NORTHRIM BANCORP INC

Previous wording

This quarterly report on Form 10-Q includes “forward-looking statements,” as that term is defined for purposes of Section 21E of the Securities Exchange Act of 1934, as amended, which are not historical facts. These forward-looking statements describe management’s expectations about future events and developments such as future operating results, growth in loans and deposits, continued success of the Company’s style of banking, and the strength of the local economy. All statements, other than statements of historical fact, regarding our financial position, business strategy, management’s plans and objectives for future operations are forward-looking statements. We use words such as “anticipate,” “believe,” “expect,” “intend” and similar expressions in part to help identify forward-looking statements. Forward-looking statements reflect management’s current plans and expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations, and those variations may be both material and adverse. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: potential further increases in interest rates; the value of securities held in our investment portfolio; the impact of the results of government initiatives on the regulatory landscape, natural resource extraction industries, and capital markets; the impact of declines in the value of commercial and residential real estate markets, high unemployment rates, inflationary pressures and slowdowns in economic growth; changes in banking regulation or actions by bank regulators; inflation, supply-chain constraints, and potential geopolitical instability, including the wars in Ukraine and the Middle East; financial stress on borrowers (consumers and businesses) as a result of higher rates or an uncertain economic environment; the general condition of, and changes in, the Alaska economy; our ability to maintain or expand our market share or net interest margin; the sufficiency of our provision for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to current expected credit losses accounting guidance; our ability to maintain asset quality; our ability to implement our marketing and growth strategies; our ability to identify and address cyber-security risks, including security breaches, “denial of service attacks,” “hacking,” and identity theft; disease outbreaks, such as the COVID-19 pandemic, or similar health threats and measures implemented to combat them; and our ability to execute our business plan. Further, actual results may be affected by competition on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in …

Excerpt shortened here; the source contains the full paragraph.

Current wording

This quarterly report on Form 10-Q includes “forward-looking statements,” as that term is defined for purposes of Section 21E of the Securities Exchange Act of 1934, as amended, which are not historical facts. These forward-looking statements describe management’s expectations about future events and developments such as future operating results, growth in loans and deposits, continued success of the Company’s style of banking, and the strength of the local economy. All statements, other than statements of historical fact, regarding our financial position, business strategy, management’s plans and objectives for future operations are forward-looking statements. We use words such as “anticipate,” “believe,” “expect,” “intend” and similar expressions in part to help identify forward-looking statements. Forward-looking statements reflect management’s current plans and expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations, and those variations may be both material and adverse. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: potential further increases in interest rates; the value of securities held in our investment portfolio; the impact of the results of government initiatives on the regulatory landscape, natural resource extraction industries, and capital markets; the impact of declines in the value of commercial and residential real estate markets, high unemployment rates, inflationary pressures and slowdowns in economic growth; changes in banking regulation or actions by bank regulators; inflation, supply-chain constraints, and potential geopolitical instability, including the wars in Ukraine and the Middle East; financial stress on borrowers (consumers and businesses) as a result of higher rates or an uncertain economic environment; the general condition of, and changes in, the Alaska economy; our ability to maintain or expand our market share or net interest margin; the sufficiency of our provision for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to current expected credit losses accounting guidance; our ability to maintain asset quality; our ability to implement our marketing and growth strategies; our ability to identify and address cyber-security risks, including security breaches, “denial of service attacks,” “hacking,” and identity theft; disease outbreaks; and our ability to execute our business plan. Further, actual results may be affected by competition on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and econ…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

The Alaska Department of Labor (“DOL”) has reported Alaska’s seasonally adjusted unemployment rate in May of 2024 was 4.5% compared to the U.S. rate of 4%. The total number of payroll jobs in Alaska, not including uniformed military, increased 2.9% or 9,300 jobs between May of 2023 and May of 2024.

Current wording

The Alaska Department of Labor (“DOL”) has reported Alaska’s seasonally adjusted unemployment rate in August of 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 1.8% or 6,400 jobs between August of 2023 and August of 2024.

