What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-06 compared with 2025-03-10 · 375 added, 277 removed, 624 unchanged (51% of the section changed)

11 unchanged sentences

Net income increased 75% to $64.6 million or $2.87 per diluted share for the year ended December 31, 2025, from $37.0 million, or $1.66 per diluted share, for the year ended December 31, 2024.

The increase in net income is primarily the result of a $7.3 million increase in net income in the Home Mortgage Lending segment, as well as a $4.9 million increase in net income in the Community Banking segment.

On October 31, 2024, the Company completed the acquisition of SCF in an all cash transaction valued at approximately $53.9 million.

The Company determined that a new Specialty Finance segment is appropriate for the Company upon completion of the acquisition.

The Specialty Finance segment also includes Northrim Funding Services, which was previously reported in the Community Banking segment.

Net income in the Specialty Finance segment decreased 25% to $1.8 million in 2024 from $2.5 million in 2023, primarily due to $1.1 million in one-time deal related costs.

Return of average assets as 2.02% in 2025 compared to 1.29% in 2024.

The increase in net income is primarily the result of a $19.2 million increase in net income in the Community Banking segment, a $14.5 million gain on sale of all of the operating assets of PWA, as well as an $8.4 million increase in net income in the Specialty Finance segment

Highlights for the year ended December 31, 2025 are as follows:

• Net income in the Community Banking segment increased 63% or $19.2 million, to $49.5 million in 2025 as compared to 2024.

This increase was primarily the result of a 7% increase in net interest income due to increased interest income on loans which was only partially offset by higher interest expense on deposits.

• Net income in the Home Mortgage Lending segment increased 292%, or $7.3 million, to income of $4.8 million in 2024 from a loss of $2.5 million in 2023 driven by an increase in production volume sold to $609.2 million in 2024 from $376.2 million in 2023.

Production volume outside of Alaska increased $85 million in 2024 compared to 2023, while production in Alaska increased $148 million in 2024 compared to 2023.

Additionally, interest income on home mortgages held for investment increased in 2024 due to increased average balances.

• The net interest margin increased to 4.28% in 2024 from 4.14% in 2023 mostly due to an increase in average yields on interest earning assets in 2024 compared to 2023 as a result of higher interest rates, as well as an increase in the mix of earning assets which includes a higher percentage of loans in 2024 versus 2023.

This increase was primarily the result of a $20.5 million, or 20% increase in net interest income due to increased interest income on loans and short term investments, as well as a $14.5 million gain on sale of the operating assets of PWA.

These increases were only partially offset by higher operating expenses and an increase in provision for income taxes.

• Net income in the Home Mortgage Lending segment was $4.8 million in 2025 consistent with 2024.

Increases net realized gains on mortgage sales, interest income on home mortgages held for investment, and mortgage servicing revenue were offset by a decrease in the fair value of mortgage servicing rights and increases in the provision for credit losses and operating expenses.

• Net income in the Specialty Finance segment increased 455% or $8.4 million, to $10.3 million in 2025 as compared to 2024.

This increase was primarily the result of the inclusion of a full year of operations of SCF.

The Company completed its acquisition of SCF and its subsidiaries effective October 31, 2024.

Average purchased receivables and loan balances at SCF were $69.7 million in 2025 with a yield of 31.23%.

The yield in 2025 included the recognition of $1.3 million in one-time fees and $899,000 in nonaccrual fee income collected during 2025.

The yield excluding these times for 2025 was 28.04%.

Average purchased receivables and loan balances at NFS were $54.6 million for 2025 compared to $33.4 million for 2024.

• The net interest margin increased to 4.69% in 2025 from 4.28% in 2024 mostly due to an increase in average yields on interest earning assets in 2025 compared to 2024 as a result of higher interest rates, as well as an change in the mix of earning assets which includes a higher percentage of loans in 2025 versus 2024.

These factors were only partially offset by an increase in the cost of interest-bearing liabilities.

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• Nonperforming loans, net of government guarantees, increased to $11.3 million at the end of 2025 compared to $7.5 million at the end of 2024, while total adversely classified loans, net of government guarantees at December 31, 2025 increased to $33.5 million from $9.6 million at December 31, 2024.

The Allowance for Credit Losses (“ACL”) totaled 1.03% of total portfolio loans at December 31, 2024, compared to 0.97% at December 31, 2023.

The ACL as a percentage of total portfolio loans, net of government guarantees was 1.10% at December 31, 2024 compared to 1.02% at December 31, 2023.

The Allowance for Credit Losses (“ACL”) for loans totaled 1.03% of total portfolio loans at December 31, 2025, consistent with 1.03% at December 31, 2024.

ACL for loans as a percentage of total portfolio loans, net of government guarantees was 1.10% at both December 31, 2025 and December 31, 2024.

• The aggregate cash dividends paid by the Company in 2025 rose 5% to $14.5 million from $13.8 million paid in 2024.

The Company paid cash dividends of $0.64 per share in 2025 and $0.615 per share in 2024.

• The Company issued $60 million of subordinated debt in the fourth quarter of 2025 to support regulatory capital ratios and growth initiatives.

• Total shareholders' equity was $326.5 million as of December 31, 2025, up 22% from $267.1 million a year ago.

Shareholders' equity was positively impacted by the fair value of the available for sales securities portfolio which increased $9.4 million in 2024 as compared to 2023.

Shareholders' equity was positively impacted by the fair value of the available for sale securities portfolio which increased shareholders' equity $7.8 million in 2025 as compared to 2024.

The Company continued to maintain strong regulatory capital ratios with Tier 1 Capital to Risk Adjusted Assets of 10.67% at December 31, 2025.

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Net interest income $135,609 $113,183 $103,256 $95,115 $80,827 $70,665 14 %

Provision (benefit) for credit losses 3,293 3,842 1,846 (4,099) 2,432 (1,175) NM

Provision (benefit) for credit losses 3,910 3,293 3,842 1,846 (4,099) 2,432 10 %

Other operating income 77,203 42,041 26,375 34,077 52,263 63,328 4 %

Compensation expense, RML acquisition payments — — — — — 468 NM

Compensation expense, SCF acquisition payments 2,333 — — — — — NM

Other operating expense 122,050 104,937 94,181 88,852 89,196 89,114 6 %

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Non-interest income/total revenue 36.28 % 27.08 % 26.38 % 26.38 % 39.27 % 47.26 % (5) %

Efficiency ratio (5)

Adjusted efficiency ratio (5)

58.45 % 67.60 % 72.64 % 68.76 % 66.99 % 66.47 % (3) %

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See reconciliation to shareholders' equity to total assets, the most comparable GAAP measurement below.

4 Tax-equivalent net interest margin is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 28.43%.

Management believes that tax-equivalent net interest margin is a useful financial measure because it enables investors to evaluate net interest margin excluding tax expense in order to monitor our effectiveness in growing higher interest yielding assets and managing our costs of interest bearing liabilities over time on a fully tax equivalent basis.

4 Net interest margin tax-equivalent is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 28.43%.

Management believes that net interest margin tax-equivalent is a useful financial measure because it enables investors to evaluate net interest margin excluding tax expense in order to monitor our effectiveness in growing higher interest yielding assets and managing our costs of interest bearing liabilities over time on a fully tax equivalent basis.

See reconciliation to net interest margin, the most comparable GAAP measurement below.

5 In managing our business, we review the efficiency ratio exclusive of intangible asset amortization, which is a non-GAAP performance measurement.

5 In managing our business, we review the adjusted efficiency ratio exclusive of intangible asset amortization, which is a non-GAAP performance measurement.

Management believes that this is a useful financial measurement because we believe this presentation provides investors with a more accurate picture of our operating efficiency.

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6 Number of banking offices does not include RML, NFS, or SCF locations.

2024 number of banking offices includes 20 full service branches.

