ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We have prepared this Management's Discussion and Analysis as an aid to understanding our financial results. It highlights key information as determined by management but may not contain all of the information that is important to you. It should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in Part II. Item 8 of this report. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II. Item 7 of our Annual Report on Form 10-K for fiscal year ended December 31, 2024.
This annual report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated in forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Executive Overview
Net income increased 75% to $64.6 million or $2.87 per diluted share for the year ended December 31, 2025, from $37.0 million, or $1.66 per diluted share, for the year ended December 31, 2024. Return of average assets as 2.02% in 2025 compared to 1.29% in 2024. The increase in net income is primarily the result of a $19.2 million increase in net income in the Community Banking segment, a $14.5 million gain on sale of all of the operating assets of PWA, as well as an $8.4 million increase in net income in the Specialty Finance segment
Highlights for the year ended December 31, 2025 are as follows:
• Net income in the Community Banking segment increased 63% or $19.2 million, to $49.5 million in 2025 as compared to 2024. This increase was primarily the result of a $20.5 million, or 20% increase in net interest income due to increased interest income on loans and short term investments, as well as a $14.5 million gain on sale of the operating assets of PWA. These increases were only partially offset by higher operating expenses and an increase in provision for income taxes.
• Net income in the Home Mortgage Lending segment was $4.8 million in 2025 consistent with 2024. Increases net realized gains on mortgage sales, interest income on home mortgages held for investment, and mortgage servicing revenue were offset by a decrease in the fair value of mortgage servicing rights and increases in the provision for credit losses and operating expenses.
• Net income in the Specialty Finance segment increased 455% or $8.4 million, to $10.3 million in 2025 as compared to 2024. This increase was primarily the result of the inclusion of a full year of operations of SCF. The Company completed its acquisition of SCF and its subsidiaries effective October 31, 2024. Average purchased receivables and loan balances at SCF were $69.7 million in 2025 with a yield of 31.23%. The yield in 2025 included the recognition of $1.3 million in one-time fees and $899,000 in nonaccrual fee income collected during 2025. The yield excluding these times for 2025 was 28.04%. Average purchased receivables and loan balances at NFS were $54.6 million for 2025 compared to $33.4 million for 2024.
• The net interest margin increased to 4.69% in 2025 from 4.28% in 2024 mostly due to an increase in average yields on interest earning assets in 2025 compared to 2024 as a result of higher interest rates, as well as an change in the mix of earning assets which includes a higher percentage of loans in 2025 versus 2024. These factors were only partially offset by an increase in the cost of interest-bearing liabilities.
• Loans increased 8% to $2.30 billion at December 31, 2025 compared to $2.13 billion at December 31, 2024, and deposits increased 5% to $2.81 billion at December 31, 2025 compared to $2.68 billion at December 31, 2024.
• Nonperforming loans, net of government guarantees, increased to $11.3 million at the end of 2025 compared to $7.5 million at the end of 2024, while total adversely classified loans, net of government guarantees at December 31, 2025 increased to $33.5 million from $9.6 million at December 31, 2024. The Allowance for Credit Losses (“ACL”) for loans totaled 1.03% of total portfolio loans at December 31, 2025, consistent with 1.03% at December 31, 2024. The
ACL for loans as a percentage of total portfolio loans, net of government guarantees was 1.10% at both December 31, 2025 and December 31, 2024.
• The aggregate cash dividends paid by the Company in 2025 rose 5% to $14.5 million from $13.8 million paid in 2024. The Company paid cash dividends of $0.64 per share in 2025 and $0.615 per share in 2024.
• The Company issued $60 million of subordinated debt in the fourth quarter of 2025 to support regulatory capital ratios and growth initiatives.
• Total shareholders' equity was $326.5 million as of December 31, 2025, up 22% from $267.1 million a year ago. Shareholders' equity was positively impacted by the fair value of the available for sale securities portfolio which increased shareholders' equity $7.8 million in 2025 as compared to 2024. The Company continued to maintain strong regulatory capital ratios with Tier 1 Capital to Risk Adjusted Assets of 10.67% at December 31, 2025.
