NORTHRIM BANCORP INC MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)


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.

Unless otherwise specified, references to “we”, “us”, “our” or “the Company” mean Northrim BanCorp, Inc. and its subsidiaries which 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, 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. All
statements other than statements of historical fact, including statements
regarding industry prospects, future results of operations or financial position
and the expected or potential impact of COVID-19 and related responses of the
government, made in this report are forward-looking. 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 the impact of COVID-19 on the Company's
credit quality, business, operations and employees; the availability and terms
of funding from government sources related to COVID-19; the impact of the
results of government initiatives on the regulatory landscape, natural resource
extraction industries, 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; the impact of
interest rates, inflation, supply-chain constraints, trade policies and
tensions, including tariffs, and potential geopolitical instability, including
the ware in Ukraine; the general condition of, and changes in, the Alaska
economy; our ability to maintain or expand our market share or net interest
margin; our ability to maintain asset quality; our ability to implement our
marketing and growth strategies; 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. 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, 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.







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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 data through May of 2022.
The DOL reports total payroll jobs in Alaska increased 2.9% or 8,900 jobs
compared to May of 2021. The Leisure and Hospitality sector showed 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. The Oil
and Gas sector has benefited from high energy prices and added 600 jobs since
May of 2021, a 9.1% increase. Other sectors showing improvement over the last 12
months include Trade, Warehousing, and Utilities (+6.8%), Other Services
(+4.8%); Financial Activities (+2.8%), and Professional and Business Services
(+2.6%). The only private sectors to decline year over year were Manufacturing
(-2.9%) and Information (-2.1%). The Government sector was up slightly by 0.6%,
an increase of 500 jobs through May 2022 year-over-year.

Alaska's Gross State Product ("GSP"), was estimated to be $58 billion at the end
of 2021 by the Federal Bureau of Economic Analysis ("BEA"). This was a 0.3%
increase in 2021 over 2020 figures. The BEA also calculated Alaska's seasonally
adjusted personal income was $49 billion in 2021, an improvement of 5.9% over
2020. This was largely a result of COVID related government transfer payments
and an improvement in employment leading to higher wage income last year.

The price of Alaska North Slope crude oil began 2021 averaging $55.56 a barrel
in January and climbed steadily throughout the year due 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 barrel in January and surpassed $100 in March after the war
in Ukraine began. Prices increased in the second quarter of 2022, reaching a
monthly average of $120.17 a barrel in June.

Alaska's home mortgage delinquency level continues to be better than most of the
nation. According to the Mortgage Bankers Association, Alaska's delinquency rate
in the first quarter of 2022 was 3.49% compared to the national average rate of
3.84%. The Mortgage Bankers Association survey reported that the mortgage
foreclosure rate in Alaska in the first quarter of 2022 was identical to the
national average rate of 0.53%.

According to the Alaska Multiple Listing Services, the average sales price of a
single family home in Anchorage rose 6.9% in 2021 to $424,148. In the first six
months of 2022 prices climbed another 7.5% to $456,052. Average sales prices in
the Matanuska Susitna Borough rose 15.6% in 2021 and another 11% in the first
six months of 2022 to $386,429. These two markets represent where 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.

The number of housing units sold in Anchorage was up significantly in 2021 by
11.2%, following an increase of 19.5% in 2020, as reported by the Alaska
Multiple Listing Services. The Matanuska Susitna Borough also had strong sales
activity, up 11.7% in 2021 and 9.7% in 2020.

The Board of Governors of the Federal Reserve System increased its benchmark
interest rate target from near zero as of December 31, 2021 to 2.25%-2.50% as of
July 31, 2022. Similarly, the Prime rate of interest has increased from 3.25% as
of December 31, 2022 to 5.50% as of July 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.