2025 and 2024 number of banking offices includes 20 full service branches.

2023 number of banking offices includes 19 full service branches and one loan production office.

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Tax-equivalent net interest margin 4.74 % 4.33 % 4.21 % 3.89 % 3.60 % 4.05 %

Reconciliation of efficiency ratio exclusive of intangible asset amortization (non-GAAP) to efficiency ratio.

Reconciliation of adjusted efficiency ratio exclusive of intangible asset amortization (non-GAAP) to efficiency ratio.

(In Thousands) 2025 2024 2023 2022 2021 2020

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Other operating expense 124,383 104,937 94,181 88,852 89,196 89,114

Efficiency ratio 58.45 % 67.60 % 72.65 % 68.78 % 67.02 % 66.51 %

(In Thousands) 2025 2024 2023 2022 2021 2020

Net interest income (9)

$135,609 $113,183 $103,256 $95,115 $80,827 $70,665

Other operating income 77,203 42,041 26,375 34,077 52,263 63,328

Total revenue 212,812 155,224 129,631 129,192 133,090 133,993

Other operating expense 124,383 104,937 94,181 88,852 89,196 89,114

Less intangible asset amortization — — 17 25 37 48

Adjusted other operating expense $124,383 $104,937 $94,164 $88,827 $89,159 $89,066

Efficiency ratio 67.60 % 72.64 % 68.76 % 66.99 % 66.47 % 75.43 %

Adjusted efficiency ratio 58.45 % 67.60 % 72.64 % 68.76 % 66.99 % 66.47 %

9 Amount represents net interest income before provision for credit losses.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.

Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of the Company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.

Although we believe these non-GAAP financial measures are frequently used by shareholders in the evaluation of the Company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.

Critical Accounting Policies

The SEC defines “critical accounting policies” as those that require application of management's most difficult, subjective or complex judgments as a result of the need to make "critical accounting estimates", which are estimates that involve estimation uncertainty that has had or is reasonably likely to have a material impact on the Company's financial condition or results of operations.

Our significant accounting policies are described in Note 1 in the Notes to Consolidated Financial Statements in Part II.

Item 8 of this report.

Not all of these significant accounting policies require management to make critical accounting estimates.

Management believes that the following accounting policies would be considered critical under the SEC's definition.

The following discussion is intended to supplement, but not duplicate, information provided in Note 1 in the Notes to Consolidated Financial Statements in Part II.

Item 8 of this report for these policies.

Allowance for Credit Losses Policy :

The Company's Executive Loan Management Committee and Asset Liability Committee are both involved in monitoring various aspects of the Company's ACL methodology.

The Executive Loan Management Committee reviews and approves significant assumptions used in model at least annually.

The Company's Audit Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis.

The current expected credit loss model (“CECL”) is not prescriptive in the methodology used to determine the expected credit loss estimate.

Therefore, management has flexibility in selecting the methodology.

However, the expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments, utilizing quantitative and qualitative factors.

The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

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

Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts.

When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset it has estimated expected credit losses for the remaining life after the forecasted period using an approach that reverts to historical credit loss information.

Depending on the nature and size of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method or a weighted average remaining life method to estimate expected credit losses quantitatively.

The Company uses a DCF method for seven of its 11 loan pools, which represent 96% of the amortized cost basis of total loan pools at December 31, 2025.

The weighted average remaining life method is used for the remaining loan pools primarily because loan level data constraints preclude the use of the DCF model.

Under the DCF method, the Company utilizes complex models to obtain reasonable and supportable forecasts to calculate two predictive metrics, the probability of default (“PD”) and loss given default (“LGD”).

The PD measures the probability that a loan will default within a given time horizon and is an assumption derived from regression models which determine the relationship between historical defaults and certain economic variables.

The Company's regression models for PD utilize peer historical loan level default data.

The Company determines a reasonable and supportable forecast and applies that forecast to the regression model to estimate defaults over the forecast period.

Management leverages economic projections from the Federal Reserve to inform its loss driver forecasts over the Company's four quarter forecast period.

As of December 31, 2025 and 2024 management utilizes and forecasts U.S.

unemployment and U.S.

gross domestic product as the loss drivers for all of the loan pools that utilize the DCF method.

The Company added U.S.

gross domestic product as a loss driver in 2024 because we determined that there is better model fit using this multi-factor model.

The Company's regression models for PD as of December 31, 2025 and 2024 utilize peer historical loan level default data.

Peers for this purpose include banks in the United States with total assets between $1 billion and $5 billion whose loan portfolios share certain characteristics with the Company's loan portfolio.

Peers differ by loan segment.

A bank is included in the peer group for each loan segment in 2025 and 2024 under the following circumstances:

• The percentage the balance of the loan segment compared to total loans over a five year look back period is within 0.5 standard deviations of the Company's data;

• The percentage of total charge offs for the loan segment over a five year look back period is within 0.25 standard deviations of the Company's data;

• The percentage of total charge offs for the loan segment during the recessionary period from the fourth quarter of 2008 to the fourth quarter of 2012 is within 0.25 standard deviations of the Company's data.

For all periods presented, following the forecast period, the economic variables used to calculate PD revert to a historical average at a constant rate over an eight quarter reversion period.

Other assumptions relevant to the discounted cash flow model to derive the quantitative allowance include the LGD, which is the estimate of loss for a defaulted loan, prepayment

speeds, and the discount rate applied to future cash flows.

The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses over the contractual term of the loan, adjusted for prepayments.

The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses under CECL, which are unchanged as of December 31, 2025 and December 31, 2024:

Commercial & industrial - Commercial loans are loans for commercial, corporate and business purposes.

The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and across a variety of industries.

These loans include general commercial and industrial loans, loans to purchase capital equipment, and other business loans for working capital and operational purposes.

Commercial loans are generally secured by accounts receivable, inventory and other business assets.

The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Commercial real estate - This category of loans consists of the following loan types:

Owner occupied - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including owner occupied commercial real estate loans primarily secured by commercial office or industrial buildings, warehouses or retail buildings where the owner of the building occupies the property.

Repayment terms vary considerably, interest rates are fixed or variable, and are structured for full, partial, or no amortization of principal.

The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Non-owner occupied and multifamily - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including investment real estate loans that are primarily secured by office and industrial buildings, warehouses or retail buildings where the owner of the building does not occupy the property, non-owner occupied apartment or multifamily residential buildings, and various special purpose properties.

Repayment terms vary considerably, interest rates are fixed or variable, and are structured for full, partial, or no amortization of principal.

Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions.

The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Residential real estate - This category of loans consists of the following loan types:

1-4 family residential properties secured by first liens - This category of loans includes term loans secured by first liens on residential real estate.

The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

1-4 family residential properties secured by junior liens and revolving credit lines secured by 1-4 family first liens - This category of loans includes term loans primarily secured by junior liens on residential real estate and revolving credit lines that are secured by first liens on residential real estate.

Home equity revolving lines of credit and home equity term loans are included in this group of loans.

The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

1-4 family residential construction - This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of 1-4 family residential properties which will secure the loan.

These loans may also be secured by tracts or individual parcels of land on which 1-4 family residential properties are being constructed.

The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party.

The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Other construction, land development, and raw land - This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of owner occupied and non-owner occupied commercial properties, and loans secured by raw or improved land.

The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party.

Repayment of land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt.

The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.

Agricultural production, including commercial fishing - These loans are for the purpose of financing agricultural production, including growing and storing of crops, and for the purpose of financing fisheries and forestries, including loans to commercial fishermen.

These loans may be secured or unsecured, but any loans for these purposes that are secured by real estate are

included in a real estate category.

The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.

Consumer - Loans used for personal use, which may be secured or unsecured, and customer overdrafts.

The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.

