UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June 30, 2022~~March 31, 2023

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from_____to____

Commission File Number 000-33501

NORTHRIM BANCORP, INC.

(Exact name of registrant as specified in its charter)


Alaska						92-0175752
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3111 C Street

Anchorage, Alaska 99503

(Address of principal executive offices) (Zip Code)

(907) 562-0062

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None


TITLE OF EACH CLASS	TRADING SYMBOL	NAME OF EXCHANGE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ¨ Accelerated Filer ý Non-accelerated Filer ¨

Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ý No

The number of shares of the issuer’s Common Stock, par value $1 per share, outstanding at ~~August~~May 5, ~~2022~~2023 was ~~5,681,089.~~5,649,841.


TABLE OF CONTENTS

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders' Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to the Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3937
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5751
Item 4.	Controls and Procedures	5852

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	5852
Item 1A.	Risk Factors	5852
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5853
~~Item 3.~~	~~Defaults Upon Senior Securities~~	59
~~Item 4.~~	~~Mine Safety Disclosures~~	59
~~Item 5.~~	~~Other Information~~	60
Item 6.	Exhibits	6053
SIGNATURES		6155

PART I. FINANCIAL INFORMATION

These consolidated financial statements should be read in conjunction with the consolidated financial statements, accompanying notes and other relevant information included in Northrim BanCorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

NORTHRIM BANCORP, INC.

Consolidated Balance Sheets

(Unaudited)


		June 30, 2022	December 31, 2021		March 31, 2023	December 31, 2022
(In Thousands, Except Share Data)	(In Thousands, Except Share Data)			(In Thousands, Except Share Data)
ASSETS	ASSETS			ASSETS
Cash and due from banks	Cash and due from banks	$24,035	$20,805	Cash and due from banks	$28,976	$27,747
Interest bearing deposits in other banks	Interest bearing deposits in other banks	312,888	625,022	Interest bearing deposits in other banks	110,235	231,603
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	612,027	426,684	Investment securities available for sale, at fair value	677,734	677,029
Marketable equity securities	Marketable equity securities	9,122	8,420	Marketable equity securities	10,515	10,740
Investment securities held to maturity, at amortized cost	Investment securities held to maturity, at amortized cost	29,750	20,000	Investment securities held to maturity, at amortized cost	36,750	36,750
Investment in Federal Home Loan Bank stock	Investment in Federal Home Loan Bank stock	3,824	3,107	Investment in Federal Home Loan Bank stock	3,752	3,816

Loans held for sale	Loans held for sale	63,080	73,650	Loans held for sale	23,985	27,538

Loans	Loans	1,405,709	1,413,886	Loans	1,535,187	1,501,785
Allowance for credit losses, loans	Allowance for credit losses, loans	(11,537)	(11,739)	Allowance for credit losses, loans	(14,157)	(13,838)
Net loans	Net loans	1,394,172	1,402,147	Net loans	1,521,030	1,487,947
Purchased receivables, net	Purchased receivables, net	15,277	6,987	Purchased receivables, net	21,190	19,994
Mortgage servicing rights, at fair value	Mortgage servicing rights, at fair value	16,301	13,724	Mortgage servicing rights, at fair value	18,303	18,635
Other real estate owned, net	Other real estate owned, net	5,638	5,638	Other real estate owned, net	273	—
Premises and equipment, net	Premises and equipment, net	37,106	37,164	Premises and equipment, net	38,163	37,821
Operating lease right-of-use assets	Operating lease right-of-use assets	9,875	11,001	Operating lease right-of-use assets	9,469	9,868
Goodwill	Goodwill	15,017	15,017	Goodwill	15,017	15,017
Other intangible assets, net	Other intangible assets, net	980	992	Other intangible assets, net	963	967
Other assets	Other assets	62,062	54,361	Other assets	63,682	68,846
Total assets	Total assets	$2,611,154	$2,724,719	Total assets	$2,580,037	$2,674,318
LIABILITIES	LIABILITIES			LIABILITIES
Deposits:	Deposits:			Deposits:
Demand	Demand	$830,156	$887,824	Demand	$767,772	$797,434
Interest-bearing demand	Interest-bearing demand	666,283	692,683	Interest-bearing demand	717,910	767,686
Savings	Savings	349,208	348,164	Savings	292,857	320,917
Money market	Money market	319,843	314,996	Money market	262,478	308,317
Certificates of deposit less than $250,000	Certificates of deposit less than $250,000	96,630	100,851	Certificates of deposit less than $250,000	149,698	115,330
Certificates of deposit $250,000 and greater	Certificates of deposit $250,000 and greater	73,270	77,113	Certificates of deposit $250,000 and greater	105,558	77,527
Total deposits	Total deposits	2,335,390	2,421,631	Total deposits	2,296,273	2,387,211

Borrowings	Borrowings	14,302	14,508	Borrowings	13,991	14,095
Junior subordinated debentures	Junior subordinated debentures	10,310	10,310	Junior subordinated debentures	10,310	10,310
Operating lease liabilities	Operating lease liabilities	9,846	10,965	Operating lease liabilities	9,466	9,865
Other liabilities	Other liabilities	26,017	29,488	Other liabilities	25,572	34,208
Total liabilities	Total liabilities	2,395,865	2,486,902	Total liabilities	2,355,612	2,455,689
SHAREHOLDERS' EQUITY	SHAREHOLDERS' EQUITY			SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding	Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding	—	—	Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding	—	—
Common stock, $1 par value, 10,000,000 shares authorized, 5,681,089 and 6,014,813 issued and outstanding at June 30, 2022 and December 31, 2021, respectively		5,681	6,015
Common stock, $1 par value, 10,000,000 shares authorized, 5,672,841 and 5,700,728 issued and outstanding at March 31, 2023 and December 31, 2022, respectively				Common stock, $1 par value, 10,000,000 shares authorized, 5,672,841 and 5,700,728 issued and outstanding at March 31, 2023 and December 31, 2022, respectively	5,673	5,701
Additional paid-in capital	Additional paid-in capital	17,716	31,162	Additional paid-in capital	16,625	17,784
Retained earnings	Retained earnings	211,232	204,046	Retained earnings	225,611	224,225
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax	(19,340)	(3,406)	Accumulated other comprehensive loss, net of tax	(23,484)	(29,081)
Total shareholders' equity	Total shareholders' equity	215,289	237,817	Total shareholders' equity	224,425	218,629
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$2,611,154	$2,724,719	Total liabilities and shareholders' equity	$2,580,037	$2,674,318

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Income

(Unaudited)


		Three Months Ended		Six Months Ended			Three Months Ended
		June 30,					March 31,
(In Thousands, Except Per Share Data)	(In Thousands, Except Per Share Data)	2022	2021	2022	2021	(In Thousands, Except Per Share Data)	2023	2022
Interest and Dividend Income	Interest and Dividend Income					Interest and Dividend Income
Interest and fees on loans and loans held for sale	Interest and fees on loans and loans held for sale	$19,807	$18,963	$38,075	$38,387	Interest and fees on loans and loans held for sale	$23,694	$18,268
Interest on investment securities available for sale	Interest on investment securities available for sale	1,926	815	3,061	1,593	Interest on investment securities available for sale	3,934	1,135
Dividends on marketable equity securities	Dividends on marketable equity securities	113	126	225	213	Dividends on marketable equity securities	168	112
Interest on investment securities held to maturity	Interest on investment securities held to maturity	352	265	625	511	Interest on investment securities held to maturity	474	273
Dividends on Federal Home Loan Bank stock	Dividends on Federal Home Loan Bank stock	28	23	56	46	Dividends on Federal Home Loan Bank stock	36	28
Interest on deposits in other banks	Interest on deposits in other banks	766	61	1,008	99	Interest on deposits in other banks	1,489	242
Total Interest and Dividend Income	Total Interest and Dividend Income	22,992	20,253	43,050	40,849	Total Interest and Dividend Income	29,795	20,058
Interest Expense	Interest Expense					Interest Expense
Interest expense on deposits	Interest expense on deposits	599	879	1,174	1,828	Interest expense on deposits	4,583	575

Interest expense on borrowings	Interest expense on borrowings	87	88	173	148	Interest expense on borrowings	87	86
Interest expense on junior subordinated debentures	Interest expense on junior subordinated debentures	94	94	187	188	Interest expense on junior subordinated debentures	93	93
Total Interest Expense	Total Interest Expense	780	1,061	1,534	2,164	Total Interest Expense	4,763	754
Net Interest Income	Net Interest Income	22,212	19,192	41,516	38,685	Net Interest Income	25,032	19,304
Provision (benefit) for credit losses	Provision (benefit) for credit losses	463	(427)	313	(1,915)	Provision (benefit) for credit losses	360	(150)
Net Interest Income After Provision (Benefit) for Credit Losses	Net Interest Income After Provision (Benefit) for Credit Losses	21,749	19,619	41,203	40,600	Net Interest Income After Provision (Benefit) for Credit Losses	24,672	19,454
Other Operating Income	Other Operating Income					Other Operating Income
Mortgage banking income	Mortgage banking income	5,900	11,360	12,882	24,982	Mortgage banking income	2,008	6,982
Purchased receivable income						Purchased receivable income	977	402
Bankcard fees	Bankcard fees	927	879	1,731	1,619	Bankcard fees	908	804
Purchased receivable income		566	575	968	1,107
Service charges on deposit accounts	Service charges on deposit accounts	402	308	776	598	Service charges on deposit accounts	457	374
Gain on sale of marketable equity securities, net		—	31	—	31
Unrealized (loss) gain on marketable equity securities						Unrealized (loss) gain on marketable equity securities	(223)	(422)

Keyman life insurance proceeds	Keyman life insurance proceeds	—	—	2,002	—	Keyman life insurance proceeds	—	2,002
Unrealized (loss) gain on marketable equity securities		(810)	178	(1,232)	94

Other income	Other income	822	801	1,503	1,597	Other income	781	681
Total Other Operating Income	Total Other Operating Income	7,807	14,132	18,630	30,028	Total Other Operating Income	4,908	10,823
Other Operating Expense	Other Operating Expense					Other Operating Expense
Salaries and other personnel expense	Salaries and other personnel expense	15,401	14,917	29,507	29,645	Salaries and other personnel expense	15,484	14,106
Data processing expense	Data processing expense	2,311	2,206	4,303	4,241	Data processing expense	2,355	1,992
Occupancy expense	Occupancy expense	1,748	1,869	3,474	3,529	Occupancy expense	1,943	1,726
Professional and outside services						Professional and outside services	722	722
Marketing expense	Marketing expense	814	672	1,239	1,076	Marketing expense	564	425
Professional and outside services		708	642	1,430	1,266
Insurance expense	Insurance expense	516	329	1,082	643	Insurance expense	557	566
OREO expense, net rental income and gains on sale	OREO expense, net rental income and gains on sale	19	47	7	11	OREO expense, net rental income and gains on sale	26	(12)
Intangible asset amortization expense	Intangible asset amortization expense	6	9	12	18	Intangible asset amortization expense	4	6

Other operating expense	Other operating expense	1,715	1,645	3,285	3,234	Other operating expense	1,854	1,570
Total Other Operating Expense	Total Other Operating Expense	23,238	22,336	44,339	43,663	Total Other Operating Expense	23,509	21,101
Income Before Provision for Income Taxes	Income Before Provision for Income Taxes	6,318	11,415	15,494	26,965	Income Before Provision for Income Taxes	6,071	9,176
Provision for income taxes	Provision for income taxes	1,523	3,070	3,473	6,439	Provision for income taxes	1,241	1,950

Net Income	Net Income	$4,795	$8,345	$12,021	$20,526	Net Income	$4,830	$7,226
Earnings Per Share, Basic	Earnings Per Share, Basic	$0.83	$1.34	$2.05	$3.30	Earnings Per Share, Basic	$0.85	$1.22
Earnings Per Share, Diluted	Earnings Per Share, Diluted	$0.83	$1.33	$2.03	$3.27	Earnings Per Share, Diluted	$0.84	$1.20
Weighted Average Shares Outstanding, Basic	Weighted Average Shares Outstanding, Basic	5,750,873	6,206,913	5,844,455	6,213,392	Weighted Average Shares Outstanding, Basic	5,691,432	5,938,037
Weighted Average Shares Outstanding, Diluted	Weighted Average Shares Outstanding, Diluted	5,805,870	6,277,265	5,902,287	6,280,369	Weighted Average Shares Outstanding, Diluted	5,757,458	5,997,351

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

2010


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022
Net income	Net income	$4,795	$8,345	$12,021	$20,526	Net income	$4,830	$7,226
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:					Other comprehensive income (loss), net of tax:
Securities available for sale:	Securities available for sale:					Securities available for sale:
Unrealized holding (losses) arising during the period		($7,715)	($90)	($24,017)	($1,608)
Unrealized holding gains (losses) arising during the period						Unrealized holding gains (losses) arising during the period	$8,119	($16,302)

Derivatives and hedging activities:	Derivatives and hedging activities:					Derivatives and hedging activities:
Unrealized holding (losses) gains arising during the period	Unrealized holding (losses) gains arising during the period	827	(587)	1,754	673	Unrealized holding (losses) gains arising during the period	(299)	927
Income tax benefit related to unrealized gains and losses		1,958	189	6,329	266
Other comprehensive (loss), net of tax		(4,930)	(488)	(15,934)	(669)
Comprehensive (loss) income		($135)	$7,857	($3,913)	$19,857
Income tax benefit related to unrealized (gains) and losses						Income tax benefit related to unrealized (gains) and losses	(2,223)	4,371
Other comprehensive income (loss), net of tax						Other comprehensive income (loss), net of tax	5,597	(11,004)
Comprehensive income (loss)						Comprehensive income (loss)	$10,427	($3,778)

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)


		Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), net of Tax					Total		Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), net of Tax		Total
		Number of Shares	Par Value							Total	Number of Shares		Par Value				Additional Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Income (Loss), net of Tax			Total
(In Thousands)	(In Thousands)							Accumulated Other Comprehensive Income (Loss), net of Tax							Accumulated Other Comprehensive Income (Loss), net of Tax
Balance as of January 1, 2021		6,251		$6,251					$41,808			td73,498										td8				td21,575
Cash dividend on common stock ($0.37 per share)		—	—			—			(2,313)		—						(2,313)
Balance as of January 1, 2022															Balance as of January 1, 2022	6,015			$6,015			$31,162			$204,046			($3,406)		$237,817
Cash dividend on common stock ($0.41 per share)															Cash dividend on common stock ($0.41 per share)	—			—		—			(2,471)			—		(2,471)
Stock-based compensation expense	Stock-based compensation expense	—	—		280		—		—					280	Stock-based compensation expense	—			—		187			—			—		187
Exercise of stock options and vesting of restricted stock units, net		17	17		(295)		—		—					(278)

Repurchase of common stock	Repurchase of common stock	(61)	(61)		(2,151)		—		—					(2,212)	Repurchase of common stock	(133)			(133)		(5,790)			—			—		(5,923)
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		—		(181)					(181)	Other comprehensive loss, net of tax	—			—		—			—			(11,004)		(11,004)
Cumulative effect of adoption of ASU 2016-13		—	—		—		2,400		—					2,400

Net income	Net income	—	—		—		12,181		—					12,181	Net income	—			—		—			7,226			—		7,226
Balance as of March 31, 2021		6,207	$6,207		$39,642		$185,766		($163)					$231,452
Cash dividend on common stock ($0.37 per share)		—	—		—		(2,320)		—					(2,320)
Balance as of March 31, 2022															Balance as of March 31, 2022	5,882			$5,882		$25,559			$208,801			($14,410)		$225,832
Cash dividend on common stock ($0.41 per share)															Cash dividend on common stock ($0.41 per share)	—			—		—			(2,364)			—		(2,364)
Stock-based compensation expense	Stock-based compensation expense	—	—		229		—		—					229	Stock-based compensation expense	—			—		190			—			—		190

Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		—		(488)					(488)	Other comprehensive loss, net of tax	—			—		—			—			(4,930)		(4,930)
Net income	Net income	—	—		—		8,345		—					8,345	Net income	—			—		—			4,795			—		4,795
Balance as of June 30, 2021		6,207	$6,207		$39,871		$191,791		($651)					$237,218
Cash dividend on common stock ($0.38 per share)		—	—		—		(2,384)		—					(2,384)
Balance as of June 30, 2022															Balance as of June 30, 2022	5,681			$5,681		$17,716			$211,232			($19,340)		$215,289
Cash dividend on common stock ($0.50 per share)															Cash dividend on common stock ($0.50 per share)	—			—		—			(2,858)			—		(2,858)
Stock-based compensation expense	Stock-based compensation expense	—	—		232		—		—					232	Stock-based compensation expense	—			—		191			—			—		191

Repurchase of common stock		(30)	(30)		(1,174)		—		—					(1,204)

Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		—		(265)					(265)	Other comprehensive loss, net of tax	—			—		—			—			(12,048)		(12,048)
Net income	Net income	—	—		—		8,877		—					8,877	Net income	—			—		—			10,125			—		10,125
Balance as of September 30, 2021		6,177	$6,177		$38,929		$198,284		($916)					$242,474
Cash dividend on common stock ($0.38 per share)		—	—		—		(2,352)		—					(2,352)
Balance as of September 30, 2022															Balance as of September 30, 2022	5,681			$5,681		$17,907			$218,499			($31,388)		$210,699
Cash dividend on common stock ($0.50 per share)															Cash dividend on common stock ($0.50 per share)	—			—		—			(2,869)			—		(2,869)
Stock-based compensation expense	Stock-based compensation expense	—	—		332		—		—					332	Stock-based compensation expense	—			—		174			—			—		174
Exercise of stock options and vesting of restricted stock units, net	Exercise of stock options and vesting of restricted stock units, net	26	26		(169)		—		—					(143)	Exercise of stock options and vesting of restricted stock units, net	20			20		(297)			—			—		(277)
Repurchase of common stock		(188)	(188)		(7,930)		—		—					(8,118)

Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		—		(2,490)					(2,490)	Other comprehensive loss, net of tax	—			—		—			—			2,307		2,307
Net income	Net income	—	—		—		8,114		—					8,114	Net income	—			—		—			8,595			—		8,595
Balance as of December 31, 2021		6,015	$6,015		$31,162		$204,046		($3,406)					$237,817
Balance as of December 31, 2022															Balance as of December 31, 2022	5,701			$5,701		$17,784			$224,225			($29,081)		$218,629

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Continued)

(Unaudited)


		Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), net of Tax					Total		Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), net of Tax		Total
		Number of Shares	Par Value							Total	Number of Shares		Par Value				Additional Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Income (Loss), net of Tax			Total
(In Thousands)	(In Thousands)							Accumulated Other Comprehensive Income (Loss), net of Tax							Accumulated Other Comprehensive Income (Loss), net of Tax
Balance as of January 1, 2022		6,015		$6,015					$31,162			td04,046										($3,406)				td37,817
Cash dividend on common stock ($0.41 per share)		—	—			—			(2,471)		—						(2,471)
Balance as of January 1, 2023															Balance as of January 1, 2023	5,701			$5,701			$17,784			$224,225			($29,081)		$218,629
Cash dividend on common stock ($0.60 per share)															Cash dividend on common stock ($0.60 per share)	—			—		—			(3,444)			—		(3,444)
Stock-based compensation expense	Stock-based compensation expense	—	—		187		—		—					187	Stock-based compensation expense	—			—		140			—			—		140

Repurchase of common stock	Repurchase of common stock	(133)	(133)		(5,790)		—		—					(5,923)	Repurchase of common stock	(28)			(28)		(1,299)			—			—		(1,327)
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		—		(11,004)					(11,004)	Other comprehensive loss, net of tax	—			—		—			—			5,597		5,597

Net income	Net income	—	—		—		7,226		—					7,226	Net income	—			—		—			4,830			—		4,830
Balance as of March 31, 2022		5,882	$5,882		$25,559		$208,801		($14,410)					$225,832
Cash dividend on common stock ($0.41 per share)		—	—		—		(2,364)		—					(2,364)
Stock-based compensation expense		—	—		190		—		—					190

Repurchase of common stock		(201)	(201)		(8,033)		—		—					(8,234)
Other comprehensive loss, net of tax		—	—		—		—		(4,930)					(4,930)
Net income		—	—		—		4,795		—					4,795
Balance as of June 30, 2022		5,681	$5,681		$17,716		$211,232		($19,340)					$215,289
Balance as of March 31, 2023															Balance as of March 31, 2023	5,673			$5,673		$16,625			$225,611			($23,484)		$224,425

See notes to consolidated financial statements

NORTHRIM BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)


		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	(In Thousands)	2023	2022
Operating Activities:	Operating Activities:			Operating Activities:
Net income	Net income	$12,021	$20,526	Net income	$4,830	$7,226
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:	Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:			Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:
Gain on sale of securities, net		—	(31)

Depreciation and amortization of premises and equipment	Depreciation and amortization of premises and equipment	1,585	1,632	Depreciation and amortization of premises and equipment	789	798
Amortization of software	Amortization of software	587	574	Amortization of software	287	293
Intangible asset amortization	Intangible asset amortization	12	18	Intangible asset amortization	4	6
Amortization of investment security premium, net of discount accretion	Amortization of investment security premium, net of discount accretion	347	223	Amortization of investment security premium, net of discount accretion	130	174
Unrealized loss (gain) on marketable equity securities		1,232	(94)
Deferred tax (benefit) expense		—	958
Unrealized loss on marketable equity securities				Unrealized loss on marketable equity securities	223	422

Stock-based compensation	Stock-based compensation	377	509	Stock-based compensation	140	187

Deferred loan fees and amortization, net of costs	Deferred loan fees and amortization, net of costs	(3,247)	5,710	Deferred loan fees and amortization, net of costs	15	(2,162)
Provision (benefit) for credit losses	Provision (benefit) for credit losses	313	(1,915)	Provision (benefit) for credit losses	360	(150)

Additions to home mortgage servicing rights carried at fair value	Additions to home mortgage servicing rights carried at fair value	(2,115)	(3,193)	Additions to home mortgage servicing rights carried at fair value	(463)	(987)
Change in fair value of home mortgage servicing rights carried at fair value	Change in fair value of home mortgage servicing rights carried at fair value	(462)	1,576	Change in fair value of home mortgage servicing rights carried at fair value	795	(711)
Change in fair value of commercial servicing rights carried at fair value	Change in fair value of commercial servicing rights carried at fair value	48	76	Change in fair value of commercial servicing rights carried at fair value	123	134
Gain on sale of loans	Gain on sale of loans	(8,569)	(21,265)	Gain on sale of loans	(1,305)	(3,921)
Proceeds from the sale of loans held for sale	Proceeds from the sale of loans held for sale	353,737	648,901	Proceeds from the sale of loans held for sale	55,583	171,166
Origination of loans held for sale	Origination of loans held for sale	(334,598)	(587,277)	Origination of loans held for sale	(50,725)	(143,575)
Gain on sale of other real estate owned		—	(189)

Proceeds from keyman life insurance	Proceeds from keyman life insurance	(2,002)	—	Proceeds from keyman life insurance	—	(2,002)
Net changes in assets and liabilities:	Net changes in assets and liabilities:			Net changes in assets and liabilities:
(Increase) in accrued interest receivable		(1,271)	132
(Increase) decrease in accrued interest receivable				(Increase) decrease in accrued interest receivable	(941)	(319)
Decrease in other assets	Decrease in other assets	3,324	6,277	Decrease in other assets	1,222	1,149
(Decrease) in other liabilities	(Decrease) in other liabilities	(6,010)	(4,698)	(Decrease) in other liabilities	(6,718)	(7,883)
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	15,309	68,450	Net Cash Provided by Operating Activities	4,349	19,845
Investing Activities:	Investing Activities:			Investing Activities:
Investment in securities:	Investment in securities:			Investment in securities:
Purchases of investment securities available for sale	Purchases of investment securities available for sale	(214,703)	(173,968)	Purchases of investment securities available for sale	(6,000)	(78,139)
Purchases of marketable equity securities		(1,937)	(493)

Purchases of FHLB stock	Purchases of FHLB stock	(727)	(570)	Purchases of FHLB stock	(6)	(726)
Purchases of investment securities held to maturity	Purchases of investment securities held to maturity	(9,750)	(10,000)	Purchases of investment securities held to maturity	—	(4,750)
Proceeds from sales/calls/maturities of securities available for sale	Proceeds from sales/calls/maturities of securities available for sale	5,000	82,575	Proceeds from sales/calls/maturities of securities available for sale	13,285	—
Proceeds from sales of marketable equity securities		—	47

Proceeds from redemption of FHLB stock	Proceeds from redemption of FHLB stock	10	7	Proceeds from redemption of FHLB stock	70	5
(Increase) decrease in purchased receivables, net		(8,290)	1,422
Decrease (increase) in loans, net		11,116	(49,921)
Proceeds from sale of other real estate owned		—	679
(Increase) in purchased receivables, net				(Increase) in purchased receivables, net	(1,196)	(1,565)
(Increase) decrease in loans, net				(Increase) decrease in loans, net	(33,630)	38,399

Proceeds from keyman life insurance	Proceeds from keyman life insurance	2,002	—	Proceeds from keyman life insurance	—	2,002
Purchases of software	Purchases of software	(14)	(76)	Purchases of software	(90)	—

Purchases of premises and equipment	Purchases of premises and equipment	(1,527)	(1,732)	Purchases of premises and equipment	(1,131)	(1,050)
Net Cash (Used) by Investing Activities	Net Cash (Used) by Investing Activities	(218,820)	(152,030)	Net Cash (Used) by Investing Activities	(28,698)	(45,824)
Financing Activities:	Financing Activities:			Financing Activities:
(Decrease) increase in deposits		(86,241)	321,457
(Decrease) in deposits				(Decrease) in deposits	(90,938)	(78,565)

(Decrease) in borrowings	(Decrease) in borrowings	(206)	(137)	(Decrease) in borrowings	(104)	(104)
Repurchase of common stock	Repurchase of common stock	(14,157)	(2,212)	Repurchase of common stock	(1,327)	(5,923)
Proceeds from the issuance of common stock		—	5

Cash dividends paid	Cash dividends paid	(4,789)	(4,613)	Cash dividends paid	(3,421)	(2,448)
Net Cash (Used) Provided by Financing Activities		(105,393)	314,500
Net Cash Used by Financing Activities				Net Cash Used by Financing Activities	(95,790)	(87,040)
Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	(308,904)	230,920	Net Change in Cash and Cash Equivalents	(120,139)	(113,019)
Cash and Cash Equivalents at Beginning of Period				Cash and Cash Equivalents at Beginning of Period	259,350	645,827
Cash and Cash Equivalents at End of Period				Cash and Cash Equivalents at End of Period	$139,211	$532,808


Cash and Cash Equivalents at Beginning of Period		645,827	115,965
Cash and Cash Equivalents at End of Period		$336,923	$346,885
Supplemental Information:	Supplemental Information:			Supplemental Information:
Income taxes paid		$40	$1,852

Interest paid	Interest paid	$1,471	$2,132	Interest paid	$4,650	$726

Transfer of loans to other real estate owned	Transfer of loans to other real estate owned	$—	$274	Transfer of loans to other real estate owned	$273	$—

Non-cash lease liability arising from obtaining right of use assets	Non-cash lease liability arising from obtaining right of use assets	$—	$79	Non-cash lease liability arising from obtaining right of use assets	$160	$—
Cash dividends declared but not paid	Cash dividends declared but not paid	$46	$45	Cash dividends declared but not paid	$23	$23

See notes to consolidated financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

The accompanying unaudited consolidated financial statements and corresponding footnotes have been prepared by Northrim BanCorp, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The year-end Consolidated Balance Sheet data was derived from the Company's audited financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company owns a 100% interest in Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively "RML") and consolidates their balance sheets and income statement into its financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company determined that it operates in 2two primary operating segments: Community Banking and Home Mortgage Lending. The Company has evaluated subsequent events and transactions for potential recognition or disclosure. Operating results for the interim period ended ~~June 30, 2022~~March 31, 2023 are not necessarily indicative of the results anticipated for the year ending December 31, ~~2022.~~2023. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The Company’s significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no significant changes in our application of these accounting policies in ~~2022.~~2023.

