What changed in this filing

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Item 1. Business

2026-03-06 compared with 2025-03-10 · 197 added, 143 removed, 269 unchanged (56% of the section changed)

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• Northrim Bank (the “Bank”), a state chartered, full-service commercial bank headquartered in Anchorage, Alaska.

The Bank is regulated by the Federal Deposit Insurance Corporation (the "FDIC") and the State of Alaska Department of Commerce, Community and Economic Development, Division of Banking and Securities.

The Bank is regulated by the Federal Deposit Insurance Corporation (the “FDIC”) and the State of Alaska Department of Commerce, Community and Economic Development, Division of Banking and Securities (the “Division”).

The Bank has 20 branch locations throughout the State of Alaska.

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

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

We offer a wide array of commercial and consumer loan and deposit products, investment products, and electronic banking services over the Internet;

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PWA is a holding company that owns Pacific Portfolio Consulting, LLC and Pacific Portfolio Trust Company.

PWA sold all of its operating assets in 2025, including all of the assets of Pacific Portfolio Consulting, LLC and all of its interest in Pacific Portfolio Trust Company;

• Northrim Statutory Trust 2 (“NST2”), an entity that we formed in December 2005 to facilitate a trust preferred securities offering by the Company.

The Bank has four direct wholly-owned subsidiaries:

• Northrim Capital Investments Co.

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

• SCF is a wholly-owned subsidiary of the Bank.

SCF provides factoring, asset based lending and alternative working capital solutions to small and medium sized enterprises in the United States and, through its subsidiaries, in Canada and the United Kingdom.

• Residential Mortgage, LLC (“RML”) originates 1-4 family residential mortgages, most of which are sold to the secondary market.

In connection with internal restructuring of the Bank's subsidiaries, the legacy intermediate holding companies Northrim Capital Investments Co.

and Residential Mortgage Holding Company, LLC were voluntarily dissolved in 2025.

• SCF provides factoring, asset based lending and alternative working capital solutions to small and medium sized enterprises in the United States and, through its affiliates in Canada and the United Kingdom.

SCF holds a 100% interest in Sallyport Commercial Finance CAN, LLC, a holding company, and a 40% interest in Sallyport Commercial Finance LTD, located in the United Kingdom.

Sallyport Commercial Finance CAN, LLC, holds a 100% interest in Sallyport Commercial Finance ULC, located in Canada.

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

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

• Northrim Building, LLC (“NBL”) owns and operates the Company’s main office facility at 3111 C Street in Anchorage.

• Northrim Building LO, LLC owns and operates the Company’s community branch facilities at 2270 E.

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

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Our strategy is one of value-added growth.

Management believes that calculated, sustainable organic and inorganic market share growth coupled with good asset quality, an appropriate core deposit and capital base, operational efficiency, diversified sources of other operating income, and consistent profitability is the most appropriate means of increasing shareholder value.

Our business strategy emphasizes commercial lending products and services through relationship banking with businesses and professional individuals in our Community Banking segment, mortgage origination and sale, mortgages held for investment, and mortgage servicing activities through our Mortgage Banking segment, and factoring, asset based lending, and

alternative working capital lending through our Specialty Finance segment.

Management believes that calculated, sustainable organic and inorganic market share growth coupled with good asset quality, an appropriate core deposit and capital base, operational efficiency, diversified sources of other operating income, and consistent profitability are the most appropriate means of increasing shareholder value.

Our experienced senior management team is intimately involved with serving customers and making credit decisions, all of which are made in Alaska for our Community Banking segment, allowing us to compete more favorably with larger competitors for business lending relationships.

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The Company strives to continuously evaluate our human capital polices for improvement and alignment with current best practices.

The Company recently added the Juneteenth National Independence Day and Indigenous People's Day to our lineup of paid holidays for employees.

The Company also recently enhanced its paid parental leave program for employees following the birth of a child or the placement of a child in connection with an adoption, and increased base wages for all Community Banking employees below the level of Senior Vice President.

This pay increase was done outside of the normal annual salary review process in order to appropriately respond, in a timely manner, to inflationary and competitive wage pressures.

Effective January 1, 2023, the Company increased its sick leave benefit from 32 to 40 hours per year and removed the legacy 3-day wait period to use this benefit.

In the last several years, the Company added the Juneteenth National Independence Day and Indigenous People's Day to our lineup of paid holidays for employees.

The Company also enhanced its paid parental leave program for employees following the birth of a child or the placement of a child in connection with an adoption, and increased base wages for all Bank employees below the level of Senior Vice President.

In 2024, the Company overhauled employee healthcare options for employees that included new benefit plans that provided additional coverage options.

This included a new essential core option at no cost for employee only coverage.

Beginning in 2025, the Company increased its 401(k) match for Community Banking employees to 100% of employee deferrals up to 6% annually.

This included a new essential care option at no cost for employee only coverage.

Beginning in 2025, the Company increased its 401(k) match for Bank employees to 100% of employee deferrals up to 6% annually.