Obligations of states and political subdivisions in the US - This category of loans includes all loans made to states, counties municipalities, school districts, drainage and sewer districts, and Indian tribes in the U.S.

These loans maybe be secured by any type of collateral, including real estate.

The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.

Other - This category of loans includes all other loans that cannot properly be reported in one of the preceding categories.

The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.

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

• Lending strategy, policies, and procedures;

• Quality of internal loan review;

• Lending management and staff;

• Trends in underlying collateral values;

• Competition, legal, and regulatory changes;

• Economic and business conditions including fluctuations in the price of Alaska North slope crude oil;

• Inflation and monetary policy in the United States;

• Changes in trends, volume and severity of adversely classified loans, nonaccrual loans, and delinquencies;

• Concentration of credit;

• Changes in the nature and volume of the loan portfolio.

Management performs a hypothetical sensitivity analysis of our ACL quarterly to understand the impact of a change in a key input on our ACL.

As of December 31, 2025, management utilized the Federal Reserve's median forecasts of national unemployment and national gross domestic product.

If the four-quarter national unemployment rate forecast had been approximately 5% higher and the four-quarter national gross domestic product forecast been 13% lower, which represents the Federal Reserve's more conservative forecasts, our ACL for loans would have increased $537,000, or 2%.

As of December 31, 2025, if the four-quarter national unemployment rate forecast had been approximately 30% higher and the four-quarter national gross domestic product forecast been 5% higher, which represent forecasts at approximately the historical mean, our ACL for loans would have increased $2.2 million, or 10%.

As of December 31, 2025, if the estimated prepayment and curtailment rates are doubled (with a maximum rate of 100%), our ACL for loans would have decreased $2.0 million, or 9%.

As of December 31, 2025, if the estimated prepayment and curtailment rates are cut in half, our ACL for loans would have increased $1.6 million, or 7%.

These sensitivity analyses include the impact to both the quantitative and qualitative components of our ACL.

Changes in quantitative inputs and qualitative loss factors may not occur in the same direction or magnitude across all segments of our loan portfolio and deterioration in some quantitative inputs and qualitative loss factors may offset improvement in others.

This sensitivity analysis does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the sensitivity of the ACL to a change in a key input.

This sensitivity analysis does not incorporate changes to management’s judgment of qualitative loss factors.

Valuation of goodwill and other intangibles:

Management performs an impairment analysis for the intangible assets with indefinite lives at each reportable segment on an annual basis as of December 31.

Additionally, goodwill and other intangible assets with indefinite lives are evaluated on an interim basis when events or circumstances indicate impairment potentially exists.

The impairment analysis requires management to make subjective judgments.

Events and factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures, technology, changes in discount rates and specific industry and market conditions.

There can be no assurance that changes in circumstances, estimates or assumptions may result in additional impairment of all, or some portion of, goodwill or other intangible assets.

The Company performed its annual goodwill impairment testing at December 31, 2025 and 2024 in accordance with the policy described in Note 1 to the financial statements included in Part II.

Item 8 of this report.

At December 31, 2025, the Company performed its annual impairment test by performing a qualitative assessment.

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

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

results of regulatory examinations;

peer comparisons of the Company's net interest margin;

trends in the Company’s cash flows;

increases in the Company's market

share of mortgage originations;

increases in purchased receivable income following the acquisition of SCF, and increases in the Company's stock price.

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

We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs for all of the Company's operating segments, and we therefore concluded that it is more likely than not that the fair value of the Company exceeds its carrying value at December 31, 2025 and that no potential impairment existed at that time.

Servicing rights:

The Company measures mortgage servicing rights (“MSRs”) and commercial servicing rights (“CSRs”) at fair value on a recurring basis with changes in fair value going through earnings in the period in which the change occurs.

Changes in the fair value of MSRs are recorded in mortgage banking income, and changes in the fair value of CSRs are recorded in commercial servicing revenue.

Fair value adjustments encompass market-driven valuation changes and the decrease in value that occurs from the passage of time, which are separately reported.

Retained servicing rights are measured at fair value as of the date of sale.

Initial and subsequent fair value measurements are determined using a discounted cash flow model.

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

A sensitivity analysis of our servicing rights was performed as of December 31, 2025.

See Note 8 to the financial statements included in Part II.

Item 8 of this report for the results of this analysis.

Other Accounting Policies and Estimates:

The Company evaluates its estimates, including those that materially affect the financial statements and are related to investments, derivative instruments, fair value measurements, and intangible assets on an on-going basis.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

The Company's policies related to these estimates can be found in Note 1 in the Notes to Consolidated Financial Statements in Part II.

Item 8 of this report.

RESULTS OF OPERATIONS

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Our operating expenses consist in large part of salaries and other personnel costs, data processing, occupancy, marketing, and professional services expenses.

Interest income and cost of funds, or interest expense, and mortgage banking income are affected significantly by general economic conditions, particularly changes in market interest rates, by government policies and the actions of regulatory authorities, and by competition in our markets.

Interest income and cost of funds, or interest expense, and mortgage banking income and purchased receivable income are affected significantly by general economic conditions, particularly changes in market interest rates, by government policies and the actions of regulatory authorities, and by competition in our markets.

We earned net income of $64.6 million in 2025, compared to net income of $37.0 million in 2024.

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The following sections present discussion of the components that make up net income.

Analysis of Business Segments

Our business segments are defined as Community Banking, Home Mortgage Lending, and Specialty Finance.

The following table summarizes net income from our segments.

Additional information about segment performance is presented in Note 26 to the Financial Statements included in Part II - Item 8 of this report.

(In Thousands) 2025 2024 2023

Community Banking $49,549 $30,344 $25,415

Home Mortgage Lending 4,802 4,780 (2,493)

Specialty Finance 10,257 1,847 2,472

Net income $64,608 $36,971 $25,394

2025 Compared to 2024

Community Banking

Net income in the Community Banking segment increased $19.2 million or 63% in 2025 compared to 2024 primarily due to an increase in net interest income which totaled $122.6 million in 2025, and $102.1 million in 2024, as well as the gain on sale of all of the operating assets of PWA of $14.5 million.

Net interest income increased $20.5 million or 20% in 2025 as compared to 2024 mostly due to higher interest income on loans, as wells as an increase in interest income on deposits in other banks and lower interest expense on deposits.

This increase was only partially offset by lower interest income on investments and higher interest expense on borrowings.

The provision for credit losses in the Community Banking segment was $2.3 million in both 2025 and 2024.

Other operating expenses in the Community Banking segment totaled $82.4 million in 2025, up $9.3 million or 13% from $73.1 million in 2024.

The increase in 2025 as compared to the prior year was mostly due to increases in salaries and other personnel expense due to performance-related expenses, as well as increases in data processing expense, marketing expense, insurance expense, and professional and outside services due to increased branch locations, increased customer and transaction volume, and increased FDIC insurance associated with asset growth.

The increase in salaries and other personnel expense included $1.6 million in higher salary expense, $1.4 million increase in profit share expense including payroll taxes and 401k match on profit share payments, and $751,000 increase in equity compensation expense.

Additionally, group medical expenses increased $626,000 in 2025.

Home Mortgage Lending

Net income in the Home Mortgage Lending segment totaled $4.8 million in 2025, consistent with net income in 2024.

During 2025, mortgage loans funded for sale were $776.0 million, compared to $609.2 million in 2024.

Increases in net interest income and mortgage banking income were mostly offset by increases in the provision for credit losses and other operating expenses.

Other operating expenses in the Home Mortgage Lending segment totaled $29.8 million in 2025 compared to $27.6 million a year ago.

The increase in 2025 as compared to 2024 was mostly due to increases in salaries and other personnel expense due to higher commissions paid to mortgage originators due to higher volume.

The Arizona, Colorado, and Pacific Northwest mortgage expansion markets were responsible for 22% of RML's $787 million total production in 2025 and 21% of $717 million total production in 2024.