Reclassification of Prior Period Presentation

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or total shareholders' equity.

Recent Accounting Pronouncements

Accounting pronouncements implemented in 2023

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings ("TDRs") by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs which includes an assessment of whether the creditor has granted a concession, an entity must evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6. The Company adopted ASU 2022-02 on January 1, 2023. The Company elected to adopt the updated guidance on TDR recognition and measurement prospectively; therefore the guidance is applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures must be adopted prospectively. The adoption of ASU 2022-02 did not have a material impact on the Company's consolidated financial position or results of operations.

Accounting pronouncements to be implemented in future periods

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Report of Financial Reporting ("ASU 2020-04"). ASU 2020-04 was issued to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. The last expedient is a one-time election to sell or transfer debt securities classified as held to maturity. The expedients are in effect from March 12, 2020, through December 31, 2022. The Company will be able to use the expedients in

this guidance to manage through the transition away from LIBOR, specifically for our loan portfolio, derivative contracts, and bond portfolio.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, ("ASU 2021-01"). The amendments in ASU 2021-01 are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments clarify certain optional expedients and exceptions in Topic 848 for contract modifications apply to derivatives that are affected by the discounting transition.

LIBOR is a widely-referenced benchmark rate, which is published in five currencies and a range of tenors, and seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. The administrator of LIBOR, ICE Benchmark Administration, ceased the publication of one-week and two-month LIBOR, as well as all non-US Dollar LIBOR tenors as of January 1, 2022. 1-month, 3-month, 6-month, and 12-month US Dollar LIBOR will continue to be published ~~through~~ and will remain available for use in legacy contracts or as otherwise enumerated by financial regulators until June 30, 2023. The Company has some assets and liabilities referenced to 1-month, 3-month, and 12-month US Dollar LIBOR, such as commercial loans, derivatives, debt securities, and junior subordinated debentures. As of ~~June 30, 2022,~~March 31, 2023, we had approximately ~~$179.1~~$133.0 million of assets, including ~~$101.0~~$78.2 million in commercial loans and ~~$78.1~~$54.8 million in debt securities, and $10.0 million of liabilities in the form of our junior subordinated debentures linked to USD LIBOR. These amounts exclude derivative assets and liabilities on our consolidated balance sheet. As of ~~June 30, 2022,~~March 31, 2023, the notional amount of our USD LIBOR-linked interest rate derivative contracts was ~~$150.8~~$145.0 million. Of this amount, ~~$70.0~~$67.5 million in notional value represent commercial loan interest rate swap agreements with commercial banking customers. An additional ~~$70.8~~$67.5 million in notional value represent corresponding swap agreements with third party financial institutions that offset the commercial loan swaps. ~~Swap agreements with third party institutions are $80.0 million, including an~~The Company has one additional interest rate swap agreement with a third party institution for $10.0 million in notional value related to our junior subordinated debentures. Each of the USD LIBOR-linked amounts referenced above are expected to vary in future periods as current contracts expire with potential replacement contracts using an alternative reference rate.

In an effort to mitigate the risks associated with a transition away from LIBOR, our Asset Liability Committee has undertaken initiatives to: (i) develop more robust fallback language and disclosures related to the LIBOR transition, (ii) develop a plan to seek to amend legacy contracts to reference such fallback language or alternative reference rates, (iii) enhance systems to support commercial loans, securities, and derivatives linked to the Secured Overnight Financing Rate and other alternative reference rates, (iv) develop and evaluate internal guidance, policies and procedures focused on the transition away from LIBOR to alternative reference rate products, and (v) prepare and disseminate internal and external communications regarding the LIBOR transition.

ASU 2021-01 is not expected to have a material impact on the Company's consolidated financial statements.

In March ~~2022,~~2023, the FASB issued ASU ~~2022-02, Financial Instruments~~2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit ~~Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures~~Structures Using the Proportional Amortization Method ("ASU ~~2022-02"~~2023-02"). Under current GAAP, an entity can only elect to apply the proportional amortization method to investments in low income housing tax credit ("LIHTC") structures. The amendments in ASU ~~2022-02~~2023-02 allow entities to elect to account for equity investments made primarily for the purpose of receiving income tax credits using the proportional amortization method, regardless of the tax credit program through which the investment earns income tax credits, if certain conditions are met. ASU 2023-02 provides amendments to paragraph 323-740-25-1, which sets forth the conditions needed to apply the proportional amortization method. The amendments make certain limited changes to those conditions to clarify their application to a broader group of tax credit investment programs. However, the conditions in substance remain consistent with current GAAP. The amendments in this ASU 2023-02 also eliminate certain LIHTC-specific guidance to align the accounting ~~guidance~~more closely for ~~troubled debt restructurings ("TDRs") by creditors while enhancing disclosure requirements~~LIHTCs with the accounting for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs which includes an assessment of whether the creditor has granted a concession, an entity must evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and netother equity investments in ~~leases within~~tax credit structures and require that the ~~scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost~~delayed equity contribution guidance in paragraph 323-740-25-3 apply only to tax equity investments accounted for using the ~~vintage disclosures required by paragraph 326-20-50-6.~~proportional amortization method. ASU ~~2022-02~~2023-02 is effective for the Company for fiscal years beginning after December 15, ~~2022. The Company may elect to apply the updated guidance~~2023 and must be applied on ~~TDR recognition and measurement by using~~either a modified retrospective ~~transition method, which would result in~~or a ~~cumulative-effect adjustment to retained earnings, or to adopt the amendments prospectively.~~retrospective basis. The Company ~~intends to elect to adopt~~does not have any equity investments made primarily for the ~~updated guidance on TDR recognition and measurement prospectively; therefore~~purpose of receiving income tax credits except for LIHTC structures, which it accounts for using the ~~guidance will be applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures must be adopted prospectively.~~proportional amortization method. The Company does not believe that ASU ~~2022-02~~2023-02 will have a material impact on the Company's consolidated financial statements.

2. Investment Securities

Marketable Equity Securities

The Company held marketable equity securities with fair values of ~~$9.1~~$10.5 million and ~~$8.4~~$10.7 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The gross realized and unrealized gains (losses) recognized on marketable equity securities in other operating income in the Company's Consolidated Statements of Income were as follows:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022
Unrealized (loss) gain on marketable equity securities		($810)	$178	($1,232)	$94
Unrealized gain (loss) on marketable equity securities						Unrealized gain (loss) on marketable equity securities	($223)	($422)
Gain on sale of marketable equity securities, net	Gain on sale of marketable equity securities, net	—	31	—	31	Gain on sale of marketable equity securities, net	—	—
Total	Total	($810)	$209	($1,232)	$125	Total	($223)	($422)

Debt securities

Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, estimated fair value, and the Allowance for Credit Losses ("ACL") of debt securities and the corresponding amounts of gross unrealized gains and losses of available-for-sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities at the periods indicated:


(In Thousands)	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Allowance for Credit Losses	Fair Value	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Allowance for Credit Losses	Fair Value
June 30, 2022
March 31, 2023							March 31, 2023
Securities available for sale	Securities available for sale						Securities available for sale
U.S. Treasury and government sponsored entities	U.S. Treasury and government sponsored entities	$546,885	$115	($25,661)	$—	$521,339	U.S. Treasury and government sponsored entities	$634,456	$178	($32,260)	$—	$602,374
Municipal securities	Municipal securities	820	—	(13)	—	807	Municipal securities	820	—	(18)	—	802

Corporate bonds	Corporate bonds	32,709	2	(708)	—	32,003	Corporate bonds	16,018	10	(613)	—	15,415
Collateralized loan obligations	Collateralized loan obligations	59,432	—	(1,554)	—	57,878	Collateralized loan obligations	60,407	—	(1,264)	—	59,143
Total securities available for sale	Total securities available for sale	$639,846	$117	($27,936)	$—	$612,027	Total securities available for sale	$711,701	$188	($34,155)	$—	$677,734


(In Thousands)	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
June 30, 2022
March 31, 2023						March 31, 2023
Securities held to maturity	Securities held to maturity					Securities held to maturity
Corporate bonds	Corporate bonds	$29,750	$—	($3,379)	$26,371	Corporate bonds	$36,750	$—	($4,219)	$32,531
Allowance for credit losses	Allowance for credit losses	—	—	—	—	Allowance for credit losses	—	—	—	—
Total securities held to maturity, net of ACL	Total securities held to maturity, net of ACL	$29,750	$—	($3,379)	$26,371	Total securities held to maturity, net of ACL	$36,750	$—	($4,219)	$32,531


(In Thousands)	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Allowance for Credit Losses	Fair Value	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Allowance for Credit Losses	Fair Value
December 31, 2021
December 31, 2022							December 31, 2022
Securities available for sale	Securities available for sale						Securities available for sale
U.S. Treasury and government sponsored entities	U.S. Treasury and government sponsored entities	$345,514	$333	($4,367)	$—	$341,480	U.S. Treasury and government sponsored entities	$634,582	$1	($39,422)	$—	$595,161
Municipal securities	Municipal securities	820	20	—	—	840	Municipal securities	820	—	(25)	—	795

Corporate bonds	Corporate bonds	32,721	302	(77)	—	32,946	Corporate bonds	24,281	37	(674)	—	23,644
Collateralized loan obligations	Collateralized loan obligations	51,431	9	(22)	—	51,418	Collateralized loan obligations	59,434	—	(2,005)	—	57,429
Total securities available for sale	Total securities available for sale	$430,486	$664	($4,466)	$—	$426,684	Total securities available for sale	$719,117	$38	($42,126)	$—	$677,029


(In Thousands)	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	(In Thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
December 31, 2021
December 31, 2022						December 31, 2022
Securities held to maturity	Securities held to maturity					Securities held to maturity
Corporate bonds	Corporate bonds	$20,000	$—	($836)	$19,164	Corporate bonds	$36,750	$—	($4,111)	$32,639
Allowance for credit losses	Allowance for credit losses	—	—	—	—	Allowance for credit losses	—	—	—	—
Total securities held to maturity, net of ACL	Total securities held to maturity, net of ACL	$20,000	$—	($836)	$19,164	Total securities held to maturity, net of ACL	$36,750	$—	($4,111)	$32,639

Gross unrealized losses on available for sale securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:


		Less Than 12 Months		More Than 12 Months		Total			Less Than 12 Months		More Than 12 Months		Total
(In Thousands)	(In Thousands)	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	(In Thousands)	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
June 30, 2022
March 31, 2023								March 31, 2023
Securities available for sale	Securities available for sale							Securities available for sale
U.S. Treasury and government sponsored entities	U.S. Treasury and government sponsored entities	$372,559	($18,154)	$102,375	($7,507)	$474,934	($25,661)	U.S. Treasury and government sponsored entities	$212,079	($3,947)	$375,028	($28,313)	$587,107	($32,260)
Corporate bonds	Corporate bonds	28,584	(708)	—	—	28,584	(708)	Corporate bonds	4,936	(62)	4,471	(551)	9,407	(613)
Collateralized loan obligations	Collateralized loan obligations	57,878	(1,554)	—	—	57,878	(1,554)	Collateralized loan obligations	5,987	(13)	53,156	(1,251)	59,143	(1,264)
Municipal securities	Municipal securities	807	(13)	—	—	807	(13)	Municipal securities	—	—	802	(18)	802	(18)

Total	Total	$459,828	($20,429)	$102,375	($7,507)	$562,203	($27,936)	Total	$223,002	($4,022)	$433,457	($30,133)	$656,459	($34,155)

December 31, 2021:
December 31, 2022:								December 31, 2022:
Securities available for sale	Securities available for sale							Securities available for sale
U.S. Treasury and government sponsored entities	U.S. Treasury and government sponsored entities	$292,845	($4,012)	$21,743	($355)	$314,588	($4,367)	U.S. Treasury and government sponsored entities	$282,319	($8,876)	$302,840	($30,546)	$585,159	($39,422)
Corporate bonds	Corporate bonds	4,953	(77)	—	—	4,953	(77)	Corporate bonds	13,216	(43)	4,394	(631)	17,610	(674)
Collateralized loan obligations	Collateralized loan obligations	29,470	(22)	—	—	29,470	(22)	Collateralized loan obligations	22,309	(632)	35,120	(1,373)	57,429	(2,005)

Municipal securities								Municipal securities	795	(25)	—	—	795	(25)

Total	Total	$327,268	($4,111)	$21,743	($355)	$349,011	($4,466)	Total	$318,639	($9,576)	$342,354	($32,550)	$660,993	($42,126)

Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At ~~June 30, 2022,~~March 31, 2023, the Company had 7985 available for sale securities in an unrealized loss position without an ACL. At ~~June 30, 2022,~~March 31, 2023, the Company had 4five held to maturity securities in an unrealized loss position without an ACL. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of ~~June 30, 2022,~~March 31, 2023, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, ~~including~~primarily changes in interest rates, ~~and other market conditions,~~ and therefore no losses have been recognized in the Company's Consolidated Statements of Income.

At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021, $54.7~~2022, carrying amounts of $108.2 million and ~~$59.5~~$59.3 million in securities were pledged for deposits and borrowings, respectively.

The amortized cost and estimated fair values of debt securities at ~~June 30, 2022,~~March 31, 2023, are distributed by contractual maturity as shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


(In Thousands)	(In Thousands)	Amortized Cost	Fair Value	(In Thousands)	Amortized Cost	Fair Value
US Treasury and government sponsored entities	US Treasury and government sponsored entities			US Treasury and government sponsored entities

Within 1 year				Within 1 year	$105,712	$103,821
1-5 years	1-5 years	$546,885	$521,339	1-5 years	528,744	498,553

Total	Total	$546,885	$521,339	Total	$634,456	$602,374

Corporate bonds	Corporate bonds			Corporate bonds

Within 1 year				Within 1 year	$2,000	$1,951
1-5 years	1-5 years	$40,694	$38,967	1-5 years	24,018	22,570
5-10 years	5-10 years	21,765	21,258	5-10 years	26,750	23,425
Total	Total	$62,459	$60,225	Total	$52,768	$47,946
Collateralized loan obligations	Collateralized loan obligations			Collateralized loan obligations
1-5 years		$5,000	$4,786

5-10 years	5-10 years	26,940	26,405	5-10 years	$24,914	$24,561
Over 10 years	Over 10 years	27,492	26,687	Over 10 years	35,493	34,582
Total	Total	$59,432	$57,878	Total	$60,407	$59,143
Municipal securities	Municipal securities			Municipal securities
Within 1 year				Within 1 year	$820	$802

1-5 years		$820	$807

Total	Total	$820	$807	Total	$820	$802

There were no proceeds from sales of investment securities for the ~~three and six-month~~three-month periods ending ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022.

A summary of interest income for the ~~three and six-month~~three-month periods ending ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ on available for sale investment securities are as follows:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022
US Treasury and government sponsored entities	US Treasury and government sponsored entities	$1,432	$516	$2,238	$1,016	US Treasury and government sponsored entities	$2,795	$806

Other	Other	489	294	814	568	Other	1,135	325
Total taxable interest income	Total taxable interest income	$1,921	$810	$3,052	$1,584	Total taxable interest income	$3,930	$1,131
Municipal securities	Municipal securities	$5	$5	$9	$9	Municipal securities	$4	$4
Total tax-exempt interest income	Total tax-exempt interest income	$5	$5	$9	$9	Total tax-exempt interest income	$4	$4
Total	Total	$1,926	$815	$3,061	$1,593	Total	$3,934	$1,135

3. Loans and Allowance for Credit Losses

Loans Held for Sale

Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Loans Held for Investment

The following table presents amortized cost and unpaid principal balance of loans, categorized by the segments used in the Company's CECL methodology to assess credit risk, for the periods indicated:


		June 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
(In Thousands)	(In Thousands)	Amortized Cost	Unpaid Principal	Difference	Amortized Cost	Unpaid Principal	Difference	(In Thousands)	Amortized Cost	Unpaid Principal	Difference	Amortized Cost	Unpaid Principal	Difference
Commercial & industrial loans	Commercial & industrial loans	$394,841	$397,154	($2,313)	$448,338	$454,106	($5,768)	Commercial & industrial loans	$364,109	$365,824	($1,715)	$358,128	$359,900	($1,772)
Commercial real estate:	Commercial real estate:							Commercial real estate:
Owner occupied properties	Owner occupied properties	313,174	314,761	(1,587)	300,200	301,623	(1,423)	Owner occupied properties	343,162	344,734	(1,572)	349,973	351,580	(1,607)
Non-owner occupied and multifamily properties	Non-owner occupied and multifamily properties	446,592	449,987	(3,395)	435,311	438,631	(3,320)	Non-owner occupied and multifamily properties	473,227	476,897	(3,670)	482,270	486,021	(3,751)
Residential real estate:	Residential real estate:							Residential real estate:
1-4 family residential properties secured by first liens	1-4 family residential properties secured by first liens	37,298	37,346	(48)	32,542	32,602	(60)	1-4 family residential properties secured by first liens	112,214	112,758	(544)	73,381	73,674	(293)
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	21,953	21,821	132	19,610	19,489	121	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	23,027	22,864	163	20,259	20,103	156
1-4 family residential construction loans	1-4 family residential construction loans	43,915	44,215	(300)	36,222	36,542	(320)	1-4 family residential construction loans	40,652	40,881	(229)	44,000	44,314	(314)
Other construction, land development and raw land loans	Other construction, land development and raw land loans	87,163	87,669	(506)	88,094	88,604	(510)	Other construction, land development and raw land loans	91,712	92,615	(903)	99,182	100,075	(893)
Obligations of states and political subdivisions in the US	Obligations of states and political subdivisions in the US	24,005	24,152	(147)	16,403	16,565	(162)	Obligations of states and political subdivisions in the US	42,257	42,258	(1)	32,539	32,540	(1)
Agricultural production, including commercial fishing	Agricultural production, including commercial fishing	29,482	29,638	(156)	27,959	28,082	(123)	Agricultural production, including commercial fishing	37,429	37,615	(186)	34,099	34,263	(164)
Consumer loans	Consumer loans	4,092	4,054	38	4,801	4,763	38	Consumer loans	4,661	4,617	44	4,335	4,293	42
Other loans	Other loans	3,194	3,208	(14)	4,406	4,422	(16)	Other loans	2,737	2,749	(12)	3,619	3,632	(13)
Total	Total	1,405,709	1,414,005	(8,296)	1,413,886	1,425,429	(11,543)	Total	1,535,187	1,543,812	(8,625)	1,501,785	1,510,395	(8,610)
Allowance for credit losses	Allowance for credit losses	(11,537)			(11,739)			Allowance for credit losses	(14,157)			(13,838)
		$1,394,172	$1,414,005	($8,296)	$1,402,147	$1,425,429	($11,543)		$1,521,030	$1,543,812	($8,625)	$1,487,947	$1,510,395	($8,610)

The difference between the amortized cost and unpaid principal balance is net deferred origination fees totaling ~~$8.3 million and $11.5~~$8.6 million at ~~June 30, 2022~~both March 31, 2023 and December 31, ~~2021, respectively.~~2022.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled ~~$5.3~~$6.5 million and $5.5 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and was included in other assets in the Consolidated Balance Sheets.

Amortized cost in the above table includes ~~$31.9~~$4.2 million and ~~$118.2~~$7.1 million as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, in Paycheck Protection Program ~~("PPP")~~ loans administered by the U.S. Small Business Administration ("SBA") within the Commercial & industrial loan segment.

Allowance for Credit Losses

The activity in the ACL related to loans held for investment is as follows:


Three Months Ended June 30,		Beginning Balance	Credit Loss Expense (Benefit)	Charge-offs	Recoveries	Ending Balance
Three Months Ended March 31,								Three Months Ended March 31,	Beginning Balance	Credit Loss Expense (Benefit)	Charge-offs	Recoveries	Ending Balance
		(In Thousands)					(In Thousands)
2023								2023
Commercial & industrial loans								Commercial & industrial loans	$2,914	$101	$—	$65	$3,080
Commercial real estate:								Commercial real estate:
Owner occupied properties								Owner occupied properties	3,094	(316)	—	—	2,778
Non-owner occupied and multifamily properties								Non-owner occupied and multifamily properties	3,615	(441)	—	—	3,174
Residential real estate:								Residential real estate:
1-4 family residential properties secured by first liens								1-4 family residential properties secured by first liens	1,413	813	—	—	2,226
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens								1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	389	(4)	—	7	392
1-4 family residential construction loans								1-4 family residential construction loans	312	(52)	—	—	260
Other construction, land development and raw land loans								Other construction, land development and raw land loans	1,803	122	—	—	1,925
Obligations of states and political subdivisions in the US								Obligations of states and political subdivisions in the US	79	27	—	—	106
Agricultural production, including commercial fishing								Agricultural production, including commercial fishing	145	5	—	—	150
Consumer loans								Consumer loans	68	5	(14)	2	61
Other loans								Other loans	6	(1)	—	—	5
Total								Total	$13,838	$259	($14)	$74	$14,157
2022	2022							2022
Commercial & industrial loans	Commercial & industrial loans	$2,901	$123	($166)	$103	$2,961		Commercial & industrial loans	$3,027	$156	($295)	$13	$2,901
Commercial real estate:	Commercial real estate:							Commercial real estate:
Owner occupied properties	Owner occupied properties	2,513	60	—	—	2,573		Owner occupied properties	3,176	(663)	—	—	2,513
Non-owner occupied and multifamily properties	Non-owner occupied and multifamily properties	3,063	44	—	—	3,107		Non-owner occupied and multifamily properties	2,930	133	—	—	3,063
Residential real estate:	Residential real estate:							Residential real estate:
1-4 family residential properties secured by first liens	1-4 family residential properties secured by first liens	510	110	—	—	620		1-4 family residential properties secured by first liens	439	71	—	—	510
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	301	17	—	9	327		1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	215	74	—	12	301
1-4 family residential construction loans	1-4 family residential construction loans	210	21	—	—	231		1-4 family residential construction loans	120	90	—	—	210
Other construction, land development and raw land loans	Other construction, land development and raw land loans	1,550	(88)	—	—	1,462		Other construction, land development and raw land loans	1,635	(85)	—	—	1,550
Obligations of states and political subdivisions in the US	Obligations of states and political subdivisions in the US	52	7	—	—	59		Obligations of states and political subdivisions in the US	32	20	—	—	52
Agricultural production, including commercial fishing	Agricultural production, including commercial fishing	128	(8)	—	7	127		Agricultural production, including commercial fishing	91	29	—	8	128
Consumer loans	Consumer loans	75	(12)	—	1	64		Consumer loans	67	8	—	—	75
Other loans	Other loans	7	(1)	—	—	6		Other loans	7	—	—	—	7
Total	Total	$11,310	$273	($166)	$120	$11,537		Total	$11,739	($167)	($295)	$33	$11,310
2021
Commercial & industrial loans		$4,269	$105	($110)	$27	$4,291
Commercial real estate:
Owner occupied properties		3,366	(28)	—	2	3,340
Non-owner occupied and multifamily properties		3,704	137	—	—	3,841
Residential real estate:
1-4 family residential properties secured by first liens		813	(183)	—	—	630
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens		342	(12)	—	10	340
1-4 family residential construction loans		260	(29)	—	—	231
Other construction, land development and raw land loans		1,821	(151)	—	—	1,670
Obligations of states and political subdivisions in the US		36	3	—	—	39
Agricultural production, including commercial fishing		46	4	—	7	57
Consumer loans		104	(10)	—	—	94
Other loans		3	3	—	—	6
Total		$14,764	($161)	($110)	$46	$14,539

Six Months Ended June 30, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance
(In Thousands)
2022
Commercial & industrial loans $3,027 $279 ($461) $116 $2,961
Commercial real estate:
Owner occupied properties 3,176 (603) — — 2,573
Non-owner occupied and multifamily properties 2,930 177 — — 3,107
Residential real estate:
1-4 family residential properties secured by first liens 439 181 — — 620
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 215 91 — 21 327
1-4 family residential construction loans 120 111 — — 231
Other construction, land development and raw land loans 1,635 (173) — — 1,462
Obligations of states and political subdivisions in the US 32 27 — — 59
Agricultural production, including commercial fishing 91 21 — 15 127
Consumer loans 67 (4) — 1 64
Other loans 7 (1) — — 6
Total $11,739 $106 ($461) $153 $11,537
2021
Commercial & industrial loans $4,348 $4 ($273) $212 $4,291
Commercial real estate:
Owner occupied properties 3,579 (243) — 4 3,340
Non-owner occupied and multifamily properties 4,944 (1,103) — — 3,841
Residential real estate:
1-4 family residential properties secured by first liens 673 (43) — — 630
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 419 (99) — 20 340
1-4 family residential construction loans 454 (223) — — 231
Other construction, land development and raw land loans 1,994 (324) — — 1,670
Obligations of states and political subdivisions in the US 44 (5) — — 39
Agricultural production, including commercial fishing 49 (7) — 15 57
Consumer loans 118 (26) — 2 94
Other loans 3 3 — — 6
Total $16,625 ($2,066) ($273) $253 $14,539

~~At June 30, 2022, as compared to March 31, 2022~~

The following table shows gross charge-offs by grade and ~~December 31, 2021,~~by year of loan origination for the Company forecasted a lower unemployment rate over the reasonable and supportable forecast period. In the second quarter, the ACL increased because an increase in loan balances more than offset the decrease in the forecast for unemployment, changes in the characteristics of loans, and a decrease in the ACL for loans individually evaluated. In the six months ending June 30, 2022, the ACL decreased as compared to the same six month period of 2021 because the decrease in the forecast for unemployment and changes in the characteristics of loans were only partially offset by increases in loan balances.periods indicated:


Three Months Ended March 31,

(In Thousands)	2023		2022		2021		2020		2019		Prior		Total
2023
Commercial & industrial loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Owner occupied properties	—		—		—		—		—		—		—
Non-owner occupied and multifamily properties	—		—		—		—		—		—		—
Residential real estate:
1-4 family residential properties secured by first liens	—		—		—		—		—		—		—
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	—		—		—		—		—		—		—
1-4 family residential construction loans	—		—		—		—		—		—		—
Other construction, land development and raw land loans	—		—		—		—		—		—		—
Obligations of states and political subdivisions in the US	—		—		—		—		—		—		—
Agricultural production, including commercial fishing	—		—		—		—		—		—		—
Consumer loans	—		1		—		—		—		13		14
Other loans	—		—		—		—		—		—		—
Total	$	—	$	1	$	—	$	—	$	—	$	13	$	14

Credit Quality Information

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management utilizes a loan risk grading system called the Asset Quality Rating (“AQR”) system to assign a risk classification to each of its loans. The risk classification is a dual rating system that contemplates both probability of default and risk of loss given default. Loans are graded on a scale of 1 to 10 and, loans graded 1 – 6 are considered “pass” grade loans. Loans graded 7 or higher are considered "classified" loans. A description of the general characteristics of the AQR risk classifications are as follows:

Pass grade loans – 1 through 6: The borrower demonstrates sufficient cash flow to fund debt service, including acceptable profit margins, cash flows, liquidity and other balance sheet ratios. Historic and projected performance indicates that the borrower is able to meet obligations under most economic circumstances. The ~~Company~~borrower has competent management with an acceptable track record. The category does not include loans with undue or unwarranted credit risks that constitute identifiable weaknesses.

