What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-08 compared with 2023-03-07 · 98 added, 115 removed, 308 unchanged (41% of the section changed)

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The Company has grown to be the third largest commercial bank in Alaska in terms of deposits, with $2.5 billion in total deposits and $2.8 billion in total assets at December 31, 2023.

Through our 18 banking branches and eight mortgage origination offices, we are accessible to approximately 90% of the Alaskan population.

Northrim Bank and Residential Mortgage are easily accessible to approximately 90% of the Alaska's population through our geographically dispersed 19 branches and 12 mortgage origination offices.

The Company has three direct wholly-owned subsidiaries:

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The Bank has 19 branch locations in Alaska;

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

Additionally, we have a loan production office in Kodiak.

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

Additionally, we have a loan production office in Homer.

We operate in Washington State through Northrim Funding Services (“NFS”), a factoring business that the Bank started in 2004.

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(“NCIC”) is a wholly-owned subsidiary of the Bank, which holds a 100% interest in a residential mortgage holding company, Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively “RML”).

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

Prior to that, the Company held a 23.5% interest in RML.

RML holds a 30% investment in Homestate Mortgage, LLC.

RML held a 30% investment in Homestate Mortgage, LLC until it dissolved in 2023.

• Northrim Building, LLC (“NBL”) is a wholly-owned subsidiary of the Bank that owns and operates the Company’s main office facility at 3111 C Street in Anchorage.

• Northrim Building LO, LLC is a wholly-owned subsidiary of the Bank that owns and operates the Company’s community branch facility at 2270 E.

37th Avenue in Anchorage.

• Northrim Building LO, LLC is a wholly-owned subsidiary of the Bank that owns and operates the Company’s community branch facilities at 2270 E.

37th Avenue in Anchorage and 2491 Tongass Avenue in Ketchikan.

The Company operates in two primary segments:

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

We believe that there is

opportunity to increase the Company’s loan portfolio, particularly in the commercial portion of the portfolio, in the Company’s current market areas through existing and new customers.

We have targeted the acquisition of new customers in professional fields including physicians, dentists, accountants, and attorneys.

We believe that there is opportunity to increase the Company’s loan portfolio, particularly in the commercial portion of the portfolio, in the Company’s

current market areas through existing and new customers.

In addition to lending products, in many cases commercial customers also require multiple deposit and affiliated services that add franchise value to the Company.

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We believe that our adherence to this philosophy has created a strong core deposit franchise that provides a stable, low cost funding source for expanded growth in all of our lending areas.

We have devoted significant resources to future deposit product development, expansion of electronic services for both personal and business customers, and enhancement of the Company's information security related to providing these services.

We have devoted significant resources to our treasury management products, including a corporate purchasing card and integrated payables, as well as expansion of electronic services for both personal and business customers, and enhancement of the Company's information security related to providing these services.

In addition to market share growth, a significant aspect of the Company’s business strategy is focused on managing the credit quality of our loan portfolio.

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We emphasize providing financial services to small and medium-sized businesses and to individuals.

These types of lending products have provided us with needed market opportunities and generally provide higher net interest margins compared to other types of lending such as consumer lending.

These types of lending products have provided us with market opportunities and generally provide higher net interest margins compared to other types of lending such as consumer lending.

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

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small businesses through the COVID-19 pandemic.

One of the new loan programs is the PPP, an expansion of the SBA’s 7(a) loan program and the Economic Injury Disaster Loan Program.

The American Rescue Plan Act of 2021 ("ARP Act") provided additional funding for the PPP.

PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during this emergency.

Eligible borrowers need to make a good faith certification that the uncertainty of current economic conditions make requesting assistance necessary to support ongoing operations.

Pursuant to the provisions of Section 1106 of the CARES Act, borrowers may apply to the Bank for loan forgiveness of all or a portion of the loan, subject to certain eligibility requirements and conditions.

As of December 31, 2022, $606.9 million or 99% of the PPP loans that the Company originated under the program have been forgiven.

PPP provided loans to small businesses who were affected by economic conditions as a result of COVID-19 and included loan forgiveness of all or a portion of the loan, subject to certain eligibility requirements and conditions.

Our lending operations are guided by loan policies, approval procedures, and amount limitations.

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The Credit Administration Department monitors the procedures and processes for both the analysis and reporting of problem loans, and also develops strategies to resolve problem loans based on the facts and circumstances for each loan.

