NORTHRIM BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS 2 CONSOLIDATED FINANCIAL STATEMENTS NORTHRIM BANCORP, INC. Consolidated Balance Sheets (Unaudited) March 31, 2025 December 31, 2024 (In Thousands, Except Share Data) ASSETS Cash and due from banks $ 29,671 $ 42,101 Interest bearing deposits in other banks 35,852 20,635 Marketable equity securities 8,669 8,719 Investment securities available for sale, at fair value 463,096 478,617 Investment securities held to maturity, at amortized cost 36,750 36,750 Investment in Federal Home Loan Bank stock 5,342 5,331 Loans held for sale 159,603 59,957 Loans 2,124,330 2,129,263 Allowance for credit losses, loans ( 20,922 ) ( 22,020 ) Net loans 2,103,408 2,107,243 Purchased receivables, net 95,489 74,078 Mortgage servicing rights, at fair value 26,814 26,439 Premises and equipment, net 37,070 37,757 Operating lease right-of-use assets 7,632 7,455 Goodwill 49,874 50,018 Other intangible assets, net 950 950 Other assets 80,740 85,819 Total assets $ 3,140,960 $ 3,041,869 LIABILITIES Deposits: Demand $ 742,560 $ 706,225 Interest-bearing demand 1,187,465 1,108,404 Savings 256,650 250,900 Money market 193,842 196,290 Certificates of deposit less than $250,000 198,355 201,296 Certificates of deposit $250,000 and greater 199,105 217,074 Total deposits 2,777,977 2,680,189 Borrowings 13,136 23,045 Junior subordinated debentures 10,310 10,310 Operating lease liabilities 7,682 7,487 Other liabilities 52,099 53,722 Total liabilities 2,861,204 2,774,753 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, 5,520,892 and 5,518,210 issued and outstanding at March 31, 2025 and December 31, 2024, respectively 5,521 5,518 Additional paid-in capital 9,523 9,311 Retained earnings 269,062 259,311 Accumulated other comprehensive loss, net of tax ( 4,350 ) ( 7,024 ) Total shareholders' equity 279,756 267,116 Total liabilities and shareholders' equity $ 3,140,960 $ 3,041,869 See notes to consolidated financial statements 3 NORTHRIM BANCORP, INC. Consolidated Statements of Income (Unaudited) Three Months Ended March 31, (In Thousands, Except Per Share Data) 2025 2024 Interest and Dividend Income Interest and fees on loans and loans held for sale $ 37,470 $ 30,450 Interest on investment securities available for sale 2,952 3,718 Dividends on marketable equity securities 145 243 Interest on investment securities held to maturity 473 482 Dividends on Federal Home Loan Bank stock 105 77 Interest on deposits in other banks 416 838 Total Interest and Dividend Income 41,561 35,808 Interest Expense Interest expense on deposits 9,935 9,180 Interest expense on borrowings 237 86 Interest expense on junior subordinated debentures 92 95 Total Interest Expense 10,264 9,361 Net Interest Income 31,297 26,447 (Benefit) provision for credit losses ( 1,409 ) 149 Net Interest Income After Provision for Credit Losses 32,706 26,298 Other Operating Income Purchased receivable income 6,150 1,345 Mortgage banking income 5,411 4,031 Bankcard fees 1,074 917 Service charges on deposit accounts 677 549 Unrealized gain (loss) on marketable equity securities ( 50 ) 314 Other income 938 688 Total Other Operating Income 14,200 7,844 Other Operating Expense Salaries and other personnel expense 17,223 15,417 Data processing expense 3,104 2,659 Occupancy expense 1,889 1,962 Professional and outside services 1,115 755 Insurance expense 1,017 779 Marketing expense 672 513 Compensation expense - Sallyport acquisition payments 600 — OREO expense, net rental income and gains on sale 3 ( 391 ) Other operating expense 3,708 1,944 Total Other Operating Expense 29,331 23,638 Income Before Provision for Income Taxes 17,575 10,504 Provision for income taxes 4,251 2,305 Net Income $ 13,324 $ 8,199 Earnings Per Share, Basic $ 2.41 $ 1.49 Earnings Per Share, Diluted $ 2.38 $ 1.48 Weighted Average Common Shares Outstanding, Basic 5,519,998 5,499,578 Weighted Average Common Shares Outstanding, Diluted 5,608,102 5,554,930 See notes to consolidated financial statements 4 NORTHRIM BANCORP, INC. Consolidated Statements of Comprehensive Income (Unaudited) 2010 Three Months Ended March 31, (In Thousands) 2025 2024 Net income $ 13,324 $ 8,199 Other comprehensive income (loss), net of tax: Securities available for sale: Unrealized holding gains arising during the period $ 3,974 $ 292 Derivatives and hedging activities: Unrealized holding gains (losses) arising during the period ( 244 ) 272 Foreign currency translation income (loss) 5 — Income tax expense related to unrealized (gains) losses ( 1,061 ) ( 160 ) Other comprehensive income, net of tax 2,674 404 Comprehensive income $ 15,998 $ 8,603 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, 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 income, 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 income, 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 income, 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 Cash dividend on common stock ($ 0.62 per share) — — — ( 3,458 ) — ( 3,458 ) Stock-based compensation expense — — 221 — — 221 Exercise of stock options and vesting of restricted stock units, net 16 16 ( 370 ) — — ( 354 ) Other comprehensive loss, net of tax — — — — ( 270 ) ( 270 ) Net income — — — 10,927 — 10,927 Balance as of December 31, 2024 5,518 $ 5,518 $ 9,311 $ 259,311 ($ 7,024 ) $ 267,116 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, 2025 5,518 $ 5,518 $ 9,311 $ 259,311 ($ 7,024 ) $ 267,116 Cash dividend on common stock ($ 0.64 per share) — — — ( 3,573 ) — ( 3,573 ) Stock-based compensation expense — — 232 — — 232 Exercise of stock options and vesting of restricted stock units, net 3 3 ( 20 ) — — ( 17 ) Other comprehensive income, net of tax — — — — 2,674 2,674 Net income — — — 13,324 — 13,324 Balance as of March 31, 2025 5,521 $ 5,521 $ 9,523 $ 269,062 ($ 4,350 ) $ 279,756 See notes to consolidated financial statements 7 NORTHRIM BANCORP, INC. Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (In Thousands) 2025 2024 Operating Activities: Net income $ 13,324 $ 8,199 Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities: Depreciation and amortization of premises and equipment 895 897 Amortization of investment security premium, net of discount accretion 50 111 Unrealized (gain) loss on marketable equity securities 50 ( 314 ) Stock-based compensation 232 208 Deferred loan fees and amortization, net of costs 502 ( 316 ) (Benefit) provision for credit losses ( 1,409 ) 149 Additions to home mortgage servicing rights carried at fair value ( 1,230 ) ( 517 ) Change in fair value of home mortgage servicing rights carried at fair value 855 26 Change in fair value of commercial servicing rights carried at fair value 73 144 Change in fair value of loans held for sale 1,161 — Gain on sale of loans ( 2,740 ) ( 1,979 ) Proceeds from the sale of loans held for sale 110,907 74,459 Origination of loans held for sale ( 108,499 ) ( 84,324 ) Gain on sale of other real estate owned — ( 392 ) Net changes in assets and liabilities: (Increase) in accrued interest receivable ( 1,887 ) ( 1,303 ) Decrease in other assets 2,836 2,633 Increase (decrease) in other liabilities 1,420 ( 3,226 ) Net Cash Provided (Used) by Operating Activities 16,540 ( 5,545 ) Investing Activities: Investment in securities: Purchases of investment securities available for sale ( 15,187 ) — Purchases of FHLB stock ( 7,472 ) ( 266 ) Proceeds from sales/calls/maturities of securities available for sale 34,631 45,640 Proceeds from redemption of FHLB stock 7,461 10 Increase in purchased receivables, net ( 21,457 ) ( 856 ) Increase in loans, net ( 96,010 ) ( 21,280 ) Proceeds from sale of other real estate owned — 392 Sallyport Commercial Finance, LLC acquisition, net of cash received 144 — Purchases of premises and equipment ( 208 ) ( 1,040 ) Net Cash (Used) Provided by Investing Activities ( 98,098 ) 22,600 Financing Activities: Increase (decrease) in deposits 97,788 ( 50,972 ) (Decrease) increase in borrowings ( 9,909 ) ( 106 ) Repurchase of common stock — ( 788 ) Cash dividends paid ( 3,534 ) ( 3,355 ) Net Cash Provided (Used) by Financing Activities 84,345 ( 55,221 ) Net Change in Cash and Cash Equivalents 2,787 ( 38,166 ) Cash and Cash Equivalents at Beginning of Period 62,736 118,530 Cash and Cash Equivalents at End of Period $ 65,523 $ 80,364 Supplemental Information: Income taxes paid $ 193 $ — Interest paid $ 10,345 $ 9,173 Cash dividends declared but not paid $ 39 $ 33 See notes to consolidated financial statements 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Significant Accounting Policies The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements have not been audited, and they include the accounts of the Company and it's wholly-owned subsidiaries, and the wholly owned subsidiaries of Northrim Bank (the “Bank”). Significant intercompany balances have been eliminated in consolidation. As of December 31, 2024, 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. 