NORTHRIM BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS 2 CONSOLIDATED FINANCIAL STATEMENTS NORTHRIM BANCORP, INC. Consolidated Balance Sheets (Unaudited) September 30, 2024 December 31, 2023 (In Thousands, Except Share Data) ASSETS Cash and due from banks $ 42,805 $ 27,457 Interest bearing deposits in other banks 60,071 91,073 Investment securities available for sale, at fair value 545,210 637,936 Marketable equity securities 12,957 13,153 Investment securities held to maturity, at amortized cost 36,750 36,750 Investment in Federal Home Loan Bank stock 4,318 2,980 Loans held for sale 97,937 31,974 Loans 2,007,565 1,789,497 Allowance for credit losses, loans ( 19,528 ) ( 17,270 ) Net loans 1,988,037 1,772,227 Purchased receivables, net 23,564 36,842 Mortgage servicing rights, at fair value 21,570 19,564 Premises and equipment, net 39,625 40,693 Operating lease right-of-use assets 7,616 9,092 Goodwill 15,017 15,017 Other intangible assets, net 950 950 Other assets 66,965 71,789 Total assets $ 2,963,392 $ 2,807,497 LIABILITIES Deposits: Demand $ 763,595 $ 749,683 Interest-bearing demand 979,238 927,291 Savings 245,043 255,338 Money market 201,821 221,492 Certificates of deposit less than $250,000 219,838 189,106 Certificates of deposit $250,000 and greater 216,032 142,145 Total deposits 2,625,567 2,485,055 Borrowings 13,354 13,675 Junior subordinated debentures 10,310 10,310 Operating lease liabilities 7,635 9,092 Other liabilities 46,476 54,647 Total liabilities 2,703,342 2,572,779 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, 5,501,943 and 5,513,459 issued and outstanding at September 30, 2024 and December 31, 2023, respectively 5,502 5,513 Additional paid-in capital 9,460 9,605 Retained earnings 251,842 236,037 Accumulated other comprehensive loss, net of tax ( 6,754 ) ( 16,437 ) Total shareholders' equity 260,050 234,718 Total liabilities and shareholders' equity $ 2,963,392 $ 2,807,497 See notes to consolidated financial statements 3 NORTHRIM BANCORP, INC. Consolidated Statements of Income (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (In Thousands, Except Per Share Data) 2024 2023 2024 2023 Interest and Dividend Income Interest and fees on loans and loans held for sale $ 34,863 $ 29,097 $ 97,680 $ 79,104 Interest on investment securities available for sale 3,408 4,012 10,682 11,942 Dividends on marketable equity securities 209 199 679 542 Interest on investment securities held to maturity 467 473 1,419 1,420 Dividends on Federal Home Loan Bank stock 80 43 214 114 Interest on deposits in other banks 389 584 1,459 2,901 Total Interest and Dividend Income 39,416 34,408 112,133 96,023 Interest Expense Interest expense on deposits 10,123 7,138 28,779 17,835 Interest expense on borrowings 357 825 729 1,381 Interest expense on junior subordinated debentures 94 95 283 283 Total Interest Expense 10,574 8,058 29,791 19,499 Net Interest Income 28,842 26,350 82,342 76,524 Provision for credit losses 2,063 1,190 2,092 2,957 Net Interest Income After Provision for Credit Losses 26,779 25,160 80,250 73,567 Other Operating Income Mortgage banking income 7,047 4,405 16,962 10,326 Bankcard fees 1,196 1,022 3,218 2,916 Purchased receivable income 1,033 1,180 3,620 3,175 Service charges on deposit accounts 605 550 1,726 1,512 Unrealized gain (loss) on marketable equity securities 576 12 830 ( 445 ) Other income 1,130 833 2,652 2,406 Total Other Operating Income 11,587 8,002 29,008 19,890 Other Operating Expense Salaries and other personnel expense 17,549 15,657 49,593 46,324 Data processing expense 2,618 2,589 7,878 7,321 Occupancy expense 1,911 1,857 5,716 5,611 Professional and outside services 903 803 2,384 2,326 Marketing expense 860 499 2,063 1,996 Insurance expense 596 640 2,067 1,844 OREO expense, net rental income and gains on sale 2 ( 784 ) ( 387 ) ( 766 ) Intangible asset amortization expense — 4 — 11 Other operating expense 2,289 1,631 6,246 5,521 Total Other Operating Expense 26,728 22,896 75,560 70,188 Income Before Provision for Income Taxes 11,638 10,266 33,698 23,269 Provision for income taxes 2,813 1,892 7,654 4,488 Net Income $ 8,825 $ 8,374 $ 26,044 $ 18,781 Earnings Per Share, Basic $ 1.60 $ 1.50 $ 4.73 $ 3.34 Earnings Per Share, Diluted $ 1.57 $ 1.48 $ 4.67 $ 3.30 Weighted Average Common Shares Outstanding, Basic 5,501,943 5,569,238 5,500,703 5,630,948 Weighted Average Common Shares Outstanding, Diluted 5,583,055 5,624,906 5,574,135 5,688,687 See notes to consolidated financial statements 4 NORTHRIM BANCORP, INC. Consolidated Statements of Comprehensive Income (Unaudited) 2010 Three Months Ended September 30, Nine Months Ended September 30, (In Thousands) 2024 2023 2024 2023 Net income $ 8,825 $ 8,374 $ 26,044 $ 18,781 Other comprehensive income (loss), net of tax: Securities available for sale: Unrealized holding gains arising during the period $ 10,591 $ 1,320 $ 13,689 $ 5,025 Derivatives and hedging activities: Unrealized holding gains (losses) arising during the period ( 488 ) 639 ( 160 ) 621 Income tax expense related to unrealized (gains) losses ( 2,872 ) ( 557 ) ( 3,847 ) ( 1,606 ) Other comprehensive income, net of tax 7,231 1,402 9,682 4,040 Comprehensive income $ 16,056 $ 9,776 $ 35,726 $ 22,821 See notes to consolidated financial statements 5 NORTHRIM BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss), net of Tax Total Number of Shares Par Value (In Thousands) Balance as of January 1, 2023 5,701 $ 5,701 $ 17,784 $ 224,225 ($ 29,081 ) $ 218,629 Cash dividend on common stock ($ 0.60 per share) — — — ( 3,444 ) — ( 3,444 ) Stock-based compensation expense — — 140 — — 140 Repurchase of common stock ( 28 ) ( 28 ) ( 1,299 ) — — ( 1,327 ) Other comprehensive gain, net of tax — — — — 5,597 5,597 Net income — — — 4,830 — 4,830 Balance as of March 31, 2023 5,673 $ 5,673 $ 16,625 $ 225,611 ($ 23,484 ) $ 224,425 Cash dividend on common stock ($ 0.60 per share) — — — ( 3,432 ) — ( 3,432 ) Stock-based compensation expense — — 225 — — 225 Repurchase of common stock ( 62 ) ( 62 ) ( 2,439 ) — — ( 2,501 ) Other comprehensive loss, net of tax — — — — ( 2,958 ) ( 2,958 ) Net income — — — 5,577 — 5,577 Balance as of June 30, 2023 5,611 $ 5,611 $ 14,411 $ 227,756 ($ 26,442 ) $ 221,336 Cash dividend on common stock ($ 0.60 per share) — — — ( 3,384 ) — ( 3,384 ) Stock-based compensation expense — — 254 — — 254 Exercise of stock options and vesting of restricted stock units, net — — ( 12 ) — — ( 12 ) Repurchase of common stock ( 63 ) ( 63 ) ( 2,648 ) — — ( 2,711 ) Other comprehensive gain, net of tax — — — — 1,402 1,402 Net income — — — 8,374 — 8,374 Balance as of September 30, 2023 5,548 $ 5,548 $ 12,005 $ 232,746 ($ 25,040 ) $ 225,259 Cash dividend on common stock ($ 0.60 per share) — — — ( 3,322 ) — ( 3,322 ) Stock-based compensation expense — — 318 — — 318 Exercise of stock options and vesting of restricted stock units, net 21 21 ( 269 ) — — ( 248 ) Repurchase of common stock ( 56 ) ( 56 ) ( 2,449 ) — — ( 2,505 ) Other comprehensive gain, net of tax — — — — 8,603 8,603 Net income — — — 6,613 — 6,613 Balance as of December 31, 2023 5,513 $ 5,513 $ 9,605 $ 236,037 ($ 16,437 ) $ 234,718 See notes to consolidated financial statements 6 NORTHRIM BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity (Continued) (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss), net of Tax Total Number of Shares Par Value (In Thousands) Balance as of January 1, 2024 5,513 $ 5,513 $ 9,605 $ 236,037 ($ 16,437 ) $ 234,718 Cash dividend on common stock ($ 0.61 per share) — — — ( 3,388 ) — ( 3,388 ) Stock-based compensation expense — — 208 — — 208 Exercise of stock options and vesting of restricted stock units, net 1 1 ( 27 ) — — ( 26 ) Repurchase of common stock ( 14 ) ( 14 ) ( 774 ) — — ( 788 ) Other comprehensive gain, net of tax — — — — 404 404 Net income — — — 8,199 — 8,199 Balance as of March 31, 2024 5,500 $ 5,500 $ 9,012 $ 240,848 ($ 16,033 ) $ 239,327 Cash dividend on common stock ($ 0.61 per share) — — — ( 3,393 ) — ( 3,393 ) Stock-based compensation expense — — 219 — — 219 Exercise of stock options and vesting of restricted stock units, net 2 2 ( 23 ) — — ( 21 ) Other comprehensive gain, net of tax — — — — 2,048 2,048 Net income — — — 9,020 — 9,020 Balance as of June 30, 2024 5,502 $ 5,502 $ 9,208 $ 246,475 ($ 13,985 ) $ 247,200 Cash dividend on common stock ($ 0.62 per share) — — — ( 3,458 ) — ( 3,458 ) Stock-based compensation expense — — 265 — — 265 Exercise of stock options and vesting of restricted stock units, net — — ( 13 ) — — ( 13 ) Other comprehensive gain, net of tax — — — — 7,231 7,231 Net income — — — 8,825 — 8,825 Balance as of September 30, 2024 5,502 $ 5,502 $ 9,460 $ 251,842 ($ 6,754 ) $ 260,050 See notes to consolidated financial statements 7 NORTHRIM BANCORP, INC. Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, (In Thousands) 2024 2023 Operating Activities: Net income $ 26,044 $ 18,781 Adjustments to Reconcile Net Income to Net Cash (Used) by Operating Activities: Depreciation and amortization of premises and equipment 2,712 2,430 Amortization of software 511 865 Intangible asset amortization — 11 Amortization of investment security premium, net of discount accretion 309 376 Unrealized (gain) loss on marketable equity securities ( 830 ) 445 Stock-based compensation 692 619 Deferred loan fees and amortization, net of costs 190 ( 324 ) Provision for credit losses 2,092 2,957 Additions to home mortgage servicing rights carried at fair value ( 3,080 ) ( 2,440 ) Change in fair value of home mortgage servicing rights carried at fair value 1,074 1,679 Change in fair value of commercial servicing rights carried at fair value 155 144 Gain on sale of loans ( 10,247 ) ( 6,366 ) Proceeds from the sale of loans held for sale 390,907 267,165 Origination of loans held for sale ( 446,623 ) ( 296,412 ) Gain on sale of other real estate owned ( 392 ) ( 929 ) Impairment on other real estate owned — 123 Net changes in assets and liabilities: (Increase) in accrued interest receivable ( 951 ) ( 3,265 ) Decrease in other assets — 1,903 (Decrease) increase in other liabilities ( 6,808 ) 1,127 Net Cash (Used) by Operating Activities ( 44,245 ) ( 11,111 ) Investing Activities: Investment in securities: Purchases of investment securities available for sale ( 19,517 ) ( 6,000 ) Purchases of marketable equity securities ( 1,964 ) ( 324 ) Purchases of FHLB stock ( 24,872 ) ( 5,441 ) Proceeds from sales/calls/maturities of securities available for sale 125,625 35,528 Proceeds from calls of marketable equity securities 2,989 — Proceeds from redemption of FHLB stock 23,534 2,923 Decrease (increase) in purchased receivables, net 13,278 ( 14,584 ) Increase in loans, net ( 241,563 ) ( 218,121 ) Proceeds from the sale of loans 23,469 — Proceeds from sale of other real estate owned 392 929 Purchases of software ( 419 ) ( 104 ) Purchases of premises and equipment ( 1,644 ) ( 5,529 ) Net Cash (Used) by Investing Activities ( 100,692 ) ( 210,723 ) Financing Activities: Increase in deposits 140,512 40,719 (Decrease) increase in borrowings ( 321 ) 49,686 Repurchase of common stock ( 788 ) ( 6,539 ) Cash dividends paid ( 10,120 ) ( 10,154 ) Net Cash Provided by Financing Activities 129,283 73,712 Net Change in Cash and Cash Equivalents ( 15,654 ) ( 148,122 ) Cash and Cash Equivalents at Beginning of Period 118,530 259,350 Cash and Cash Equivalents at End of Period $ 102,876 $ 111,228 8 Supplemental Information: Income taxes paid $ 3,488 $ 2,031 Interest paid $ 29,286 $ 18,340 Noncash commitments to invest in Low Income Housing Tax Credit Partnerships $ — $ 14,273 Transfer of loans to other real estate owned $ — $ 273 Non-cash lease liability arising from obtaining right of use assets $ 265 $ 423 Cash dividends declared but not paid $ 119 $ 106 See notes to consolidated financial statements 9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Significant Accounting Policies The accompanying unaudited consolidated financial statements and corresponding footnotes have been prepared by Northrim BanCorp, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The year-end Consolidated Balance Sheet data was derived from the Company's audited financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company owns a 100% interest in Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively “RML”) and consolidates their balance sheets and income statement into its financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company determined that it operates in two primary operating segments: Community Banking and Home Mortgage Lending. The Company has evaluated subsequent events and transactions for potential recognition or disclosure. Operating results for the interim period ended September 30, 2024 are not necessarily indicative of the results anticipated for the year ending December 31, 2024. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The Company’s significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes in our application of these accounting policies in 2024. Reclassification of Prior Period Presentation Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or total shareholders' equity. Recent Accounting Pronouncements Accounting pronouncements implemented in 2024 In March 2023, the Financial Accounting Standards Board (“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 Accounting Standards Codification (“ASC”) paragraph 323-740-25-1, which sets forth the conditions needed to apply the proportional amortization method. The amendments make certain limited changes to those conditions to clarify their application to a broader group of tax credit investment programs. However, the conditions in substance remain consistent with current GAAP. The amendments in this ASU 2023-02 also eliminate certain LIHTC-specific guidance to align the accounting more closely for LIHTCs with the accounting for other equity investments in tax credit structures and require that the delayed equity contribution guidance in paragraph ASC 323-740-25-3 applies only to tax equity investments accounted for using the proportional amortization method. The Company adopted ASU 2023-02 on January 1, 2024. The adoption of ASU 2023-02 did not 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 its operating segments. The amendments in ASU 2023-07 improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company adopted ASU 2023-07 on January 1, 2024. The adoption of ASU 2023-07 did not have a material impact on the Company's consolidated financial statements. 10 Accounting pronouncements to be implemented in future periods 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 intends to adopt ASU 2023-09 prospectively and does not believe that the adoption will have a material impact on the Company's consolidated financial statements. In March 2024, the FASB issued ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements ("ASU 2024-02"). ASU 2024-02 contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Concepts Statements to provide guidance in certain topical areas. FASB Concepts Statement are nonauthoritative. Removing all references to Concepts Statements in the guidance is intended to simplify the Codification and draw a distinction between authoritative and nonauthoritative literature. ASU 2024-02 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 intends to adopt ASU 2024-02 prospectively and does not believe that the adoption will have a material impact on the Company's consolidated financial statements. 