Previous wording

According to the DOL, Construction and Health Care had the largest growth in new jobs through May 2024 compared to the prior year. The Construction sector added 2,500 positions for a year over year growth rate of 14.5% in May of 2024. The Health Care sector grew by 1,700 jobs for an annual growth rate of 4.3%. The Oil & Gas sector increased by 9.5% or 700 new direct jobs. Professional and Business Services added 1,100 jobs year over year through May of 2024, up 3.9%. The Government sector grew by 1,200 jobs for 1.5% growth, adding 600 Federal jobs and 600 State and local positions in Alaska. The only sectors to decline between May 2023 and May 2024 were Financial Activities, shrinking 100 positions and Information, down 200 jobs.

Current wording

According to the DOL, the Construction sector had the largest growth in new jobs through August compared to the prior year. The Construction sector added 2,600 positions for a year over year growth rate of 12.9% between August of 2023 and 2024. The larger Health Care sector grew by 2,000 jobs for an annual growth rate of 4.9% over the same period. The Oil & Gas sector increased by 6.5% or 500 new direct jobs. Professional and Business Services added 1,000 jobs year over year through August of 2024, up 3.4%. The Government sector grew by 700 jobs for 0.9% growth, adding 500 Federal jobs and 200 Local government positions in Alaska. The only sectors to decline between August 2023 and August 2024 were Manufacturing (primarily seafood processing) shrinking 1,300 positions and Information, down 200 jobs.

Previous wording

Alaska’s Gross State Product (“GSP”) in the first quarter of 2024, was estimated to be $69.2 billion in current dollars, according to the Federal Bureau of Economic Analysis ("BEA"). Alaska’s inflation adjusted “real” GSP grew 5.3% in 2023, placing Alaska fourth best of all 50 states. In the first quarter of 2024 Alaska grew at an annualized rate of 2.6%, compared to the average U.S. rate of 1.4%. This ranked Alaska 10 th best of the 50 states for the first quarter of 2024. Alaska’s real GSP improvement in the first quarter of 2024 was aided by gains in the Mining, Oil & Gas; and Transportation and Warehousing sectors.

Current wording

Alaska’s Gross State Product (“GSP”) in the second quarter of 2024, was estimated to be $69.8 billion in current dollars, 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. However, in the second quarter of 2024 Alaska decreased at an annualized rate of 1.1%, compared to the average U.S. growth rate of 3%. Alaska’s real GSP decline in the second quarter of 2024 was primarily caused by a slowdown in the Mining, Oil & Gas; and Transportation and Warehousing sectors.

Previous wording

The BEA also calculated Alaska’s seasonally adjusted personal income at $54.1 billion in the first quarter of 2024. This was an annualized improvement of 7% for Alaska, equal to the national average of 7%.

Current wording

The BEA also calculated Alaska’s seasonally adjusted personal income at $55.4 billion in the second quarter of 2024. This was an annualized improvement of 4% for Alaska, compared to the national average of 5.3%.

Previous wording

The monthly average price of Alaska North Slope (“ANS”) crude oil was in a range between $75.64 and $95.05 in 2023. In the first five months of 2024 the monthly average price has been between $79.64 and $89.05. The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 479 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2023. The DOR has forecast production to decline slightly to 468 thousand bpd in Alaska’s fiscal year 2024 and grow to 477 thousand bpd in fiscal year 2025. The DOR projects the number to reach 641 thousand bpd by fiscal year 2034 over the next decade. This is primarily a result of new production coming on line in and around the NPR-A region west of Prudhoe Bay.

Current wording

The monthly average price of Alaska North Slope (“ANS”) crude oil was at an annual high of $89.05 in April of 2024 and averaged $74.06 in September of this year. The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 479 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2023 and declined to 461 thousand bpd in Alaska’s fiscal year 2024. Starting in fiscal year 2025 it is projected to grow to 477 thousand bpd. The DOR projects the number to grow rapidly and reach 640 thousand bpd by fiscal year 2033. This is primarily a result of new production coming on-line in and around the NPR-A region west of Prudhoe Bay.