Effective July 1, 2025, the Company increased its sick leave benefit to an accrual of 1 hour for every 30 hours worked, up to a maximum of 56 hours per year.

Approximately 40% of the Company's employees are working remotely as of December 31, 2025 either on a full- or part-time basis, including employees that work remotely part-time and work in the office part-time, which we refer to as a "hybrid" work from home arrangement.

Like many other entities, the percentage of the Company's work force that works remotely in some fashion increased during the pandemic and is expected to stay approximately consistent with current levels in the future as the Company has adjusted to the new environment.

We also offer our employees other flexible work options, such as variable work hours, condensed workweeks and part-time hours.

There have been no material impacts to our operations due

to the increase in these alternative working arrangements, and we are pleased to provide our employees with more flexibility to accommodate their needs.

There have been no material impacts to our operations due to the increase in these

alternative working arrangements, and we are pleased to provide our employees with more flexibility to accommodate their needs.

In addition, Northrim provides for a strong work/life balance, including generous paid time off and paid parental leave.

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Approximately 7% of those in executive and senior management positions identify as a member of a racial minority, 13% identify as individuals with a disability, and 3% identify as veterans.

Diversity, Equity, and Inclusion

We strive to ensure a respectful, diverse, and inclusive environment and experience for all of our employees.

Workplace Practices

We support and cultivate an open and respectful environment where everyone can actively contribute, have equal access to opportunities and resources, be themselves, and realize their potential.

This is reflected in our policies, which encourage individual values, strengths and protections to provide gender diversity and equality in the workplace and are reinforced through our annual anti-harassment training.

This is reflected in our policies, which encourage individual values, strengths and protections to provide equality for all in the workplace and are reinforced through our annual anti-harassment training.

As an Equal Opportunity Employer, we emphasize inclusion through hiring and compensation practices and consider a pool of diverse candidates for open positions and internal advancement opportunities and treat all our applicants with the same high level of respect regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender identity, disability or protected veteran status.

To address issues related to pay discrimination, we do not ask potential candidates about their current or previous compensation during the hiring process, and we incorporate equal and fair pay reviews into every employment compensation decision.

Our annual Affirmative Action Plan continues to focus our diversity, equity, and inclusion efforts on increasing the number of veterans and persons with disabilities in our workforce.

Products and Services

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Our deposit services include business and personal noninterest-bearing checking accounts and interest-bearing time deposits, checking accounts, savings accounts, and individual retirement accounts.

Our interest-bearing accounts generally earn interest at rates established by management based on competitive market factors and management’s desire to increase or decrease certain types or maturities of deposits.

Our interest-bearing accounts generally earn interest at rates established by management in accordance with management’s deposit growth strategy.

Several of our deposit services and products are:

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• A “Jump-Up” certificate of deposit (“CD”) that allows additional deposits with the opportunity to increase the rate to the current market rate for a similar term CD;

• A savings account that is priced like a money market account that allows additional deposits, quarterly withdrawals without penalty, and tailored maturity dates;

• An 'Alaska Savings' account meant for higher balances with added flexibility;

• A Bank-On certified consumer checking account;

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

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

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

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

Other Services Provided Through Affiliates:

Our affiliate PWA provides investment advisory, trust, and wealth management services for customers who are primarily located in the Pacific Northwest and Alaska.

We plan to continue to leverage these affiliate relationships to strengthen our existing customer base and bring new customers into the Bank.

Significant Business Concentrations:

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

The Company has $619.4 million non-owner occupied commercial real estate loans as of December 31, 2024 of which 18% are apartments, 16% are retail centers, 15% are office class A or B, 12% are office / warehouse, 9% are hotels, 8% are mini warehouse and self-storage, 5% are warehouse, and 17% are other.

The Company has $767.6 million non-owner occupied commercial real estate loans as of December 31, 2025 of which 21% are apartments, 13% are retail centers, 13% are office class A or B, 12% are hotels, 10% are office / warehouse, 6% are mini warehouse and self-storage, 6% are warehouse, and 19% are other.

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

We estimate that as of December 31, 2025 the Company had $145.5 million, or 6% of total portfolio loans, in the Healthcare sector;

$117.0 million, or 5% of portfolio loans, in the Tourism sector;

$137.2 million, or 6% in the Accommodations sector;

$117.6 million, or 5% of portfolio loans, in the Tourism sector;

$97.9 million, or 4% in Retail loans;

$89.2 million, or 4% of portfolio loans, in the Aviation (non-tourism) sector;

$76.5 million, or 4% in the Fishing sector;

and $55.1 million, or 3% in the Restaurants and Breweries sector.

$64.6 million, or 3% in the Restaurants and Breweries sector;

and $57.6 million, or 2% in the Fishing sector.

Additionally, approximately 20% of our loan portfolio at December 31, 2025 is attributable to 28 large borrowing relationships.

Large borrowing relationships are defined as loan relationships with an aggregate commitment amount greater than or equal to 50% of the Bank's Legal Lending Limit to one borrower.

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

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Lending Services:

The Company originates 1-4 family residential mortgages, most of which we sell to the secondary market.