Classified loans:

Special Mention – 7: A "special mention" credit has weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset at some future date.

Substandard – 8: A "substandard" credit is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Northrim Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – 9: An asset classified "doubtful" has all the weaknesses inherent in one that is classified "substandard-8" with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. The loan has substandard characteristics, and available information suggests that it is unlikely that the loan will be repaid in its entirety.

Loss – 10: An asset classified "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future.

The following tables present the Company's portfolio of risk-rated loans by grade and by year of origination. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below.


June 30, 2022		2022	2021	2020	2019	2018	Prior	Total
March 31, 2023									March 31, 2023	2023	2022	2021	2020	2019	Prior	Total
		(In Thousands)								(In Thousands)
Commercial & industrial loans	Commercial & industrial loans								Commercial & industrial loans
Pass	Pass	$97,229	$126,148	$50,617	$21,259	$29,661	$57,889	$382,803	Pass	$26,360	$152,979	$76,827	$35,707	$14,276	$38,286	$344,435
Classified	Classified	2,689	5,459	—	119	2,950	821	12,038	Classified	—	2,110	2,323	296	82	14,863	19,674
Total commercial & industrial loans	Total commercial & industrial loans	$99,918	$131,607	$50,617	$21,378	$32,611	$58,710	$394,841	Total commercial & industrial loans	$26,360	$155,089	$79,150	$36,003	$14,358	$53,149	$364,109

Commercial real estate:	Commercial real estate:								Commercial real estate:
Owner occupied properties	Owner occupied properties								Owner occupied properties
Pass	Pass	$35,493	$70,745	$81,000	$38,694	$13,415	$65,980	$305,327	Pass	$6,838	$71,615	$69,568	$80,727	$31,920	$76,882	$337,550
Classified	Classified	—	—	1,331	—	498	6,018	7,847	Classified	—	—	—	1,225	—	4,387	5,612
Total commercial real estate owner occupied properties	Total commercial real estate owner occupied properties	$35,493	$70,745	$82,331	$38,694	$13,913	$71,998	$313,174	Total commercial real estate owner occupied properties	$6,838	$71,615	$69,568	$81,952	$31,920	$81,269	$343,162

Non-owner occupied and multifamily properties	Non-owner occupied and multifamily properties								Non-owner occupied and multifamily properties
Pass	Pass	$26,141	$82,850	$74,798	$56,709	$33,807	$161,854	$436,159	Pass	$2,270	$90,117	$86,571	$70,530	$57,437	$156,716	$463,641
Classified	Classified	—	—	—	277	6	10,150	10,433	Classified	—	—	—	—	—	9,586	9,586
Total commercial real estate non-owner occupied and multifamily properties	Total commercial real estate non-owner occupied and multifamily properties	$26,141	$82,850	$74,798	$56,986	$33,813	$172,004	$446,592	Total commercial real estate non-owner occupied and multifamily properties	$2,270	$90,117	$86,571	$70,530	$57,437	$166,302	$473,227

Residential real estate:	Residential real estate:								Residential real estate:
1-4 family residential properties secured by first liens	1-4 family residential properties secured by first liens								1-4 family residential properties secured by first liens
Pass	Pass	$8,410	$9,846	$6,490	$3,402	$494	$8,373	$37,015	Pass	$41,478	$51,491	$4,066	$5,399	$2,502	$7,078	$112,014
Classified	Classified	—	—	—	—	90	193	283	Classified	—	—	—	—	—	200	200
Total residential real estate 1-4 family residential properties secured by first liens	Total residential real estate 1-4 family residential properties secured by first liens	$8,410	$9,846	$6,490	$3,402	$584	$8,566	$37,298	Total residential real estate 1-4 family residential properties secured by first liens	$41,478	$51,491	$4,066	$5,399	$2,502	$7,278	$112,214

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens								1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens
Pass	Pass	$3,219	$5,467	$2,570	$2,861	$3,447	$4,109	$21,673	Pass	$2,476	$7,050	$3,892	$1,902	$2,650	$4,818	$22,788
Classified	Classified	—	—	—	—	270	10	280	Classified	—	—	—	—	—	239	239
Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens									Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	$2,476	$7,050	$3,892	$1,902	$2,650	$5,057	$23,027

1-4 family residential construction loans									1-4 family residential construction loans
Pass									Pass	$2,912	$22,906	$2,871	$420	$—	$11,434	$40,543
Classified									Classified	—	—	—	—	—	109	109
Total residential real estate 1-4 family residential construction loans									Total residential real estate 1-4 family residential construction loans	$2,912	$22,906	$2,871	$420	$—	$11,543	$40,652

Other construction, land development and raw land loans									Other construction, land development and raw land loans
Pass									Pass	$3,300	$39,120	$28,668	$8,756	$1,594	$8,458	$89,896
Classified									Classified	—	—	—	—	—	1,816	1,816
Total other construction, land development and raw land loans									Total other construction, land development and raw land loans	$3,300	$39,120	$28,668	$8,756	$1,594	$10,274	$91,712

Obligations of states and political subdivisions in the US									Obligations of states and political subdivisions in the US
Pass									Pass	$—	$33,467	$6,866	$1,739	$—	$185	$42,257
Classified									Classified	—	—	—	—	—	—	—
Total obligations of states and political subdivisions in the US									Total obligations of states and political subdivisions in the US	$—	$33,467	$6,866	$1,739	$—	$185	$42,257

Agricultural production, including commercial fishing									Agricultural production, including commercial fishing
Pass									Pass	$2,431	$10,376	$18,196	$3,655	$599	$2,172	$37,429


Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens		$3,219	$5,467	$2,570	$2,861	$3,717	$4,119	$21,953

1-4 family residential construction loans
Pass		$21,804	$8,522	$441	$481	$—	$12,558	$43,806
Classified		—	—	—	—	—	109	109
Total residential real estate 1-4 family residential construction loans		$21,804	$8,522	$441	$481	$—	$12,667	$43,915

Other construction, land development and raw land loans
Pass		$5,651	$41,340	$19,578	$9,402	$3,396	$5,945	$85,312
Classified		—	—	—	—	369	1,482	1,851
Total other construction, land development and raw land loans		$5,651	$41,340	$19,578	$9,402	$3,765	$7,427	$87,163

Obligations of states and political subdivisions in the US
Pass		$285	$9,669	$2,667	$1,864	$282	$9,238	$24,005
Classified		—	—	—	—	—	—	—
Total obligations of states and political subdivisions in the US		$285	$9,669	$2,667	$1,864	$282	$9,238	$24,005

Agricultural production, including commercial fishing
Pass		$3,549	$18,683	$3,764	$678	$1,073	$1,735	$29,482
Classified	Classified	—	—	—	—	—	—	—	Classified	—	—	—	—	—	—	—
Total agricultural production, including commercial fishing	Total agricultural production, including commercial fishing	$3,549	$18,683	$3,764	$678	$1,073	$1,735	$29,482	Total agricultural production, including commercial fishing	$2,431	$10,376	$18,196	$3,655	$599	$2,172	$37,429

Consumer loans	Consumer loans								Consumer loans
Pass	Pass	$770	$499	$541	$397	$306	$1,570	$4,083	Pass	$964	$1,292	$327	$493	$324	$1,261	$4,661
Classified	Classified	—	—	—	—	—	9	9	Classified	—	—	—	—	—	—	—
Total consumer loans	Total consumer loans	$770	$499	$541	$397	$306	$1,579	$4,092	Total consumer loans	$964	$1,292	$327	$493	$324	$1,261	$4,661

Other loans	Other loans								Other loans
Pass	Pass	$568	$1,143	$1,598	$408	$—	($523)	$3,194	Pass	$257	$216	$325	$1,523	$360	$56	$2,737
Classified	Classified	—	—	—	—	—	—	—	Classified	—	—	—	—	—	—	—
Total other loans	Total other loans	$568	$1,143	$1,598	$408	$—	($523)	$3,194	Total other loans	$257	$216	$325	$1,523	$360	$56	$2,737

Total loans	Total loans								Total loans
Pass	Pass	$203,119	$374,912	$244,064	$136,155	$85,881	$328,728	$1,372,859	Pass	$89,286	$480,629	$298,177	$210,851	$111,662	$307,346	$1,497,951
Classified	Classified	2,689	5,459	1,331	396	4,183	18,792	32,850	Classified	—	2,110	2,323	1,521	82	31,200	37,236
Total loans	Total loans	$205,808	$380,371	$245,395	$136,551	$90,064	$347,520	$1,405,709	Total loans	$89,286	$482,739	$300,500	$212,372	$111,744	$338,546	$1,535,187

Total pass loans	Total pass loans	$203,119	$374,912	$244,064	$136,155	$85,881	$328,728	$1,372,859	Total pass loans	$89,286	$480,629	$298,177	$210,851	$111,662	$307,346	$1,497,951
Government guarantees	Government guarantees	(4,441)	(62,412)	(11,051)	(13,290)	(3,117)	(4,898)	(99,209)	Government guarantees	(2,850)	(24,594)	(33,665)	(9,395)	(12,711)	(8,147)	(91,362)
Total pass loans, net of government guarantees	Total pass loans, net of government guarantees	$198,678	$312,500	$233,013	$122,865	$82,764	$323,830	$1,273,650	Total pass loans, net of government guarantees	$86,436	$456,035	$264,512	$201,456	$98,951	$299,199	$1,406,589

Total classified loans	Total classified loans	$2,689	$5,459	$1,331	$396	$4,183	$18,792	$32,850	Total classified loans	$—	$2,110	$2,323	$1,521	$82	$31,200	$37,236
Government guarantees	Government guarantees	(2,420)	(4,913)	(1,198)	—	—	(9,818)	(18,349)	Government guarantees	—	—	(2,096)	(1,103)	—	(11,269)	(14,468)
Total classified loans, net government guarantees	Total classified loans, net government guarantees	$269	$546	$133	$396	$4,183	$8,974	$14,501	Total classified loans, net government guarantees	$—	$2,110	$227	$418	$82	$19,931	$22,768


December 31, 2021		2021	2020	2019	2018	2017	Prior	Total
December 31, 2022									December 31, 2022	2022	2021	2020	2019	2018	Prior	Total
		(In Thousands)								(In Thousands)
Commercial & industrial loans	Commercial & industrial loans								Commercial & industrial loans
Pass	Pass	$227,376	$54,478	$29,846	$37,339	$23,205	$44,554	$416,798	Pass	$157,555	$86,543	$37,147	$17,881	$9,844	$40,571	$349,541
Classified	Classified	18,853	714	3,564	3,118	517	4,774	31,540	Classified	137	4,879	397	91	2,737	346	8,587
Total commercial & industrial loans	Total commercial & industrial loans	$246,229	$55,192	$33,410	$40,457	$23,722	$49,328	$448,338	Total commercial & industrial loans	$157,692	$91,422	$37,544	$17,972	$12,581	$40,917	$358,128

Commercial real estate:	Commercial real estate:								Commercial real estate:
Owner occupied properties	Owner occupied properties								Owner occupied properties
Pass	Pass	$81,533	$83,975	$39,254	$14,841	$14,452	$57,717	$291,772	Pass	$66,955	$70,777	$90,496	$32,564	$13,233	$69,701	$343,726
Classified	Classified	—	1,399	—	522	—	6,507	8,428	Classified	—	—	1,261	—	165	4,821	6,247
Total commercial real estate owner occupied properties									Total commercial real estate owner occupied properties	$66,955	$70,777	$91,757	$32,564	$13,398	$74,522	$349,973

Non-owner occupied and multifamily properties									Non-owner occupied and multifamily properties
Pass									Pass	$94,412	$82,352	$71,407	$58,033	$16,905	$149,223	$472,332
Classified									Classified	—	—	—	274	3	9,661	9,938
Total commercial real estate non-owner occupied and multifamily properties									Total commercial real estate non-owner occupied and multifamily properties	$94,412	$82,352	$71,407	$58,307	$16,908	$158,884	$482,270

Residential real estate:									Residential real estate:
1-4 family residential properties secured by first liens									1-4 family residential properties secured by first liens
Pass									Pass	$52,117	$5,088	$6,001	$2,535	$462	$6,968	$73,171
Classified									Classified	—	—	—	—	79	131	210
Total residential real estate 1-4 family residential properties secured by first liens									Total residential real estate 1-4 family residential properties secured by first liens	$52,117	$5,088	$6,001	$2,535	$541	$7,099	$73,381

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens									1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens
Pass									Pass	$6,992	$3,376	$2,041	$2,763	$2,781	$2,060	$20,013
Classified									Classified	—	—	—		239	7	246
Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens									Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	$6,992	$3,376	$2,041	$2,763	$3,020	$2,067	$20,259

1-4 family residential construction loans									1-4 family residential construction loans
Pass									Pass	$26,860	$3,897	$61	$—	$—	$13,073	$43,891

Total commercial real estate owner occupied properties $81,533 $85,374 $39,254 $15,363 $14,452 $64,224 $300,200
Non-owner occupied and multifamily properties
Pass $77,205 $77,961 $61,147 $34,307 $19,833 $154,561 $425,014
Classified — — — 10 10,286 1 10,297
Total commercial real estate non-owner occupied and multifamily properties $77,205 $77,961 $61,147 $34,317 $30,119 $154,562 $435,311
Residential real estate:
1-4 family residential properties secured by first liens
Pass $7,756 $8,023 $3,689 $531 $1,466 $8,812 $30,277
Classified 417 1,077 472 90 — 209 2,265
Total residential real estate 1-4 family residential properties secured by first liens $8,173 $9,100 $4,161 $621 $1,466 $9,021 $32,542
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens
Pass $5,806 $2,535 $3,229 $3,464 $259 $4,046 $19,339
Classified — — — 259 — 12 271
Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens $5,806 $2,535 $3,229 $3,723 $259 $4,058 $19,610
1-4 family residential construction loans
Pass $21,409 $1,056 $1,707 $62 $— $11,879 $36,113
Classified — — — — 109 — 109
Total residential real estate 1-4 family residential construction loans $21,409 $1,056 $1,707 $62 $109 $11,879 $36,222
Other construction, land development and raw land loans
Pass $39,624 $26,458 $11,044 $3,315 $139 $5,544 $86,124
Classified — — — 460 — 1,510 1,970
Total other construction, land development and raw land loans $39,624 $26,458 $11,044 $3,775 $139 $7,054 $88,094
Obligations of states and political subdivisions in the US
Pass $4,120 $812 $1,875 $343 $2,733 $6,520 $16,403
Classified — — — — — — —
Total obligations of states and political subdivisions in the US $4,120 $812 $1,875 $343 $2,733 $6,520 $16,403
Agricultural production, including commercial fishing
Pass $19,970 $3,929 $810 $1,118 $741 $1,391 $27,959
Classified — — — — — — —
Total agricultural production, including commercial fishing $19,970 $3,929 $810 $1,118 $741 $1,391 $27,959
Consumer loans
Pass $873 $815 $653 $403 $291 $1,766 $4,801
Classified — — — — — — —
Total consumer loans $873 $815 $653 $403 $291 $1,766 $4,801
Other loans
Pass $2,028 $1,645 $430 $95 $— $208 $4,406
Classified — — — — — — —
Total other loans $2,028 $1,645 $430 $95 $— $208 $4,406
Total loans
Pass $487,700 $261,687 $153,684 $95,818 $63,119 $296,998 $1,359,006
Classified 19,270 3,190 4,036 4,459 10,912 13,013 54,880
Total loans $506,970 $264,877 $157,720 $100,277 $74,031 $310,011 $1,413,886
Total pass loans $487,700 $261,687 $153,684 $95,818 $63,119 $296,998 $1,359,006
Government guarantees (145,713) (12,725) (14,429) (3,299) (306) (6,562) (183,034)
Total pass loans, net of government guarantees $341,987 $248,962 $139,255 $92,519 $62,813 $290,436 $1,175,972
Total classified loans $19,270 $3,190 $4,036 $4,459 $10,912 $13,013 $54,880


Classified									Classified	—	—	—	—	—	109	109
Total residential real estate 1-4 family residential construction loans									Total residential real estate 1-4 family residential construction loans	$26,860	$3,897	$61	$—	$—	$13,182	$44,000

Other construction, land development and raw land loans									Other construction, land development and raw land loans
Pass									Pass	$38,673	$42,448	$5,740	$1,713	$3,675	$5,112	$97,361
Classified									Classified	—	—	—	—	369	1,452	1,821
Total other construction, land development and raw land loans									Total other construction, land development and raw land loans	$38,673	$42,448	$5,740	$1,713	$4,044	$6,564	$99,182

Obligations of states and political subdivisions in the US									Obligations of states and political subdivisions in the US
Pass									Pass	$32,319	$—	$—	$—	$219	$1	$32,539
Classified									Classified	—	—	—	—	—	—	—
Total obligations of states and political subdivisions in the US									Total obligations of states and political subdivisions in the US	$32,319	$—	$—	$—	$219	$1	$32,539

Agricultural production, including commercial fishing									Agricultural production, including commercial fishing
Pass									Pass	$9,748	$17,692	$3,740	$604	$879	$1,436	$34,099
Classified									Classified	—	—	—	—	—	—	—
Total agricultural production, including commercial fishing									Total agricultural production, including commercial fishing	$9,748	$17,692	$3,740	$604	$879	$1,436	$34,099

Consumer loans									Consumer loans
Pass									Pass	$1,513	$363	$481	$345	$235	$1,391	$4,328
Classified									Classified	—	—	—	—	—	7	7
Total consumer loans									Total consumer loans	$1,513	$363	$481	$345	$235	$1,398	$4,335

Other loans									Other loans
Pass									Pass	$1,291	$330	$1,547	$384	$—	$67	$3,619
Classified									Classified	—	—	—	—	—	—	—
Total other loans									Total other loans	$1,291	$330	$1,547	$384	$—	$67	$3,619

Total loans									Total loans
Pass									Pass	$488,435	$312,866	$218,661	$116,822	$48,233	$289,603	$1,474,620
Classified									Classified	137	4,879	1,658	365	3,592	16,534	27,165
Total loans									Total loans	$488,572	$317,745	$220,319	$117,187	$51,825	$306,137	$1,501,785

Total pass loans									Total pass loans	$488,435	$312,866	$218,661	$116,822	$48,233	$289,603	$1,474,620
Government guarantees									Government guarantees	(25,172)	(36,531)	(9,751)	(12,885)	(2,964)	(5,314)	(92,617)
Total pass loans, net of government guarantees									Total pass loans, net of government guarantees	$463,263	$276,335	$208,910	$103,937	$45,269	$284,289	$1,382,003

Total classified loans									Total classified loans	$137	$4,879	$1,658	$365	$3,592	$16,534	$27,165
Government guarantees	Government guarantees	(7,201)	(1,259)	—	—	—	(10,571)	(19,031)	Government guarantees	—	(4,396)	(1,135)	—	—	(9,293)	(14,824)
Total classified loans, net government guarantees	Total classified loans, net government guarantees	$12,069	$1,931	$4,036	$4,459	$10,912	$2,442	$35,849	Total classified loans, net government guarantees	$137	$483	$523	$365	$3,592	$7,241	$12,341

2120

Past Due Loans: The following tables present an aging of contractually past due loans as of the periods presented:


(In Thousands)	(In Thousands)	30-59 Days Past Due	60-89 Days Past Due	Greater Than 90 Days Past Due	Total Past Due	Current	Total	Greater Than 90 Days Past Due Still Accruing	(In Thousands)	30-59 Days Past Due	60-89 Days Past Due	Greater Than 90 Days Past Due	Total Past Due	Current	Total	Greater Than 90 Days Past Due Still Accruing
June 30, 2022
March 31, 2023									March 31, 2023
Commercial & industrial loans	Commercial & industrial loans	$246	$132	$387	$765	$394,076	$394,841	$—	Commercial & industrial loans	$238	$—	$449	$687	$363,422	$364,109	$—
Commercial real estate:	Commercial real estate:								Commercial real estate:
Owner occupied properties	Owner occupied properties	737	0	1,076	1,813	311,361	313,174	—	Owner occupied properties	—	129	293	422	342,740	343,162	—
Non-owner occupied and multifamily properties	Non-owner occupied and multifamily properties	—	—	—	—	446,592	446,592	—	Non-owner occupied and multifamily properties	236	—	—	236	472,991	473,227	—
Residential real estate:	Residential real estate:								Residential real estate:
1-4 family residential properties secured by first liens	1-4 family residential properties secured by first liens	65	—	147	212	37,086	37,298	—	1-4 family residential properties secured by first liens	134	—	62	196	112,018	112,214	—
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	—	—	133	133	21,820	21,953	—	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	—	—	165	165	22,862	23,027	—
1-4 family residential construction loans	1-4 family residential construction loans	—	—	109	109	43,806	43,915	—	1-4 family residential construction loans	—	—	109	109	40,543	40,652	—
Other construction, land development and raw land loans	Other construction, land development and raw land loans	—	—	1,546	1,546	85,617	87,163	—	Other construction, land development and raw land loans	308	—	1,545	1,853	89,859	91,712	—
Obligations of states and political subdivisions in the US	Obligations of states and political subdivisions in the US	—	—	—	—	24,005	24,005	—	Obligations of states and political subdivisions in the US	—	—	—	—	42,257	42,257	—
Agricultural production, including commercial fishing	Agricultural production, including commercial fishing	—	—	—	—	29,482	29,482	—	Agricultural production, including commercial fishing	—	—	—	—	37,429	37,429	—
Consumer loans	Consumer loans	—	—	—	—	4,092	4,092	—	Consumer loans	15	—	—	15	4,646	4,661	—
Other loans	Other loans	—	—	—	—	3,194	3,194	—	Other loans	—	—	—	—	2,737	2,737	—
Total	Total	$1,048	$132	$3,398	$4,578	$1,401,131	$1,405,709	$—	Total	$931	$129	$2,623	$3,683	$1,531,504	$1,535,187	$—
December 31, 2021
December 31, 2022									December 31, 2022
Commercial & industrial loans	Commercial & industrial loans	$206	$51	$469	$726	$447,612	$448,338	$—	Commercial & industrial loans	$37	$521	$56	$614	$357,514	$358,128	$—
Commercial real estate:	Commercial real estate:								Commercial real estate:
Owner occupied properties	Owner occupied properties	12	—	1,176	1,188	299,012	300,200	—	Owner occupied properties	—	—	798	798	349,175	349,973	—
Non-owner occupied and multifamily properties	Non-owner occupied and multifamily properties	—	—	—	—	435,311	435,311	—	Non-owner occupied and multifamily properties	—	—	274	274	481,996	482,270	—
Residential real estate:	Residential real estate:								Residential real estate:
1-4 family residential properties secured by first liens	1-4 family residential properties secured by first liens	—	—	90	90	32,452	32,542	—	1-4 family residential properties secured by first liens	60	79	72	211	73,170	73,381	—
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	—	—	139	139	19,471	19,610	—	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	112	—	127	239	20,020	20,259	—
1-4 family residential construction loans	1-4 family residential construction loans	—	—	109	109	36,113	36,222	—	1-4 family residential construction loans	—	—	109	109	43,891	44,000	—
Other construction, land development and raw land loans	Other construction, land development and raw land loans	—	—	1,636	1,636	86,458	88,094	—	Other construction, land development and raw land loans	—	—	1,545	1,545	97,637	99,182	—
Obligations of states and political subdivisions in the US	Obligations of states and political subdivisions in the US	—	—	—	—	16,403	16,403	—	Obligations of states and political subdivisions in the US	—	—	—	—	32,539	32,539	—
Agricultural production, including commercial fishing	Agricultural production, including commercial fishing	—	—	—	—	27,959	27,959	—	Agricultural production, including commercial fishing	—	—	—	—	34,099	34,099	—
Consumer loans	Consumer loans	—	—	—	—	4,801	4,801	—	Consumer loans	6	80	—	86	4,249	4,335	—
Other loans	Other loans	—	—	—	—	4,406	4,406	—	Other loans	—	—	—	—	3,619	3,619	—
Total	Total	$218	$51	$3,619	$3,888	$1,409,998	$1,413,886	$—	Total	$215	$680	$2,981	$3,876	$1,497,909	$1,501,785	$—

Nonaccrual loans: Nonaccrual loans net of government guarantees totaled ~~$7.3~~$6.1 million and ~~$10.7~~$6.4 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The following table presents loans on nonaccrual status and loans on nonaccrual ~~status~~

2221

status for the periods presented for which there was no related ACL. All loans with no ACL are individually evaluated for credit losses in the Company's Current Expected Credit Losses methodology.