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 three primary operating segments: Community Banking, Home Mortgage Lending, and Specialty Finance. The Company has evaluated subsequent events and transactions for potential recognition or disclosure. Operating results for the interim period ended March 31, 2025 are not necessarily indicative of the results anticipated for the year ending December 31, 2025. 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, 2024. 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, 2024. There have been no significant changes in our application of these accounting policies in 2025. 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 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. 2. Business Combinations On October 31, 2024, the Company completed the acquisition of 100 % of the equity interest in Sallyport Commercial Finance, LLC (“SCF” or “Sallyport”) in a cash transaction that is valued at approximately $ 53.9 million. The primary reason for the acquisition was to expand the Company's presence in the specialty finance industry. SCF provides factoring, asset based lending, and alternative working capital solutions to small and medium sized enterprises in the United States, and, to a lessor extent, in Canada and the United Kingdom through its subsidiaries. SCF will operate as a wholly-owned subsidiary of the Bank, and is expected to complement the products currently offered by Northrim Funding Services, a factoring division of the Bank. 9 The consideration transferred or transferable to the former owners of SCF and the assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting and were recorded at their estimated fair values as of the October 31, 2024 acquisition date. The Company paid $ 47.9 million in cash on October 31, 2024 when the acquisition was completed. The Company had pre-existing loans to SCF which totaled $ 12.0 million. The fair value of these loans approximate their carrying value, and as a result of the acquisition, the loans were effectively settled at their carrying value, resulting in no gain or loss. The fair value of the loans were considered as part of the total purchase consideration in the transaction. Estimated fair values recorded in the transaction are subject to change for up to one year after the closing date of the acquisition. The application of the acquisition method of accounting resulted in the initial recognition of goodwill in the amount of $ 35.0 million. No other intangibles were identified. In February 2025, in accordance with the terms of the purchase agreement, the Company determined the final value of consideration transferred to the former owners of SCF. The final value of consideration transferred decreased $ 144,000 to $ 47.7 million from $ 47.9 million, which decreased goodwill to $ 34.9 million. The former owners of SCF (the “sellers”) will receive additional cash proceeds (the “earn-out payments”) of up to $ 6.0 million. The earn-out payments of $ 2.0 million per year are payable on each of the first three anniversaries of the closing date. The purchase agreement provides for the these earn-out payments to be paid to the sellers in future periods, provided that certain principal employees of SCF, including certain of the sellers, have not been terminated for cause or terminated their employment for good reason. The earn-out payments have not been included in acquisition consideration and are being expensed as compensation expense during the periods in which they are being earned based on management's determination that payment of these amounts is probable. 10 A summary of the net assets acquired and the estimated fair value adjustments are presented below: (In Thousands) October 31, 2024 Cost basis net assets $ 29,638 Cash payment made ( 47,855 ) Pre-existing debt effectively settled ( 12,000 ) Fair value adjustments: Net loans ( 1,260 ) Net purchased receivables ( 3,524 ) Goodwill ($ 35,001 ) The $ 35.0 million of goodwill recorded in connection with the acquisition of SCF represents the excess purchase price over the estimated fair value of the net assets acquired, and resulted from the expected decrease in funding costs and, to a lesser extent, expected operational efficiencies. All of the goodwill is expected to be deductible for tax purposes. A summary of the assets acquired and liabilities assumed at their estimated fair values are presented below: (In Thousands) October 31, 2024 Assets Acquired: Cash and equivalents $ 7,197 Loans, net 9,158 Purchased receivables, net 48,034 Premises and equipment 54 Right-of-use assets 44 Other assets 1,642 Total assets acquired $ 66,129 Liabilities Assumed: Borrowings $ 40,207 Lease liability 47 Other liabilities 1,021 Total liabilities assumed $ 41,275 The fair value of assets acquired and liabilities assumed approximates book value as of the acquisition date as all loans and borrowings have variable interest rates. Purchased receivables have an average life of less than 45 days. Some of the assets acquired exhibited evidence of credit deterioration at the acquisition date. These assets were designated as purchased credit deteriorated (“PCD”) assets in accordance with U.S. GAAP. The following table presents PCD loan and purchased receivable activity at the date of acquisition: (In Thousands) Loans Purchased Receivables Unpaid principal balance $ 10,418 $ 51,558 ACL at acquisition ( 1,260 ) ( 3,524 ) Total $ 9,158 $ 48,034 11 Based on an evaluation in accordance with Rule 3-05 and Rule 11-01(b) of Regulations S-X, the acquisition of SCF does not meet the significance thresholds requiring separate financial statement disclosure. The operations of SCF are included in our operating results from October 31, 2024, and added revenue of $ 2.6 million, non-interest expense of $ 1.5 million, and net income of $ 943,000 , before taxes, for the year ended December 31, 2024. SCF’s results of operations prior to the acquisition are not included in our operating results. Additionally, deal-related costs of $ 1.1 million for the year ended December 31, 2024 have been incurred and expensed in connection with the acquisition of Sallyport and recognized within professional and outside services expense on the Consolidated Statements of Income . The following table presents unaudited pro forma results of operations for the three-month period ended March 31, 2024 as if the acquisition of SCF had occurred on January 1, 2024. The proforma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2024, primarily due to the Company's lower cost of funding as compared to SCF. (In Thousands, except per share data) Three Months Ended March 31, 2024 (Unaudited) Company SCF 1 Pro Forma Adjustments 2 Pro Forma Combined Net interest and other income $ 34,291 $ 5,122 $ 39,413 Net income 8,199 1,123 ( 319 ) 9,003 Earnings Per Share, Basic $ 1.49 $ 1.64 Earnings Per Share, Diluted $ 1.48 $ 1.62 Weighted Average Shares Outstanding, Basic 5,499,578 5,499,578 Weighted Average Shares Outstanding, Diluted 5,554,930 5,554,930 1 SCF represents unaudited results from January 1 to March 31 for 2024. 