The Company originates 1-4 family residential mortgages through RML, most of which we sell to the secondary market.

Of the 1-4 family residential mortgages originated by the Company in 2025, 74% were located in Alaska.

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Purchase of accounts receivable, asset based lending, and alternative working capital solutions:

We provide short and medium-term working capital to customers in Alaska, multiple states in the continental United States, and to a lessor extent in Canada and the United Kingdom through subsidiaries of SCF by purchasing their accounts receivable and by providing asset based lending and other alternative working capital products through our Specialty Finance segment, which includes activities at NFS and SCF.

We provide short and medium-term working capital to customers in Alaska, multiple states in the continental United States, and to a lessor extent in Canada and the United Kingdom through affiliates of SCF by purchasing their accounts receivable and by providing asset based lending and other alternative working capital products through our Specialty Finance segment, which includes activities at NFS and SCF.

Our mission is to provide access to capital through tailored funding solutions to fuel growth and provide entrepreneurs opportunities to create value.

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Recent Economic Developments

The Alaska Department of Labor (“DOL”) has reported Alaska’s seasonally adjusted unemployment rate in November 2024 was 4.6% compared to the U.S.

rate of 4.2%.

The total number of payroll jobs in Alaska, not including uniformed military, increased 2.4% or 7,700 jobs between November 2023 and November 2024.

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

The Construction sector added 2,100 positions for a year over year growth rate of 12.7% in November 2024.

The larger Health Care sector grew by 1,500 jobs for an annual growth rate of 3.7%.

The Oil & Gas sector increased by 9.2% or 700 new direct jobs.

Transportation, Warehousing and Utilities added 1,000 jobs for a 4.5% growth rate.

Professional and Business Services increased 700 jobs year over year through November 2024, up 2.5%.

The Government sector grew by 1,200 jobs for 1.5% growth, adding 100 Federal jobs, 800 State and 300 Local government positions in Alaska over the same period.

Declining sectors between November 2023 and November 2024 were Manufacturing (primarily seafood processing) shrinking 500 jobs (-6.6%), Information, down 100 jobs (-2.2%), and Retail lost 100 jobs (-0.3%).

Alaska’s Gross State Product (“GSP”) in the third quarter of 2024, exceeded $70 billion for the first time, and is estimated to be $70.1 billion, according to the Federal Bureau of Economic Analysis (“BEA”).

Alaska’s inflation adjusted “real” GSP increased 6.5% in 2023, placing Alaska fifth best of all 50 states.

In the third quarter of 2024 Alaska GSP increased at an annualized rate of 2.2%, compared to the average U.S.

growth rate of 3.1%.

Alaska’s real GSP improvement in the third quarter of 2024 was primarily caused by growth in the Health Care, Trade, Transportation and Warehousing sectors.

The BEA also calculated Alaska’s seasonally adjusted personal income at $55.7 billion in the third quarter of 2024.

This was an annualized improvement in the third quarter of 3.3% for Alaska, compared to the national average of 3.2%.

Alaska enjoyed an annual personal income improvement of 3.8% in 2023.

The $445 million increase in personal income in the third quarter in Alaska came from a $310 million increase in net earnings from wages, $145 million growth in government transfer receipts (which grew in all 50 states), and a $10 million decrease in investment income.

The monthly average price of Alaska North Slope (“ANS”) crude oil was at an annual high of $89.05 in April 2024 and most recently averaged $72.50 in November 2024.

The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 461 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2024 and is projected to increase to 467 thousand bpd in Alaska’s fiscal year 2025.

The DOR expects production to continue to grow rapidly to 657 thousand bpd by fiscal year 2034.

While the Alaska Department of Labor has not updated statistics since mid 2025 due to the federal government shutdown, they did publish their monthly magazine Alaska Economic Trends in January of 2026.

State Labor Economist Karinne Wiebold said, “we forecast the state will add 3,000 jobs this year – just under 1 percent growth – with oil and gas, health care, construction and transportation contributing to that increase.” The main drivers outlined in the forecast were the Pikka and Willow oil fields;

high gold prices with the new Manh Choh mine producing its first bar in 2024;

increased military spending;

and stabilized fisheries and tourism markets.

Alaska’s seasonally adjusted personal income was $59.4 billion in the second quarter of 2025 according to the Federal Bureau of Economic Analysis (“BEA”).

Alaska had an annualized improvement of 9.7% in the first quarter and 5% in the second quarter of 2025.

This is compared to the national average of 6.4% in the first quarter and 5.5% in the second quarter of 2025.

Alaska enjoyed an annual personal income improvement of 5.8% in 2024 compared to the U.S.

increase of 5.6%.

Per capita personal income in Alaska is now estimated at $80,208 according to the BEA, ranking it 12 th highest of the 50 U.S.

Alaska’s Gross State Product (“GSP”) in the second quarter of 2025 reached $74.2 billion according to the BEA.

Alaska’s inflation adjusted “real” GSP increased 1.5% in 2024, 1.8% annualized in the first quarter of 2025, and 2% in the second quarter of 2025.