The Company reclassified $100 million in consumer mortgages held for investment to held for sale in the first quarter of 2025 and recorded unrealized losses of $1.2 million related to this portfolio in the first quarter of 2025.

In the second quarter of 2025, the Company sold $61 million of the $100 million that was reclassified to loans held for sale in the first quarter of 2025 for a total realized loss of $545,000.

In the third quarter of 2025, the Company sold $16 million of the $100 million that was reclassified to loans held for sale in the first quarter of 2025 for a total realized loss of $37,000.

As of December 31, 2025, Northrim serviced 6,475 loans in its $1.63 billion home-mortgage-servicing portfolio, a 12% increase from the $1.46 billion serviced a year ago.

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 Company’s Specialty Finance segment includes NFS and SCF.

NFS is a division of the Bank and has offered factoring solutions to small businesses since 2004.

SCF is a leading provider of factoring, asset-based lending and alternative working capital solutions to small and medium sized enterprises in the United States, Canada, and the United Kingdom that the Company acquired on October 31, 2024 in an all cash transaction valued at approximately $53.9 million.

The composition of revenues for the Specialty Finance segment are primarily purchased receivable income, but also includes interest income from loans and other fee income.

Net income in the Specialty Finance segment increased $8.4 million or 455% in 2025 compared to the prior year primarily due to the acquisition of SCF in the fourth quarter of 2024.

Total pre-tax income for SCF in 2025 was $6.8 million.

Average purchased receivables and loan balances at SCF were $69.7 million in 2025 with a yield of 31.23%.

The yield in 2025 included the recognition of $1.3 million in one-time fees and $899,000 in nonaccrual fee income collected during 2025.

The yield excluding these times for 2025 was 28.04%.

Average purchased receivables and loan balances at NFS were $54.6 million for 2025 compared to $33.4 million for 2024.

Net Interest Income / Net Interest Margin

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Net interest income in 2025 was $135.6 million, compared to $113.2 million in 2024.

The increase in 2024 as compared to 2023 was primarily the result of increased interest on loans which was only partially offset by decreases of interest income on available for sale securities and deposits in other banks, as well as an increase in interest expense on deposits.

Interest income on loans increased $26.1 million in 2024 as compared to 2023 due to an increase in interest rates and higher net average interest-earning asset balances.

Interest expense increased $12.0 million in 2024 as compared to the prior year as a result of higher interest rates and higher average interest-bearing deposit balances.

The increase in 2025 as compared to 2024 was primarily the result of increased interest on loans and deposits in other banks which was only partially offset by a decrease in interest income on available for sale securities, as well as an increase in interest expense on deposits, borrowings, and junior subordinated debentures.

Interest income on loans increased $25.4 million in 2025 as compared to 2024 due to an increase in interest rates and higher average balances.

Interest expense increased $2.0 million in 2025 as compared to the prior year as a result of higher interest rates and higher average interest-bearing deposit and borrowing balances.

During 2025 and 2024, net interest margins were 4.69% and 4.28%, respectively.

The increase in net interest margin in 2024 as compared to 2023 is primarily the result of higher yields on earning-assets and higher average portfolio loan balances.

The increase in net interest margin in 2025 as compared to 2024 is primarily the result of an increase in average yields on interest earning assets in 2025 compared to 2024 as a result of higher interest rates, as well as an change in the mix of earning assets which includes a higher percentage of loans in 2025 versus 2024.

These factors were only partially offset by an increase in the cost of interest-bearing liabilities.

The following table sets forth for the periods indicated information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities.

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Total $3,200,933 $2,861,012 $2,690,347

Net interest income $113,183 $103,256 $95,115

Net interest margin 4.33 % 4.21 % 3.89 %

Net interest income (tax equivalent)

$137,156 $114,704 $104,832

Net interest margin (tax equivalent)

4.74 % 4.33 % 4.21 %

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(1,547) (1,521) (1,576)

Net interest income and margin, as reported

$135,609 4.69 % $113,183 4.28 % $103,256 4.14 %

Average portfolio loans to average-earnings assets 76.27 % 72.15 % 65.96 %

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Provision for Credit Losses

The provision for credit loss expense is the amount of expense that, based on our judgment, is required to maintain the ACL at an appropriate level under the current expected credit loss methodology (“CECL”).

The provision for credit loss expense is the amount of expense that, based on our judgment, is required to maintain the ACL at an appropriate level under the CECL methodology.

The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity.

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Total credit loss expense $3,910 $3,293 $3,842

The provision for credit losses on loans held for investment increased in 2025 compared to 2024 due to increased loan balances as well as an increase in rate primarily due to an increase in nonaccrual and adversely classified loans in 2025 and, to a lessor extent, slightly less favorable economic forecasts.

The increase in rate for these factors was largely offset by a change in the mix of the portfolio at the end of 2025 compared to the end of 2024.

The provision for credit losses on loans held for investment remained relatively consistent in 2024 compared to 2023 due to continued growth in the portfolio and the fact that forecasted economic conditions remain stable between the two periods.

The decrease in the provision for credit losses on unfunded commitments in 2024 compared to 2023 in primarily due to a change in the mix of unfunded commitments.

In general the increase in the provision for credit losses in 2023 as compared to 2022 is primarily the result of increased portfolio loan and unfunded commitment balances, and, to a lesser extent, a decrease in management's assumptions for prepayment and curtailment speeds.

These increases were only partially offset by a decrease in rate due to improvement in management's forecast of economic factors as of December 31, 2023 compared to December 31, 2022.

The increase in the provision for credit losses on unfunded commitments in 2025 as compared to 2024 is primarily the result of increased unfunded commitment balances, as well as an increases is estimated funding rates and the mix of unfunded commitments.

The decrease in the provision for credit

losses on unfunded commitments in 2024 compared to 2023 in primarily due to a change in the mix of unfunded commitments during that period.

The ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration.

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Other Operating Income

Mortgage banking income $24,002 $11,239 88 % $12,763 ($8,809) (41) % $21,572

Purchased receivable income $25,806 $18,660 261 % $7,146 $2,664 59 % $4,482

Mortgage banking income 25,237 1,235 5 % 24,002 11,239 88 % 12,763

Gain on sale by Pacific Wealth Advisors 14,486 14,486 NM — — — % —

Bankcard fees 4,675 309 7 % 4,366 504 13 % 3,862

Service charges on deposit accounts 2,986 638 27 % 2,348 304 15 % 2,044

Interest rate swap income 540 479 785 % 61 (96) (61) % 157

Commercial servicing revenue 486 (68) (12) % 554 (1,074) (66) % 1,628

Gain (loss) on marketable equity securities 169 (296) 64 % 465 345 (288) % 120

Gain (loss) on sale of securities 1 (111) 100 % 112 112 NM —

Keyman insurance proceeds — — NM — (2,002) NM 2,002

Other income 3,843 241 7 % 3,602 498 16 % 3,104

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2025 Compared to 2024

The most significant item contributing to the increase in other operating income in 2024 was an increase in mortgage banking income, followed by an increase in purchased receivable income.

Bankcard fees, service charges on deposit accounts, interest rate swap income, gain on marketable equity securities, and gain on sale of securities also increased.

These increases were partially offset by a decrease in commercial servicing revenue.

Mortgage banking income consists of gross income from the origination and sale of mortgages as well as mortgage loan servicing fees and is the largest component of other operating income at 57% of total other operating income in 2024 and 48% in 2023.

Mortgage banking income increased in 2024 compared to 2023 mainly due to an increase in mortgage loans originated and sold which increased to $609.2 million in 2024 from $376.2 million in 2023.

Approximately one third of the overall increase in mortgage originations sold in 2024 as compared to 2023 is from outside of Alaska and the two thirds is from production in the state of Alaska.

