What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-08 compared with 2023-03-07 · 286 added, 287 removed, 1580 unchanged (27% of the section changed)

15 unchanged sentences

We have audited the accompanying consolidated balance sheets of Northrim BanCorp, Inc.

and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

25 unchanged sentences

Allowance for Credit Losses – Loans

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses - loans balance was $13.8 million at December 31, 2022.

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses - loans was $17.2 million at December 31, 2023.

The allowance for credit losses – loans is management’s best estimate of current expected credit losses in its loan portfolio and is estimated using either a discounted cash flow method or a weighted average remaining life method, depending on the nature and size of the loan pool.

1 unchanged sentence

Historical loss experience is the starting point for estimating expected credit losses.

Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics using qualitative factors.

We identified management’s estimation and application of the forecast of economic conditions used in the calculation of probabilities of default in the allowance for credit losses – loans as a critical audit matter.

In addition to the quantitative portion of the allowance for credit losses – loans derived using either the discounted cash flow method or weighted average remaining life method, the Company also considers the effects of the qualitative factors in its calculation of expected losses in the loan portfolio.

The qualitative factor methodology is based on quantitative metrics, but also includes a high degree of subjectivity and changes in any of the metrics could have a significant impact on our calculation of the allowance.

We identified management’s estimation and application of the forecast of economic conditions used in the calculation of probabilities of default, and management’s qualitative factors used to estimate the expected loss rate in the allowance for credit losses – loans as a critical audit matter.

The forecast of economic conditions component of the allowance for credit losses - loans is used to compare the conditions that existed during the historical period to current conditions and future expectations, and to make adjustments to the historical data accordingly.

Auditing management’s judgments regarding the estimation and application of forecasted economic conditions portion of the allowance for credit losses - loans involved significant audit effort, as well as especially challenging and subjective auditor judgement when performing audit procedures and evaluating the results of those procedures.

The qualitative factors are management’s best estimate of the adjustments required for additional risk expected in each loan pool.

Auditing management’s judgments regarding the application of forecasted economic conditions and qualitative adjustments involved significant audit effort, as well as especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address the critical audit matters included:

• Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for credit losses – loans, including controls over the estimation and application of the forecast of economic conditions.

• Obtaining management’s analysis and supporting documentation related to the forecast of economic conditions used to determine the probabilities of default, and evaluating whether the forecast of economic conditions used in the calculation of the allowance for credit losses - loans are reasonable and supportable.

• Evaluating the appropriateness of the methodology and assumptions used in the calculation of the allowance for credit losses – loans, and testing the calculation itself, including completeness and accuracy of the data used in the calculation, and the application of the forecast of economic conditions used in the calculation to determine probabilities of default.

• Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for credit losses – loans, including controls over the reasonableness of forecasted economic conditions related to unemployment and qualitative factors used in the estimation of the expected loss rate;

• Obtaining management’s analysis and supporting documentation related to the forecast of economic conditions used to determine the probabilities of default and testing whether forecast of economic conditions and key assumptions used in the calculation of the allowance for credit losses - loans are reasonable and supportable based on the analysis provided by management;

• Evaluating the methodology and the reasonableness of assumptions used by management to estimate the qualitative factors and testing whether these factors were applied to the calculation appropriately;

• Evaluating the relevance and reliability of the data used by management to estimate the forecasted economic conditions and the qualitative factors used in the calculation of the allowance for credit losses – loans;

• Developing an independent expectation of the qualitative adjustments using a combination of internal and external data and comparing the expected balance to the Company’s recorded amounts.

/s/ Moss Adams LLP

20 unchanged sentences

Mortgage servicing rights, at fair value 19,564 18,635

Other real estate owned, net — 5,638

Premises and equipment, net 40,693 37,821

49 unchanged sentences

Mortgage banking income 12,763 21,572 42,144

Bankcard fees 3,697 3,389 2,837

Purchased receivable income 4,482 2,002 2,259

Keyman insurance proceeds 2,002 — —

Commercial servicing revenue 1,628 306 527

Bankcard fees 3,862 3,697 3,389

Service charges on deposit accounts 2,044 1,611 1,297

Interest rate swap income 157 452 949

Commercial servicing revenue 554 1,628 306

Unrealized gain (loss) on marketable equity securities

120 ( 1,119 ) ( 101 )

Keyman insurance proceeds — 2,002 —

Gain on sale of marketable equity securities, net — — 67

Unrealized (loss) gain on marketable equity securities ( 1,119 ) ( 101 ) 61

Other income 2,550 2,684 2,902

26 unchanged sentences

Securities available for sale:

Unrealized holding (losses) gains arising during the period ($ 38,283 ) ($ 5,564 ) $ 411

Unrealized holding gains (losses) arising during the period

$ 17,755 ($ 38,283 ) ($ 5,564 )

Derivatives and hedging activities:

Unrealized holding gains (losses) during the period 2,409 780 ( 1,201 )

Income tax benefit (expense) related to unrealized gains and losses 10,199 1,360 377

Other comprehensive (loss) income, net of tax ( 25,675 ) ( 3,424 ) ( 413 )

Unrealized holding (losses) gains during the period

( 88 ) 2,409 780

Income tax (expense) benefit related to unrealized gains and losses

( 5,023 ) 10,199 1,360

Other comprehensive income (loss), net of tax 12,644 ( 25,675 ) ( 3,424 )

Comprehensive income $ 38,038 $ 5,066 $ 34,093

12 unchanged sentences

Other comprehensive (loss), net of tax — — — — ( 3,424 ) ( 3,424 )

Cumulative effect of adoption of accounting principles related to equity compensation expense — — 139 ( 139 ) — —

Cumulative effect of adoption of ASU 2016-13 — — — 2,400 — 2,400

Net income — — — 37,517 — 37,517

5 unchanged sentences

Other comprehensive (loss), net of tax — — — — ( 25,675 ) ( 25,675 )

Cumulative effect of adoption of ASU 2016-13 — — — 2,400 — 2,400

Net income — — — 30,741 — 30,741

4 unchanged sentences

Repurchase of common stock ( 209 ) ( 209 ) ( 8,835 ) — — ( 9,044 )

Other comprehensive (loss), net of tax — — — — ( 25,675 ) ( 25,675 )

Other comprehensive income, net of tax — — — — 12,644 12,644

Net income — — — 25,394 — 25,394

9 unchanged sentences

Gain on sale of securities, net — — ( 67 )

Loss on sale of premises and equipment — — 22

Depreciation and amortization of premises 3,294 3,139 3,276

2 unchanged sentences

Amortization of investment security premium, net of discount accretion 483 630 529

Unrealized loss (gain) on marketable equity securities 1,119 101 ( 61 )

Deferred tax (income) expense 2,110 ( 1,298 ) 555

Unrealized (gain) loss on marketable equity securities ( 120 ) 1,119 101

Deferred tax expense (income)

580 2,110 ( 1,298 )

Stock-based compensation 937 742 1,073

1 unchanged sentence

Provision (benefit) for credit losses 3,842 1,846 ( 4,099 )

Benefit for purchased receivables — — ( 21 )

Additions to home mortgage servicing rights carried at fair value ( 3,616 ) ( 4,623 ) ( 6,088 )

4 unchanged sentences

Origination of loans held for sale ( 376,154 ) ( 585,533 ) ( 1,118,186 )

Loss (gain) on sale of other real estate owned 414 ( 685 ) ( 391 )

(Gain) loss on sale of other real estate owned ( 929 ) 414 ( 685 )

Impairment on other real estate owned 123 — —

Net changes in assets and liabilities:

1 unchanged sentence

Decrease (increase) in other assets 4,344 5,528 12,739

(Decrease) increase in other liabilities ( 3,703 ) ( 9,695 ) 12,415

Net Cash Provided (Used) by Operating Activities 78,123 111,989 ( 36,454 )

Increase (decrease) in other liabilities 7,185 ( 3,703 ) ( 9,695 )

Net Cash Provided by Operating Activities 38,925 78,123 111,989

Investing Activities:

12 unchanged sentences

Purchases of premises and equipment ( 6,166 ) ( 3,796 ) ( 2,338 )