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Highlights and Performance Summary – Second Quarter 2022

The Company reported net income and diluted earnings per share of $4.8 million
and $0.83, respectively, for the second quarter of 2022 compared to net income
and diluted earnings per share of $8.3 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, respectively, for the first six months 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. The decrease in net
income for the three and six-month periods ending June 30, 2022 compared to the
same periods 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 and higher other
operating expenses in the Community Banking segment that were only partially
offset by higher 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 in the second quarter of 2022, which includes net interest income
plus other operating income, decreased 10% 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.
•Net interest income in the second quarter of 2022 increased 16% to $22.2
million compared to $19.2 million in the second 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.
•Net interest margin was 3.67% for the second quarter of 2022, a 19 basis point
increase from the second quarter of 2021 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 was only partially offset by higher
yields. Average interest bearing deposits in other banks increased to 19% of
average interest-earning assets in the six-months ending June 30, 2022, compared
to 8% in the same period a year ago.
•Loans were $1.41 billion at June 30, 2022, down 1% from December 31, 2021
primarily as a result of PPP forgiveness which was only partially offset by core
loan growth. Loans excluding the impact from PPP, were $1.37 billion at June 30,
2022, up 6% from $1.30 billion at December 31, 2021. As of June 30, 2022, 76% of
core portfolio loans are adjustable rate and are subject to rate increases as
the prime rate and other indices increase.
•The Company booked a provision for credit losses 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.
•The Company paid cash dividends of $0.41 per common share in the second quarter
of 2022, up 11% from $0.37 in the second quarter of 2021.
•At June 30, 2022, the capital ratios of the Company and Northrim Bank (the
"Bank") 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 at an
average price of $41.04 per share. There are no shares remaining of the 300,000
previously authorized for repurchase.

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Other financial measures are shown in the table below:

                                               Three Months Ended June 30,              Six Months Ended June 30,
                                                2022                2021                2022                2021
Return on average assets, annualized                 0.74  %             1.40  %             0.93  %             1.80  %
Return on average shareholders' equity,
annualized                                           8.58  %            14.10  %            10.51  %            17.68  %
Dividend payout ratio                               49.30  %            27.80  %            40.22  %            22.57  %

Paycheck Growth and 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 million at December 31, 2021. Other Real Estate Owned ("OREO"), net of
government guarantees, remained at $4.4 million at June 30, 2022 as compared to
December 31, 2021. Nonperforming loans, net of government guarantees decreased
$3.4 million, or 32% to $7.3 million as of June 30, 2022 from $10.7 million as
of December 31, 2021, 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 of 2022. $5.9 million, or 74% of nonperforming assets at
June 30, 2022, are nonaccrual loans related to five commercial relationships.

The following table summarizes non-performing asset activity for the three-month periods ending June 30, 2022 and 2021.

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                                                                                                                   Writedowns                                  Transfers to
                                     Balance at March 31,                                                         /Charge-offs                              Performing Status
(In Thousands)                               2022             Additions

this quarter Payments this quarter this quarter Transfers to OREO this quarter Sales this quarter Balance as of 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 non-performing assets,

  net of government guarantees                 $13,061                   $22                  ($1,240)                 ($166)                  $-                     $-                    $-                  $11,677


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

Nonperforming loans                            $14,463                  $173                  ($1,422)                 ($110)                    $-                       $-                    $-                  $13,104
Nonperforming loans guaranteed by
government                                      (1,382)                    -                      286                      -                      -                        -                     -                   (1,096)
  Nonperforming loans, net                      13,081                   173                   (1,136)                  (110)                     -                        -                     -                   12,008
Other real estate owned                          7,563                     -                        -                      -                      -                        -                  (490)                   7,073
Repossessed assets                                 225                     -                        -                      -                      -                        -                  (225)                       -

Other real estate owned guaranteed
by government                                   (1,279)                    -                        -                      -                      -                        -                     -                   (1,279)

Total non-performing assets,

  net of government guarantees                 $19,590                  $173                  ($1,136)                 ($110)                    $-                       $-                 ($715)                 $17,802


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

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.

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RESULTS OF OPERATIONS

Income Statement

  Net Income

  Net income for the second quarter of 2022 decreased $3.6 million to $4.8
million as compared to $8.3 million for the same period in 2021. The decrease in
net income is mostly attributable to a $3.3 million decrease in net income in
the Home Mortgage Lending segment, which is primarily due to lower production
and a $239,000 decrease in net income in the Community Banking segment. The
decrease in net income in the Community Banking segment in the three months
ended June 30, 2022, 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
which were 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 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 $2.0 million in life 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.


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Net interest income/Net interest margin

  Net interest income for the second quarter of 2022 increased $3.0 million, or
16%, to $22.2 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 million for the first half of 2021. Net interest
margin decreased 26 basis points to 3.42% in the first half of 2022 as compared
to 3.68% in the first half of 2021.

