NORTHRIM BANCORP INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following report, audited consolidated financial statements and the notes thereto are set forth in this Annual Report on Form 10-K on the pages indicated: Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , Everett, Washington , PCAOB ID: 659 ) 69 Consolidated Balance Sheets at December 31, 202 3 and 202 2 71 For the Years Ended December 2023, 2022 and 2021: Consolidated Statements of Income 72 Consolidated Statements of Comprehensive Income 73 Consolidated Statements of Changes in Shareholders’ Equity 74 Consolidated Statements of Cash Flows 75 Notes to the Consolidated Financial Statements 77 68 Report of Independent Registered Public Accounting Firm The Shareholders and the Board of Directors of Northrim BanCorp, Inc. and Subsidiaries Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Northrim BanCorp, Inc. 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). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 69 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 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 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. The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of loans. Historical loss experience is the starting point for estimating expected credit losses. 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. 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 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 Everett, Washington March 8, 2024 We have served as the Company’s auditor since 2010. 70 CONSOLIDATED FINANCIAL STATEMENTS NORTHRIM BANCORP, INC. Consolidated Balance Sheets December 31, 2023 and 2022 December 31, 2023 December 31, 2022 (In Thousands, Except Share Data) ASSETS Cash and due from banks $ 27,457 $ 27,747 Interest bearing deposits in other banks 91,073 231,603 Investment securities available for sale, at fair value 637,936 677,029 Marketable equity securities 13,153 10,740 Investment securities held to maturity, at amortized cost 36,750 36,750 Investment in Federal Home Loan Bank stock, at cost 2,980 3,816 Loans held for sale 31,974 27,538 Loans 1,789,497 1,501,785 Allowance for credit losses, loans ( 17,270 ) ( 13,838 ) Net loans 1,772,227 1,487,947 Purchased receivables, net 36,842 19,994 Mortgage servicing rights, at fair value 19,564 18,635 Premises and equipment, net 40,693 37,821 Operating lease right-of-use assets 9,092 9,868 Goodwill 15,017 15,017 Other intangible assets, net 950 967 Other assets 71,789 68,846 Total assets $ 2,807,497 $ 2,674,318 LIABILITIES Deposits: Demand $ 749,683 $ 797,434 Interest-bearing demand 927,291 767,686 Savings 255,338 320,917 Money market 221,492 308,317 Certificates of deposit less than $250,000 189,106 115,330 Certificates of deposit $250,000 and greater 142,145 77,527 Total deposits 2,485,055 2,387,211 Borrowings 13,675 14,095 Junior subordinated debentures 10,310 10,310 Operating lease liabilities 9,092 9,865 Other liabilities 54,647 34,208 Total liabilities 2,572,779 2,455,689 COMMITMENTS AND CONTINGENCIES (NOTE 18) SHAREHOLDERS' EQUITY Preferred stock, $ 1 par value, 2,500,000 shares authorized, none issued or outstanding — — Common stock, $ 1 par value, 10,000,000 shares authorized, 5,513,459 and 5,700,728 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively 5,513 5,701 Additional paid-in capital 9,605 17,784 Retained earnings 236,037 224,225 Accumulated other comprehensive (loss), net of tax ( 16,437 ) ( 29,081 ) Total shareholders' equity 234,718 218,629 Total liabilities and shareholders' equity $ 2,807,497 $ 2,674,318 See notes to consolidated financial statements 71 NORTHRIM BANCORP, INC. Consolidated Statements of Income Years Ended December 31, 2023, 2022, and 2021 (In Thousands, Except Share and Per Share Data) 2023 2022 2021 Interest and Dividend Income Interest and fees on loans and loans held for sale $ 108,612 $ 82,785 $ 79,241 Interest on investment securities available for sale 15,833 9,679 3,339 Dividends on marketable equity securities 766 563 440 Interest on investment securities held to maturity 1,893 1,511 1,037 Dividends on Federal Home Loan Bank stock 203 125 102 Interest on deposits in other banks 4,644 5,665 447 Total Interest Income 131,951 100,328 84,606 Interest Expense Interest expense on deposits 26,511 4,485 3,077 Interest expense on borrowings 1,784 339 320 Interest expense on junior subordinated debentures 400 389 382 Total Interest Expense 28,695 5,213 3,779 Net Interest Income 103,256 95,115 80,827 Provision (benefit) for credit losses 3,842 1,846 ( 4,099 ) Net Interest Income After Provision (Benefit) for Credit Losses 99,414 93,269 84,926 Other Operating Income Mortgage banking income 12,763 21,572 42,144 Purchased receivable income 4,482 2,002 2,259 Bankcard fees 3,862 3,697 3,389 Service charges on deposit accounts 2,044 1,611 1,297 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 Other income 2,550 2,684 2,902 Total Other Operating Income 26,375 34,077 52,263 Other Operating Expense Salaries and other personnel expense 61,741 58,172 60,412 Data processing expense 9,821 8,926 8,567 Occupancy expense 7,394 6,915 7,078 Professional and outside services 3,128 2,993 2,801 Marketing expense 2,929 2,747 2,741 Insurance expense 2,519 2,054 1,593 OREO (income) expense, net of rental income and gains on sale ( 794 ) 500 ( 432 ) Intangible asset amortization expense 17 25 37 Other operating expense 7,426 6,520 6,399 Total Other Operating Expense 94,181 88,852 89,196 Income Before Provision for Income Taxes 31,608 38,494 47,993 Provision for income taxes 6,214 7,753 10,476 Net Income $ 25,394 $ 30,741 $ 37,517 Earnings Per Share, Basic $ 4.53 $ 5.33 $ 6.07 Earnings Per Share, Diluted $ 4.49 $ 5.27 $ 6.00 Weighted Average Shares Outstanding, Basic 5,601,471 5,765,088 6,180,801 Weighted Average Shares Outstanding, Diluted 5,661,460 5,829,412 6,249,313 See notes to consolidated financial statements 72 NORTHRIM BANCORP, INC. Consolidated Statements of Comprehensive Income Years Ended December 31, 2023, 2022, and 2021 2010 (In Thousands) 2023 2022 2021 Net income $ 25,394 $ 30,741 $ 37,517 Other comprehensive income (loss), net of tax: Securities available for sale: Unrealized holding gains (losses) arising during the period $ 17,755 ($ 38,283 ) ($ 5,564 ) Derivatives and hedging activities: 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 See notes to consolidated financial statements 73 NORTHRIM BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 31, 2023, 2022, and 2021 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Number of Shares Par Value (In Thousands) Balance at January 1, 2021 6,251 $ 6,251 $ 41,808 $ 173,498 $ 18 $ 221,575 Cash dividend declared — — — ( 9,369 ) — ( 9,369 ) Stock-based compensation expense — — 1,073 — — 1,073 Exercise of stock options and vesting of restricted stock units, net 43 43 ( 464 ) — — ( 421 ) Repurchase of common stock ( 279 ) ( 279 ) ( 11,255 ) — — ( 11,534 ) Other comprehensive (loss), net of tax — — — — ( 3,424 ) ( 3,424 ) Cumulative effect of adoption of ASU 2016-13 — — — 2,400 — 2,400 Net income — — — 37,517 — 37,517 Balance at December 31, 2021 6,015 $ 6,015 $ 31,162 $ 204,046 ($ 3,406 ) $ 237,817 Cash dividend declared — — — ( 10,562 ) — ( 10,562 ) Stock-based compensation expense — — 742 — — 742 Exercise of stock options and vesting of restricted stock units, net 20 20 ( 297 ) — — ( 277 ) Repurchase of common stock ( 334 ) ( 334 ) ( 13,823 ) — — ( 14,157 ) Other comprehensive (loss), net of tax — — — — ( 25,675 ) ( 25,675 ) Net income — — — 30,741 — 30,741 Balance at December 31, 2022 5,701 $ 5,701 $ 17,784 $ 224,225 ($ 29,081 ) $ 218,629 Cash dividend declared — — — ( 13,582 ) — ( 13,582 ) Stock-based compensation expense — — 937 — — 937 Exercise of stock options and vesting of restricted stock units, net 21 21 ( 281 ) — — ( 260 ) Repurchase of common stock ( 209 ) ( 209 ) ( 8,835 ) — — ( 9,044 ) Other comprehensive income, net of tax — — — — 12,644 12,644 Net income — — — 25,394 — 25,394 Balance at December 31, 2023 5,513 $ 5,513 $ 9,605 $ 236,037 ($ 16,437 ) $ 234,718 See notes to consolidated financial statements 74 NORTHRIM BANCORP, INC. Consolidated Statements of Cash Flows Years Ended December 31, 2023, 2022, and 2021 (In Thousands) 2023 2022 2021 Operating Activities: Net income $ 25,394 $ 30,741 $ 37,517 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Gain on sale of securities, net — — ( 67 ) Depreciation and amortization of premises 3,294 3,139 3,276 Amortization of software 1,153 1,164 1,161 Intangible asset amortization 17 25 37 Amortization of investment security premium, net of discount accretion 483 630 529 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 Deferral of loan fees and amortization, net of costs ( 54 ) ( 2,933 ) ( 192 ) Provision (benefit) for credit losses 3,842 1,846 ( 4,099 ) Additions to home mortgage servicing rights carried at fair value ( 3,616 ) ( 4,623 ) ( 6,088 ) Change in fair value of home mortgage servicing rights carried at fair value 2,687 ( 288 ) 3,582 Change in fair value of commercial servicing rights carried at fair value 62 ( 809 ) 437 Gain on sale of loans ( 7,828 ) ( 13,873 ) ( 36,436 ) Proceeds from the sale of loans held for sale 379,546 645,518 1,227,150 Origination of loans held for sale ( 376,154 ) ( 585,533 ) ( 1,118,186 ) (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: (Increase) decrease in accrued interest receivable ( 2,021 ) ( 3,091 ) 1,133 Decrease (increase) in other assets 4,344 5,528 12,739 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: Investment in securities: Purchases of investment securities available for sale ( 26,030 ) ( 302,668 ) ( 320,501 ) Purchases of marketable equity securities ( 2,297 ) ( 3,934 ) ( 493 ) Purchases of FHLB stock ( 5,703 ) ( 730 ) ( 573 ) Purchases of investment securities held to maturity — ( 16,750 ) ( 10,000 ) Proceeds from sales/calls/maturities of securities available for sale 82,398 13,417 135,365 Proceeds from sales of marketable equity securities — 488 1,084 Proceeds from redemption of FHLB stock 6,539 21 17 (Increase) decrease in purchased receivables, net ( 16,848 ) ( 13,007 ) 6,935 (Increase) decrease in loans, net ( 287,893 ) ( 83,839 ) 28,975 Proceeds from sale of other real estate owned 1,079 5,224 2,610 Purchases of software ( 150 ) ( 51 ) ( 170 ) Purchases of premises and equipment ( 6,166 ) ( 3,796 ) ( 2,338 ) Net Cash (Used) by Investing Activities ( 255,071 ) ( 405,625 ) ( 159,089 ) Financing Activities: Increase (decrease) in deposits 97,844 ( 34,420 ) 596,650 Proceeds from borrowings 194,500 — — Repayments of borrowings ( 194,920 ) ( 413 ) ( 309 ) Proceeds from the issuance of common stock 555 586 1,543 Repurchase of common stock ( 9,044 ) ( 14,157 ) ( 11,534 ) Cash dividends paid ( 13,609 ) ( 10,571 ) ( 9,388 ) 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 Cash and Cash Equivalents at Beginning of Year 259,350 645,827 115,965 Cash and Cash Equivalents at End of Year $ 118,530 $ 259,350 $ 645,827 75 Supplemental Information: Income taxes paid $ 2,032 $ 2,015 $ 6,380 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 Loans made to facilitate sales of other real estate owned $ — $ — $ 1,012 Non-cash lease liability arising from obtaining right of use assets $ 423 $ 1,128 $ 79 Cash dividends declared but not paid $ 110 $ 85 $ 92 Cumulative effect adjustment to retained earnings $ — $ — $ 2,400 See notes to consolidated financial statements 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Summary of Significant Accounting Policies Nature of Operations: Northrim BanCorp, Inc. (the “Company”), is a publicly traded bank holding company headquartered in Anchorage, Alaska that is primarily engaged in the delivery of business and personal banking services through its wholly-owned banking subsidiary, Northrim Bank (“the Bank”). The Bank also engages in retail mortgage origination services through its wholly-owned subsidiary, Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively “RML”). Additionally, the Bank through its wholly-owned subsidiary, Northrim Funding Services (“NFS”), operates a factoring division in Bellevue, Washington. 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: The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States and prevailing practices within the banking industry. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income, gains, expenses, and losses during the reporting periods. Actual results could differ from those estimates. Significant estimates include the allowance for credit losses (“ACL”), valuation of goodwill and other intangibles, and valuation of mortgage servicing rights (“MSRs”). Consolidation: The Company consolidates affiliates in which we have a controlling interest. The accompanying consolidated financial statements include the accounts of the Company, the Bank, RML, and NISC. Significant intercompany balances have been eliminated in consolidation. 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 U.S. GAAP. 