultural production, including commercial fishing — — — — 34,099 34,099 — Consumer loans 6 80 — 86 4,249 4,335 — Other loans — — — — 3,619 3,619 — Total $ 215 $ 680 $ 2,981 $ 3,876 $ 1,497,909 $ 1,501,785 $ — Nonaccrual loans: Nonaccrual loans net of government guarantees totaled $ 6.1 million and $ 6.4 million at March 31, 2023 and December 31, 2022, respectively. The following table presents loans on nonaccrual status and loans on nonaccrual 21 status for the periods presented for which there was no related ACL. All loans with no ACL are individually evaluated for credit losses in the Company's Current Expected Credit Losses methodology. March 31, 2023 December 31, 2022 (In Thousands) Nonaccrual Nonaccrual With No ACL Nonaccrual Nonaccrual With No ACL Commercial & industrial loans $ 5,820 $ 2,997 $ 3,294 $ 3,287 Commercial real estate: Owner occupied properties 919 919 1,457 1,457 Non-owner occupied and multifamily properties — — 274 274 Residential real estate: 1-4 family residential properties secured by first liens 143 138 151 144 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 239 193 246 198 1-4 family residential construction loans 109 109 109 109 Other construction, land development and raw land loans 1,545 1,545 1,545 1,545 Total nonaccrual loans 8,775 5,901 7,076 7,014 Government guarantees on nonaccrual loans ( 2,692 ) ( 152 ) ( 646 ) ( 646 ) Net nonaccrual loans $ 6,083 $ 5,749 $ 6,430 $ 6,368 There was no interest on nonaccrual loans reversed through interest income during three-month period ending March 31, 2023. There was $ 2,000 interest on nonaccrual loans reversed through interest income during the three-month period ending March 31, 2022. There was no interest earned on nonaccrual loans with a principal balance during the three-month periods ending March 31, 2023 and March 31, 2022. However, the Company recognized interest income of $ 179,000 and $ 57,000 in the three-month periods ending March 31, 2023 and 2022, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero. 22 Loan Modifications: The Company modifies loans to borrowers experiencing financial difficulty as a normal part of our business. These modifications include providing term extensions/modifications, payment modifications, interest rate modifications, or, on rare occasions, principal forgiveness. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL. The Company may provide multiple types of concessions on one loan. There were no loans that were both experiencing financial difficulty and modified during the first quarter of 2023. As noted in Note 1, the Company adopted ASU 2022-02 effective January 1, 2023. ASU 2022-02 eliminates the accounting guidance for loans classified as TDRs. TDRs totaled $ 5.1 million at December 31, 2022. The provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company has elected to adopt these provisions of the CARES Act. As of March 31, 2023 and December 31, 2022, the Company has made the following types of loan modifications related to COVID-19, which are not classified as TDRs principal balance outstanding of: Loan Modifications due to COVID-19 as of March 31, 2023 and December 31, 2022 (Dollars in thousands) Interest Only Full Payment Deferral Total Portfolio loans $ 999 $ — $ 999 Number of modifications 1 — 1 4. Purchased Receivables Purchased receivables are carried at their principal amount outstanding, net of an ACL, and have a maturity of less than one year . There were no purchased receivables past due at March 31, 2023 or December 31, 2022, and there were no restructured purchased receivables at March 31, 2023 or December 31, 2022. Income on purchased receivables is accrued and recognized on the principal amount outstanding using an effective interest method except when management believes doubt exists as to the collectability of the income or principal. There were no nonperforming purchased receivables as of March 31, 2023 or December 31, 2022. There was no activity and no balance in the ACL for purchased receivables as of March 31, 2023 or December 31, 2022. The following table summarizes the components of net purchased receivables for the dates indicated: (In Thousands) March 31, 2023 December 31, 2022 Purchased receivables $ 21,190 $ 19,994 Allowance for credit losses - purchased receivables — — Total $ 21,190 $ 19,994 23 5. Servicing Rights Mortgage servicing rights The following table details the activity in the Company's mortgage servicing rights ("MSR") for the three-month periods ended March 31, 2023 and 2022: Three Months Ended March 31, (In Thousands) 2023 2022 Balance, beginning of period $ 18,635 $ 13,724 Additions for new MSR capitalized 463 987 Changes in fair value: Due to changes in model inputs of assumptions (1) ( 212 ) 1,192 Other (2) ( 583 ) ( 481 ) Balance, end of period $ 18,303 $ 15,422 (1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates. (2) Represents changes due to collection/realization of expected cash flows over time. The following table details information related to