Net Cash (Used) Provided by Investing Activities ( 405,625 ) ( 159,089 ) ( 382,825 )

Net Cash (Used) by Investing Activities ( 255,071 ) ( 405,625 ) ( 159,089 )

Financing Activities:

Increase in deposits ( 34,420 ) 596,650 452,630

Increase (decrease) in deposits 97,844 ( 34,420 ) 596,650

Proceeds from borrowings 194,500 — —

3 unchanged sentences

Cash dividends paid ( 13,609 ) ( 10,571 ) ( 9,388 )

Net Cash (Used) Provided by Financing Activities ( 58,975 ) 576,962 439,820

Net Cash Provided (Used) by Financing Activities 75,326 ( 58,975 ) 576,962

Net Change in Cash and Cash Equivalents ( 140,820 ) ( 386,477 ) 529,862

4 unchanged sentences

Interest paid $ 28,547 $ 5,190 $ 3,813

Noncash commitments to invest in Low Income Housing Tax Credit Partnerships $ 14,273 $ — $ —

Transfer of loans to other real estate owned $ 273 $ — $ 274

11 unchanged sentences

Additionally, the Bank through its wholly-owned subsidiary, Northrim Funding Services (“NFS”), operates a factoring division in Bellevue, Washington.

Related companies include Pacific Wealth Advisors, LLC (“PWA”) and Homestate Mortgage Company, LLC ("Homestate").

The Company has an equity investment in PWA through its wholly owned subsidiary, Northrim Investment Services Company ("NISC"), and the Company has an equity investment in Homestate through RML.

The Company has an equity investment in Pacific Wealth Advisors, LLC (“PWA”) through its wholly owned subsidiary, Northrim Investment Services Company ("NISC"), and the Company had an equity investment in Homestate Mortgage Company, LLC (“Homestate”) through RML until its dissolution in 2023.

Use of Estimates:

2 unchanged sentences

Actual results could differ from those estimates.

Significant estimates include the allowance for credit losses (“ACL”), valuation of goodwill and other intangibles, valuation of other real estate owned (“OREO”), valuation of mortgage servicing rights (“MSRs”), and fair value disclosures.

Significant estimates include the allowance for credit losses (“ACL”), valuation of goodwill and other intangibles, and valuation of mortgage servicing rights (“MSRs”).

Consolidation:

3 unchanged sentences

As of December 31, 2023, the Company had one wholly-owned business trust subsidiary, Northrim Statutory Trust 2 (“Trust 2”), that was formed to issue trust preferred securities and related common securities of Trust 2.

The Company has not consolidated the accounts of Trust 2 in its consolidated financial statements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”).

The Company has not consolidated the accounts of Trust 2 in its consolidated financial statements in accordance with U.S.

As a result, the junior subordinated debentures issued by the Company to Trust 2 are reflected on the Company’s consolidated balance sheet as junior subordinated debentures.

The Company has determined that PWA and Homestate are not variable interest entities and therefore, the Company does not consolidate the balance sheets and income statements of PWA or Homestate into its financial statements.

The Company owns a 22 % interest in PWA and a 30 % interest in Homestate Mortgage Company, LLC, and these investments are accounted for as equity method investments.

The Company owns a 22 % interest in PWA and owned a 30 % interest in Homestate prior to its dissolution in 2023, and these investments are accounted for as equity method investments.

Results of PWA and Homestate are included in “Other income” in our Consolidated Statements of Income.

Investments in other companies are presented on a one-line basis in the caption “Other assets” in our Consolidated Balance Sheets.

Investments in low income housing tax credit companies are presented on a one-line basis in the caption “Other assets” in our Consolidated Balance Sheets.

Operating Segments:

In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM"), or decision making group, in deciding how to allocate resources and in assessing performance.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance.

The Company uses the "management approach" in determining reportable operating segments.

33 unchanged sentences

However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis.

Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in such a situation.

Because the security’s amortized cost basis is adjusted to fair value, there would be no ACL.

In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.

14 unchanged sentences

Loans are carried at their principal amount outstanding, net of charge-offs, unamortized fees, and direct loan origination costs.

Loan origination fees received in excess of direct origination costs are deferred and accreted to interest income using the interest method in accordance with ASC 310 over the life of the loan.

Loan balances are charged-off to the ACL when management believes that collection of principal is unlikely.

Loan origination fees received in excess of direct origination costs are deferred and accreted to interest income using the interest method in accordance with Accounting Standards Codification (“ASC”) 310 over the life of the loan.

Loan balances are

charged-off to the ACL when management believes that collection of principal is unlikely.

Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status.

3 unchanged sentences

Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms.

A loan is classified as a troubled debt restructuring ("TDR") when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider.

These concessions may include interest rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses.

Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of at least six months to demonstrate that the borrower can meet the restructured terms.

If the borrower's performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.

Interest on TDRs will be accrued at the restructured rates when it is anticipated that no loss of original principal will occur, and the interest can be collected, which is generally after a period of six months.

The Company classifies fair value measurements on loans as level 3 valuations in the fair value hierarchy because of their use of unobservable inputs.

Acquired Loans:

Loans purchased without more-than-insignificant credit deterioration are recorded at their fair value at the acquisition date.

Loans purchased with more-than-insignificant credit deterioration will be recorded with their applicable ACL to determine amortized cost basis.

Loans purchased that are of poor credit quality and with more than an insignificant evidence of credit deterioration since their origination or issuance are purchased credit deteriorated (“PCD”) loans.

PCD assets are recorded at their purchase price plus an ACL estimated at the time of acquisition.

Under this approach, there is no provision for credit losses recognized at acquisition;

rather, there is a gross-up of the purchase price of the financial asset for the estimate of expected credit losses and a corresponding ACL recorded.

Changes in estimates of expected credit losses after acquisition are recognized as provision for credit losses in subsequent periods.

In general, interest income recognition for PCD financial assets is consistent with interest income recognition for the similar non-PCD financial asset.

Allowance for Credit Losses - Loans :

Under the current expected credit loss model adopted by the Company on January 1, 2021, the ACL on loans is a valuation allowance estimated at each balance sheet date that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Under the current expected credit loss model (“CECL”) adopted by the Company on January 1, 2021, the ACL on loans is a valuation allowance estimated at each balance sheet date that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the loan is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs.

13 unchanged sentences

An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

In addition to the quantitative portion of the ACL derived using either the DCF or weighted average remaining life method, the Company also considers the effects of the qualitative factors in its calculation of expected losses in the loan

3 unchanged sentences

When we identify a loan for individual evaluation, we measure expected credit losses using DCF, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral.

In these cases, we use the current fair value of the collateral, less selling costs, instead of DCF.

In these cases, we use the current fair value of the

collateral, less selling costs, instead of DCF.

The analysis of collateral dependent loans includes external appraisals or in-house evaluations on loans secured by real property, management’s assessment of the current market, recent payment history and an evaluation of other sources of repayment.

4 unchanged sentences

These projects are generally valued as if complete, with an appropriate allowance for cost of completion, including contingencies developed from external sources such as vendors, engineers, and contractors.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets.

The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR.

The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default.

Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL.

TDRs performing in accordance with their modified contractual terms for a reasonable period of time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

If we determine that the value of an individually evaluated loan is less than the recorded investment in the loan, we either recognize an ACL specific to that loan, or charge-off the deficit balance on collateral dependent loans if it is determined that such amount represents a confirmed loss.

Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.

Paycheck Protection Program ("PPP") and other loans guaranteed by the U.S.

With the passage of the PPP, the Company has actively participated in assisting its customers with applications for loans through the program.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets.

The contractual term does not consider extensions, renewals or modifications.

Loans guaranteed by the U.S.

government, including Paycheck Protection Program (“PPP”) loans The Company actively participated in assisting its customers with applications for loans through the program.

Loans funded through the PPP program are fully guaranteed by the U.S.

12 unchanged sentences

The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for credit loss expense in the Company’s consolidated statements of income.

The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the

current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.

The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.

Purchased Receivables and related Allowance for Credit Losses:

8 unchanged sentences

Other Real Estate Owned:

OREO represents properties acquired through foreclosure or its equivalent.