Previous wording

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.4% in 2023 to $480,272, following a 7.6% increase in 2022. This was the sixth consecutive year of price increases. In the first six months of 2024 the average price continues to increase 4.8% to an average sale of $503,474.

Current wording

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.2% in 2023 to $480,207, following a 7.6% increase in 2022. This was the sixth consecutive year of price increases. In the first nine months of 2024 the average price continues to increase 6.8% to an average sale of $512,815.

Previous wording

The average sales price for single family homes in the Matanuska Susitna Borough rose 4% in 2023 to $397,589, after increasing 9.9% in 2022. This continues a trend of average price increases for more than a decade in the region. In the first six months of 2024 the average sales price increased 3.4% to $410,912, according to the Alaska Multiple Listing Services. These two markets represent where the vast majority of the residential lending activity for Northrim Bank’s (the “Bank”) occurs.

Current wording

The average sales price for single family homes in the Matanuska Susitna Borough rose 4% in 2023 to $397,589, after increasing 9.9% in 2022. This continues a trend of average price increases for more than a decade in the region. In the first nine months of 2024 the average sales price increased 4.6% to $415,709 in the Matanuska Susitna Borough. These two markets represent where the vast majority of the residential lending activity of Northrim Bank (the “Bank”) occurs.

Previous wording

However, the Alaska Multiple Listing Services reported a large decrease in the number of units sold in both communities in 2023. There were 2,162 housing units sold in Anchorage in 2023, down 24.1% compared to 2,849 in 2022. In the Matanuska Susitna Borough there were 1,636 homes sold in 2023, compared to 2,103 in 2022, a decrease of 22.2%.

Current wording

The Alaska Multiple Listing Services reported a 1.2% decrease in the number of units sold in Anchorage when comparing January to September of 2023 and 2024. There were 5.4% less homes sold in the Matanuska Susitna Borough for the same nine month time period in 2024 compared to the prior year.

Previous wording

The Board of Governors of the Federal Reserve System kept its benchmark interest rate target 5.25%-5.50% as of December 31, 2023 and as of June 30, 2024. The prime rate of interest has remained consistent at 8.50% as of December 31, 2023 and as of June 30, 2024.

Current wording

The Board of Governors of the Federal Reserve System lowered its benchmark interest rate target to 4.75%-5.00% as of September 30, 2024 from 5.25%-5.50% as of December 31, 2023. The prime rate of interest has dropped to 8.00% as of September 30, 2024 compared to 8.50% as of December 31, 2023.

Previous wording

Highlights and Summary of Performance - Second Quarter of 2024

Current wording

Highlights and Summary of Performance - Third Quarter of 2024

Previous wording

The Company reported net income and earnings per diluted share of $9.0 million and $1.62, respectively, for the second quarter of 2024 compared to net income and earnings per diluted share of $5.6 million and $0.98, respectively, for the second quarter of 2023. The Company reported net income and earnings per diluted share of $17.2 million and $3.10, respectively, for the first six months of 2024 compared to net income and earnings per diluted share of $10.4 million and $1.82, respectively, for the first six months of 2023. The increase in net income for both the three and six-month periods ending June 30, 2024 compared to the same periods last year is primarily attributable to an increase in mortgage banking income, higher net interest income, and a lower provision for credit losses.

Current wording

The Company reported net income and earnings per diluted share of $8.8 million and $1.57, respectively, for the third quarter of 2024 compared to net income and earnings per diluted share of $8.4 million and $1.48, respectively, for the third quarter of 2023. The Company reported net income and earnings per diluted share of $26.0 million and $4.67, respectively, for the first nine months of 2024 compared to net income and earnings per diluted share of $18.8 million and $3.30, respectively, for the first nine months of 2023. The increase in net income for both the three and nine-month periods ending September 30, 2024 compared to the same periods last year is primarily attributable to an increase in mortgage banking income and higher net interest income, which was only partially offset by an increase in salaries and other personnel expense and an increase in the provision for credit losses.