our serviced mortgage loan portfolio as of March 31, 2023 and December 31, 2022: (In Thousands) March 31, 2023 December 31, 2022 Balance of mortgage loans serviced for others $ 911,065 $ 898,840 MSR as a percentage of serviced loans 2.01 % 2.07 % The Company recognized servicing fees of $ 905,000 and $ 783,000 during the three-month periods ending March 31, 2023 and 2022, respectively, which includes contractually specified servicing fees and ancillary fees as a component of other noninterest income in the Company's Consolidated Statements of Income. The following table outlines the weighted average key assumptions used in measuring the fair value of MSR as of March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 Constant prepayment rate 5.67 % 6.64 % Discount rate 10.97 % 11.25 % 24 Key economic assumptions and the sensitivity of the current fair value for MSR to immediate adverse changes in those assumptions at March 31, 2023 and December 31, 2022 were as follows: (In Thousands) March 31, 2023 December 31, 2022 Aggregate portfolio principal balance $ 911,065 $ 898,840 Weighted average rate of note 3.54 % 3.47 % March 31, 2023 Base 1.0% Adverse Rate Change 2.0% Adverse Rate Change Constant prepayment rate 5.67 % 5.71 % 7.15 % Discount rate 10.97 % 9.97 % 8.97 % Fair value MSR $ 18,303 $ 17,778 $ 16,869 Percentage of MSR 2.01 % 1.95 % 1.85 % December 31, 2022 Constant prepayment rate 6.64 % 13.28 % 19.92 % Discount rate 11.25 % 10.25 % 9.25 % Fair value MSR $ 18,635 $ 14,763 $ 11,796 Percentage of MSR 2.07 % 1.64 % 1.31 % The above tables show the sensitivity to market rate changes for the par rate coupon for a conventional one-to-four family Alaska Housing Finance Corporation/FNMA/FHLMC serviced home loan. The above tables reference a 100 basis point and 200 basis point decrease in discount rates. These sensitivities are hypothetical and should be used with caution as the tables above demonstrate the Company’s methodology for estimating the fair value of MSR is highly sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in these tables, the effects of a variation in a particular assumption on the fair value of the MSR is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time. Commercial servicing rights The commercial servicing rights asset ("CSR") has a carrying value of $ 2.2 million at March 31, 2023 and $ 2.1 million at December 31, 2022, and is included in other assets and carried at fair value on the Company's Consolidated Balance Sheets. Total commercial loans serviced for others were $ 290.8 million and $ 285.3 million at March 31, 2023 and December 31, 2022, respectively. Key assumptions used in measuring the fair value of the CSR as of March 31, 2023 and December 31, 2022 include a constant prepayment rate of 10.19 % and a discount rate of 12.00 %. 6. Leases The Company's lease commitments consist primarily of agreements to lease land and office facilities that it occupies to operate several of its retail branch locations that are classified as operating leases and are recognized on the balance sheet as right-of-use ("ROU") assets and lease liabilities. As of March 31, 2023, the Company has operating lease ROU assets of $ 9.5 million and operating lease liabilities of $ 9.5 million. As of December 31, 2022, the Company had operating lease ROU assets of $ 9.9 million and operating lease liabilities of $ 9.9 million. The Company did not have any agreements that are classified as finance leases as of March 31, 2023 or December 31, 2022. 25 The following table presents additional information about the Company's operating leases: Three Months Ended March 31, (In Thousands) 2023 2022 Lease Cost Operating lease cost (1) $ 699 $ 681 Short term lease cost (1) 33 12 Total lease cost $ 732 $ 693 Other information Operating leases - operating cash flows $ 651 $ 644 Weighted average lease term - operating leases, in years 10.55 10.66 Weighted average discount rate - operating leases 3.39 % 3.23 % (1) Expenses are classified within occupancy expense on the Consolidated Statements of Income. The table below reconciles the remaining undiscounted cash flows for the next five years for each twelve-month period presented (unless otherwise indicated) and the total of the subsequent remaining years to the operating lease liabilities recorded on the balance sheet: (In Thousands) Operating Leases 2023 (Nine months) $ 1,921 2024 2,274 2025 1,995 2026 861 2027 500 Thereafter 4,137 Total minimum lease payments $ 11,688 Less: amount of lease payment representing interest ( 2,222 ) Present value of future minimum lease payments $ 9,466 26 7. Derivatives Derivatives swaps related to community banking activities The Company enters into commercial loan interest rate swap agreements with commercial banking customers which are offset with a corresponding swap agreement with a third party financial institution ("counterparty"). The Company has agreements with its counterparties that contain provisions that provide that if the Company fails to maintain its status as a "well-capitalized" institution under regulatory guidelines, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. These agreements also require that the Company and the counterparty collateralize any fair value shortfalls that exceed $ 250,000 with eligible collateral, which includes cash and securities backed with the full faith and credit of the federal government. Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels. The Company pledged $ 561,000 as of March 31, 2023 and $ 553,000 as of December 31, 2022 in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements. The Company had interest rate swaps related to commercial loans with an aggregate notional amount of $ 223.8 million and $ 226.2 million at March 31, 2023 and December 31, 2022, respectively. At March 31, 2023, the notional amount of interest rate swaps is made up of 21 variable to fixed rate swaps to commercial loan customers totaling $ 111.9 million, and 21 fixed to variable rate swaps with a counterparty totaling $ 111.9 million. Changes in fair value from these 21 interest rate swaps offset each other in the first three months of 2023. The Company recognized zero and $ 3,000 in fee income related to interest rate swaps in the three-month periods ending March 31, 2023 and 2022, respectively. Interest rate swap income is recorded in other operating income on the Consolidated Statements of Income. None of these interest rate swaps are designated as hedging instruments. The Company has an interest rate swap to hedge the variability in cash flows arising out of its junior subordinated debentures, which is floating rate debt, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $ 10.0 million of junior subordinated debentures held under Northrim Statutory Trust 2 at 3.72 % through its maturity date. The floating rate that the dealer pays is equal to the three month LIBOR plus 1.37 % which reprices quarterly on the payment date. This rate was 6.24 % as of March 31, 2023. The Company pledged $ 130,000 in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of March 31, 2023 and $ 130,000 as of December 31, 2022. Changes in the fair value of this interest rate swap are reported in other comprehensive income on the Consolidated Statements of Income. The unrealized gain on this interest rate swap was $ 1.2 million as of March 31, 2023 and the unrealized loss was $ 1.5 million as of December 31, 2022. Derivatives related to home mortgage banking activities The Company also uses derivatives to hedge the risk of changes in the fair values of interest rate lock commitments. The Company enters into commitments to originate residential mortgage loans at specific rates; the value of these commitments are detailed in the table below as "interest rate lock commitments". The Company also hedges the interest rate risk associated with its residential mortgage loan commitments, which are referred to as "retail interest rate contracts" in the table below. Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates. RML had commitments to originate mortgage loans held for sale totaling $ 41.1 million and $ 29.1 million at March 31, 2023 and December 31, 2022, respectively. Changes in the value of RML's interest rate derivatives are recorded in mortgage banking income on the Consolidated Statements of Income. None of these derivatives are designated as hedging instruments. 27 The following table presents the fair value of derivatives not designated as hedging instruments at March 31, 2023 and December 31, 2022: (In Thousands) Asset Derivatives March 31, 2023 December 31, 2022 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other assets $ 10,683 $ 12,725 Interest rate lock commitments Other assets 685 440 Total $ 11,368 $ 13,165 (In Thousands) Liability Derivatives March 31, 2023 December 31, 2022 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other liabilities $ 10,683 $ 12,725 Retail interest rate contracts Other liabilities 107 3 Total $ 10,790 $ 12,728 The following table presents the net gains (losses) of derivatives not designated as hedging instruments for periods indicated below: Three Months Ended March 31, (In Thousands) Income Statement Location 2023 2022 Retail interest rate contracts Mortgage banking income ($ 123 ) $ 2,560 Interest rate lock commitments Mortgage banking income 228 ( 480 ) Total $ 105 $ 2,080 Our derivative transactions with counterparties under International Swaps and Derivative Association master agreements include "right of set-off" provisions. "Right of set-off" provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes. 28 The following table summarizes the derivatives that have a right of offset as of March 31, 2023 and December 31, 2022: March 31, 2023 Gross amounts not offset in the Statement of Financial Position (In Thousands) Gross amounts of recognized assets and liabilities Gross amounts offset in the Statement of Financial Position Net amounts of assets and liabilities presented in the Statement of Financial Position Financial