Other Real Estate Owned (“OREO”) represents properties acquired through foreclosure or its equivalent.

Prior to foreclosure, the carrying value is adjusted to the fair value, less cost to sell, of the real estate to be acquired by an adjustment to the ACL for loans.

6 unchanged sentences

Depreciation and amortization expense for financial reporting purposes is computed using the straight-line method based upon the shorter of the lease term or the estimated useful lives of the assets that vary according to the asset type and include;

furniture and equipment ranging between 3 and 7 years, leasehold improvements ranging between 2 and 15 years, and buildings at 39 years.

furniture and equipment ranging between three and seven years , leasehold improvements ranging between two and 15 years, and buildings at 39 years.

Maintenance and repairs are charged to current operations, while renewals and betterments are capitalized.

22 unchanged sentences

Servicing Rights:

Mortgage and commercial servicing rights associated with loans originated and sold, where servicing is retained, are measured at fair value and changes in fair value are reported through earnings.

Mortgage servicing rights (“MSRs”) and commercial servicing rights (“CSRs”) associated with loans originated and sold, where servicing is retained, are measured at fair value and changes in fair value are reported through earnings.

Changes in the fair value of servicing rights occur primarily due to the collection/realization of expected cash flows, as well as changes in valuation inputs and assumptions.

Under the fair value method, servicing rights are carried on the balance sheet at fair value and the changes in fair value are reported in earnings in other operating income in the period in which the change occurs.

Under the fair value method, servicing rights are carried on the balance sheet at fair value and the changes in fair value for MSRs are reported in earnings in mortgage banking income and the changes in fair value for CSRs are reported in commercial serving revenue in other operating income in the period in which the change occurs.

Fair value measurements are determined using a discounted cash flow model.

In order to determine the fair value of servicing rights, 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.

For MSRs, the model assumptions are also compared to publicly filed information from several large MSR holders, as available.

Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates, and ancillary fee income net of servicing costs.

Other Assets:

9 unchanged sentences

These assets and liabilities are measured at fair value, and changes in fair value are recorded in earnings.

By using derivatives, the Company is exposed to counterparty credit risk, which is the risk that counterparties to the derivative contracts do not perform as expected.

using derivatives, the Company is exposed to counterparty credit risk, which is the risk that counterparties to the derivative contracts do not perform as expected.

If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet, net of cash collateral received.

19 unchanged sentences

Payments for service charges on deposit accounts are primarily received immediately or in the following month through a direct charge to customers’ accounts.

Other operating income consists of other recurring revenue streams such as merchant services income, commissions from sales of mutual funds and other investments, safety deposit box rental fees, bank check and other check fees, unrealized gains and

losses on marketable securities, and other miscellaneous revenue streams.

Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.

12 unchanged sentences

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.

When the amount of consideration is variable, the Company will only recognize revenue to the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in the future.

When the amount of consideration is variable, the Company will only recognize

revenue to the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in the future.

Substantially all of the Company's contracts with customers have expected durations of one year or less and payments are typically due when or as the services are rendered or shortly thereafter.

6 unchanged sentences

Item 8 of this report.

Compensation cost is recognized for stock options and restricted stock units issued to employees based on the fair value of these awards at the date of grant.

A Black Scholes model is utilized to estimate the fair value of stock options, while the market price for the Company's common stock at the date of grant issued is utilized for restricted stock awards.

Compensation cost is recognized for stock options, restricted stock units, and performance stock units issued to employees based on the fair value of these awards at the date of grant.

A Black Scholes model is utilized to estimate the fair value of stock options.

The market price for the Company's common stock at the date of grant issued is the fair value of restricted and performance stock awards.

The Company recognizes compensation expense over the vesting period of each award.

11 unchanged sentences

Potentially dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive.

Anti-dilutive shares outstanding related to options to acquire common stock for the year ended December 31, 2020 totaled 45,062 .

There were no anti-dilutive shares outstanding related to options to acquire common stock in 2023, 2022, or 2021.

11 unchanged sentences

Concentrations:

Substantially all of the Company’s business is derived from the Anchorage, Matanuska-Susitna Valley, Fairbanks, Kenai Peninsula, Nome, and Southeast areas of Alaska.

Substantially all of the Company’s business is derived from the Anchorage, Matanuska-Susitna Valley, Fairbanks, Kenai Peninsula, Kodiak, Nome, and Southeast areas of Alaska.

As such, the Company’s growth and operations depend upon the economic conditions of Alaska and these specific markets.

4 unchanged sentences

As a result, local or regional economic downturns, or downturns that disproportionately affect one or more of the key industries in regions served by the Company, may have a more pronounced effect upon its business than they might on an institution that is less geographically concentrated.

The extent of the future impact of these events on economic and business conditions cannot be predicted;

The extent of the

future impact of these events on economic and business conditions cannot be predicted;

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

13 unchanged sentences

Recent Accounting Pronouncements

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.

In March 2021, the UK Financial Conduct Authority announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of LIBOR had been changed from December 31, 2021 to June 30, 2023.

In response to this change, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 ("ASU 2022-06").

ASU 2022-06 effectively amends ASU 2020-04 so that the expedients are in effect from March 12, 2020, through December 31, 2024.

The Company will be able to use the expedients in this guidance to continue 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, published a consultation in December 2020 regarding its intention to cease the publication of LIBOR after December 31, 2021, with the exception of certain tenors of U.S.

dollar (USD) LIBOR that it proposed would 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 LIBOR, such as commercial loans, derivatives, debt securities, and junior subordinated debentures.

As of December 31, 2022, we had approximately $ 151.2 million of assets, including $ 83.7 million in commercial loans and $ 67.5 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 December 31, 2022, the notional amount of our USD LIBOR-linked interest rate derivative contracts was $ 146.6 million.

Of this amount, $ 68.3 million in notional value represent commercial loan interest rate swap agreements with commercial banking customers.

An additional $ 68.3 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 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Accounting pronouncements implemented in 2023

In March 2022, the Financial Accounting Standards Board (“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 TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

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.

1 unchanged sentence

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.

ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022.

The Company may elect to apply the updated guidance on TDR recognition and measurement by using a modified retrospective transition method, which would result in a cumulative-effect adjustment to retained earnings, or to adopt the amendments prospectively.

The Company intends to elect to adopt the updated guidance on TDR recognition and measurement prospectively;

therefore the guidance will be applied to modifications occurring after the date of adoption.

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 Company does not believe that ASU 2022-02 will have a material impact on the Company's consolidated financial statements.

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 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 ASC 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 ASC 323-740-25-3 applies 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 the adoption of ASU 2023-02 will have a material impact on the Company's consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

Under current GAAP, public entities are required to report a measure of segment profit or loss.

The amendments in ASU 2023-07 do not change or remove this requirement, nor does it change how an entity identifies is operating segments.

The amendments in ASU 2023-07 improve reportable segment disclosure requirement, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 is effective for the Company for fiscal years beginning after December 15, 2023 and must be applied on a retrospective basis.

The Company does not believe that the adoption of ASU 2023-07 will have a material impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (“ASU 2023-09”).

The amendments in ASU 2023-09 improve transparency of income tax disclosures related to rate reconciliation and income taxes paid disclosures by requiring consistent categories and greater disaggregation of information in rate reconciliation, and by requiring disclosure of income taxes paid disaggregated by jurisdiction.

The amendments in ASU 2023-09 allow investors to better assess, in their capital allocation decisions, how an entity's worldwide operations and related tax risks and tax planning and operations opportunities affect its income tax rate and prospects for future cash flow.

ASU 2023-09 is effective for the Company for fiscal years beginning after December 15, 2024 and may be applied on a prospective or retrospective basis.

The Company does not believe that the adoption of ASU 2023-09 will have a material impact on the Company's consolidated financial statements.

NOTE 2 – Cash and Due from Banks

The Company is no longer required to maintain minimum cash balances or deposits with the Federal Reserve Bank of San Francisco ("Federal Reserve Bank").