Finally, our Internal Audit Department also performs an independent review of each loan portfolio for compliance with

loan policy, as well as a review of credit quality.

The Internal Audit review follows the FDIC sampling guidelines and a review of each portfolio is performed on an annual basis.

Additionally, the Credit Administration Department performs a review of the loan portfolio for compliance with loan policy, as well as a review of credit quality.

Loan review follows the FDIC sampling guidelines on an annual basis.

Finally, our Internal Audit independently reviews loans for regulatory compliance and conformance to the Bank's policies and procedures.

Purchase of accounts receivable:

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Our purchased receivable activity is guided by policies that outline risk management, documentation, and approval limits.

In 2023, we expect NFS to continue to penetrate these markets and to continue to contribute to the Company’s profitability.

In 2024, we expect NFS to continue to operate in these markets and to continue to contribute to the Company’s profitability.

Deposit Services :

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In addition to our traditional deposit and lending services, we offer our customers several convenience services:

Mobile Web and Text Banking, consumer online account opening, Personal Finance, Online Documents, Consumer Debit Cards, Business Debit Cards, My Rewards for consumer debit cards, retail lockbox services, card controls, Consumer Credit Cards, Business Credit Cards, Corporate Purchase Cards, Integrated Payables, home equity advantage access cards, telebanking, and automated teller services.

Mobile Web and Mobile APP Banking, consumer online account opening, Personal Finance, Online Documents, Consumer Debit Cards, Business Debit Cards, My Rewards for consumer debit cards, retail lockbox services, card controls, Consumer Credit Cards, Business Credit Cards, Corporate Purchase Cards, Integrated Payables, home equity advantage access cards, telebanking, and automated teller services.

Other services include personalized checks at account opening, overdraft protection from a savings account, commercial drive-up banking at many locations, automatic transfers and payments, People Pay (a peer-to-peer payment functionality), external transfers, Bill Pay, wire transfers, direct payroll deposit, electronic tax payments, Automated Clearing House origination and receipt, remote deposit capture, account reconciliation and positive pay, merchant services, cash management programs and sweep options to meet the needs of business customers, annuity products, and long term investment portfolios.

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Item 8 of this report for a breakout of real estate loans).

In addition to its review of NAICS codes, the Company has also identified concentrations in various industries that may be adversely impacted by the COVID-19 pandemic and a decline in oil prices.

We estimate that as of December 31, 2022 the Company had $126.5 million, or 8% of total loans, in the healthcare sector, $96.3 million, or 6% of portfolio loans, in the tourism sector, $83.4 million, or 6%, in the oil and gas sector, $70.8 million, or 5% of total loans in the fishing sector, $65.1 million, or 4% in the accommodations sector, $50.8 million, or 3% of portfolio loans, in the aviation (non-tourism) sector, $54.8 million, or 4%, in retail loans, and $46.9 million, or 3% in the restaurants and breweries sector.

The Company has $465.4 million non-owner occupied commercial real estate loans as of December 31, 2023 of which 17% are office class A or B, 14% are office / warehouse, 14% are retail centers, 10% are hotels, 10% are apartments, 8% are mini warehouse and self-storage, 7% are warehouse, and 20% are other.

In addition to its review of NAICS codes, the Company has also identified concentrations in various industries that may be adversely impacted by a future health pandemic and a decline in oil prices.

We estimate that as of December 31, 2023 the Company had $123.3 million, or 7% of total portfolio loans, in the Healthcare sector;

$100.4 million, or 6% of portfolio loans, in the Tourism sector;

$84.2 million, or 5% in the Accommodations sector;

$75.0 million, or 4% in the Fishing sector;

$72.8 million, or 4% in Retail loans;

$63.4 million, or 4% of portfolio loans, in the Aviation (non-tourism) sector;

and $52.2 million, or 3% in the Restaurants and Breweries sector.

Additionally, approximately 39% of our loan portfolio at December 31, 2023 is attributable to 50 large borrowing relationships.

Moreover, our business activities are

currently focused primarily in the state of Alaska.

Consequently, our results of operations and financial condition are dependent upon the general trends in the Alaska economy and, in particular, the residential and commercial real estate markets in Anchorage, Juneau, Fairbanks, the Matanuska-Susitna Valley, Ketchikan, Sitka, and to a lesser extent, the Kenai Peninsula, Kodiak and Nome.

Moreover, our business activities are currently focused primarily in the state of Alaska.