Previous wording

•Net interest income in the second quarter of 2024 increased 8% to $27.1 million compared to $25.1 million in the second quarter of 2023. Net interest income in the first six months of 2024 increased 7% to $53.5 million compared to $50.2 million in the first six months of 2023.

Current wording

•Net interest income in the third quarter of 2024 increased 9% to $28.8 million compared to $26.4 million in the third quarter of 2023. Net interest income in the first nine months of 2024 increased 8% to $82.3 million compared to $76.5 million in the first nine months of 2023.

Previous wording

•Net interest margin was 4.24% for the second quarter of 2024, a 10 basis point increase from the second quarter of 2023. Net interest margin was 4.20% for the first six months of 2024, a 2 basis point increase from the first six months of 2023. The increase in the second quarter and first six months of 2024 compared to the same periods in 2023 was primarily due higher yields on earning assets, a favorable change in the mix of earning-assets, and an increase in total earning assets which were only partially offset by higher interest costs.

Current wording

•Net interest margin was 4.29% for the third quarter of 2024, a 14 basis point increase from the third quarter of 2023. Net interest margin was 4.23% for the first nine months of 2024, a 6 basis point increase from the first nine months of 2023. The increase in net interest margin in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily due higher yields on earning assets, a favorable change in the mix of earning-assets, and an increase in total earning assets which were only partially offset by higher interest costs.

Previous wording

•The weighted average interest rate for new loans booked in the second quarter of 2024 was 7.26% compared to 6.93% in the second quarter a year ago.

Current wording

•The weighted average interest rate for new loans booked in the third quarter of 2024 was 7.24% compared to 7.44% in the third quarter a year ago.

Previous wording

•Total deposits were $2.46 billion at June 30, 2024, down 1% from December 31, 2023. Demand deposits decreased 6% at June 30, 2024 from December 31, 2023 and represent 29% of total deposits at June 30, 2024.

Current wording

•Total deposits were $2.63 billion at September 30, 2024, up 6% from December 31, 2023. Demand deposits increased 2% at September 30, 2024 from December 31, 2023 and represent 29% of total deposits at September 30, 2024.

Previous wording

•The average cost of interest-bearing deposits for the quarter was 2.21% at June 30, 2024, up from 1.56% at June 30, 2023.

Current wording

•The average cost of interest-bearing deposits for the quarter was 2.24% at September 30, 2024, up from 1.75% at September 30, 2023.

Previous wording

•Total liquid assets and investments and loans maturing within one year were $526.5 million and our funds available for borrowing under our existing lines of credit were $643.1 million at June 30, 2024.

Current wording

•Total liquid assets and investments and loans maturing within one year were $1.07 billion and our funds available for borrowing under our existing lines of credit were $641.7 million at September 30, 2024.

Previous wording

•Mortgage loan originations increased to $181.51 million in the second quarter of 2024, up from $101.73 million in the first quarter of 2024 and $169.42 million in the second quarter a year ago. Mortgage loans funded for sale were $152.34 million in the second quarter of 2024, compared to $84.32 million in the first quarter of 2024 and $113.82 million in the second quarter of 2023.

Current wording

•Mortgage loan originations increased to $248.05 million in the third quarter of 2024, up from $153.45 million in the third quarter a year ago. Mortgage loans funded for sale were $209.96 million in the third quarter of 2024, compared to $131.86 million in the third quarter of 2023.