2 Proforma adjustments include a provision for income taxes using the Company's statutory rate. 12 3. Investment Securities Marketable Equity Securities The Company held marketable equity securities with fair values of $ 8.7 million at both March 31, 2025 and December 31, 2024. The realized and unrealized gains (losses) recognized on marketable equity securities in other operating income in the Company's Consolidated Statements of Income were as follows: Three Months Ended March 31, (In Thousands) 2025 2024 Unrealized gain (loss) on marketable equity securities ($ 50 ) $ 314 Total ($ 50 ) $ 314 Debt securities Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, estimated fair value, and the Allowance for Credit Losses (“ACL”) of debt securities and the corresponding amounts of gross unrealized gains and losses of available-for-sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities at the periods indicated: (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value March 31, 2025 Securities available for sale U.S. Treasury and government sponsored entities $ 424,446 $ 865 ($ 8,340 ) $ — $ 416,971 U.S. Agency mortgage-backed securities 5,063 — — 5,063 Corporate bonds 5,009 — ( 173 ) — 4,836 Collateralized loan obligations 36,196 35 ( 5 ) — 36,226 Total securities available for sale $ 470,714 $ 900 ($ 8,518 ) $ — $ 463,096 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value March 31, 2025 Securities held to maturity Corporate bonds $ 36,750 $ 96 ($ 1,157 ) $ 35,689 Allowance for credit losses — — — — Total securities held to maturity, net of ACL $ 36,750 $ 96 ($ 1,157 ) $ 35,689 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value December 31, 2024 Securities available for sale U.S. Treasury and government sponsored entities $ 444,370 $ 294 ($ 11,733 ) $ — $ 432,931 Corporate bonds 9,009 9 ( 223 ) — 8,795 Collateralized loan obligations 36,827 66 ( 2 ) — 36,891 Total securities available for sale $ 490,206 $ 369 ($ 11,958 ) $ — $ 478,617 13 (In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2024 Securities held to maturity Corporate bonds $ 36,750 $ 175 ($ 1,175 ) $ 35,750 Allowance for credit losses — — — — Total securities held to maturity, net of ACL $ 36,750 $ 175 ($ 1,175 ) $ 35,750 Gross unrealized losses on available for sale securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2025 and December 31, 2024 were as follows: Less Than 12 Months More Than 12 Months Total (In Thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses March 31,2025 Securities available for sale U.S. Treasury and government sponsored entities $ 29,664 ($ 113 ) $ 331,441 ($ 8,227 ) $ 361,105 ($ 8,340 ) Corporate bonds — — 4,836 ( 173 ) 4,836 ( 173 ) Collateralized loan obligations 9,362 ( 5 ) — — 9,362 ( 5 ) Total $ 39,026 ($ 118 ) $ 336,277 ($ 8,400 ) $ 375,303 ($ 8,518 ) Securities Held to Maturity Corporate bonds $ — $ — $ 20,593 ($ 1,157 ) $ 20,593 ($ 1,157 ) Total $ — $ — $ 20,593 ($ 1,157 ) $ 20,593 ($ 1,157 ) December 31, 2024: Securities available for sale U.S. Treasury and government sponsored entities $ 44,262 ($ 422 ) $ 358,446 ($ 11,311 ) $ 402,708 ($ 11,733 ) Corporate bonds — — 4,786 ( 223 ) 4,786 ( 223 ) Collateralized loan obligations — — 4,993 ( 2 ) 4,993 ( 2 ) Total $ 44,262 ($ 422 ) $ 368,225 ($ 11,536 ) $ 412,487 ($ 11,958 ) Securities Held to Maturity Corporate bonds $ — $ — $ 20,575 ($ 1,175 ) $ 20,575 ($ 1,175 ) Total $ — $ — $ 20,575 ($ 1,175 ) $ 20,575 ($ 1,175 ) Management evaluates available for sale debt securities and securities held to maturity in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At March 31, 2025, the Company had six 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 36 available for sale securities without an ACL with unrealized losses at March 31, 2025 that have been in a loss position for more than twelve months. At March 31, 2025, the Company had three held to maturity securities in an unrealized loss position without an ACL 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 March 31, 2025, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, primarily changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company's Consolidated Statements of Income . 14 At March 31, 2025 and December 31, 2024, carrying amounts of $ 200.8 million and $ 177.4 million in securities were pledged for deposits and borrowings, respectively. The amortized cost and estimated fair values of available for sale and held to maturity debt securities at March 31, 2025, 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 $ 150,785 $ 148,400 1-5 years 273,661 268,571 Total $ 424,446 $ 416,971 U.S. Agency mortgage-backed securities Over 10 years $ 5,063 $ 5,063 Total $ 5,063 $ 5,063 Corporate bonds Within 1 year $ 10,000 $ 9,981 1-5 years 5,009 4,836 5-10 years 26,750 25,708 Total $ 41,759 $ 40,525 Collateralized loan obligations 5-10 years $ 32,196 $ 32,223 Over 10 years 4,000 4,003 Total $ 36,196 $ 36,226 There were no proceeds from sales of investment securities for the three-month periods ending March 31, 2025 and 2024. A summary of interest income for the three-month periods ending March 31, 2025 and 2024, on available for sale investment securities are as follows: Three Months Ended March 31, (In Thousands) 2025 2024 US Treasury and government sponsored entities $ 2,324 $ 2,569 U.S. Agency mortgage-backed securities 4 — Other 624 1,146 Total taxable interest income $ 2,952 $ 3,715 Municipal securities $ — $ 3 Total tax-exempt interest income $ — $ 3 Total $ 2,952 $ 3,718 15 4. Loans and Allowance for Credit Losses Loans Held for Sale Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of March 31, 2025 and December 31, 2024. 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: March 31, 2025 December 31, 2024 (In Thousands) Amortized Cost Unpaid Principal Difference Amortized Cost Unpaid Principal Difference Commercial & industrial loans $ 491,945 $ 494,286 ($ 2,341 ) $ 437,922 $ 440,163 ($ 2,241 ) Commercial real estate: Owner occupied properties 428,443 430,442 ( 1,999 ) 418,092 420,060 ( 1,968 ) Non-owner occupied and multifamily properties 686,097 690,277 ( 4,180 ) 615,662 619,431 ( 3,769 ) Residential real estate: 1-4 family residential properties secured by first liens 188,086 188,219 ( 133 ) 270,966 270,535 431 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 54,225 53,836 389 49,160 48,857 303 1-4 family residential construction loans 33,786 34,017 ( 231 ) 39,516 39,789 ( 273 ) Other construction, land development and raw land loans 155,158 156,211 ( 1,053 ) 212,561 214,068 ( 1,507 ) Obligations of states and political subdivisions in the US 30,941 30,939 2 29,471 29,468 3 Agricultural production, including commercial fishing 46,296 46,513 ( 217 ) 45,840 46,069 ( 229 ) Consumer loans 7,508 7,424 84 7,638 7,562 76 Other loans 1,845 1,855 ( 10 ) 2,435 2,448 ( 13 ) Total 2,124,330 2,134,019 ( 9,689 ) 2,129,263 2,138,450 ( 9,187 ) Allowance for credit losses ( 20,922 ) ( 22,020 ) Net loans $ 2,103,408 $ 2,134,019 ($ 9,689 ) $ 2,107,243 $ 2,138,450 ($ 9,187 ) The difference between the amortized cost and unpaid principal balance is net deferred origination fees totaling $ 9.7 million at March 31, 2025 and $ 9.2 million at December 31, 2024. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 9.9 million and $ 8.4 million at March 31, 2025 and December 31, 2024, respectively, and is included in other assets in the Consolidated Balance Sheets . 