The increase in net interest income in the second quarter and first six-months
of 2022 compared to the same periods in 2021 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 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 remaining on PPP
loans mostly from the second round of PPP loan originations.

The increase in net interest margin in the second quarter of 2022 as compared to
the same period a year ago 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. Changes in net interest margin in the three
and six-month periods ended June 30, 2022 as compared to the same periods in the
prior year are detailed below:

                                                                 Three 

Months ended June 30, 2022

                                                                         vs. June 30, 2021
Nonaccrual interest adjustments                                                           (0.04) %
Impact of SBA Paycheck Protection Program loans                                            0.11  %
Interest rates and loan fees                                                               0.35  %
Volume and mix of interest-earning assets                                                 (0.23) %
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) %





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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 and 2021. Average
yields or costs are not calculated on a tax-equivalent basis.

(Dollars in Thousands)                                                                                                  Three 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                                            $382,015                $208,067           $173,948         84  %         $766                 $61              $705        1,156  %           0.80  %       0.12  %        0.68  %
Taxable long-term investments2                     588,741                 353,404            235,337         67  %        2,415               1,225             1,190           97  %           1.65  %       1.39  %        0.26 

%

Non-taxable long-term investments2                     812                     856                (44)        (5) %            4                   4                 -            -  %           1.98  %       1.87  %        0.11  %
Loans held for sale                                 59,677                 111,228            (51,551)       (46) %          620                 763              (143)         (19) %           4.17  %       2.75  %        1.42  %
Loans3,4                                         1,398,149               1,541,701           (143,552)        (9) %       19,187              18,200               987            5  %           5.50  %       4.74  %        0.76  %
  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  %
Nonearning assets                                  172,655                 173,164               (509)         -  %
     Total                                      $2,602,049              $2,388,420           $213,629          9  %

Interest-bearing demand                           $669,848                $561,570           $108,278         19  %         $167                $128               $39           30  %           0.10  %       0.09  %        0.01  %
Savings deposits                                   349,108                 311,929             37,179         12  %          118                 126                (8)          (6) %           0.14  %       0.16  %       (0.02) %
Money market deposits                              322,384                 256,215             66,169         26  %          103                 112                (9)          (8) %           0.13  %       0.18  %       (0.05) %
Time deposits                                      172,617                 186,315            (13,698)        (7) %          211                 513              (302)         (59) %           0.49  %       1.10  %       (0.61) %
  Total interest-bearing deposits                1,513,957               1,316,029            197,928         15  %          599                 879              (280)         (32) %           0.16  %       0.27  %       (0.11) %
Borrowings                                          24,675                  25,032               (357)        (1) %          181                 182                (1)          (1) %           2.94  %       2.92  %        0.02  %
  Total interest-bearing liabilities             1,538,632               1,341,061            197,571         15  %          780               1,061              (281)         (26) %           0.20  %       0.32  %       (0.12) %
Non-interest bearing demand deposits               808,186                 766,954             41,232          5  %
Other liabilities                                  839,250                 809,971            (11,953)       (28) %
Equity                                             224,167                 237,388            (13,221)        (6) %
     Total                                      $2,602,049              $2,388,420           $213,629          9  %
Net interest income                                                                                                      $22,212             $19,192            $3,020           16  %
Net interest margin                                                                                                                                                                              3.67  %       3.48  %        0.19  %
Average loans to average
interest-earning assets                              57.55  %                69.59  %
Average loans to average total
deposits                                             60.21  %                74.01  %
Average non-interest deposits to
average total deposits                               34.80  %                36.82  %
Average interest-earning assets to
average interest-bearing liabilities                157.89  %               

165.19%



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 million and $3.4 million in the
second quarter 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 $8.8 million
and $13.8 million in the second quarter of 2022 and 2021, respectively.

5The Company has no federal funds sold or securities purchased with resale agreements to disclose as part of its interest-earning assets during the periods presented.


                                       46
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  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 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 three-month periods ending June 30, 2022 and 2021.