Previous wording

Nonperforming assets: Nonperforming assets, net of government guarantees were $5.1 million at June 30, 2024 and $5.8 million at December 31, 2023. Other Real Estate Owned (“OREO”), net of government guarantees was zero at June 30, 2024 and December 31, 2023. Repossessed assets increased to $297,000 as of June 30, 2024 from zero at December 31, 2023. Nonperforming loans, net of government guarantees decreased $255,000 or 5% to $4.8 million as of June 30, 2024 from $5.0 million as of December 31, 2023, primarily due to payoffs and pay downs which were only partially offset by the addition of one commercial loan in the first six months of 2024. $3.1 million, or 64% of nonperforming assets, net of government guarantees at June 30, 2024, are nonaccrual loans related to three commercial relationships.

Current wording

Nonperforming assets: Nonperforming assets, net of government guarantees were $5.3 million at September 30, 2024 and $5.8 million at December 31, 2023. Other Real Estate Owned (“OREO”), net of government guarantees was zero at September 30, 2024 and December 31, 2023. Repossessed assets increased to $297,000 as of September 30, 2024 from zero at December 31, 2023. Nonperforming loans, net of government guarantees decreased $41,000 or 1% to $5.0 million as of September 30, 2024 from $5.0 million as of December 31, 2023, primarily due to payoffs and pay downs which were only partially offset by the addition of two loans in the first nine months of 2024. Approximately $3.0 million, or 61% of nonperforming assets, net of government guarantees at September 30, 2024, are nonaccrual loans related to three commercial relationships.

Previous wording

Potential problem assets: Potential problem loans are loans which are currently performing in accordance with contractual terms but 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. These loans are closely monitored and their performance is reviewed by management on a regular basis. At June 30, 2024, management had identified $2.2 million potential problem loans, up slightly from $1.9 million at December 31, 2023.

Current wording

Potential problem assets: Potential problem loans are loans which are currently performing in accordance with contractual terms but 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. These loans are closely monitored and their performance is reviewed by management on a regular basis. At September 30, 2024, management had identified $1.5 million potential problem loans, down slightly from $1.9 million at December 31, 2023.

Previous wording

Net income for the second quarter of 2024 increased $3.4 million to $9.0 million as compared to $5.6 million for the same period in 2023. The increase in net income in the second quarter of 2024 as compared to the same quarter a year ago is largely attributable to a $2.0 million increase in mortgage banking income, a $1.9 million increase in net interest income, and a $1.5 million decrease in the provision for credit losses. These changes were only partially offset by a $1.4 million increase in salaries and other personnel expense.

Current wording

Net income for the third quarter of 2024 increased $451,000 to $8.8 million as compared to $8.4 million for the same period in 2023. The increase in net income in the third quarter of 2024 as compared to the same quarter a year ago is largely attributable to a $2.6 million increase in mortgage banking income and a $2.5 million increase in net interest income. These changes were only partially offset by a $873,000 increase in the provision for credit losses, a $1.9 million increase in salaries and other personnel expense, as well as a $786,000 increase in OREO expense due to a gain on sale recorded in the third quarter of 2023 for proceeds received related to a government guarantee on an OREO property sold in December 2022.

Previous wording

Net income for the first six months of 2024 increased $6.8 million to $17.2 million as compared to $10.4 million for the same period in 2023. The increase in net income in the first six months of 2024 as compared to the same period a year ago is largely attributable to a $4.0 million increase in mortgage banking income, a $3.3 million increase in net interest income, and a $1.7 million decrease in the provision for credit losses which were only partially offset by and a $1.4 million increase in salaries and other personnel expense.

Current wording

Net income for the first nine months of 2024 increased $7.3 million to $26.0 million as compared to $18.8 million for the same period in 2023. The increase in net income in the first nine months of 2024 as compared to the same period a year ago is largely attributable to a $6.6 million increase in mortgage banking income, a $5.8 million increase in net interest income, and a $865,000 decrease in the provision for credit losses which were only partially offset by and a $3.3 million increase in salaries and other personnel expense, as well as a $557,000 increase in data processing expense.

Previous wording

The increase in net interest income in the second quarter and first six months of 2024 compared to the same periods in 2023 was primarily the result of increased interest on loans which was only partially offset by a decrease in interest income on investments and interest bearing deposits in other banks, as well as an increase in interest expense on interest-bearing deposits.