2. Investment Securities Marketable Equity Securities The Company held marketable equity securities with fair values of $ 13.0 million and $ 13.2 million at September 30, 2024 and December 31, 2023, respectively. The gross realized and unrealized gains (losses) recognized on marketable equity securities in other operating income in the Company's Consolidated Statements of Income were as follows: Three Months Ended September 30, Nine Months Ended September 30, (In Thousands) 2024 2023 2024 2023 Unrealized gain (loss) on marketable equity securities $ 576 $ 12 $ 830 ($ 445 ) Total $ 576 $ 12 $ 830 ($ 445 ) Debt securities Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, estimated fair value, and the Allowance for Credit Losses (“ACL”) of debt securities and the corresponding amounts of gross unrealized gains and losses of available-for-sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities at the periods indicated: (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value September 30, 2024 Securities available for sale U.S. Treasury and government sponsored entities $ 500,436 $ 1,094 ($ 11,607 ) $ — $ 489,923 Corporate bonds 9,011 20 ( 229 ) — 8,802 Collateralized loan obligations 46,405 87 ( 7 ) — 46,485 Total securities available for sale $ 555,852 $ 1,201 ($ 11,843 ) $ — $ 545,210 11 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value September 30, 2024 Securities held to maturity Corporate bonds $ 36,750 $ — ($ 2,135 ) $ 34,615 Allowance for credit losses — — — — Total securities held to maturity, net of ACL $ 36,750 $ — ($ 2,135 ) $ 34,615 (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 (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 Gross unrealized losses on available for sale securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2024 and December 31, 2023 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 September 30, 2024 Securities available for sale U.S. Treasury and government sponsored entities $ 9,991 ($ 9 ) $ 434,211 ($ 11,598 ) $ 444,202 ($ 11,607 ) Corporate bonds — — 4,783 ( 229 ) 4,783 ( 229 ) Collateralized loan obligations — — 4,988 ( 7 ) 4,988 ( 7 ) Total $ 9,991 ($ 9 ) $ 443,982 ($ 11,834 ) $ 453,973 ($ 11,843 ) December 31, 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 ) Collateralized loan obligations 3,909 ( 91 ) 43,149 ( 345 ) 47,058 ( 436 ) Municipal securities — — 816 ( 4 ) 816 ( 4 ) Total $ 13,906 ($ 94 ) $ 579,138 ($ 24,729 ) $ 593,044 ($ 24,823 ) 12 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 September 30, 2024, the Company had 50 available for sale securities in an unrealized loss position without an ACL. At September 30, 2024, the Company had five held to maturity securities in an unrealized loss position without an ACL. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of September 30, 2024, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, primarily changes in interest rates, and therefore no losses have been recognized in the Company's Consolidated Statements of Income. At September 30, 2024 and December 31, 2023, carrying amounts of $ 179.2 million and $ 180.1 million in securities were pledged for deposits and borrowings, respectively. The amortized cost and estimated fair values of debt securities at September 30, 2024, 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 US Treasury and government sponsored entities Within 1 year $ 176,092 $ 174,118 1-5 years 324,344 315,805 Total $ 500,436 $ 489,923 Corporate bonds Within 1 year $ 3,999 $ 4,019 1-5 years 15,012 14,722 5-10 years 26,750 24,676 Total $ 45,761 $ 43,417 Collateralized loan obligations 5-10 years $ 27,405 $ 27,432 Over 10 years 19,000 19,053 Total $ 46,405 $ 46,485 There were no proceeds from sales of investment securities for the three or nine-month periods ending September 30, 2024 and 2023. A summary of interest income for the three and nine-month periods ending September 30, 2024 and 2023, on available for sale investment securities are as follows: Three Months Ended September 30, Nine Months Ended September 30, (In Thousands) 2024 2023 2024 2023 US Treasury and government sponsored entities $ 2,443 $ 2,794 $ 7,511 $ 8,424 Other 965 1,214 3,168 3,505 Total taxable interest income $ 3,408 $ 4,008 $ 10,679 $ 11,929 Municipal securities $ — $ 4 $ 3 $ 13 Total tax-exempt interest income $ — $ 4 $ 3 $ 13 Total $ 3,408 $ 4,012 $ 10,682 $ 11,942 13 3. Loans and Allowance for Credit Losses Loans Held for Sale Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of September 30, 2024 and December 31, 2023. 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 Investment The following table presents amortized cost and unpaid principal balance of loans, categorized by the segments used in the Company's Current Expected Credit Losses (“CECL”) methodology to assess credit risk, for the periods indicated: September 30, 2024 December 31, 2023 (In Thousands) Amortized Cost Unpaid Principal Difference Amortized Cost Unpaid Principal Difference Commercial & industrial loans $ 414,201 $ 416,184 ($ 1,983 ) $ 411,387 $ 413,293 ($ 1,906 ) Commercial real estate: Owner occupied properties 410,924 412,827 ( 1,903 ) 366,741 368,357 ( 1,616 ) Non-owner occupied and multifamily properties 580,702 584,302 ( 3,600 ) 515,528 519,115 ( 3,587 ) Residential real estate: 1-4 family residential properties secured by first liens 248,906 248,514 392 203,738 203,534 204 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 45,531 45,262 269 33,996 33,783 213 1-4 family residential construction loans 39,557 39,794 ( 237 ) 30,976 31,239 ( 263 ) Other construction, land development and raw land loans 183,849 185,362 ( 1,513 ) 148,373 149,788 ( 1,415 ) Obligations of states and political subdivisions in the US 29,586 29,582 4 30,407 30,409 ( 2 ) Agricultural production, including commercial fishing 44,489 44,719 ( 230 ) 41,007 41,237 ( 230 ) Consumer loans 7,907 7,836 71 6,241 6,180 61 Other loans 1,913 1,929 ( 16 ) 1,103 1,118 ( 15 ) Total 2,007,565 2,016,311 ( 8,746 ) 1,789,497 1,798,053 ( 8,556 ) Allowance for credit losses ( 19,528 ) ( 17,270 ) Net loans $ 1,988,037 $ 2,016,311 ($ 8,746 ) $ 1,772,227 $ 1,798,053 ($ 8,556 ) The difference between the amortized cost and unpaid principal balance is net deferred origination fees totaling $ 8.7 million at September 30, 2024 and $ 8.6 million at December 31, 2023. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 9.0 million and $ 7.4 million at September 30, 2024 and December 31, 2023, respectively, and is included in other assets in the Consolidated Balance Sheets. Amortized cost in the above table includes $ 1.2 million and $ 2.8 million as of September 30, 2024 and December 31, 2023, respectively, in Paycheck Protection Program loans administered by the U.S. Small Business Administration within the Commercial & industrial loan segment. 