Trends in Miscellaneous Financial Data (1)
Years Ended December 31,
(In thousands, except per share data and shares outstanding amounts)
Five Year Compound Growth Rate
(Unaudited)
Net interest income
Provision (benefit) for credit losses
Other operating income
Compensation expense, SCF acquisition payments
Other operating expense
Income before provision for income taxes
Provision for income taxes
Net income
Year End Balance Sheet
Assets
Loans
Deposits
Shareholders' equity
Common shares outstanding
Average Balance Sheet
Assets
Earning assets
Loans
Deposits
Shareholders' equity
Basic common shares outstanding
Diluted common shares outstanding
Per Common Share Data
Basic earnings
Diluted earnings
Book value per share
Tangible book value per share (2)
Cash dividends per share
Years Ended December 31,
(In thousands, except per share data and shares outstanding amounts)
Five Year Compound Growth Rate
(Unaudited)
Performance Ratios
Return on average assets
Return on average equity
Equity/assets
Tangible common equity/tangible assets (3)
Net interest margin
Net interest margin (tax equivalent) (4)
Non-interest income/total revenue
Adjusted efficiency ratio (5)
Dividend payout ratio
Asset Quality
Nonperforming loans, net of government guarantees
Nonperforming assets, net of government guarantees
Nonperforming loans, net of government guarantees/portfolio loans
Net charge-offs (recoveries)/average loans
Allowance for credit losses/portfolio loans
Nonperforming assets, net of government guarantees/assets
Other Data
Effective tax rate
Number of banking offices (6)
Community Banking employees (FTE)
Home Mortgage Lending employees (FTE)
Specialty Finance employees (FTE)
Total number of employees (FTE)
1 These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with Part II Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.
2 Tangible book value per share is a non-GAAP ratio defined as shareholders’ equity, less intangible assets, divided by common shares outstanding. Management believes that tangible book value is a useful measurement of the value of the Company’s equity because it excludes the effect of intangible assets on the Company’s equity. See reconciliation to book value per share, the most comparable GAAP measurement below.
3 Tangible common equity to tangible assets is a non-GAAP ratio that represents total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets. Management believes this ratio is important as it has received more attention over the past several years from stock analysts and regulators. The most comparable GAAP measure of shareholders' equity to total assets is calculated by dividing total shareholders' equity by total assets. See reconciliation to shareholders' equity to total assets, the most comparable GAAP measurement below.
4 Net interest margin tax-equivalent is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 28.43%. Management believes that net interest margin tax-equivalent is a useful financial measure because it enables investors to evaluate net interest margin excluding tax expense in order to monitor our effectiveness in growing higher interest yielding assets and managing our costs of interest bearing liabilities over time on a fully tax equivalent basis. See reconciliation to net interest margin, the most comparable GAAP measurement below.
5 In managing our business, we review the adjusted efficiency ratio exclusive of intangible asset amortization, which is a non-GAAP performance measurement. Management believes that this is a useful financial measurement because we believe this presentation provides investors with a more accurate picture of our operating efficiency. The efficiency ratio is calculated by dividing other operating expense, exclusive of intangible asset amortization, by the sum of net interest income and other operating income. Other companies may define or calculate this data differently. For additional information see the "Other Operating Expense" section in Part II. Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report. See reconciliation to efficiency ratio, the most comparable GAAP measurement below.
6 Number of banking offices does not include RML, NFS, or SCF locations. 2025 and 2024 number of banking offices includes 20 full service branches. 2023 number of banking offices includes 19 full service branches and one loan production office. 2022 number of banking offices includes 18 full service branches and one loan production office. 2021 number of banking offices includes 17 full service branches and one loan production office. 2020 number of banking offices includes 16 full service branches and one loan production office.
Reconciliation of Selected Non-GAAP Financial Data to GAAP Financial Measures
These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.