Current wording

The increase in net interest income in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily the result of increased interest on loans which was only partially offset by a decrease in interest income on investments and interest bearing deposits in other banks, as well as an increase in interest expense on interest-bearing deposits.

Previous wording

The increase in net interest margin in the second quarter and first six months of 2024 as compared to the same periods of 2023 was primarily due to higher yields on earning assets, a favorable change in the mix of earning-assets, and an increase in total earning assets which were only partially offset by higher interest costs. Changes in net interest margin in the three and six-month period ended June 30, 2024 as compared to the same period in the prior year are detailed below:

Current wording

The increase in net interest margin in the third quarter and first nine months of 2024 as compared to the same periods of 2023 was primarily due to higher yields on earning assets, a favorable change in the mix of earning-assets, and an increase in total earning assets which were only partially offset by higher interest costs.

Previous wording

3 Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $1.2 million and $1.1 million in the second quarter of 2024 and 2023, respectively.

Current wording

3 Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $1.1 million and $881,000 in the third quarter of 2024 and 2023, respectively.

Previous wording

4 Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were $5.0 million and $8.3 million in the second quarter of 2024 and 2023, respectively.

Current wording

4 Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were $5.0 million and $7.2 million in the third quarter of 2024 and 2023, respectively.

Previous wording

The following table compares average balances and rates as well as margins on earning assets for the six-month periods ended June 30, 2024 and 2023. Average yields or costs are calculated on a tax-equivalent basis.

Current wording

The following table compares average balances and rates as well as margins on earning assets for the nine-month periods ended September 30, 2024 and 2023. Average yields or costs are calculated on a tax-equivalent basis.

Previous wording

3 Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $2.2 million and $2.3 million in the firstsix months of 2024 and 2023, respectively.

Current wording

3 Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $3.3 million and $3.2 million in the first nine months of 2024 and 2023, respectively.

Previous wording

4 Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were $5.4 million and $7.6 million in the firstsix months of 2024 and 2023, respectively.

Current wording

4 Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were $5.3 million and $7.4 million in the first nine months of 2024 and 2023, respectively.

Previous wording

The following tables set forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates for the six-month periods ending June 30, 2024 and 2023. Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes due to volume and the changes due to interest rates. The Company did not have any fed funds sold or securities purchased with agreements to resell for the six-month periods ending June 30, 2024 and 2023.

Current wording

The following tables set forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates for the nine-month periods ending September 30, 2024 and 2023. Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes due to volume and the changes due to interest rates. The Company did not have any fed funds sold or securities purchased with agreements to resell for the nine-month periods ending September 30, 2024 and 2023.

Previous wording

The provision for credit loss expense is the amount of expense that, based on our judgment, is required to maintain the Allowance for Credit Losses (“ACL”) at an appropriate level under the Company's Current Expected Credit Losses (“CECL”) model. The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. The following table presents the major categories of credit loss expense:

Current wording

The provision for credit loss expense is the amount of expense that, based on our judgment, is required to maintain the Allowance for Credit Losses (“ACL”) at an appropriate level under the Company's Current Expected Credit Losses (“CECL”) model. The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. The following table presents the major categories of credit loss expense for the three and nine-month periods ended September 30, 2023 and 2024:

Previous wording

The decrease in the provision for credit losses for the three and six-month periods ending June 30, 2024 as compared to the same periods in 2023 is primarily the result of a lower loan growth. The provision for credit losses on unfunded commitments is negative in all periods is primarily due to seasonal decreases in unfunded commitment balances, and changes in mix of the portfolio. Fluctuations in the provision for credit losses in the future will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration.