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 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 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: 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. The management approach considers the internal organization and reporting used the by the Company's CODM for making operating decisions and assessing performance as the source for determining the Company's reportable segments. Management, including the CODM, review operating results by the revenue of different services. For the year ended December 31, 2023 and 2022, the Company has two operating business lines; Community Banking and Home Mortgage Lending. Information about the Company's operating segments is included in Note 25 of the Notes to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report. Reclassifications: Certain reclassifications have been made to prior year amounts to maintain consistency with the current year with no impact on net income or total shareholders’ equity. Subsequent Events: The Company has evaluated events and transactions subsequent to December 31, 2023 for potential recognition or disclosure. Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits with other banks, federal funds sold, and securities with original maturities of less than 90 days at acquisition. Equity Securities: Marketable equity securities are stated at fair value. Changes in fair value are included in "Unrealized gain (loss) on marketable equity securities" in our Consolidated Statements of Income. 77 Non-marketable equity securities are accounted for under the equity method of accounting and are included in other assets in our Consolidated Balance Sheets. The Company performs an impairment analysis on its non-marketable equity securities when events or circumstances indicate impairment potentially exists. Investment Securities: Debt securities are classified as available for sale if the Company intends and has the ability to hold those securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a debt security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Premiums and discounts are amortized over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Securities available for sale are stated at fair value. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Unrealized holding gains or losses are included in other comprehensive income as a separate component of shareholders' equity, net of tax. Held to maturity securities are stated at cost, adjusted for amortization of premium and accretion of discount on a level-yield basis. The Company has the ability and intent to hold these securities to maturity. The Company amortizes purchase premiums for callable debt securities to the earliest call date and discounts are accreted over the contractual life. Allowance for Credit Losses - Investment Securities: For available for sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. The ACL may be reversed if conditions change. 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 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. Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. The ACL on held to maturity securities is estimated on a collective basis by major security type. At December 31, 2023, the Company’s held to maturity securities consisted of investments in corporate bonds. Expected credit losses for these securities are estimated using a discounted cash flow (“DCF”) methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable is excluded from the estimate of credit losses. Federal Home Loan Bank Stock: The Company’s investment in Federal Home Loan Bank of Des Moines (“FHLB”) stock is carried at par value because the shares can only be redeemed with the FHLB at par. The Company is required to maintain a minimum level of investment in FHLB stock based on the Company’s total Bank assets and outstanding advances. FHLB stock is carried at cost and is subject to recoverability testing at least annually. Loans held for sale: The Company designates loans held for sale as either carried at fair value or the lower of cost or fair value at loan level at origination. Loans held for sale include residential mortgage loans that have been originated for sale in the secondary market. Related gains or losses on the sale of these loans are recognized in mortgage banking income. Loans: 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 Accounting Standards Codification (“ASC”) 310 over the life of the loan. Loan balances are 78 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. All classes of loans are placed on nonaccrual when management believes doubt exists as to the collectability of the interest or principal. Cash payments received on nonaccrual loans are directly applied to the principal balance. Generally, a loan may be returned to accrual status when the delinquent principal and interest is brought current in accordance with the terms of the loan agreement and certain ongoing performance criteria have been met. Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms. 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 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 (“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. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL. Expected credit losses are reflected in the ACL through a provision for or (reversal) of credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible when management believes that collection of principal is unlikely. Subsequent recoveries, if any, are credited to the ACL when received. The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature and size of the pool of financial assets with similar risk characteristics, the Company uses either a DCF method or a weighted average remaining life method to estimate expected credit losses quantitatively. The weighted average remaining life method uses exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance. The Company utilizes peer historical loss data to estimate credit losses under the weighted average remaining life method. Under the DCF method, the Company utilizes complex models to obtain reasonable and supportable forecasts to calculate two predictive metrics, the probability of default (“PD”) and loss given default (“LGD”). Under the DCF method the combination of adjustments for the credit expectations PD and LGD, and timing expectations (prepayment, curtailment, and time to recovery), produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). 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 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. Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for expected credit losses and are not included in the collective evaluation. Loans are identified for individual evaluation during regular credit reviews of the portfolio. A loan is generally identified for individual evaluation when management determines that we will probably not be able to collect all amounts due according to the loan contract, including scheduled interest payments. 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 79 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. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the estimated value of the collateral, the location and type of collateral to be valued, and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience, and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers, and equipment specialists. The Company uses external appraisals to estimate fair value for projects that are not fully constructed as of the date of valuation. 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. 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. 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. government subject to certain representations and warranties. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. ASC 326 requires credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans and other loans guaranteed by the U.S. government. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information on any of our guaranteed loans, the Company does not carry an ACL on its PPP and other loans guaranteed by the U.S. government. Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company enters into various types of transactions that involve financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit issued to meet customer financing needs. We apply the same credit standards to these commitments as in all of our lending activities and include these commitments in our lending risk evaluations. The Company’s exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. 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. Purchased Receivables and related Allowance for Credit Losses: The Company purchases accounts receivable from its customers. The purchased receivables are carried at amortized cost, net of an ACL. Management measures expected credit losses on purchased receivables by evaluating each receivable individually. Each quarter, management reviews purchased receivable asset balances compared to assets eligible for advancement of funds in order to determine the exposure to loss for the Company. Exposure is zero when outstanding balances exceed assets eligible for advancement. Management may determine that an ACL is appropriate for individual purchased receivables based on asset specific facts and circumstances. Fees charged to the customer are earned while the balances of the purchases are outstanding, which is typically less than one year. Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Other Real Estate Owned: 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. Management’s evaluation of fair value is based on appraisals or discounted cash flows of anticipated sales. After foreclosure, any subsequent reduction in the carrying value is charged against earnings. Operating expenses associated with OREO are charged to earnings in the period they are incurred. Operating expenses associated with OREO are recorded net of rental income and gain on sales associated with OREO. 80 Premises and Equipment: Premises and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation and amortization. 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 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. Long-lived assets such as premises and equipment are reviewed for impairment at least annually or whenever events or changes in business circumstances indicate that the remaining useful life may warrant revision, or that the carrying amount of the long-lived asset may not be fully recoverable. If impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. Operating Leases: The Company leases branch locations, corporate office space, and equipment under non-cancelable leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all of the leases provide the Company with one or more options to renew, with renewal terms that can extend the lease term from one to ten years or more. The exercise of lease renewal options is at management's sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition to annual impairment reviews, management reviews right-of-use assets anytime a change in circumstances indicates the carrying amount of these assets may not be recoverable. Goodwill and Other Intangible Assets: Intangible assets are comprised of goodwill and other intangibles acquired in business combinations. Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with definite useful lives are amortized to their estimated residual values over their respective useful lives, and are also reviewed for impairment. Amortization of intangible assets is included in other operating expense in the Consolidated Statements of Income. The Company performs a goodwill impairment analysis at each reporting unit on an annual basis. Additionally, the Company performs a goodwill impairment evaluation on an interim basis when events or circumstances indicate impairment potentially exists. Low Income Housing Tax Credit Partnerships: The Company earns a return on its investments in these partnerships in the form of tax credits and deductions that flow through to it as a limited partner. The Company amortizes these investments in tax expense over the period during which tax benefits are received. Servicing Rights: 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 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. Other Assets: Other assets include purchased software and prepaid expenses. Purchased software is carried at amortized cost and is amortized using the straight-line method over its estimated useful life or the term of the agreement. Also included in other assets is the net deferred tax asset, bank owned life insurance carried at cash surrender value, net of premium charges, accrued interest receivable, taxes receivable, and rate lock derivatives. Derivatives: The Company records all derivatives on the Consolidated Balance Sheets at fair value. The accounting for change in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate the derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Interest rate swaps that are designated as a cash flow hedge and satisfy the hedge accounting requirements involve the receipt of variable amounts from a counter-party in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. For derivatives which are designed as cash flow hedges and satisfy hedge accounting requirements, the effective portion of changes in the fair value of the derivative is recorded in accumulated other comprehensive income (loss). The fair value of the Company's derivatives is determined using DCF analysis using observable market based inputs. The Company considers all free-standing derivatives not designated in a hedging relationship as economic hedges and recognizes these derivatives as either assets or liabilities in the balance sheet. These assets and liabilities are measured at fair value, and changes in fair value are recorded in earnings. By 81 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. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. For derivative instruments executed with the same counterparty under a master netting arrangement, we do not offset fair value amounts of interest rate swaps in liability positions with interest rate swaps in asset positions. For further detail, see Note 19 of the notes to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report. Transfers or sales of financial assets: For transfers of entire financial assets or a participating interest in an entire financial asset recorded as sales, we recognize and initially measure at fair value all assets obtained and liabilities incurred. We record a gain or loss in other operating income for the difference between the carrying amount and the fair value of the assets sold. Fair values are based on quoted market prices, quoted market prices for similar assets, or if market prices are not available, then the fair value is estimated using discounted cash flow analysis with assumptions for credit losses, prepayments and discount rates that are corroborated by and verified against market observable data, where possible. Revenue Recognition: The majority of the Company's revenues come from interest income on loans and investment securities, as well as other non-interest income including mortgage banking income, bankcard fees, purchased receivable income, and service charges on deposits. The Company recognizes income in accordance with the applicable accounting guidance for these revenue sources. The Company's revenues that are within the scope of ASC Topic 606 (“Topic 606”) are presented within other operating income and include bankcard fees, service charges on deposits, and other non-interest income including merchant services fees, commissions from sales of mutual funds and other investments, safety deposit box rental fees, bank check and other check fees, and other miscellaneous revenue streams. Bankcard fees are primarily comprised of debit card income and ATM fees. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit cards are processed through card payment networks such as Visa or MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. The Company’s performance obligation for bankcard fees are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payments are typically received immediately or in the following month. Service charges on deposit accounts consist of general service fees for monthly account maintenance, activity- or transaction-based fees, and account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), and other deposit account related fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed. 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. The Company’s performance obligation for merchant services income is largely satisfied, and related revenue recognized, when the transactions have been completed. Payment is typically received immediately or in the following month. The Company earns commissions from the sale of mutual funds as periodic service fees (i.e., trailers) from Elliott Cove Capital Management typically based on a percentage of net asset value. Trailer revenue is recorded over time, quarterly, as net asset value is determined. The Company also earns commission income from the sale of annuity products. The Company acts as an intermediary between the Company's customer and Elliott Cove Investment Advisors for these transactions, and commissions from annuity product sales are recorded when the Company’s performance obligation is satisfied, which is generally upon the issuance of the annuity policy. The Company does not earn trailer fees on annuity sales. Payment for commissions from sales of mutual funds and other investments and annuity sales is typically received in the following quarter. Other service charges include revenue from safety deposit box rental fees, processing wire transfers, bank check and other check fees, and other services. The Company’s performance obligations for these other revenue streams are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payments are typically received immediately or in the following month. Revenue within the contracts with customers guidance is recognized when obligations under the terms of a contract with customers are satisfied. 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 82 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. When third parties are involved in providing services to customers, the Company recognizes revenue on a gross basis when it has control over those services being provided to the customer; otherwise, revenue is recognized for the net amount of any fee or commission. Advertising: Advertising, promotion, and marketing costs are expensed as incurred. The Company reported total expenses in these areas of $ 2.9 million, $ 2.7 million, and $ 2.7 million for each of the years ending December 31, 2023, 2022, and 2021, respectively. Stock Incentive Plans: The Company has stock-based employee compensation plans as more fully discussed in Note 21, Stock-Based Compensation to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report. 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. The Company's recognizes forfeitures as they occur. Income Taxes: The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Our policy is to recognize interest and penalties on unrecognized tax benefits in “Other operating expense" in the Consolidated Statements of Income. Earnings Per Share: Earnings per share is calculated using the weighted average number of shares and dilutive common stock equivalents outstanding during the period. Stock options and restricted stock units, as described in Note 21 of the notes to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report, are considered to be common stock equivalents. Potentially dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. There were no anti-dilutive shares outstanding related to options to acquire common stock in 2023, 2022, or 2021. Information used to calculate earnings per share was as follows: (In Thousands) 2023 2022 2021 Net income $ 25,394 $ 30,741 $ 37,517 Basic weighted average common shares outstanding 5,601 5,765 6,181 Dilutive effect of potential common shares from awards granted under equity incentive program 60 64 68 Total 5,661 5,829 6,249 Earnings per common share Basic $ 4.53 $ 5.33 $ 6.07 Diluted $ 4.49 $ 5.27 $ 6.00 Comprehensive Income: Comprehensive income consists of net income, net unrealized gains (losses) on securities available for sale after the tax effect, and net unrealized gains (losses) on derivative and hedging activities after the tax effect. Concentrations: 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. These areas rely primarily upon the natural resources industries, particularly oil production, as well as tourism, government and U.S. military spending for their economic success. A significant majority of the unrestricted revenues of the Alaska state government are currently funded through various taxes and royalties on the oil industry. The Company’s business is and will remain sensitive to economic factors that relate to these industries and local and regional business conditions. 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 83 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. At December 31, 2023 and 2022, the Company had $ 590.7 million and $ 501.3 million, respectively, in commercial and construction loans. Additionally, the Company continues to have a concentration in large borrowing relationships. At December 31, 2023, 39 % of the Company’s loan portfolio is attributable to 50 large borrowing relationships. The Company has additional unfunded commitments to these borrowers of $ 261.2 million at December 31, 2023. Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies. In accordance with GAAP, the Company groups its assets and liabilities measured at fair value into the following three levels: • Level 1 : Valuation is based upon quoted prices for identical instruments traded in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value. • Level 2 : Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. • Level 3 : Valuation is generated from model-based techniques that use significant assumptions not observable in the market, or inputs that require significant management judgment or estimation, some of which may be internally developed. Recent Accounting Pronouncements 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 troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs which includes an assessment of whether the creditor has granted a concession, an entity must evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6. The Company adopted ASU 2022-02 on January 1, 2023. The Company elected to adopt the updated guidance on TDR recognition and measurement prospectively; therefore the guidance is applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures must be adopted prospectively. The adoption of ASU 2022-02 did not have a material impact on the Company's consolidated financial position or results of operations. 84 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 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, 2023 and 2022. 85 NOTE 3 - Interest Bearing Deposits in Other Banks All interest bearing deposits in other banks have a maturity of one year or less. Balances at December 31 for the respective years are as follows: (In Thousands) 2023 2022 Interest bearing deposits at Federal Reserve Bank $ 90,922 $ 231,186 Interest bearing deposits at FHLB 21 287 Other interest bearing deposits at other institutions 130 130 Total $ 91,073 $ 231,603 NOTE 4 - Investment Securities Marketable Equity Securities The Company held marketable equity securities with fair values of $ 13.2 million and $ 10.7 million at December 31, 2023 and 2022, respectively. The gross realized and unrealized gains (losses) recognized on marketable equity securities in other operating income in the Company's Consolidated Statements of Income for the periods indicated were as follows: (In Thousands) 2023 2022 2021 Unrealized gain (loss) on marketable equity securities $ 120 ($ 1,119 ) ($ 101 ) Gain on sale of marketable equity securities, net — — 67 Total $ 120 ($ 1,119 ) ($ 34 ) Debt securities Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, estimated fair value, and ACL of debt securities and the corresponding amounts of gross unrealized gains and losses of available for sale securities recognized in accumulated other comprehensive income (loss) and unrecognized gains and losses of held to maturity securities at the periods indicated: (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value December 31, 2023 Securities available for sale U.S. Treasury and government sponsored entities $ 587,639 $ 451 ($ 23,965 ) $ — $ 564,125 Municipal securities 820 — ( 4 ) — 816 Corporate bonds 14,014 28 ( 418 ) — 13,624 Collateralized loan obligations 59,795 12 ( 436 ) — 59,371 Total securities available for sale $ 662,268 $ 491 ($ 24,823 ) $ — $ 637,936 December 31, 2022 Securities available for sale U.S. Treasury and government sponsored entities $ 634,582 $ 1 ($ 39,422 ) $ — $ 595,161 Municipal securities 820 — ( 25 ) — 795 Corporate bonds 24,281 37 ( 674 ) — 23,644 Collateralized loan obligations 59,434 — ( 2,005 ) — 57,429 Total securities available for sale $ 719,117 $ 38 ($ 42,126 ) $ — $ 677,029 86 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2023 Securities held to maturity Corporate bonds $ 36,750 $ — ($ 3,337 ) $ 33,413 Allowance for credit losses — — — — Total securities held to maturity, net of ACL $ 36,750 $ — ($ 3,337 ) $ 33,413 December 31, 2022 Securities held to maturity Corporate bonds $ 36,750 $ — ($ 4,111 ) $ 32,639 Allowance for credit losses — — — — Total securities held to maturity, net of ACL $ 36,750 $ — ($ 4,111 ) $ 32,639 Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2023 and 2022, were as follows: Less Than 12 Months More Than 12 Months Total (In Thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 2023 Securities Available for Sale U.S. Treasury and government sponsored entities $ 9,997 ($ 3 ) $ 528,574 ($ 23,962 ) $ 538,571 ($ 23,965 ) Corporate bonds — — 6,599 ( 418 ) 6,599 ( 418 ) Municipal securities — — 816 ( 4 ) 816 ( 4 ) Collateralized loan obligations 3,909 ( 91 ) 43,149 ( 345 ) 47,058 ( 436 ) Total $ 13,906 ($ 94 ) $ 579,138 ($ 24,729 ) $ 593,044 ($ 24,823 ) 2022 Securities Available for Sale U.S. 