14 Allowance for Credit Losses The table below presents activity in the ACL related to loans held for investment for the periods indicated. Three Months Ended September 30, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance (In Thousands) 2024 Commercial & industrial loans $ 4,047 $ 153 $ — $ 104 $ 4,304 Commercial real estate: Owner occupied properties 2,963 ( 42 ) — — 2,921 Non-owner occupied and multifamily properties 3,499 273 — — 3,772 Residential real estate: 1-4 family residential properties secured by first liens 3,489 571 — — 4,060 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 665 62 — 6 733 1-4 family residential construction loans 180 62 — — 242 Other construction, land development and raw land loans 2,526 639 — — 3,165 Obligations of states and political subdivisions in the US 100 — — — 100 Agricultural production, including commercial fishing 157 ( 3 ) — 1 155 Consumer loans 61 25 ( 15 ) — 71 Other loans 7 ( 2 ) — — 5 Total $ 17,694 $ 1,738 ($ 15 ) $ 111 $ 19,528 2023 Commercial & industrial loans $ 3,418 ($ 55 ) ($ 91 ) $ 181 $ 3,453 Commercial real estate: Owner occupied properties 2,807 ( 15 ) — — 2,792 Non-owner occupied and multifamily properties 3,260 ( 36 ) — — 3,224 Residential real estate: 1-4 family residential properties secured by first liens 3,206 334 — — 3,540 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 423 78 — 5 506 1-4 family residential construction loans 206 ( 31 ) — — 175 Other construction, land development and raw land loans 1,996 480 — — 2,476 Obligations of states and political subdivisions in the US 88 ( 11 ) — — 77 Agricultural production, including commercial fishing 162 2 — — 164 Consumer loans 74 4 — 1 79 Other loans 5 — — — 5 Total $ 15,645 $ 750 ($ 91 ) $ 187 $ 16,491 15 Nine Months Ended September 30, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance (In Thousands) 2024 Commercial & industrial loans $ 3,438 $ 684 $ — $ 182 $ 4,304 Commercial real estate: Owner occupied properties 2,867 54 — — 2,921 Non-owner occupied and multifamily properties 3,294 478 — — 3,772 Residential real estate: 1-4 family residential properties secured by first liens 3,470 590 — — 4,060 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 551 166 — 16 733 1-4 family residential construction loans 191 51 — — 242 Other construction, land development and raw land loans 3,127 38 — — 3,165 Obligations of states and political subdivisions in the US 80 20 — — 100 Agricultural production, including commercial fishing 168 7 ( 25 ) 5 155 Consumer loans 81 4 ( 15 ) 1 71 Other loans 3 2 — — 5 Total $ 17,270 $ 2,094 ($ 40 ) $ 204 $ 19,528 2023 Commercial & industrial loans $ 2,914 $ 412 ($ 140 ) $ 267 $ 3,453 Commercial real estate: Owner occupied properties 3,094 ( 302 ) — — 2,792 Non-owner occupied and multifamily properties 3,615 ( 391 ) — — 3,224 Residential real estate: 1-4 family residential properties secured by first liens 1,413 2,127 — — 3,540 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 389 100 — 17 506 1-4 family residential construction loans 312 ( 137 ) — — 175 Other construction, land development and raw land loans 1,803 673 — — 2,476 Obligations of states and political subdivisions in the US 79 ( 2 ) — — 77 Agricultural production, including commercial fishing 145 19 — — 164 Consumer loans 68 21 ( 14 ) 4 79 Other loans 6 ( 1 ) — — 5 Total $ 13,838 $ 2,519 ($ 154 ) $ 288 $ 16,491 16 The following table shows gross charge-offs by year of loan origination for the periods indicated: Nine Months Ended September 30, (In Thousands) 2024 2023 2022 2021 2020 Prior Total 2024 Agricultural production, including commercial fishing $ — $ — $ 25 $ — $ — $ — $ 25 Consumer loans 2 — 13 — — — 15 Total $ 2 $ — $ 38 $ — $ — $ — $ 40 Credit Quality Information As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management utilizes a loan risk grading system called the Asset Quality Rating (“AQR”) system to assign a risk classification to each of its loans. The risk classification is a dual rating system that contemplates both probability of default and risk of loss given default. Loans are graded on a scale of 1 to 10 and, loans graded 1 – 6 are considered “pass” grade loans. Loans graded 7 or higher are considered “classified” loans. A description of the general characteristics of the AQR risk classifications are as follows: Pass grade loans – 1 through 6: The borrower demonstrates sufficient cash flow to fund debt service, including acceptable profit margins, cash flows, liquidity and other balance sheet ratios. Historic and projected performance indicates that the borrower is able to meet obligations under most economic circumstances. The borrower has competent management with an acceptable track record. The category does not include loans with undue or unwarranted credit risks that constitute identifiable weaknesses. Classified loans: Special Mention – 7: A “special mention” credit has weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset at some future date. Substandard – 8: A “substandard” credit is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Northrim Bank will sustain some loss if the deficiencies are not corrected. Doubtful – 9: An asset classified “doubtful” has all the weaknesses inherent in one that is classified "substandard-8" with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. The loan has substandard characteristics, and available information suggests that it is unlikely that the loan will be repaid in its entirety. 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. September 30, 2024 2024 2023 2022 2021 2020 Prior Total (In Thousands) Commercial & industrial loans Pass $ 76,222 $ 76,864 $ 109,502 $ 49,022 $ 12,403 $ 47,192 $ 371,205 Classified 343 3,432 16,909 14,486 5,970 1,856 42,996 Total commercial & industrial loans $ 76,565 $ 80,296 $ 126,411 $ 63,508 $ 18,373 $ 49,048 $ 414,201 Commercial real estate: Owner occupied properties Pass $ 50,326 $ 44,030 $ 75,406 $ 67,083 $ 82,326 $ 89,244 $ 408,415 17 Classified — — 492 — 309 1,708 2,509 Total commercial real estate owner occupied properties $ 50,326 $ 44,030 $ 75,898 $ 67,083 $ 82,635 $ 90,952 $ 410,924 Non-owner occupied and multifamily properties Pass $ 73,602 $ 62,978 $ 106,614 $ 73,736 $ 65,785 $ 186,867 $ 569,582 Classified — — 1,173 — — 9,947 11,120 Total commercial real estate non-owner occupied and multifamily properties $ 73,602 $ 62,978 $ 107,787 $ 73,736 $ 65,785 $ 196,814 $ 580,702 Residential real estate: 1-4 family residential properties secured by first liens Pass $ 78,006 $ 111,302 $ 44,312 $ 3,482 $ 4,306 $ 7,125 $ 248,533 Classified — 210 — — — 163 373 Total residential real estate 1-4 family residential properties secured by first liens $ 78,006 $ 111,512 $ 44,312 $ 3,482 $ 4,306 $ 7,288 $ 248,906 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens Pass $ 13,273 $ 14,555 $ 5,353 $ 2,766 $ 2,266 $ 6,639 $ 44,852 Classified — 372 — — — 307 679 Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ 13,273 $ 14,927 $ 5,353 $ 2,766 $ 2,266 $ 6,946 $ 45,531 1-4 family residential construction loans Pass $ 25,853 $ 6,374 $ 2,263 $ — $ — $ 4,968 $ 39,458 Classified — — — — — 99 99 Total residential real estate 1-4 family residential construction loans $ 25,853 $ 6,374 $ 2,263 $ — $ — $ 5,067 $ 39,557 Other construction, land development and raw land loans Pass $ 34,183 $ 61,339 $ 51,346 $ 25,525 $ 1,653 $ 8,237 $ 182,283 Classified — — — 31 — 1,535 1,566 Total other construction, land development and raw land loans $ 34,183 $ 61,339 $ 51,346 $ 25,556 $ 1,653 $ 9,772 $ 183,849 Obligations of states and political subdivisions in the US Pass $ — $ — $ 29,586 $ — $ — $ — $ 29,586 Classified — — — — — — — Total obligations of states and political subdivisions in the US $ — $ — $ 29,586 $ — $ — $ — $ 29,586 Agricultural production, including commercial fishing Pass $ 5,257 $ 9,027 $ 8,764 $ 16,218 $ 3,215 $ 2,008 $ 44,489 Classified — — — — — — — Total agricultural production, including commercial fishing $ 5,257 $ 9,027 $ 8,764 $ 16,218 $ 3,215 $ 2,008 $ 44,489 Consumer loans Pass $ 3,008 $ 2,645 $ 767 $ 85 $ 307 $ 1,089 $ 7,901 Classified — — 6 — — — 6 Total consumer loans $ 3,008 $ 2,645 $ 773 $ 85 $ 307 $ 1,089 $ 7,907 Other loans Pass $ — $ 185 $ 136 $ 291 $ 1,301 $ — $ 1,913 Classified — — — — — — — Total other loans $ — $ 185 $ 136 $ 291 $ 1,301 $ — $ 1,913 Total loans Pass $ 359,730 $ 389,299 $ 434,049 $ 238,208 $ 173,562 $ 353,369 $ 1,948,217 