The most significant item contributing to the increase in other operating income in 2025 was an increase in purchased receivable income, followed by the gain on sale of all of the operating assets of PWA.

Mortgage banking income, service charges on deposit accounts, and bankcard fees also increased.

These increases were partially offset by a decrease in gain on marketable equity securities and gain on sale of securities.

Purchased receivable income increased in 2025 as compared to 2024 primarily due to the acquisition of SCF in October 2024.

Purchased receivable income from operations at Northrim Funding Services remained relatively consistent with the prior year at $4.4 million.

Bankcard fees and service charges on deposit accounts increased in 2024 due an increase in the number of the Company's deposit customers which led to higher transaction volume as compared to 2023, as well as an increase in some transactional fees.

Gain on marketable equity securities increased in 2024 as compared to 2023 due to increased fair value on this portfolio.

Gain on sale of securities increased in 2024 as compared to 2023 due to the sale of marketable equity securities in 2024.

Commercial servicing revenue decreased in 2024 as compared to 2023 primarily due to a decrease in commercial loan servicing balances.

Purchased receivable income from operations at SCF increased to $19.7 million in the full year 2025 compared to $2.7 million for the two months in 2024 following the acquisition of SCF.

Additionally, purchased receivable income from operations at NFS increased to $6.1 million in 2025 compared to $4.4 million in 2024 primarily due to higher average balances.

Mortgage banking income consists of gross income from the origination and sale of mortgages as well as mortgage loan servicing fees and comprised 33% of total other operating income in 2025 and 57% in 2024.

Mortgage banking income increased in 2025 compared to 2024 mainly due to an increase in mortgage loans originated and sold to the secondary market which increased to $776.0 million in 2025 from $609.2 million in 2024 and included $77.0 million in mortgage loans that were held for investment as of December 31, 2024.

Additionally, $88.0 million and $108.0 million in mortgages were originated in 2025 and 2024 and were retained as loans held for investment.

Production volume outside of Alaska increased $22.0 million in 2025 compared to 2024, while production in Alaska increased $47.8 million in 2025 compared to 2024.

Increases in net realized gains on mortgage sales, interest income on home mortgages held for investment, and mortgage servicing revenue were partially offset by a decrease in the fair value of mortgage servicing rights.

Bankcard fees and service charges on deposit accounts increased in 2025 due an increase in the number of the Company's deposit customers which led to higher transaction volume as compared to 2024.

Other Operating Expense

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Insurance expense 3,212 251 8 % 2,961 442 18 % 2,519

Intangible asset amortization — (17) (100) % 17 (8) (32) % 25

Compensation expense - SCF acquisition payments 2,333 2,333 100 % — — NM —

Operational charge-offs, net recoveries and EFT losses 1,119 774 224 % 345 (141) (29) % 486

Intangible asset amortization — — NM — (17) (100) % 17

OREO (income) expense, net rental income and gains on sale:

OREO operating expense (11) (18) (257) % 7 (9) (56) % 16

Impairment on OREO — (123) (100) % 123 123 100 % —

Rental income on OREO — 4 100 % (4) 544 99 % (548)

Impairment on OREO — — NM — (123) (100) % 123

Rental income on OREO — — NM — 4 100 % (4)

Losses (gains) on sale of OREO — 392 100 % (392) 537 58 % (929)

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The largest increase was in salaries and other personnel expense.

Salaries and other personnel expense increased $3.1 million in the Home Mortgage Lending segment due to increased mortgage production which resulted in higher loan officer commissions.

Salaries and other personnel expense increased $2.1 million in the Community Banking segment primarily due to higher profit share expense, which generally increases when net income increases to reflect a higher payout to employees.

Data processing expense, occupancy expense, insurance expense, marketing expense and professional and outside services also increased in 2024 compared to 2023 due to the increase in branch locations, increased customer and transaction volume, increased FDIC insurance costs associated with asset growth, and increased professional and outside services related to the acquisition of SCF.

Other real estate owned (“OREO”) expense, net of rental income and gains on sale also increased in 2024 primarily due to smaller gains on sale of OREO properties as compared to 2023 as subsequent proceeds were received related to a government guarantee on an OREO property sold in December 2022.

Salaries and other personnel expense increased $5.0 million in the Specialty Finance segment primarily due to a full year of SCF expenses in 2025 and only two months in 2024.

Salaries and other personnel expense increased $4.2 million in the Community Banking segment primarily due to higher salaries for normal annual increases, higher medical claims, and higher profit share expense and equity compensation expense, which generally increase when net income increases to reflect higher payouts to employees.

Salaries and other personnel expense increased $1.3 million in the Home Mortgage Lending segment due to increased mortgage production which resulted in higher loan officer commissions, as well as higher medical claims.

Data processing expense, occupancy expense, insurance expense, marketing expense and professional and outside services also increased in 2025 compared to 2024 due to the increase in branch locations, increased customer and transaction volume, and increased FDIC insurance costs associated with asset growth.

Other real estate owned (“OREO”) expense, net of rental income and gains on sale also decreased in 2025 primarily due to no gain on sale of OREO properties as compared to 2024.

Operational charge-offs and EFT losses, net recoveries increased in 2025 compared to 2024 due to higher fraud related operational losses.

The provision for income taxes increased $9.9 million or 99%, to $19.9 million in 2025 as compared to 2024.

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Investment securities designated as available for sale comprised 92% of the portfolio as of December 31, 2025 and are available to meet liquidity requirements in a contingency situation.

Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, and collateralized loan obligations.

Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, mortgage-backed securities, and collateralized loan obligations.

Investment securities at December 31, 2025 decreased $68.3 million, or 13%, to $455.8 million from $524.1 million at December 31, 2024.

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Treasury and government sponsored entities $389,391 $388,737

Agency Mortgage-backed Securities 4,797 4,798

Corporate Bonds 5,003 4,952

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Treasury and government sponsored entities $444,370 $432,931

Municipal Securities 820 816

Corporate Bonds 9,009 8,795

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1.36 % 3.75 % 4.41 % — % 2.54 %

Agency Mortgage-backed

Balance $— $— $972 $3,826 $4,798

Weighted average yield (1)

— % — % 5.28 % 4.89 % 4.96 %

Corporate bonds

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The legal lending limit for the Bank was $50.4 million at December 31, 2025.

At December 31, 2024, the Company had one relationship whose total direct and indirect commitments exceeded $37.0 million;

At December 31, 2025, the Company had four relationships whose total direct and indirect commitments exceeded $50.4 million;

however, no individual direct relationship exceeded the loans-to-one borrower limitation.

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Management attributes higher growth in loans in 2025 and 2024 to our ability to attract new customers through our outreach to the community.

The Company's “Land and Expand” program was designed to increase both loans and deposits as we attract a broader customer base and convert new customers into full banking relationships.

The following table presents growth information for loans and loans excluding Paycheck Protection Program (“PPP”) loans:

The following table presents growth information for loans and loans excluding Paycheck Protection Program (“PPP”) loans for the periods indicated:

Years Ended December 31,

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The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $88.6 million and $45.8 million at December 31, 2025 and 2024, respectively.

The portion of the Company's ACL that related to the loans with direct exposure to the oil and gas industry was estimated at $1.1 million and $884,000 as of December 31, 2024 and 2023, respectively.

The portion of the Company's ACL that related to the loans with direct exposure to the oil and gas industry was estimated at $1.6 million and $1.1 million as of December 31, 2025 and 2024, respectively.

The following table details loan balances by loan segment and class of financing receivable for loans with direct oil and gas exposure as of the dates indicated:

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At 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.