16 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 March 31, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance (In Thousands) 2025 Commercial & industrial loans $ 5,800 $ 1,550 ($ 37 ) $ 74 $ 7,387 Commercial real estate: Owner occupied properties 2,944 ( 502 ) — — 2,442 Non-owner occupied and multifamily properties 3,967 ( 11 ) — — 3,956 Residential real estate: 1-4 family residential properties secured by first liens 4,364 ( 308 ) — — 4,056 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 775 ( 13 ) — 7 769 1-4 family residential construction loans 230 ( 11 ) — — 219 Other construction, land development and raw land loans 3,589 ( 1,883 ) — — 1,706 Obligations of states and political subdivisions in the US 106 17 — — 123 Agricultural production, including commercial fishing 169 16 — 2 187 Consumer loans 71 12 ( 13 ) 1 71 Other loans 5 1 — — 6 Total $ 22,020 ($ 1,132 ) ($ 50 ) $ 84 $ 20,922 2024 Commercial & industrial loans $ 3,438 $ 890 ($ 149 ) $ 361 $ 5,800 Commercial real estate: Owner occupied properties 2,867 77 — — 2,944 Non-owner occupied and multifamily properties 3,294 673 — — 3,967 Residential real estate: 1-4 family residential properties secured by first liens 3,470 894 — — 4,364 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 551 202 — 22 775 1-4 family residential construction loans 191 39 — — 230 Other construction, land development and raw land loans 3,127 462 — — 3,589 Obligations of states and political subdivisions in the US 80 26 — — 106 Agricultural production, including commercial fishing 168 20 ( 25 ) 6 169 Consumer loans 81 ( 9 ) ( 15 ) 14 71 Other loans 3 2 — — 5 Total $ 17,270 $ 3,276 ($ 189 ) $ 403 $ 22,020 17 The following table shows gross charge-offs by year of loan origination for the periods indicated: Three Months Ended March 31, (In Thousands) 2025 2024 2023 2022 2021 Prior Total 2025 Commercial & industrial loans $ — $ — $ — $ — $ 37 $ — $ 37 Consumer loans — — 3 — — 10 13 Total $ — $ — $ 3 $ — $ 37 $ 10 $ 50 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 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. March 31, 2025 2025 2024 2023 2022 2021 Prior Total (In Thousands) Commercial & industrial loans Pass $ 40,464 $ 108,928 $ 72,264 $ 113,643 $ 36,159 $ 75,313 $ 446,771 Classified 792 119 6,120 16,724 14,160 7,259 45,174 Total commercial & industrial loans $ 41,256 $ 109,047 $ 78,384 $ 130,367 $ 50,319 $ 82,572 $ 491,945 Commercial real estate: Owner occupied properties Pass $ 9,058 $ 79,991 $ 48,041 $ 71,034 $ 59,637 $ 140,247 $ 408,008 18 Classified — — — 3,743 — 16,692 20,435 Total commercial real estate owner occupied properties $ 9,058 $ 79,991 $ 48,041 $ 74,777 $ 59,637 $ 156,939 $ 428,443 Non-owner occupied and multifamily properties Pass $ 15,628 $ 121,670 $ 74,433 $ 141,104 $ 88,876 $ 233,296 $ 675,007 Classified — — — 1,162 29 9,899 11,090 Total commercial real estate non-owner occupied and multifamily properties $ 15,628 $ 121,670 $ 74,433 $ 142,266 $ 88,905 $ 243,195 $ 686,097 Residential real estate: 1-4 family residential properties secured by first liens Pass $ 12,212 $ 108,703 $ 10,497 $ 41,789 $ 3,245 $ 10,752 $ 187,198 Classified — — 521 315 — 52 888 Total residential real estate 1-4 family residential properties secured by first liens $ 12,212 $ 108,703 $ 11,018 $ 42,104 $ 3,245 $ 10,804 $ 188,086 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens Pass $ 4,815 $ 20,177 $ 12,985 $ 5,166 $ 2,669 $ 7,770 $ 53,582 Classified — — 373 — — 270 643 Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ 4,815 $ 20,177 $ 13,358 $ 5,166 $ 2,669 $ 8,040 $ 54,225 1-4 family residential construction loans Pass $ 5,123 $ 18,661 $ 413 $ 2,353 $ — $ 7,236 $ 33,786 Classified — — — — — — — Total residential real estate 1-4 family residential construction loans $ 5,123 $ 18,661 $ 413 $ 2,353 $ — $ 7,236 $ 33,786 Other construction, land development and raw land loans Pass $ 3,652 $ 58,947 $ 58,857 $ 14,180 $ 9,151 $ 8,794 $ 153,581 Classified — — — — — 1,577 1,577 Total other construction, land development and raw land loans $ 3,652 $ 58,947 $ 58,857 $ 14,180 $ 9,151 $ 10,371 $ 155,158 Obligations of states and political subdivisions in the US Pass $ — $ 1,699 $ — $ 29,241 $ — $ 1 $ 30,941 Classified — — — — — — — Total obligations of states and political subdivisions in the US $ — $ 1,699 $ — $ 29,241 $ — $ 1 $ 30,941 Agricultural production, including commercial fishing Pass $ 150 $ 8,117 $ 9,258 $ 8,323 $ 15,850 $ 4,461 $ 46,159 Classified — — — — 137 — 137 Total agricultural production, including commercial fishing $ 150 $ 8,117 $ 9,258 $ 8,323 $ 15,987 $ 4,461 $ 46,296 Consumer loans Pass $ 833 $ 2,690 $ 2,103 $ 672 $ 63 $ 1,097 $ 7,458 Classified — — 45 5 — — 50 Total consumer loans $ 833 $ 2,690 $ 2,148 $ 677 $ 63 $ 1,097 $ 7,508 Other loans Pass $ — $ — $ 192 $ 108 $ 282 $ 1,263 $ 1,845 Classified — — — — — — — Total other loans $ — $ — $ 192 $ 108 $ 282 $ 1,263 $ 1,845 Total loans Pass $ 91,935 $ 529,583 $ 289,043 $ 427,613 $ 215,932 $ 490,230 $ 2,044,336 Classified 792 119 7,059 21,949 14,326 35,749 79,994 Total loans $ 92,727 $ 529,702 $ 296,102 $ 449,562 $ 230,258 $ 525,979 $ 2,124,330 Total pass loans $ 91,935 $ 529,583 $ 289,043 $ 427,613 $ 215,932 $ 490,230 $ 2,044,336 Government guarantees ( 7,768 ) ( 39,014 ) ( 17,408 ) ( 5,227 ) ( 13,158 ) ( 18,657 ) ( 101,232 ) Total pass loans, net of government guarantees $ 84,167 $ 490,569 $ 271,635 $ 422,386 $ 202,774 $ 471,573 $ 1,943,104 19 Total classified loans $ 792 $ 119 $ 7,059 $ 21,949 $ 14,326 $ 35,749 $ 79,994 Government guarantees — — ( 1,604 ) ( 17,134 ) ( 12,752 ) ( 12,954 ) ( 44,444 ) Total classified loans, net government guarantees $ 792 $ 119 $ 5,455 $ 4,815 $ 1,574 $ 22,795 $ 35,550 December 31, 2024 2024 2023 2022 2021 2020 Prior Total (In Thousands) Commercial & industrial loans Pass $ 112,361 $ 70,871 $ 120,377 $ 37,628 $ 10,581 $ 40,288 $ 392,106 Classified 201 3,386 16,888 14,973 5,759 4,609 45,816 Total commercial & industrial loans $ 112,562 $ 74,257 $ 137,265 $ 52,601 $ 16,340 $ 44,897 $ 437,922 Commercial real estate: Owner occupied properties Pass $ 68,074 $ 48,655 $ 74,611 $ 64,234 $ 74,662 $ 74,987 $ 405,223 Classified — — 492 — 348 12,029 12,869 Total commercial real estate owner occupied properties $ 68,074 $ 48,655 $ 75,103 $ 64,234 $ 75,010 $ 87,016 $ 418,092 Non-owner occupied and multifamily properties Pass $ 114,879 $ 70,806 $ 104,924 $ 73,008 $ 65,592 $ 175,349 $ 604,558 Classified — — 1,166 30 — 9,908 11,104 Total commercial real estate non-owner occupied and multifamily properties $ 114,879 $ 70,806 $ 106,090 $ 73,038 $ 65,592 $ 185,257 $ 615,662 Residential real estate: 1-4 family residential properties secured by first liens Pass $ 103,919 $ 108,642 $ 43,562 $ 3,279 $ 4,228 $ 6,978 $ 270,608 Classified — 205 — — — 153 358 Total residential real estate 1-4 family residential properties secured by first liens $ 103,919 $ 108,847 $ 43,562 $ 3,279 $ 4,228 $ 7,131 $ 270,966 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens Pass $ 18,946 $ 13,553 $ 5,116 $ 2,695 $ 2,097 $ 6,083 $ 48,490 Classified — 372 — — — 298 670 Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $ 18,946 $ 13,925 $ 5,116 $ 2,695 $ 2,097 $ 6,381 $ 49,160 1-4 family residential construction loans Pass $ 25,458 $ 4,118 $ 2,353 $ — $ — $ 7,587 $ 39,516 Classified — — — — — — — Total residential real estate 1-4 family residential construction loans $ 25,458 $ 4,118 $ 2,353 $ — $ — $ 7,587 $ 39,516 Other construction, land development and raw land loans Pass $ 63,430 $ 60,693 $ 51,809 $ 25,836 $ 1,236 $ 7,942 $ 210,946 Classified — — — — — 1,615 1,615 Total other construction, land development and raw land loans $ 63,430 $ 60,693 $ 51,809 $ 25,836 $ 1,236 $ 9,557 $ 212,561 Obligations of states and political subdivisions in the US Pass $ — $ — $ 29,471 $ — $ — $ — $ 29,471 Classified — — — — — — — Total obligations of states and political subdivisions in the US $ — $ — $ 29,471 $ — $ — $ — $ 29,471 Agricultural production, including commercial fishing Pass $ 8,097 $ 8,776 $ 8,380 $ 15,847 $ 3,109 $ 1,631 $ 45,840 Classified — — — — — — — Total agricultural production, including commercial fishing $ 8,097 $ 8,776 $ 8,380 $ 15,847 $ 3,109 $ 1,631 $ 45,840 Consumer loans Pass $ 3,346 $ 2,377 $ 717 $ 75 $ 252 $ 820 $ 7,587 20 Classified — 45 5 — — 1 51 Total consumer loans $ 3,346 $ 2,422 $ 722 $ 75 $ 252 $ 821 $ 7,638 Other loans Pass $ — $ 345 $ 122 $ 285 $ 1,683 $ — $ 2,435 Classified — — — — — — — Total other loans $ — $ 345 $ 122 $ 285 $ 1,683 $ — $ 2,435 Total loans Pass $ 518,510 $ 388,836 $ 441,442 $ 222,887 $ 163,440 $ 321,665 $ 2,056,780 Classified 201 4,008 18,551 15,003 6,107 28,613 72,483 Total loans $ 518,711 $ 392,844 $ 459,993 $ 237,890 $ 169,547 $ 350,278 $ 2,129,263 Total pass loans $ 518,510 $ 388,836 $ 441,442 $ 222,887 $ 