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
(In Thousands)	(In Thousands)	Nonaccrual	Nonaccrual With No ACL	Nonaccrual	Nonaccrual With No ACL	(In Thousands)	Nonaccrual	Nonaccrual With No ACL	Nonaccrual	Nonaccrual With No ACL

Commercial & industrial loans	Commercial & industrial loans	$3,496	$3,496	$4,350	$4,298	Commercial & industrial loans	$5,820	$2,997	$3,294	$3,287
Commercial real estate:	Commercial real estate:					Commercial real estate:
Owner occupied properties	Owner occupied properties	2,352	2,348	3,506	3,506	Owner occupied properties	919	919	1,457	1,457

Non-owner occupied and multifamily properties						Non-owner occupied and multifamily properties	—	—	274	274
Residential real estate:	Residential real estate:					Residential real estate:
1-4 family residential properties secured by first liens	1-4 family residential properties secured by first liens	219	219	1,778	1,778	1-4 family residential properties secured by first liens	143	138	151	144
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	280	207	271	215	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	239	193	246	198
1-4 family residential construction loans	1-4 family residential construction loans	109	109	109	109	1-4 family residential construction loans	109	109	109	109
Other construction, land development and raw land loans	Other construction, land development and raw land loans	1,545	1,545	1,636	1,636	Other construction, land development and raw land loans	1,545	1,545	1,545	1,545

Consumer loans		—	—	—	—

Total nonaccrual loans	Total nonaccrual loans	8,001	7,924	11,650	11,542	Total nonaccrual loans	8,775	5,901	7,076	7,014
Government guarantees on nonaccrual loans	Government guarantees on nonaccrual loans	(683)	(683)	(978)	(978)	Government guarantees on nonaccrual loans	(2,692)	(152)	(646)	(646)
Net nonaccrual loans	Net nonaccrual loans	$7,318	$7,241	$10,672	$10,564	Net nonaccrual loans	$6,083	$5,749	$6,430	$6,368

There was no interest on nonaccrual loans reversed through interest income during three-month period ending ~~June 30, 2022 and~~March 31, 2023. There was $2,000 in interest on nonaccrual loans reversed through interest income during the ~~six-month~~three-month period ending ~~June 30,~~March 31, 2022. ~~There was no interest on nonaccrual loans reversed through interest income during the three and six-month periods ending June 30, 2021.~~

There was no interest earned on nonaccrual loans with a principal balance during the ~~three and six-month~~three-month periods ending ~~June 30, 2022~~March 31, 2023 and ~~June 30, 2021, respectively.~~March 31, 2022. However, the Company recognized interest income of ~~$873,000~~$179,000 and ~~$232,000~~$57,000 in the three-month periods ending ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $930,000 and $366,000 in the six-month periods ending June 30, 2022 and 2021,~~ respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero.

2322

~~Troubled Debt Restructurings:~~ Loan Modifications:~~Loans classified as TDRs totaled $8.9 million and $10.6 million at June 30, 2022 and December 31, 2021, respectively. A TDR is a loan~~ The Company modifies loans to ~~a borrower that is~~borrowers experiencing financial difficulty ~~that has been modified from its original terms and conditions in such~~as a ~~way that~~normal part of our business. These modifications include providing term extensions/modifications, payment modifications, interest rate modifications, or, on rare occasions, principal forgiveness. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL. The Company ~~is granting the borrower a concession that it would not grant otherwise.~~ may provide multiple types of concessions on one loan.

There were no loans that were both experiencing financial difficulty and modified during the first quarter of 2023.

As noted in Note 1, the Company adopted ASU 2022-02 effective January 1, 2023. ASU 2022-02 eliminates the accounting guidance for loans classified as TDRs. TDRs totaled $5.1 million at December 31, 2022.

The provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and ~~December 31, 2021.~~the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company has elected to adopt these provisions of the CARES Act. ~~The~~As of March 31, 2023 and December 31, 2022, the Company has made the following types of loan modifications related to COVID-19, which are not classified as TDRs ~~with~~ principal balance outstanding of:

Loan Modifications due to COVID-19 as of June 30, 2022
(Dollars in thousands) Interest Only Full Payment Deferral Total
Portfolio loans $23,573 $— $23,573
Number of modifications 5 — 5


Loan Modifications due to COVID-19 as of December 31, 2021
Loan Modifications due to COVID-19 as of March 31, 2023 and December 31, 2022					Loan Modifications due to COVID-19 as of March 31, 2023 and December 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Interest Only	Full Payment Deferral	Total	(Dollars in thousands)	Interest Only	Full Payment Deferral	Total
Portfolio loans	Portfolio loans	$49,219	$—	$49,219	Portfolio loans	$999	$—	$999
Number of modifications	Number of modifications	16	—	16	Number of modifications	1	—	1

~~The Company has granted a variety of concessions to borrowers in the form of loan modifications. The modifications granted can generally be described in the following categories:~~

~~Rate Modification: A modification in which the interest rate is changed.~~

~~Term Modification: A modification in which the maturity date, timing of payments, or frequency of payments is changed.~~

~~Payment Modification: A modification in which the dollar amount of the payment is changed, or in which a loan is converted to interest only payments for a period of time is included in this category.~~

~~Combination Modification: Any other type of modification, including the use of multiple categories above.~~

AQR pass graded loans included above in the impaired loan data are loans classified as TDRs. By definition, TDRs are considered impaired loans. All of the Company's TDRs are included in impaired loans.

There were no newly restructured loans that occurred during the six months ended June 30, 2022. As discussed above, the CARES Act provided banks an option to elect to not account for certain loan modifications related to COVID-19 between March 1, 2020 and December 31, 2021 as TDRs as long as the borrowers were not more than 30 days past due as of December 31, 2019. The disclosed loan restructurings were not related to COVID-19 modifications.

Accrual Status Nonaccrual Status Total Modifications
(In Thousands)
Existing Troubled Debt Restructurings $3,008 $5,844 $8,852
Total $3,008 $5,844 $8,852

~~The following table presents newly restructured loans that occurred during the six months ended June 30, 2021, by concession (terms modified):~~

June 30, 2021
Number of Contracts Rate Modification Term Modification Payment Modification Combination Modification Total Modifications
(In Thousands)
Pre-Modification Outstanding Recorded Investment:
Commercial - AQR substandard 1 $— $254 $— $— $254
Total 1 $— $254 $— $— $254
Post-Modification Outstanding Recorded Investment:
Commercial - AQR substandard 1 $— $251 $— $— $251
Total 1 $— $251 $— $— $251

The Company had no commitments to extend additional credit to borrowers whose terms have been modified in TDRs. There were no in charge-offs in the six months ended June 30, 2022 on loans that were newly classified as TDRs during the same period.

~~There were no loans that defaulted during the six months ended June 30, 2022 and 2021, respectively, that were restructured in the previous twelve months.~~

4. Purchased Receivables

Purchased receivables are carried at their principal amount outstanding, net of an ACL, and have a maturity of less than one year. There were no purchased receivables past due at ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021,~~2022, and there were no restructured purchased receivables at ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

Income on purchased receivables is accrued and recognized on the principal amount outstanding using an effective interest method except when management believes doubt exists as to the collectability of the income or principal. There were no nonperforming purchased receivables as of ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

There was no activity and no balance in the ACL for purchased receivables as of ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

The following table summarizes the components of net purchased receivables for the ~~periods~~dates indicated:


(In Thousands)	(In Thousands)	June 30, 2022	December 31, 2021	(In Thousands)	March 31, 2023	December 31, 2022
Purchased receivables	Purchased receivables	$15,277	$6,987	Purchased receivables	$21,190	$19,994
Allowance for credit losses - purchased receivables	Allowance for credit losses - purchased receivables	—	—	Allowance for credit losses - purchased receivables	—	—
Total	Total	$15,277	$6,987	Total	$21,190	$19,994

2523

5. Servicing Rights

Mortgage servicing rights

The following table details the activity in the Company's mortgage servicing rights ("MSR") for the ~~three and six-month~~three-month periods ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022

Balance, beginning of period	Balance, beginning of period	$15,422	$11,657	$13,724	$11,218	Balance, beginning of period	$18,635	$13,724
Additions for new MSR capitalized	Additions for new MSR capitalized	1,128	1,745	2,115	3,193	Additions for new MSR capitalized	463	987
Changes in fair value:	Changes in fair value:					Changes in fair value:
Due to changes in model inputs of assumptions (1)	Due to changes in model inputs of assumptions (1)	(225)	16	967	(164)	Due to changes in model inputs of assumptions (1)	(212)	1,192
Other (2)	Other (2)	(24)	(583)	(505)	(1,412)	Other (2)	(583)	(481)
Balance, end of period	Balance, end of period	$16,301	$12,835	$16,301	$12,835	Balance, end of period	$18,303	$15,422

(1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.

(2) Represents changes due to collection/realization of expected cash flows over time.

The following table details information related to our serviced mortgage loan portfolio as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


(In Thousands)	(In Thousands)	June 30, 2022		December 31, 2021		(In Thousands)	March 31, 2023		December 31, 2022

Balance of mortgage loans serviced for others	Balance of mortgage loans serviced for others	$818,266		$772,764		Balance of mortgage loans serviced for others	$911,065		$898,840
MSR as a percentage of serviced loans	MSR as a percentage of serviced loans	1.99	%	1.78	%	MSR as a percentage of serviced loans	2.01	%	2.07	%

The Company recognized servicing fees of ~~$804,000~~$905,000 and ~~$707,000~~$783,000 during the three-month periods ending ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $1.6 million and $1.4 million during the six-month periods ending June 30, 2022 and 2021,~~ respectively, which includes contractually specified servicing fees and ancillary fees as a component of other noninterest income in the Company's Consolidated Statements of Income.

The following table outlines the weighted average key assumptions used in measuring the fair value of MSR as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Constant prepayment rate	Constant prepayment rate	7.37	%	11.80	%	Constant prepayment rate	5.67	%	6.64	%
Discount rate	Discount rate	9.25	%	8.00	%	Discount rate	10.97	%	11.25	%

2624

Key economic assumptions and the sensitivity of the current fair value for MSR to immediate adverse changes in those assumptions at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:


(In Thousands)	(In Thousands)			June 30, 2022		December 31, 2021		(In Thousands)			March 31, 2023		December 31, 2022
Aggregate portfolio principal balance	Aggregate portfolio principal balance			$818,266		$772,764		Aggregate portfolio principal balance			$911,065		$898,840
Weighted average rate of note	Weighted average rate of note			3.28	%	3.31	%	Weighted average rate of note			3.54	%	3.47	%

June 30, 2022		Base		1.0% Adverse Rate Change		2.0% Adverse Rate Change
March 31, 2023								March 31, 2023	Base		1.0% Adverse Rate Change		2.0% Adverse Rate Change
Constant prepayment rate	Constant prepayment rate	7.37	%	14.75	%	22.12	%	Constant prepayment rate	5.67	%	5.71	%	7.15	%
Discount rate	Discount rate	9.25	%	8.25	%	7.25	%	Discount rate	10.97	%	9.97	%	8.97	%
Fair value MSR	Fair value MSR	$16,301		$12,424		$9,885		Fair value MSR	$18,303		$17,778		$16,869
Percentage of MSR	Percentage of MSR	1.99	%	1.52	%	1.21	%	Percentage of MSR	2.01	%	1.95	%	1.85	%

December 31, 2021
December 31, 2022								December 31, 2022
Constant prepayment rate	Constant prepayment rate	11.80	%	23.59	%	34.57	%	Constant prepayment rate	6.64	%	13.28	%	19.92	%
Discount rate	Discount rate	8.00	%	7.00	%	6.00	%	Discount rate	11.25	%	10.25	%	9.25	%
Fair value MSR	Fair value MSR	$13,724		$9,612		$7,256		Fair value MSR	$18,635		$14,763		$11,796
Percentage of MSR	Percentage of MSR	1.78	%	1.24	%	0.94	%	Percentage of MSR	2.07	%	1.64	%	1.31	%

The above tables show the sensitivity to market rate changes for the par rate coupon for a conventional one-to-four family Alaska Housing Finance Corporation/FNMA/FHLMC serviced home loan. The above tables reference a 100 basis point and 200 basis point decrease in discount rates.

These sensitivities are hypothetical and should be used with caution as the tables above demonstrate the Company’s methodology for estimating the fair value of MSR is highly sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in these tables, the effects of a variation in a particular assumption on the fair value of the MSR is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.

Commercial servicing rights

The commercial servicing rights asset ("CSR") has a carrying value ~~$1.1~~of $2.2 million at ~~both June 30, 2022~~March 31, 2023 and $2.1 million at December 31, ~~2021,~~2022, and is included in other assets and carried at fair value on the Company's Consolidated Balance Sheets. Total commercial loans serviced for others were ~~$254.5~~$290.8 million and ~~$259.8~~$285.3 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Key assumptions used in measuring the fair value of the CSR as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 include a constant prepayment rate of ~~16.08%~~10.19% and a discount rate of ~~9.94%~~12.00%.

6. Leases

The Company's lease commitments consist primarily of agreements to lease land and office facilities that it occupies to operate several of its retail branch locations that are classified as operating leases and are recognized on the balance sheet as right-of-use ("ROU") assets and lease liabilities. As of ~~June 30,~~March 31, 2023, the Company has operating lease ROU assets of $9.5 million and operating lease liabilities of $9.5 million. As of December 31, 2022, the Company ~~has~~had operating lease ROU assets of $9.9 million and operating lease liabilities of ~~$9.8 million. As of December 31, 2021, the Company had operating lease ROU assets of $11.0 million and operating lease liabilities of $11.0~~$9.9 million. The Company did not have any agreements that are classified as finance leases as of ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

2725

The following table presents additional information about the Company's operating leases:


			Three Months Ended June 30,		Six Months Ended June 30,						Three Months Ended March 31,
(In Thousands)	(In Thousands)		2022	2021	2022		2021		(In Thousands)			2023		2022
Lease Cost	Lease Cost								Lease Cost
		Operating lease cost(1)	$672	$702	$1,353		$1,418			Operating lease cost(1)		$699		$681
		Short term lease cost(1)	5	6	17		13			Short term lease cost(1)		33		12
		Total lease cost	$677	$708	$1,370		$1,431			Total lease cost		$732		$693

Other information	Other information								Other information
		Operating leases - operating cash flows			$1,278		$1,323			Operating leases - operating cash flows		$651		$644
		Weighted average lease term - operating leases, in years			10.79		10.80			Weighted average lease term - operating leases, in years		10.55		10.66
		Weighted average discount rate - operating leases			3.26	%	3.30	%		Weighted average discount rate - operating leases		3.39	%	3.23	%
(1)	(1)	Expenses are classified within occupancy expense on the Consolidated Statements of Income.							(1)	Expenses are classified within occupancy expense on the Consolidated Statements of Income.

The table below reconciles the remaining undiscounted cash flows for the next five years for each twelve-month period presented (unless otherwise indicated) and the total of the subsequent remaining years to the operating lease liabilities recorded on the balance sheet:


(In Thousands)	(In Thousands)	Operating Leases	(In Thousands)	Operating Leases
2022 (Six months)		$1,224
2023		2,109
2023 (Nine months)			2023 (Nine months)	$1,921
2024	2024	1,961	2024	2,274
2025	2025	1,858	2025	1,995
2026	2026	721	2026	861
2027			2027	500
Thereafter	Thereafter	4,266	Thereafter	4,137
Total minimum lease payments	Total minimum lease payments	$12,139	Total minimum lease payments	$11,688
Less: amount of lease payment representing interest	Less: amount of lease payment representing interest	(2,293)	Less: amount of lease payment representing interest	(2,222)
Present value of future minimum lease payments	Present value of future minimum lease payments	$9,846	Present value of future minimum lease payments	$9,466

2826

7. Derivatives

Derivatives swaps related to community banking activities

The Company enters into commercial loan interest rate swap agreements with commercial banking customers which are offset with a corresponding swap agreement with a third party financial institution ("counterparty"). The Company has agreements with its counterparties that contain provisions that provide that if the Company fails to maintain its status as a "well-capitalized" institution under regulatory guidelines, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. These agreements also require that the Company and the counterparty collateralize any fair value shortfalls that exceed $250,000 with eligible collateral, which includes cash and securities backed with the full faith and credit of the federal government. Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels. The Company pledged ~~$569,000~~$561,000 as of ~~June 30, 2022~~March 31, 2023 and ~~$8.2 million~~$553,000 as of December 31, ~~2021~~2022 in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements.

The Company had interest rate swaps related to commercial loans with an aggregate notional amount of ~~$213.0~~$223.8 million and ~~$212.6~~$226.2 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. At ~~June 30, 2022,~~March 31, 2023, the notional amount of interest rate swaps is made up of 1921 variable to fixed rate swaps to commercial loan customers totaling ~~$106.5~~$111.9 million, and 1921 fixed to variable rate swaps with a counterparty totaling ~~$106.5~~$111.9 million. Changes in fair value from these 1921 interest rate swaps offset each other in the first ~~six~~three months of ~~2022.~~2023. The Company recognized ~~$87,000~~zero and ~~$90,000~~$3,000 in fee income related to interest rate swaps in the ~~three and six-month~~three-month periods ending ~~June 30,~~March 31, 2023 and 2022, ~~respectively, and $103,000 and $195,000 in fee income related to interest rate swaps in the three and six-month periods ending June 30, 2021,~~ respectively. Interest rate swap income is recorded in other operating income on the Consolidated Statements of Income. None of these interest rate swaps are designated as hedging instruments.

The Company has an interest rate swap to hedge the variability in cash flows arising out of its junior subordinated debentures, which is floating rate debt, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $10.0 million of junior subordinated debentures held under Northrim Statutory Trust 2 at 3.72% through its maturity date. The floating rate that the dealer pays is equal to the three month LIBOR plus 1.37% which reprices quarterly on the payment date. This rate was ~~3.20%~~6.24% as of ~~June 30, 2022.~~March 31, 2023. The Company pledged $130,000 in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of ~~June 30, 2022~~March 31, 2023 and ~~$2.9 million~~$130,000 as of December 31, ~~2021.~~2022. Changes in the fair value of this interest rate swap are reported in other comprehensive income on the Consolidated Statements of Income. The unrealized gain on this interest rate swap was ~~$798,000~~$1.2 million as of ~~June 30, 2022~~March 31, 2023 and the unrealized loss was ~~$1.0~~$1.5 million as of December 31, ~~2021.~~2022.

Derivatives related to home mortgage banking activities

The Company also uses derivatives to hedge the risk of changes in the fair values of interest rate lock commitments. The Company enters into commitments to originate residential mortgage loans at specific rates; the value of these commitments are detailed in the table below as "interest rate lock commitments". The Company also hedges the interest rate risk associated with its residential mortgage loan commitments, which are referred to as "retail interest rate contracts" in the table below. Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates. RML had commitments to originate mortgage loans held for sale totaling ~~$116.2~~$41.1 million and ~~$81.6~~$29.1 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Changes in the value of RML's interest rate derivatives are recorded in mortgage banking income on the Consolidated Statements of Income. None of these derivatives are designated as hedging instruments.

2927

The following table presents the fair value of derivatives not designated as hedging instruments at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

(In Thousands)

Asset Derivatives

(In Thousands)

Asset Derivatives

June 30, 2022

December 31, 2021

March 31, 2023

December 31, 2022

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate swaps

Other assets

$8,316

$6,030

Interest rate swaps

Other assets

$10,683

$12,725

Interest rate lock commitments

Other assets

2,567

1,387

Interest rate lock commitments

Other assets

685

440

Retail interest rate contracts

Other assets

—

166

Total

$10,883

$7,583

Total

$11,368

$13,165

(In Thousands)

Liability Derivatives

(In Thousands)

Liability Derivatives

June 30, 2022

December 31, 2021

March 31, 2023

December 31, 2022

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate swaps

Other liabilities

$8,316

$6,030

Interest rate swaps

Other liabilities

$10,683

$12,725

Retail interest rate contracts

Other liabilities

376

—

Retail interest rate contracts

Other liabilities

107

Total

$8,692

$6,030

Total

$10,790

$12,728

The following table presents the net gains (losses) of derivatives not designated as hedging instruments for periods indicated below:


			Three Months Ended June 30,		Six Months Ended June 30,				Three Months Ended March 31,
(In Thousands)	(In Thousands)	Income Statement Location	2022	2021	2022	2021	(In Thousands)	Income Statement Location	2023	2022
Retail interest rate contracts	Retail interest rate contracts	Mortgage banking income	$391	($1,187)	$2,951	$1,813	Retail interest rate contracts	Mortgage banking income	($123)	$2,560
Interest rate lock commitments	Interest rate lock commitments	Mortgage banking income	829	369	349	(1,001)	Interest rate lock commitments	Mortgage banking income	228	(480)
Total	Total		$1,220	($818)	$3,300	$812	Total		$105	$2,080

Our derivative transactions with counterparties under International Swaps and Derivative Association master agreements include "right of set-off" provisions. "Right of set-off" provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes.

3028

The following table summarizes the derivatives that have a right of offset as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


June 30, 2022					Gross amounts not offset in the Statement of Financial Position
March 31, 2023								March 31, 2023				Gross amounts not offset in the Statement of Financial Position
(In Thousands)	(In Thousands)	Gross amounts of recognized assets and liabilities	Gross amounts offset in the Statement of Financial Position	Net amounts of assets and liabilities presented in the Statement of Financial Position	Financial Instruments	Collateral Posted	Net Amount	(In Thousands)	Gross amounts of recognized assets and liabilities	Gross amounts offset in the Statement of Financial Position	Net amounts of assets and liabilities presented in the Statement of Financial Position	Financial Instruments	Collateral Posted	Net Amount
Asset Derivatives	Asset Derivatives							Asset Derivatives
Interest rate swaps	Interest rate swaps	$8,316	$—	$8,316	$—	$—	$8,316	Interest rate swaps	$10,683	$—	$10,683	$—	$—	$10,683

Liability Derivatives	Liability Derivatives							Liability Derivatives
Interest rate swaps	Interest rate swaps	$8,316	$—	$8,316	$—	$569	$7,747	Interest rate swaps	$10,683	$—	$10,683	$—	$10,683	$—
Retail interest rate contracts	Retail interest rate contracts	376	—	376	—	—	376	Retail interest rate contracts	107	—	107	—	—	107

December 31, 2021					Gross amounts not offset in the Statement of Financial Position
December 31, 2022								December 31, 2022				Gross amounts not offset in the Statement of Financial Position
(In Thousands)	(In Thousands)	Gross amounts of recognized assets and liabilities	Gross amounts offset in the Statement of Financial Position	Net amounts of assets and liabilities presented in the Statement of Financial Position	Financial Instruments	Collateral Posted	Net Amount	(In Thousands)	Gross amounts of recognized assets and liabilities	Gross amounts offset in the Statement of Financial Position	Net amounts of assets and liabilities presented in the Statement of Financial Position	Financial Instruments	Collateral Posted	Net Amount
Asset Derivatives	Asset Derivatives							Asset Derivatives
Interest rate swaps	Interest rate swaps	$6,030	$—	$6,030	$—	$—	$6,030	Interest rate swaps	$12,725	$—	$12,725	$—	$—	$12,725
Retail interest rate contracts		166	—	166	—	—	166

Liability Derivatives	Liability Derivatives							Liability Derivatives
Interest rate swaps	Interest rate swaps	$6,030	$—	$6,030	$—	$6,030	$—	Interest rate swaps	$12,725	$—	$12,725	$—	$12,725	$—

Retail interest rate contracts								Retail interest rate contracts	3	—	3	—	—	3

8. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Investment securities available for sale and marketable equity securities: Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Servicing rights: MSR and CSR are measured at fair value on a recurring basis. These assets are classified as Level 3 as quoted prices are not available. In order to determine the fair value of MSR and CSR, the present value of net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates, and ancillary fee income net of servicing costs.

Derivative instruments: The fair value of the interest rate lock commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. Interest rate contracts are valued in a model, which uses as its basis a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Company has determined that the

majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation

adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of ~~June 30, 2022,~~March 31, 2023, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives. As a result, the Company has classified its interest rate derivative valuations in Level 2 of the fair value hierarchy.

Commitments to extend credit and standby letters of credit: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.

Assets Subject to Nonrecurring Adjustment to Fair Value

The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets, impaired loans, and Other Real Estate Owned ("OREO") at fair value on a nonrecurring basis in accordance with GAAP. Any nonrecurring adjustments to fair value usually result from the write-down of individual assets.