The portion of the Company's ACL that related to the loans with exposure to these industries is estimated at the following amounts as of December 31, 2025:

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(In Thousands) 2025 2024

Nonaccrual loans $7,516 $6,069

Loans 90 days past due and accruing 17 —

Total nonperforming loans $7,533 $6,069

Nonperforming loans guaranteed by government — (1,067)

Net nonperforming loans $7,533 $5,002

Nonperforming purchased receivables 3,768 808

Net nonperforming assets $11,598 $5,810

Nonaccrual loans - Community Banking

$9,066 $4,337

Nonaccrual loans - Home Mortgage Lending

Nonaccrual loans - Specialty Finance

Nonaccrual loans - Total

Loans 90 days past due and accruing - Community Banking

Loans 90 days past due and accruing - Total

Total nonperforming loans - Community Banking

Total nonperforming loans - Home Mortgage Lending

Total nonperforming loans - Specialty Finance

Total nonperforming loans - Total

Nonperforming loans guaranteed by gov't - Community Banking

Nonperforming loans guaranteed by gov't - Total

Net nonperforming loans - Community Banking

Net nonperforming loans - Home Mortgage Lending

Net nonperforming loans - Specialty Finance

Net nonperforming loans - Total

Repossessed assets - Community Banking

Repossessed assets - Total

Nonperforming purchased receivables - Specialty Finance

Net nonperforming assets - Community Banking

Net nonperforming assets - Home Mortgage Lending

Net nonperforming assets - Specialty Finance

Net nonperforming assets - Total

$11,396 $11,598

Adversely classified loans, net of gov't guarantees - Community Banking

$29,447 $6,332

Adversely classified loans, net of gov't guarantees - Home Mortgage Lending

Adversely classified loans, net of gov't guarantees - Specialty Finance

Adversely classified loans, net of gov't guarantees - Total

$33,498 $9,636

Special mention loans, net of gov't guarantees - Community Banking

$10,481 $19,769

Special mention loans, net of gov't guarantees - Total

$10,481 $19,769

Nonperforming loans, net of government guarantees / portfolio loans

Nonperforming loans, net of government guarantees / portfolio loans, net of government guarantees 0.38 % 0.30 %

0.49 % 0.35 %

Nonperforming loans, net of government guarantees / portfolio loans, net of gov't guarantees 0.53 % 0.38 %

Nonperforming assets, net of government guarantees / total assets

Nonperforming assets, net of government guarantees / total assets net of government guarantees 0.40 % 0.21 %

Adversely classified loans, net of government guarantees $9,636 $7,057

Special mention loans, net of government guarantees $19,769 $6,580

0.35 % 0.38 %

Nonperforming assets, net of government guarantees / total assets net of gov't guarantees 0.36 % 0.40 %

Loans 30-89 days past due and accruing, net of government guarantees / portfolio loans 0.07 % 0.11 %

1 unchanged sentence

portfolio loans, net of government guarantees 0.08 % 0.11 %

Allowance for credit losses - loans / portfolio loans 1.03 % 0.97 %

Allowance for credit losses - loans / portfolio loans, net of government guarantees 1.10 % 1.02 %

Allowance for credit losses - loans / nonperforming loans, net of government

guarantees 292 % 345 %

Allowance for credit losses - purchased receivables / purchased receivables 4.69 % — %

Allowance for credit losses - purchased receivables / nonperforming purchased receivables 96.84 % — %

Gross loan charge-offs for the quarter $149 $281

Gross loan recoveries for the quarter ($200) ($185)

Net loan (recoveries) charge-offs for the quarter ($51) $96

Net loan (recoveries) charge-offs year-to-date ($215) ($38)

Net loan (recoveries) charge-offs for the quarter / average loans, for the quarter 0.00 % 0.01 %

Net loan (recoveries) charge-offs year-to-date / average loans,

year-to-date annualized (0.01) % 0.00 %

The Company’s nonperforming assets, net of government guarantees increased to $11.6 million at December 31, 2024 as compared to $5.8 million at December 31, 2023.

This increase was mostly due to the addition of an SCF nonaccrual loan and an SCF purchased receivable relationship, which were only partially offset by paydowns to nonaccrual loans in 2024.

Allowance for credit losses for loans / portfolio loans

1.03 % 1.03 %

Allowance for credit losses for loans / portfolio loans, net of gov't guarantees

1.10 % 1.10 %

Allowance for credit losses for loans / nonperforming loans, net of gov't guarantees 210 % 292 %

Net loan charge-offs (recoveries) year-to-date - Community Banking

$1,429 ($320)

Net loan charge-offs (recoveries) year-to-date - Specialty Finance

Net loan charge-offs (recoveries) year-to-date - Total

$1,793 ($215)

Net loan charge-offs (recoveries) year-to-date / average loans, year-to-date annualized 0.08 % (0.01) %

Allowance for credit losses for purchased receivables / purchased receivables

Net purchased receivable charge-offs (recoveries) year-to-date / average

purchased receivables, year-to-date annualized

The Company’s nonperforming assets, net of government guarantees decreased slightly to $11.4 million at December 31, 2025 as compared to $11.6 million at December 31, 2024 as some nonperforming asset were paid off or charged off in 2025 and were replaced by new nonperforming assets.

There was interest income of $214,000 and $241,000 recognized in net income for 2025 and 2024, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero.

The Company held a government guarantee related to the OREO property that was sold in December 2022;

however, the value of this guarantee was not included in the Company's financial statements in 2022 due to uncertainty as to the total amount that would be received from the guarantee.

The Company received proceeds from the guarantee in the third quarter of 2023 and first quarter of 2024 which were recorded as a gain on sale of OREO.

The following summarizes OREO activity for the periods indicated:

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Potential problem loans are loans which are currently performing that have developed negative indications that the borrower may not be able to comply with present payment terms and which may later be included in nonaccrual, past due, or impaired loans.

The decrease in potential problem loans at December 31, 2024 from December 31, 2023 was primarily due to paydowns to existing potential problem loans in 2024 that were partially offset by the addition of two new potential problem loans.

The increase in potential problem loans at December 31, 2025 from December 31, 2024 was primarily due to the addition of four new potential problem relationships in 2025 that were only partially offset by paydowns to existing potential problem loans.

Allowance for Credit Losses

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Purchased receivable income was $25.8 million and $7.1 million in 2025 and 2024, respectively.

The increase in purchased receivable balances at December 31, 2024 and the increase in purchased receivable income as compared to the prior year is primarily due to the acquisition of SCF on October 31, 2024.

The increase in purchased receivable balances at December 31, 2025 and the increase in purchased receivable income as compared to the prior year is primarily due to a full year of results from SCF following the acquisition of SCF on October 31, 2024.

The following table sets forth information regarding changes in the purchased receivable ACL for the years indicated:

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Impact from acquisition of Sallyport Commercial Finance, LLC — 3,524 —

Adjustment related to PCD collections payable to sellers 1

Charge-offs (2,211) — —

1 unchanged sentence

Charge-offs net of recoveries (2,178) — —

Reserve for (recovery from) purchased receivables 125 — —

Reserve for purchased receivables 42 125 —

Balance at end of year $— $3,649 $—

Ratio of net charge-offs (recoveries) to average purchased receivables during the period — % — % — %

Ratio of net charge-offs to average purchased receivables during the period 2.16 % — % — %

1 Represents a reduction in the allowance for credit losses on a purchased credit deteriorated purchased receivable acquired in 2024 in connection with the SCF acquisition.

Collections received during the period presented above are contractually payable to the sellers under the purchase agreement if collected within one year of the acquisition of SCF.

Accordingly, the decrease in the allowance was offset by the recognition of a liability to the sellers, and no benefit was recognized in the provision for credit losses.

Deposits are our primary source of funds.

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At December 31, 2025, we had $402.8 million in certificates of deposit, of which $369.2 million, or 92%, are scheduled to mature in 2026.

The Company’s certificates of deposit increased to $418.4 million during 2024 as compared to $331.3 million at December 31, 2023.