The Company is required to maintain a $ 300,000 balance with a correspondent bank for outsourced servicing of ATMs at both December 31, 2023 and 2022.

The Company is required to maintain a $ 100,000 and $ 30,000 balance with a correspondent bank to collateralize the initial margin and the fair value exposure of one of its interest rate swaps, respectively, at December 31, 2022.

The Company was required to maintain a $ 100,000 and $ 2.8 million balance with a correspondent bank to collateralize the initial margin and the fair value exposure of one of its interest rate swaps, respectively, at December 31, 2021.

NOTE 3 - Interest Bearing Deposits in Other Banks

11 unchanged sentences

(In Thousands) 2023 2022 2021

Unrealized (loss) gain on marketable equity securities ($ 1,119 ) ($ 101 ) $ 61

Unrealized gain (loss) on marketable equity securities $ 120 ($ 1,119 ) ($ 101 )

Gain on sale of marketable equity securities, net — — 67

43 unchanged sentences

Treasury and government sponsored entities $ 282,319 ($ 8,876 ) $ 302,840 ($ 30,546 ) $ 585,159 ($ 39,422 )

Municipal securities 795 ( 25 ) — — 795 ( 25 )

Corporate bonds 13,216 ( 43 ) 4,394 ( 631 ) 17,610 ( 674 )

3 unchanged sentences

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 December 31, 2022 and 2021, there were 38 and 41 available for sale securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for less than twelve months.

At December 31, 2023 and 2022, there were two and 38 available for sale securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for less than twelve months.

There were 72 and 47 available for sale securities without an ACL with unrealized losses at December 31, 2023 and 2022, respectively, that have been at a loss position for more than twelve months.

At December 31, 2022 and 2021, there were three and two held to maturity securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for less than twelve months.

At December 31, 2022 and 2021, there were two and zero held to maturity securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for more than twelve months.

At December 31, 2023 and 2022, there were zero and three held to maturity securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for less than twelve months.

At December 31, 2023 and 2022, there were five and two held to maturity securities in an unrealized loss position without an ACL, respectively, that have been in a loss position for more than twelve months.

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 December 31, 2022, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company's Consolidated Statements of Income.

Accordingly, as of December 31, 2023, management believes that the unrealized

losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company's Consolidated Statements of Income.

At December 31, 2023 and 2022, $ 180.1 million and $ 59.3 million in securities were pledged for deposits and borrowings, respectively.

7 unchanged sentences

Corporate bonds

Within 1 year $ 2,000 $ 1,997 3.59 %

1-5 years 22,014 21,264 4.95 %

2 unchanged sentences

Collateralized loan obligations

Within 1 year $ 5,000 $ 4,751 5.86 %

5-10 years $ 34,301 $ 34,102 6.83 %

2 unchanged sentences

Municipal securities

1-5 years $ 820 $ 795 2.14 %

Within 1 year $ 820 $ 816 2.12 %

Total $ 820 $ 816 2.12 %

35 unchanged sentences

$ 1,772,227 $ 1,798,053 ($ 8,556 ) $ 1,487,947 $ 1,510,395 ($ 8,610 )

The difference between the amortized cost and unpaid principal balance is primarily net deferred origination fees totaling $ 8.6 million and $ 11.5 million at December 31, 2022 and 2021, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 5.5 million at both December 31, 2022 and 2021, and was included in other assets in the Consolidated Balance Sheets.

The difference between the amortized cost and unpaid principal balance is primarily net deferred origination fees totaling $ 8.6 million at both December 31, 2023 and 2022.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 7.4 million and $ 5.5 million at December 31, 2023 and 2022, respectively, and was included in other assets in the Consolidated Balance Sheets.

Amortized cost in the above table includes $ 2.8 million and $ 7.1 million as of December 31, 2023 and 2022, respectively, in PPP loans administered by the U.S.

40 unchanged sentences

The Company primarily uses a DCF method to estimate the ACL for loans and generally does not record an ACL for the government guaranteed portion of loans.

The increase in the ACL for loans at December 31, 2022, as compared to December 31, 2021 is primarily due to an increase in non-government guaranteed loan balances.

Additionally, the Company forecasted a slight increase in future unemployment rates as of December 31, 2022 as compared to the forecast at December 31, 2021.

The increase in the ACL for loans at December 31, 2023, as compared to December 31, 2022 is primarily due to an increase in non-government guaranteed loan balances as well as a decrease in estimated loan prepayment rates in the DCF model.

This was only partially offset by a improvement in the Company's forecasted economic factors as of December 31, 2023 as compared to the forecast at December 31, 2022.

Credit Quality Information

182 unchanged sentences

Owner occupied properties 271 260 1,457 1,457

Non-owner occupied and multifamily properties — — 274 274

Residential real estate:

4 unchanged sentences

Other construction, land development and raw land loans 1,545 1,545 1,545 1,545

Consumer loans — — — —

Total nonaccrual loans 6,069 5,965 7,076 7,014

2 unchanged sentences

Interest income which would have been earned on nonaccrual loans for 2023, 2022, and 2021 amounted to $ 499,000 , $ 434,000 , and $ 744,000 , respectively.

There was $ 10,000 in interest on nonaccrual loans reversed through interest income in both 2022 and 2021.

There was $ 8,000 and $ 10,000 in interest on nonaccrual loans reversed through interest income in 2023 and 2022, respectively.

There was no interest earned on nonaccrual loans with a principal balance during 2023 or 2022.

However, the Company recognized interest income of $ 2.2 million, $ 1.6 million, and $ 924,000 in 2022, 2021, and 2020, respectively, related to interest collected on nonaccrual loans whose principal has been paid down to zero.

Loans are classified as collateral dependent when it it probable that the Company will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the sale of the collateral.

However, the Company recognized interest income of $ 656,000 , $ 2.2 million, and $ 1.6 million in 2023, 2022, and 2021, respectively, related to interest collected on nonaccrual loans whose principal has been paid down to zero.

Loans are classified as collateral dependent when it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the sale of the collateral.

As of December 31, 2023 and 2022, there are no collateral dependent loans for which foreclosure is probable.

Troubled Debt Restructurings

Loans classified as TDRs totaled $ 5.1 million and $ 10.6 million at December 31, 2022 and 2021, respectively.

A TDR is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession that it would not grant otherwise.

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 December 31, 2022 and 2021, the Company has made the following types of loan modifications related to COVID-19, which are not classified as TDRs with principal balance outstanding of:

Loan Modifications due to COVID-19 as of December 31, 2022

(Dollars in thousands) Interest Only Full Payment Deferral Total

Portfolio loans $ 999 $ — $ 999

Number of modifications 1 — 1

Loan Modifications due to COVID-19 as of December 31, 2021

(Dollars in thousands) Interest Only Full Payment Deferral Total

Portfolio loans $ 49,219 $ — $ 49,219

Number of modifications 16 — 16

The Company has granted a variety of concessions to borrowers in the form of loan modifications.

The modifications granted can generally be described in the following categories:

Rate Modification :

A modification in which the interest rate is changed.

Term Modification :

A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Payment Modification :

A modification in which the dollar amount of the payment is changed, or in which a loan is converted to interest only payments for a period of time is included in this category.

Combination Modification :

Any other type of modification, including the use of multiple categories above.

There were no newly restructured loans that occurred in 2022.

The below disclosed restructurings were not related to COVID-19 modifications:

Accrual Status Nonaccrual Status Total Modifications

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.