Classified 343 4,014 18,580 14,517 6,279 15,615 59,348 Total loans $ 360,073 $ 393,313 $ 452,629 $ 252,725 $ 179,841 $ 368,984 $ 2,007,565 Total pass loans $ 359,730 $ 389,299 $ 434,049 $ 238,208 $ 173,562 $ 353,369 $ 1,948,217 Government guarantees ( 29,546 ) ( 8,948 ) ( 8,114 ) ( 16,033 ) ( 1,767 ) ( 17,742 ) ( 82,150 ) Total pass loans, net of government guarantees $ 330,184 $ 380,351 $ 425,935 $ 222,175 $ 171,795 $ 335,627 $ 1,866,067 18 Total classified loans $ 343 $ 4,014 $ 18,580 $ 14,517 $ 6,279 $ 15,615 $ 59,348 Government guarantees — ( 1,674 ) ( 14,877 ) ( 13,038 ) ( 5,651 ) ( 7,964 ) ( 43,204 ) Total classified loans, net government guarantees $ 343 $ 2,340 $ 3,703 $ 1,479 $ 628 $ 7,651 $ 16,144 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 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 19 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 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 20 Past Due Loans: The following tables present an aging of contractually past due loans as of the periods presented: (In Thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Greater Than 90 Days Past Due Still Accruing September 30, 2024 Commercial & industrial loans $ 325 $ 2,761 $ — $ 3,086 $ 411,115 $ 414,201 $ — Commercial real estate: Owner occupied properties 492 — 231 723 410,201 410,924 — Non-owner occupied and multifamily properties — — — — 580,702 580,702 — Residential real estate: 1-4 family residential properties secured by first liens — — 210 210 248,696 248,906 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 34 134 17 185 45,346 45,531 17 1-4 family residential construction loans — — 99 99 39,458 39,557 — Other construction, land development and raw land loans — 345 1,128 1,473 182,376 183,849 — Obligations of states and political subdivisions in the US — — — — 29,586 29,586 — Agricultural production, including commercial fishing — — — — 44,489 44,489 — Consumer loans — — — — 7,907 7,907 — Other loans — — — — 1,913 1,913 — Total $ 851 $ 3,240 $ 1,685 $ 5,776 $ 2,001,789 $ 2,007,565 $ 17 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 $ — 21 Nonaccrual loans: Nonaccrual loans net of government guarantees totaled $ 4.9 million and $ 5.0 million at September 30, 2024 and December 31, 2023, respectively. The following table presents loans on nonaccrual status and loans on nonaccrual status for the periods presented for which there was no related ACL. All loans with no ACL are individually evaluated for credit losses in the Company's CECL methodology. September 30, 2024 December 31, 2023 (In Thousands) Nonaccrual Nonaccrual With No ACL Nonaccrual Nonaccrual With No ACL Commercial & industrial loans $ 2,338 $ 2,092 $ 3,655 $ 3,651 Commercial real estate: Owner occupied properties 231 231 271 260 Residential real estate: 1-4 family residential properties secured by first liens 243 — 270 224 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 559 472 219 176 1-4 family residential construction loans 99 99 109 109 Other construction, land development and raw land loans 1,474 1,474 1,545 1,545 Total nonaccrual loans 4,944 4,368 6,069 5,965 Government guarantees on nonaccrual loans — — ( 1,067 ) ( 1,067 ) Net nonaccrual loans $ 4,944 $ 4,368 $ 5,002 $ 4,898 There was no interest on nonaccrual loans reversed through interest income during the three and nine-month periods ending September 30, 2024 or September 30, 2023. There was no interest earned on nonaccrual loans with a principal balance during the three and nine-month periods ending September 30, 2024 and September 30, 2023. However, the Company recognized interest income of $ 11,000 and $ 200,000 in the three-month periods ending September 30, 2024 and 2023, respectively, and $ 245,000 and $ 584,000 in the nine-month periods ending September 30, 2024 and 2023, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero. 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 any one loan. 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: Three Months Ended September 30, 2024 Payment Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable (In Thousands) Commercial & industrial loans $ — $ 195 $ 195 0.05 % Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 372 — 372 0.82 % Total $ 372 $ 195 $ 567 0.03 % 22 Three Months Ended September 30, 2023 Term Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable (In Thousands) Commercial real estate: Owner occupied properties $ — $ 271 $ 271 0.08 % Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 119 — 119 0.43 % 1-4 family residential construction loans 109 — 109 0.34 % Other construction, land development and raw land loans 968 577 1,545 1.29 % Total $ 1,196 $ 848 $ 2,044 0.12 % Nine Months Ended September 30, 2024 Term Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable (In Thousands) Commercial & industrial loans $ 4,033 $ 448 $ 4,481 1.08 % Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — 372 0.82 % Total $ 4,033 $ 448 $ 4,853 0.24 % Nine Months Ended September 30, 2023 Term Modification Payment Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable (In Thousands) Commercial & industrial loans $ 1,511 $ 1,985 $ — $ 3,496 0.84 % Commercial real estate: Owner occupied properties — — 271 271 0.08 % Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 119 — — 119 0.43 % 1-4 family residential construction loans 109 — — 109 0.34 % Other construction, land development and raw land loans 968 — 577 1,545 1.29 % Total $ 2,707 $ 1,985 $ 848 $ 5,540 0.32 % The Company has no outstanding unfunded commitments to the borrowers included in the previous tables. The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of the dates indicated: Three Months Ended September 30, 2024 Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months) (In Thousands) Commercial & industrial loans $ — — % 73 23 Three Months Ended September 30, 2023 Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months) (In Thousands) 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 Nine Months Ended September 30, 2024 Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months) (In Thousands) Commercial & industrial loans $ — 8 % 10 Nine Months Ended September 30, 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 following table presents the amortized cost basis of loans that had a payment default during the period indicated and were modified in the twelve months before default to borrowers experiencing financial difficulty: Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024 Term modification Term modification (In Thousands) Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ — $ 100 1-4 family residential construction loans — 99 Other construction, land development and raw land loans — 778 Total $ — $ 977 24 Three Months Ended September 30, 2023 Term modification Term and payment modification (In Thousands) Commercial real estate: Owner occupied properties $ — $ 271 Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 119 — 1-4 family residential construction loans 109 — Other construction, land development and raw land loans 968 577 Total $ 1,196 $ 848 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 loans that have been modified in the last twelve months as of the date indicated: September 30, 2024 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total (In Thousands) Commercial & industrial loans $ — $ — $ — $ 4,482 $ 4,482 Commercial real estate: Owner occupied properties — 231 231 — 231 Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 100 — 100 372 472 1-4 family residential construction loans — 99 99 — 99 Other construction, land development and raw land loans 345 1,128 1,473 — 1,473 Total $ 445 $ 1,458 $ 1,903 $ 4,854 $ 6,757 September 30, 2023 30-59 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total (In Thousands) Commercial & industrial loans $ 1,511 $ — $ 1,511 $ 1,985 $ 3,496 Commercial real estate: Owner occupied properties — 271 271 — 271 Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — 119 119 — 119 1-4 family residential construction loans — 109 109 — 109 Other construction, land development and raw land loans — 1,545 1,545 — 1,545 Total $ — $ 2,044 $ 3,555 $ 1,985 $ 5,540 25 Upon the Company's determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount. 4. Purchased Receivables Purchased receivables are carried at their principal amount outstanding, net of an ACL, and have a maturity of less than one year . There were no purchased receivables past due at September 30, 2024 or December 31, 2023, and there were no restructured purchased receivables at September 30, 2024 or December 31, 2023. Income on purchased receivables is accrued and recognized on the principal amount outstanding using an effective interest method except when management believes doubt exists as to the collectability of the income or principal. There were no nonperforming purchased receivables as of September 30, 2024 and there was one nonperforming purchased receivable with a balance of $ 808,000 as of December 31, 2023 for which management was not accruing income. There was no activity and no balance in the ACL for purchased receivables as of September 30, 2024 or December 31, 2023. The following table summarizes the components of net purchased receivables for the dates indicated: (In Thousands) September 30, 2024 December 31, 2023 Purchased receivables $ 23,564 $ 36,842 Allowance for credit losses - purchased receivables — — Total $ 23,564 $ 36,842 5. Servicing Rights Mortgage servicing rights The following table details the activity in the Company's mortgage servicing rights (“MSR”) for the three and nine-month periods ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, (In Thousands) 2024 2023 2024 2023 Balance, beginning of period $ 21,077 $ 18,248 $ 19,564 $ 18,635 Additions for new MSR capitalized 1,461 1,458 3,080 2,440 Changes in fair value: Due to changes in model inputs of assumptions (1) ( 566 ) — ( 38 ) ( 215 ) Other (2) ( 402 ) ( 310 ) ( 1,036 ) ( 1,464 ) Balance, end of period $ 21,570 $ 19,396 $ 21,570 $ 19,396 (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. 26 The following table details information related to our serviced mortgage loan portfolio as of September 30, 2024 and December 31, 2023: (In Thousands) September 30, 2024 December 31, 2023 Balance of mortgage loans serviced for others $ 1,166,585 $ 1,044,516 Weighted average rate of note 4.38 % 4.03 % MSR as a percentage of serviced loans 1.85 % 1.87 % The Company recognized servicing fees of $ 1.1 million and $ 937,000 during the three-month periods ending September 30, 2024 and 2023, respectively, and $ 3.2 million and $ 2.7 million during the nine-month periods ending September 30, 2024 and 2023, respectively, which includes contractually specified servicing fees and ancillary fees as a component of other noninterest income in the Company's Consolidated Statements of Income. The following table outlines the weighted average key assumptions used in measuring the fair value of 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 8 for additional information on key assumptions for MSR fair value determinations. (In Thousands) September 30, 2024 December 31, 2023 Fair value of MSRs $ 21,570 $ 19,564 Expected weighted-average life (in years) 10.18 10.23 Key assumptions: Constant prepayment rate 1 8.51 % 8.48 % Impact on fair value from 10% adverse change ($ 1,236 ) ($ 1,754 ) Impact on fair value from 25% adverse change ($ 2,237 ) ($ 2,552 ) Discount rate 10.98 % 10.98 % Impact on fair value from 100 basis point increase ($ 1,391 ) ($ 811 ) Impact on fair value from 200 basis point increase ($ 2,201 ) ($ 1,560 ) Cost to service assumptions ($ per loan) $ 81 $ 82 Impact on fair value from 10% adverse change ($ 164 ) ($ 160 ) Impact on fair value from 25% adverse change ($ 410 ) ($ 401 ) 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 The commercial servicing rights asset (“CSR”) has a carrying value of $ 2.1 million at September 30, 2024 and $ 2.2 million at December 31, 2023, respectively, and is included in other assets and carried at fair value on the Company's Consolidated Balance Sheets. Total commercial loans serviced for others were $ 275.8 million and $ 282.2 million at September 30, 2024 and December 31, 2023, respectively. Key assumptions used in measuring the fair value of the CSR as of September 30, 2024 and December 31, 2023 include a constant prepayment rate of 11.76 % and a discount rate of 9.50 %. 27 6. Leases The Company's lease commitments consist primarily of agreements to lease land and office facilities that it occupies to operate several of its retail branch locations that are classified as operating leases and are recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. As of September 30, 2024, the Company has operating lease ROU assets of $ 7.6 million and operating lease liabilities of $ 7.6 million. As of December 31, 2023, the Company had operating lease ROU assets of $ 9.1 million and operating lease liabilities of $ 9.1 million. The Company did not have any agreements that are classified as finance leases as of September 30, 2024 or December 31, 2023. The following table presents additional information about the Company's operating leases for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (In Thousands) 2024 2023 2024 2023 Lease Cost Operating lease cost (1) $ 743 $ 708 $ 2,225 $ 2,109 Short term lease cost (1) 23 36 74 115 Total lease cost $ 766 $ 744 $ 2,299 $ 2,224 Other information Operating leases - operating cash flows $ 2,076 $ 1,966 Weighted average lease term - operating leases, in years 11.07 10.23 Weighted average discount rate - operating leases 3.63 % 3.54 % (1) Expenses are classified within occupancy expense on the Consolidated Statements of Income. The table below reconciles the remaining undiscounted cash flows for the next five years for each twelve-month period presented (unless otherwise indicated) and the total of the subsequent remaining years to the operating lease liabilities recorded on the balance sheet: (In Thousands) Operating Leases 2024 (Three months) $ 678 2025 2,422 2026 1,245 2027 783 2028 547 Thereafter 3,878 Total minimum lease payments $ 9,553 Less: amount of lease payment representing interest ( 1,918 ) Present value of future minimum lease payments $ 7,635 28 7. Derivatives Derivatives swaps related to community banking activities The Company enters into commercial loan interest rate swap agreements with commercial banking customers which are offset with a corresponding swap agreement with a third party financial institution (“counterparty”). The Company has agreements with its counterparties that contain provisions that provide that if the Company fails to maintain its status as a “well-capitalized” institution under applicable regulatory guidelines, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. These agreements also require that the Company and the counterparty collateralize any fair value shortfalls that exceed $ 250,000 with eligible collateral, which includes cash and securities backed with the full faith and credit of the federal government. Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels. The Company pledged $ 580,000 as of September 30, 2024 and $ 566,000 as of December 31, 2023, in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements. The Company had interest rate swaps related to commercial loans with an aggregate notional amount of $ 278.6 million and $ 218.0 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, the notional amount of interest rate swaps is made up of 23 variable to fixed rate swaps to commercial loan customers totaling $ 139.3 million, and 23 fixed to variable rate swaps with a counterparty totaling $ 139.3 million. Changes in fair value from these 23 interest rate swaps offset each other in the three and nine-month periods ending September 30, 2024. The Company recognized $ 287,000 and no fee income related to interest rate swaps in the three-month periods ending September 30, 2024 and 2023, respectively, and $ 361,000 and $ 61,000 in fee income related to interest rate swaps in the nine-month periods ending September 30, 2024 and 2023, respectively. Interest rate swap income is recorded in other operating income on the Consolidated Statements of Income. None of these interest rate swaps are designated as hedging instruments. The Company has an interest rate swap to hedge the variability in cash flows arising out of its junior subordinated debentures, which is floating rate debt, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $ 10.0 million of junior subordinated debentures held under Northrim Statutory Trust 2 at 3.72 % through its maturity date. The floating rate that the dealer pays 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 6.58 % as of September 30, 2024. 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 September 30, 2024 and December 31, 2023. Changes in the fair value of this interest rate swap are reported in other comprehensive income on the Consolidated Statements of Income. The unrealized gain, net of tax on this interest rate swap was $ 863,000 as of September 30, 2024 and the unrealized gain, net of tax was $ 1.0 million as of December 31, 2023. Derivatives related to home mortgage banking activities The Company also uses derivatives to hedge the risk of changes in the fair values of interest rate lock commitments. The Company enters into commitments to originate residential mortgage loans at specific rates; the value of these commitments are detailed in the table below as “interest rate lock commitments”. The Company also hedges the interest rate risk associated with its residential mortgage loan commitments, which are referred to as "retail interest rate contracts" in the table below. Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates. RML had commitments to originate mortgage loans held for sale totaling $ 77.6 million and $ 22.9 million at September 30, 2024 and December 31, 2023, respectively. Changes in the value of RML's interest rate derivatives are recorded in mortgage banking income on the Consolidated Statements of Income. None of these derivatives are designated as hedging instruments. 29 The following table presents the fair value of derivatives not designated as hedging instruments at September 30, 2024 and December 31, 2023: (In Thousands) Asset Derivatives September 30, 2024 December 31, 2023 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other assets $ 8,930 $ 10,470 Interest rate lock commitments Other assets 1,327 342 Total $ 10,257 $ 10,812 (In Thousands) Liability Derivatives September 30, 2024 December 31, 2023 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other liabilities $ 8,930 $ 10,470 Retail interest rate contracts Other liabilities 96 13 Total $ 9,026 $ 10,483 The following table presents the net gains (losses) of derivatives not designated as hedging instruments for periods indicated below: Three Months Ended September 30, Nine Months Ended September 30, (In Thousands) Income Statement Location 2024 2023 2024 2023 Retail interest rate contracts Mortgage banking income ($ 662 ) $ 84 ($ 443 ) $ 375 Interest rate lock commitments Mortgage banking income 275 ( 312 ) 920 46 Total ($ 387 ) ($ 228 ) $ 477 $ 421 Our derivative transactions with counterparties under International Swaps and Derivative Association master agreements include “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes. 30 The following table summarizes the derivatives that have a right of offset as of September 30, 2024 and December 31, 2023: September 30, 2024 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 $ 8,930 $ — $ 8,930 $ — $ — $ 8,930 Liability Derivatives Interest rate swaps $ 8,930 $ — $ 8,930 $ — $ 8,930 $ — Retail interest rate contracts 96 — 96 — — 96 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 8. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Investment securities available for sale and marketable equity securities : Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Servicing rights: MSR and CSR are measured at fair value on a recurring basis. These assets are classified as Level 3 as quoted prices are not available. In order to determine the fair value of MSR and CSR, the present value of net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates, and ancillary fee income net of servicing costs. Derivative instruments: The fair value of the interest rate lock commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. Interest rate contracts are valued in a model, which uses as its basis a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Company has determined that the 31 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 September 30, 2024, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives. As a result, the Company has classified its interest rate derivative valuations in Level 2 of the fair value hierarchy. Commitments to extend credit and standby letters of credit : The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. Assets Subject to Nonrecurring Adjustment to Fair Value The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets, impaired loans, and Other Real Estate Owned (“OREO”) at fair value on a nonrecurring basis in accordance with GAAP. Any nonrecurring adjustments to fair value usually result from the write-down of individual assets. The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and impaired loans as of each reporting date. In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 32 Estimated fair values as of the periods indicated are as follows: September 30, 2024 December 31, 2023 (In Thousands) Carrying Amount Fair Value Carrying Amount Fair Value Financial assets: Level 1 inputs: Cash, due from banks and deposits in other banks $ 102,876 $ 102,876 $ 118,530 $ 118,530 Investment securities available for sale 265,039 265,039 310,896 310,896 Marketable equity securities 12,957 12,957 13,153 13,153 Level 2 inputs: Investment securities available for sale 280,171 280,171 327,040 327,040 Investment in Federal Home Loan Bank stock 4,318 4,318 2,980 2,980 Loans held for sale 97,937 97,937 31,974 31,974 Accrued interest receivable 12,909 12,909 11,958 11,958 Interest rate swaps 10,568 10,568 11,836 11,836 Level 3 inputs: Investment securities held to maturity 36,750 34,615 36,750 33,413 Loans 2,007,565 1,827,510 1,789,497 1,686,362 Purchased receivables, net 23,564 23,564 36,842 36,842 Interest rate lock commitments 1,327 1,327 342 342 Mortgage servicing rights 21,570 21,570 19,564 19,564 Commercial servicing rights 2,136 2,136 2,200 2,200 Financial liabilities: Level 2 inputs: Deposits $ 2,625,567 $ 2,628,018 $ 2,485,055 $ 2,482,937 Accrued interest payable 707 707 202 202 Borrowings 13,354 10,887 13,675 11,872 Interest rate swaps 8,930 8,930 10,470 10,470 Retail interest rate contracts 96 96 13 13 Level 3 inputs: Junior subordinated debentures 10,310 11,971 10,310 12,030 33 The following table sets forth the balances as of the periods indicated of assets and liabilities measured