(In Thousands)                                                              

Three months completed June 30, 2022 compared to 2021

Increase (decrease) due to

                                                                         Volume                  Rate                  Total

Interest income:

  Short-term investments                                                     $91                   $614                  $705
  Taxable long-term investments                                            1,039                    151                 1,190
  Nontaxable long-term investments                                             -                      -                     -
  Loans held for sale                                                       (439)                   296                  (143)
  Loans                                                                   (1,299)                 2,286                   987
     Total interest income                                                 ($608)                $3,347                $2,739

Interest charges:

  Interest-bearing demand                                                    $26                    $13                   $39
  Savings deposits                                                            14                    (22)                   (8)
  Money market deposits                                                       25                    (34)                   (9)
  Time deposits                                                              (41)                  (261)                 (302)
     Interest-bearing deposits                                             
  24                   (304)                 (280)
  Borrowings                                                                  (2)                     1                    (1)
     Total interest expense                                                  $22                  ($303)                ($281)




                                       47
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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%


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 $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.

5The Company has no federal funds sold or securities purchased with resale agreements to disclose as part of its interest-earning assets during the periods presented.


                                       48
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  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,
(In Thousands)                                        2022                  2021                  2022                 2021
Credit loss expense on loans held for
investment                                              $273                 ($161)                 $106                ($2,066)
Credit loss expense on unfunded commitments              190                  (266)                  207                    151
Credit loss expense on available for sale
debt securities                                            -                     -                     -                      -
Credit loss expense on held to maturity
securities                                                 -                     -                     -                      -
Credit loss expense on purchased receivables               -                     -                     -                      -
Total credit loss (benefit) expense                     $463                 ($427)                 $313                ($1,915)


The increase in the provision for credit losses on loans for the three and
six-month periods ending June 30, 2022 as compared to the same periods in 2021
is primarily the result of increased unguaranteed loan balances in the three and
six-month periods ending June 30, 2022 as compared to the same periods in 2021
that were only partially offset by a decrease in the estimated loss rates due to
lower 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. 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.

                                       49
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Other exploitation products

  Other operating income for the three-month period ended June 30, 2022,
decreased $6.3 million, or 45%, to $7.8 million as compared to $14.1 million for
the same period in 2021, primarily due to a $5.5 million decrease in mortgage
banking income in the second quarter of 2022 compared to the same quarter in
2021. The decrease in mortgage banking income in the three-month period ended
June 30, 2022 as compared to the same period in 2021 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 by $2.0 million in life 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 in bankcard fees and service charges on deposit accounts due to an
increase in customers.
Other Operating Expense

  Other operating expense for the second quarter of 2022 increased $902,000, or
4%, to $23.2 million as compared to $22.3 million for the same period in 2021
primarily due to higher salaries and other personnel expense related to the
community banking segment that was only partially offset by a decrease in
salaries and other personnel expense related to mortgage banking operations,
which fluctuate with production volumes. Additionally, insurance expense
increased in the second quarter of 2022 as compared to the second quarter of
2021 due to higher FDIC insurance premiums primarily due to growth in the
Company's balance sheet.

Other operating expense for the first half of 2022 increased $676,000, or 2%, to
$44.3 million as compared to $43.7 million for the same period in 2021 primarily
due to higher insurance expense due to higher FDIC insurance premiums primarily
due to growth in the Company's balance sheet. Additionally, marketing expense
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.

Income taxes

  For the second quarter and first half of 2022, Northrim recorded a lower
effective tax rate as compared to the same periods in 2021 as a result of an
increase in tax credits and tax exempt interest income as a percentage of
pre-tax income in 2022. In the second quarter of 2022, Northrim recorded $1.5
million in state and federal income tax expense, for an effective tax rate of
24.11% compared to $3.1 million and 26.89% 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.


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 increased 43%, or $195.8 million, to $650.9 million from $455.1
million at December 31, 2021 as proceeds from an increase in deposits that were
not lent out were invested in the first six months of 2022.

                                       50
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The table below details portfolio investment balances by portfolio investment
type:

                                                                  June 30, 2022                              December 31, 2021

(In Thousands)                                          Dollar Amount         Percent of Total       Dollar Amount       Percent of Total
                                                           Balance               % of total             Balance             % of total
U.S. Treasury and government sponsored entities                  $521,338                80.1  %            $341,480                75.0  %
Municipal securities                                                  807                 0.1  %                 840                 0.2  %

Corporate bonds                                                    61,753                 9.5  %              52,946                11.6  %
Collateralized loan obligations                                    57,878                 8.9  %              51,418                11.3  %
Preferred stock                                                     9,122                 1.4  %               8,420                 1.9  %
  Total portfolio investments                                    $650,898                                   $455,104