The Company’s certificates of deposit decreased to $402.8 million during 2025 as compared to $418.4 million at December 31, 2024.

The aggregate amount of certificates of deposit in amounts of $250,000 or more at December 31, 2025 and 2024, was $208.2 million and $217.1 million, respectively.

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Uninsured deposits totaled $1.1 billion or 38% of total deposits as of December 31, 2025 compared to $1.1 billion or 40% of total deposits as of December 31, 2024.

As interest rates continued to increase in 2024, Northrim took a proactive, targeted approach to increase deposit rates and retain deposit customers.

The Bank is a member of the Federal Home Loan Bank of Des Moines (the “FHLB”).

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Based on the Company's current collateral pledged to the FHLB, less outstanding advances, the Company's borrowing line is $433.1 million as of December 31, 2025.

The Company has outstanding advances of $13.2 million and $13.7 million as of December 31, 2024 and 2023, respectively, which were originated to match fund low income housing projects that qualify for long term fixed interest rates.

The Company has outstanding

advances of $12.8 million and $13.2 million as of December 31, 2025 and 2024, respectively, which were originated to match fund low income housing projects that qualify for long term fixed interest rates.

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

The Company paid $310,000 and $389,000 in interest on these advances in 2025 and 2024, respectively.

Additionally, the Company has a short-term $9.8 million advance from the FHLB outstanding as of December 31, 2024 at an interest rate of 4.62% which resets daily.

Additionally, the Company had a short-term $9.8 million advance from the FHLB outstanding as of December 31, 2024 at an interest rate of 4.62% which resets daily.

There were no additional advances outstanding as of December 31, 2025.

The Company had an average short-term FHLB advance of $9.8 million in 2024 compared to an average short-term FHLB advance of $21.8 million in 2023.

The Company took out a $50.0 million short-term advance in the second quarter of 2023 which was paid off in the fourth quarter of 2023.

The Company paid $528,000 and $1.2 million in interest expense on short-term advances in 2024 and 2023, respectively.

The Company had an average short-term FHLB advances of $26.2 million in 2025 compared to an average short-term FHLB advances of $9.8 million in 2024.

The Company paid $1.2 million and $528,000 in interest expense on short-term advances in 2025 and 2024, respectively.

Federal Reserve Bank :

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The Company paid less than $1,000 in interest in 2025 and 2024 on this agreement.

The Federal Reserve Bank is not holding any investment securities as collateral to secure the Company's ability to take advances through the Federal Reserve Bank's Bank Term Funding Program (“BTFP”) as of December 31, 2024.

There were no BTFP advances outstanding at December 31, 2024, however, the Company had an average

outstanding balance of $5.0 million in 2023.

The Company paid $241,000 in interest expense on this BTFP advance in 2023.

The Federal Reserve Bank ended the BTFP on March 11, 2024.

Other Short and Long-term Borrowings:

The Company had no short or long-term borrowings outstanding other than the FHLB advances noted above as of December 31, 2025 or 2024.

The Company is subject to provisions under Alaska state law which generally limits the amount of outstanding debt to 35% of total assets or $1.1 billion at December 31, 2024 and $975.9 million at December 31, 2023.

Junior Subordinated Debentures

The Company is subject to provisions under Alaska state law which generally limits the amount of outstanding debt to 15% of total assets or $490.6 million at December 31, 2025 and $454.1 million at December 31, 2024.

Subordinated Debentures

On December 16, 2005, the Company’s subsidiary, NST2, issued trust preferred securities in the principal amount of $10 million.

These securities carried an interest rate of 90-day LIBOR plus 1.37% per annum that was initially set at 5.86% adjusted quarterly until the cessation of LIBOR in 2023.

As of December 31, 2024, these securities now carry an interest rate of 90-day CME SOFR plus tenor spread adjustment of 0.26% plus 1.37% per annum, adjusted quarterly.

As of December 31, 2025, these securities carry an interest rate of 90-day CME SOFR plus tenor spread adjustment of 0.26% plus 1.37% per annum, adjusted quarterly.

The securities have a maturity date of March 15, 2036, and are callable by the Company on or after March 15, 2011.

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The Company also had interest expense of $18,000 in 2025 and $22,000 in 2024 on common securities related to junior subordinated debt.

In November of 2025, the Company issued and sold $60.0 million in aggregate principal amount of its 6.875% Fixed-to-Floating Rate Subordinated Notes due 2035 (the “Subordinated Notes”).

The Subordinated Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount.

The Notes mature on December 1, 2035 and bear interest at a fixed rate of 6.875% per year, from November 26, 2025 to, but excluding, December 1, 2030 or the date of earlier redemption, payable semi-annually in arrears.

From and including December 1, 2030 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month SOFR, plus 3.48% per annum, payable quarterly in arrears.

As provided in the Subordinated Notes, the interest rate on the Subordinated Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR.

The interest cost to the Company on these debentures was $401,000 in 2025.

The Company incurred debt issuance costs of $1.4 million which will amortize through December 1, 2035.

The amortization expense amounted to $14,000 in 2025.

Prior to December 1, 2030, the Company may redeem the Subordinated Notes, in whole but not in part, only under certain limited circumstances set forth in the indenture governing the Subordinated Notes.

On or after December 1, 2030, the Company may redeem the Subordinated Notes, in whole or in part, at its option, on any interest payment date.

Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, together with any accrued and unpaid interest on the Subordinated Notes being redeemed to, but excluding, the date of redemption.

The Subordinated Notes are not subject to redemption at the option of the holder.

Principal and interest on the Subordinated Notes are subject to acceleration only in limited circumstances in the case of certain bankruptcy and insolvency-related events with respect to the Company.

The Subordinated Notes are unsecured, subordinated obligations of the Company, are not obligations of, and are not guaranteed by, any subsidiary of the Company, and rank junior in right of payment to the Company’s current and future senior indebtedness.

The Subordinated Notes are intended to qualify as Tier 2 capital of the Company for regulatory capital purposes.

Liquidity and Capital Resources

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The Company had cash and cash equivalents of $145.9 million, or 4% of total assets at December 31, 2025 compared to $62.7 million, or 2% of total assets as of December 31, 2024.

The decrease in cash and cash equivalents is primarily due to an increase in loans, the acquisition of SCF, and the repayment of debt.

These uses of cash were only partially offset by an increase in deposits and the maturity available for sale investments, net of purchases in 2024.

The Company had cumulative other comprehensive losses, net of tax, of $7.0 million in 2024, primarily due to unrealized holding losses on available for sale securities due to increases in interest rates.

This is a decrease from $16.4 million in 2023.

Management does not believe that liquidation of these securities, which would result in realized losses, will occur prior to maturity of these securities.

The increase in cash and cash equivalents is primarily due to an increase in deposits, the issuance of subordinated debt, and the maturity available for sale investments, net of purchases in 2025.

These cash proceeds were only partially offset by an increase in loans and loans held for sale and increase in purchased receivables in 2025.

The Company had cumulative other comprehensive income, net of tax, of $619,000 in 2025 compared to $7.0 million cumulative other comprehensive loss, net of tax, in 2024.

The increase is primarily attributable to unrealized gains and losses on available for sale securities.

As of December 31, 2025, the weighted average maturity of available for sale securities is 2.0 years compared to 2.4 years at December 31, 2024.

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Similar to loans, we do not expect that these maturing certificates of deposit, or other non-maturity deposits, to be withdrawn from the Bank in a manner that will strain liquidity;

unforeseen future circumstances or events may cause higher than anticipated withdrawal of deposits or draws of unfunded commitments to fund new loans.

however, unforeseen future circumstances or events may cause higher than anticipated withdrawal of deposits or draws of unfunded commitments to fund new loans.

Management believes that cash requirements to fund future non-deposit liabilities, including operating lease liabilities, other liabilities, or borrowings as of December 31, 2025, are not material to the Company's liquidity position as of December 31, 2025.