Consequently, our results of operations and financial condition are dependent upon the general trends in the Alaska economy and, in particular, the residential and commercial real estate markets in Anchorage, Juneau, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and to a lesser extent, Ketchikan, Sitka, Kodiak and Nome.

Home Mortgage Lending

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

The Company also originates loans funded for investment, including adjustable rate mortgages, a second home product, jumbo loans, and extended locks which are retained as consumer loans in the Company's loan portfolio.

Alaska Economy

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Significant changes in the Alaska economy and the markets we serve eventually could have a positive or negative impact on the Company.

Alaska is strategically located on the Pacific Rim, within nine hours by air from 95% of the northern hemisphere, and Anchorage has become a worldwide air cargo and transportation link between the United States and international business in Asia and Europe.

Alaska is strategically located on the Pacific Rim, within nine hours by air from 95% of the northern hemisphere, and Anchorage is a worldwide air cargo and transportation link between the United States and international business in Asia and Europe.

The economy of Alaska is dependent upon natural resource industries.

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Recent Economic Developments

The Alaska economy continued to recover in 2022 from the effects of the COVID pandemic.

Jobs steadily increased throughout the year and unemployment remains low.

Continued high inflation is impacting business activity, and incomes are rising, but not at the same pace as inflation.

Average home sales prices were at record highs, but the number of units sold has declined as interest rates rose rapidly.

Alaska is enjoying a healthy rebound in tourism activity and the construction, warehousing and transport sectors are performing well.

Energy exploration success is projected to translate into new oil production which could help support Alaska state government budgets in the future.

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

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

Nearly all private sectors showed year over year growth in jobs with the exception of Manufacturing (down 300) and State Government (down 600).

Trade, Transport and Utilities grew 9% in 2022, adding 1,800 job since December of 2021.

Leisure and Hospitality also grew by 1,800 jobs in the same time period, which was 6.2% growth for the tourism dependent sector.

Oil and Gas increased by 5.9% or 400 jobs between December of 2021 and 2022.

Other Services grew 5.8%;

Professional and Business Services added 2.3%;

Local Government increased by 2% and Construction grew 1.4% in 2022.

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

Alaska’s Gross State Product (“GSP”) in the third quarter of 2022, was estimated to be $65.1 billion in “nominal” terms, according to the Federal Bureau of Economic Analysis ("BEA").

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

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

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

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

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

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

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

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

The Alaska State Department of Revenue (“DOR”) forecasts ANS oil to average $88.45 per barrel in Alaska's fiscal year 2023 and $81.00 in 2024.

The average monthly price for ANS in January of 2023 was $80.87.

The DOR calculated ANS crude oil production was 486 thousand barrels per day in Alaska’s fiscal year, ending June 30, 2022.

They forecast production to increase to 501 thousand barrels per day in Alaska’s fiscal year 2023 and 512 thousand barrels per day in 2024.

This is primarily a result of new production coming on line in the NPR-A region west of Prudhoe Bay.

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

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

The delinquency rate increased to 6.2% at the end of 2020 after the effects of COVID impacted jobs.

The rate improved to 4.1% at the end of 2021 and has now returned to pre-COVID levels.

Alaska’s current delinquency rate of 2.9% compares to the average rate across the U.S.

The Mortgage Bankers Association survey also reported that the mortgage foreclosure inventory in Alaska at the end of 2022 was 0.54% and the national average was 0.57%.

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 7.7% in 2022 to $456,610.

This was the fifth consecutive year of price increases, following growth of 6.9% in 2021 and 5.8% in 2020.

Average sales prices in the Matanuska Susitna Borough rose 10% in 2022 to $382,528, continuing a trend of average price increases for more than a decade.

Average home prices in the Matanuska Susitna Borough increased 15.6% in 2021 and 9.9% in 2020.

The Alaska Department of Labor ("DOL") has reported Alaska’s seasonally adjusted unemployment rate in November of 2023 was 4.4% compared to the U.S.

rate of 3.7%.

The total number of payroll jobs in Alaska, not including uniformed military, increased 1.6% or 5,000 jobs between November of 2022 and November of 2023.

According to the DOL, Health Care had the largest growth in new jobs in Alaska through November compared to the prior year.

The sector added 1,300 positions for a year over year growth rate of 3.3%.

The Oil & Gas sector had the largest percentage growth rate at 5.6% or 400 new jobs.