As discussed 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 following table shows the amortized cost basis of the loans that were both experiencing financial difficulty and modified as of the dates indicated, by class and type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below:

December 31, 2023

Term Modification Payment Modification Term and payment modifications

Total Modifications Percentage of Class of Financing Receivable

(In Thousands)

Troubled Debt Restructurings $ 291 $ 4,844 $ 5,135

Commercial & industrial loans $ 956 $ 1,985 $ — $ 2,941 0.71 %

Commercial real estate:

Owner occupied properties — — 260 260 0.07 %

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 115 — — 115 0.34 %

1-4 family residential construction loans 109 — — 109 0.35 %

Other construction, land development and raw land loans 968 — 577 1,545 1.04 %

Total $ 2,148 $ 1,985 $ 837 $ 4,970 0.28 %

The following tables present newly restructured loans that occurred during 2021, by concession (terms modified):

The Company has no outstanding commitments to the borrowers included in the previous table.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023:

December 31, 2023

(In Thousands) Number of Contracts Rate Modification Term Modification Payment Modification Combination Modification Total Modifications

Pre-Modification Outstanding Recorded Investment:

Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months)

(In Thousands)

Commercial & industrial loans $ — — % 20

3 unchanged sentences

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — % 5

1-4 family residential construction loans — — % 5

Other construction, land development and raw land loans — — % 5

The Company monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table presents the payment performance of such loans as of the dates indicated that were modified in the last twelve months:

December 31, 2023

30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due

(In Thousands)

Commercial & industrial loans $ — $ — $ 956 $ 956

Commercial real estate:

Owner occupied properties — — 260 260

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — 115 115

1-4 family residential construction loans — — 109 109

Other construction, land development and raw land loans — — 1,545 1,545

Total $ — $ — $ 2,985 $ 2,985

Post-Modification Outstanding Recorded Investment:

The following table presents the amortized cost basis of loans that had a payment default during 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty:

December 31, 2023

Term modification Term and payment modification

(In Thousands)

Commercial & industrial loans $ 956 $ —

3 unchanged sentences

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 115 —

1-4 family residential construction loans 109 —

Other construction, land development and raw land loans 968 577

Total $ 2,148 $ 837

The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified in TDRs at December 31, 2022.

There were zero charge-offs in 2022 and 2021 on loans that were later classified as a TDR.

There were no loans that were restructured during 2022, 2021, or 2020 that also subsequently defaulted within the first twelve months of restructure in those same periods.

Loans to Related Parties

Certain directors, and companies of which directors are principal owners, have loans with the Company.

Certain directors, and companies of which directors are principal owners, and executive officers have loans with the Company.

Such transactions are made on substantially the same terms, including interest rates and collateral required, as those prevailing for similar transactions of unrelated parties.

7 unchanged sentences

Pledged Loans

At December 31, 2022 and 2021, there were no loans pledged as collateral to secure public deposits.

At December 31, 2023, there were no loans pledged as collateral to secure public deposits or available borrowing lines.

At December 31, 2022, $ 44.3 million of loans were pledged as collateral to secure available borrowing lines and there were no loans pledged as collateral to secure public deposits..

NOTE 6 - Purchased Receivables

2 unchanged sentences

Income on purchased receivables is accrued and recognized on the balance 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 December 31, 2022 or 2021.

There was one nonperforming purchased receivable with a balance of $ 808,000 as of December 31, 2023 for which management is not accruing income and no nonperforming purchased receivables as of December 31, 2022.

The following table summarizes the components of net purchased receivables at December 31, for the years indicated:

28 unchanged sentences

Balance of mortgage loans serviced for others $ 1,044,516 $ 898,840

Weighted average rate of note 4.03 % 3.47 %

MSR as a percentage of serviced loans 1.87 % 2.07 %

The Company recognized servicing fees of $ 3.8 million, $ 3.3 million, and $ 2.9 million during 2023, 2022, and 2021, respectively, which includes contractually specified servicing fees and ancillary fees which are included in "Mortgage banking income" as a component of other noninterest income in the Company's Consolidated Statements of Income.

The following table outlines the key assumptions used in measuring the fair value of mortgage servicing rights as of December 31, 2022 and 2021:

Average constant prepayment rate 6.64 % 11.80 %

Average discount rate 11.25 % 8.00 %

Key economic assumptions and the sensitivity of the current fair value for mortgage servicing rights to immediate adverse changes in those assumptions at December 31, 2022 and 2021 were as follows:

(In Thousands) December 31, 2022 December 31, 2021

Aggregate portfolio principal balance $ 898,840 $ 772,764

Weighted average rate of note 3.47 % 3.31 %

December 31, 2022 Base 1.0% Adverse Rate Change 2.0% Adverse Rate Change

Conditional 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 %

December 31, 2021

Conditional prepayment rate 11.80 % 23.59 % 34.57 %

The following table outlines the weighted average key assumptions used in measuring the fair value of MSRs and the sensitivity of the current fair value of MSRs to immediate adverse changes in those assumptions as of the dates indicated.

See Note 24 for additional information on key assumptions for MSRs.

(In Thousands)

December 31, 2023 December 31, 2022

Fair value of MSRs

$ 19,564 $ 18,635

Expected weighted-average life (in years)

Key assumptions:

Constant prepayment rate 1

8.48 % 6.64 %

Impact on fair value from 10% adverse change

($ 1,754 ) ($ 518 )

Impact on fair value from 25% adverse change

($ 2,552 ) ($ 1,233 )

Discount rate

Fair value MSR $ 13,724 $ 9,612 $ 7,256

Percentage of MSR 1.78 % 1.24 % 0.94 %

The above tables show the sensitivity to market rate changes for the par rate coupon for a conventional one-to-four family AHFC/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.

10.98 % 11.25 %

Impact on fair value from 100 basis point increase

($ 811 ) ($ 635 )

Impact on fair value from 200 basis point increase

($ 1,560 ) ($ 1,224 )

Cost to service assumptions ($ per loan)

Impact on fair value from 10% adverse change

($ 160 ) ($ 153 )

Impact on fair value from 25% adverse change

($ 401 ) ($ 382 )

1 Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.

These sensitivities in the preceding table are hypothetical and caution should be exercised when relying on this data.

Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in the value may not be linear.

Also, the effect of a variation in a particular assumption on the value of the MSR held is calculated independently without changing any other assumptions.

In reality, changes in one factor may result in changes in others, which might magnify or counteract the sensitivities.

Commercial servicing rights

Commercial servicing right assets ("CSRs") have a carrying value of $ 2.1 million and $ 1.1 million at December 31, 2022 and 2021, respectively, and total commercial loans serviced for others were $ 285.3 million and $ 259.8 million at December 31, 2022 and 2021, respectively.

CSRs have a carrying value of $ 2.2 million and $ 2.1 million at December 31, 2023 and 2022, respectively, and total commercial loans serviced for others were $ 282.2 million and $ 285.3 million at December 31, 2023 and 2022, respectively.

Key assumptions used in measuring the fair value of CSRs as of December 31, 2023 and 2022 include an average conditional prepayment rate of 11.76 % and 10.19 % and a discount rate of 9.50 % and 12.00 %, respectively.

NOTE 8 - Other Real Estate Owned

At December 31, 2022 and 2021, the Company held zero and $ 5.6 million, respectively, as OREO.

At December 31, 2023 and 2022, the Company held zero assets, respectively, as OREO.

The following table details net operating (income) expense related to OREO for the years indicated:

3 unchanged sentences

OREO operating expense $ 16 $ 634 $ 777

Impairment on OREO 123 — —

Rental income on OREO ( 4 ) ( 548 ) ( 524 )

Losses/ (gains) on sale of OREO 414 ( 685 ) ( 391 )

(Gains)/ losses on sale of OREO

( 929 ) 414 ( 685 )

Total ($ 794 ) $ 500 ($ 432 )

44 unchanged sentences

Item 8 of this report.

At December 31, 2022, the Company performed its annual impairment test using a qualitative assessment.

Significant positive inputs to the qualitative assessment included the Company’s increasing net income as compared to historical trends;

the Company's increasing market share for deposits in our markets;

results of regulatory examinations;

peer comparisons of the Company's net interest margin;

trends in the Company’s cash flows;

improvements in the Alaskan economy in 2022;

increases in the Company's market share of mortgage originations;

and increases in the Company's stock price.

Significant negative inputs to the qualitative assessment included the muted pace of growth in the Alaskan economy and a decline in home mortgage originations.

We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs, and we therefore concluded that it is more likely than not that no impairment existed at that time.

The Company recorded amortization expense of its intangible assets of $ 17,000 , $ 25,000 , and $ 37,000 for the years ended December 31, 2023, 2022, and 2021, respectively.

Accumulated amortization for intangible assets was $ 6.0 million at both December 31, 2022 and 2021.