The average U.S.

GDP growth rate was 2.8% for 2024, annualized -0.6% in the first quarter of 2025 and 3.8% in the second quarter of 2025.

Alaska’s real GSP improvement in the second quarter of 2025 was led by the Mining, Oil & Gas sector;

Transportation & Warehousing;

Professional, Scientific & Technical Services;

and Manufacturing, but was somewhat offset by decreases in Retail Trade and Government.

Alaska exported $5.9 billion in goods to foreign countries in 2024 according to the U.S.

International Trade Administration.

China is the largest importer of Alaska’s products at $1.5 billion, followed by Australia at $804 million, Japan at $674 million and South Korea at $634 million in 2024.

Fish and related maritime products accounted for the largest volume

at $2.1 billion, followed by minerals and ores at $2 billion, and primary metals at $992 million in 2024.

Oil & Gas international exports were $380 million because the majority of Alaska’s production is refined and consumed within the United States.

According to the U.S.

Bureau of Labor Statistics, the Consumer Price Index (“CPI”) for the U.S.

increased 2.7% between December of 2024 and December of 2025.

In Alaska, the rate of increase was lower at 1.9% for the same time period.

The largest increases in Alaska since August of 2025 came from Motor Fuel (+6.5%), Apparel (+6.5%), Housing (+3.4%), and Food and beverage (+2.9%).

Slower increases or declining costs in Recreation (+2%), Education (+0.7%), and Transportation (-5.3%), helped moderate inflationary pressures in Alaska relative to the U.S in 2025.

The monthly average price of Alaska North Slope (“ANS”) crude oil has ranged between $76.39 a barrel in January of 2025 and $62.70 in December.

The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 468 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2025.

In the Fall 2025 Revenue Forecast published December 19, 2025, the DOR expects production to average 457 thousand bpd in fiscal year 2026 and 518 thousand bpd in fiscal year 2027.

Over the next decade it is expected to continue to grow to 621 thousand bpd, or 33% by fiscal year 2036.

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

A partnership between Santos and Repsol is constructing the new Pikka field and ConocoPhillips is developing the large new Willow field.

There are also a number of smaller new fields in Alaska’s North Slope that are contributing to the State of Alaska’s production growth estimates.

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 6.2% in 2024 to $509,994, following a 5.2% increase in 2023.

This was the seventh consecutive year of price increases.

The average sales price for single family homes in the Matanuska Susitna Borough rose 3.9% in 2024 to $412,907, after increasing 4% in 2023.

There are also several smaller new fields in Alaska’s North Slope that are contributing to the State of Alaska’s production growth estimate.

The Alaska Permanent Fund is seeded annually by the oil wealth the State continues to save each year and has grown significantly over 40 years of successful investment.

As of November 30, 2025 the fund’s value was $85.75 billion.

According to the DOR it is scheduled to contribute $3.8 billion to Alaska’s General Fund in fiscal year 2026 and $4 billion in fiscal year 2027 for general government spending and to pay the annual dividend.

According to the Alaska Multiple Listing Services, the average sales price of a single-family home in Anchorage rose 4.4% in 2025 to $532,301, following an increase of 6.2% in 2024 and 5.2% in 2023.

This was the eighth consecutive year of price increases in the Anchorage market.

The average sales price for single family homes in the Matanuska Susitna Borough rose 6.6% in 2025 to $440,237, after climbing 3.8% in 2024 and 4% in 2023.

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

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

The Alaska Multiple Listing Services reported a 3.4% increase in the number of units sold in Anchorage when comparing 2024 to 2023.

There was virtually no change in the number of homes sold in the Matanuska Susitna Borough, with only four fewer homes sold in 2024 than in 2023 or 0.2%.

The Alaska Multiple Listing Services reported a 0.6% decrease in the number of units sold in Anchorage when comparing 2025 to 2024.

There were 2,222 homes sold in 2025 and 2,235 sold in 2024.

Last year there were 1,764 homes sold in the Matanuska Susitna Borough, compared to 1,632 in 2024, an increase of 8.1%.

A material portion of our loans at December 31, 2025, were secured by real estate located in greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska.

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Two significant oil production projects, Willow and Pikka, have been sanctioned and are under development, with first oil expected from Pikka in 2026 and from Willow in 2029.

Both of these projects should continue to generate activity on the North Slope with an estimated $1.5 billion in oil and gas construction spending on these projects forecasted for 2025.

We believe the companies developing these projects will continue to provide significant capital investment, as long as oil prices remain sufficient to justify the economics of the projects and the tax environment remains stable.

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However, we believe Alaska's economy is less sensitive to oil price volatility within a six- to twelve-month time frame than Alaska's state government budget.

While state government revenue from oil royalties is immediately and

directly impacted by a drop in oil prices, we believe that the large scale and nature of oil wells in Alaska are such that project commitments that currently exist will most likely not be disrupted by short-term price volatility.