The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and impaired loans as of each reporting date. In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

3230

Estimated fair values as of the periods indicated are as follows:


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
(In Thousands)	(In Thousands)	Carrying Amount	Fair Value	Carrying Amount	Fair Value	(In Thousands)	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Financial assets:	Financial assets:					Financial assets:
Level 1 inputs:	Level 1 inputs:					Level 1 inputs:
Cash, due from banks and deposits in other banks	Cash, due from banks and deposits in other banks	$336,923	$336,923	$645,827	$645,827	Cash, due from banks and deposits in other banks	$139,211	$139,211	$259,350	$259,350
Investment securities available for sale	Investment securities available for sale	313,082	313,082	141,531	141,531	Investment securities available for sale	352,318	352,318	356,837	356,837
Marketable equity securities	Marketable equity securities	9,122	9,122	8,420	8,420	Marketable equity securities	10,515	10,515	10,740	10,740

Level 2 inputs:	Level 2 inputs:					Level 2 inputs:
Investment securities available for sale	Investment securities available for sale	298,945	298,945	285,153	285,153	Investment securities available for sale	325,416	325,416	320,192	320,192
Investment in Federal Home Loan Bank stock	Investment in Federal Home Loan Bank stock	3,824	3,824	3,107	3,107	Investment in Federal Home Loan Bank stock	3,752	3,752	3,816	3,816
Loans held for sale	Loans held for sale	63,080	63,080	73,650	73,650	Loans held for sale	23,985	23,985	27,538	27,538
Accrued interest receivable		8,117	8,117	6,846	6,846
Interest rate swaps	Interest rate swaps	8,316	8,316	6,030	6,030	Interest rate swaps	12,165	12,165	14,179	14,179
Retail interest rate contracts		—	—	166	166

Level 3 inputs:	Level 3 inputs:					Level 3 inputs:
Investment securities held to maturity	Investment securities held to maturity	29,750	26,371	20,000	19,164	Investment securities held to maturity	36,750	32,531	36,750	32,639
Loans	Loans	1,405,709	1,342,962	1,413,886	1,396,486	Loans	1,535,187	1,428,744	1,501,785	1,408,350
Purchased receivables, net	Purchased receivables, net	15,277	15,277	6,987	6,987	Purchased receivables, net	21,190	21,190	19,994	19,994
Interest rate lock commitments	Interest rate lock commitments	2,567	2,567	1,387	1,387	Interest rate lock commitments	685	685	440	440
Mortgage servicing rights	Mortgage servicing rights	16,301	16,301	13,724	13,724	Mortgage servicing rights	18,303	18,303	18,635	18,635
Commercial servicing rights	Commercial servicing rights	1,069	1,069	1,084	1,084	Commercial servicing rights	2,170	2,170	2,129	2,129

Financial liabilities:	Financial liabilities:					Financial liabilities:
Level 2 inputs:	Level 2 inputs:					Level 2 inputs:
Deposits	Deposits	$2,335,390	$2,332,869	$2,421,631	$2,422,215	Deposits	$2,296,273	$2,292,496	$2,387,211	$2,383,975

Borrowings	Borrowings	14,302	12,907	14,508	14,727	Borrowings	13,991	12,116	14,095	12,382
Accrued interest payable		94	94	31	31
Interest rate swaps	Interest rate swaps	8,316	8,316	6,985	6,985	Interest rate swaps	10,683	10,683	12,725	12,725

Retail interest rate contracts						Retail interest rate contracts	107	107	3	3

Level 3 inputs:	Level 3 inputs:					Level 3 inputs:

Junior subordinated debentures	Junior subordinated debentures	10,310	9,578	10,310	9,727	Junior subordinated debentures	10,310	11,512	10,310	11,266

3331

The following table sets forth the balances as of the periods indicated of assets and liabilities measured at fair value on a recurring basis:


(In Thousands)	(In Thousands)	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	(In Thousands)	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
June 30, 2022
March 31, 2023						March 31, 2023
Assets:	Assets:					Assets:
Available for sale securities	Available for sale securities					Available for sale securities
U.S. Treasury and government sponsored entities	U.S. Treasury and government sponsored entities	$521,339	$281,079	$240,260	$—	U.S. Treasury and government sponsored entities	$602,374	$336,903	$265,471	$—
Municipal securities	Municipal securities	807	—	807	—	Municipal securities	802	—	802	—

Corporate bonds	Corporate bonds	32,003	32,003	—	—	Corporate bonds	15,415	15,415	—	—
Collateralized loan obligations	Collateralized loan obligations	57,878	—	57,878	—	Collateralized loan obligations	59,143	—	59,143	—
Total available for sale securities	Total available for sale securities	$612,027	$313,082	$298,945	$—	Total available for sale securities	$677,734	$352,318	$325,416	$—
Marketable equity securities	Marketable equity securities	$9,122	$9,122	$—	$—	Marketable equity securities	$10,515	$10,515	$—	$—
Total marketable equity securities	Total marketable equity securities	$9,122	$9,122	$—	$—	Total marketable equity securities	$10,515	$10,515	$—	$—
Interest rate swaps	Interest rate swaps	$8,316	$—	$8,316	$—	Interest rate swaps	$11,838	$—	$11,838	$—
Interest rate lock commitments	Interest rate lock commitments	2,567	—	—	2,567	Interest rate lock commitments	685	—	—	685
Mortgage servicing rights	Mortgage servicing rights	16,301	—	—	16,301	Mortgage servicing rights	18,303	—	—	18,303
Commercial servicing rights	Commercial servicing rights	1,069	—	—	1,069	Commercial servicing rights	2,170	—	—	2,170

Total other assets	Total other assets	$28,253	$—	$8,316	$19,937	Total other assets	$32,996	$—	$11,838	$21,158
Liabilities:	Liabilities:					Liabilities:
Interest rate swaps	Interest rate swaps	$8,316	$—	$8,316	$—	Interest rate swaps	$10,683	$—	$10,683	$—
Retail interest rate contracts	Retail interest rate contracts	376	—	376	—	Retail interest rate contracts	107	—	107	—
Total other liabilities	Total other liabilities	$8,692	$—	$8,692	$—	Total other liabilities	$10,790	$—	$10,790	$—
December 31, 2021
December 31, 2022						December 31, 2022
Assets:	Assets:					Assets:
Available for sale securities	Available for sale securities					Available for sale securities
U.S. Treasury and government sponsored entities	U.S. Treasury and government sponsored entities	$341,480	$115,686	$225,794	$—	U.S. Treasury and government sponsored entities	$595,161	$333,193	$261,968	$—
Municipal securities	Municipal securities	840	—	840	—	Municipal securities	795	—	795	—

Corporate bonds	Corporate bonds	32,946	25,845	7,101	—	Corporate bonds	23,644	23,644	—	—
Collateralized loan obligations	Collateralized loan obligations	51,418	—	51,418	—	Collateralized loan obligations	57,429	—	57,429	—
Total available for sale securities	Total available for sale securities	$426,684	$141,531	$285,153	$—	Total available for sale securities	$677,029	$356,837	$320,192	$—
Marketable equity securities	Marketable equity securities	$8,420	$8,420	$—	$—	Marketable equity securities	$10,740	$10,740	$—	$—
Total marketable securities	Total marketable securities	$8,420	$8,420	$—	$—	Total marketable securities	$10,740	$10,740	$—	$—
Interest rate swaps	Interest rate swaps	$6,030	$—	$6,030	$—	Interest rate swaps	$14,178	$—	$14,178	$—
Interest rate lock commitments	Interest rate lock commitments	1,387	—	—	1,387	Interest rate lock commitments	440	—	—	440
Mortgage servicing rights	Mortgage servicing rights	13,724	—	—	13,724	Mortgage servicing rights	18,635	—	—	18,635
Commercial servicing rights	Commercial servicing rights	1,084	—	—	1,084	Commercial servicing rights	2,129	—	—	2,129
Retail interest rate contracts		166	—	166	—

Total other assets	Total other assets	$22,391	$—	$6,196	$16,195	Total other assets	$35,382	$—	$14,178	$21,204
Liabilities:	Liabilities:					Liabilities:
Interest rate swaps	Interest rate swaps	$6,985	$—	$6,985	$—	Interest rate swaps	$12,725	$—	$12,725	$—

Retail interest rate contracts						Retail interest rate contracts	3	—	3	—
Total other liabilities	Total other liabilities	$6,985	$—	$6,985	$—	Total other liabilities	$12,728	$—	$12,728	$—

3432

The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the ~~three and six-month~~three-month periods ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:

(In Thousands) Beginning balance Change included in earnings Purchases and issuances Sales and settlements Ending balance Net change in unrealized gains (losses) relating to items held at end of period
Three Months Ended June 30, 2022
Interest rate lock commitments $965 ($520) $3,863 ($1,741) $2,567 $2,567
Mortgage servicing rights 15,422 (249) 1,128 — 16,301 —
Commercial servicing rights 1,091 (22) — — 1,069 —
Total $17,478 ($791) $4,991 ($1,741) $19,937 $2,567
Three Months Ended June 30, 2021
Interest rate lock commitments $2,713 ($867) $7,183 ($5,985) $3,044 $3,044
Mortgage servicing rights 11,657 (567) 1,745 — 12,835 —
Commercial servicing rights 1,327 (53) 18 — 1,292 —
Total $15,697 ($1,487) $8,946 ($5,985) $17,171 $3,044


(In Thousands)	(In Thousands)	Beginning balance	Change included in earnings	Purchases and issuances	Sales and settlements	Ending balance	Net change in unrealized gains (losses) relating to items held at end of period	(In Thousands)	Beginning balance	Change included in earnings	Purchases and issuances	Sales and settlements	Ending balance	Net change in unrealized gains (losses) relating to items held at end of period
Six Months Ended June 30, 2022
Three Months Ended March 31, 2023								Three Months Ended March 31, 2023
Interest rate lock commitments	Interest rate lock commitments	$1,387	($1,029)	$8,212	($6,004)	$2,567	$2,567	Interest rate lock commitments	$440	($174)	$1,497	($1,078)	$685	$685
Mortgage servicing rights	Mortgage servicing rights	13,724	462	2,115	—	16,301	—	Mortgage servicing rights	18,635	(795)	463	—	18,303	—
Commercial servicing rights	Commercial servicing rights	1,084	(48)	33	—	1,069	—	Commercial servicing rights	2,129	(49)	90	—	2,170	—
Total	Total	$16,195	($615)	$10,360	($6,004)	$19,937	$2,567	Total	$21,204	($1,018)	$2,050	($1,078)	$21,158	$685
Six Months Ended June 30, 2021
Three Months Ended March 31, 2022								Three Months Ended March 31, 2022
Interest rate lock commitments	Interest rate lock commitments	$4,034	($2,014)	$16,451	($15,427)	$3,044	$3,044	Interest rate lock commitments	$1,387	($509)	$4,350	($4,263)	$965	$965
Mortgage servicing rights	Mortgage servicing rights	11,218	(1,576)	3,193	—	12,835	—	Mortgage servicing rights	13,724	711	987	—	15,422	—
Commercial servicing rights	Commercial servicing rights	1,310	(76)	58	—	1,292	—	Commercial servicing rights	1,084	(26)	33	—	1,091	—
Total	Total	$16,562	($3,666)	$19,702	($15,427)	$17,171	$3,044	Total	$16,195	$176	$5,370	($4,263)	$17,478	$965

There were no changes in unrealized gains and losses for the ~~three and six-month~~three-month periods ending ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ included in other comprehensive income for recurring Level 3 fair value measurements.

3533

As of and for the periods ending ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis. For loans individually measured for credit losses, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy.


(In Thousands)	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
March 31, 2023
Loans individually measured for credit losses	$2,822	$—	$—	$2,822


Total	$2,822	$—	$—	$2,822
December 31, 2022
Loans individually measured for credit losses	$—	$—	$—	$—


Total	$—	$—	$—	$—

The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the ~~three and six-month~~three-month periods ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022
Loans individually measured for credit losses	Loans individually measured for credit losses	($89)	($213)	$—	$772	Loans individually measured for credit losses	$27	$89

Total loss from nonrecurring measurements	Total loss from nonrecurring measurements	($89)	($213)	$—	$772	Total loss from nonrecurring measurements	$27	$89

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

Financial Instrument

Valuation Technique

Unobservable Input

Weighted Average Rate Range

~~June 30,~~March 31, 2023

Interest rate lock commitment

External pricing model

Pull through rate

91.28

Mortgage servicing rights

Discounted cash flow

Constant prepayment rate

4.58% - 11.68%

Discount rate

9.51% - 11.00%

Commercial servicing rights

Discounted cash flow

Constant prepayment rate

4.19% - 22.87%

Discount rate

12.00

December 31, 2022

Interest rate lock commitment

External pricing model

Pull through rate

~~91.85~~93.18

Mortgage servicing rights

Discounted cash flow

Constant prepayment rate

~~7.34%~~6.62% - ~~8.73%~~7.43%

Discount rate

~~9.25~~

%11.25%

Commercial servicing rights

Discounted cash flow

Constant prepayment rate

~~12.30%~~4.19% - ~~16.57%~~22.87%

Discount rate

~~9.94~~

~~December 31, 2021~~

~~Interest rate lock commitment~~

~~External pricing model~~

~~Pull through rate~~

~~93.27~~

~~Mortgage servicing rights~~

~~Discounted cash flow~~

~~Constant prepayment rate~~

~~9.25% - 14.21%~~

~~Discount rate~~

~~8.00%~~

~~Commercial servicing rights~~

~~Discounted cash flow~~

~~Constant prepayment rate~~

~~12.30% - 16.57%~~

~~Discount rate~~

~~9.94~~12.00

3634

9. Segment Information

The Company's operations are managed along 2two operating segments: Community Banking and Home Mortgage Lending. The Community Banking segment's principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas. As of ~~June 30, 2022,~~March 31, 2023, the Community Banking segment operated 1719 branches throughout Alaska. The Home Mortgage Lending segment's principal business focus is the origination and sale of mortgage loans for 1-4 family residential properties.

Summarized financial information for the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:


		Three Months Ended June 30, 2022				Three Months Ended March 31, 2023
(In Thousands)	(In Thousands)	Community Banking	Home Mortgage Lending	Consolidated	(In Thousands)	Community Banking	Home Mortgage Lending	Consolidated

Interest income	Interest income	$22,369	$623	$22,992	Interest income	$29,493	$302	$29,795
Interest expense	Interest expense	766	14	780	Interest expense	4,741	22	4,763
Net interest income	Net interest income	21,603	609	22,212	Net interest income	24,752	280	25,032
Provision for credit losses		463	—	463
Benefit for credit losses					Benefit for credit losses	360	—	360
Other operating income	Other operating income	1,907	5,900	7,807	Other operating income	2,900	2,008	4,908

Other operating expense	Other operating expense	16,415	6,823	23,238	Other operating expense	17,417	6,092	23,509
Income before provision for income taxes	Income before provision for income taxes	6,632	(314)	6,318	Income before provision for income taxes	9,875	(3,804)	6,071
Provision for income taxes	Provision for income taxes	1,605	(82)	1,523	Provision for income taxes	2,315	(1,074)	1,241
Net income	Net income	$5,027	($232)	$4,795	Net income	$7,560	($2,730)	$4,830


		Three Months Ended June 30, 2021				Three Months Ended March 31, 2022
(In Thousands)	(In Thousands)	Community Banking	Home Mortgage Lending	Consolidated	(In Thousands)	Community Banking	Home Mortgage Lending	Consolidated

Interest income	Interest income	$19,476	$777	$20,253	Interest income	$19,650	$408	$20,058
Interest expense	Interest expense	1,008	53	1,061	Interest expense	741	13	754
Net interest income	Net interest income	18,468	724	19,192	Net interest income	18,909	395	19,304
Benefit for credit losses	Benefit for credit losses	(427)	—	(427)	Benefit for credit losses	(150)	—	(150)
Other operating income	Other operating income	2,772	11,360	14,132	Other operating income	3,841	6,982	10,823

Other operating expense	Other operating expense	14,551	7,785	22,336	Other operating expense	14,831	6,270	21,101
Income before provision for income taxes	Income before provision for income taxes	7,116	4,299	11,415	Income before provision for income taxes	8,069	1,107	9,176
Provision for income taxes	Provision for income taxes	1,850	1,220	3,070	Provision for income taxes	1,641	309	1,950
Net income	Net income	$5,266	$3,079	$8,345	Net income	$6,428	$798	$7,226


March 31, 2023
(In Thousands)	Community Banking	Home Mortgage Lending	Consolidated

Total assets	$2,422,575	$157,462	$2,580,037
Loans held for sale	$—	$23,985	$23,985

3735

Six Months Ended June 30, 2022
(In Thousands) Community Banking Home Mortgage Lending Consolidated
Interest income $42,019 $1,031 $43,050
Interest expense 1,507 27 1,534
Net interest income 40,512 1,004 41,516
Provision for credit losses 313 — 313
Other operating income 5,748 12,882 18,630
Other operating expense 31,246 13,093 44,339
Income before provision for income taxes 14,701 793 15,494
Provision for income taxes 3,246 227 3,473
Net income $11,455 $566 $12,021

Six Months Ended June 30, 2021
(In Thousands) Community Banking Home Mortgage Lending Consolidated
Interest income $39,275 $1,574 $40,849
Interest expense 2,073 91 2,164
Net interest income 37,202 1,483 38,685
Benefit for credit losses (1,915) — (1,915)
Other operating income 5,046 24,982 30,028
Other operating expense 28,215 15,448 43,663
Income before provision for income taxes 15,948 11,017 26,965
Provision for income taxes 3,302 3,137 6,439
Net income $12,646 $7,880 $20,526

June 30, 2022
(In Thousands) Community Banking Home Mortgage Lending Consolidated
Total assets $2,511,565 $99,589 $2,611,154
Loans held for sale $— $63,080 $63,080


December 31, 2021
December 31, 2022					December 31, 2022
(In Thousands)	(In Thousands)	Community Banking	Home Mortgage Lending	Consolidated	(In Thousands)	Community Banking	Home Mortgage Lending	Consolidated

Total assets	Total assets	$2,615,433	$109,286	$2,724,719	Total assets	$2,550,578	$123,740	$2,674,318
Loans held for sale	Loans held for sale	$—	$73,650	$73,650	Loans held for sale	$—	$27,538	$27,538

3836

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the unaudited consolidated financial statements of Northrim BanCorp, Inc. (the “Company”) and the notes thereto presented elsewhere in this report and with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Except as otherwise noted, references to "we", "our", "us" or "the Company" refer to Northrim BanCorp, Inc. and its subsidiaries that are consolidated for financial reporting purposes.

Note Regarding Forward Looking-Statements

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, and statements related to the expected or potential impact of the novel coronavirus ("COVID-19") pandemic and related responses of the government.~~economy. All statements, other than statements of historical fact, ~~including statements~~ regarding ~~industry prospects, future results of operations or~~our financial position, business strategy, management’s plans and ~~the expected or potential impact of COVID-19 and related responses of the government, made in this report~~objectives for future operations are ~~forward-looking.~~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 ~~whether concerning COVID-19 and the government response related thereto or otherwise,~~ 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: the ~~uncertainties relating to~~effect of the ~~impact of COVID-19 on~~novel coronavirus (“COVID-19”) pandemic and other infection illness outbreaks that may arise in the ~~Company's credit quality, business, operations~~future and ~~employees;~~ the ~~availability and terms of funding from government sources related to COVID-19; the~~resulting governmental or societal responses; impact of the results of government initiatives on the regulatory landscape, natural resource extraction industries, and capital markets, and the response to and management of the COVID-19 pandemic, including the effectiveness of previously-enacted fiscal stimulus from the federal government and a potential infrastructure bill; the timing of Paycheck Protection Program ("PPP") loan forgiveness;markets; the impact of declines in the commercial and residential real estate markets, high unemployment rates, inflationary pressures and slowdowns in economic growth; potential further increases in interest rates, inflation, supply-chain constraints, ~~trade policies and tensions, including tariffs,~~ and potential geopolitical instability, including the ~~ware~~war in Ukraine; 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; the value of securities held in our investment portfolio; 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; 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 economy. In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in Part II. Item 1A Risk Factors of this report and Part I. Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as well as in our other filings with the Securities and Exchange Commission. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations. In addition, you should note that forward looking statements are made only as of the date of this report and that we do not intend to update any of the forward-looking statements or the uncertainties that may adversely impact those statements, other than as required by law.

3937

Update on Economic Conditions

The Alaska economy has seen continued job growth and personal income gains. A strong rebound in tourism activity, coupled with high oil prices has benefited the state. Management believes that the national focus on supply chain issues and the desire for more domestic production should improve the demand for Alaska’s vast natural resources. Like the rest of the nation, Alaska’s housing market saw large price increases over the last year. However, we expect the rapidly rising interest rate environment to temper the Alaska housing market in the second half of 2022.

~~The Alaska~~ Department of Labor ("DOL") has released preliminary data through ~~May~~February of ~~2022.~~2023. The DOL reported Alaska’s seasonally adjusted unemployment rate for February of 2023 was 3.8% compared to 3.6% for the U.S. The DOL reports total payroll jobs in Alaska increased ~~2.9%~~2.5% or ~~8,900~~7,700 jobs compared to ~~May~~February of ~~2021.~~2022. All major sectors showed year over year growth in jobs with the exception of Manufacturing, which declined 100 jobs, or 0.9% over the last 12 months.

According to the DOL, Transportations, Warehousing and Utilities had the largest growth of 11.5% year over year in February, adding 2,300 jobs. The Leisure and Hospitality sector ~~showed~~had strong growth of 7.2% over the ~~fastest year over year increase of 12.4%. Tourism related jobs were the hardest hit from the pandemic travel restrictions, but were also the quickest to rebound.~~same 12 month period, adding 2,100 jobs. The Oil and Gas sector has benefited from ~~high~~higher energy prices and ~~added 600~~new exploration activity, resulting in an increase of 300 jobs or 4.3% since ~~May~~February of ~~2021, a 9.1% increase. Other sectors showing improvement over the last 12 months include Trade, Warehousing, and Utilities (+6.8%),~~2022. Other Services ~~(+4.8%)~~grew 3.8%; ~~Financial Activities (+2.8%), and~~ Professional and Business Services ~~(+2.6%). The only private sectors to decline year over year were Manufacturing (-2.9%)~~added 2.7%; Construction grew 2.2%; and Information ~~(-2.1%).~~increased 2.1% compared to February of 2022. The ~~Government~~Retail sector ~~was up slightly by 0.6%, an increase~~has fully recovered from pre-COVID levels and now has 900 more jobs than February of ~~500 jobs through May 2022 year-over-year.~~2020.

Alaska’s Gross State Product (“GSP”), was estimated to be ~~$58~~$64.1 billion in current dollars at the end of ~~2021 by~~2022, according to the Federal Bureau of Economic Analysis ("BEA"). ~~This~~Alaska’s inflation adjusted “real” GSP declined 2.4% in 2022. However, the decrease in “real” GSP was ~~a 0.3% increase~~predominantly in ~~2021 over 2020 figures.~~ the first half of the year and Alaska’s GSP grew at annualized rates of 8.7% in the third quarter and 4.1% in the fourth quarter of 2022. Alaska’s real GSP improvement in the second half of 2022 was primarily due to gains in the Oil and Gas sector, Transportation and Warehousing, Retail Trade and State & Local Government.

The BEA also calculated Alaska’s seasonally adjusted personal income ~~was $49~~at $50.6 billion ~~in 2021,~~at the end of 2022, an improvement of ~~5.9% over 2020. This~~4.8% for the year. The national average was ~~largely a result~~an increase of ~~COVID related~~2.4% for the same period. Management notes that Alaskans' personal income from wages, dividends, interest and rents was relatively similar to the US growth rates; however, Alaska was the only state in the country to have higher levels of government transfer payments in 2022 compared to 2021. The prior year was driven by large COVID relief payments, while the 2022 increase for Alaska was primarily due to the significantly larger Alaska Permanent Fund dividend payments of $3,284 per person compared to $1,114 in 2021. For about 650,000 qualified Alaskans that equates to an increase of $1.41 billion in government payments from the prior year. The Permanent Fund has grown to a value of $75.5 billion. The Permanent Fund is scheduled to transfer $3.4 billion to the State's General Fund in fiscal year 2023. It will be divided between dividends to Alaskan citizens and ~~an improvement in employment leading to higher wage income last year.~~funds for state government services.

The price of Alaska North Slope (“ANS”) crude oil ~~began 2021 averaging $55.56 a~~averaged $91.41 per barrel in ~~January and climbed steadily throughout the~~Alaska’s fiscal year, ~~due~~which ended June 30, 2022. The Alaska Department of Revenue (“DOR”) forecasts ANS oil to ~~rising global demand to a monthly~~ average ~~high of $84.36 in October 2021. 2022 began with a monthly average of $86.50 a~~$85.25 per barrel in ~~January~~Alaska fiscal year 2023 and ~~surpassed $100~~$73 in ~~March after the war~~2024. The DOR calculated ANS crude oil production was 486 thousand barrels per day in ~~Ukraine began. Prices increased~~Alaska’s fiscal year ending June 30, 2022. The DOR has forecast production to increase to 501 thousand barrels per day in Alaska’s fiscal year 2023 and 512 thousand barrels per day in 2024. This is primarily a result of new production coming on line in the ~~second quarter~~NPR-A region west of ~~2022, reaching a monthly average of $120.17 a barrel in June.~~Prudhoe Bay.

~~Alaska’s home mortgage delinquency level continues to be better than most of the nation.~~ According to the Mortgage Bankers Association, Alaska’s home mortgage delinquency rate in the ~~first~~fourth quarter of 2022 was ~~3.49%~~2.9% compared to 4.1% in the fourth quarter of 2021. Alaska’s delinquency rate of 2.9% compares to the national average rate of ~~3.84%.~~3.9% for the fourth quarter of 2022. The Mortgage Bankers Association survey reported that the mortgage foreclosure ~~rate~~inventory in Alaska in the ~~first~~fourth quarter of 2022 was ~~identical to~~0.54% and the national average ~~rate of 0.53%~~was 0.57%.

According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 7.6% in 2022 to $456,509. This was the fifth consecutive year of price increases, following growth of 6.9% in 2021 ~~to $424,148. In the first six months of 2022 prices climbed another 7.5% to $456,052.~~and 5.8% in 2020. Average sales prices in the Matanuska Susitna Borough rose 9.9% in 2022 to $382,504, continuing a trend of average price increases for more than a decade. Average home prices in the Matanuska Susitna Borough increased 15.6% in 2021 and ~~another 11%~~9.9% in ~~the first six months of 2022 to $386,429.~~2020. These two markets represent ~~where~~the locations of the vast majority of the ~~Bank’s~~ residential lending ~~activity occurs. Prices also increased 13.9% in the Fairbanks North Star Borough, 13.4% in the Kenai Peninsula Borough, and 13.8% in the Kodiak Island Borough in 2021.~~activities of Northrim Bank (the “Bank”)..

The number of housing units sold in Anchorage ~~was up significantly~~did slow in ~~2021~~2022 by ~~11.2%, following an increase of 19.5% in 2020,~~21.2% compared to 2021, as reported by the Alaska Multiple Listing Services. This was following sales growth of 11.2% in 2021 compared to 2020. Management believes that a lack of inventory due to a reduction in the supply of new homes being constructed and a lower churn of existing homes being listed on the market are the primary reasons for the decline in sales. The Matanuska Susitna Borough also experienced a lower volume of home sales, down 11.9% in 2022 compared to the prior year. The number of units sold in the Matanuska Susitna Borough had ~~strong sales activity, up~~been increasing for the prior four years and grew by 11.7% in 2021 ~~and 9.7% in~~as compared to 2020.