Leisure and Hospitality added 800 jobs for a 2.6% growth rate.

Professional & Business Services and Trade, Transportation & Utilities both added 700 jobs year over year through November of 2023.

The Government sector grew by 500 jobs for 0.6% growth due to more federal positions in Alaska, which offset declines in Alaska state government jobs.

Alaska’s Gross State Product (“GSP”) in the third quarter of 2023, was estimated to be $67.7 billion in current dollars, according to the Federal Bureau of Economic Analysis ("BEA").

Alaska’s inflation adjusted “real” GSP grew 3.6% at annualized rates in the third quarter of 2023, compared to the average U.S.

rate of 4.9%.

Alaska’s real GSP improvement in the third quarter of 2023 was aided by gains in the Transportation & Warehousing and Construction sectors.

The BEA also calculated Alaska’s seasonally adjusted personal income at $52.3 billion in the third quarter of 2023.

This was an annualized improvement of 2.2% for Alaska over the second quarter of 2023, compared to the national average of 3.5%.

The monthly average price of Alaska North Slope (“ANS”) crude oil was in a range between $75.64 and $95.05 in 2023.

The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 479 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2023.

The DOR has forecast production to decline slightly to 470 thousand bpd in Alaska’s fiscal year 2024.

That number is projected to grow by the DOR to 663 thousand bpd by fiscal year 2033.

This is primarily a result of new production coming on line in and around the NPR-A region west of Prudhoe Bay.

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.4% in 2023 to $481,181, following a 7.6% increase in 2022.

This was the sixth consecutive year of price increases.

Average sales prices for single family homes in the Matanuska Susitna Borough rose 4% in 2023 to $397,858, after increasing 9.9% in 2022.

This continues a trend of average price increases for more than a decade in the region.

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

The number of housing units sold in Anchorage did slow in 2022 by 21.3% compared to 2021, as reported by the Alaska Multiple Listing Services.

The number of units sold in Anchorage had been increasing for the prior three years, growing by 11.2% in 2021.

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

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

However, the Alaska Multiple Listing Services reported a large decrease in the number of units sold in both communities.

There were 2,162 housing units sold in Anchorage in 2023, down 24.1% compared to 2,849 in 2022.

In the Matanuska Susitna Borough there were 1,632 homes sold in 2023, compared to 2,103 in 2022, a decrease of 22.4%.

A material portion of our loans at December 31, 2023, were secured by real estate located in greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska.

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Several multi-billion dollar projects can potentially advance in the moderate-term.

Some of these projects include copper, gold and molybdenum production at the proposed Donlin mine and continued exploration in the National Petroleum Reserve Alaska.

Some of these projects include copper, gold and molybdenum production at the proposed Donlin Gold mine and continued exploration in the National Petroleum Reserve Alaska.

Two significant oil production projects, Willow and Pikka, have been sanctioned and are under development, however the Willow project still faces legal challenges.

Because of their size, we believe each of these projects faces tremendous challenges.

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Part of the POMV concept creates an allocation of a portion of investment earnings to unrestricted revenue instead of restricted revenue.

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

According to the DOR, in 2023 and 2022, investment earnings allocated from the Alaska Permanent Fund under the POMV represented $3.5 billion, or 49%, and $3.0 billion, or 43%, respectively, of unrestricted State revenues.

As of December 31, 2023, Alaska's Constitutional Budget Reserve was $2.8 billion and the Alaska Permanent Fund had a balance of $77.4 billion.

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Southeast Alaska is the primary destination for cruise ships that visit Alaska.

Based on the latest information from Rain Coast Data, approximately one million cruise ship tourists have visited Southeast Alaska annually in recent years, except in 2020 when there were no cruise visitors and in 2021 when there were roughly 116,000 cruise visitors according to State of Alaska Department of Labor and Workforce Development ("SOADLWD").

These declines were due to the COVID-19 pandemic.

The SOADLWD reported in its January 2023 issue of Alaska Economic Trends Magazine that the cruise industry brought 1.2 million cruise ship visitors to Alaska in 2022, and this total is expected to increase in 2023.

Based on the latest information from Rain Coast Data, approximately one million cruise ship tourists have visited Southeast Alaska annually in recent years, including 1.2 million in 2022, except in 2020 and 2021 due to the COVID-19 pandemic.

On December 29, 2023 the Juneau Empire reported that 1.65 million cruise ship passengers visited Alaska in 2023, and the totals for 2024 and 2025 are expected to be similar to 2023.