5 unchanged sentences

As shown in the Consolidated Statements of Cash Flows included in Part II.

Item 8 of this report, net cash used by operating activities was $8.7 million in 2024 and net cash provided by operating activities was $38.8 million in 2023.

In 2024, net cash was used primarily in connection with origination of loans held for sale, which was only partially offset by net income and net proceeds from the sale of loans held for sale.

Item 8 of this report, net cash provided by operating activities was $139.3 million in 2025 and net cash used by operating activities was $8.7 million in 2024.

In 2025, proceeds from the sale of loans held for sale net of proceeds used in originations, as well as net income were largely the source of net cash provided.

Net cash used by investing activities was $197.6 million in 2024 primarily due to an increase in loans and the acquisition of SCF.

In 2024, net cash was used primarily in connection with origination of loans held for sale, which was only partially offset by net income and net proceeds from the sale of loans held for sale.

Net cash used by investing activities was $223.4 million in 2025 primarily due to an increase in loans and purchased receivables and purchases of available for sale securities.

These uses of cash were only partially offset by proceeds from maturities and sales of investment securities.

Net cash used by investing activities was $254.9 million in 2023 primarily due to increases in loans and to a lesser extent, purchases of available for sale and held to maturity securities and an increase in purchased receivables.

Net cash used by investing activities was $197.6 million in 2024 primarily due to increases in loans and the acquisition of SCF.

Financing activities provided cash of $167.3 million in 2025 and $150.6 million in 2024, respectively.

Financing activities provided cash in 2025 due to increases in deposits and the issuance of subordinated debt that were only partially offset by the repayment of borrowings and the payment of cash dividends to shareholders.

Financing activities provided cash in 2024 due to increases in deposits that were only partially offset by the repayment of borrowings and the payment of cash dividends to shareholders.

Financing activities provided cash in 2023 due to increases in deposits that were only partially offset by the payment of cash dividends to shareholders and the repurchase of shares of the Company's common stock.

Throughout our history, the Company has periodically repurchased for cash a portion of its shares of common stock in the open market.

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2021 1,117,104 $10.33

2020 327,000 $30.51

At December, 31, 2024, there were 110,000 shares available under the previously announced stock repurchase program, which lapsed on December 31, 2024, leaving zero shares currently available for repurchase.

At December, 31, 2025, there were zero shares available under the previously announced stock repurchase program.

The Company may continue to repurchase its stock from time-to-time depending upon market conditions, but we can make no assurances that we will continue this program and the Board of Directors has not presently authorized any repurchases of its common stock for 2026.

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Management intends to maintain capital ratios for the Bank in 2026 exceeding the FDIC’s requirements for the “well-capitalized” classification.

The capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offering is included in the Company’s capital for regulatory purposes, although they are accounted for as a long-term debt in our consolidated financial statements.

The trust preferred securities are not accounted for on the Bank’s financial statements nor are they included in its capital.

As a result, the Company has $10 million more in regulatory capital than the Bank at December 31, 2024 and 2023, respectively, which explains most of the difference in the capital ratios for the two entities.

Some capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offering and the $60 million in Subordinated Notes are included in the Company’s capital for regulatory purposes, although they are accounted for as a long-term debt in our consolidated financial statements.

These items are not accounted for on the Bank’s financial statements nor are they included in its capital.

As a result, the Company has $70 million more in regulatory capital than the Bank at December 31, 2025 and $10 million more at December 31, 2024, respectively, which explains most of the difference in the capital ratios for the two entities.

Note that the $10 million in trust preferred securities qualifies as Tier 1 capital, and the $60 million in Subordinated Notes qualifies as Tier 2 capital for these purposes.

Minimum Required Capital Well-Capitalized Actual Ratio Company Actual Ratio Bank

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Under the rules of the Federal Reserve Bank, a bank holding company such as the Company is generally defined to be “well capitalized” if its Tier 1 risk-based capital ratio is 8.0% or more and its total risk-based capital ratio is 10.0% or more.

Critical Accounting Policies

The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments as a result of the need to make "critical accounting estimates", which are estimates that involve estimation uncertainty that has had or is reasonably likely to have a material impact on the Company's financial condition or results of operations.

Our significant accounting policies are described in Note 1 in the Notes to Consolidated Financial Statements in Part II.

Item 8 of this report.

Not all of these significant accounting policies require management to make critical accounting estimates.

Management believes that the following accounting policies would be considered critical under the SEC's definition.

The following discussion is intended to supplement, but not duplicate, information provided in Note 1 in the Notes to Consolidated Financial Statements in Part II.

Item 8 of this report for these policies.

Allowance for Credit Losses Policy :

The Company's Executive Loan Management Committee and Asset Liability Committee are both involved in monitoring various aspects of the Company's ACL methodology.

The Executive Loan Management Committee reviews and approves significant assumptions used in model at least annually.

The Company's Audit Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis.

CECL is not prescriptive in the methodology used to determine the expected credit loss estimate.

Therefore, management has flexibility in selecting the methodology.

However, the expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments, utilizing quantitative and qualitative factors.

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

In 2024, the Company uses a DCF method for seven of its 11 loan pools, which represent 96% of the amortized cost basis of total loan pools at December 31, 2024.

Prior to 2024, the Company used a DCF method for eight of its 11 loan pools.

The weighted average remaining life method is used for the remaining loan pools primarily because loan level data constraints preclude the use of the DCF model.

The Company's regression models for PD utilize peer historical loan level default data.

The Company determines a reasonable and supportable forecast and applies that forecast to the regression model to estimate defaults over the forecast period.

Management leverages economic projections from the Federal Reserve to inform its loss driver forecasts over the Company's four quarter forecast period.

As of December 31, 2024, management utilizes and forecasts U.S.

unemployment and U.S.

gross domestic product as the loss drivers for all of the loan pools that utilize the DCF method.

The Company added U.S.

gross domestic product as a loss driver in 2024 because we determined that there is better model fit using this multi-factor model.

The Company's regression models for PD as of December 31, 2024 utilize peer historical loan level default data.

Peers for this purpose include banks in the United States with total assets between $1 billion and $5 billion whose loan portfolios share certain characteristics with the Company's loan portfolio.

Peers differ by loan segment;

the Company refined the peer groups in 2024 in order to add more precision to the model.

A bank is included in the peer group for each loan segment in 2024 under the following circumstances:

• The percentage the balance of the loan segment compared to total loans over a five year look back period is within 0.5 standard deviations of the Company's data;

• The percentage of total charge offs for the loan segment over a five year look back period is within 0.25 standard deviations of the Company's data;

As of December 31, 2023, management utilized and forecasted U.S.

unemployment as the sole loss driver for all of the loan pools that utilize the DCF method.

The Company's regression models for PD as of December 31, 2023 utilize peer historical loan level default data.

Peers for this purpose include banks in the United States with total assets between $1 billion and $5 billion whose loan portfolios share certain characteristics with the Company's loan portfolio.

Peers differ by loan segment;

a bank is included in the peer group for each loan segment in 2023 under the following circumstances:

• The percentage the balance of the loan segment compared to total loans over a five year look back period is within 1.5 standard deviations of the Company's data;

• The percentage of total charge offs for the loan segment over a five year look back period is within 1 standard deviation of the Company's data;

• The percentage of total charge offs for the loan segment during the recessionary period from the fourth quarter of 2008 to the fourth quarter of 2012 is within 1 standard deviation of the Company's data.

For all periods presented, following the forecast period, the economic variables used to calculate PD revert to a historical average at a constant rate over an eight quarter reversion period.

Other assumptions relevant to the discounted cash flow model to derive the quantitative allowance include the LGD, which is the estimate of loss for a defaulted loan, prepayment speeds, and the discount rate applied to future cash flows.