The Board of Governors of the Federal Reserve System increased its benchmark interest rate target from ~~near zero~~4.25%-4.50% as of December 31, ~~2021~~2022 to ~~2.25%-2.50%~~4.75%-5.00% as of ~~July~~March 31, ~~2022.~~2023. Similarly, the ~~Prime~~prime rate of interest has increased from ~~3.25%~~7.50% as of December 31, 2022 to ~~5.50%~~8.00% as of ~~July~~March 31, 2022. The two and ten year Treasury rates were 2.89% and 2.67% as of July 31, 2022, up from 0.73% and 1.52% as of December 31, 2021, respectively. Management agrees with sentiment from industry experts that rates will continue to rise through the end of 2022 and into the first half of 2023.

Highlights and Summary of Performance - ~~Second~~First Quarter of ~~2022~~2023

The Company reported net income and diluted earnings per share of $4.8 million and ~~$0.83,~~$0.84, respectively, for the ~~second~~first quarter of ~~2022~~2023 compared to net income and diluted earnings per share of ~~$8.3~~$7.2 million and ~~$1.33, respectively, for the second quarter of 2021. The Company reported net income and diluted earnings per share of $12.0 million and $2.03,~~$1.20, respectively, for the first ~~six months~~quarter of ~~2022 compared to net income and diluted earnings per share of $20.5 million and $3.27, respectively, for the first six months of 2021.~~2022. The decrease in net income for the ~~three and six-month periods~~three-month period ending ~~June 30, 2022~~March 31, 2023 compared to the same ~~periods~~period last year is primarily attributable to a decrease in net income in the Home Mortgage Lending segment as a result of decreased production and yields on sold loans, as well as ~~a higher provision for credit losses~~an increase in salaries and ~~higher other operating expenses~~personnel expense in the Community Banking ~~segment that~~segment. The first quarter of 2022 also included $2.0 million in keyman insurance proceeds. This non-recurring item represents 64% of the $3.1 million decrease in pretax income in the first quarter of 2023 compared to the first quarter of 2022. These decreases were only partially offset by ~~higher~~an increase in net interest income. Increases in interest rates drove the decrease in production in the Home Mortgage Lending segment and the increase in net interest ~~income.~~

•~~Total revenue~~income in the ~~second~~first quarter of ~~2022, which includes net interest income plus other operating income, decreased 10%~~2023 as compared to $30.0 million from $33.3 million in the second quarter a year ago, primarily due to a $5.5 million decrease in mortgage banking income and a $988.0 thousand increase in unrealized loss on marketable equity securities. These decreases were only partially offset by a $3.0 million increase in net interest income. Total revenue in the six-months ending June 30, 2022 decreased 12% to $60.1 million from $68.7 million in the same period a year ~~ago, primarily due to a $12.1 million decrease in mortgage banking income and a $1.3 million increase in unrealized loss on marketable securities.~~ago.

•Net interest income in the ~~second~~first quarter of ~~2022~~2023 increased ~~16%~~30% to ~~$22.2~~$25.0 million compared to ~~$19.2~~$19.3 million in the ~~second~~first quarter of 2021. Net interest income excluding PPP interest and fees in the second quarter of 2022 increased 33% to $20.8 million, compared to $15.6 million in the second quarter of 2021. Net interest income in the six-months ending June 30, 2022 increased 7% to $41.5 million compared to $38.7 million in the same period a year ago. Net interest income excluding PPP interest and fees in the six-months ending June 30, 2022 increased 22% to $37.8 million compared to $30.9 million in the same period a year ago.2022.

•Net interest margin was ~~3.67%~~4.22% for the ~~second~~first quarter of ~~2022,~~2023, a 19104 basis point increase from the ~~second~~first quarter of ~~2021~~2022. The increase in this period compared to the same period in 2022 was primarily due to ~~the~~ higher yields on portfolio loans and investments and on interest bearing deposits in other banks. Net interest margin was 3.42% for the six-months ending June 30, 2022, a 26 basis point decrease from the same period a year ago primarily due to the a change in the mix of earning assets that wasall interest-earning asset categories, which were only partially offset by higher ~~yields. Average~~costs on interest-bearing deposits.

•The weighted average interest ~~bearing deposits in other banks increased to 19% of average interest-earning assets~~rate for new loans booked in the ~~six-months ending June 30, 2022,~~first quarter of 2023 was 6.35% compared to 8%4.48% in the ~~same period~~first quarter a year ago.

•Loans were ~~$1.41~~$1.54 billion at ~~June 30, 2022, down 1%~~March 31, 2023, up 2% from December 31, ~~2021~~2022 primarily as a result of ~~PPP forgiveness which was only partially offset by core~~consumer mortgage loan growth. ~~Loans excluding the impact from PPP, were $1.37 billion at June 30, 2022, up 6% from $1.30 billion at December~~At March 31, ~~2021. As~~2023, 71% of ~~June 30, 2022, 76% of core portfolio~~ loans are ~~adjustable rate~~variable and 16% of earning assets are subject to rate increases asin the second quarter of 2023 when prime ~~rate and~~or other indices increase.

•~~The Company booked a provision for credit losses~~Total deposits were $2.30 billion at March 31, 2023, down 4% from December 31, 2022. Demand deposits decreased 4% at March 31, 2023 from December 31, 2022 and currently represent 34% of $463,000 and $313,000 for the three- and six-month periods ending June 30, 2022, respectively, compared to a benefit of $427,000 and a benefit of $1.9 million in the same periods in 2021. The increase in the provision for credit losses in both periods in 2022 compared to the same periods in the prior year are primarily the result of core loan growth.total deposits.

•The ~~Company paid cash dividends~~average cost of ~~$0.41 per common share in the second quarter of 2022,~~interest-bearing deposits was 1.20% at March 31, 2023, up ~~11%~~ from ~~$0.37 in the second quarter of 2021.~~0.15% at March 31, 2022.

•~~At June 30, 2022, the capital ratios~~Total liquid assets and investments and loans maturing within one year were $502.0 million and our funds available for borrowing under our existing lines of ~~the Company and Northrim Bank (the "Bank")~~credit were ~~well in excess of all regulatory requirements.~~

•~~During the second quarter of 2022, the Company repurchased 200,619 shares of its common stock under the previously announced share repurchase program~~$1.201 billion at ~~an average price of $41.04 per share. There are no shares remaining of the 300,000 previously authorized for repurchase.~~March 31, 2023.

Other financial measures are shown in the table below:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Return on average assets, annualized	Return on average assets, annualized	0.74	%	1.40	%	0.93	%	1.80	%	Return on average assets, annualized	0.76	%	1.12	%
Return on average shareholders' equity, annualized	Return on average shareholders' equity, annualized	8.58	%	14.10	%	10.51	%	17.68	%	Return on average shareholders' equity, annualized	8.73	%	12.36	%
Dividend payout ratio	Dividend payout ratio	49.30	%	27.80	%	40.22	%	22.57	%	Dividend payout ratio	71.30	%	34.20	%

~~Growth and Paycheck Protection Program:~~

•In 2020 and 2021, Northrim funded a total of nearly 5,800 PPP loans totaling $612.6 million to both existing and new customers. Management estimates that we funded approximately 24% of the number and 32% of the value of all Alaska PPP second round loans.

•~~As of June 30, 2022, PPP has resulted in 2,344 new customers totaling $69.7 million in non-PPP loans, and $132.4 million in new deposit balances.~~

•As of June 30, 2022, Northrim customers had received forgiveness through the U.S, Small Business Administration ("SBA") on 5,407 PPP loans totaling $582.0 million, of which 417 PPP loans totaling $33.7 million were forgiven in the second quarter of 2022, 537 PPP loans totaling $56.9 million were forgiven in the first quarter of 2022, and 4,451 PPP loans totaling $491.4 million were forgiven in 2021. Of the PPP loans forgiven in the second quarter of 2022, 414 loans totaling $33.4 million related to PPP round two. As of June 30, 2022, approximately 99% of the number of PPP round one loans funded and 88% of the number of PPP round two loans funded have been forgiven.

~~Credit Quality~~

•~~Customer Accommodations:~~ The Company implemented several forms of assistance to help our customers in the event that they experienced financial hardship as a result of COVID-19 in addition to our participation in PPP lending. As of June 30, 2022, remaining accommodations include interest only and deferral options on loan payments. The total outstanding principal balance of loan modifications due to the impacts of COVID-19 for the periods indicated were as follows:

Loan Modifications due to COVID-19 as of June 30, 2022
(Dollars in thousands) Interest Only Full Payment Deferral Total
Portfolio loans $23,573 $— $23,573
Number of modifications 5 — 5
Number of relationships 2 — 2

Loan Modifications due to COVID-19 as of December 31, 2021
(Dollars in thousands) Interest Only Full Payment Deferral Total
Portfolio loans $49,219 $— $49,219
Number of modifications 16 — 16
Number of relationships 6 — 6

~~The $23.6 million in COVID-19 loan accommodations as of June 30, 2022 are scheduled to return to normal principal and interest payments in 2022.~~

Nonperforming assets: Nonperforming assets, net of government guarantees ~~at June 30, 2022 decreased 22%, or $3.3 million to $11.7 million as compared to $15.0~~were $6.4 million at March 31, 2023 and December 31, ~~2021.~~2022. Other Real Estate Owned ("OREO"), net of government guarantees, ~~remained~~increased to $273,000 at ~~$4.4 million~~March 31, 2023, from zero at ~~June 30, 2022 as compared to~~ December 31, ~~2021.~~2022. Nonperforming loans, net of government guarantees decreased ~~$3.4 million,~~$347,000, or ~~32%~~5% to ~~$7.3~~$6.1 million as of ~~June 30, 2022~~March 31, 2023 from ~~$10.7~~$6.4 million as of December 31, ~~2021,~~2022, primarily due to ~~the transfer of one relationship back to accrual status in the first six months of 2022 as well as~~ payoffs and pay downs in the first ~~half~~three months of ~~2022. $5.9~~2023 that were only partially offset by the transfer of one lending relationship to nonaccrual status. $4.5 million, or 74% of nonperforming ~~assets~~loans, net of government guarantees at ~~June 30, 2022,~~March 31, 2023, are nonaccrual loans related to ~~five~~four commercial relationships.

The following table summarizes nonperforming asset activity for the three-month periods ending ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022.


				Writedowns		Transfers to
(In Thousands)	Balance at December 31, 2022	Additions this quarter	Payments this quarter	/Charge-offs this quarter	Transfers to OREO	Performing Status this quarter	Sales this quarter	Balance at March 31, 2023




Nonperforming loans	$7,076	$2,836	($850)	($14)	($273)	$—	$—	$8,775
Nonperforming loans guaranteed by government	(646)	(2,540)	494	—	—	—	—	(2,692)
Nonperforming loans, net	6,430	296	(356)	(14)	(273)	—	—	6,083
Other real estate owned	—	273	—	—	—	—	—	273




Total nonperforming assets,
net of government guarantees	$6,430	$569	($356)	($14)	($273)	$—	$—	$6,356

Writedowns Transfers to
(In Thousands) Balance at March 31, 2022 Additions this quarter Payments this quarter /Charge-offs
this quarter Transfers to OREO Performing Status
this quarter Sales this quarter Balance at June 30, 2022
Nonperforming loans $9,609 $22 ($1,464) ($166) $— $— $— $8,001
Nonperforming loans guaranteed by government (907) — 224 — — — — (683)
   Nonperforming loans, net 8,702 22 (1,240) (166) — — — 7,318
Other real estate owned 5,638 — — — — — — 5,638
Other real estate owned guaranteed
by government (1,279) — — — — — — (1,279)
   Total nonperforming assets,
   net of government guarantees $13,061 $22 ($1,240) ($166) $— $— $— $11,677


					Writedowns		Transfers to							Writedowns		Transfers to
(In Thousands)	(In Thousands)	Balance at March 31, 2021	Additions this quarter	Payments this quarter	/Charge-offs this quarter	Transfers to OREO/REPO	Performing Status this quarter	Sales this quarter	Balance at June 30, 2021	(In Thousands)	Balance at December 31, 2021	Additions this quarter	Payments this quarter	/Charge-offs this quarter	Transfers to OREO	Performing Status this quarter	Sales this quarter	Balance at March 31, 2022

Nonperforming loans	Nonperforming loans	$14,463	$173	($1,422)	($110)	$—	$—	$—	$13,104	Nonperforming loans	$11,650	$166	($835)	($295)	$—	($1,077)	$—	$9,609
Nonperforming loans guaranteed by government	Nonperforming loans guaranteed by government	(1,382)	—	286	—	—	—	—	(1,096)	Nonperforming loans guaranteed by government	(978)	—	71	—	—	—	—	(907)
Nonperforming loans, net	Nonperforming loans, net	13,081	173	(1,136)	(110)	—	—	—	12,008	Nonperforming loans, net	10,672	166	(764)	(295)	—	(1,077)	—	8,702
Other real estate owned	Other real estate owned	7,563	—	—	—	—	—	(490)	7,073	Other real estate owned	5,638	—	—	—	—	—	—	5,638
Repossessed assets		225	—	—	—	—	—	(225)	—

Other real estate owned guaranteed

by government	by government	(1,279)	—	—	—	—	—	—	(1,279)	by government	(1,279)	—	—	—	—	—	—	(1,279)
Total nonperforming assets,	Total nonperforming assets,									Total nonperforming assets,
net of government guarantees	net of government guarantees	$19,590	$173	($1,136)	($110)	$—	$—	($715)	$17,802	net of government guarantees	$15,031	$166	($764)	($295)	$—	($1,077)	$—	$13,061

Potential problem loans: 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, 2022,~~March 31, 2023, management had identified potential problem loans of $1.4 million as compared to potential problem loans of ~~$2.1~~$1.6 million at December 31, ~~2021.~~2022. The decrease in potential problem loans from December 31, ~~2021~~2022 to ~~June 30, 2022~~March 31, 2023 is primarily the result of ~~one relationship payoff~~various loan paydowns in the first ~~half of 2022 which was only partially offset by the addition of one relationship in the first six~~three months of ~~2022.~~2023.

~~Troubled debt restructurings (“TDRs”):~~ TDRs are those loans for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower, have been granted due to the borrower’s weakened financial condition. Interest on TDRs will be accrued at the restructured rates when it is anticipated that no loss of original principal will occur, and the interest can be collected, which is generally after a period of six months. The Company had $3.0 million in loans classified as TDRs that were performing and $5.8 million in TDRs included in nonaccrual loans at June 30, 2022 for a total of approximately $8.9 million. There are $3.1 million in government guarantees associated with TDRs, resulting in total TDRs, net of government guarantees, of $5.8 million at June 30, 2022. At December 31, 2021 there were $773,000 in loans classified as TDRs, net of government guarantees that were performing and $6.5 million in TDRs included in nonaccrual loans for a total of $7.3 million. See Note 3 of the Notes to Consolidated Financial Statements included in Item 1 of this report for further discussion of TDRs.

RESULTS OF OPERATIONS

Income Statement

Net Income

Net income for the ~~second~~first quarter of ~~2022~~2023 decreased ~~$3.6~~$2.4 million to $4.8 million as compared to ~~$8.3~~$7.2 million for the same period in ~~2021.~~2022. The decrease in net income in the first quarter of 2023 as compared to the same quarter a year ago is

mostly attributable to a ~~$3.3~~$3.5 million decrease in net income in the Home Mortgage Lending segment, which is primarily due to lower production, ~~and~~which was only partially offset by a ~~$239,000 decrease~~$1.1 million increase in net income in the Community Banking segment. The ~~decrease~~increase in net income in the Community Banking segment in the three months ended ~~June 30, 2022,~~March 31, 2023, as compared to the same period a year ago is primarily due to an increase in ~~the provision for credit losses and other operating expenses~~net interest income which ~~were~~was only partially offset by ~~increased net interest income.~~

Net income for the first half of 2022 decreased $8.5 million to $12.0 million as compared to $20.5 million for the same period in 2021. The decrease in net income is mostly attributable to a $7.3 million decrease in net income in the Home Mortgage Lending segment, which is primarily due to lower production and a $1.2 million decrease in net income in the Community Banking segment. The decrease in net income in the Community Banking segment in the six-month period ended June 30, 2022, as compared to the same period a year ago is primarily due to an increase in ~~the~~other operating expenses and a higher provision for credit ~~losses and other operating expenses. These decreases were only partially offset by a $2.8 million increase in net interest income and~~losses. Additionally, the Company received $2.0 million in life insurance proceeds ~~received~~in the three-month period ended March 31, 2022 in connection with the death of the Company’s former Executive Vice President, General Counsel and Corporate Secretary who passed away on November 11, 2021.

Net Interest Income/Net Interest Margin

Net interest income for the ~~second~~first quarter of ~~2022~~2023 increased ~~$3.0~~$5.7 million, or ~~16%~~30%, to ~~$22.2~~$25.0 million as compared to $19.2 million for the second quarter of 2021. Net interest margin increased 19 basis points to 3.67% in the second quarter of 2022 as compared to 3.48% in the second quarter of 2021. Net interest income for the first half of 2022 increased $2.8 million, or 7%, to $41.5 million as compared to $38.7$19.3 million for the first ~~half~~quarter of ~~2021. Net~~2022. The net interest margin ~~decreased 26~~increased 104 basis points to ~~3.42%~~4.22% in the first ~~half~~quarter of ~~2022~~2023 as compared to ~~3.68%~~3.18% in the first ~~half~~quarter of ~~2021.~~2022.

The increase in net interest income in the ~~second~~first quarter ~~and first six-months~~ of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021~~2022 was primarily the result of increased interest on loans, investments, and interest bearing deposits in other banks ~~and decreased interest expense~~ which was only partially offset by ~~a decrease~~an increase in loan fee income due in large part to decreased recognition of the deferred PPP loan fees upon loan forgiveness through the SBA. During the three and six-month periods ending June 30, 2022, Northrim received $33.7 million and $90.6 million, respectively, in PPP loan forgiveness through the SBA, compared to $133.0 million and $238.0 million, respectively, in the same periods in 2021. Total net PPP fee income including accretion and full fee recognition upon loan forgiveness was $1.3 million and $2.6 million during the three-month periods ending June 30, 2022 and 2021, respectively, and $3.4 million and $5.9 million during the six-month periods ending June 30, 2022 and 2021, respectively. As of June 30, 2022, there was $1.1 million of net deferred fees remaininginterest expense on ~~PPP loans mostly from the second round of PPP loan originations.~~interest-bearing deposits.

The increase in net interest margin in the ~~second~~first quarter of ~~2022~~2023 as compared to the same period ~~a year ago~~of 2022 was primarily the result of higher yields on earning-assets which was only partially offset by a less favorable mix of earning assets due to significant increases in short-term investments, which is the lowest yielding type of earning asset for the Company. The decrease in the net interest margin in the first half of 2022 compared to the same period a year ago is primarily due to the less favorable mix of earning assets, which was only partially offset by higher yields.earning-assets. Changes in net interest margin in the ~~three and six-month periods~~three-month period ended ~~June 30, 2022~~March 31, 2023 as compared to the same ~~periods~~period in the prior year are detailed below:


	Three Months Ended ~~June 30,~~March 31, 2023 vs. March 31, 2022 ~~vs. June 30, 2021~~
Nonaccrual interest adjustments	~~(0.04)~~0.02	%
Impact of SBA Paycheck Protection Program loans	~~0.11~~ (0.28)	%
Interest rates on loans and liabilities and loan fees, all other loans	~~0.35~~1.28	%
Volume and mix of other interest-earning assets and liabilities	~~(0.23)~~0.02	%
Change in net interest margin	~~0.19~~	%


	~~Six Months Ended June 30, 2022 vs. June 30, 2021~~
~~Nonaccrual interest adjustments~~	~~0.05~~	%
~~Impact of SBA Paycheck Protection Program loans~~	~~0.09~~	%
~~Interest rates and loan fees~~	~~0.07~~	%
~~Volume and mix of interest-earning assets~~	~~(0.47)~~	%
~~Change in net interest margin~~	~~(0.26)~~1.04	%

Components of Net Interest Margin

The following table compares average balances and rates as well as margins on earning assets for the three-month periods ended ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022. Average yields or costs are ~~not~~ calculated on a tax-equivalent basis.


(Dollars in Thousands)	(Dollars in Thousands)	Three Months Ended June 30,																		(Dollars in Thousands)	Three Months Ended March 31,
									Interest income/																			Interest income/					Average Tax Equivalent
		Average Balances				Change			expense		Change			Average Yields/Costs							Average Balances				Change			expense		Change			Yields/Costs6
		2022		2021		$	%		2022	2021	$	%		2022		2021		Change			2023		2022		$	%		2023	2022	$	%		2023		2022		Change
Interest-bearing deposits in other banks1	Interest-bearing deposits in other banks1	$382,015		$208,067		$173,948	84	%	$766	$61	$705	1,156	%	0.80	%	0.12	%	0.68	%	Interest-bearing deposits in other banks1	$130,929		$538,537		($407,608)	(76)	%	$1,489	$242	$1,247	515	%	4.55	%	0.18	%	4.37	%
Taxable long-term investments2	Taxable long-term investments2	588,741		353,404		235,337	67	%	2,415	1,225	1,190	97	%	1.65	%	1.39	%	0.26	%	Taxable long-term investments2	726,813		490,196		236,617	48	%	4,608	1,544	3,064	198	%	2.40	%	1.23	%	1.17	%
Non-taxable long-term investments2	Non-taxable long-term investments2	812		856		(44)	(5)	%	4	4	—	—	%	1.98	%	1.87	%	0.11	%	Non-taxable long-term investments2	797		833		(36)	(4)	%	4	4	—	—	%	2.82	%	2.70	%	0.12	%
Loans held for sale	Loans held for sale	59,677		111,228		(51,551)	(46)	%	620	763	(143)	(19)	%	4.17	%	2.75	%	1.42	%	Loans held for sale	20,901		52,630		(31,729)	(60)	%	290	405	(115)	(28)	%	5.54	%	3.08	%	2.46	%
Loans3,4	Loans3,4	1,398,149		1,541,701		(143,552)	(9)	%	19,187	18,200	987	5	%	5.50	%	4.74	%	0.76	%	Loans3,4	1,524,130		1,379,850		144,280	10	%	23,404	17,863	5,541	31	%	6.28	%	5.27	%	1.01	%
Interest-earning assets5	Interest-earning assets5	2,429,394		2,215,256		214,138	10	%	22,992	20,253	2,739	14	%	3.80	%	3.67	%	0.13	%	Interest-earning assets5	2,403,570		2,462,046		(58,476)	(2)	%	29,795	20,058	9,737	49	%	5.10	%	3.33	%	1.77	%
Nonearning assets	Nonearning assets	172,655		173,164		(509)	—	%												Nonearning assets	185,755		156,482		29,273	19	%
Total	Total	$2,602,049		$2,388,420		$213,629	9	%												Total	$2,589,325		$2,618,528		($29,203)	(1)	%

Interest-bearing demand	Interest-bearing demand	$669,848		$561,570		$108,278	19	%	$167	$128	$39	30	%	0.10	%	0.09	%	0.01	%	Interest-bearing demand	$718,463		$675,573		$42,890	6	%	$2,027	$116	$1,911	1,647	%	1.14	%	0.07	%	1.07	%
Savings deposits	Savings deposits	349,108		311,929		37,179	12	%	118	126	(8)	(6)	%	0.14	%	0.16	%	(0.02)	%	Savings deposits	301,333		352,556		(51,223)	(15)	%	340	128	212	166	%	0.46	%	0.15	%	0.31	%
Money market deposits	Money market deposits	322,384		256,215		66,169	26	%	103	112	(9)	(8)	%	0.13	%	0.18	%	(0.05)	%	Money market deposits	293,643		320,767		(27,124)	(8)	%	783	102	681	668	%	1.08	%	0.13	%	0.95	%
Time deposits	Time deposits	172,617		186,315		(13,698)	(7)	%	211	513	(302)	(59)	%	0.49	%	1.10	%	(0.61)	%	Time deposits	229,998		177,204		52,794	30	%	1,434	230	1,204	523	%	2.53	%	0.53	%	2.00	%
Total interest-bearing deposits	Total interest-bearing deposits	1,513,957		1,316,029		197,928	15	%	599	879	(280)	(32)	%	0.16	%	0.27	%	(0.11)	%	Total interest-bearing deposits	1,543,437		1,526,100		17,337	1	%	4,583	575	4,008	697	%	1.20	%	0.15	%	1.05	%
Borrowings	Borrowings	24,675		25,032		(357)	(1)	%	181	182	(1)	(1)	%	2.94	%	2.92	%	0.02	%	Borrowings	24,366		24,777		(411)	(2)	%	180	179	1	1	%	2.92	%	2.91	%	0.01	%
Total interest-bearing liabilities	Total interest-bearing liabilities	1,538,632		1,341,061		197,571	15	%	780	1,061	(281)	(26)	%	0.20	%	0.32	%	(0.12)	%	Total interest-bearing liabilities	1,567,803		1,550,877		16,926	1	%	4,763	754	4,009	532	%	1.23	%	0.20	%	1.03	%
Non-interest bearing demand deposits	Non-interest bearing demand deposits	808,186		766,954		41,232	5	%												Non-interest bearing demand deposits	756,088		794,702		(38,614)	(5)	%
Other liabilities	Other liabilities	839,250		809,971		(11,953)	(28)	%												Other liabilities	41,067		35,835		5,232	15	%
Equity	Equity	224,167		237,388		(13,221)	(6)	%												Equity	224,367		237,114		(12,747)	(5)	%
Total	Total	$2,602,049		$2,388,420		$213,629	9	%												Total	$2,589,325		$2,618,528		($29,203)	(1)	%
Net interest income	Net interest income								$22,212	$19,192	$3,020	16	%							Net interest income								$25,032	$19,304	$5,728	30	%
Net interest margin	Net interest margin													3.67	%	3.48	%	0.19	%	Net interest margin													4.22	%	3.18	%	1.04	%

Average loans to average interest-earning assets	Average loans to average interest-earning assets	57.55	%	69.59	%															Average loans to average interest-earning assets	63.41	%	56.04	%
Average loans to average total deposits	Average loans to average total deposits	60.21	%	74.01	%															Average loans to average total deposits	66.28	%	59.46	%
Average non-interest deposits to average total deposits	Average non-interest deposits to average total deposits	34.80	%	36.82	%															Average non-interest deposits to average total deposits	32.88	%	34.24	%
Average interest-earning assets to average interest-bearing liabilities	Average interest-earning assets to average interest-bearing liabilities	157.89	%	165.19	%															Average interest-earning assets to average interest-bearing liabilities	153.31	%	158.75	%

1Consists of interest bearing deposits in other banks and domestic CDs.