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

For over 40 years, Alaska residents have received annual distributions payable in October of each year from the Alaska Permanent Fund Corporation, which is supported by royalties from oil production.

The distribution was $3,284 per eligible resident in 2022 for an aggregate distribution of approximately $2.1 billion.

For over 40 years, Alaska residents have received annual distributions payable in October of each year from the Alaska Permanent Fund Corporation, which is supported by royalties from oil production and earnings from its investments.

The distribution was $1,312 per eligible resident in 2023 for an aggregate distribution of approximately $819.2 million.

The Anchorage Economic Development Corporation estimates that, for most Anchorage households, distributions from the Alaska Permanent Fund Corporation exceed other Alaska taxes to which those households are subject.

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Our non-bank competitors also generally operate under fewer regulatory constraints, and in the case of credit unions, are not subject to income taxes.

We estimate that credit unions in Alaska have a 43% share of total deposits held in banks and credit unions in the state as of June 30, 2022.

Changes in credit union operating practices have effectively eliminated the “common bond” of membership requirement and liberalized their lending authority to include business and real estate loans on par with commercial banks.

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Currently, there are seven commercial banks operating in Alaska.

At June 30, 2022, the date of the most recently available information, Northrim Bank had approximately a 14% share of the Alaska bank deposits, 18% in the Anchorage area, 23% in Juneau, 17% in Matanuska-Susitna, 14% in Sitka, 12% in Fairbanks, 9% in Ketchikan, and 8% in the Kenai Peninsula.

At June 30, 2023, the date of the most recently available information, from the FDIC, Northrim Bank had approximately a 15% share of the Alaska bank deposits, 19% in the Anchorage area, 22% in Juneau, 19% in Matanuska-Susitna, 15% in Sitka, 12% in Fairbanks, 10% in Ketchikan, 10% in the Kenai Peninsula, 2% in Kodiak, and 8% in Nome.

The following table sets forth market share data for the banks and credit unions having a presence in Alaska as of June 30, 2023, the most recent date for which comparative deposit information is available.

Financial institution Number of branches Total deposits (in thousands) Market share of total financial institution deposits Market share of total bank deposits

Financial institution Number of branches Total deposits (in thousands) Market share of total bank deposits

Northrim Bank (1)

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Total bank branches 113 $15,487,132 100 %

Credit unions (2)

86 $12,659,034 43 % NA

Total financial institution branches 199 $29,579,425 100 % 100 %

(1) FDIC Summary of Deposits as of June 30, 2023.

(2) SNL Financial Deposit Market Share Summary as of June 30, 2022.

Supervision and Regulation

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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.

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

banking subsidiaries.

Additionally, the Alaska Corporations Code generally prohibits the Company from making any distributions to the Company's shareholders unless the amount of the retained earnings of the Company immediately before the distribution equals or exceeds the amount of the proposed distribution.

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common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital.

Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income ("AOCI"), except to the extent that the Company and the

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

Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”), except to the extent that the Company and the Bank exercise a one-time irrevocable option to exclude certain components of AOCI.

Additional Tier 1 capital generally includes noncumulative perpetual preferred stock and related surplus subject to certain adjustments and limitations.

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The Rules made changes in the methods of calculating certain risk-based assets, which in turn affects the calculation of risk- based ratios.

Higher or more sensitive risk weights are assigned to various categories of assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.

exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.

We believe that the current capital levels of the Company and the Bank are in compliance with the standards under the Rules including the conservation buffer.

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Management has not elected to opt in to these new capital rules.

However, the guidelines allow the Company to opt in to the simplification in the future should our assessment change.

In addition to the minimum capital standards, the federal banking agencies have issued regulations to implement a system of "prompt corrective action." These regulations apply to the Bank but not the Company.

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The FDIC and the Division may each accept the results of an examination by the other in lieu of conducting an independent examination.

In the liquidation or other resolution of a failed insured depository institution, claims for administrative expenses (including certain employee compensation claims) and deposits are afforded a priority over other general unsecured claims, including non-deposit claims, and claims of a parent company such as the Company.

including non-deposit claims, and claims of a parent company such as the Company.

Such priority creditors would include the FDIC, which succeeds to the position of insured depositors to the extent it has made payments to such depositors.

