NORTHRIM BANCORP INC

Previous wording

Net income increased 46% to $37.0 million or $6.62 per diluted share for the year ended December 31, 2024, from $25.4 million, or $4.49 per diluted share, for the year ended December 31, 2023. 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.

Current wording

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. 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

Previous wording

•Net income in the Community Banking segment increased 19% or $4.9 million, to $30.3 million in 2024 as compared to 2023. 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.

Current wording

•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 $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.

Previous wording

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

Current wording

•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.

Previous wording

•Loans increased 19% to $2.13 billion at December 31, 2024 compared to $1.79 billion at December 31, 2023, and deposits increased 8% to $2.68 billion at December 31, 2024 compared to $2.49 billion at December 31, 2023.

Current wording

•Loans increased 8% to $2.30 billion at December 31, 2025 compared to $2.13 billion at December 31, 2024, and deposits increased 5% to $2.81 billion at December 31, 2025 compared to $2.68 billion at December 31, 2024.

Previous wording

•Nonperforming loans, net of government guarantees, increased to $7.5 million at the end of 2024 compared to $5.0 million at the end of 2023, while total adversely classified loans, net of government guarantees at December 31, 2024 increased to $9.6 million from $7.1 million at December 31, 2023. 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.

Current wording

•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”) for loans totaled 1.03% of total portfolio loans at December 31, 2025, consistent with 1.03% at December 31, 2024. The

Previous wording

•The aggregate cash dividends paid by the Company in 2024 rose 1% to $13.8 million from $13.6 million paid in 2023. The Company paid cash dividends of $2.46 per share in 2024 and $2.40 per share in 2023.

Current wording

•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.

Previous wording

•Total shareholders' equity was $267.1 million as of December 31, 2024, up 14% from $234.7 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. The Company continued to maintain strong regulatory capital ratios with Tier 1 Capital to Risk Adjusted Assets of 9.76% at December 31, 2024.

Current wording

•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 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.

Previous wording

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

Current wording

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.

Previous wording

5 In managing our business, we review the 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. The efficiency ratio is calculated by dividing other operating expense, exclusive of intangible asset amortization, by the sum of net interest income and other operating income. Other companies may define or calculate this data differently. For additional information see the "Other Operating Expense" section in Part II. Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report. See reconciliation to efficiency ratio, the most comparable GAAP measurement below.

Current wording

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. The efficiency ratio is calculated by dividing other operating expense, exclusive of intangible asset amortization, by the sum of net interest income and other operating income. Other companies may define or calculate this data differently. For additional information see the "Other Operating Expense" section in Part II. Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report. See reconciliation to efficiency ratio, the most comparable GAAP measurement below.

Previous wording

6 Number of banking offices does not include RML, NFS, or SCF locations. 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. 2022 number of banking offices includes 18 full service branches and one loan production office. 2021 number of banking offices includes 17 full service branches and one loan production office. 2020 number of banking offices includes 16 full service branches and one loan production office.

Current wording

6 Number of banking offices does not include RML, NFS, or SCF locations. 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. 2022 number of banking offices includes 18 full service branches and one loan production office. 2021 number of banking offices includes 17 full service branches and one loan production office. 2020 number of banking offices includes 16 full service branches and one loan production office.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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 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.

Previous wording

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.

Current wording

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.

Previous wording

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. 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.

Current wording

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.

Previous wording

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:

Current wording

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:

Previous wording

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, 2024, 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 10% higher and the four-quarter national gross domestic product forecast been 42% lower, which represents the Federal Reserve's more conservative forecasts, our ACL for loans would have increased $1.4 million, or 7%. As of December 31, 2024, if the four-quarter national unemployment rate forecast had been approximately 35% higher and the four-quarter national gross domestic product forecast been 4% higher, which represent forecasts at approximately the historical mean, our ACL for loans would have increased $2.7 million, or 13%. This sensitivity analysis includes 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 key inputs. This sensitivity analysis does not incorporate changes to management’s judgment of qualitative loss factors.

Current wording

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.

Previous wording

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, 2024 and 2023 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, 2024, 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; improvements in the Alaskan economy in 2024; 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, 2024 and that no potential impairment existed at that time.

Current wording

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.

Previous wording

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 judgements 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.

Current wording

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.