While state government revenue from oil royalties is immediately and directly impacted by a drop in oil prices, we believe that the large scale and nature of oil wells in Alaska are such that project commitments that currently exist will most likely not be disrupted by short-term price volatility.

We believe our exposure to the tourism industry diversifies the Company's customer base in the long-term.

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Based on information from Rain Coast Data, over one million cruise ship tourists have visited Southeast Alaska annually in recent years, including 1.7 million in 2023 and 1.2 million in 2022.

Additionally, the Cruise Lines International Association has reported that 1.7 million cruise ship visitors visited Southeast Alaska in 2024.

Additionally, the Cruise Lines International Association has reported that 1.7 million cruise ship visitors visited Southeast Alaska in 2024 and 2025.

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

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

The distribution was $1,702 per eligible resident in 2024 for an aggregate distribution of approximately $1.06 billion.

The distribution was $1,000 per eligible resident in 2025 for an aggregate distribution of approximately $619.6 million.

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

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As our industry becomes increasingly dependent on and oriented toward technology-driven delivery systems, permitting transactions to be conducted electronically, non-bank institutions are able to attract funds and provide lending and other financial services even without offices located in our primary service area.

Some insurance companies and brokerage firms compete for deposits by offering rates that are higher than may be appropriate for the Company in relation to its asset and liability management objectives.

Some insurance companies and brokerage firms compete for deposits by offering rates that are higher than may be appropriate for the Company in relation to its asset and

liability management objectives.

However, we offer a wide array of deposit products and services and believe we can compete effectively through relationship based pricing and effective delivery of “Superior Customer First Service”.

We also compete with full service investment firms for non-bank financial products and services offered by PWA and through retail investment advisory services and annuity investment products that we offer through a third-party vendor.

We also compete with full service investment firms for non-bank financial products and services through retail investment advisory services and annuity investment products that we offer through a third-party vendor.

Currently, there are seven commercial banks operating in Alaska.

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Supervision and Regulation

Federal and state banking laws impose a comprehensive system of supervision, examination, regulation, and enforcement on the operations of insured banks and their holding companies.

Supervision and regulation of banks, their holding companies, and affiliates is intended primarily for the protection of depositors and customers, the Deposit Insurance Fund (the “DIF”) of the FDIC, and the U.S.

banking and financial system, rather than holders of our capital stock.

As a result, our growth, earnings performance, and operations may be affected by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Division, the FDIC, the FRB, and the Consumer Financial Protection Bureau (the "CFPB").

Furthermore, tax laws administered by the U.S.

Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the U.S.

Securities and Exchange Commission (“SEC”) and state securities authorities, anti-money laundering laws enforced by the Treasury Department, and U.S.

Small Business Administration (“SBA”) regulations with respect to small business loans, have an impact on our business.

These statutes, regulations, and policies are continually under the review of the United States Congress and state legislatures, as well as federal and state regulatory agencies, and the nature and extent of future legislative, regulatory, or other developments affecting financial institutions are impossible to predict with any certainty.

Any change in the statutes, regulations or regulatory policies applicable to us, including changes in their interpretation, expectations or implementation, could have a material effect on our business and operations.

The following is a summary of material elements of the regulatory and supervisory framework applicable to the Company, the Bank and their subsidiaries.

It does not describe all of the statutes, regulations, and regulatory policies that apply, nor does it provide complete summaries of the statutes, regulations, and policies referenced therein.

Supervision and Regulation of the Company

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”) registered with and subject to examination by the FRB.

The Bank is an Alaska-state chartered commercial bank and is subject to examination, supervision, and regulation by the Alaska Department of Commerce, Community and Economic Development, Division of Banking and Securities (the “Division”).

The FDIC insures the Bank’s deposits and also examines, supervises, and regulates the Bank.

The Company’s affiliated investment advisory and wealth management company, Pacific Portfolio Consulting, LLC, is subject to and regulated under the Investment Advisors Act of 1940 and applicable state investment advisor rules and regulations.

The Company’s affiliated trust company, Pacific Portfolio Trust Company, is regulated as a non-depository trust company under the trust company laws of the State of Washington and is subject to supervision and examination by the Washington State Department of Financial Institutions.

The Bank's subsidiary, SCF, is subject to supervision and regulation by the California Department of Financial Protection and Innovation.

The Company’s earnings and activities are affected, among other things, by legislation, by actions of the FRB, the Division, the FDIC and other regulators, by local legislative and administrative bodies, and decisions of courts.

These include limitations on the ability of the Bank to pay dividends to the Company, numerous federal and state consumer protection laws imposing requirements on the making, enforcement, and collection of consumer loans, and restrictions on and regulation of the sale of mutual funds and other uninsured investment products to customers.

The FDIC provides insurance coverage for certain deposits held by the Bank through the Deposit Insurance Fund, which the FDIC maintains by assessing depository institutions an insurance premium.

The Bank is assessed deposit insurance premiums by the FDIC using a risk-based assessment rate and an adjusted average total assets.