163,440 $ 321,665 $ 2,056,780 Government guarantees ( 35,244 ) ( 12,421 ) ( 7,727 ) ( 13,785 ) ( 1,591 ) ( 17,276 ) ( 88,044 ) Total pass loans, net of government guarantees $ 483,266 $ 376,415 $ 433,715 $ 209,102 $ 161,849 $ 304,389 $ 1,968,736 Total classified loans $ 201 $ 4,008 $ 18,551 $ 15,003 $ 6,107 $ 28,613 $ 72,483 Government guarantees — ( 1,640 ) ( 14,816 ) ( 13,476 ) ( 5,183 ) ( 7,963 ) ( 43,078 ) Total classified loans, net government guarantees $ 201 $ 2,368 $ 3,735 $ 1,527 $ 924 $ 20,650 $ 29,405 21 Past Due Loans: The following tables present an aging of contractually past due loans as of the periods presented: (In Thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Greater Than 90 Days Past Due Still Accruing March 31, 2025 Commercial & industrial loans $ — $ 80 $ 1,499 $ 1,579 $ 490,366 $ 491,945 $ — Commercial real estate: Owner occupied properties — — 217 217 428,226 428,443 — Non-owner occupied and multifamily properties — — — — 686,097 686,097 — Residential real estate: 1-4 family residential properties secured by first liens 991 — — 991 187,095 188,086 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — 460 460 53,765 54,225 — 1-4 family residential construction loans — — — — 33,786 33,786 — Other construction, land development and raw land loans — — 1,490 1,490 153,668 155,158 — Obligations of states and political subdivisions in the US — — — — 30,941 30,941 — Agricultural production, including commercial fishing — — — — 46,296 46,296 — Consumer loans — — — — 7,508 7,508 — Other loans — — — — 1,845 1,845 — Total $ 991 $ 80 $ 3,666 $ 4,737 $ 2,119,593 $ 2,124,330 $ — December 31, 2024 Commercial & industrial loans $ 718 $ — $ 1,558 $ 2,276 $ 435,646 $ 437,922 $ — Commercial real estate: Owner occupied properties — 492 224 716 417,376 418,092 — Non-owner occupied and multifamily properties — — — — 615,662 615,662 — Residential real estate: 1-4 family residential properties secured by first liens 712 323 205 1,240 269,726 270,966 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — 466 466 48,694 49,160 17 1-4 family residential construction loans — — 94 94 39,422 39,516 — Other construction, land development and raw land loans — — 1,432 1,432 211,129 212,561 — Obligations of states and political subdivisions in the US — — — — 29,471 29,471 — Agricultural production, including commercial fishing — — — — 45,840 45,840 — Consumer loans — — — — 7,638 7,638 — Other loans — — — — 2,435 2,435 — Total $ 1,430 $ 815 $ 3,979 $ 6,224 $ 2,123,039 $ 2,129,263 $ 17 22 Nonaccrual loans: Nonaccrual loans net of government guarantees totaled $ 8.0 million and $ 7.5 million at March 31, 2025 and December 31, 2024, 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. March 31, 2025 December 31, 2024 (In Thousands) Nonaccrual Nonaccrual With No ACL Nonaccrual Nonaccrual With No ACL Commercial & industrial loans $ 5,600 $ 1,966 $ 4,983 $ 4,760 Commercial real estate: Owner occupied properties 217 217 224 224 Residential real estate: 1-4 family residential properties secured by first liens 221 — 233 — 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 540 460 550 466 1-4 family residential construction loans — — 94 94 Other construction, land development and raw land loans 1,490 1,490 1,432 1,432 Total nonaccrual loans 8,068 4,133 7,516 6,976 Government guarantees on nonaccrual loans ( 80 ) ( 80 ) — — Net nonaccrual loans $ 7,988 $ 4,053 $ 7,516 $ 6,976 There was no interest on nonaccrual loans reversed through interest income during the three-month periods ending March 31, 2025 or March 31, 2024. There was no interest earned on nonaccrual loans with a principal balance during the three-month periods ending March 31, 2025 and March 31, 2024. However, the Company recognized interest income of $ 42,000 and $ 202,000 in the three-month periods ending March 31, 2025 and 2024, 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 during the periods 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 March 31, 2025 Payment Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable (In Thousands) Commercial real estate: Owner occupied properties $ — $ 3,252 $ 3,252 0.76 % Total $ — $ 3,252 $ 3,252 0.15 % 23 Three Months Ended March 31, 2024 Term Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable (In Thousands) Commercial & industrial loans $ 5,396 $ 265 $ 5,661 1.43 % Total $ 5,396 $ 842 $ 5,661 0.31 % 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 March 31, 2025 Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months) (In Thousands) Commercial real estate: Owner occupied properties $ — — % 33 Three Months Ended March 31, 2024 Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months) (In Thousands) Commercial & industrial loans $ — 8 % 7 The following table presents the amortized cost basis of loans to borrowers experiencing financial difficulty as of the dates indicated: March 31, 2025 December 31, 2024 (In Thousands) Commercial & industrial loans $ 4,318 $ 5,075 Commercial real estate: Owner occupied properties 3,468 224 Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 460 466 1-4 family residential construction loans — 94 Other construction, land development and raw land loans 1,490 1,432 Total $ 9,736 $ 7,291 : 24 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 March 31, 2025 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 $ — 1-4 family residential construction loans — Other construction, land development and raw land loans — Total $ — Three Months Ended March 31, 2024 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 $ 112 1-4 family residential construction loans 109 Other construction, land development and raw land loans 968 Total $ 1,189 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: March 31, 2025 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total (In Thousands) Commercial & industrial loans $ — $ — $ — $ 4,318 $ 4,318 Commercial real estate: Owner occupied properties — 217 217 3,251 3,468 Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — 460 460 — 460 Other construction, land development and raw land loans — 1,490 1,490 — 1,490 Total $ — $ 2,167 $ 2,167 $ 7,569 $ 9,736 25 March 31, 2024 30-59 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total (In Thousands) Commercial & industrial loans $ — $ — $ — $ 7,633 $ 7,633 Commercial real estate: Owner occupied properties — — — 253 253 Residential real estate: 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 112 — 112 — 112 1-4 family residential construction loans 109 — 109 — 109 Other construction, land development and raw land loans 968 — 968 572 1,540 Total $ — $ — $ 1,189 $ 8,458 $ 9,647 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. 5. Purchased Receivables Purchased receivables are carried at their principal amount outstanding, net of an ACL, and have a maturity of less than one year . 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 seven nonperforming purchased receivables with a balance of $ 4.0 million as of March 31, 2025 and there were four nonperforming purchased receivable with a balance of $ 3.8 million as of December 31, 2024 for which management was not accruing income. The following table summarizes the components of net purchased receivables for the dates indicated: (In Thousands) March 31, 2025 December 31, 2024 Purchased receivables $ 99,184 $ 77,727 Allowance for credit losses - purchased receivables ( 3,695 ) ( 3,649 ) Total $ 95,489 $ 74,078 The following table sets forth information regarding changes in the ACL on purchased receivables for the period indicated: Three Months Ended March 31, (In Thousands) 2025 2024 Balance at beginning of year $ 3,649 $ — Charge-offs — — Recoveries — — Charge-offs net of recoveries — — Provision for purchased receivables 46 — Balance at end of year $ 3,695 $ — 26 6. Servicing Rights Mortgage servicing rights The following table details the activity in the Company's mortgage servicing rights (“MSR”) for the three-month periods ended March 31, 2025 and 2024: Three Months Ended March 31, (In Thousands) 2025 2024 Balance, beginning of period $ 26,439 $ 19,564 Additions for new MSR capitalized 1,230 516 Changes in fair value: Due to changes in model inputs of assumptions (1) ( 322 ) 289 Other (2) ( 533 ) ( 314 ) Balance, end of period $ 26,814 $ 20,055 (1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates. (2) Represents changes due to collection/realization of expected cash flows over time. The following table details information related to our serviced mortgage loan portfolio as of March 31, 2025 and December 31, 2024: (In Thousands) March 31, 2025 December 31, 2024 Balance of mortgage loans serviced for others $ 1,484,714 $ 1,460,720 Weighted average rate of note 4.50 % 4.46 % MSR as a percentage of serviced loans 1.81 % 1.81 % The Company recognized servicing fees of $ 1.5 million and $ 1.0 million during the three-month periods ending March 31, 2025 and 2024, 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. 