2Consists of investment securities available for sale, investment securities held to maturity, marketable equity securities, and investment in Federal Home Loan Bank stock. Taxable long-term investments consist of U.S. treasury and government sponsored entities, corporate bonds, collateral loan obligations, marketable equity securities, and Federal Home Loan Bank stock. Non-taxable long-term investments consist of municipal securities.

3Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled ~~$2.3~~$1.3 million and ~~$3.4 million~~$3.0 in the ~~second~~first quarter of ~~2022~~2023 and ~~2021,~~2022, respectively.

4Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were ~~$8.8~~$7.1 million and ~~$13.8~~$11.0 million in the ~~second~~first quarter of ~~2022~~2023 and ~~2021,~~2022, respectively.

5The Company does not have any fed funds sold or securities purchased with agreements to resell to disclose as part of its total interest-earning assets in the periods presented.

6Tax-equivalent yields/costs assume a federal tax rate of 21% and state tax rate of 7.43% for a combined tax rate of 28.43%.

4642

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 three-month periods ending ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022. 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 three-month periods ending ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022.


(In Thousands)	(In Thousands)	Three Months Ended June 30, 2022 vs. 2021			(In Thousands)	Three Months Ended March 31, 2023 vs. 2022
		Increase (decrease) due to				Increase (decrease) due to
		Volume	Rate	Total		Volume	Rate	Total
Interest Income:	Interest Income:				Interest Income:
Short-term investments	Short-term investments	$91	$614	$705	Short-term investments	($40)	$1,287	$1,247
Taxable long-term investments	Taxable long-term investments	1,039	151	1,190	Taxable long-term investments	1,038	2,026	3,064
Nontaxable long-term investments		—	—	—

Loans held for sale	Loans held for sale	(439)	296	(143)	Loans held for sale	(324)	209	(115)
Loans	Loans	(1,299)	2,286	987	Loans	666	4,875	5,541
Total interest income	Total interest income	($608)	$3,347	$2,739	Total interest income	$1,340	$8,397	$9,737

Interest Expense:	Interest Expense:				Interest Expense:
Interest-bearing demand	Interest-bearing demand	$26	$13	$39	Interest-bearing demand	$7	$1,904	$1,911
Savings deposits	Savings deposits	14	(22)	(8)	Savings deposits	(22)	234	212
Money market deposits	Money market deposits	25	(34)	(9)	Money market deposits	(10)	691	681
Time deposits	Time deposits	(41)	(261)	(302)	Time deposits	46	1,158	1,204
Interest-bearing deposits	Interest-bearing deposits	24	(304)	(280)	Interest-bearing deposits	21	3,987	4,008
Borrowings	Borrowings	(2)	1	(1)	Borrowings	1	—	1
Total interest expense	Total interest expense	$22	($303)	($281)	Total interest expense	$22	$3,987	$4,009

4743

The following table compares average balances and rates as well as margins on earning assets for the six-month periods ended June 30, 2022 and 2021. Average yields or costs are not calculated on a tax-equivalent basis.

(Dollars in Thousands) Six Months Ended June 30,
Interest income/
Average Balances Change expense Change Average Yields/Costs
2022 2021 $ % 2022 2021 $ % 2022 2021 Change
Interest-bearing deposits in other banks1
$459,843 $164,712 $295,131 179 % $1,008 $99 $909 918 % 0.44 % 0.12 % 0.32 %
Taxable long-term investments2
56,173 112,897 (56,724) (50) % 1,025 1,545 (520) (34) % 3.68 % 2.76 % 0.92 %
Non-taxable long-term investments2
539,741 325,815 213,926 66 % 3,958 2,354 1,604 68 % 1.48 % 1.46 % 0.02 %
Loans held for sale 822 856 (34) (4) % 9 9 — — % 2.21 % 2.12 % 0.09 %
Loans3,4
1,389,050 1,517,438 (128,388) (8) % 37,050 36,842 208 1 % 5.38 % 4.90 % 0.48 %
   Interest-earning assets5
2,445,629 2,121,718 323,911 15 % 43,050 40,849 2,201 5 % 3.55 % 3.88 % (0.33) %
Nonearning assets 164,611 171,870 (7,259) (4) %
          Total $2,610,240 $2,293,588 $316,652 14 %
Interest-bearing demand $672,694 $516,228 $156,466 30 % $282 $246 $36 15 % 0.08 % 0.10 % (0.02) %
Savings deposits 350,823 314,709 36,114 11 % 246 255 (9) (4) % 0.14 % 0.16 % (0.02) %
Money market deposits 321,580 251,140 70,440 28 % 205 225 (20) (9) % 0.13 % 0.18 % (0.05) %
Time deposits 174,898 179,778 (4,880) (3) % 441 1,102 (661) (60) % 0.51 % 1.24 % (0.73) %
   Total interest-bearing deposits 1,519,995 1,261,855 258,140 20 % 1,174 1,828 (654) (36) % 0.16 % 0.29 % (0.13) %
Borrowings 24,726 25,066 (340) (1) % 360 336 24 7 % 2.94 % 2.70 % 0.24 %
   Total interest-bearing liabilities 1,544,721 1,286,921 257,800 20 % 1,534 2,164 (630) (29) % 0.20 % 0.34 % (0.14) %
Non-interest bearing demand deposits 801,481 727,589 73,892 10 %
Other liabilities 33,436 44,959 (11,523) (26) %
Equity 230,602 234,119 (3,517) (2) %
          Total $2,610,240 $2,293,588 $316,652 14 %
Net interest income $41,516 $38,685 $2,831 7 %
Net interest margin 3.42 % 3.68 % (0.26) %
Average loans to average interest-earning assets 56.80 % 71.52 %
Average loans to average total deposits 59.83 % 76.27 %
Average non-interest deposits to average total deposits 34.52 % 36.57 %
Average interest-earning assets to average interest-bearing liabilities 158.32 % 164.87 %

1~~Consists of interest bearing deposits in other banks and domestic CDs.~~

3Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $5.3 million and $16.2 million in the first six months of 2022 and 2021, respectively.

4Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loan balances were $9.9 million and $12.2 million in the first six months of 2022 and 2021, respectively.

5~~The Company does not have any fed funds sold or securities purchased with agreements to resell to disclose as part of its total interest-earning assets in the periods presented.~~

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, 2022 and 2021. 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, 2022 and 2021.

(In Thousands) Six Months Ended June 30, 2022 vs. 2021
Increase (decrease) due to
Volume Rate Total
Interest Income:
   Short-term investments $367 $542 $909
   Taxable long-term investments 1,354 250 1,604
   Nontaxable long-term investments — — —
   Loans held for sale (1,549) 1,029 (520)
   Loans (6,666) 6,874 208
          Total interest income ($6,494) $8,695 $2,201
Interest Expense:
   Interest-bearing demand $68 ($32) $36
   Savings deposits 27 (36) (9)
   Money market deposits 54 (74) (20)
   Time deposits (31) (630) (661)
         Interest-bearing deposits 118 (772) (654)
   Borrowings (5) 29 24
          Total interest expense $113 ($743) ($630)

Provision for Credit Losses

The provision for credit loss expense is the amount of expense that, based on our judgment, is required to maintain the Allowance for Credit Losses ("ACL") at an appropriate level under the 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:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022
Credit loss expense on loans held for investment	Credit loss expense on loans held for investment	$273	($161)	$106	($2,066)	Credit loss expense on loans held for investment	$259	($167)
Credit loss expense on unfunded commitments	Credit loss expense on unfunded commitments	190	(266)	207	151	Credit loss expense on unfunded commitments	101	17
Credit loss expense on available for sale debt securities	Credit loss expense on available for sale debt securities	—	—	—	—	Credit loss expense on available for sale debt securities	—	—
Credit loss expense on held to maturity securities	Credit loss expense on held to maturity securities	—	—	—	—	Credit loss expense on held to maturity securities	—	—
Credit loss expense on purchased receivables	Credit loss expense on purchased receivables	—	—	—	—	Credit loss expense on purchased receivables	—	—
Total credit loss (benefit) expense	Total credit loss (benefit) expense	$463	($427)	$313	($1,915)	Total credit loss (benefit) expense	$360	($150)

The increase in the ~~provision for credit losses on loans~~ACL for the ~~three and six-month~~three-month periods ending ~~June 30, 2022~~March 31, 2023 as compared to the same periods in ~~2021~~2022 is primarily the result of increased ~~unguaranteed~~ loan and unfunded commitment balances, as well as a decrease in ~~the three~~management's assumptions for prepayment and ~~six-month periods ending June 30, 2022 as compared to the same periods in 2021 that were~~curtailment speeds. These changes are only partially offset by ~~a decrease~~improvement in ~~the estimated loss rates due to lower~~management's forecasted ~~unemployment rates. During the same periods in 2021, decreases in estimated loss rates were higher than the decreases in 2022 due to larger decreases in the forecasted unemployment rates.~~economic factors. 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.

Other Operating Income

Other operating income for the three-month period ended ~~June 30, 2022,~~March 31, 2023, decreased ~~$6.3~~$5.9 million, or ~~45%~~55%, to ~~$7.8~~$4.9 million as compared to ~~$14.1~~$10.8 million for the same period in ~~2021,~~2022, primarily due to a ~~$5.5~~$5.0 million decrease in mortgage banking income in the ~~second~~first quarter of ~~2022~~2023 compared to the same quarter ~~in 2021.~~a year ago. The decrease in mortgage banking income in the three-month period ended ~~June 30, 2022~~March 31, 2023 as compared to the same period in ~~2021~~2022 was primarily due to decreased production volume due to ~~decreased refinance activity resulting from~~ increases in ~~the~~ mortgage interest rates. Additionally, there was a $988.0 thousand increase in unrealized loss on marketable securities. These decreases were only partially offset by small increases in bankcard fees and service charges on deposit accounts due to an increase in customers.

~~Other operating income for~~ the six-month period ended June 30, 2022, decreased $11.4 million, or 38%, to $18.6 million as compared to $30.0 million for the same period in 2021, primarily due to a $12.1 million decrease in mortgage banking income in the first half of 2022 compared to the same period in 2021 for the same reason outlined above. Additionally, there was a $1.3 million increase in unrealized loss on marketable securities. These decreases were only partially offset byCompany received $2.0 million in ~~life~~keyman insurance proceeds ~~received~~ in ~~connection with the death of the Company’s former Executive Vice President, General Counsel and Corporate Secretary who passed away on November 11, 2021, as well as small increases~~2022 which was not repeated in ~~bankcard fees and service charges on deposit accounts due to an increase in customers.~~2023.

Other Operating Expense

Other operating expense for the ~~second~~first quarter of ~~2022~~2023 increased ~~$902,000,~~$2.4 million, or 4%11%, to ~~$23.2~~$23.5 million as compared to ~~$22.3~~$21.1 million for the same period in ~~2021~~2022 primarily due to ~~higher salaries and other personnel expense related to the community banking segment that was only partially offset by a decrease~~an increase in salaries and other personnel expense ~~related to~~as well as smaller increases in most other expense categories as the Company has grown and increased its number of branches and mortgage ~~banking operations, which fluctuate with production volumes. Additionally, insurance expense increased~~origination offices. The Company opened its 18th branch in Nome in the ~~second~~fourth quarter of 2022 ~~as compared to~~and its 19th branch in Kodiak in the ~~second~~first quarter of ~~2021 due~~2023 which contributed to ~~higher FDIC insurance premiums primarily due to growth in the Company's balance sheet.~~

~~Other operating~~increased salaries and personnel expense for the ~~first half of 2022 increased $676,000, or 2%, to $44.3 million as compared to $43.7 million~~Community Banking segment. Despite lower mortgage loan production volumes, salaries and personnel expense for the ~~same period~~Home Mortgage Lending segment increased as a result of branch expansion in ~~2021 primarily due to higher insurance expense due to higher FDIC insurance premiums primarily due to growth~~new markets in ~~the Company's balance sheet. Additionally, marketing expense~~late 2022 and professional fees increased in the first half of 2022 as compared to 2021 due to timing differences of advertising and sponsorships and increased investment management fees attributable to the growth in our investment portfolio.early 2023.

Income Taxes

For the ~~second~~first quarter ~~and first half~~ of ~~2022,~~2023, Northrim recorded a lower effective tax rate as compared to the same ~~periods~~period in ~~2021~~2022 as a result of an increase in tax credits and tax exempt interest income as a percentage of pre-tax income in ~~2022.~~2023. In the ~~second~~first quarter of ~~2022,~~2023, Northrim recorded ~~$1.5~~$1.2 million in state and federal income tax expense, for an effective tax rate of ~~24.11%~~20.44% compared to ~~$3.1~~$1.9 million and ~~26.89%~~21.25% for the same period in 2021. For the first half of 2022, Northrim recorded $3.5 million in state and federal income tax expense, for an effective tax rate of 22.42% compared to $6.4 million in state and federal income tax expense, for an effective tax rate of 23.88% for the same period in 2021.2022.

FINANCIAL CONDITION

Balance Sheet Overview

Portfolio Investments

Portfolio investments, which include investment securities available for sale, investment securities held to maturity, and marketable equity securities, at ~~June 30, 2022~~March 31, 2023 increased ~~43%, or $195.8 million,~~slightly to ~~$650.9~~$725.0 million from ~~$455.1~~$724.5 million at December 31, ~~2021~~2022 as ~~proceeds from an increase in deposits that were not lent out were invested in~~the fair market value of available for sale securities increased but was largely offset by maturities and calls of available for sale securities during the first ~~six~~three months of ~~2022.~~

2023.

The table below details portfolio investment balances by portfolio investment type:


		June 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
		Dollar Amount	Percent of Total		Dollar Amount	Percent of Total			Dollar Amount	Percent of Total		Dollar Amount	Percent of Total
(In Thousands)	(In Thousands)							(In Thousands)
		Balance	% of total		Balance	% of total			Balance	% of total		Balance	% of total
U.S. Treasury and government sponsored entities	U.S. Treasury and government sponsored entities	$521,338	80.1	%	$341,480	75.0	%	U.S. Treasury and government sponsored entities	$602,374	83.0	%	$595,161	82.2	%
Municipal securities	Municipal securities	807	0.1	%	840	0.2	%	Municipal securities	802	0.1	%	795	0.1	%

Corporate bonds	Corporate bonds	61,753	9.5	%	52,946	11.6	%	Corporate bonds	52,165	7.2	%	60,394	8.3	%
Collateralized loan obligations	Collateralized loan obligations	57,878	8.9	%	51,418	11.3	%	Collateralized loan obligations	59,143	8.2	%	57,429	7.9	%
Preferred stock	Preferred stock	9,122	1.4	%	8,420	1.9	%	Preferred stock	10,515	1.5	%	10,740	1.5	%
Total portfolio investments	Total portfolio investments	$650,898			$455,104			Total portfolio investments	$724,999			$724,519

The average estimated duration of the investment portfolio at March 31, 2023, was approximately three-years. As of March 31, 2023, $29.6 million available for sale securities are scheduled to mature in the next six months, $76.9 million are scheduled to mature in six months to one year, and $151.8 million are scheduled to mature in the following year, a total of $258.3 million or 11% of earning assets at March 31, 2023.

Loans and Lending Activities

The following table presents the concentration distribution of the loan portfolio, net of deferred fees and costs, as of the dates indicated:


		June 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
		Dollar Amount	Percent of Total		Dollar Amount	Percent of Total			Dollar Amount	Percent of Total		Dollar Amount	Percent of Total
(In Thousands)	(In Thousands)							(In Thousands)
Commercial & industrial loans	Commercial & industrial loans	$394,841	28.1	%	$448,338	31.7	%	Commercial & industrial loans	$364,109	23.7	%	$358,128	23.8	%
Commercial real estate:	Commercial real estate:							Commercial real estate:
Owner occupied properties	Owner occupied properties	313,174	22.3	%	300,200	21.2	%	Owner occupied properties	343,162	22.4	%	349,973	23.3	%
Non-owner occupied and multifamily properties	Non-owner occupied and multifamily properties	446,592	31.7	%	435,311	30.8	%	Non-owner occupied and multifamily properties	473,227	30.8	%	482,270	32.2	%
Residential real estate:	Residential real estate:							Residential real estate:
1-4 family residential properties secured by first liens	1-4 family residential properties secured by first liens	37,298	2.7	%	32,542	2.3	%	1-4 family residential properties secured by first liens	112,214	7.3	%	73,381	4.9	%
1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	21,953	1.6	%	19,610	1.4	%	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	23,027	1.5	%	20,259	1.3	%
1-4 family residential construction loans	1-4 family residential construction loans	43,915	3.1	%	36,222	2.6	%	1-4 family residential construction loans	40,652	2.6	%	44,000	2.9	%
Other construction, land development and raw land loans	Other construction, land development and raw land loans	87,163	6.2	%	88,094	6.2	%	Other construction, land development and raw land loans	91,712	6.0	%	99,182	6.6	%
Obligations of states and political subdivisions in the US	Obligations of states and political subdivisions in the US	24,005	1.7	%	16,403	1.2	%	Obligations of states and political subdivisions in the US	42,257	2.8	%	32,539	2.2	%
Agricultural production, including commercial fishing	Agricultural production, including commercial fishing	29,482	2.1	%	27,959	2.0	%	Agricultural production, including commercial fishing	37,429	2.4	%	34,099	2.3	%
Consumer loans	Consumer loans	4,092	0.3	%	4,801	0.3	%	Consumer loans	4,661	0.3	%	4,335	0.3	%
Other loans	Other loans	3,194	0.2	%	4,406	0.3	%	Other loans	2,737	0.2	%	3,619	0.2	%
Total loans	Total loans	$1,405,709			$1,413,886			Total loans	$1,535,187			$1,501,785

Loans ~~decreased~~increased by ~~$8.2~~$33.4 million, or 1%2%, to ~~$1.406~~$1.535 billion at ~~June 30, 2022~~March 31, 2023 from ~~$1.414~~$1.502 billion at December 31, ~~2021,~~2022, primarily as a result of ~~decreased SBA PPP~~increased consumer mortgage loans. Loans excluding PPP loans increased $78.2 million, or 6% to $1.374 billion at June 30, 2022 from $1.296 billion at December 31, 2021. Management believes that the significant outreach that the Company has done throughout the SBA PPP lending cycle to both existing customers and new PPP loan customers has contributed to growth in our market share for non-PPP lending relationships. PPP loans are included in commercial and industrial loans in the table above and totaled $31.9 million at June 30, 2022 and $118.2 million at December 31, 2021.

Information about loan concentrations

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 oilfield services, lodging, equipment rental, transportation, and other logistic services specific to the industry. The Company estimates that ~~$59.2~~$79.0 million, or approximately 4%5% of loans as of ~~June 30, 2022~~March 31, 2023 have direct exposure to the oil and gas industry as compared to ~~$63.6~~$83.4 million, or approximately 5%6% of loans as of December 31, ~~2021.~~2022. The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were ~~$68.1~~$54.8 million and ~~$66.4~~$51.8 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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 ~~$466,000~~$764,000 as of ~~June 30, 2022~~March 31, 2023 and ~~$684,000~~$786,000 as of December 31, ~~2021.~~2022.

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

(In Thousands) June 30, 2022 December 31, 2021
Commercial & industrial loans $41,370 $45,338
Commercial real estate:
Owner occupied properties 10,066 10,244
Non-owner occupied and multifamily properties 6,296 6,564
Other loans 1,465 1,495
Total $59,197 $63,641


(In Thousands)	March 31, 2023	December 31, 2022
Commercial & industrial loans	$62,821	$66,864
Commercial real estate:
Owner occupied properties	8,901	9,108
Non-owner occupied and multifamily properties	5,870	6,013








Other loans	1,416	1,431
Total	$79,008	$83,416

The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions. At ~~June 30, 2022,~~March 31, 2023, the Company had ~~$121.3~~$126.7 million, or 9%8% of portfolio loans, in the Healthcare sector, ~~$96.6~~$99.9 million, or 7%6% of portfolio loans, in the Tourism sector, ~~$63.1~~$69.5 million, or 5% of portfolio loans, in the Fishing sector, $68.7 million, or 4% of portfolio loans, in the Accommodations sector, $54.2 million, or 4% of portfolio loans, in the Retail sector, ~~$59.9~~$50.3 million, or ~~4% of portfolio loans, in the Accommodations sector, $58.5 million, or 4% of portfolio loans, in the Fishing sector, $51.1 million, or 4% in the Restaurant sector, and $50.0 million, or 4%~~3% of portfolio loans, in the Aviation (non-tourism) sector, and $47.3 million, or 3% in the Restaurant sector.

The portion of the Company's ACL that related to the loans with exposure to these industries is estimated at the following amounts as of ~~June 30, 2022:~~March 31, 2023:

(In Thousands) Tourism Aviation (non-tourism) Healthcare Retail Fishing Restaurant Accommodations Total
ACL $683 $325 $945 $529 $365 $406 $459 $3,712


(In Thousands)	Tourism	Aviation (non-tourism)	Healthcare	Retail	Fishing	Restaurant	Accommodations	Total
ACL	$679	$426	$1,125	$521	$480	$396	$527	$4,154

The following table sets forth information regarding changes in the ACL for the periods indicated:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022
Balance at beginning of period	Balance at beginning of period	$11,310	$14,764	$11,739	$21,136	Balance at beginning of period	$13,838	$11,739
Cumulative effect of adoption of ASU 2016-13		—	—	—	(4,511)
Charge-offs:

Commercial & industrial loans	Commercial & industrial loans	(166)	(110)	(461)	(273)	Commercial & industrial loans	—	(295)

Consumer loans						Consumer loans	(14)	—
Other loans						Other loans	—	—
Total charge-offs	Total charge-offs	(166)	(110)	(461)	(273)	Total charge-offs	(14)	(295)
Recoveries:	Recoveries:					Recoveries:
Commercial & industrial loans	Commercial & industrial loans	103	27	116	212	Commercial & industrial loans	65	13
Commercial real estate:
Owner occupied properties		—	2	—	4

Residential real estate:						Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	9	10	21	20	1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	7	12

Agricultural production, including commercial fishing	Agricultural production, including commercial fishing	7	7	15	15	Agricultural production, including commercial fishing	—	7
Consumer loans	Consumer loans	1	—	1	2	Consumer loans	2	1

Total recoveries	Total recoveries	120	46	153	253	Total recoveries	74	33
Net, charge-offs	Net, charge-offs	(46)	(64)	(308)	(20)	Net, charge-offs	60	(262)
(Benefit) provision for credit losses		273	(161)	106	(2,066)
Provision (benefit) for credit losses						Provision (benefit) for credit losses	259	(167)
Balance at end of period	Balance at end of period	$11,537	$14,539	$11,537	$14,539	Balance at end of period	$14,157	$11,310

The following table sets forth information regarding changes in the ACL for unfunded commitments for the periods indicated:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022	2021	2022	2021	(In Thousands)	2023	2022
Balance at beginning of period	Balance at beginning of period	$1,113	$1,833	$1,096	$187	Balance at beginning of period	$1,970	$1,096
Cumulative effect of adoption of ASU 2016-13		—	—	—	1,229
Adjusted balance, beginning of period		1,113	1,833	1,096	1,416
(Benefit) provision for credit losses		190	(266)	207	151

Provision for credit losses						Provision for credit losses	101	17
Balance at end of period	Balance at end of period	$1,303	$1,567	$1,303	$1,567	Balance at end of period	$2,071	$1,113

While management believes that it uses the best information available to determine the ACL, unforeseen market conditions and other events could result in adjustment to the ACL, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination of the ACL. Moreover, bank regulators frequently monitor banks' loan loss allowances, and if regulators were to determine that the Company’s ACL is inadequate, they may require the Company to increase the ACL, which may adversely impact the Company’s net income and financial condition.

5347

Deposits

Deposits are the Company’s primary source of funds. Total deposits decreased ~~$86.2~~$90.9 million, or 4%, to ~~$2.335~~$2.296 billion as of ~~June 30, 2022~~March 31, 2023 compared to ~~$2.422~~$2.387 billion as of December 31, ~~2021, primarily due to the drawdown of a large temporary deposit in the first quarter of~~ 2022. The following table summarizes the Company's composition of deposits as of the periods indicated:


		June 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
(In thousands)	(In thousands)	Balance	% of total		Balance	% of total		(In thousands)	Balance	% of total		Balance	% of total
Demand deposits	Demand deposits	$830,156	35	%	$887,824	37	%	Demand deposits	$767,772	34	%	$797,434	34	%
Interest-bearing demand	Interest-bearing demand	666,283	29	%	692,683	29	%	Interest-bearing demand	717,910	31	%	767,686	32	%
Savings deposits	Savings deposits	349,208	15	%	348,164	14	%	Savings deposits	292,857	13	%	320,917	13	%
Money market deposits	Money market deposits	319,843	14	%	314,996	13	%	Money market deposits	262,478	11	%	308,317	13	%
Time deposits	Time deposits	169,900	7	%	177,964	7	%	Time deposits	255,256	11	%	192,857	8	%
Total deposits	Total deposits	$2,335,390			$2,421,631			Total deposits	$2,296,273			$2,387,211

The Company’s mix of deposits continues to contribute to a low cost of funds with balances in transaction accounts representing ~~93%~~89% of total deposits at ~~June 30, 2022~~March 31, 2023 and ~~93%~~92% of total deposits at December 31, ~~2021.~~2022.