Previous wording

Our results of operations are dependent to a large degree on our net interest income. We also generate other income primarily through mortgage banking income, purchased receivables products, service charges and fees, and bankcard fees. 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.

Current wording

Our results of operations are dependent to a large degree on our net interest income. We also generate other income primarily through mortgage banking income, purchased receivables products, service charges and fees, and bankcard fees. 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 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.

Previous wording

We earned net income of $37.0 million in 2024, compared to net income of $25.4 million in 2023. During these periods, net income per diluted share was $6.62 and $4.49, respectively. The following sections present discussion of the components that make up net income.

Current wording

We earned net income of $64.6 million in 2025, compared to net income of $37.0 million in 2024. During these periods, net income per diluted share was $2.87 and $1.66, respectively. The following sections present discussion of the components that make up net income.

Previous wording

Net interest income in 2024 was $113.2 million, compared to $103.3 million in 2023. 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. During 2024 and 2023, net interest margins were 4.28% and 4.14%, 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.

Current wording

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

Previous wording

1 Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $4.5 million, $4.4 million and $8.5 million for 2024, 2023 and 2022, respectively.

Current wording

1 Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $4.9 million, $4.5 million and $4.4 million for 2025, 2024 and 2023, respectively.

Previous wording

2 Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loans were $5.4 million, $7.1 million, and $8.6 million in 2024, 2023 and 2022, respectively.

Current wording

2 Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loans were $8.6 million, $5.4 million, and $7.1 million in 2025, 2024 and 2023, respectively.

Previous wording

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 determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the notes to Consolidated Financial Statements included in Part II. Item 8 of this report for detailed discussion regarding ACL methodologies for loans, available for sale debt securities, held to maturity securities, loans held for investment, unfunded commitments, and purchased receivables.

Current wording

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. Refer to Note 1 of the notes to Consolidated Financial Statements included in Part II. Item 8 of this report for detailed discussion regarding ACL methodologies for loans, available for sale debt securities, held to maturity securities, loans held for investment, unfunded commitments, and purchased receivables.

Previous wording

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 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.

Current wording

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 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.

Previous wording

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.

Current wording

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.

Previous wording

Purchased receivable income increased in 2024 as compared to 2023 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.

Current wording

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 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Other operating expense increased by 11% in 2024 as compared to 2023. 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.

Current wording

Other operating expense increased by 19% in 2025 as compared to 2024. The largest increase was in salaries and other personnel expense. 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.

Previous wording

The provision for income taxes increased $3.8 million or 61%, to $10.0 million in 2024 as compared to 2023. The increase in 2024 is primarily due to higher pretax income. The Company's effective tax rate increased to 21.3% in 2024 from 19.7% in 2023, primarily due to a decrease in tax exempt income and low income housing tax credits as a percentage of pre-tax income in 2024 compared to 2023.

Current wording

The provision for income taxes increased $9.9 million or 99%, to $19.9 million in 2025 as compared to 2024. The increase in 2025 is primarily due to higher pretax income. The Company's effective tax rate increased to 23.6% in 2025 from 21.3% in 2024, primarily due to a decrease in tax exempt income and low income housing tax credits as a percentage of pre-tax income in 2025 compared to 2024.

Previous wording

The composition of our investment securities portfolio, which includes securities available for sale, held-to-maturity investments, and marketable equity securities, reflects management’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of interest income. The investment securities portfolio also mitigates credit risk inherent in the loan portfolio, while providing a vehicle for the investment of available funds, a source of liquidity (by pledging as collateral or through repurchase agreements), and collateral for certain public funds deposits. Investment securities designated as available for sale comprised 91% of the portfolio as of December 31, 2024 and are available to meet liquidity requirements in a contingency situation.

Current wording

The composition of our investment securities portfolio, which includes securities available for sale, held-to-maturity investments, and marketable equity securities, reflects management’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of interest income. The investment securities portfolio also mitigates credit risk inherent in the loan portfolio, while providing a vehicle for the investment of available funds, a source of liquidity (by pledging as collateral or through repurchase agreements), and collateral for certain public funds deposits. 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.