The future amortization expense required on these assets is as follows:

(In Thousands)

Accumulated amortization for intangible assets was $ 6.1 million and $ 6.0 million at December 31, 2023 and 2022, respectively.

NOTE 12 - Other Assets

16 unchanged sentences

Low Income Housing Partnerships:

The following table shows the Company's commitments to invest in various low income housing tax credit partnerships.

The following table shows the Company's commitments to invest in various LIHTC partnerships.

The Company earns a return on its investments in the form of tax credits and deductions that flow through to it as a limited partner in these partnerships.

10 unchanged sentences

R4 - Duke Apartments November 2019 17 3,985 ( 3,768 ) 217

R4 - Aspen House July 2023 17 8,534 ( 632 ) 7,902

R4 - Old Mat II July 2023 17 5,739 ( 525 ) 5,214

Total $ 57,152 ($ 43,191 ) $ 13,961

10 unchanged sentences

At December 31, 2023 and 2022, the Company held $ 3.5 million and $ 3.8 million, respectively, in deposits for related parties, including directors, executive officers, and their affiliates.

At December 31, 2022 and 2021, the Company reclassified $ 1.3 million and $ 163,000 , respectively, in overdrafts from deposits to loans.

At December 31, 2023 and 2022, the Company reclassified $ 259,000 and $ 1.3 million, respectively, in overdrafts from deposits to loans.

NOTE 14 - Borrowings

The Company has a maximum line of credit with the FHLB approximating 45 % of eligible assets.

The Company has a maximum line of credit with the FHLB approximating 45 % of eligible assets, however the Company is subject to provisions under Alaska state law, which generally limit the amount of the Bank's outstanding debt to 35 % of total assets or $ 975.9 million at December 31, 2023 and $ 929.3 million at December 31, 2022.

FHLB advances are subject to collateral criteria that require the Company to pledge assets under a blanket pledge arrangement as collateral for its borrowings from the FHLB.

3 unchanged sentences

These advances have original terms of either 18 or 20 years with 30 year amortization periods and fixed interest rates ranging from 1.23 % to 3.25 %.

The Federal Reserve Bank is holding $ 44.3 million of loans as collateral to secure available borrowing lines through the discount window of $ 31.6 million at December 31, 2022.

The Federal Reserve Bank is holding $ 60 million of securities as collateral to secure available borrowing lines through the discount window of $ 58.3 million at December 31, 2023.

There were no discount window advances outstanding at December 31, 2023 and 2022.

The Company paid less than $ 1,000 in interest in 2023 and 2022 on this agreement.

The Company is subject to provisions under Alaska state law, which generally limit the amount of the Bank's outstanding debt to 35 % of total assets or $ 929.3 million at December 31, 2022 and $ 948.0 million at December 31, 2021.

The Federal Reserve Bank is holding $ 20 million of investment securities as collateral to secure the Company's ability to take advances through the Federal Reserve Bank's Bank Term Funding Program (“BTFP”) as of December 31, 2023.

There were no BTFP advances outstanding at December 31, 2023.

Securities sold under agreements to repurchase were zero for both December 31, 2023 and 2022.

3 unchanged sentences

Total $ 13,675

The Company recognized interest expense of $ 320,000 , $ 320,000 , and $ 387,000 on borrowings and securities sold under repurchase agreements in 2022, 2021, and 2020, respectively.

The Company recognized interest expense of $ 1.8 million, $ 339,000 , and $ 320,000 on borrowings and securities sold under repurchase agreements in 2023, 2022, and 2021, respectively.

The average interest rates paid on long-term debt in the same periods was 4.24 %, 2.92 %, and 2.90 %, respectively.

6 unchanged sentences

therefore, the Company has recorded its investment in Trust 2 as an other asset and the subordinated debentures as a liability.

The debentures, which represent the sole asset of Trust 2, accrue and pay distributions quarterly at a variable rate of 90 -day LIBOR plus 1.37 % per annum, adjusted quarterly, of the stated liquidation value of $ 1,000 per capital security.

The debentures, which represent the sole asset of Trust 2, accrue and pay distributions quarterly at a variable rate of 90 -day CME SOFR plus tenor spread adjustment 0.26 % plus 1.37 % per annum, adjusted quarterly, of the stated liquidation value of $ 1,000 per capital security as of December 31, 2023.

The debentures accrued and paid distributions quarterly at a variable rate of 90 -day LIBOR plus 1.37 % per annum, adjusted quarterly, of the stated liquidation value of $ 1,000 per capital security through the cessation of LIBOR in 2023.

The interest rate on these debentures was 7.02 % at December 31, 2023 compared to 6.14 % at December 31, 2022.

26 unchanged sentences

The Bank or RML may increase the matching contribution at the discretion of the Board of Directors.

The Company expensed $ 2.1 million, $ 1.8 million, and $ 1.7 million, in 2022, 2021, and 2020, respectively, for 401(k) contributions and included this expense in "Salaries and other personal expense" in the Consolidated Statements of Income.

The Company expensed $ 2.0 million, $ 2.1 million, and $ 1.8 million, in 2023, 2022, and 2021, respectively, for 401(k) contributions and included this expense in "Salaries and other personnel expense" in the Consolidated Statements of Income.

On July 1, 1994, the Bank implemented a Supplemental Executive Retirement Plan for executive officers of the Bank whose retirement benefits under the 401(k) plan have been limited under provisions of the Code.

2 unchanged sentences

At December 31, 2023 and 2022, the balance of the accrued liability for this plan was included in "Other liabilities" and totaled $ 2.4 million and $ 2.1 million, respectively.

RML has established a Supplemental Executive Retirement Plan ("SERP"), under which RML has agreed to make payment to certain key executives, based on contributions made by RML to the plan.

Contributions and earnings made to the participant accounts to the SERP are vested over ten years .

RML has established a non-qualified deferred compensation plan ("DCP"), under which RML has agreed to make payment to certain key executives and loan officers, based on contributions made by RML to the plan.

Contributions and earnings made to the participant accounts for the DCP are vested over ten years .

The Company recorded expenses of $ 333,000 , $ 516,000 , and $ 959,000 in 2023, 2022, and 2021, respectively.

RML's recorded obligation under the SERP amounted to $ 3.1 million and $ 3.0 million at December 31, 2022 and 2021, respectively, and was included in "Other liabilities".

In February of 2002, Northrim Bank implemented a non-qualified deferred compensation plan in which certain of the executive officers participate.

Northrim Bank's net liability under this plan is dependent upon market gains and losses on assets held in the plan.

Northrim Bank recognized a decrease in its liability of $ 51,000 in 2022, an increase in its liability of $ 173,000 in 2021, and an increase in its liability of $ 78,000 in 2020.

RML's recorded obligation under the DCP amounted to $ 1.9 million and $ 3.1 million at December 31, 2023 and 2022, respectively, and was included in "Other liabilities".

In February of 2002, the Bank implemented a non-qualified deferred compensation plan in which certain of the executive officers participate.

The Bank's net liability under this plan is dependent upon market gains and losses on assets held in the plan.

The Bank recognized a decrease in its liability of $ 10,000 in 2023, a decrease in its liability of $ 51,000 in 2022, and an increase in its liability of $ 173,000 in 2021.

These changes are included in "Salaries and other personnel expense" in the Consolidated Statements of Income.

At both December 31, 2023 and 2022, the balance of the accrued liability for this plan was included in "Other liabilities" and totaled $ 1.8 million.

In November of 2011, Northrim Bank implemented a Profit Sharing Plan.

In November of 2011, the Bank implemented a Profit Sharing Plan.

All employees of the Bank employed on the last day of the calendar year are eligible and will participate in the Profit Sharing Plan.

3 unchanged sentences

The Compensation Committee has complete discretion to designate an employee as ineligible for profit sharing, or to adjust the amount of profit share payments by individual employee or in aggregate.

The Compensation Committee approved management’s recommendation based upon the calculated payout under the Profit Sharing Plan’s methodology resulting in aggregate payouts of $ 3.8 million, $ 4.2 million, and $ 3.7 million for 2022, 2021, and 2020, respectively.