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

In May 2022, the FDIC, the Office of the Comptroller of the Currency (“OCC”), and the FRB jointly issued an Advance Notice of Proposed Rulemaking (“ANPR”) that invited public comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA.

We will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.

The Company is also subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) and the Anti-Money Laundering Act of 2020 (the “AMLA”).

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

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

Management believes the Company is in compliance with the USA PATRIOT Act as in effect on December 31, 2020.

The AMLA was passed on January 1, 2021 and regulatory agencies are in the process of finalizing rules and regulations required by the passage of the AMLA.

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

small businesses through the COVID-19 pandemic.

One of the new loan programs is the PPP, an expansion of the SBA’s 7(a) loan program and the Economic Injury Disaster Loan Program.

The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during this emergency.

Eligible borrowers need to make a good faith certification that the uncertainty of current economic conditions make requesting assistance necessary to support ongoing operations.

On March 11, 2021, the ARP Act was enacted and, among others, provided additional funding for the PPP and an expansion of the program for the benefit of certain nonprofits.

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

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

As of December 31, 2022, the Bank had 29 PPP loans totaling $7.3 million outstanding.

In March 2022, the Securities and Exchange Commission (“SEC”) published proposed rules relating to risk management, strategy, governance and incident disclosure which would be applicable to public companies in preparing disclosures about cybersecurity risks and incidents.

These SEC proposed rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

On October 24, 2023, the FDIC, the Office of the Comptroller of the Currency (“OCC”), and the FRB jointly issued a final rule to strengthen and modernize the existing CRA regulations.

Under the final rule, the agencies will evaluate a bank’s CRA performance based upon the varied activities that it conducts and the communities in which it operates.

CRA evaluations and data collection requirements will be tailored based on bank size and type.

The Bank would be considered a large bank with assets of greater than $2 billion under the final rule and therefore will be evaluated under new lending, retail services and products, community development financing, and community development services tests.

The final rule includes CRA assessment areas associated with mobile and online banking, and new metrics and benchmarks to assess retail lending performance.

In addition, the final rule emphasizes smaller loans and investments that can have a high impact and be more responsive to the needs of low and moderate income communities.

The final rule will take effect on April 1, 2024;

however, compliance with the majority of the final rule's provisions will not be required until January 1, 2026, and the data reporting requirements of the final rule will not take effect until January 1, 2027.

The Bank is also subject to the Bank Secrecy Act (the “BSA”) and other anti-money laundering laws and regulations including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) and the Anti-Money Laundering Act of 2020 (the “AMLA”).

The BSA is intended to require financial institutions to develop policies, procedures, and practices to prevent and deter money laundering.

The regulations implementing the BSA require financial institutions to establish risk-based procedures for conducting ongoing customer due diligence and procedures for understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile.

In addition, FinCEN has promulgated customer due diligence and customer identification rules that require banks to identify and verify the identity of the beneficial owners.

In addition to complying with the BSA, the Bank is subject to the USA PATRIOT Act.

The USA PATRIOT Act is designed to deny terrorists and criminals the ability to obtain access to the United States’ financial system and has significant implications for depository institutions, brokers, dealers, and other businesses involved in the transfer of money.

The USA PATRIOT Act mandates that financial service companies implement additional policies and procedures and take heightened measures designed to address any or all of the following matters:

customer identification programs, money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, currency crimes, and cooperation between financial institutions and law enforcement authorities.

Further, on January 1, 2021, Congress passed the National Defense Authorization Act (the “NDAA”), which included the enactment of AMLA, and which enacted the most significant overhaul of the BSA and related anti-money laundering laws since the USA PATRIOT Act.

Notable amendments include, among others, significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities to report beneficial ownership information to FinCEN.

Many of the amendments require the Department of Treasury and FinCEN to promulgate rules.

On September 29, 2022, FinCEN issued a final regulation implementing the BSA amendments included in the NDAA with respect to beneficial ownership reporting.

The Bank’s policies and procedures are designed to comply with the requirements of the anti-money laundering laws, including the USA PATRIOT ACT.

In July 2023, the Securities and Exchange Commission (“SEC”) published adopted final rules relating to risk management, strategy, governance and incident disclosure which are applicable to public companies in preparing disclosures about cybersecurity risks and incidents.

These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions.

Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes.

Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls

and risk management processes.

If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties.

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

Effective in 2022, the federal banking agencies adopted a Final Rule, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or that would impact the stability of the United States.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.

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What changed 10-K

Item 1. Business