Loans and Lending Activities

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

                                                                            June 30, 2022                          December 31, 2021
                                                                                         Percent of                                Percent of
(In Thousands)                                                      Dollar Amount           Total            Dollar Amount            Total
Commercial & industrial loans                                              $394,841            28.1  %               $448,338            31.7  %
Commercial real estate:
Owner occupied properties                                                   313,174            22.3  %                300,200            21.2  %
Non-owner occupied and multifamily properties                               446,592            31.7  %                435,311            30.8  %
Residential real estate:
1-4 family residential properties secured by first liens                     37,298             2.7  %                 32,542             2.3  %

1-4 family residential properties secured by junior and renewable liens secured by 1-4 family first liens

                                  21,953             1.6  %                 19,610             1.4  %
1-4 family residential construction loans                                    43,915             3.1  %                 36,222             2.6  %
Other construction, land development and raw land loans                      87,163             6.2  %                 88,094             6.2  %
Obligations of states and political subdivisions in the US                   24,005             1.7  %                 16,403             1.2  %
Agricultural production, including commercial fishing                        29,482             2.1  %                 27,959             2.0  %
Consumer loans                                                                4,092             0.3  %                  4,801             0.3  %
Other loans                                                                   3,194             0.2  %                  4,406             0.3  %
Total loans                                                              $1,405,709                                $1,413,886


Loans decreased by $8.2 million, or 1%, to $1.406 billion at June 30, 2022 from
$1.414 billion at December 31, 2021, primarily as a result of decreased SBA PPP
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 on 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 million, or approximately 4% of loans as of
June 30, 2022 have direct exposure to the oil and gas industry as compared to
$63.6 million, or approximately 5% of loans as of December 31, 2021. The
Company's unfunded commitments to borrowers that have direct exposure to the oil
and gas industry were $68.1 million and $66.4 million at June 30, 2022 and
December 31, 2021, respectively. The portion of the Company's
                                       51
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ACL that related to the loans with direct exposure to the oil and gas industry
was estimated at $466,000 as of June 30, 2022 and $684,000 as of December 31,
2021.

  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



The Company monitors other concentrations within the loan portfolio depending on
trends in the current and future estimated economic conditions. At June 30,
2022, the Company had $121.3 million, or 9% of portfolio loans, in the
Healthcare sector, $96.6 million, or 7% of portfolio loans, in the Tourism
sector, $63.1 million, or 4% of portfolio loans, in the Retail sector, $59.9
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% of portfolio loans, in the Aviation
(non-tourism) sector.

The portion of the Company’s ACL related to loans exposed to these industries is estimated at the following amounts as at June 30, 2022:

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


                                       52
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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,
(In Thousands)                                       2022                          2021              2022                          2021
Balance at beginning of period                      $11,310                      $14,764            $11,739                      $21,136
Cumulative effect of adoption of ASU 2016-13              -                            -                  -                       (4,511)

Dump :

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

Total charge-offs                                      (166)                        (110)              (461)                        (273)
Recoveries:
Commercial & industrial loans                           103                           27                116                          212

Commercial real estate:

   Owner occupied properties                              -                            2                  -                            4

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

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

Total recoveries                                        120                           46                153                          253
Net, charge-offs                                        (46)                         (64)              (308)                         (20)
(Benefit) provision for credit losses                   273                         (161)               106                       (2,066)
Balance at end of period                            $11,537                      $14,539            $11,537                      $14,539


The following table presents information relating to the evolution of the ACL of unfunded commitments for the periods indicated:

                                                   Three Months Ended June 30,                          Six Months Ended June 30,
(In Thousands)                                 2022                            2021                2022                           2021
Balance at beginning of period                  $1,113                          $1,833             $1,096                           $187
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
Balance at end of period                        $1,303                          $1,567             $1,303                         $1,567


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.

                                       53
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Deposits

Deposits are the Company's primary source of funds. Total deposits decreased
$86.2 million, or 4%, to $2.335 billion as of June 30, 2022 compared to $2.422
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
    (In thousands)                Balance      % of total       Balance        % of total
    Demand deposits                $830,156          35  %         $887,824          37  %
    Interest-bearing demand         666,283          29  %          692,683          29  %
    Savings deposits                349,208          15  %          348,164          14  %
    Money market deposits           319,843          14  %          314,996          13  %
    Time deposits                   169,900           7  %          177,964           7  %
      Total deposits             $2,335,390                      $2,421,631

The Company’s deposit mix continues to contribute to a low cost of funds, with transaction account balances accounting for 93% of total deposits at
June 30, 2022 and 93% of total deposits at December 31, 2021.