Profit share expense was $ 2.5 million, $ 3.8 million, and $ 4.2 million for 2023, 2022, and 2021, respectively.

At December 31, 2023 and 2022, the Company had accrued $ 1.6 million and $ 1.4 million, respectively, related to employee's paid time off benefit.

30 unchanged sentences

Mortgage loans sold to investors may be sold with servicing rights released, for which the Company makes only standard legal representations and warranties as to meeting certain underwriting and collateral documentation standards.

In the past two years, the Company has had to repurchase sixteen loans due to deficiencies in underwriting or loan documentation and has not realized significant losses related to these loans.

In the past two years, the Company has had to repurchase eighteen loans due to deficiencies in underwriting or loan documentation and has not realized significant losses related to these loans.

Management believes that any liabilities that may result from such recourse provisions are not significant.

10 unchanged sentences

Contingencies:

At December 31, 2022, the Company holds a government guarantee related to the OREO property that was sold in December 2022, however, the value of this guarantee has not been included in the Company's financial statements in 2022 due to uncertainty as to the total amount that will be received from the guarantee.

The Company expects to receive proceeds related to this government guarantee in 2023, which will be recorded in other operating income upon receipt.

At December 31, 2022, the Company held a government guarantee related to the OREO property that was sold in December 2022, however, the value of this guarantee was not included in the Company's financial statements in 2022 due to uncertainty as to the total amount that will be received from the guarantee.

The Company received $ 929,000 related to this government guarantee in 2023, which was recorded in other operating expense upon receipt.

The Company received an additional $ 392,000 in January 2024.

No further proceeds are expected.

NOTE 19 - Derivatives

Interest rate swaps related to community banking activities

The Company enters into commercial loans interest rate swaps with commercial banking customers which are offset with a corresponding swap agreement with a third party financial institution (“counterparty”).

The Company enters into commercial loan interest rate swaps 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, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

1 unchanged sentence

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 $ 553,000 and $ 8.2 million in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements as of December 31, 2022 and 2021, respectively.

The Company pledged $ 566,000 and $ 553,000 in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements as of December 31, 2023 and 2022, respectively.

The Company had interest rate swaps related to commercial loans with an aggregate notional amount of $ 218.0 million and $ 226.2 million at December 31, 2023 and 2022, respectively.

7 unchanged sentences

The interest rate swap effectively fixes the Company's interest payments on the $ 10.0 million of junior subordinated debentures held under 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.

The floating rate that the dealer pays was equal to the three month LIBOR plus 1.37 % through September 15, 2023.

The floating rate that the dealer pays is now equal to the three month CME SOFR plus tenor spread adjustment 0.26 % plus 1.37 %, which reprices quarterly on the payment date.

This rate was 7.02 % as of December 31, 2023.

The Company pledged $ 130,000 and $ 2.9 million in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of December 31, 2022 and 2021, respectively.

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 December 31, 2023 and 2022, respectively.

Changes in the fair value of this interest rate swap are reported in other comprehensive income.

6 unchanged sentences

Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates.

At December 31, 2022 and 2021, RML had commitments to originate mortgage loans held for sale

totaling $ 29.1 million and $ 81.6 million, respectively.

At December 31, 2023 and 2022, RML had commitments to originate mortgage loans held for sale totaling $ 22.9 million and $ 29.1 million, respectively.

Changes in the value of RML's interest rate derivatives are recorded in mortgage banking income on the Consolidated Statements of Income.

19 unchanged sentences

Total $ 69 $ 3,469

Our derivative transactions with counterparties under International Swaps and Derivative Association master agreements that include “right of set-off” provisions.

Our derivative transactions with counterparties under International Swaps and Derivatives 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.

17 unchanged sentences

Quarterly cash dividends were paid aggregating to $ 13.6 million, $ 10.6 million, and $ 9.4 million, or $ 2.40 per share, $ 1.82 per share, and $ 1.50 per share, in 2023, 2022, and 2021, respectively.

On February 24, 2023, the Company announced that its Board of Directors declared a $ 0.60 per share cash dividend payable on March 17, 2023, to shareholders of record on March 9, 2023.

On January 26, 2024, the Company announced that its Board of Directors declared a $ 0.61 per share cash dividend payable on March 15, 2024, to shareholders of record on March 7, 2024.

Federal and State regulations place certain limitations on the payment of dividends by the Company.

At December, 31, 2022, there were no shares available under the stock repurchase program.

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

The Company intends to continue to repurchase its stock from time to time depending upon market conditions.

The Company can make no assurances that it will continue this program or that it will authorize additional shares for repurchase.

During 2022, 2021 and 2020, 333,724 , 279,276 and 327,000 shares of common stock were repurchased, respectively.

NOTE 21 - Stock-Based Compensation

The Company adopted the 2020 Stock Option Plan (“2020 Plan”) following shareholder approval of the 2020 Plan at the 2020 Annual Meeting.

The Company adopted the 2023 Stock Incentive Plan (“2023 Plan”) following shareholder approval of the 2023 Plan at the 2023 Annual Meeting.

Subsequent to the adoption of the 2023 Plan, no additional grants may be issued under the prior plans.

The 2020 Plan provides for grants of up to 325,000 shares, which includes any shares subject to stock awards under the Company's previous stock option plans.

The 2023 Plan provides for grants of up to 325,000 shares, which includes any shares subject to stock awards under the Company's previous stock incentive plans.

Stock Options:

Under the 2020 Plan and previous plans, certain key employees have been granted the option to purchase set amounts of common stock at the market price on the day the option was granted.

Under the 2020 Stock Incentive Plan and previous plans, certain key employees have been granted the option to purchase set amounts of common stock at the market price on the day the option was granted.

Optionees, at their own discretion, may pay cash to cover the cost of exercise, may cover the cost of exercise through the exchange at the then fair value of already owned shares of the Company’s stock, or they may cover the cost of exercise through net settlement of a portion of the stock options exercised in satisfaction of the exercise price and applicable tax withholding requirements.

11 unchanged sentences

2023 2022 2021

Grant date fair value NA $ 10.27 $ 6.55

Expected life of options NA 8 years 8 years

Risk-free interest rate NA 1.33 % 0.79 %

Dividend yield rate NA 3.86 % 4.55 %

Price volatility NA 36.46 % 35.44 %

Grant date fair value NA NA $ 10.27

Expected life of options NA NA 8 years

Risk-free interest rate NA NA 1.33 %

Dividend yield rate NA NA 3.86 %

Price volatility NA NA 36.46 %

The following table summarizes stock option activity during 2023:

7 unchanged sentences

This amount changes based on the fair value of the Company’s stock.

The total intrinsic value of options outstanding and exercisable as of December 31, 2022, 2021, and 2020 was $ 2.2 million, $ 1.2 million, and $ 682,000 , respectively.

The total intrinsic value of options exercised for the years ended December 31, 2022, 2021, and 2020 was $ 307,000 , $ 969,000 , and zero , respectively.

The total intrinsic value of options outstanding and exercisable as of December 31, 2023, 2022, and 2021 was $ 2.3 million, $ 2.2 million, and $ 1.2 million, respectively.

The total intrinsic value of options exercised for the years ended December 31, 2023, 2022, and 2021 was $ 355,000 , $ 307,000 , and $ 969,000 , respectively.

As noted above, the Company allows stock options to be exercised through cash or cashless transactions.

In each of 2023, 2022, and 2021 the Company received no cash for cash stock option exercises.

In 2022, 2021, and 2020 the Company net settled $ 475,000 , $ 1.4 million, and zero respectively, for cashless stock option exercises.

The Company withheld $ 559,000 , $ 1.7 million, and zero to pay for stock option exercises or income taxes that resulted from the exercise of stock options in 2022, 2021, and 2020, respectively.

For the years ended December 31, 2022, 2021 and 2020, the Company recognized $ 108,000 , $ 173,000 , and $ 148,000 , respectively, in stock option compensation expense as a component of "Salaries and other personnel expense".

December 31, 2022, there was approximately $ 110,000 of total unrecognized compensation expense related to non-vested options, which is expected to be recognized over the weighted-average vesting period of 1.6 years.