A depository institution’s deposit insurance may be terminated by the FDIC upon a finding that the institution’s financial condition is unsafe or unsound, or that the institution has engaged in unsafe or unsound practices, or has violated any applicable rule, regulation, or order or condition enacted or imposed by a regulatory agency.

In November 2023, the FDIC implemented a special assessment to recover the loss to the Deposit Insurance Fund following the closures of Silicon Valley Bank, Signature Bank and First Republic Bank earlier in the year.

The assessment was based on reported uninsured deposits as of December 31, 2022.

The FDIC could cease collection early or extend the special assessment period as they deem necessary depending on whether the amount the FDIC collects from the special assessment is higher or lower than the actual or estimated FDIC losses.

The Dodd-Frank Act significantly modified and expanded the legal and regulatory requirements imposed on banks and other financial institutions.

The Dodd-Frank Act permanently increased the maximum amount of deposit insurance coverage to $250,000 per depositor and deposit insurance assessments paid by the Bank are now based on the Bank’s total assets.

Other Dodd-Frank Act changes include:

(i) tightened capital requirements for the Bank and the Company;

(ii) new requirements on parties engaged in residential mortgage origination, brokerage, lending and securitization;

(iii) expanded restrictions on affiliate and insider transactions;

(iv) enhanced restrictions on management compensation and related governance procedures;

(v) creation of a federal Consumer Financial Protection Bureau (the "CFPB") with broad authority to regulate consumer financial

products and services;

and (vi) restrictions and prohibitions on the ability of banking entities to engage in proprietary trading and to invest in or have certain relationships with hedge funds and private equity funds.

Federal law subjects bank holding companies, such as the Company, to restrictions on the types of activities in which they may engage and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Violations of laws and regulations, or

other unsafe and unsound practices, may result in regulatory agencies imposing fines, penalties, or cease and desist orders, or taking other enforcement actions.

Under certain circumstances, these agencies may enforce these remedies directly against officers, directors, employees, and other parties participating in the affairs of a bank or bank holding company.

The Company is also subject to the information, proxy solicitation, insider trading restrictions and other requirements of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act of 1934”), including certain requirements under the Sarbanes-Oxley Act of 2002.

Source of Strength

Under longstanding FRB policy and under the Dodd-Frank Act, a bank holding company is required to act as a source of financial strength for its subsidiary bank.

The Company could be required to commit resources to its subsidiary bank in circumstances where it might not do so, absent such requirement.

Notice and Approval Requirements Related to Control, Investments, and Activities

Bank holding companies, such as the Company, are subject to a variety of restrictions on the activities in which they can engage and the acquisitions they can make.

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Nonbank acquisitions and activities of a bank holding company are also generally limited to the acquisition of up to 5% of the outstanding shares of any class of voting securities of a company unless the FRB has previously determined that the nonbank activities are closely related to banking, or prior approval is obtained from the FRB.

The Gramm-Leach-Bliley Act (the “GLB Act”) also included extensive consumer privacy provisions.

These provisions, among other things, limit the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties.

The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated third parties.

The Fair and Accurate Credit Transaction Act (“FACT Act”) requires financial institutions to develop and implement an identity theft prevention program to detect, prevent and mitigate identity theft “red flags” to reduce the risk that customer information will be misused to conduct fraudulent financial transactions.

As a result of the Dodd-Frank Act, the rule-making authority for the privacy provisions of the GLB Act has been transferred to the CFPB.

In addition, the states are permitted to adopt more extensive privacy protections through legislation or regulation.

There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from their banking subsidiaries or engage in certain other transactions with or involving those banking subsidiaries.

With certain exceptions, federal law imposes limitations on, and requires collateral for, extensions of credit by insured depository institutions, such as the Bank, to their non-bank affiliates, such as the Company.

In addition, capital rules may affect the Company's ability to pay dividends.

Subject to certain limitations and restrictions, a bank holding company, with prior approval of the FRB, may acquire an out-of-state bank.

Banks in states that do not prohibit out-of-state mergers may merge with the approval of the appropriate federal banking agency.

A state bank may establish a de novo branch out of state if such branching is permitted by the other state for state banks chartered by such other state.

Among other things, applicable federal and state statutes and regulations which govern a bank’s activities relate to minimum capital requirements, required reserves against deposits, investments, loans, legal lending limits, mergers and consolidations, borrowings, issuance of securities, payment of dividends, establishment of branches and other aspects of its operations.

The Division and the FDIC also have authority to prohibit banks under their supervision from engaging in what they consider to be unsafe or unsound practices.

There also are certain limitations on the ability of the Company to pay dividends to its shareholders.

It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s current and expected future capital needs, asset quality and overall financial condition.

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

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

The Alaska Corporations Code also prohibits the Company from making any distribution to the Company's shareholders if the Company or a subsidiary of the Company making the distribution is, or as a result of the distribution would be, likely to be unable to meet its liabilities as they mature.

Under Alaska law, the Bank is not permitted to pay or declare a dividend in an amount greater than its undivided profits.

Various federal and state statutory provisions also limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.