Instruments Collateral Posted Net Amount Asset Derivatives Interest rate swaps $ 10,683 $ — $ 10,683 $ — $ — $ 10,683 Liability Derivatives Interest rate swaps $ 10,683 $ — $ 10,683 $ — $ 10,683 $ — Retail interest rate contracts 107 — 107 — — 107 December 31, 2022 Gross amounts not offset in the Statement of Financial Position (In Thousands) Gross amounts of recognized assets and liabilities Gross amounts offset in the Statement of Financial Position Net amounts of assets and liabilities presented in the Statement of Financial Position Financial Instruments Collateral Posted Net Amount Asset Derivatives Interest rate swaps $ 12,725 $ — $ 12,725 $ — $ — $ 12,725 Liability Derivatives Interest rate swaps $ 12,725 $ — $ 12,725 $ — $ 12,725 $ — Retail interest rate contracts 3 — 3 — — 3 8. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Investment securities available for sale and marketable equity securities : Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Servicing rights: MSR and CSR are measured at fair value on a recurring basis. These assets are classified as Level 3 as quoted prices are not available. In order to determine the fair value of MSR and CSR, the present value of net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates, and ancillary fee income net of servicing costs. Derivative instruments: The fair value of the interest rate lock commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. Interest rate contracts are valued in a model, which uses as its basis a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Company has determined that the 29 majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2023, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives. As a result, the Company has classified its interest rate derivative valuations in Level 2 of the fair value hierarchy. Commitments to extend credit and standby letters of credit : The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. Assets Subject to Nonrecurring Adjustment to Fair Value The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets, impaired loans, and Other Real Estate Owned ("OREO") at fair value on a nonrecurring basis in accordance with GAAP. Any nonrecurring adjustments to fair value usually result from the write-down of individual assets. The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and impaired loans as of each reporting date. In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 30 Estimated fair values as of the periods indicated are as follows: March 31, 2023 December 31, 2022 (In Thousands) Carrying Amount Fair Value Carrying Amount Fair Value Financial assets: Level 1 inputs: Cash, due from banks and deposits in other banks $ 139,211 $ 139,211 $ 259,350 $ 259,350 Investment securities available for sale 352,318 352,318 356,837 356,837 Marketable equity securities 10,515 10,515 10,740 10,740 Level 2 inputs: Investment securities available for sale 325,416 325,416 320,192 320,192 Investment in Federal Home Loan Bank stock 3,752 3,752 3,816 3,816 Loans held for sale 23,985 23,985 27,538 27,538 Interest rate swaps 12,165 12,165 14,179 14,179 Level 3 inputs: Investment securities held to maturity 36,750 32,531 36,750 32,639 Loans 1,535,187 1,428,744 1,501,785 1,408,350 Purchased receivables, net 21,190 21,190 19,994 19,994 Interest rate lock commitments 685 685 440 440 Mortgage servicing rights 18,303 18,303 18,635 18,635 Commercial servicing rights 2,170 2,170 2,129 2,129 Financial liabilities: Level 2 inputs: Deposits $ 2,296,273 $ 2,292,496 $ 2,387,211 $ 2,383,975 Borrowings 13,991 12,116 14,095 12,382 Interest rate swaps 10,683 10,683 12,725 12,725 Retail interest rate contracts 107 107 3 3 Level 3 inputs: Junior subordinated debentures 10,310 11,512 10,310 11,266 31 The following table sets forth the balances as of the periods indicated of assets and liabilities measured at fair value on a recurring basis: (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2023 Assets: Available for sale securities U.S. Treasury and government sponsored entities $ 602,374 $ 336,903 $ 265,471 $ — Municipal securities 802 — 802 — Corporate bonds 15,415 15,415 — — Collateralized loan obligations 59,143 — 59,143 — Total available for sale securities $ 677,734 $ 352,318 $ 325,416 $ — Marketable equity securities $ 10,515 $ 10,515 $ — $ — Total marketable equity securities $ 10,515 $ 10,515 $ — $ — Interest rate swaps $ 11,838 $ — $ 11,838 $ — Interest rate lock commitments 685 — — 685 Mortgage servicing rights 18,303 — — 18,303 Commercial servicing rights 2,170 — — 2,170 Total other assets $ 32,996 $ — $ 11,838 $ 21,158 Liabilities: Interest rate swaps $ 10,683 $ — $ 10,683 $ — Retail interest rate contracts 107 — 107 — Total other liabilities $ 10,790 $ — $ 10,790 $ — December 31, 2022 Assets: Available for sale securities U.S. Treasury and government sponsored entities $ 595,161 $ 333,193 $ 261,968 $ — Municipal securities 795 — 795 — Corporate bonds 23,644 23,644 — — Collateralized loan obligations 57,429 — 57,429 — Total