In 2023, 2022, and 2021 the Company net settled $ 445,000 , $ 475,000 , and $ 1.4 million respectively, for cashless stock option exercises.

The Company withheld $ 534,000 , $ 559,000 , and $ 1.7 million to pay for stock option exercises or income taxes that resulted from the exercise of stock options in 2023, 2022, and 2021, respectively.

For the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 74,000 , $ 108,000 , and $ 173,000 , respectively, in stock option compensation expense.

As of December 31, 2023, there was approximately $ 36,000 of total unrecognized compensation expense related to non-vested options, which is expected to be recognized over the weighted-average vesting period of 0.9 years.

Restricted Stock Units:

Under the 2020 Plan and previous plans, the Company grants restricted stock units to certain key employees periodically.

Under the 2023 Plan, the Company grants restricted stock units to certain key employees periodically.

Recipients of restricted stock units do not pay any cash consideration to the Company for the shares and receive all dividends with respect to such shares when the shares vest.

3 unchanged sentences

Outstanding at January 1, 2023 38,502 $ 34.12

Granted 25,280 45.43

Dividend equivalents awarded 2,826 —

2 unchanged sentences

Outstanding at December 31, 2023 43,028 $ 41.32 1.98

The total intrinsic value of restricted stock units vested for the years ended December 31, 2022, 2021, and 2020 was $ 1.1 million, $ 1.3 million, and $ 735,000 , respectively.

For the years ended December 31, 2022, 2021 and 2020, the Company recognized $ 634,000 , $ 900,000 , and $ 795,000 , respectively, in restricted stock unit compensation expense as a component of "Salaries and other personnel expense".

The total intrinsic value of restricted stock units vested for the years ended December 31, 2023, 2022, and 2021 was $ 1.1 million, $ 1.1 million, and $ 1.3 million, respectively.

For the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 751,000 , $ 634,000 , and $ 900,000 , respectively, in restricted stock unit compensation expense.

As of December 31, 2023, there was approximately $ 955,000 of total unrecognized compensation expense related to non-vested options, which is expected to be recognized over the weighted-average vesting period of 2.0 years.

Performance Stock Units:

Under the 2023 Plan and previous plans, the Company grants performance stock units to certain key employees periodically.

Recipients of performance stock units do not pay any cash consideration to the Company for the shares and receive all dividends with respect to such shares when the shares vest.

Performance stock units cliff vest at the end of a three-year time period if the performance criteria are met.

The following table summarizes performance stock unit activity during 2023:

Number of Shares Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Life, in Years

Outstanding at January 1, 2023 — $ —

Granted 9,453 45.43

Dividend equivalents awarded 393 —

Forfeited — —

Outstanding at December 31, 2023 9,846 $ 43.62 2.23

The Company recognized $ 111,000 for the year ended December 31, 2023 in performance stock unit compensation expense and zero for the years ended December 31, 2022 and 2021.

As of December 31, 2023, there was approximately $ 318,000 of total unrecognized compensation expense related to non-vested options, which is expected to be recognized over the weighted-average vesting period of 2.2 years.

NOTE 22 - Regulatory Matters

58 unchanged sentences

Amortization of investment in low income housing tax credit partnerships, net 3,192 3,191 3,163

Low income housing credits ( 3,725 ) ( 3,694 ) ( 3,168 )

Low income housing tax credits

( 3,627 ) ( 3,725 ) ( 3,694 )

Other ( 427 ) ( 670 ) ( 1,009 )

29 unchanged sentences

As of December 31, 2023, the Company had no unrecognized tax benefits.

In 2020 the Company reversed an accrual of $ 454,000 for a potential increase in tax expense that was recorded in 2019 related to an audit that was performed in 2018 by the State of Alaska for tax years 2014-2016.

The Company appealed the initial audit decision and the appeal was ruled in the Company's favor in the first quarter of 2021.

The tax years subject to examination by federal taxing authorities are the years ending December 31, 2023, 2022, 2021, and 2020.

9 unchanged sentences

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.

Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates, and ancillary fee income net of servicing costs.

The model assumptions are also compared to publicly filed information from several large MSR holders, as available.

14 unchanged sentences

Any nonrecurring adjustments to fair value usually result from the writedown of individual assets.

The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and loan individually evaluated for credit losses as of each reporting date.

The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and loans individually evaluated for credit losses as of each reporting date.

In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs.

27 unchanged sentences

Interest rate swaps 11,836 11,836 14,179 14,179

Retail interest rate contracts — — 166 166

Level 3 inputs:

46 unchanged sentences

Commercial servicing rights 2,129 — — 2,129

Retail interest rate contracts 166 — 166 —

Total other assets $ 35,382 $ — $ 14,178 $ 21,204

18 unchanged sentences

Loans individually measured for credit losses $ — $ — $ — $ —

Other real estate owned — — — —

Total $ — $ — $ — $ —

1 unchanged sentence

Loans individually measured for credit losses $ — $ — $ — $ —

Other real estate owned — — — —

Total $ — $ — $ — $ —

2 unchanged sentences

Loans individually measured for credit losses $ — $ — ($ 13 )

Other real estate owned 123 — —

Total (income) loss from nonrecurring measurements $ 123 $ — ($ 13 )

1 unchanged sentence

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 December 31, 2023 and 2022:

Financial Instrument Valuation Technique Unobservable Input Weighted Average or Rate Range

Financial Instrument Valuation Technique - Recurring Basis Unobservable Input Weighted Average or Rate Range

December 31, 2023

25 unchanged sentences

Other operating expense 70,684 23,497 94,181

Income before provision for income taxes 39,679 ( 1,185 ) 38,494

Income (loss) before provision for income taxes 35,044 ( 3,436 ) 31,608

Provision for income taxes 7,157 ( 943 ) 6,214

Net income $ 31,638 ($ 897 ) $ 30,741

Net income (loss) $ 27,887 ($ 2,493 ) $ 25,394

Total assets $ 2,539,791 $ 267,706 $ 2,807,497

5 unchanged sentences

Net interest income 92,922 2,193 95,115

Benefit for credit losses ( 4,099 ) — ( 4,099 )

Provision for credit losses 1,846 — 1,846

Other operating income 12,505 21,572 34,077

Other operating expense 63,902 24,950 88,852

Income before provision for income taxes 33,651 14,342 47,993

Income (loss) before provision for income taxes 39,679 ( 1,185 ) 38,494

Provision for income taxes 8,041 ( 288 ) 7,753

Net income $ 27,183 $ 10,334 $ 37,517

Net income (loss) $ 31,638 ($ 897 ) $ 30,741

Total assets $ 2,543,086 $ 131,232 $ 2,674,318

5 unchanged sentences

Net interest income 78,080 2,747 80,827

Provision for credit losses 2,432 — 2,432

Benefit for credit losses

( 4,099 ) — ( 4,099 )

Other operating income 10,119 42,144 52,263

Compensation expense, RML acquisition payments — — —

Other operating expense 58,647 30,549 89,196

66 unchanged sentences

Cash and Cash Equivalents at end of year $ 19,055 $ 30,883 $ 35,546

NOTE 27 - Subsequent Events

In February 2023, Homestate Mortgage, LLC (“Homestate”) announced that it has ceased operations and the business has closed.

As discussed in Note 1 above, the Company accounts for it's 30 % interest in Homestate using the equity method of accounting.

As of December 31, 2022, the Company's investment in Homestate is $ 556,000 .

As of December 31, 2022, Homestate has total assets of $ 2.1 million, total liabilities of $ 285,000 , and total equity of $ 1.9 million.

Pretax (loss) income from Homestate included in the Company's Statements of Consolidated Net Income for 2022, 2021, and 2020 is ($ 191,000 ), $ 302,000 , and $ 492,000 , respectively.

As of March 6, 2023, the Company has no liabilities related to the closing of Homestate, and we expect to recover the book value of our investment when Homestate is legally dissolved and its assets liquidated over the statutory three-year winding up period.

The Company does not consider the disposition of its investment in Homestate to be significant to the Company's operations, and it does not have a material impact on the Company's consolidated financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data