27 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 9 for additional information on key assumptions for MSR fair value determinations. (In Thousands) March 31, 2025 December 31, 2024 Fair value of MSRs $ 26,814 $ 26,439 Expected weighted-average life (in years) 9.31 9.51 Key assumptions: Constant prepayment rate 1 9.35 % 9.09 % Impact on fair value from 10% adverse change ($ 959 ) ($ 935 ) Impact on fair value from 25% adverse change ($ 2,281 ) ($ 2,222 ) Discount rate 10.99 % 10.99 % Impact on fair value from 100 basis point increase ($ 1,582 ) ($ 1,592 ) Impact on fair value from 200 basis point increase ($ 2,529 ) ($ 2,544 ) Cost to service assumptions ($ per loan) $ 81 $ 81 Impact on fair value from 10% adverse change ($ 231 ) ($ 235 ) Impact on fair value from 25% adverse change ($ 578 ) ($ 588 ) 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 $ 2.3 million at March 31, 2025 and $ 2.2 million at December 31, 2024, 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 $ 295.3 million and $ 279.7 million at March 31, 2025 and December 31, 2024, respectively. Key assumptions used in measuring the fair value of the CSR as of March 31, 2025 and December 31, 2024 include a constant prepayment rate of 11.38 % and a discount rate of 12.00 %. 7. Leases The Company's lease commitments consist primarily of agreements to lease land and office facilities that it occupies to operate several of its retail branch locations that are classified as operating leases and are recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. As of March 31, 2025, the Company has operating lease ROU assets of $ 7.6 million and operating lease liabilities of $ 7.7 million. As of December 31, 2024, the Company had operating lease ROU assets of $ 7.5 million and operating lease liabilities of $ 7.5 million. The Company did not have any agreements that are classified as finance leases as of March 31, 2025 or December 31, 2024. 28 The following table presents additional information about the Company's operating leases for the periods indicated: Three Months Ended March 31, (In Thousands) 2025 2024 Lease Cost Operating lease cost (1) $ 708 $ 737 Short term lease cost (1) 86 38 Total lease cost $ 794 $ 775 Other information Operating leases - operating cash flows $ 687 $ 683 Weighted average lease term - operating leases, in years 11.35 10.36 Weighted average discount rate - operating leases 3.75 % 3.60 % (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 2025 (Nine months) $ 1,999 2026 1,498 2027 1,028 2028 731 2029 553 Thereafter 3,751 Total minimum lease payments $ 9,560 Less: amount of lease payment representing interest ( 1,878 ) Present value of future minimum lease payments $ 7,682 29 8. 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 $ 584,000 as of March 31, 2025 and $ 579,000 as of December 31, 2024, 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 $ 321.2 million and $ 309.0 million at March 31, 2025 and December 31, 2024, respectively. At March 31, 2025, the notional amount of interest rate swaps is made up of 26 variable to fixed rate swaps to commercial loan customers totaling $ 160.6 million, and 26 fixed to variable rate swaps with a counterparty totaling $ 160.6 million. Changes in fair value from these 26 interest rate swaps offset each other in the three-month periods ending March 31, 2025. The Company recognized $ 129,000 and $ 63,000 in fee income related to interest rate swaps in the three-month periods ending March 31, 2025 and 2024, 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 5.93 % as of March 31, 2025. The Company pledged $ 130,000 in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of March 31, 2025 and December 31, 2024. 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 $ 1.1 million as of March 31, 2025 and the unrealized gain, net of tax was $ 1.3 million as of December 31, 2024. 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. Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively “RML”) had commitments to originate mortgage loans held for sale totaling $ 68.3 million and $ 32.3 million at March 31, 2025 and December 31, 2024, 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. 30 The following table presents the fair value of derivatives not designated as hedging instruments at March 31, 2025 and December 31, 2024: (In Thousands) Asset Derivatives March 31, 2025 December 31, 2024 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other assets $ 10,235 $ 13,011 Interest rate lock commitments Other assets 1,389 465 Retail interest rate contracts Other assets — 49 Total $ 11,624 $ 13,525 (In Thousands) Liability Derivatives March 31, 2025 December 31, 2024 Balance Sheet Location Fair Value Fair Value Interest rate swaps Other liabilities $ 10,235 $ 13,011 Retail interest rate contracts Other liabilities 172 — Total $ 10,407 $ 13,011 The following table presents the net gains (losses) of derivatives not designated as hedging instruments for periods indicated below: Three Months Ended March 31, (In Thousands) Income Statement Location 2025 2024 Retail interest rate contracts Mortgage banking income ($ 309 ) $ 121 Interest rate lock commitments Mortgage banking income 880 385 Total $ 571 $ 506 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. 31 The following table summarizes the derivatives that have a right of offset as of March 31, 2025 and December 31, 2024: March 31, 2025 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 $ 10,235 $ — $ 10,235 $ — $ — $ 10,235 Liability Derivatives Interest rate swaps $ 10,235 $ — $ 10,235 $ — $ 10,235 $ — Retail interest rate contracts 172 — 172 — — 172 December 31, 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 $ 13,011 $ — $ 13,011 $ — $ — $ 13,011 Retail interest rate contracts 49 — 49 — — 49 Liability Derivatives Interest rate swaps $ 13,011 $ — $ 13,011 $ — $ 13,011 $ — 9. 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 32 majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2025, 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. 