Previous wording

Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, and collateralized loan obligations. Investment securities at December 31, 2024 decreased $163.8 million, or 24%, to $524.1 million from $687.8 million at December 31, 2023. The decrease at December 31, 2024 as compared to December 31, 2023 came from investment maturities and calls that were used to fund growth in portfolio loans. The average maturity of the investment portfolio was approximately 2.4 years at December 31, 2024 as compared to approximately 2.8 years at December 31, 2023. Investment securities may be pledged as collateral to secure public deposits or borrowings. At December 31, 2024 and 2023, $177.4 million and $180.1 million in securities were pledged for deposits and borrowings, respectively.

Current wording

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. The decrease at December 31, 2025 as compared to December 31, 2024 came from investment maturities and calls that were used to fund growth in portfolio loans. The average maturity of the investment portfolio was approximately 2.0 years at December 31, 2025 as compared to approximately 2.4 years at December 31, 2024. Investment securities may be pledged as collateral to secure public deposits or borrowings. At December 31, 2025 and 2024, $210.3 million and $177.4 million in securities were pledged for deposits and borrowings, respectively.

Previous wording

All of our loans and credit lines are subject to approval procedures and amount limitations. These limitations apply to the borrower’s total outstanding indebtedness and commitments to us, including the indebtedness of any guarantor. Generally, we are permitted to make loans to one borrower of up to 15% of the unimpaired capital and surplus of the Bank. The legal lending limit for the Bank was $37.0 million at December 31, 2024. At December 31, 2024, the Company had one relationship whose total direct and indirect commitments exceeded $37.0 million; however, no individual direct relationship exceeded the loans-to-one borrower limitation.

Current wording

All of our loans and credit lines are subject to approval procedures and amount limitations. These limitations apply to the borrower’s total outstanding indebtedness and commitments to us, including the indebtedness of any guarantor. Generally, we are permitted to make loans to one borrower of up to 15% of the unimpaired capital and surplus of the Bank. The legal lending limit for the Bank was $50.4 million at December 31, 2025. 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.

Previous wording

The Company's loans have grown significantly in recent years. Management attributes higher growth in loans in 2024 and 2023 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.

Current wording

The Company's loans have grown significantly in recent years. Management attributes higher growth in loans in 2025 and 2024 to our ability to attract new customers through our outreach to the community.

Previous wording

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

Current wording

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

Previous wording

The Company defines "direct exposure" to the oil and gas industry as companies that it has identified as significantly reliant upon activity related to the oil and gas industry, such as oil producers or drilling and exploration companies, and companies who provide oilfield services, lodging, equipment rental, transportation, and other logistic services specific to the industry. The Company estimates that $99.7 million, or approximately 5% of loans as of December 31, 2024 have direct exposure to the oil and gas industry as compared to $96.1 million, or approximately 5% of loans as of December 31, 2023. The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $45.8 million and $38.6 million at 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 $1.1 million and $884,000 as of December 31, 2024 and 2023, respectively.

Current wording

The Company defines "direct exposure" to the oil and gas industry as companies that it has identified as significantly reliant upon activity related to the oil and gas industry, such as oil producers or drilling and exploration companies, and companies who provide oilfield services, lodging, equipment rental, transportation, and other logistic services specific to the industry. The Company estimates that $123.4 million, or approximately 5% of loans as of December 31, 2025 have direct exposure to the oil and gas industry as compared to $99.7 million, or approximately 5% of loans as of December 31, 2024. 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 $1.6 million and $1.1 million as of December 31, 2025 and 2024, respectively.

Previous wording

The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions. At December 31, 2024, the Company had $138.0 million, or 6% of total portfolio loans, in the Healthcare sector; $117.0 million, or 5% of portfolio loans, in the Tourism sector; $104.3 million, or 5% in the Accommodations sector; $87.4 million, or 4% in Retail loans; $84.6 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.

Current wording

The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions. At December 31, 2025, the Company had $145.5 million, or 6% of total portfolio loans, in the Healthcare 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; $64.6 million, or 3% in the Restaurants and Breweries sector; and $57.6 million, or 2% in the Fishing sector.

Previous wording

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. There was interest income of $241,000 and $656,000 recognized in net income for 2024 and 2023, 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.

Current wording

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.

Previous wording

At December 31, 2024, management had identified potential problem loans of $1.6 million as compared to potential problem loans of $1.9 million at December 31, 2023. 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.

Current wording

At December 31, 2025, management had identified potential problem loans of $21.2 million as compared to potential problem loans of $1.6 million at December 31, 2024. 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 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.