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 ) Collateralized loan obligations 22,309 ( 632 ) 35,120 ( 1,373 ) 57,429 ( 2,005 ) Total $ 318,639 ($ 9,576 ) $ 342,354 ($ 32,550 ) $ 660,993 ($ 42,126 ) Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At 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, 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, 2023, management believes that the unrealized 87 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. The amortized cost and fair values of available for sale and held to maturity debt securities at December 31, 2023, are distributed by contractual maturity as shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. (In Thousands) Amortized Cost Fair Value Weighted Average Yield U.S. Treasury and government sponsored entities Within 1 year $ 163,987 $ 160,054 1.14 % 1-5 years 423,652 404,071 2.05 % Total $ 587,639 $ 564,125 1.79 % Corporate bonds Within 1 year $ 2,000 $ 1,997 3.59 % 1-5 years 22,014 21,264 4.95 % 5-10 years 26,750 23,776 5.01 % Total $ 50,764 $ 47,037 4.93 % Collateralized loan obligations 5-10 years $ 34,301 $ 34,102 6.83 % Over 10 years 25,494 25,269 7.07 % Total $ 59,795 $ 59,371 6.94 % Municipal securities Within 1 year $ 820 $ 816 2.12 % Total $ 820 $ 816 2.12 % The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the years ending December 31, 2023, 2022, and 2021, respectively, are as follows: (In Thousands) Proceeds Gross Gains Gross Losses 2023 Available for sale securities $ — $ — $ — 2022 Available for sale securities $ — $ — $ — 2021 Available for sale securities $ — $ — $ — A summary of interest income for the years ending December 31, 2023, 2022, and 2021 on available for investment securities is as follows: (In Thousands) 2023 2022 2021 U.S. Treasury and government sponsored entities $ 11,074 $ 7,030 $ 2,203 Other 4,741 2,631 1,118 Total taxable interest income $ 15,815 $ 9,661 $ 3,321 Municipal securities $ 18 $ 18 $ 18 Total tax-exempt interest income $ 18 $ 18 $ 18 Total $ 15,833 $ 9,679 $ 3,339 88 NOTE 5 - Loans and Allowance for Credit Losses Loans Held for Sale Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of December 31, 2023 and 2022. Loans Held for Investment The following table presents amortized cost and unpaid principal balance of loans for the periods indicated: December 31, 2023 December 31, 2022 (In Thousands) Amortized Cost Unpaid Principal Difference Amortized Cost Unpaid Principal Difference Commercial & industrial loans $ 411,387 $ 413,293 ($ 1,906 ) $ 358,128 $ 359,900 ($ 1,772 ) Commercial real estate: Owner occupied properties 366,741 368,357 ( 1,616 ) 349,973 351,580 ( 1,607 ) Non-owner occupied and multifamily properties 515,528 519,115 ( 3,587 ) 482,270 486,021 ( 3,751 ) Residential real estate: 1-4 family residential properties secured by first liens 203,738 203,534 204 73,381 73,674 ( 293 ) 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 33,996 33,783 213 20,259 20,103 156 1-4 family residential construction loans 30,976 31,239 ( 263 ) 44,000 44,314 ( 314 ) Other construction, land development and raw land loans 148,373 149,788 ( 1,415 ) 99,182 100,075 ( 893 ) Obligations of states and political subdivisions in the US 30,407 30,409 ( 2 ) 32,539 32,540 ( 1 ) Agricultural production, including commercial fishing 41,007 41,237 ( 230 ) 34,099 34,263 ( 164 ) Consumer loans 6,241 6,180 61 4,335 4,293 42 Other loans 1,103 1,118 ( 15 ) 3,619 3,632 ( 13 ) Total 1,789,497 1,798,053 ( 8,556 ) 1,501,785 1,510,395 ( 8,610 ) Allowance for credit losses ( 17,270 ) ( 13,838 ) $ 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 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. Small Business Administration (“SBA”) within the Commercial & industrial loan segment. At December 31, 2023, approximately 72 % of the Company’s loans, excluding PPP loans, are secured by real estate and 4 % are unsecured. Approximately 24 % are for general commercial uses, including professional, retail, and small businesses. Repayment is expected from the borrowers’ cash flow or, secondarily, the collateral. The Company’s exposure to credit loss, if any, is the outstanding amount of the loan if the collateral is determined to be of no value. 89 Allowance for Credit Losses The activity in the ACL related to loans held for investment for the periods indicated is as follows: Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance (In Thousands) 2023 Commercial & industrial loans $ 2,914 $ 415 ($ 337 ) $ 446 $ 3,438 Commercial real estate: Owner occupied properties 3,094 ( 227 ) — — 2,867 Non-owner occupied and multifamily properties 3,615 ( 321 ) — — 3,294 Residential real estate: 1-4 family residential properties secured by first liens 1,413 2,129 ( 72 ) — 3,470 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 389 139 — 23 551 1-4 family residential construction loans 312 ( 121 ) — — 191 Other construction, land development and raw land loans 1,803 1,324 — — 3,127 Obligations of states and political subdivisions in the US 79 1 — — 80 Agricultural production, including commercial fishing 145 23 — — 168 Consumer loans 68 35 ( 26 ) 4 81 Other loans 6 ( 3 ) — — 3 Total $ 13,838 $ 3,394 ($ 435 ) $ 473 $ 17,270 Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance (In Thousands) 2022 Commercial & industrial loans $ 3,027 ($ 1,124 ) ($ 506 ) $ 1,517 $ 2,914 Commercial real estate: Owner occupied properties 3,176 ( 137 ) — 55 3,094 Non-owner occupied and multifamily properties 2,930 685 — — 3,615 Residential real estate: 1-4 family residential properties secured by first liens 439 969 — 5 1,413 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 215 134 — 40 389 1-4 family residential construction loans 120 192 — — 312 Other construction, land development and raw land loans 1,635 168 — — 1,803 Obligations of states and political subdivisions in the US 32 47 — — 79 Agricultural production, including commercial fishing 91 39 — 15 145 Consumer loans 67 — ( 3 ) 4 68 Other loans 7 ( 1 ) — — 6 Total $ 11,739 $ 972 ($ 509 ) $ 1,636 $ 13,838 90 As of December 31, 2023 the ACL increased to $ 17.3 million, or 0.97 % of portfolio loans and 1.02 % of portfolio loans, net of government guarantees from $ 13.8 million, or 0.92 % of portfolio loans and 0.99 % of portfolio loans, net of government guarantees at December 31, 2022. 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, 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 As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management utilizes a loan risk grading system called the Asset Quality Rating (“AQR”) system to assign a risk classification to each of its loans. The risk classification is a dual rating system that contemplates both probability of default and risk of loss given default. Loans are graded on a scale of 1 to 10 and, loans graded 1 – 6 are considered “pass” grade loans. Loans graded 7 or higher are considered "classified" loans. A description of the general characteristics of the AQR risk classifications are as follows: Pass grade loans – 1 through 6: The borrower demonstrates sufficient cash flow to fund debt service, including acceptable profit margins, cash flows, liquidity and other balance sheet ratios. Historic and projected performance indicates that the borrower is able to meet obligations under most economic circumstances. The Company has competent management with an acceptable track record. The category does not include loans with undue or unwarranted credit risks that constitute identifiable weaknesses. Classified loans: Special Mention – 7: A "special mention" credit has weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset at some future date. Substandard – 8: A "substandard" credit is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Doubtful – 9: An asset classified "doubtful" has all the weaknesses inherent in one that is classified "substandard-8" with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. The loan has substandard characteristics, and available information suggests that it is unlikely that the loan will be repaid in its entirety. Loss – 10: An asset classified "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future. The following tables present the Company's portfolio of risk-rated loans by grade and by year of origination. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. December 31, 2023 2023 2022 2021 2020 2019 Prior Total (In Thousands) Commercial & industrial loans Pass $ 97,377 $ 123,874 $ 58,708 $ 24,177 $ 13,990 $ 44,674 $ 362,800 Classified 3,319 18,790 16,964 7,032 56 2,426 48,587 Total commercial & industrial loans $ 100,696 $ 142,664 $ 75,672 $ 31,209 $ 14,046 $ 47,100 $ 411,387 Commercial real estate: Owner occupied properties Pass $ 40,745 $ 70,925 $ 69,316 $ 82,339 $ 28,588 $ 71,930 $ 363,843 Classified — — — 1,115 1,783 2,898 91 Total commercial real estate owner occupied properties $ 40,745 $ 70,925 $ 69,316 $ 83,454 $ 28,588 $ 73,713 $ 366,741 Non-owner occupied and multifamily properties Pass $ 59,990 $ 96,532 $ 83,277 $ 67,037 $ 56,192 $ 143,619 $ 506,647 Classified — — — — — 8,881 8,881 Total commercial real estate non-owner occupied and multifamily properties $ 59,990 $ 96,532 $ 83,277 $ 67,037 $ 56,192 $ 152,500 $ 515,528 Residential real estate: 1-4 family residential properties secured by first liens Pass $ 139,829 $ 47,775 $ 4,119 $ 4,070 $ 2,240 $ 5,388 $ 203,421 Classified 224 — — — 93 317 Total residential real estate 1-4 family residential properties secured by first liens $ 140,053 $ 47,775 $ 4,119 $ 4,070 $ 2,240 $ 5,481 $ 203,738 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens Pass $ 16,145 $ 5,417 $ 3,331 $ 1,906 $ 2,277 $ 4,581 $ 33,657 Classified — — — — — 339 339 Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ 16,145 $ 5,417 $ 3,331 $ 1,906 $ 2,277 $ 4,920 $ 33,996 1-4 family residential construction loans Pass $ 16,845 $ 4,469 $ — $ — $ — $ 9,553 $ 30,867 Classified — — — — — 109 109 Total residential real estate 1-4 family residential construction loans $ 16,845 $ 4,469 $ — $ — $ — $ 9,662 $ 30,976 Other construction, land development and raw land loans Pass $ 42,615 $ 58,714 $ 32,780 $ 1,982 $ 1,454 $ 7,896 $ 145,441 Classified — 1,175 — — — 1,757 2,932 Total other construction, land development and raw land loans $ 42,615 $ 59,889 $ 32,780 $ 1,982 $ 1,454 $ 9,653 $ 148,373 Obligations of states and political subdivisions in the US Pass $ — $ 30,317 $ — $ — $ — $ 90 $ 30,407 Classified — — — — — — — Total obligations of states and political subdivisions in the US $ — $ 30,317 $ — $ — $ — $ 90 $ 30,407 Agricultural production, including commercial fishing Pass $ 8,643 $ 9,649 $ 17,061 $ 3,465 $ 524 $ 1,665 $ 41,007 Classified — — — — — — — Total agricultural production, including commercial fishing $ 8,643 $ 9,649 $ 17,061 $ 3,465 $ 524 $ 1,665 $ 41,007 Consumer loans Pass $ 3,396 $ 983 $ 209 $ 368 $ 258 $ 1,026 $ 6,240 Classified 1 — — — — — 1 Total consumer loans $ 3,397 $ 983 $ 209 $ 368 $ 258 $ 1,026 $ 6,241 Other loans Pass $ 160 $ 77 $ 135 $ 592 $ 138 $ 1 $ 1,103 Classified — — — — — — — Total other loans $ 160 $ 77 $ 135 $ 592 $ 138 $ 1 $ 1,103 Total loans Pass $ 425,745 $ 448,732 $ 268,936 $ 185,936 $ 105,661 $ 290,423 $ 1,725,433 Classified 3,544 19,965 16,964 8,147 56 15,388 64,064 Total loans $ 429,289 $ 468,697 $ 285,900 $ 194,083 $ 105,717 $ 305,811 $ 1,789,497 Total pass loans $ 425,745 $ 448,732 $ 268,936 $ 185,936 $ 105,661 $ 290,423 $ 1,725,433 Government guarantees ( 2,792 ) ( 8,409 ) ( 19,305 ) ( 2,295 ) ( 12,133 ) ( 7,696 ) ( 52,630 ) Total pass loans, net of government guarantees $ 422,953 $ 440,323 $ 249,631 $ 183,641 $ 93,528 $ 282,727 $ 1,672,803 Total classified loans $ 3,544 $ 19,965 $ 16,964 $ 8,147 $ 56 $ 15,388 $ 64,064 92 Government guarantees — ( 16,805 ) ( 15,268 ) ( 7,043 ) — ( 11,311 ) ( 50,427 ) Total classified loans, net government guarantees $ 3,544 $ 3,160 $ 1,696 $ 1,104 $ 56 $ 4,077 $ 13,637 December 31, 2022 2022 2021 2020 2019 2018 Prior Total (In Thousands) Commercial & industrial loans Pass $ 157,555 $ 86,543 $ 37,147 $ 17,881 $ 9,844 $ 40,571 $ 349,541 Classified 137 4,879 397 91 2,737 346 8,587 Total commercial & industrial loans $ 157,692 $ 91,422 $ 37,544 $ 17,972 $ 12,581 $ 40,917 $ 358,128 Commercial real estate: Owner occupied properties Pass $ 66,955 $ 70,777 $ 90,496 $ 32,564 $ 13,233 $ 69,701 $ 343,726 Classified — — 1,261 — 165 4,821 6,247 Total commercial real estate owner occupied properties $ 66,955 $ 70,777 $ 91,757 $ 32,564 $ 13,398 $ 74,522 $ 349,973 Non-owner occupied and multifamily properties Pass $ 94,412 $ 82,352 $ 71,407 $ 58,033 $ 16,905 $ 149,223 $ 472,332 