The only deposit category with stated maturity dates is certificates of deposit. At ~~June 30, 2022,~~March 31, 2023, the Company had ~~$169.9~~$255.3 million in certificates of deposit as compared to certificates of deposit of ~~$178.0~~$192.9 million at December 31, ~~2021.~~2022. At ~~June 30, 2022, $133.1~~March 31, 2023, $154.2 million, or ~~78%~~60%, of the Company’s certificates of deposits are scheduled to mature over the next 12 months as compared to ~~$118.5~~$128.4 million, or 67%, of total certificates of deposit at December 31, ~~2021.~~2022. The aggregate amount of certificates of deposit in amounts of $250,000 and greater at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, was ~~$73.3~~$105.6 million and ~~$77.1~~$77.5 million, respectively. The following table sets forth the amount outstanding of deposits in amounts of $250,000 and greater by time remaining until maturity and percentage of total deposits as of ~~June 30, 2022:~~March 31, 2023:


		Time Certificates of Deposit				Time Certificates of Deposit
		of $250,000 or More				of $250,000 or More
			Percent of Total Deposits				Percent of Total Deposits
(In Thousands)	(In Thousands)	Amount			(In Thousands)	Amount
Amounts maturing in:	Amounts maturing in:				Amounts maturing in:
Three months or less	Three months or less	$11,681	16	%	Three months or less	$4,403	4	%
Over 3 through 6 months	Over 3 through 6 months	14,653	20	%	Over 3 through 6 months	9,016	9	%
Over 6 through 12 months	Over 6 through 12 months	29,479	40	%	Over 6 through 12 months	40,559	38	%
Over 12 months	Over 12 months	17,457	24	%	Over 12 months	51,580	49	%
Total	Total	$73,270	100	%	Total	$105,558	100	%

At March 31, 2023, 68% of total deposits were held in business accounts and 32% of deposit balances were held in consumer accounts. Northrim had approximately 33,000 deposit customers with an average balance of $69,000 as of March 31, 2023. Northrim had 16 customers with balances over $10 million as of March 31, 2023 which accounted for $346.9 million, or 15%, of total deposits.

Uninsured deposits totaled $981.3 million or 43% of total deposits as of March 31, 2023 compared to $1.1 billion or 46% of total deposits as of December 31, 2022. As interest rates continued to increase in the first quarter of 2023, Northrim began a proactive, targeted approach to increase deposit rates. There was no unusual deposit activity during the first quarter of 2023.

Borrowings

FHLB: The Bank is a member of the Federal Home Loan Bank of Des Moines (the "FHLB"). As a member, the Bank is eligible to obtain advances from the FHLB. FHLB advances are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Bank’s assets. At ~~June 30, 2022,~~March 31, 2023, our maximum borrowing line from the FHLB was ~~$1.169~~$1.154 billion, approximately 45% of the Bank’s assets, subject to the FHLB’s collateral requirements. The Company has outstanding advances of ~~$14.3~~$14.0 million as of ~~June 30, 2022~~March 31, 2023 which were originated to match fund low income housing projects that qualify for long term fixed interest rates. These advances have original terms of either 18 or 20 years with 30 year amortization periods and fixed interest rates ranging from 1.23% to 3.25%.

Federal Reserve Bank: The Federal Reserve Bank of San Francisco (the "Federal Reserve Bank") is holding ~~$50.5~~$43.6 million of loans as collateral to secure the Company's ability to take advances ~~made~~ through the discount window on ~~June 30, 2022.~~March 31, 2023. There were no discount window advances outstanding at either ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

Other Short-term Borrowings: The Company is subject to provisions under Alaska state law, which generally limit the amount of outstanding debt to 35% of total assets or ~~$909.4~~$897.6 million at ~~June 30, 2022~~March 31, 2023 and ~~$948.0~~$930.1 million at December 31, ~~2021.~~2022.

At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had no short-term (original maturity of one year or less) borrowings that exceeded 30% of shareholders’ equity.

Long-term Borrowings. The Company had no long-term borrowing outstanding other than the FHLB advances noted above as of ~~June 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

Liquidity and Capital Resources

The Company is a single bank holding company and its primary ongoing source of liquidity is from dividends received from the Bank. Such dividends arise from the cash flow and earnings of the Bank. Banking regulations and regulatory authorities may limit the amount of, or require the Bank to obtain certain approvals before paying, dividends to the Company. Given that the Bank currently meets and the Bank anticipates that it will continue to meet, all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards, the Company expects to continue to receive dividends from the Bank during the remainder of ~~2022.~~2023. Other available sources of liquidity for the bank holding company include the issuance of debt and the issuance of common or preferred stock. As of ~~June 30, 2022,~~March 31, 2023, the Company has 10.0 million authorized shares of common stock, of which 5.7 million are issued and outstanding, leaving 4.3 million shares available for issuance. Additionally, the Company has 2.5 million authorized shares of preferred stock available for issuance.

The Bank manages its liquidity through its Asset and Liability Committee. The Bank's primary source of funds are customer deposits. These funds, together with loan repayments, loan sales, maturity of investment securities, borrowed funds, and retained earnings are used to make loans, to acquire securities and other assets, and to fund deposit flows and continuing operations. The primary sources of demands on our liquidity are customer demands for withdrawal of deposits and borrowers’ demands that we advance funds against unfunded lending commitments.

The Company had cash and cash equivalents of ~~$336.9~~$139.2 million, or ~~13%~~5% of total assets at ~~June 30, 2022~~March 31, 2023 compared to ~~$645.8~~$259.4 million, or ~~24%~~10% of total assets as of December 31, ~~2021.~~2022. The decrease in cash and cash equivalents since the end of 2022 is primarily due to ~~an increase in available for sale securities and~~ a decrease in deposits, but is still elevated as compared to historical ~~norms.~~norms both in balance and as a percentage of total assets. The Company had other comprehensive ~~losses,~~income, net of tax, of ~~$4.9 million and $15.9~~$5.6 million for the ~~three and six-month periods~~three-month period ending ~~June 30, 2022~~March 31, 2023 primarily due to unrealized holding gains on available for sale securities. Accumulated unrealized losses, net of income taxes on available for sale securities, ~~due~~which are recorded in total shareholders' equity, are $24.3 million as of March 31, 2023. Accumulated unrealized losses, net of income taxes on held to ~~increases~~maturity securities, which are not recorded in ~~interest rates.~~shareholders' equity, are $3.0 million as of March 31, 2023. Management does not believe that liquidation of these securities, which would result in realized losses, will occur prior to maturity of these securities. Furthermore, management expects that the Company's elevated level of liquidity will continue through 2022 and potentially into subsequent years. Accordingly, management has invested in slightly longer term investment securities as compared to the last several years. As of ~~June 30, 2022,~~March 31, 2023, the weighted average maturity of available for sale securities is ~~3.6~~3.1 years compared to 3.3 years at December 31, 2022 and 4.1 years at December 31, ~~2021 and 2.6 years at December~~2021. At March 31, ~~2020. At June 30, 2022, no~~2023, $106.6 million available for sale securities mature within one year, ~~$137.0~~$151.8 million mature within one to two years, and ~~$178.4~~$164.3 million mature within two to three years. Our total unfunded commitments to fund loans and letters of credit at ~~June 30, 2022~~March 31, 2023 were ~~$415.8~~$445.7 million. We do not expect that all of these loans are likely to be fully drawn upon at any one time. At ~~June 30, 2022,~~March 31, 2023, certificates of deposit totaling ~~$133.1~~$154.2 million are scheduled to mature over the next 12 months and may be withdrawn from the Bank. Similar to loans, we do not expect that these maturing certificates of deposit, or other non-maturity deposits, to be withdrawn from the Bank in a manner that will strain liquidity; however, unforeseen future circumstances or events may cause higher than anticipated withdrawal of deposits or draws of unfunded commitments to fund new loans. Management believes that cash requirements to fund future non-deposit liabilities, including operating lease liabilities, other liabilities, or borrowings as of ~~June 30, 2022,~~March 31, 2023, are not material to the Company's liquidity position as of ~~June 30, 2022.~~March 31, 2023.

The Company has other available sources of liquidity to fund unforeseen liquidity ~~needs.~~requirements. These include borrowings available through our correspondent banking relationships and our credit lines with the Federal Reserve Bank and the FHLB. At ~~June 30, 2022,~~March 31, 2023, our liquid assets, which include investments and loans maturing within a year, were ~~$578.8~~$502.0 million and our funds available for borrowing under our existing lines of credit were ~~$1.224~~$1.201 billion. Additionally, the Company can obtain borrowings under the Federal Reserve Bank's newly created Bank Term Funding Program ("BTFP") as a source of liquidity in order to help assure that banks have the ability to meet the needs of all depositors. The BTFP allows eligible depository institutions to pledge high-quality securities to obtain liquidity and eliminate the need for the financial institution to sell securities quickly in times of stress. The Company did not borrow from the BTFP in the first quarter of 2023. Given these sources of liquidity and our expectations for customer demands for cash and for our operating cash needs, we believe our sources of liquidity to be sufficient infor the foreseeable future.

As shown in the Consolidated Statements of Cash Flows included in Part I - Item 1 "Financial Statements" of this report, net cash provided by operating activities was ~~$15.3~~$4.3 million for the first ~~six~~three months of ~~2022,~~2023, primarily due to cash provided by net income and net proceeds from the sale of loans held for sale, which were only partially offset by cash used in connection with the origination of loans held for sale. Net cash used by investing activities was ~~$218.8~~$28.7 million for the same period, primarily due to ~~purchases of available for sale and held to maturity securities as well as~~ an increase in ~~purchased receivables. This use of cash~~loans which was only partially offset by ~~a decrease in loans, mostly attributable to SBA PPP forgiveness.~~maturities and calls of available for sale securities. Net cash used by financing activities in the same period was ~~$105.4~~$95.8 million, primarily due to a decrease in ~~deposits.~~deposits, as well as cash dividends paid to shareholder and repurchases of common stock.

Throughout our history, the Company has periodically repurchased for cash a portion of its shares of common stock in the open market. The Company repurchased ~~333,724~~27,887 shares of its common stock under the Company's previously announced repurchase programs in the first ~~six~~three months of ~~2022.~~2023. At ~~June 30, 2022,~~March 31, 2023, there are no257,113 shares remaining ofunder the ~~shares previously authorized for repurchase.~~repurchase program. The Company may elect to continue to repurchase our stock from time-to-time depending upon market conditions, but we can make no assurances that we will continue this program or that we will authorize additional shares for repurchase.

Capital Requirements and Ratios

We are subject to minimum capital requirements. Federal banking agencies have adopted regulations establishing minimum requirements for the capital adequacy of banks and bank holding companies. The requirements address both risk-based capital and leverage capital. We believe as of ~~June 30, 2022,~~March 31, 2023, that the Company and the Bank met all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards.

The table below illustrates the capital requirements in effect for the periods noted for the Company and the Bank and the actual capital ratios for each entity that exceed these requirements. Management intends to maintain capital ratios for the Bank in ~~2022,~~2023, exceeding the FDIC’s requirements for the “well-capitalized” classification. The capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offering completed in the fourth quarter of 2005 is included in the Company’s capital for regulatory purposes, although they are accounted for as a long-term debt in our

financial statements. The trust preferred securities are not accounted for on the Bank’s financial statements nor are they included in its capital. As a result, the Company has $10 million more in regulatory capital than the Bank at ~~both June 30, 2022 and December~~March 31, ~~2021,~~2023, which explains most of the difference in the capital ratios for the two entities.


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


June 30, 2022
March 31, 2023								March 31, 2023
Total risk-based capital	Total risk-based capital	8.00%		10.00%				13.45%			11.46%			Total risk-based capital	8.00%			10.00%			13.60%		11.45%
Tier 1 risk-based capital	Tier 1 risk-based capital	6.00%		8.00%		12.74%			10.74%	Tier 1 risk-based capital		6.00%				8.00%			12.75%			10.59%
Common equity tier 1 capital	Common equity tier 1 capital	4.50%	6.50%		12.20%		10.76%	Common equity tier 1 capital	4.50%				6.50%				12.24%			10.60%
Leverage ratio	Leverage ratio	4.00%	5.00%		8.84%		7.44%	Leverage ratio	4.00%				5.00%				9.40%			7.79%

See Note 2322 of the Consolidated Financial Statements in Part II. Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for a detailed discussion of the capital ratios. The requirements for ~~"well- capitalized"~~"well-capitalized" come from the Prompt Corrective Action rules. See Part I. Item 1 - Business - Supervision and Regulation in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. These rules apply to the Bank but not to the Company. Under the rules of the Federal Reserve Bank, a bank holding company such as the Company is generally defined to be "well capitalized" if its Tier 1 risk-based capital ratio is 8.0% or more and its total risk-based capital ratio is 10.0% or more.

Critical Accounting Policies

Our critical accounting policies are described in detail in Part II. Item 7, Management’s Discussion and Analysis, and in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments as a result of the need to make "critical accounting estimates", which are estimates that involve estimation uncertainty that has had or is reasonably likely to have a material impact on the Company's financial condition or results of operations. The Company's critical accounting policies include allowance for credit losses, valuation of goodwill and other intangible assets, the valuation of ~~OREO, the valuation of~~ mortgage servicing rights, and fair value. There have been no material changes to the valuation techniques or models, that affect our estimates during ~~2022 except as noted below.~~2023.

~~Allowance for Credit Losses Policy:~~ For loan pools that utilize the discounted cash flow ("DCF") method, the Company utilizes complex models to obtain reasonable and supportable forecasts to calculate two predictive metrics, the probability of default ("PD") and loss given default. The PD measures the probability that a loan will default within a given time horizon and is an assumption derived from regression models which determine the relationship between historical defaults and certain economic variables. As of December 31, 2021, management utilized and forecasted Alaska unemployment as a loss driver for all of the loan pools that utilized the DCF method. Management also utilized and forecasted either one-year percentage change in the Alaska home price index or the one-year percentage change in the national commercial real estate price index as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlated to expected future losses. Additionally, the Company's regression models for PD as of December 31, 2021 utilized the Company's actual historical loan level default data.

As of January 1, 2022, management utilizes and forecasts U.S. unemployment as the sole loss driver for all of the loan pools that utilize the DCF method. The Company's regression models for PD as of January 1, 2022 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 under the following circumstances:

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

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

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

~~No other changes have been made to the Company's Allowance for Credit Losses Policy since December 31, 2021.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our assessment of market risk as of ~~June 30, 2022~~March 31, 2023 indicates that there are no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

5751

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934). Our principal executive and financial officers supervised and participated in this evaluation. Based on this evaluation, our principal executive and financial officers each concluded that as of ~~June 30, 2022,~~March 31, 2023, the disclosure controls and procedures are effective in timely alerting them to material information required to be included in the periodic reports to the Securities and Exchange Commission. The design of any system of controls is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any of our plans, products, services or procedures will succeed in achieving their intended goals under future conditions.

Changes in Internal Control over Disclosure and Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15-d-15(f) of the Securities Exchange Act of 1934) that occurred during the quarterly period ended ~~June 30, 2022~~March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

During the normal course of its business, the Company is a party to various debtor-creditor legal actions, disputes, claims, and litigation related to the conduct of its banking business. These include cases filed as a plaintiff in collection and foreclosure cases, and the enforcement of creditors’ rights in bankruptcy proceedings. Management does not expect that the resolution of these matters will have a material effect on the Company’s business, financial position, results of operations, or cash flows.

ITEM 1A. RISK FACTORS

For information regarding risk factors, please refer to Part I. Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as updated by the Company's periodic filings with the SEC. ~~These~~Other than the risk factors set forth below, the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31,2022 have not changed materially as of ~~June 30, 2022.~~March 31, 2023.

Recent negative developments affecting the banking industry, and resulting media coverage, may affect our results of operations and financial condition.

The recent high-profile bank failures involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact our liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

Rising interest rates have decreased the value of our held-to-maturity securities portfolio, and we would realize losses if we were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including ours, resulting in unrealized losses embedded in the held-to-maturity portion of U.S. banks’ securities portfolios. While we do not currently intend to sell these securities, if we were required to sell such securities to meet liquidity needs, we may incur losses, which could impair our capital, financial condition, and results of operations and, in the event that our other funding sources are insufficient, could require us to raise additional capital. While we have taken actions to maximize our funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has created the Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase our expenses and affect our operations.

We anticipate increased regulatory scrutiny and new regulations directed towards regional banks similar in size to us, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)-(b) Not applicable

(c) The Company repurchased ~~200,619~~27,887 shares of its common stock during the three-month period ending ~~June 30, 2022.~~March 31, 2023.


		Total Number of Shares (or Units) Purchased	Average Price Paid per Shares (or Unit)	Total Number of Shares (or Units) Purchased as Part of the Publicly Announced Plans or Programs	Maximum Number (1) (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs		Total Number of Shares (or Units) Purchased	Average Price Paid per Shares (or Unit)	Total Number of Shares (or Units) Purchased as Part of the Publicly Announced Plans or Programs	Maximum Number (1) (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Period	Period	(a)	(b)	(c)	(d)	Period	(a)	(b)	(c)	(d)
Month No. 1	Month No. 1					Month No. 1
April 1, 2022 - April 30, 2022		57,333	$42.30	57,333	143,286
January 1, 2022 - January 31, 2023						January 1, 2022 - January 31, 2023	—	$—	—	285,000
Month No. 2	Month No. 2					Month No. 2
May 1, 2022 - May 31, 2022		77,219	$40.23	77,219	66,067
February 1, 2022 - February 28, 2023						February 1, 2022 - February 28, 2023	—	$—	—	285,000
Month No. 3	Month No. 3					Month No. 3
June 1, 2022 - June 30, 2022		66,067	$40.89	66,067	0
March 1, 2022 - March 31, 2023						March 1, 2022 - March 31, 2023	27,887	$47.60	27,887	257,113
Total	Total	200,619	$41.04	200,619	0	Total	27,887	$47.60	27,887	257,113

(1) In August 2004, the Company publicly announced its board of director's (the "Board") authorization to increase the stock in its repurchase program (the "Plan") by an additional 304,283, or 5%, of total shares outstanding. As a result, the total shares available under the Plan at that time increased to 385,855 shares. On June 8, 2007, the Company publicly announced the Board’s authorization to increase the stock in its repurchase program by an additional 305,029 shares, or 5% of total shares outstanding, bringing the total shares available and authorized for repurchase under the Plan at that time to 342,242 shares. In 2007, the Company repurchased shares, bringing the total shares available and authorized for repurchase under the Plan to 227,242 shares. In the third quarter of 2017, the Company repurchased 58,341 shares, bringing the total shares available and authorized for repurchase under the Plan to 168,901. In the fourth quarter of 2018, the Company repurchased 15,468 shares, bringing the total shares available and authorized for repurchase under the Plan to 153,433. In the first quarter of 2019, the Company repurchased 6,110 shares, bringing the total shares available and authorized for repurchase under the Plan to 147,323 as of March 31, 2019. In April 2019, the Company publicly announced its Board's authorization to increase the stock in the Plan by an additional 193,678, or approximately 3%, of total shares outstanding. As a result, the total shares available under the Plan at that time increased to 340,000 shares, or 5% of total shares outstanding. In the second quarter of 2019, the Company repurchased 149,373 shares, bringing the total shares available and authorized for repurchase under the Plan to 192,193 as of June 30, 2019. In the third quarter of 2019, the Company repurchased 192,193 shares, bringing the total shares available and authorized for repurchase under the Plan to zero as of September 30, 2019. On January 27, ~~2020, the Board authorized the repurchase of up to an additional 327,000 shares of its common stock. In the first quarter of 2020,~~2023, the Company repurchased 192,709 shares, bringing the total number of shares available and authorized for repurchase under the Plan to 134,291. As of March 31, 2020, the Company had suspended all stock repurchasing activity. The Company resumed its stock repurchase program on August 28, 2020. In the third quarter of 2020, the Company repurchased 88,742 shares, bringing the total number of shares available and authorized for repurchase under the Plan to 45,549. In the fourth quarter of 2020, the Company repurchased 45,549 shares, bringing the total shares available and authorized for repurchase to zero as of December 31, 2020. On February 1, 2021, the Company publicly announced its Board's authorization to repurchase up to an additional 313,000 shares of its common stock. In the first quarter of 2021, the Company repurchased 61,399 shares, bringing the total shares available and authorized for repurchase under the Plan to 251,601. In the third quarter of 2021, the Company repurchased 29,613 shares, bringing the total shares available and authorized for repurchase under the Plan to 221,988. In the fourth quarter of 2021, the Company repurchased 188,264 shares, bringing the total shares available and authorized for repurchase under the Plan to 33,724. On January 28, 2022, the Company announced that its Board of Directors had authorized the repurchase of up to an additional ~~300,000~~285,000 shares of common stock. In the first quarter of ~~2022,~~2023, the Company repurchased ~~133,105~~27,887 shares, bringing the total shares remaining available and authorized for repurchase ~~under the Plan~~ to ~~200,619. In the second quarter of 2022, the Company repurchased 200,619 shares, bringing the total shares available and authorized for repurchase to zero as of June 30, 2022.~~257,113.

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~ITEM 4.MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5. OTHER INFORMATION~~

~~(a) Not applicable~~

~~(b) There have been no material changes to the procedures by which shareholders may nominate directors to the Company’s board of directors.~~

ITEM 6. EXHIBITS


31.1			Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
31.2			Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
32.1			Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2			Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350


101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
104			The cover page for the Company's Quarterly Report on 10-Q for the quarter ended ~~June 30, 2022~~March 31, 2023 - formatted in Inline XBRL (included in Exhibit 101)

6054

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NORTHRIM BANCORP, INC.


~~August~~May 5, ~~2022~~2023	By	/s/ Joseph M. Schierhorn
		Joseph M. Schierhorn
		Chairman, President, Chief Executive Officer and Chief Operating Officer
		(Principal Executive Officer)


~~August~~May 5, ~~2022~~2023	By	/s/ Jed W. Ballard
		Jed W. Ballard
		Executive Vice President, Chief Financial Officer
		(Principal Financial and Accounting Officer)

6155


Total commercial real estate owner occupied properties	$81,533	$85,374	$39,254	$15,363	$14,452	$64,224	$300,200

Non-owner occupied and multifamily properties
Pass	$77,205	$77,961	$61,147	$34,307	$19,833	$154,561	$425,014
Classified	—	—	—	10	10,286	1	10,297
Total commercial real estate non-owner occupied and multifamily properties	$77,205	$77,961	$61,147	$34,317	$30,119	$154,562	$435,311

Residential real estate:
1-4 family residential properties secured by first liens
Pass	$7,756	$8,023	$3,689	$531	$1,466	$8,812	$30,277
Classified	417	1,077	472	90	—	209	2,265
Total residential real estate 1-4 family residential properties secured by first liens	$8,173	$9,100	$4,161	$621	$1,466	$9,021	$32,542

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens
Pass	$5,806	$2,535	$3,229	$3,464	$259	$4,046	$19,339
Classified	—	—	—	259	—	12	271
Total residential real estate 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens	$5,806	$2,535	$3,229	$3,723	$259	$4,058	$19,610

1-4 family residential construction loans
Pass	$21,409	$1,056	$1,707	$62	$—	$11,879	$36,113
Classified	—	—	—	—	109	—	109
Total residential real estate 1-4 family residential construction loans	$21,409	$1,056	$1,707	$62	$109	$11,879	$36,222

Other construction, land development and raw land loans
Pass	$39,624	$26,458	$11,044	$3,315	$139	$5,544	$86,124
Classified	—	—	—	460	—	1,510	1,970
Total other construction, land development and raw land loans	$39,624	$26,458	$11,044	$3,775	$139	$7,054	$88,094

Obligations of states and political subdivisions in the US
Pass	$4,120	$812	$1,875	$343	$2,733	$6,520	$16,403
Classified	—	—	—	—	—	—	—
Total obligations of states and political subdivisions in the US	$4,120	$812	$1,875	$343	$2,733	$6,520	$16,403

Agricultural production, including commercial fishing
Pass	$19,970	$3,929	$810	$1,118	$741	$1,391	$27,959
Classified	—	—	—	—	—	—	—
Total agricultural production, including commercial fishing	$19,970	$3,929	$810	$1,118	$741	$1,391	$27,959

Consumer loans
Pass	$873	$815	$653	$403	$291	$1,766	$4,801
Classified	—	—	—	—	—	—	—
Total consumer loans	$873	$815	$653	$403	$291	$1,766	$4,801

Other loans
Pass	$2,028	$1,645	$430	$95	$—	$208	$4,406
Classified	—	—	—	—	—	—	—
Total other loans	$2,028	$1,645	$430	$95	$—	$208	$4,406

Total loans
Pass	$487,700	$261,687	$153,684	$95,818	$63,119	$296,998	$1,359,006
Classified	19,270	3,190	4,036	4,459	10,912	13,013	54,880
Total loans	$506,970	$264,877	$157,720	$100,277	$74,031	$310,011	$1,413,886

Total pass loans	$487,700	$261,687	$153,684	$95,818	$63,119	$296,998	$1,359,006
Government guarantees	(145,713)	(12,725)	(14,429)	(3,299)	(306)	(6,562)	(183,034)
Total pass loans, net of government guarantees	$341,987	$248,962	$139,255	$92,519	$62,813	$290,436	$1,175,972

Total classified loans	$19,270	$3,190	$4,036	$4,459	$10,912	$13,013	$54,880


	Accrual Status	Nonaccrual Status	Total Modifications
(In Thousands)






Existing Troubled Debt Restructurings	$3,008	$5,844	$8,852
Total	$3,008	$5,844	$8,852


		June 30, 2021
	Number of Contracts	Rate Modification	Term Modification	Payment Modification	Combination Modification	Total Modifications
(In Thousands)
Pre-Modification Outstanding Recorded Investment:
Commercial - AQR substandard	1	$—	$254	$—	$—	$254
Total	1	$—	$254	$—	$—	$254
Post-Modification Outstanding Recorded Investment:
Commercial - AQR substandard	1	$—	$251	$—	$—	$251
Total	1	$—	$251	$—	$—	$251


(In Thousands)	Six Months Ended June 30, 2022 vs. 2021
	Increase (decrease) due to
	Volume	Rate	Total
Interest Income:
Short-term investments	$367	$542	$909
Taxable long-term investments	1,354	250	1,604
Nontaxable long-term investments	—	—	—
Loans held for sale	(1,549)	1,029	(520)
Loans	(6,666)	6,874	208
Total interest income	($6,494)	$8,695	$2,201

Interest Expense:
Interest-bearing demand	$68	($32)	$36
Savings deposits	27	(36)	(9)
Money market deposits	54	(74)	(20)
Time deposits	(31)	(630)	(661)
Interest-bearing deposits	118	(772)	(654)
Borrowings	(5)	29	24
Total interest expense	$113	($743)	($630)