Current wording

The increase in the provision for credit losses for both the three- and nine-month periods ended September 30, 2024 as compared to the same periods in 2023 is primarily the result of a higher loan growth. The provision for credit losses on unfunded commitments decreased in both the three- and nine-month periods ended September 30, 2024 as compared to the same periods in 2023 primarily due to lower growth in unfunded commitment balances as well as changes in mix of the portfolio. Fluctuations in the provision for credit losses in the future will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration.

Previous wording

Other operating income for the three-month period ended June 30, 2024 increased $2.6 million, or 37%, to $9.6 million as compared to $7.0 million for the same period in 2023, primarily due to a $2.0 million increase in mortgage banking income in the second quarter of 2024 compared to the same quarter a year ago as well as a $224,000 increase in purchased receivable income and a $174,000 increase in the fair value of marketable equity securities. Service charges on deposit accounts and bankcard fees also increased in the second quarter of 2024 as compared to the same period in 2023. The increase in mortgage banking income in the three-month period ended June 30, 2024 as compared to the same period in 2023 was primarily due to increased production volume due to increased home purchase activity.

Current wording

Other operating income for the three-month period ended September 30, 2024 increased $3.6 million, or 45%, to $11.6 million as compared to $8.0 million for the same period in 2023, primarily due to a $2.6 million increase in mortgage banking income in the second quarter of 2024 compared to the same quarter a year ago as well as a $564,000 increase in the fair value of marketable equity securities. Service charges on deposit accounts and bankcard fees also increased in the third quarter of 2024 as compared to the same period in 2023. The increase in mortgage banking income in the three-month period ended September 30, 2024 as compared to the same period in 2023 was primarily due to increased production volume due to increased home purchase activity.

Previous wording

Other operating income for the six-month period ended June 30, 2024 increased $5.5 million, or 47%, to $17.4 million as compared to $11.9 million for the same period in 2023, primarily due to a $4.0 million increase in mortgage banking income as well as a $711,000 increase in the fair value of marketable equity securities and a $592,000 increase in purchased receivable income. Bankcard fees and service charges on deposit accounts also increased in the first six months of 2024 as compared to the same period in 2023. The increase in mortgage banking income in the six-month period ended June 30, 2024 as compared to the same period in 2023 was primarily due to increased production volume due to increased home purchase activity.

Current wording

Other operating income for the nine-month period ended September 30, 2024 increased $9.1 million, or 46%, to $29.0 million as compared to $19.9 million for the same period in 2023, primarily due to a $6.6 million increase in mortgage banking income as well as a $1.3 million increase in the fair value of marketable equity securities and a $445,000 increase in purchased receivable income. Bankcard fees, purchased receivable income, and service charges on deposit accounts also increased in the first nine months of 2024 as compared to the same period in 2023. The increase in mortgage banking income in the nine-month period ended September 30, 2024 as compared to the same period in 2023 was primarily due to increased production volume due to rebounding home purchase activity.

Previous wording

Other operating expense for the second quarter of 2024 increased $1.4 million, or 6%, to $25.2 million as compared to $23.8 million for the same period in 2023, primarily due to a $1.4 million increase in salaries and other personnel expense as well as a $224,000 increase in data processing expense, which was only partially offset by a $243,000 decrease in marketing expense. The increase in salaries and other personnel expense was primarily due to lower deferral of loan origination costs due to lower portfolio loan originations in the first quarter of 2024 compared to the same period in 2023 as well as higher profit sharing expense, which generally increases when net income increases to reflect a higher expected payout to employees.

Current wording

Other operating expense for the third quarter of 2024 increased $3.8 million, or 17%, to $26.7 million as compared to $22.9 million for the same period in 2023, primarily due to a $1.9 million increase in salaries and other personnel expense as well as a $786,000 increase in OREO expense due to subsequent proceeds received in the third quarter of 2023 that are related to a government guarantee on an OREO property sold in December 2022. The increase in salaries and other personnel expense was primarily due to $1.0 million higher mortgage commissions expense due to higher production in the third quarter of 2024 compared to the same period in 2023 as well as $1.2 million higher profit sharing expense, which generally increases when net income increases to reflect a higher expected payout to employees.