Classified — — — 274 3 9,661 9,938 Total commercial real estate non-owner occupied and multifamily properties $ 94,412 $ 82,352 $ 71,407 $ 58,307 $ 16,908 $ 158,884 $ 482,270 Residential real estate: 1-4 family residential properties secured by first liens Pass $ 52,117 $ 5,088 $ 6,001 $ 2,535 $ 462 $ 6,968 $ 73,171 Classified — — — — 79 131 210 Total residential real estate 1-4 family residential properties secured by first liens $ 52,117 $ 5,088 $ 6,001 $ 2,535 $ 541 $ 7,099 $ 73,381 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens Pass $ 6,992 $ 3,376 $ 2,041 $ 2,763 $ 2,781 $ 2,060 $ 20,013 Classified — — — — 239 7 246 Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ 6,992 $ 3,376 $ 2,041 $ 2,763 $ 3,020 $ 2,067 $ 20,259 1-4 family residential construction loans Pass $ 26,860 $ 3,897 $ 61 $ — $ — $ 13,073 $ 43,891 Classified — — — — — 109 109 Total residential real estate 1-4 family residential construction loans $ 26,860 $ 3,897 $ 61 $ — $ — $ 13,182 $ 44,000 Other construction, land development and raw land loans Pass $ 38,673 $ 42,448 $ 5,740 $ 1,713 $ 3,675 $ 5,112 $ 97,361 Classified — — — — 369 1,452 1,821 Total other construction, land development and raw land loans $ 38,673 $ 42,448 $ 5,740 $ 1,713 $ 4,044 $ 6,564 $ 99,182 Obligations of states and political subdivisions in the US Pass $ 32,319 $ — $ — $ — $ 219 $ 1 $ 32,539 Classified — — — — — — — Total obligations of states and political subdivisions in the US $ 32,319 $ — $ — $ — $ 219 $ 1 $ 32,539 Agricultural production, including commercial fishing Pass $ 9,748 $ 17,692 $ 3,740 $ 604 $ 879 $ 1,436 $ 34,099 Classified — — — — — — — Total agricultural production, including commercial fishing $ 9,748 $ 17,692 $ 3,740 $ 604 $ 879 $ 1,436 $ 34,099 Consumer loans Pass $ 1,513 $ 363 $ 481 $ 345 $ 235 $ 1,391 $ 4,328 Classified — — — — — 7 7 93 Total consumer loans $ 1,513 $ 363 $ 481 $ 345 $ 235 $ 1,398 $ 4,335 Other loans Pass $ 1,291 $ 330 $ 1,547 $ 384 $ — $ 67 $ 3,619 Classified — — — — — — — Total other loans $ 1,291 $ 330 $ 1,547 $ 384 $ — $ 67 $ 3,619 Total loans Pass $ 488,435 $ 312,866 $ 218,661 $ 116,822 $ 48,233 $ 289,603 $ 1,474,620 Classified 137 4,879 1,658 365 3,592 16,534 27,165 Total loans $ 488,572 $ 317,745 $ 220,319 $ 117,187 $ 51,825 $ 306,137 $ 1,501,785 Total pass loans $ 488,435 $ 312,866 $ 218,661 $ 116,822 $ 48,233 $ 289,603 $ 1,474,620 Government guarantees ( 25,172 ) ( 36,531 ) ( 9,751 ) ( 12,885 ) ( 2,964 ) ( 5,314 ) ( 92,617 ) Total pass loans, net of government guarantees $ 463,263 $ 276,335 $ 208,910 $ 103,937 $ 45,269 $ 284,289 $ 1,382,003 Total classified loans $ 137 $ 4,879 $ 1,658 $ 365 $ 3,592 $ 16,534 $ 27,165 Government guarantees — ( 4,396 ) ( 1,135 ) — — ( 9,293 ) ( 14,824 ) Total classified loans, net government guarantees $ 137 $ 483 $ 523 $ 365 $ 3,592 $ 7,241 $ 12,341 94 Past Due Loans The following tables present an aging of contractually past due loans as of the periods indicated: (In Thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Greater Than 90 Days Past Due Still Accruing December 31, 2023 Commercial & industrial loans $ 326 $ 148 $ 1,253 $ 1,727 $ 409,660 $ 411,387 $ — Commercial real estate: Owner occupied properties — — 260 260 366,481 366,741 — Non-owner occupied and multifamily properties — — — — 515,528 515,528 — Residential real estate: 1-4 family residential properties secured by first liens 458 — 224 682 203,056 203,738 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 53 — 155 208 33,788 33,996 — 1-4 family residential construction loans — — 109 109 30,867 30,976 — Other construction, land development and raw land loans — — 1,545 1,545 146,828 148,373 — Obligations of states and political subdivisions in the US — — — — 30,407 30,407 — Agricultural production, including commercial fishing — — — — 41,007 41,007 — Consumer loans 18 1 — 19 6,222 6,241 — Other loans — — — — 1,103 1,103 — Total $ 855 $ 149 $ 3,546 $ 4,550 $ 1,784,947 $ 1,789,497 $ — December 31, 2022 Commercial & industrial loans $ 37 $ 521 $ 56 $ 614 $ 357,514 $ 358,128 $ — Commercial real estate: Owner occupied properties — — 798 798 349,175 349,973 — Non-owner occupied and multifamily properties — — 274 274 481,996 482,270 — Residential real estate: 1-4 family residential properties secured by first liens 60 79 72 211 73,170 73,381 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 112 — 127 239 20,020 20,259 — 1-4 family residential construction loans — — 109 109 43,891 44,000 — Other construction, land development and raw land loans — — 1,545 1,545 97,637 99,182 — Obligations of states and political subdivisions in the US — — — — 32,539 32,539 — Agricultural production, including commercial fishing — — — — 34,099 34,099 — Consumer loans 6 80 — 86 4,249 4,335 — Other loans — — — — 3,619 3,619 — Total $ 215 $ 680 $ 2,981 $ 3,876 $ 1,497,909 $ 1,501,785 $ — 95 Nonaccrual Loans Nonaccrual loans net of government guarantees totaled $ 5.0 million and $ 6.4 million at December 31, 2023 and December 31, 2022, respectively. The following table presents loans on nonaccrual status and loans on nonaccrual status for which there was no related ACL: December 31, 2023 December 31, 2022 (In Thousands) Nonaccrual Nonaccrual With No ACL Nonaccrual Nonaccrual With No ACL Commercial & industrial loans $ 3,655 $ 3,651 $ 3,294 $ 3,287 Commercial real estate: Owner occupied properties 271 260 1,457 1,457 Non-owner occupied and multifamily properties — — 274 274 Residential real estate: 1-4 family residential properties secured by first liens 270 224 151 144 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 219 176 246 198 1-4 family residential construction loans 109 109 109 109 Other construction, land development and raw land loans 1,545 1,545 1,545 1,545 Total nonaccrual loans 6,069 5,965 7,076 7,014 Government guarantees on nonaccrual loans ( 1,067 ) ( 1,067 ) ( 646 ) ( 646 ) Net nonaccrual loans $ 5,002 $ 4,898 $ 6,430 $ 6,368 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 $ 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 $ 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. 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: 96 December 31, 2023 Term Modification Payment Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable (In Thousands) 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 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 Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months) (In Thousands) Commercial & industrial loans $ — — % 20 Commercial real estate: Owner occupied properties — — % 5 Residential real estate: 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 97 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 $ — Commercial real estate: Owner occupied properties — 260 Residential real estate: 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 Loans to Related Parties 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. An analysis of the loan transactions for the years indicated follows: (In Thousands) 2023 2022 2021 Balance, beginning of the year $ 1,996 $ 191 $ 217 Loans made 521 1,886 — Repayments 122 81 26 Balance, end of year $ 2,395 $ 1,996 $ 191 The Company had $ 120,000 of unfunded loan commitments to these directors or their related interests on December 31, 2023 and $ 110,000 of unfunded loan commitments on December 31, 2022. Pledged Loans 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 Purchased receivables are carried at their principal amount outstanding, net of an ACL, and have a maturity of less than one year . There are no purchased receivables past due at December 31, 2023 or 2022. 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 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: (In Thousands) 2023 2022 Purchased receivables $ 36,842 $ 19,994 Allowance for credit losses - purchased receivables — — Total $ 36,842 $ 19,994 98 The following table sets forth information regarding changes in the ACL on purchased receivables for the periods indicated: (In Thousands) 2023 2022 2021 Balance at beginning of year $ — $ — $ 73 Impact of adopting ASC 326 — — ( 73 ) Charge-offs — — — Recoveries — — — Charge-offs net of recoveries — — — Benefit for purchased receivables — — — Balance at end of year $ — $ — $ — NOTE 7 - Servicing Rights Mortgage servicing rights The following table details the activity in the Company's MSR for the year indicated: (In Thousands) 2023 2022 2021 Balance, beginning of period $ 18,635 $ 13,724 $ 11,218 Additions for new MSR capitalized 3,616 4,623 6,088 Changes in fair value: Due to changes in model inputs of assumptions (1) ( 922 ) 1,615 ( 1,181 ) Other (2) ( 1,765 ) ( 1,327 ) ( 2,401 ) Carrying value, December 31 $ 19,564 $ 18,635 $ 13,724 (1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates. (2) Represents changes due to collection/realization of expected cash flows over time. The following table details information related to our serviced mortgage loan portfolio as of the dates indicated: (In Thousands) December 31, 2023 December 31, 2022 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. 99 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) 10.23 9.46 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 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) $ 82 $ 91 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 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, 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: Years Ended December 31, (In Thousands) 2023 2022 2021 OREO (income) expense, net rental income and gains on sale: OREO operating expense $ 16 $ 634 $ 777 Impairment on OREO 123 — — Rental income on OREO ( 4 ) ( 548 ) ( 524 ) (Gains)/ losses on sale of OREO ( 929 ) 414 ( 685 ) Total ($ 794 ) $ 500 ($ 432 ) 100 NOTE 9 - Premises and Equipment The following summarizes the components of premises and equipment at December 31 for the years indicated: (In Thousands) Useful Life 2023 2022 Land $ 5,376 $ 5,376 Furniture and equipment 3 - 7 years 19,088 15,778 Tenant improvements 2 - 15 years 11,300 10,409 Buildings 39 years 41,054 39,333 Total Premises and Equipment 76,818 70,896 Accumulated depreciation and amortization ( 36,125 ) ( 33,075 ) Total Premises and Equipment, Net $ 40,693 $ 37,821 Depreciation and amortization expense was $ 3.3 million, $ 3.1 million, and $ 3.3 million for the years ended December 31, 2023, 2022, and 2021, respectively. NOTE 10 – Leases The Company's lease commitments consist primarily of agreements to lease land and office facilities that it occupies to operate several of its retail branch locations that are classified as operating leases and are recognized on the balance sheet as right-of-use (“ROU”) asset and lease liabilities. As of December 31, 2023, the Company has operating lease ROU assets of $ 9.1 million and operating lease liabilities of $ 9.1 million. As of December 31, 2022, the Company has operating lease ROU assets of $ 9.9 million and operating lease liabilities of $ 9.9 million. The Company does not have any agreements that are classified as finance leases. The following table presents additional information about the Company's operating leases: (In Thousands) 2023 2022 Lease Cost Operating lease cost (1) $ 2,818 $ 2,737 Short term lease cost (1) 143 37 Total lease cost $ 2,961 $ 2,774 Other information Operating leases - operating cash flows $ 2,628 $ 2,545 Weighted average lease term - operating leases, in years 10.41 10.52 Weighted average discount rate - operating leases 3.55 % 3.30 % (1) Expenses are classified within occupancy expense on the Consolidated Statements of Income. 101 The table below reconciles the remaining undiscounted cash flows for the next five years for each twelve-month period presented and the total of the subsequent remaining years to the operating lease liabilities recorded on the balance sheet: (In Thousands) Operating Leases 2024 $ 2,637 2025 2,285 2026 1,130 2027 731 2028 543 Thereafter 3,876 Total minimum lease payments $ 11,202 Less: amount of lease payment representing interest ( 2,110 ) Present value of future minimum lease payments $ 9,092 NOTE 11 - Goodwill and Intangible Assets A summary of goodwill and intangible assets at December 31, 2023 and 2022, is as follows: (In Thousands) 2023 2022 Intangible assets: Goodwill $ 15,017 $ 15,017 Core deposit intangible — 17 Trade name intangible 950 950 Total $ 15,967 $ 15,984 The Company performed goodwill impairment testing at December 31, 2023 and December 31, 2022 in accordance with the policy described in Note 1 to the Company's Consolidated Financial Statements included in Part II. Item 8 of this report. 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 $ 6.1 million and $ 6.0 million at December 31, 2023 and 2022, respectively. 