available for sale securities $ 677,029 $ 356,837 $ 320,192 $ — Marketable equity securities $ 10,740 $ 10,740 $ — $ — Total marketable securities $ 10,740 $ 10,740 $ — $ — Interest rate swaps $ 14,178 $ — $ 14,178 $ — Interest rate lock commitments 440 — — 440 Mortgage servicing rights 18,635 — — 18,635 Commercial servicing rights 2,129 — — 2,129 Total other assets $ 35,382 $ — $ 14,178 $ 21,204 Liabilities: Interest rate swaps $ 12,725 $ — $ 12,725 $ — Retail interest rate contracts 3 — 3 — Total other liabilities $ 12,728 $ — $ 12,728 $ — 32 The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three-month periods ended March 31, 2023 and 2022: (In Thousands) Beginning balance Change included in earnings Purchases and issuances Sales and settlements Ending balance Net change in unrealized gains (losses) relating to items held at end of period Three Months Ended March 31, 2023 Interest rate lock commitments $ 440 ($ 174 ) $ 1,497 ($ 1,078 ) $ 685 $ 685 Mortgage servicing rights 18,635 ( 795 ) 463 — 18,303 — Commercial servicing rights 2,129 ( 49 ) 90 — 2,170 — Total $ 21,204 ($ 1,018 ) $ 2,050 ($ 1,078 ) $ 21,158 $ 685 Three Months Ended March 31, 2022 Interest rate lock commitments $ 1,387 ($ 509 ) $ 4,350 ($ 4,263 ) $ 965 $ 965 Mortgage servicing rights 13,724 711 987 — 15,422 — Commercial servicing rights 1,084 ( 26 ) 33 — 1,091 — Total $ 16,195 $ 176 $ 5,370 ($ 4,263 ) $ 17,478 $ 965 There were no changes in unrealized gains and losses for the three-month periods ending March 31, 2023 and 2022 included in other comprehensive income for recurring Level 3 fair value measurements. 33 As of and for the periods ending March 31, 2023 and December 31, 2022, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis. For loans individually measured for credit losses, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy. (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2023 Loans individually measured for credit losses $ 2,822 $ — $ — $ 2,822 Total $ 2,822 $ — $ — $ 2,822 December 31, 2022 Loans individually measured for credit losses $ — $ — $ — $ — Total $ — $ — $ — $ — The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the three-month periods ended March 31, 2023 and 2022: Three Months Ended March 31, (In Thousands) 2023 2022 Loans individually measured for credit losses $ 27 $ 89 Total loss from nonrecurring measurements $ 27 $ 89 Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at March 31, 2023 and December 31, 2022: Financial Instrument Valuation Technique Unobservable Input Weighted Average Rate Range March 31, 2023 Interest rate lock commitment External pricing model Pull through rate 91.28 % Mortgage servicing rights Discounted cash flow Constant prepayment rate 4.58 % - 11.68 % Discount rate 9.51 % - 11.00 % Commercial servicing rights Discounted cash flow Constant prepayment rate 4.19 % - 22.87 % Discount rate 12.00 % December 31, 2022 Interest rate lock commitment External pricing model Pull through rate 93.18 % Mortgage servicing rights Discounted cash flow Constant prepayment rate 6.62 % - 7.43 % Discount rate 11.25 % Commercial servicing rights Discounted cash flow Constant prepayment rate 4.19 % - 22.87 % Discount rate 12.00 % 34 9. Segment Information The Company's operations are managed along two operating segments: Community Banking and Home Mortgage Lending. The Community Banking segment's principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas. As of March 31, 2023, the Community Banking segment operated 19 branches throughout Alaska. The Home Mortgage Lending segment's principal business focus is the origination and sale of mortgage loans for 1-4 family residential properties. Summarized financial information for the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables: Three Months Ended March 31, 2023 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 29,493 $ 302 $ 29,795 Interest expense 4,741 22 4,763 Net interest income 24,752 280 25,032 Benefit for credit losses 360 — 360 Other operating income 2,900 2,008 4,908 Other operating expense 17,417 6,092 23,509 Income before provision for income taxes 9,875 ( 3,804 ) 6,071 Provision for income taxes 2,315 ( 1,074 ) 1,241 Net income $ 7,560 ($ 2,730 ) $ 4,830 Three Months Ended March 31, 2022 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 19,650 $ 408 $ 20,058 Interest expense 741 13 754 Net interest income 18,909 395 19,304 Benefit for credit losses ( 150 ) — ( 150 ) Other operating income 3,841 6,982 10,823 Other operating expense 14,831 6,270 21,101 Income before provision for income taxes 8,069 1,107 9,176 Provision for income taxes 1,641 309 1,950 Net income $ 6,428 $ 798 $ 7,226 March 31, 2023 (In Thousands) Community Banking Home Mortgage Lending Consolidated Total assets $ 2,422,575 $ 157,462 $ 2,580,037 Loans held for sale $ — $ 23,985 $ 23,985 35 December 31, 2022 (In Thousands) Community Banking Home Mortgage Lending Consolidated Total assets $ 2,550,578 $ 123,740 $ 2,674,318 Loans held for sale $ — $ 27,538 $ 27,538 36