Previous wording

Other operating expense for the six-month period ended June 30, 2024 increased $1.5 million, or 3%, to $48.8 million as compared to $47.3 million for the same period in 2023 is primarily due to a $1.4 million increase in salaries and other personnel expense primarily due to higher profit sharing expense and lower deferral of loan origination costs as well as a $528,000 increase in data processing expense and $267,000 increase in insurance expense, which was only partially offset by a $294,000 decrease in marketing expense and $407,000 decrease in OREO expense due to subsequent proceeds received in the first quarter of 2024 that are related to a government guarantee on an OREO property sold in December 2022.

Current wording

Other operating expense for the nine-month period ended September 30, 2024 increased $5.4 million, or 8%, to $75.6 million as compared to $70.2 million for the same period in 2023 is primarily due to a $3.3 million increase in salaries and other personnel expense primarily due to $1.2 million higher mortgage commissions expense due to higher production and $2.0 million higher profit sharing expense as well as a $557,000 increase in data processing expense, and a $379,000 increase in OREO expense due to subsequent proceeds received in the first quarter of 2024 and third quarter of 2023 that are related to a government guarantee on an OREO property sold in December 2022.

Previous wording

For the second quarter and first six months of 2024, Northrim recorded a higher effective tax rate as compared to the same periods in 2023 as a result of a decrease in tax credits and tax exempt interest income as a percentage of pre-tax income in 2024. In the second quarter of 2024, Northrim recorded $2.5 million in state and federal income tax expense, for an effective tax rate of 21.95% compared to $1.4 million and 19.56% for the same period in 2023. In the first six months of 2024, Northrim recorded $4.8 million in state and federal income tax expense, for an effective tax rate of 21.94% compared to $2.6 million and 19.97% for the same period in 2023.

Current wording

For the third quarter and first nine months of 2024, Northrim recorded a higher effective tax rate as compared to the same periods in 2023 as a result of a decrease in tax credits and tax exempt interest income as a percentage of pre-tax income in 2024. In the third quarter of 2024, Northrim recorded $2.8 million in state and federal income tax expense, for an effective tax rate of 24.17% compared to $1.9 million and 18.43% for the same period in 2023. In the first nine months of 2024, Northrim recorded $7.7 million in state and federal income tax expense, for an effective tax rate of 22.71% compared to $4.5 million and 19.29% for the same period in 2023.

Previous wording

Investment Securities include investment securities available for sale, investment securities held to maturity, and marketable equity securities, at June 30, 2024 decreased 8% to $634.1 million from $687.8 million at December 31, 2023 primarily due to maturities and calls of available for sale securities during the first six months of 2024.

Current wording

Investment Securities include investment securities available for sale, investment securities held to maturity, and marketable equity securities, at September 30, 2024 decreased 14% to $594.9 million from $687.8 million at December 31, 2023 primarily due to maturities and calls of available for sale securities during the first nine months of 2024.

Previous wording

The average estimated duration of the investment portfolio at June 30, 2024, was approximately 2.5 years. As of June 30, 2024, $111.5 million of available for sale securities with a weighted average yield of 1.02% are scheduled to mature in the next six months, $77.3 million with a weighted average yield of 2.35% are scheduled to mature in six months to one year, and $172.2 million with a weighted average yield of 1.49% are scheduled to mature in the following year, representing a total of $361.0 million or 14% of earning assets that are scheduled to mature in the next 24 months.

Current wording

The average estimated duration of the investment portfolio at September 30, 2024, was approximately 2.3 years. As of September 30, 2024, $105.1 million of available for sale securities with a weighted average yield of 0.61% are scheduled to mature in the next six months, $73.0 million with a weighted average yield of 2.48% are scheduled to mature in six months to one year, and $177.8 million with a weighted average yield of 1.31% are scheduled to mature in the following year, representing a total of $355.9 million or 13% of earning assets that are scheduled to mature in the next 24 months.