102 NOTE 12 - Other Assets A summary of other assets as of December 31, 2023 and 2022, is as follows: (In Thousands) 2023 2022 Other assets: Investment in Low Income Housing Partnerships $ 27,992 $ 17,289 Interest rate swaps not designated as hedging instruments, at fair value 10,470 12,725 Deferred taxes, net 5,764 11,367 Accrued interest receivable 11,958 9,937 Bank owned life insurance, net 3,837 4,345 Prepaid expenses 2,627 2,358 Commercial servicing rights, at fair value 2,200 2,129 Equity method investments 1,260 1,925 Taxes receivable 1,726 1,749 Software 740 1,741 Interest rate lock commitments 342 440 Other assets 2,873 2,841 Total $ 71,789 $ 68,846 Low Income Housing 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. The Company recognized amortization expense of $ 3.6 million, $ 3.4 million, and $ 3.5 million in 2023, 2022, and 2021, respectively. The Company expects to fund its remaining $ 14.0 million in commitments on these investments through 2038. (In Thousands) Date of original commitment Years over which tax benefits are earned Original commitment amount Less: life to date contributions Remaining commitment amount USA 57 December 2006 15 3,000 ( 3,000 ) — WNC December 2012 16 2,500 ( 2,500 ) — R4 - Coronado March 2013 17 10,729 ( 10,654 ) 75 R4 - MVV May 2014 17 8,528 ( 8,388 ) 140 R4 - PJ33 June 2016 17 6,835 ( 6,677 ) 158 R4 - Coronado II July 2019 17 7,302 ( 7,047 ) 255 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 ) $ 13,961 103 NOTE 13 - Deposits Deposits: At December 31, 2023, the scheduled maturities of certificates of deposit are as follows: (In Thousands) 2024 $ 268,526 2025 56,842 2026 3,633 2027 139 2028 354 Thereafter 1,757 Total $ 331,251 The Company offers IntraFi ® Network Deposits SM as a member of IntraFi® Network SM (Network). When a Network member places a deposit using IntraFi Network Deposits, that certificate of deposit or deposit account is divided into amounts under the standard FDIC insurance maximum ($250,000) and is allocated among member banks, making the large deposit eligible for FDIC insurance. In addition to customer deposit placement, the IntraFi Network Deposits also allows placement of the Bank's own investment dollars. The Company had $ 48.1 million in IntraFi Network Deposits certificates of deposits and $ 333.1 million in IntraFi Network Deposits in deposit accounts at December 31, 2023 and $ 30.2 million in IntraFi Network Deposits certificates of deposits and $ 209.0 million in IntraFi Network Deposits in deposit accounts at December 31, 2022. 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, 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, 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. Based on assets currently pledged and advances currently outstanding at December 31, 2023, the Company's available borrowing line is $ 347.4 million, representing approximately 12 % of total assets. Additional advances of up to 45 % of eligible assets, or $ 1.25 billion, are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Company’s assets. The Company has outstanding FHLB advances of $ 13.7 million and $ 14.1 million as of December 31, 2023 and 2022, respectively, which were originated to match fund low income housing projects that qualify for long-term fixed interest rates. 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 $ 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 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. 104 The future principal payments that are required on the Company’s borrowings as of December 31, 2023, are as follows: (In Thousands) 2023 $ 431 2024 441 2025 453 2026 462 2027 474 Thereafter 11,414 Total $ 13,675 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. NOTE 15 - Junior Subordinated Debentures In December of 2005, the Company formed a wholly-owned Connecticut statutory business trust subsidiary, Northrim Statutory Trust 2 (the “Trust 2”), which issued $ 10 million of guaranteed undivided beneficial interests in the Company’s Junior Subordinated Deferrable Interest Debentures (“Trust Preferred Securities 2”). These debentures qualify as Tier 1 capital under Federal Reserve Board guidelines. All of the common securities of Trust 2 are owned by the Company. The proceeds from the issuance of the common securities and the Trust Preferred Securities 2 were used by Trust 2 to purchase $ 10.3 million of junior subordinated debentures of the Company. Trust 2 is not consolidated in the Company’s financial statements in accordance with GAAP; 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 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. The interest cost to the Company on these debentures was $ 693,000 , $ 326,000 , and $ 160,000 in 2023, 2022, and 2021, respectively. The Company has entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment of: (i) accrued and unpaid distributions required to be paid on the Trust Preferred Securities 2; (ii) the redemption price with respect to any Trust Preferred Securities 2 called for redemption by Trust 2; and (iii) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of Trust 2. The Trust Preferred Securities 2 are mandatorily redeemable upon maturity of the debentures on March 15, 2036, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by Trust 2 in whole or in part, on or after March 15, 2011. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. 105 NOTE 16 – Accumulated Other Comprehensive Income (Loss) The following table shows changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2023, 2022, and 2021: (In Thousands) Unrealized gains (losses) on securities available for sale Unrealized gains (losses) on derivatives and hedging Total Balance at December 31, 2020 $ 1,259 ($ 1,241 ) $ 18 Other comprehensive income (loss), net of tax expense of $ 1,360 ( 3,982 ) 558 ( 3,424 ) Balance at December 31, 2021 ($ 2,723 ) ($ 683 ) ($ 3,406 ) Other comprehensive income (loss), net of tax benefit of $( 10,199 ) ( 27,399 ) 1,724 ( 25,675 ) Balance at December 31, 2022 ($ 30,122 ) $ 1,041 ($ 29,081 ) Other comprehensive income (loss), net of tax expense of $( 5,023 ) 12,707 ( 63 ) 12,644 Balance at December 31, 2023 ($ 17,415 ) $ 978 ($ 16,437 ) NOTE 17 - Employee Benefit Plans Employees of the Company are eligible to participate in the Company's 401(k) plan immediately upon date of hire. Employees may elect to have a portion of their salary contributed to the 401(k) plan in accordance with Section 401(k) of the Internal Revenue Code of 1986 (the “Code”). The Company provides for a mandatory $ 1.00 match for each $1.00 contributed by employees of the Bank up to 5.5 % of the employee’s eligible salary. The Company provides for a mandatory $ 1.00 match for each $1.00 contributed by employees of RML up to 3 % of the employee’s eligible salary. The Bank or RML may increase the matching contribution at the discretion of the Board of Directors. 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. Contributions to this plan totaled $ 350,000 , $ 264,000 , and $ 281,000 , in 2023, 2022, and 2021, respectively. These expenses are included in "Salaries and other personnel expense" in the Consolidated Statements of Income. 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 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 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, 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. The aggregate amount to be paid to employees under the Profit Sharing Plan is determined using Company-wide performance goals that are established by the Compensation Committee of the Board of Directors. If the performance goals are met for the year, profit sharing for the period 106 is calculated based on a formula that is also approved by the Compensation Committee each year. 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. 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. The balance of the accrued liability for this plan was included in "Other liabilities" NOTE 18 - Commitments and Contingencies Employee benefit plans: The Company is self-insured for medical, dental, and vision plan benefits provided to employees. The Company has obtained stop-loss insurance to limit total medical claims in any one year to $ 200,000 per covered individual. The Company has established a liability for outstanding incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the liability, it is subject to change due to claim experience, type of claims, and rising medical costs. Legal proceedings: The Company from time to time may be involved with disputes, claims, and litigation related to the conduct of its banking business. In the opinion of management, the resolution of these matters will not have a material effect on the Company’s financial position, results of operations, or cash flows. Financial Instruments with Off-Balance Sheet Risk: In the ordinary course of business, the Company enters into various types of transactions that involve financial instruments with off-balance sheet risk. These instruments include commitments to extend credit and standby letters of credit and are not reflected in the accompanying balance sheets. These transactions may involve to varying degrees credit and interest rate risk in excess of the amount, if any, recognized in the balance sheets. Certain commitments are collateralized. We apply the same credit standards to these commitments as in all of our lending activities and include these commitments in our lending risk evaluations. Management does not anticipate any loss as a result of these commitments. The Company’s off-balance sheet credit risk exposure is the contractual amount of commitments to extend credit and standby letters of credit. The Company applies the same credit standards to these contracts as it uses in its lending process. The following table presents the off-balance sheet commitments as of December 31, 2023 and December 31, 2022: (In Thousands) 2023 2022 Off-balance sheet commitments: Commitments to extend credit $ 445,879 $ 464,972 Commitments to originate loans held for sale $ 22,926 $ 29,065 Standby letters of credit $ 26,794 $ 3,679 Commitments to extend credit are agreements to lend to customers. These commitments have specified interest rates and generally have fixed expiration dates but may be terminated by the Company if certain conditions of the contract are violated. Our exposure to credit loss under commitments to extend credit is represented by the amount of these commitments. Although currently subject to draw down, many of the commitments do not necessarily represent future cash requirements. Collateral held relating to these commitments varies, but generally includes real estate, inventory, accounts receivable, and equipment. 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 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. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Credit risk arises in these transactions from the possibility that a customer may not be able to repay the Company upon default of performance. Collateral held for standby letters of credit is based on an individual evaluation of each customer’s creditworthiness. 107 Total unfunded commitments were $ 495.6 million and $ 497.7 million at December 31, 2023 and 2022, respectively. The Company does not expect that all of these commitments are likely to be fully drawn upon at any one time. The Company has an ACL related to these commitments and letters of credit that is recorded in "Other liabilities" on the Consolidated Balance Sheets. The ACL for unfunded commitments was $ 2.4 million and $ 2.0 million as of December 31, 2023 and 2022, respectively. Capital Expenditures and Commitments: At December 31, 2023, the Company has $ 625,000 capital commitments related to new branch construction. There were no other material changes outside of the ordinary course of business to any of our material contractual obligations during 2023. Contingencies: 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 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. These agreements also require that the Company and the counterparty collateralize any fair value shortfalls that exceed $ 250,000 with eligible collateral, which includes cash and securities backed with the full faith and credit of the federal government. Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels. The Company pledged $ 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. At December 31, 2023, the notional amount of interest rate swaps is made up of 20 variable to fixed rate swaps to commercial loan customers totaling $ 109.0 million, and 20 fixed to variable rate swap with a counterparty totaling $ 109.0 million. Changes in fair value from these 40 interest rate swaps offset each other in both 2023 and 2022. The Company recognized $ 61,000 , $ 157,000 , and $ 452,000 in fee income related to interest rate swaps in 2023 and 2022, and 2021, respectively. Interest rate swap income is recorded in other operating income on the Consolidated Statements of Income. None of these interest rate swaps are designated as hedging instruments. The Company has an interest rate swap to hedge the variability in cash flows arising out of its junior subordinated debentures, which is floating rate debt, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $ 10.0 million of junior subordinated debentures held under Trust 2 at 3.72 % through its maturity 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 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. The unrealized gain on this interest rate swap was $ 1.4 million and the unrealized loss on this interest rate swap was $ 1.5 million as of December 31, 2023 and 2022, respectively. Interest rate swaps related to home mortgage lending activities The Company also uses derivatives to hedge the risk of changes in the fair values of interest rate lock commitments. The Company enters into commitments to originate residential mortgage loans at specific rates; the value of these commitments are detailed in the table below as "interest rate lock commitments". The Company also hedges the interest rate risk associated with its residential mortgage loan commitments, which are referred to as "retail interest rate contracts" in the table below. 