at fair value on a recurring basis: (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) September 30, 2024 Assets: Available for sale securities U.S. Treasury and government sponsored entities $ 489,923 $ 256,237 $ 233,686 $ — Corporate bonds 8,802 8,802 — — Collateralized loan obligations 46,485 — 46,485 — Total available for sale securities $ 545,210 $ 265,039 $ 280,171 $ — Marketable equity securities $ 12,957 $ 12,957 $ — $ — Total marketable equity securities $ 12,957 $ 12,957 $ — $ — Interest rate swaps $ 10,136 $ — $ 10,136 $ — Interest rate lock commitments 1,327 — — 1,327 Mortgage servicing rights 21,570 — — 21,570 Commercial servicing rights 2,136 — — 2,136 Total other assets $ 35,169 $ — $ 10,136 $ 25,033 Liabilities: Interest rate swaps $ 8,930 $ — $ 8,930 $ — Retail interest rate contracts 96 — 96 — Total other liabilities $ 9,026 $ — $ 9,026 $ — 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 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 $ — 34 The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine-month periods ended September 30, 2024 and 2023: (In Thousands) Beginning balance Change included in earnings Purchases and issuances Sales and settlements Ending balance Net change in unrealized gains (losses) relating to items held at end of period Three Months Ended September 30, 2024 Interest rate lock commitments $ 1,059 ($ 647 ) $ 5,173 ($ 4,258 ) $ 1,327 $ 1,327 Mortgage servicing rights 21,077 ( 968 ) 1,461 — 21,570 — Commercial servicing rights 2,116 ( 10 ) 30 — 2,136 — Total $ 24,252 ($ 1,625 ) $ 6,664 ($ 4,258 ) $ 25,033 $ 1,327 Three Months Ended September 30, 2023 Interest rate lock commitments $ 851 ($ 267 ) $ 2,021 ($ 2,087 ) $ 518 $ 518 Mortgage servicing rights 18,248 ( 310 ) 1,458 — 19,396 — Commercial servicing rights 2,139 ( 39 ) 18 — 2,118 — Total $ 21,238 ($ 616 ) $ 3,497 ($ 2,087 ) $ 22,032 $ 518 (In Thousands) Beginning balance Change included in earnings Purchases and issuances Sales and settlements Ending balance Net change in unrealized gains (losses) relating to items held at end of period Nine Months Ended September 30, 2024 Interest rate lock commitments $ 342 ($ 1,375 ) $ 11,102 ($ 8,742 ) $ 1,327 $ 1,327 Mortgage servicing rights 19,564 ( 1,074 ) 3,080 — 21,570 — Commercial servicing rights 2,200 ( 155 ) 91 — 2,136 — Total $ 22,106 ($ 2,604 ) $ 14,273 ($ 8,742 ) $ 25,033 $ 1,327 Nine Months Ended September 30, 2023 Interest rate lock commitments $ 440 ($ 819 ) $ 6,253 ($ 5,356 ) $ 518 $ 518 Mortgage servicing rights 18,635 ( 1,679 ) 2,440 — 19,396 — Commercial servicing rights 2,129 ( 144 ) 133 — 2,118 — Total $ 21,204 ($ 2,642 ) $ 8,826 ($ 5,356 ) $ 22,032 $ 518 There were no changes in unrealized gains and losses for the three and nine-month periods ending September 30, 2024 and 2023 included in other comprehensive income for recurring Level 3 fair value measurements. As of and for the periods ending September 30, 2024 and December 31, 2023, 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. 35 (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) September 30, 2024 Loans individually measured for credit losses $ 247 $ — $ — $ 247 Total $ 247 $ — $ — $ 247 December 31, 2023 Loans individually measured for credit losses $ — $ — $ — $ — Total $ — $ — $ — $ — The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the three and nine-month periods ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, (In Thousands) 2024 2023 2024 2023 Loans individually measured for credit losses $ 114 $ — $ 117 $ — Other real estate owned — 123 — 123 Total loss from nonrecurring measurements $ 114 $ 123 $ 117 $ 123 Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) The following tables provide 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 September 30, 2024 and December 31, 2023: Financial Instrument Valuation Technique - Recurring Basis Unobservable Input Weighted Average Rate Range September 30, 2024 Interest rate lock commitment External pricing model Pull through rate 91.42 % Mortgage servicing rights Discounted cash flow Constant prepayment rate 8.41 % - 15.59 % 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, 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 % 36 Financial Instrument Valuation Technique - Nonrecurring Basis Unobservable Input Weighted Average Rate Range September 30, 2024 Loans individually measured for credit losses In-house valuation of collateral Discount rate 47 % 37 9. Segment Information The Company's operations are managed along two operating segments: Community Banking and Home Mortgage Lending. The Community Banking segment's principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas. As of September 30, 2024, the Community Banking segment operated 20 branches throughout Alaska. The Home Mortgage Lending segment's principal business focus is the origination and sale of mortgage loans for 1-4 family residential properties. Summarized financial information for the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables: Three Months Ended September 30, 2024 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 35,021 $ 4,395 $ 39,416 Interest expense 9,120 1,454 10,574 Net interest income 25,901 2,941 28,842 (Benefit) provision for credit losses 1,492 571 2,063 Other operating income 4,540 7,047 11,587 Salaries and other personnel expense 11,691 5,858 17,549 Other operating expense 7,394 1,785 9,179 Total other operating expense 19,085 7,643 26,728 Income before provision for income taxes 9,864 1,774 11,638 Provision for income taxes 2,316 497 2,813 Net income $ 7,548 $ 1,277 $ 8,825 Three Months Ended September 30, 2023 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 31,341 $ 3,067 $ 34,408 Interest expense 7,291 767 8,058 Net interest income 24,050 2,300 26,350 Provision for credit losses 1,190 — 1,190 Other operating income 3,597 4,405 8,002 Salaries and other personnel expense 11,164 4,493 15,657 Other operating expense 5,781 1,458 7,239 Total other operating expense 16,945 5,951 22,896 Income before provision for income taxes 9,512 754 10,266 Provision for income taxes 1,710 182 1,892 Net income $ 7,802 $ 572 $ 8,374 38 Nine Months Ended September 30, 2024 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 100,436 $ 11,697 $ 112,133 Interest expense 26,042 3,749 29,791 Net interest income 74,394 7,948 82,342 Provision for credit losses 1,505 587 2,092 Other operating income 12,046 16,962 29,008 Salaries and other personnel expense 34,092 15,501 49,593 Other operating expense 21,042 4,925 25,967 Total other operating expense 55,134 20,426 75,560 Income before provision for income taxes 29,801 3,897 33,698 Provision for income taxes 6,562 1,092 7,654 Net income $ 23,239 $ 2,805 $ 26,044 Nine Months Ended September 30, 2023 (In Thousands) Community Banking Home Mortgage Lending Consolidated Interest income $ 89,509 $ 6,514 $ 96,023 Interest expense 18,007 1,492 19,499 Net interest income 71,502 5,022 76,524 Provision for credit losses 2,957 — 2,957 Other operating income 9,564 10,326 19,890 Salaries and other personnel expense 32,557 13,767 46,324 Other operating expense 19,611 4,253 23,864 Total other operating expense 52,168 18,020 70,188 Income before provision for income taxes 25,941 ( 2,672 ) 23,269 Provision for income taxes 5,216 ( 728 ) 4,488 Net income $ 20,725 ($ 1,944 ) $ 18,781 September 30, 2024 (In Thousands) Community Banking Home Mortgage Lending Consolidated Total assets $ 2,588,267 $ 375,125 $ 2,963,392 Loans held for sale $ — $ 97,937 $ 97,937 December 31, 2023 (In Thousands) Community Banking Home Mortgage Lending Consolidated Total assets $ 2,539,791 $ 267,706 $ 2,807,497 Loans held for sale $ — $ 31,974 $ 31,974 39