Reconciliation of total shareholders' equity to tangible common shareholders’ equity (Non-GAAP) and total assets to tangible assets:
(In Thousands)
Total shareholders' equity
Total assets
Total shareholders' equity to total assets ratio
(In Thousands)
Total shareholders' equity
Less: goodwill and other intangible assets, net
Tangible common shareholders' equity
Total assets
Less: goodwill and other intangible assets, net
Tangible assets
Tangible common equity to tangible assets ratio
Reconciliation of tangible book value per share (Non-GAAP) to book value per share
(In thousands, except per share data)
Total shareholders' equity
Divided by common shares outstanding
Book value per share
(In thousands, except per share data)
Total shareholders' equity
Less: goodwill and intangible assets, net
Tangible book value
Divided by common shares outstanding
Tangible book value per share
Reconciliation of tax-equivalent net interest margin (Non-GAAP) to net interest margin
(In Thousands)
Net interest income (9)
Divided by average interest-bearing assets
Net interest margin
(In Thousands)
Net interest income (9)
Plus: reduction in tax expense related to
tax-exempt interest income
Divided by average interest-bearing assets
Tax-equivalent net interest margin
Reconciliation of adjusted efficiency ratio exclusive of intangible asset amortization (non-GAAP) to efficiency ratio.
(In Thousands)
Net interest income (9)
Other operating income
Total revenue
Other operating expense
Efficiency ratio
(In Thousands)
Net interest income (9)
Other operating income
Total revenue
Other operating expense
Less intangible asset amortization
Adjusted other operating expense
Adjusted efficiency ratio
9 Amount represents net interest income before provision for credit losses.
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although we believe these non-GAAP financial measures are frequently used by shareholders in the evaluation of the Company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.
Critical Accounting Policies
The SEC defines “critical accounting policies” as those that require application of management's most difficult, subjective or complex judgments as a result of the need to make "critical accounting estimates", which are estimates that involve estimation uncertainty that has had or is reasonably likely to have a material impact on the Company's financial condition or results of operations. Our significant accounting policies are described in Note 1 in the Notes to Consolidated Financial Statements in Part II. Item 8 of this report. Not all of these significant accounting policies require management to make critical accounting estimates. Management believes that the following accounting policies would be considered critical under the SEC's definition. The following discussion is intended to supplement, but not duplicate, information provided in Note 1 in the Notes to Consolidated Financial Statements in Part II. Item 8 of this report for these policies.
Allowance for Credit Losses Policy : The Company's Executive Loan Management Committee and Asset Liability Committee are both involved in monitoring various aspects of the Company's ACL methodology. The Executive Loan Management Committee reviews and approves significant assumptions used in model at least annually. The Company's Audit Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis.
The current expected credit loss model (“CECL”) is not prescriptive in the methodology used to determine the expected credit loss estimate. Therefore, management has flexibility in selecting the methodology. However, the expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments, utilizing quantitative and qualitative factors. The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset it has estimated expected credit losses for the remaining life after the forecasted period using an approach that reverts to historical credit information.
Depending on the nature and size of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method or a weighted average remaining life method to estimate expected credit losses quantitatively. The Company uses a DCF method for seven of its 11 loan pools, which represent 96% of the amortized cost basis of total loan pools at December 31, 2025. The weighted average remaining life method is used for the remaining loan pools primarily because loan level data constraints preclude the use of the DCF model.
Under the DCF method, the Company utilizes complex models to obtain reasonable and supportable forecasts to calculate two predictive metrics, the probability of default (“PD”) and loss given default (“LGD”). The PD measures the probability that a loan will default within a given time horizon and is an assumption derived from regression models which determine the relationship between historical defaults and certain economic variables. The Company's regression models for PD utilize peer historical loan level default data. The Company determines a reasonable and supportable forecast and applies that forecast to the regression model to estimate defaults over the forecast period. Management leverages economic projections from the Federal Reserve to inform its loss driver forecasts over the Company's four quarter forecast period.
As of December 31, 2025 and 2024 management utilizes and forecasts U.S. unemployment and U.S. gross domestic product as the loss drivers for all of the loan pools that utilize the DCF method. The Company added U.S. gross domestic product as a loss driver in 2024 because we determined that there is better model fit using this multi-factor model. The Company's regression models for PD as of December 31, 2025 and 2024 utilize peer historical loan level default data. Peers for this purpose include banks in the United States with total assets between $1 billion and $5 billion whose loan portfolios share certain characteristics with the Company's loan portfolio. Peers differ by loan segment. A bank is included in the peer group for each loan segment in 2025 and 2024 under the following circumstances:
• The percentage the balance of the loan segment compared to total loans over a five year look back period is within 0.5 standard deviations of the Company's data;
• The percentage of total charge offs for the loan segment over a five year look back period is within 0.25 standard deviations of the Company's data; 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 0.25 standard deviations of the Company's data.