33 Estimated fair values as of the periods indicated are as follows: March 31, 2025 December 31, 2024 (In Thousands) Carrying Amount Fair Value Carrying Amount Fair Value Financial assets: Level 1 inputs: Cash, due from banks and deposits in other banks $ 65,523 $ 65,523 $ 62,736 $ 62,736 Investment securities available for sale 247,392 247,392 268,781 268,781 Marketable equity securities 8,669 8,669 8,719 8,719 Level 2 inputs: Investment securities available for sale 215,704 215,704 209,836 209,836 Loans held for sale 159,603 159,603 59,957 59,957 Interest rate swaps 11,768 11,768 14,788 14,788 Level 3 inputs: Investment securities held to maturity 36,750 35,689 36,750 35,750 Loans 2,124,330 2,182,020 2,129,263 2,014,070 Purchased receivables, net 95,489 95,489 74,078 74,078 Interest rate lock commitments 1,389 1,389 465 465 Mortgage servicing rights 26,814 26,814 26,439 26,439 Commercial servicing rights 2,317 2,317 2,194 2,194 Financial liabilities: Level 2 inputs: Deposits $ 2,777,977 $ 2,779,991 $ 2,680,189 $ 2,683,029 Borrowings 13,136 10,393 23,045 19,991 Interest rate swaps 10,235 10,235 13,011 13,011 Level 3 inputs: Junior subordinated debentures 10,310 11,061 10,310 10,897 34 The following table sets forth the balances as of the periods indicated of assets and liabilities measured at fair value on a recurring basis: (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2025 Assets: Available for sale securities U.S. Treasury and government sponsored entities $ 416,971 $ 247,392 $ 169,579 $ — U.S. Agency mortgage-backed securities 5,063 — 5,063 — Corporate bonds 4,836 — 4,836 — Collateralized loan obligations 36,226 — 36,226 — Total available for sale securities $ 463,096 $ 247,392 $ 215,704 $ — Marketable equity securities $ 8,669 $ 8,669 $ — $ — Total marketable equity securities $ 8,669 $ 8,669 $ — $ — Interest rate swaps $ 11,768 $ — $ 11,768 $ — Interest rate lock commitments 1,389 — — 1,389 Mortgage servicing rights 26,814 — — 26,814 Commercial servicing rights 2,317 — — 2,317 Total other assets $ 42,288 $ — $ 11,768 $ 30,520 Liabilities: Interest rate swaps $ 10,235 $ — $ 10,235 $ — Retail interest rate contracts 172 — 172 — Total other liabilities $ 10,407 $ — $ 10,407 $ — December 31, 2024 Assets: Available for sale securities U.S. Treasury and government sponsored entities $ 432,931 $ 259,986 $ 172,945 $ — Municipal securities — — — — Corporate bonds 8,795 8,795 — — Collateralized loan obligations 36,891 — 36,891 — Total available for sale securities $ 478,617 $ 268,781 $ 209,836 $ — Marketable equity securities $ 8,719 $ 8,719 $ — $ — Total marketable securities $ 8,719 $ 8,719 $ — $ — Interest rate swaps $ 14,788 $ — $ 14,788 $ — Interest rate lock commitments 465 — — 465 Mortgage servicing rights 26,439 — — 26,439 Commercial servicing rights 2,194 — — 2,194 Retail interest rate contracts 49 — 49 — Total other assets $ 43,935 $ — $ 14,837 $ 29,098 Liabilities: Interest rate swaps $ 13,011 $ — $ 13,011 $ — Total other liabilities $ 13,011 $ — $ 13,011 $ — 35 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 three-month periods ended March 31, 2025 and 2024: (In Thousands) Beginning balance Change included in earnings Purchases and issuances Sales and settlements Ending balance Net change in unrealized gains (losses) relating to items held at end of period Three Months Ended March 31, 2025 Interest rate lock commitments $ 465 ($ 226 ) $ 1,996 ($ 846 ) $ 1,389 $ 1,389 Mortgage servicing rights 26,439 ( 855 ) 1,230 — 26,814 — Commercial servicing rights 2,194 ( 73 ) 196 — 2,317 — Total $ 29,098 ($ 1,154 ) $ 3,422 ($ 846 ) $ 30,520 $ 1,389 Three Months Ended March 31, 2024 Interest rate lock commitments $ 342 ($ 275 ) $ 2,513 ($ 1,815 ) $ 765 $ 765 Mortgage servicing rights 19,564 ( 25 ) 516 — 20,055 — Commercial servicing rights 2,200 ( 129 ) 29 — 2,100 — Total $ 22,106 ($ 429 ) $ 3,058 ($ 1,815 ) $ 22,920 $ 765 There were no changes in unrealized gains and losses for the three-month periods ending March 31, 2025 and 2024 included in other comprehensive income for recurring Level 3 fair value measurements. 36 As of and for the periods ending March 31, 2025 and December 31, 2024, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis. For loans individually measured for credit losses, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy. (In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2025 Loans individually measured for credit losses $ — $ — $ — $ — Total $ — $ — $ — $ — December 31, 2024 Loans individually measured for credit losses $ — $ — $ — $ — Total $ — $ — $ — $ — The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the three-month periods ended March 31, 2025 and 2024: Three Months Ended March 31, (In Thousands) 2025 2024 Loans individually measured for credit losses $ — $ 184 Other real estate owned — — Total loss from nonrecurring measurements $ — $ 184 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 March 31, 2025 and December 31, 2024: Financial Instrument Valuation Technique - Recurring Basis Unobservable Input Weighted Average Rate Range March 31, 2025 Interest rate lock commitment External pricing model Pull through rate 91.19 % Mortgage servicing rights Discounted cash flow Constant prepayment rate 8.45 % - 21.31 % Discount rate 9.50 % - 11.00 % Commercial servicing rights Discounted cash flow Constant prepayment rate 3.13 % - 18.23 % Discount rate 12.00 % December 31, 2024 Interest rate lock commitment External pricing model Pull through rate 93.35 % Mortgage servicing rights Discounted cash flow Constant prepayment rate 2.01 % - 14.91 % Discount rate 9.50 % - 11.00 % Commercial servicing rights Discounted cash flow Constant prepayment rate 3.13 % - 18.23 % Discount rate 12.00 % 37 10. Segment Information The Company's operations are managed along three operating segments: Community Banking, Home Mortgage Lending, and Specialty Finance. The Company reevaluated our reportable operating segments in the fourth quarter of 2024 concurrent with the acquisition of SCF, which resulted in the addition of the Specialty Finance segment. The Community Banking segment's principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas. As of March 31, 2025, 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, mortgage loan servicing for a portion of mortgage loans sold, and investment in certain 1-4 family residential mortgage loans on our balance sheet. The Specialty Finance segment's principal business focus is factoring, asset based lending and alternative working capital solutions to small and medium sized enterprises, and includes SCF and Northrim Funding Services, which was previously reported in the Community Banking segment prior to the acquisition of SCF. The Company's reportable segments are determined by our Chief Financial Officer and the Chief Executive Officer, whom collectively are the designated chief operating decision maker. The reportable segments are determined based on information provided about the Company's products and services offered. They are also distinguished by the level of information provided to the chief operating decision maker, who uses the information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and customers are similar. The chief operating decision maker evaluates the financial performance of the Company's business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the performance of the Company's segments and in the determination of allocating resources. Segment pretax net income or loss is used to assess the performance of the community banking segment by monitoring the margin between interest income and interest expense and the efficiency ratio specific to the segment. Segment pretax net income or loss is used to assess the performance of the home mortgage lending segment by monitoring the premium received on loan sales, the margin between interest income and interest expense, and the profitability of home mortgage servicing activities. Segment pretax net income or loss is used to assess the performance of the specialty finance segment by monitoring pretax income and the yield of purchased receivable fees. Accounting policies for segments are the same as those described in Note 1 to the Consolidated Financial Statements. Interest expense is allocated to each segment based on average cash utilized to fund the operations of the segment and the average cost of interest-bearing liabilities for the consolidated entity. Indirect salary expense for activities such as general management, accounting and finance, human resources, compliance, information technology, risk management, and internal audit are allocated based on the average percentage of employee time spent working in each specific segment. 