108 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, 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. None of these home mortgage lending derivatives are designated as hedging instruments. The following table presents the fair value of derivatives not designated as hedging instruments as of the dates noted: (In Thousands) Asset Derivatives December 31, 2023 December 31, 2022 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other assets $ 10,470 $ 12,725 Interest rate lock commitments Other assets 342 440 Retail interest rate contracts Other assets — — Total $ 10,812 $ 13,165 (In Thousands) Liability Derivatives December 31, 2023 December 31, 2022 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other liabilities $ 10,470 $ 12,725 Retail interest rate contracts Other liabilities 13 3 Total $ 10,483 $ 12,728 The following table presents the net gains (losses) of derivatives not designated as hedging instruments as of the dates noted: (In Thousands) Income Statement Location December 31, 2023 December 31, 2022 Retail interest rate contracts Mortgage banking income $ 161 $ 4,335 Interest rate lock commitments Mortgage banking income ( 92 ) ( 866 ) Total $ 69 $ 3,469 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. We do not offset such financial instruments for financial reporting purposes. 109 The following table summarizes the derivatives that have a right of offset as of December 31, 2023 and 2022: December 31, 2023 Gross amounts not offset in the Statement of Financial Position (In Thousands) Gross amounts of recognized assets and liabilities Gross amounts offset in the Statement of Financial Position Net amounts of assets and liabilities presented in the Statement of Financial Position Financial Instruments Collateral Posted Net Amount Asset Derivatives Interest rate swaps $ 10,470 $ — $ 10,470 $ — $ — $ 10,470 Liability Derivatives Interest rate swaps $ 10,470 $ — $ 10,470 $ — $ 10,470 $ — Retail interest rate contracts 13 — 13 — — 13 December 31, 2022 Gross amounts not offset in the Statement of Financial Position (In Thousands) Gross amounts of recognized assets and liabilities Gross amounts offset in the Statement of Financial Position Net amounts of assets and liabilities presented in the Statement of Financial Position Financial Instruments Collateral Posted Net Amount Asset Derivatives Interest rate swaps $ 12,725 $ — $ 12,725 $ — $ — $ 12,725 Retail interest rate contracts — — — — — — Liability Derivatives Interest rate swaps $ 12,725 $ — $ 12,725 $ — $ 12,725 $ — NOTE 20 - Common Stock 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 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. NOTE 21 - Stock-Based Compensation 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 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 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. The two latter options are referred to as cashless stock option exercises. Options are granted for a 10 -year period and vest on a pro-rata basis over the initial three years from the grant date. 110 The Company measures the fair value of each stock option at the date of grant using the Black-Scholes option pricing model using assumptions noted in the following table. Expected volatility is based on the historical volatility of the price of the Company’s common stock. The Company uses historical data to estimate option exercise and stock option forfeiture rates within the valuation model. The expected term of options granted is determined based on historical experience with similar options and represents the period of time that options granted are expected to be outstanding. The expected dividend yield is based on dividend trends and the market value of the Company’s common stock at the time of grant. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following assumptions were used to determine the fair value of stock options as of the grant date to determine compensation expense for the years ended December 31, 2023, 2022, and 2021: Stock Options: 2023 2022 2021 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: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life, in Years Outstanding at January 1, 2023 120,195 $ 34.21 Granted — — Forfeited — — Exercised ( 15,585 ) 28.54 Outstanding at December 31, 2023 104,610 $ 35.06 5.05 At December 31, 2023, 2022, and 2021, there were 100,830 , 106,714 , and 107,553 options exercisable, with weighted average exercise prices of $ 34.80 , $ 33.78 , and $ 32.63 , respectively. The aggregate intrinsic value of the stock options is the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on December 31, 2023 and the exercise price, times the number of shares) that would have been received by the option holders had all the option holders exercised their options on December 31, 2023. 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, 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 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 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. Restricted stock units cliff vest at the end of a three-year time period. 111 The following table summarizes restricted 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 38,502 $ 34.12 Granted 25,280 45.43 Dividend equivalents awarded 2,826 — Vested ( 21,677 ) 28.26 Forfeited ( 1,903 ) 37.53 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, 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 — Vested — — 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 The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on a company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk weightings, and other factors. 112 Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total capital, Tier 1 capital, and common equity Tier 1 to risk-weighted assets, and of Tier 1 capital to average assets (as defined in the regulations). The tables below illustrate the capital requirements for the Company and the Bank and the actual capital ratios for each entity that exceed these requirements. The dividends that the Bank pays to the Company are limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank. The capital ratios for the Company exceed those for the Bank primarily because the $ 10 million trust preferred securities offerings that the Company completed in the fourth quarter of 2005 are included in the Company’s capital for regulatory purposes although they are accounted for as a liability in its financial statements. The trust preferred securities are not included in the Bank's capital ratios. Northrim BanCorp, Inc. Actual Adequately-Capitalized Well-Capitalized (In Thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 2023: Common equity tier 1 capital (to risk-weighted assets) $ 235,378 10.98 % $ 96,466 ≥ 4.5 % NA NA Total Capital (to risk-weighted assets) $ 264,775 12.35 % $ 171,514 ≥ 8 % NA NA Tier I Capital (to risk-weighted assets) $ 245,087 11.43 % $ 128,655 ≥ 6 % NA NA Tier I Capital (to average assets) $ 245,087 8.72 % $ 112,425 ≥ 4 % NA NA As of December 31, 2022: Common equity tier 1 capital (to risk-weighted assets) $ 231,920 12.29 % $ 84,918 ≥ 4.5 % NA NA Total Capital (to risk-weighted assets) $ 257,425 13.64 % $ 150,982 ≥ 8 % NA NA Tier I Capital (to risk-weighted assets) $ 241,617 12.81 % $ 113,170 ≥ 6 % NA NA Tier I Capital (to average assets) $ 241,617 9.01 % $ 107,266 ≥ 4 % NA NA Northrim Bank Actual Adequately-Capitalized Well-Capitalized (In Thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 2023: Common equity tier 1 capital (to risk-weighted assets) $ 210,179 9.89 % $ 95,633 ≥ 4.5 % $ 138,136 ≥ 6.5 % Total Capital (to risk-weighted assets) $ 229,772 10.81 % $ 170,044 ≥ 8 % $ 212,555 ≥ 10 % Tier I Capital (to risk-weighted assets) $ 210,084 9.88 % $ 127,581 ≥ 6 % $ 170,109 ≥ 8 % Tier I Capital (to average assets) $ 210,084 7.51 % $ 111,896 ≥ 4 % $ 139,870 ≥ 5 % As of December 31, 2022: Common equity tier 1 capital (to risk-weighted assets) $ 198,034 10.59 % $ 84,150 ≥ 4.5 % $ 121,551 ≥ 6.5 % Total Capital (to risk-weighted assets) $ 213,745 11.42 % $ 149,734 ≥ 8 % $ 187,167 ≥ 10 % Tier I Capital (to risk-weighted assets) $ 197,937 10.58 % $ 112,252 ≥ 6 % $ 149,669 ≥ 8 % Tier I Capital (to average assets) $ 197,937 7.42 % $ 106,705 ≥ 4 % $ 133,381 ≥ 5 % As of the most recent notification from its regulatory agencies, the Bank was categorized as "well-capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s regulatory capital category. Management believes, as of December 31, 2023, that the Company and Bank meets all capital adequacy requirements to which they are subject. 113 NOTE 23 - Income Taxes Components of the provision for income taxes are as follows: (In Thousands) Current Tax Expense (Benefit) Deferred Expense (Benefit) Total Expense 2023: Federal $ 1,120 $ 388 $ 1,508 State 944 192 1,136 Amortization of investment in low income housing tax credit partnerships 3,570 — 3,570 Total $ 5,634 $ 580 $ 6,214 2022: Federal $ 1,412 $ 1,412 $ 2,824 State 860 698 1,558 Amortization of investment in low income housing tax credit partnerships 3,371 — 3,371 Total $ 5,643 $ 2,110 $ 7,753 2021: Federal $ 5,090 ($ 869 ) $ 4,221 State 3,182 ( 429 ) 2,753 Amortization of investment in low income housing tax credit partnerships 3,502 — 3,502 Total $ 11,774 ($ 1,298 ) $ 10,476 The actual expense for 2023, 2022, and 2021, differs from the “expected” tax expense (computed by applying the U.S. Federal Statutory Tax Rate of 21% for the years ended December 31, 2023, 2022 and 2021) as follows: (In Thousands) 2023 2022 2021 Computed “expected” income tax expense $ 6,638 $ 8,084 $ 10,079 State income taxes, net 897 1,231 2,175 Tax-exempt interest on investment securities and loans ( 459 ) ( 358 ) ( 238 ) Amortization of investment in low income housing tax credit partnerships, net 3,192 3,191 3,163 Low income housing tax credits ( 3,627 ) ( 3,725 ) ( 3,694 ) Other ( 427 ) ( 670 ) ( 1,009 ) Total $ 6,214 $ 7,753 $ 10,476 114 The components of the net deferred tax asset are as follows: (In Thousands) 2023 2022 2021 Deferred Tax Asset: Allowance for loan losses $ 5,347 $ 4,263 $ 3,126 Loan fees, net of costs 649 778 1,956 Interest income, nonaccrual loans 356 370 482 Deferred compensation 1,674 1,822 1,344 Equity compensation 466 404 406 Operating lease liabilities 2,585 2,805 3,117 Accrued liabilities 941 1,286 1,826 Unrealized loss on available for sale investment securities 7,057 11,976 1,270 Unrealized loss on marketable equity securities 176 178 — Other 280 285 837 Total Deferred Tax Asset $ 19,531 $ 24,167 $ 14,364 Deferred Tax Liability: Intangible amortization ($ 2,746 ) ($ 1,886 ) ($ 1,453 ) Mortgage servicing rights ( 6,065 ) ( 5,789 ) ( 4,172 ) Depreciation and amortization ( 1,463 ) ( 1,261 ) ( 1,515 ) Operating lease right-of-use assets ( 2,585 ) ( 2,806 ) ( 3,128 ) Unrealized gain on available for sale investment securities ( 139 ) ( 11 ) ( 189 ) Unrealized gain on marketable equity securities ( 50 ) ( 18 ) ( 159 ) Other ( 719 ) ( 1,029 ) ( 470 ) Total Deferred Tax Liability ($ 13,767 ) ($ 12,800 ) ($ 11,086 ) Net Deferred Tax Asset $ 5,764 $ 11,367 $ 3,278 A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The primary source of recovery of the deferred tax asset will be future taxable income. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset. The deferred tax asset is included in "Other assets" in the Consolidated Balance Sheets. As of December 31, 2023, the Company had no unrecognized tax benefits. The tax years subject to examination by federal taxing authorities are the years ending December 31, 2023, 2022, 2021, and 2020. The tax years subject to examination by the State of Alaska are the years ending December 31, 2023, 2022, 2021, 2020, 2019 and 2018. NOTE 24 - Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Investment securities available for sale and marketable equity securities: Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Servicing rights: MSR and CSR are measured at fair value on a recurring basis. These assets are classified as Level 3 as quoted prices are not available. In order to determine the fair value of MSR and CSR, the present value of net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates, and ancillary fee income net of servicing costs. The model assumptions are also compared to publicly filed information from several large MSR holders, as available. 