For all periods presented, following the forecast period, the economic variables used to calculate PD revert to a historical average at a constant rate over an eight quarter reversion period. Other assumptions relevant to the discounted cash flow model to derive the quantitative allowance include the LGD, which is the estimate of loss for a defaulted loan, prepayment
speeds, and the discount rate applied to future cash flows. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses over the contractual term of the loan, adjusted for prepayments. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.
The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses under CECL, which are unchanged as of December 31, 2025 and December 31, 2024:
Commercial & industrial - Commercial loans are loans for commercial, corporate and business purposes. The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, and other business loans for working capital and operational purposes. Commercial loans are generally secured by accounts receivable, inventory and other business assets. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.
Commercial real estate - This category of loans consists of the following loan types:
Owner occupied - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including owner occupied commercial real estate loans primarily secured by commercial office or industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. Repayment terms vary considerably, interest rates are fixed or variable, and are structured for full, partial, or no amortization of principal. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.
Non-owner occupied and multifamily - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including investment real estate loans that are primarily secured by office and industrial buildings, warehouses or retail buildings where the owner of the building does not occupy the property, non-owner occupied apartment or multifamily residential buildings, and various special purpose properties. Repayment terms vary considerably, interest rates are fixed or variable, and are structured for full, partial, or no amortization of principal. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.
Residential real estate - This category of loans consists of the following loan types:
1-4 family residential properties secured by first liens - This category of loans includes term loans secured by first liens on residential real estate. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.
1-4 family residential properties secured by junior liens and revolving credit lines secured by 1-4 family first liens - This category of loans includes term loans primarily secured by junior liens on residential real estate and revolving credit lines that are secured by first liens on residential real estate. Home equity revolving lines of credit and home equity term loans are included in this group of loans. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.
1-4 family residential construction - This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of 1-4 family residential properties which will secure the loan. These loans may also be secured by tracts or individual parcels of land on which 1-4 family residential properties are being constructed. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.
Other construction, land development, and raw land - This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of owner occupied and non-owner occupied commercial properties, and loans secured by raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party. Repayment of land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt. The Company utilizes the DCF method to quantitatively estimate credit losses for this pool.
Agricultural production, including commercial fishing - These loans are for the purpose of financing agricultural production, including growing and storing of crops, and for the purpose of financing fisheries and forestries, including loans to commercial fishermen. These loans may be secured or unsecured, but any loans for these purposes that are secured by real estate are
included in a real estate category. The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.
Consumer - Loans used for personal use, which may be secured or unsecured, and customer overdrafts. The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.
Obligations of states and political subdivisions in the US - This category of loans includes all loans made to states, counties municipalities, school districts, drainage and sewer districts, and Indian tribes in the U.S. These loans maybe be secured by any type of collateral, including real estate. The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.
Other - This category of loans includes all other loans that cannot properly be reported in one of the preceding categories. The Company utilizes the weighted average remaining life method to quantitatively estimate credit losses for this pool.
In addition to the quantitative portion of the ACL derived using either the DCF or weighted average remaining life method, the Company also considers the effects of the following qualitative factors in its calculation of expected losses in the loan portfolio:
• Lending strategy, policies, and procedures;
• Quality of internal loan review;
• Lending management and staff;
• Trends in underlying collateral values;
• Competition, legal, and regulatory changes;
• Economic and business conditions including fluctuations in the price of Alaska North slope crude oil;
• Inflation and monetary policy in the United States;
• Changes in trends, volume and severity of adversely classified loans, nonaccrual loans, and delinquencies;
• Concentration of credit; and
• Changes in the nature and volume of the loan portfolio.