The FDIC or the Division could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

In addition, recent capital rules may affect the Bank's ability to pay dividends.

Under longstanding FRB policy and under the Dodd-Frank Act, a bank holding company is required to act as a source of financial strength for its subsidiary banks.

The Company could be required to commit resources to its subsidiary bank in circumstances where it might not do so, absent such requirement.

Before approving any such transaction, the FRB is required by the BHC Act to consider a number of factors, including the transaction’s competitive impact, the financial and managerial resources and future prospects of the bank holding companies and banks concerned, the convenience and needs of the community to be served, and the effectiveness of the parties in combating money laundering activities.

Provisions of the Bank Merger Act impose similar approval standards for an insured depository institution to merge with another insured depository institution or a non-insured institution.

On September 17, 2024, the FDIC finalized changes to its Statement of Policy on Bank Merger Transactions (the “Policy Statement”), which outlines factors that the FDIC will consider when evaluating a proposed bank merger transaction.

Also on September 17, 2024, the United States Department of Justice (the “DOJ”) withdrew its 1995 Bank Merger Guidelines and announced that it will instead evaluate the competitive impact of bank mergers using its 2023 Merger Guidelines that the DOJ applies to mergers in all industries.

Compared to the 1995 Bank Merger Guidelines, the 2023 Merger Guidelines set forth more stringent concentration limits and add several largely qualitative bases on which the DOJ may challenge a merger.

While the effect of these changes for particular transactions remains unclear, both the Policy Statement and the change in the DOJ’s bank merger antitrust policy may make it more difficult and/or costly for us to obtain regulatory approval for an acquisition or otherwise result in more onerous conditions to obtain approval for an acquisition.

The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), permits us to acquire a bank located in any other state, regardless of state law to the contrary, subject to certain deposit percentage, aging requirements, and other restrictions.

The Riegle-Neal Act also generally permits national- and state-chartered banks to branch interstate through acquisitions of banks in other states.

Bank holding companies must be “well-capitalized” and “well-managed” to obtain federal bank regulatory approval of an interstate acquisition without regard to state law prohibiting the transaction.

The BHC Act also generally requires FRB approval for a bank holding company’s acquisition of a company that is not an insured depository institution.

Bank holding companies generally may engage, directly or indirectly, only in managing or controlling banks, and such other activities as are determined by the FRB to be closely related to banking, and certain other permissible nonbanking activities.

Bank holding companies generally must notify the FRB before acquiring a company that is not an insured depository institution or engaging in a permissible nonbanking activity, and the FRB considers several factors in reviewing such a notice.

The FRB may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity, or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

Certain acquisitions of our voting stock may be subject to regulatory approval or notice under federal law.

Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our stock in excess of the amount that can

be acquired without regulatory approval under the Change in Bank Control Act and the BHC Act, which prohibit any person or company from acquiring control of the Company without, in most cases, the prior written approval of the FRB.

Capital Adequacy

Both the Company and the Bank are required to maintain minimum levels of regulatory capital, under capital requirement rules (the “Rules”) of federal banking regulators (including the FDIC and the FRB).

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An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

In addition, insured depository institutions such as the Bank, unlike bank holding companies, are subject to further capital requirements to be deemed “well-capitalized” under the prompt corrective action provisions of the Rules and implementing regulations of the federal banking agencies, as described in the section entitled “—Supervision and Regulation of the Bank—Prompt Corrective Action” below

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets.

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

Payment of Dividends and Stock Repurchases

There also are certain limitations on the ability of the Company to pay dividends to its shareholders.

In August 2022, the Inflation Reduction Act of 2022 was enacted, which among other things, imposed a one percent excise tax on publicly traded U.S.

corporations for the fair market value of stock repurchased after December 31, 2022.

With certain exceptions, the value of stock repurchased is net of stock issued in the year, including those issued pursuant to share-based compensation programs.

Supervision and Regulation of the Bank

The Bank is an Alaska-state chartered commercial bank and is subject to examination, supervision, and regulation by the Division.

The FDIC insures the Bank’s deposits and also examines, supervises, and regulates the Bank.

The Bank is required to file periodic reports with the FDIC and the Division and is subject to periodic examinations and evaluations by those regulatory authorities.

Almost every area of the operations and financial condition of the Bank is subject to extensive regulation and supervision and to various requirements and restrictions under federal and state law, including loans, reserves, investments, issuance of securities, establishment of branches, capital adequacy, liquidity, earnings, dividends, management practices, and the provision of services.

These regulations include limitations on the ability of the Bank to pay dividends to the Company, numerous federal and state consumer protection laws imposing requirements on the making, enforcement, and collection of consumer loans, and restrictions on and regulation of the sale of mutual funds and other uninsured investment products to customers.

Safety and Soundness

The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions such as the Bank .

The Division and the FDIC also have authority to prohibit banks under their supervision from engaging in what they consider to be unsafe or unsound practices.

Various federal and state statutory provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.

Under Alaska law, the Bank is not permitted to pay or declare a dividend in an amount greater than its undivided profits.