115 Derivative instruments: The fair value of the interest rate lock commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. Interest rate contracts are valued in a model, which uses as its basis a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Company has determined that the majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2023, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives. As a result, the Company has classified its interest rate derivative valuations in Level 2 of the fair value hierarchy. Commitments to extend credit and standby letters of credit : The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. Assets Subject to Nonrecurring Adjustment to Fair Value: The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets, loans held for sale, impaired loans, and OREO at fair value on a nonrecurring basis in accordance with GAAP. 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 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. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists. The Company uses external sources to estimate fair value for projects that are not fully constructed as of the date of valuation. 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 believes that recording other real estate owned that is not fully constructed based on as if complete values is more appropriate than recording other real estate owned that is not fully constructed using as is values. We concluded that as-is-complete values are appropriate for these types of projects based on the accounting guidance for capitalization of project costs and subsequent measurement of the value of real estate. GAAP specifically states that estimates and cost allocations must be reviewed at the end of each reporting period and reallocated based on revised estimates. The Company adjusts the carrying value of other real estate owned in accordance with this guidance for increases in estimated cost to complete that exceed the fair value of the real estate at the end of each reporting period. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 116 Estimated fair values as of the periods indicated are as follows: December 31, 2023 December 31, 2022 (In Thousands) Carrying Amount Fair Value Carrying Amount Fair Value Financial assets: Level 1 inputs: Cash, due from banks and deposits in other banks $ 118,530 $ 118,530 $ 259,350 $ 259,350 Investment securities available for sale 310,896 310,896 356,837 356,837 Marketable equity securities 13,153 13,153 10,740 10,740 Level 2 inputs: Investment securities available for sale 327,040 327,040 320,192 320,192 Investment in Federal Home Loan Bank Stock 2,980 2,980 3,816 3,816 Loans held for sale 31,974 31,974 27,538 27,538 Accrued interest receivable 11,958 11,958 9,937 9,937 Interest rate swaps 11,836 11,836 14,179 14,179 Level 3 inputs: Investment securities held to maturity 36,750 33,413 36,750 32,639 Loans 1,789,497 1,686,362 1,501,785 1,408,350 Purchased receivables, net 36,842 36,842 19,994 19,994 Interest rate lock commitments 342 342 440 440 Mortgage servicing rights 19,564 19,564 18,635 18,635 Commercial servicing rights 2,200 2,200 2,129 2,129 Financial liabilities: Level 2 inputs: Deposits $ 2,485,055 2,482,937 $ 2,387,211 $ 2,383,975 Borrowings 13,675 11,872 14,095 12,382 Accrued interest payable 202 202 54 54 Interest rate swaps 10,470 10,470 12,725 12,725 Retail interest rate contracts 13 13 3 3 Level 3 inputs: Junior subordinated debentures 10,310 12,030 10,310 11,266 117 The following table sets forth the balances as of the periods indicated of assets measured at fair value on a recurring basis: (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Assets: Available for sale securities U.S. Treasury and government sponsored entities $ 564,125 $ 300,274 $ 263,851 $ — Municipal securities 816 — 816 — Corporate bonds 13,624 10,622 3,002 — Collateralized loan obligations 59,371 — 59,371 — Total available for sale securities $ 637,936 $ 310,896 $ 327,040 $ — Marketable equity securities $ 13,153 $ 13,153 $ — $ — Total marketable equity securities $ 13,153 $ 13,153 $ — $ — Interest rate swaps $ 11,836 $ — $ 11,836 $ — Interest rate lock commitments 342 — — 342 Mortgage servicing rights 19,564 — — 19,564 Commercial servicing rights 2,200 — — 2,200 Total other assets $ 33,942 $ — $ 11,836 $ 22,106 Liabilities: Interest rate swaps $ 10,470 $ — $ 10,470 $ — Retail interest rate contracts 13 — 13 — Total other liabilities $ 10,483 $ — $ 10,483 $ — December 31, 2022 Assets: Available for sale securities U.S. Treasury and government sponsored entities $ 595,161 $ 333,193 $ 261,968 $ — Municipal securities 795 — 795 — Corporate bonds 23,644 23,644 — — Collateralized loan obligations 57,429 — 57,429 — Total available for sale securities $ 677,029 $ 356,837 $ 320,192 $ — Marketable equity securities $ 10,740 $ 10,740 $ — $ — Total marketable equity securities $ 10,740 $ 10,740 $ — $ — Interest rate swaps $ 14,178 $ — $ 14,178 $ — Interest rate lock commitments 440 — — 440 Mortgage servicing rights 18,635 — — 18,635 Commercial servicing rights 2,129 — — 2,129 Total other assets $ 35,382 $ — $ 14,178 $ 21,204 Liabilities: Interest rate swaps $ 12,725 $ — $ 12,725 $ — Total other liabilities $ 12,728 $ — $ 12,728 $ — 118 The following table provides a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the years ended December 31, 2023 and 2022: (In Thousands) Beginning balance Change included in earnings Purchases and issuances Sales and settlements Ending balance December 31, 2023 Interest rate lock commitments $ 440 ($ 989 ) $ 7,447 ($ 6,556 ) $ 342 Mortgage servicing rights 18,635 ( 2,687 ) 3,616 — 19,564 Commercial servicing rights 2,129 ( 62 ) 133 — 2,200 Total $ 21,204 ($ 3,738 ) $ 11,196 ($ 6,556 ) $ 22,106 December 31, 2022 Interest rate lock commitments $ 1,387 ($ 1,515 ) $ 12,140 ($ 11,572 ) $ 440 Mortgage servicing rights 13,724 288 4,623 — 18,635 Commercial servicing rights 1,084 809 236 — 2,129 Total $ 16,195 ($ 418 ) $ 16,999 ($ 11,572 ) $ 21,204 As of and for the years ending December 31, 2023 and 2022, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis. For loans individually measured for credit losses, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy. (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Loans individually measured for credit losses $ — $ — $ — $ — Other real estate owned — — — — Total $ — $ — $ — $ — December 31, 2022 Loans individually measured for credit losses $ — $ — $ — $ — Other real estate owned — — — — Total $ — $ — $ — $ — The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the periods ended December 31, 2023, 2022 and 2021, respectively: (In Thousands) 2023 2022 2021 Loans individually measured for credit losses $ — $ — ($ 13 ) Other real estate owned 123 — — Total (income) loss from nonrecurring measurements $ 123 $ — ($ 13 ) 119 Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at December 31, 2023 and 2022: Financial Instrument Valuation Technique - Recurring Basis Unobservable Input Weighted Average or Rate Range December 31, 2023 Interest rate lock commitment External pricing model Pull through rate 89.84 % Mortgage servicing rights Discounted cash flow Constant prepayment rate 6.13 % - 25.33 % Discount rate 9.50 % - 11.00 % Commercial servicing rights Discounted cash flow Constant prepayment rate 3.99 % - 18.90 % Discount rate 9.50 % December 31, 2022 Interest rate lock commitment External pricing model Pull through rate 93.18 % Mortgage servicing rights Discounted cash flow Constant prepayment rate 6.62 % - 7.43 % Discount rate 11.25 % Commercial servicing rights Discounted cash flow Constant prepayment rate 4.19 % - 22.87 % Discount rate 12.00 % 120 NOTE 25 - Segment Information The Company's operations are managed along two operating segments: Community Banking and Home Mortgage Lending. The Community Banking segment's principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas. As of December 31, 2023, the Community Banking segment operated 19 branches throughout Alaska. The Home Mortgage Lending segment's principal business focus is the origination and sale of mortgage loans for 1-4 family residential properties. Summarized financial information for the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables: December 31, 2023 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 122,258 $ 9,693 $ 131,951 Interest expense 26,300 2,395 28,695 Net interest income 95,958 7,298 103,256 Provision for credit losses 3,842 — 3,842 Other operating income 13,612 12,763 26,375 Other operating expense 70,684 23,497 94,181 Income (loss) before provision for income taxes 35,044 ( 3,436 ) 31,608 Provision for income taxes 7,157 ( 943 ) 6,214 Net income (loss) $ 27,887 ($ 2,493 ) $ 25,394 Total assets $ 2,539,791 $ 267,706 $ 2,807,497 Loans held for sale $ — $ 31,974 $ 31,974 December 31, 2022 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 98,078 $ 2,250 $ 100,328 Interest expense 5,156 57 5,213 Net interest income 92,922 2,193 95,115 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 (loss) before provision for income taxes 39,679 ( 1,185 ) 38,494 Provision for income taxes 8,041 ( 288 ) 7,753 Net income (loss) $ 31,638 ($ 897 ) $ 30,741 Total assets $ 2,543,086 $ 131,232 $ 2,674,318 Loans held for sale $ — $ 27,538 $ 27,538 121 December 31, 2021 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 81,703 $ 2,903 $ 84,606 Interest expense 3,623 156 3,779 Net interest income 78,080 2,747 80,827 Benefit for credit losses ( 4,099 ) — ( 4,099 ) Other operating income 10,119 42,144 52,263 Other operating expense 58,647 30,549 89,196 Income before provision for income taxes 33,651 14,342 47,993 Provision for income taxes 6,468 4,008 10,476 Net income $ 27,183 $ 10,334 $ 37,517 Total assets $ 2,596,190 $ 128,529 $ 2,724,719 Loans held for sale $ — $ 73,650 $ 73,650 NOTE 26 - Parent Company Information Balance Sheets at December 31, 2023 2022 (In Thousands) Assets Cash and cash equivalents $ 19,055 $ 30,883 Marketable equity securities 13,153 10,740 Investment in Northrim Bank 208,435 184,148 Investment in NISC 1,167 1,245 Investment in NST2 310 310 Taxes receivable, net 1,212 463 Other assets 2,152 1,435 Total Assets $ 245,484 $ 229,224 Liabilities Junior subordinated debentures $ 10,310 $ 10,310 Other liabilities 456 285 Total Liabilities 10,766 10,595 Shareholders' Equity Common stock 5,513 5,701 Additional paid-in capital 9,605 17,784 Retained earnings 236,037 224,225 Accumulated other comprehensive (loss) income ( 16,437 ) ( 29,081 ) Total Shareholders' Equity 234,718 218,629 Total Liabilities and Shareholders' Equity $ 245,484 $ 229,224 122 Statements of Income for Years Ended: 2023 2022 2021 (In Thousands) Income Interest income $ 1,258 $ 698 $ 551 Equity in undistributed earnings from Northrim Bank 26,871 32,853 38,625 Equity in undistributed earnings from NISC ( 22 ) 120 66 Gain on sale of marketable equity securities, net — — 67 Unrealized gain (loss) on marketable equity securities 120 ( 1,119 ) ( 101 ) Other income — — 151 Total Income $ 28,227 $ 32,552 $ 39,359 Expense Interest expense 400 389 382 Administrative and other expenses 3,357 2,830 2,754 Total Expense 3,757 3,219 3,136 Income Before Benefit from Income Taxes 24,470 29,333 36,223 Benefit from income taxes ( 924 ) ( 1,408 ) ( 1,294 ) Net Income $ 25,394 $ 30,741 $ 37,517 Statements of Cash Flows for Years Ended: 2023 2022 2021 (In Thousands) Operating Activities: Net income $ 25,394 $ 30,741 $ 37,517 Adjustments to Reconcile Net Income to Net Cash: Gain on sale of securities, net — — ( 67 ) Equity in undistributed earnings from subsidiaries ( 26,892 ) ( 32,732 ) ( 38,691 ) Change in fair value marketable equity securities ( 120 ) 1,119 101 Stock-based compensation 937 742 1,073 Changes in other assets and liabilities ( 1,380 ) ( 1,268 ) ( 2,167 ) Net Cash Used from Operating Activities ( 2,061 ) ( 1,398 ) ( 2,234 ) Investing Activities: Purchases of marketable equity securities ( 2,297 ) ( 3,934 ) ( 493 ) Proceeds from sales/calls/maturities of marketable equity securities — 488 1,016 Investment in Northrim Bank, NISC & NST2 14,628 24,323 31,894 Net Cash Provided by Investing Activities 12,331 20,877 32,417 Financing Activities: Dividends paid to shareholders ( 13,609 ) ( 10,571 ) ( 9,388 ) Proceeds from issuance of common stock 555 586 1,543 Repurchase of common stock ( 9,044 ) ( 14,157 ) ( 11,534 ) Net Cash Used from Financing Activities ( 22,098 ) ( 24,142 ) ( 19,379 ) Net change in Cash and Cash Equivalents ( 11,828 ) ( 4,663 ) 10,804 Cash and Cash Equivalents at beginning of year 30,883 35,546 24,742 Cash and Cash Equivalents at end of year $ 19,055 $ 30,883 $ 35,546 123 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF ACCOUNTING AND FINANCIAL DISCLOSURE None.