38 Summarized financial information for the Company's reportable segments and the reconciliation to the consolidated financial results for the periods presented is shown in the following tables: Three Months Ended March 31, 2025 (In Thousands) Community Banking Home Mortgage Lending Specialty Finance Consolidated Interest income $ 36,573 $ 4,392 $ 596 $ 41,561 Interest expense 8,422 1,346 496 10,264 Net interest income 28,151 3,046 100 31,297 Provision (benefit) for credit losses ( 1,768 ) ( 307 ) 666 ( 1,409 ) Net interest income after provision for credit losses 29,919 3,353 ( 566 ) 32,706 Net realized gains on mortgage loans sold — 2,740 — 2,740 Change in fair value of mortgage loan commitments, net — 660 — 660 Total production revenue — 3,400 — 3,400 Mortgage servicing revenue — 2,696 — 2,696 Change in fair value of mortgage servicing rights: Due to changes in model inputs of assumptions — ( 322 ) — ( 322 ) Other — ( 533 ) — ( 533 ) Total mortgage servicing revenue, net — 1,841 — 1,841 Other mortgage banking revenue — 170 — 170 Total mortgage banking revenue — 5,411 — 5,411 Purchased receivable income — — 6,150 6,150 Other operating income 2,703 — ( 64 ) 2,639 Total other operating income 2,703 5,411 6,086 14,200 Salaries and other personnel expense 10,764 4,769 1,690 17,223 Data processing expense 2,670 263 171 3,104 Occupancy expense 1,381 438 70 1,889 Professional and outside services 562 256 297 1,115 Marketing expense 519 150 3 672 Insurance expense 989 22 6 1,017 Compensation expense - Sallyport acquisition payments — — 600 600 Other operating expense 1,696 1,752 263 3,711 Total other operating expense 18,581 7,650 3,100 29,331 Income before provision for income taxes 14,041 1,114 2,420 17,575 Provision for income taxes 3,253 310 688 4,251 Net income $ 10,788 $ 804 $ 1,732 $ 13,324 39 March 31, 2025 (In Thousands) Community Banking Home Mortgage Lending Specialty Finance Consolidated Interest income $ 36,573 $ 4,392 $ 596 $ 41,561 Mortgage banking income - external revenue — 5,411 — 5,411 Mortgage banking income - intersegment revenues — 441 — 441 Purchased receivable income — — 6,150 6,150 Other operating income 2,703 — ( 64 ) 2,639 39,276 10,244 6,682 56,202 Reconciliation of revenue Elimination of intersegment revenues — ( 441 ) — ( 441 ) Total consolidated revenues $ 39,276 $ 9,803 $ 6,682 $ 55,761 Less: Interest expense 8,422 1,346 496 10,264 Provision (benefit) for credit losses ( 1,768 ) ( 307 ) 666 ( 1,409 ) Segment gross profit 32,622 8,764 5,520 46,906 Less (1) : Salaries and other personnel expense $ 10,764 $ 4,769 $ 1,690 $ 17,223 Data processing expense 2,670 263 171 3,104 Occupancy expense 1,381 438 70 1,889 Professional and outside services 562 256 297 1,115 Marketing expense 519 150 3 672 Insurance expense 989 22 6 1,017 Compensation expense - Sallyport acquisition payments — — 600 600 Intersegment expense 441 — — 441 Other segment items (2) 1,696 1,752 263 3,711 Segment expense 19,022 7,650 3,100 29,772 Reconciliation of expense Elimination of intersegment expense ($ 441 ) $ — $ — ( 441 ) Total consolidated expense $ 18,581 $ 7,650 $ 3,100 $ 29,331 Income before provision for income taxes $ 14,041 $ 1,114 $ 2,420 $ 17,575 1 The significant expense categories and amounts align with the segment-level information that is regularly provided to the chief operating decision maker. All expenses are allocated to a segment. 2 Other segment items for each reportable segment include: Community Banking: OREO (income) expense, net of rental income and gains on sale, director fees, operational charge offs net of recoveries, loan collection and collateral costs, and other miscellaneous operating costs related to community banking activities. Home Mortgage Lending: OREO (income) expense, net of rental income and gains on sale related home mortgage loans, director fees related at RML, loan collection and collateral costs related to home mortgage loans, and other miscellaneous operating costs related to home mortgage lending activities. Specialty Finance: miscellaneous operating costs related to specialty finance activities. 40 Three Months Ended March 31, 2024 (In Thousands) Community Banking Home Mortgage Lending Specialty Finance Consolidated Interest income $ 32,311 $ 3,285 $ 212 $ 35,808 Interest expense 8,096 1,053 212 9,361 Net interest income 24,215 2,232 — 26,447 Provision (benefit) for credit losses 197 ( 48 ) — 149 Net interest income after provision for credit losses 24,018 2,280 — 26,298 Net realized gains on mortgage loans sold — 1,980 — 1,980 Change in fair value of mortgage loan commitments, net — 386 — 386 Total production revenue — 2,366 — 2,366 Mortgage servicing revenue — 1,561 — 1,561 Change in fair value of mortgage servicing rights: Due to changes in model inputs of assumptions — 289 — 289 Other — ( 314 ) — ( 314 ) Total mortgage servicing revenue, net — 1,536 — 1,536 Other mortgage banking revenue — 129 — 129 Total mortgage banking revenue — 4,031 — 4,031 Purchased receivable income — — 1,345 1,345 Other operating income 2,468 — — 2,468 Total other operating income 2,468 4,031 1,345 7,844 Salaries and other personnel expense 10,602 4,539 276 15,417 Data processing expense 2,411 238 10 2,659 Occupancy expense 1,467 464 31 1,962 Professional and outside services 563 173 19 755 Marketing expense 380 129 4 513 Insurance expense 754 25 — 779 Other operating expense 1,001 518 34 1,553 Total other operating expense 17,178 6,086 374 23,638 Income before provision for income taxes 9,308 225 971 10,504 Provision (benefit) for income taxes 1,966 63 276 2,305 Net income $ 7,342 $ 162 $ 695 $ 8,199 41 March 31, 2024 (In Thousands) Community Banking Home Mortgage Lending Specialty Finance Consolidated Interest income $ 32,311 $ 3,285 $ 212 $ 35,808 Mortgage banking income - external revenue — 4,031 — 4,031 Mortgage banking income - intersegment revenues — 567 — 567 Purchased receivable income — — 1,345 1,345 Other operating income 2,468 — — 2,468 34,779 7,883 1,557 44,219 Reconciliation of revenue Elimination of intersegment revenues — ( 567 ) — ( 567 ) Total consolidated revenues $ 34,779 $ 7,316 $ 1,557 $ 43,652 Less: Interest expense 8,096 1,053 212 9,361 Provision (benefit) for credit losses 197 ( 48 ) — 149 Segment gross profit 26,486 6,311 1,345 34,142 Less (1) : Salaries and other personnel expense $ 10,602 $ 4,539 $ 276 $ 15,417 Data processing expense 2,411 238 10 2,659 Occupancy expense 1,467 464 31 1,962 Professional and outside services 563 173 19 755 Marketing expense 380 129 4 513 Insurance expense 754 25 — 779 Intersegment expense 567 — — 567 Other segment items (2) 1,001 518 34 1,553 Segment expense 17,745 6,086 374 24,205 Reconciliation of expense Elimination of intersegment expense ($ 567 ) $ — $ — ( 567 ) Total consolidated expense $ 17,178 $ 6,086 $ 374 $ 23,638 Income before provision for income taxes $ 9,308 $ 225 $ 971 $ 10,504 1 The significant expense categories and amounts align with the segment-level information that is regularly provided to the chief operating decision maker. All expenses are allocated to a segment. 2 Other segment items for each reportable segment include: Community Banking: OREO (income) expense, net of rental income and gains on sale, director fees, operational charge offs net of recoveries, loan collection and collateral costs, and other miscellaneous operating costs related to community banking activities. Home Mortgage Lending: OREO (income) expense, net of rental income and gains on sale related home mortgage loans, director fees related at RML, loan collection and collateral costs related to home mortgage loans, and other miscellaneous operating costs related to home mortgage lending activities. Specialty Finance: miscellaneous operating costs related to specialty finance activities. 42 March 31, 2025 (In Thousands) Community Banking Home Mortgage Lending Specialty Finance Consolidated Total assets $ 2,619,966 $ 365,360 $ 155,634 $ 3,140,960 Loans held for sale $ — $ 159,603 $ — $ 159,603 1-4 family residential properties secured by first liens $ — $ 188,086 $ — $ 188,086 Purchased receivables, net $ — $ — $ 95,489 $ 95,489 Goodwill $ 7,525 $ 7,492 $ 34,857 $ 49,874 December 31, 2024 (In Thousands) Community Banking Home Mortgage Lending Specialty Finance Consolidated Total assets $ 2,547,709 $ 357,630 $ 136,530 $ 3,041,869 Loans held for sale $ — $ 59,957 $ — $ 59,957 1-4 family residential properties secured by first liens $ — $ 270,966 $ — $ 270,966 Purchased receivables, net $ — $ — $ 74,078 $ 74,078 Goodwill $ 7,525 $ 7,492 $ 35,001 $ 50,018 43