Management performs a hypothetical sensitivity analysis of our ACL quarterly to understand the impact of a change in a key input on our ACL. As of December 31, 2025, management utilized the Federal Reserve's median forecasts of national unemployment and national gross domestic product. If the four-quarter national unemployment rate forecast had been approximately 5% higher and the four-quarter national gross domestic product forecast been 13% lower, which represents the Federal Reserve's more conservative forecasts, our ACL for loans would have increased $537,000, or 2%. As of December 31, 2025, if the four-quarter national unemployment rate forecast had been approximately 30% higher and the four-quarter national gross domestic product forecast been 5% higher, which represent forecasts at approximately the historical mean, our ACL for loans would have increased $2.2 million, or 10%. As of December 31, 2025, if the estimated prepayment and curtailment rates are doubled (with a maximum rate of 100%), our ACL for loans would have decreased $2.0 million, or 9%. As of December 31, 2025, if the estimated prepayment and curtailment rates are cut in half, our ACL for loans would have increased $1.6 million, or 7%. These sensitivity analyses include the impact to both the quantitative and qualitative components of our ACL. Changes in quantitative inputs and qualitative factors may not occur in the same direction or magnitude across all segments of our loan portfolio and in some quantitative inputs and qualitative factors may offset in others. This sensitivity analysis does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the sensitivity of the ACL to a change in a key input. This sensitivity analysis does not incorporate changes to management’s judgment of qualitative factors.
Valuation of goodwill and other intangibles: Management performs an impairment analysis for the intangible assets with indefinite lives at each reportable segment on an annual basis as of December 31. Additionally, goodwill and other intangible assets with indefinite lives are evaluated on an interim basis when events or circumstances indicate impairment potentially exists. The impairment analysis requires management to make subjective judgments. Events and factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures, technology, changes in discount rates and specific industry and market conditions. There can be no assurance that changes in circumstances, estimates or assumptions may result in additional impairment of all, or some portion of, goodwill or other intangible assets. The Company performed its annual goodwill impairment testing at December 31, 2025 and 2024 in accordance with the policy described in Note 1 to the financial statements included in Part II. Item 8 of this report. At December 31, 2025, the Company performed its annual impairment test by performing a qualitative assessment. Significant positive inputs to the qualitative assessment included the Company’s increasing net income as compared to historical trends; the Company's increasing market share for deposits in our markets; results of regulatory examinations; peer comparisons of the Company's net interest margin; trends in the Company’s cash flows; increases in the Company's market
share of mortgage originations; increases in purchased receivable income following the acquisition of SCF, and increases in the Company's stock price. Significant negative inputs to the qualitative assessment included the muted pace of growth in the Alaska economy and a decline in home mortgage originations compared to historical activity. We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs for all of the Company's operating segments, and we therefore concluded that it is more likely than not that the fair value of the Company exceeds its carrying value at December 31, 2025 and that no potential impairment existed at that time.
Servicing rights: The Company measures mortgage servicing rights (“MSRs”) and commercial servicing rights (“CSRs”) at fair value on a recurring basis with changes in fair value going through earnings in the period in which the change occurs. Changes in the fair value of MSRs are recorded in mortgage banking income, and changes in the fair value of CSRs are recorded in commercial servicing revenue. Fair value adjustments encompass market-driven valuation changes and the decrease in value that occurs from the passage of time, which are separately reported. Retained servicing rights are measured at fair value as of the date of sale. Initial and subsequent fair value measurements are determined using a discounted cash flow model. In order to determine the fair value of servicing rights, the present value of expected net future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates and ancillary fee income net of servicing costs.
A sensitivity analysis of our servicing rights was performed as of December 31, 2025. See Note 8 to the financial statements included in Part II. Item 8 of this report for the results of this analysis.
Other Accounting Policies and Estimates: The Company evaluates its estimates, including those that materially affect the financial statements and are related to investments, derivative instruments, fair value measurements, and intangible assets on an on-going basis. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's policies related to these estimates can be found in Note 1 in the Notes to Consolidated Financial Statements in Part II. Item 8 of this report.
RESULTS OF OPERATIONS
Income Statement
Net Income
Our results of operations are dependent to a large degree on our net interest income. We also generate other income primarily through mortgage banking income, purchased receivables products, service charges and fees, and bankcard fees. Our operating expenses consist in large part of salaries and other personnel costs, data processing, occupancy, marketing, and professional services expenses. Interest income and cost of funds, or interest expense, and mortgage banking income and purchased receivable income are affected significantly by general economic conditions, particularly changes in market interest rates, by government policies and the actions of regulatory authorities, and by competition in our markets.
We earned net income of $64.6 million in 2025, compared to net income of $37.0 million in 2024. During these periods, net income per diluted share was $2.87 and $1.66, respectively. The following sections present discussion of the components that make up net income.