The FDIC or the Division could also take the position that paying a dividend would constitute an unsafe or unsound banking practice.

In addition, recent capital rules may affect the Bank's ability to pay dividends to the Company.

FDIC Insurance Assessments

The FDIC provides insurance coverage for certain deposits held by the Bank through the DIF, which the FDIC maintains by assessing depository institutions an insurance premium.

The Bank is assessed deposit insurance premiums by the FDIC using a risk-based assessment rate and an adjusted average total assets.

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

Such priority

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

FDIC insurance coverage is funded by the FDIC's assessment on insured depository institutions like the Bank and FDIC's annual base assessment rates are currently between 2.5 and 42 basis points on the depository institution's quarterly average consolidated total assets minus average tangible equity.

Base assessment rates for banks vary depending on whether a depository institution is small or large and highly complex per FDIC's definition.

In deriving the base assessment rate, the FDIC applies financial ratios, scorecards, and other financial measures to determine a bank's ability to withstand financial stress.

In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023.

The increased assessment is expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC's amended restoration plan.

The FDIC has indicated that the new assessment rate schedules will remain in effect until the DIF reserve ratio meets or exceeds 2 percent.

Dodd-Frank Act

The Dodd-Frank Act significantly modified and expanded the legal and regulatory requirements imposed on banks and other financial institutions.

Other Dodd-Frank Act changes include:

(i) tightened capital requirements for the Bank and the Company;

(ii) new requirements on parties engaged in residential mortgage origination, brokerage, lending and securitization;

(iii) expanded restrictions on affiliate and insider transactions;

(iv) enhanced restrictions on management compensation and related governance procedures;

(v) creation of a federal CFPB with broad authority to regulate consumer financial products and services;

and (vi) restrictions and prohibitions on the ability of banking entities to engage in proprietary trading and to invest in or have certain relationships with hedge funds and private equity funds.

Restrictions on Lending, Insider Transactions, and Affiliate Transactions

Transactions between the Company and the Bank are quantitatively and qualitatively restricted under Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W.

Section 23A places restrictions on the Bank's “covered transactions” with the Company, including loans and other extensions of credit, investments in the securities of, and purchases of assets from the Company.

Section 23B requires that certain transactions, including all covered transactions, be on market terms and conditions.

Federal Reserve Regulation W combines statutory restrictions on transactions between the Bank and the Company with FRB interpretations in an effort to simplify compliance with Sections 23A and 23B.

Regulation O, governs and restricts extensions of credit by a member bank to an executive officer, director, or principal shareholder of the bank and its affiliates.

By making these provisions applicable to state non-member banks, the regulations impose these restrictions on the Bank’s purchases or sales of assets from or to insiders of the Bank and the Company.

In general, extensions of credit to insiders:

(i) may not exceed certain dollar limitations;

(ii) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties;

and (iii) must not involve more than the normal risk of repayment or present other unfavorable features.

Prompt Corrective Action

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

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The dividends that the Bank pays to the Company will be limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank.

The Bank is required to file periodic reports with the FDIC and the Division and is subject to periodic examinations and evaluations by those regulatory authorities.

These examinations must be conducted every 12 months, except that certain “well-capitalized” banks may be examined every 18 months.

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

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

Community Reinvestment Act

The Bank is subject to the Community Reinvestment Act of 1977 (“CRA”).

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

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

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

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

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

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

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

Industry organizations have challenged the final rule in court, and on March 29, 2024, the United States District Court for the Northern District of Texas granted an injunction and stay of the final rule.

The final outcome of such challenge is uncertain.

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

Anti-Money-Laundering Regulations

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

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

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

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

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

On September 29, 2022, FinCEN issued a final regulation implementing the BSA amendments included in the NDAA with respect to beneficial ownership reporting which regulation has been stayed by a federal court.

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

Consumer Protection Regulations

A number of other federal and state consumer protection laws extensively govern the Bank’s relationship with its customers.

These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, Telephone Consumer Protection Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state and territorial usury laws and laws regarding unfair and deceptive acts and practices.

These and other laws subject the Bank to substantial regulatory oversight and, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, and restrict the Bank’s ability to raise interest rates.

Privacy, Data Protection, and Cybersecurity

The Gramm-Leach-Bliley Act (the “GLB Act”) also included extensive consumer privacy provisions.

These provisions, among other things, limit the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties.

The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated third parties.

As a result of the Dodd-Frank Act, the rule-making authority for the privacy provisions of the GLB Act has been transferred to the CFPB.

In addition, the states are permitted to adopt more extensive privacy protections through legislation or regulation.

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

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Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

A number of other federal and state consumer protection laws extensively govern the Bank’s relationship with its customers.

Supervision and Regulation of SCF

The Bank's subsidiary, SCF, is subject to supervision and regulation by the California Department of Financial Protection and Innovation (the “DFPI”).

If the DFPI should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of SCF’s operations are unsatisfactory, or that SCF has violated any law or regulation, various remedies are available to the DFPI.

Available Information

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

What changed 10-K

Item 1. Business