  The only deposit category with stated maturity dates is certificates of
deposit. At June 30, 2022, the Company had $169.9 million in certificates of
deposit as compared to certificates of deposit of $178.0 million at December 31,
2021. At June 30, 2022, $133.1 million, or 78%, of the Company's certificates of
deposits are scheduled to mature over the next 12 months as compared to $118.5
million, or 67%, of total certificates of deposit at December 31, 2021. The
aggregate amount of certificates of deposit in amounts of $250,000 and greater
at June 30, 2022 and December 31, 2021, was $73.3 million and $77.1 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:

                                         Time Certificates of Deposit
                                              of $250,000 or More

(In Thousands)                        Amount              Percent of Total Deposits
Amounts maturing in:
Three months or less                           $11,681                         16  %
Over 3 through 6 months                         14,653                         20  %
Over 6 through 12 months                        29,479                         40  %
Over 12 months                                  17,457                         24  %
Total                                          $73,270                        100  %



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, our maximum
borrowing line from the FHLB was $1.169 billion, approximately 45% of the Bank's
assets, subject to the FHLB's collateral requirements. The Company has
outstanding advances of $14.3 million as of June 30, 2022 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 million of loans as collateral to secure
advances made through the discount window on June 30, 2022. There were no
discount window advances outstanding at either June 30, 2022 or December 31,
2021.

                                       54
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  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 million at June 30, 2022 and $948.0 million at December 31,
2021.

To June 30, 2022 and December 31, 2021the Company had no short-term borrowings (initial maturity less than or equal to one year) exceeding 30% of shareholders’ equity.

Long term loans. The Company had no long-term borrowings outstanding other than the FHLB advances mentioned June 30, 2022 Where December 31, 2021.

Cash 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. 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, 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 million, or 13% of total
assets at June 30, 2022 compared to $645.8 million, or 24% of total assets as of
December 31, 2021. The decrease in cash and cash equivalents 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. The Company had other
comprehensive losses, net of tax, of $4.9 million and $15.9 million for the
three and six-month periods ending June 30, 2022 primarily due to unrealized
holding losses on available for sale securities due to increases in interest
rates. 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, the
weighted average maturity of available for sale securities is 3.6 years compared
to 4.1 years at December 31, 2021 and 2.6 years at December 31, 2020. At
June 30, 2022, no available for sale securities mature within one year, $137.0
million mature within one to two years, and $178.4 million mature within two to
three years. Our total unfunded commitments to fund loans and letters of credit
at June 30, 2022 were $415.8 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,
certificates of deposit totaling $133.1 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, are not material to the Company's liquidity
position as of June 30, 2022.

The Company has other available sources of liquidity to fund unforeseen
liquidity needs. 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, our liquid assets were $578.8 million and our funds
available for borrowing under our existing lines of credit were $1.224 billion.
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 in the foreseeable future.

                                       55
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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 million for the first six months of 2022, primarily due to
cash provided by 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 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 was
only partially offset by a decrease in loans, mostly attributable to SBA PPP
forgiveness. Net cash used by financing activities in the same period was $105.4
million, primarily due to a decrease in deposits.

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 shares of its common stock under the Company's previously
announced repurchase programs in the first six months of 2022. At June 30, 2022,
there are no shares remaining of the shares previously authorized for
repurchase. 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, 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, 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 31, 2021, 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
June 30, 2022
Total risk-based capital                 8.00%                              10.00%                            13.45%                            11.46%
Tier 1 risk-based capital                6.00%                              8.00%                             12.74%                            10.74%
Common equity tier 1 capital             4.50%                              6.50%                             12.20%                            10.76%
Leverage ratio                           4.00%                              5.00%                             8.84%                             7.44%



  See Note 23 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 for a
detailed discussion of the capital ratios. The requirements for "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. 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.


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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. 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.

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 write-offs for the loans segment over a five-year look-back period is less than 1 standard deviation of the Company’s data; and

• The percentage of total write-offs for the loans segment during the recessionary period from the fourth quarter of 2008 to the fourth quarter of 2012 is within one 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.

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