Analysis of Business Segments
Our business segments are defined as Community Banking, Home Mortgage Lending, and Specialty Finance. The following table summarizes net income from our segments. Additional information about segment performance is presented in Note 26 to the Financial Statements included in Part II - Item 8 of this report.
(In Thousands)
Community Banking
Home Mortgage Lending
Specialty Finance
Net income
2025 Compared to 2024
Community Banking
Net income in the Community Banking segment increased $19.2 million or 63% in 2025 compared to 2024 primarily due to an increase in net interest income which totaled $122.6 million in 2025, and $102.1 million in 2024, as well as the gain on sale of all of the operating assets of PWA of $14.5 million. Net interest income increased $20.5 million or 20% in 2025 as compared to 2024 mostly due to higher interest income on loans, as wells as an increase in interest income on deposits in other banks and lower interest expense on deposits. This increase was only partially offset by lower interest income on investments and higher interest expense on borrowings.
The provision for credit losses in the Community Banking segment was $2.3 million in both 2025 and 2024.
Other operating expenses in the Community Banking segment totaled $82.4 million in 2025, up $9.3 million or 13% from $73.1 million in 2024. The increase in 2025 as compared to the prior year was mostly due to increases in salaries and other personnel expense due to performance-related expenses, as well as increases in data processing expense, marketing expense, insurance expense, and professional and outside services due to increased branch locations, increased customer and transaction volume, and increased FDIC insurance associated with asset growth. The increase in salaries and other personnel expense included $1.6 million in higher salary expense, $1.4 million increase in profit share expense including payroll taxes and 401k match on profit share payments, and $751,000 increase in equity compensation expense. Additionally, group medical expenses increased $626,000 in 2025.
Home Mortgage Lending
Net income in the Home Mortgage Lending segment totaled $4.8 million in 2025, consistent with net income in 2024. During 2025, mortgage loans funded for sale were $776.0 million, compared to $609.2 million in 2024. Increases in net interest income and mortgage banking income were mostly offset by increases in the provision for credit losses and other operating expenses. Other operating expenses in the Home Mortgage Lending segment totaled $29.8 million in 2025 compared to $27.6 million a year ago. The increase in 2025 as compared to 2024 was mostly due to increases in salaries and other personnel expense due to higher commissions paid to mortgage originators due to higher volume.
The Arizona, Colorado, and Pacific Northwest mortgage expansion markets were responsible for 22% of RML's $787 million total production in 2025 and 21% of $717 million total production in 2024.
The Company reclassified $100 million in consumer mortgages held for investment to held for sale in the first quarter of 2025 and recorded unrealized losses of $1.2 million related to this portfolio in the first quarter of 2025. In the second quarter of 2025, the Company sold $61 million of the $100 million that was reclassified to loans held for sale in the first quarter of 2025 for a total realized loss of $545,000. In the third quarter of 2025, the Company sold $16 million of the $100 million that was reclassified to loans held for sale in the first quarter of 2025 for a total realized loss of $37,000.
As of December 31, 2025, Northrim serviced 6,475 loans in its $1.63 billion home-mortgage-servicing portfolio, a 12% increase from the $1.46 billion serviced a year ago.
Specialty Finance
The Company reevaluated our reportable operating segments in the fourth quarter of 2024 concurrent with the acquisition of SCF, which resulted in the addition of the Specialty Finance segment. The Company’s Specialty Finance segment includes NFS and SCF. NFS is a division of the Bank and has offered factoring solutions to small businesses since 2004. SCF is a leading provider of factoring, asset-based lending and alternative working capital solutions to small and medium sized enterprises in the United States, Canada, and the United Kingdom that the Company acquired on October 31, 2024 in an all cash transaction valued at approximately $53.9 million. The composition of revenues for the Specialty Finance segment are primarily purchased receivable income, but also includes interest income from loans and other fee income.
Net income in the Specialty Finance segment increased $8.4 million or 455% in 2025 compared to the prior year primarily due to the acquisition of SCF in the fourth quarter of 2024. Total pre-tax income for SCF in 2025 was $6.8 million. Average purchased receivables and loan balances at SCF were $69.7 million in 2025 with a yield of 31.23%. The yield in 2025 included the recognition of $1.3 million in one-time fees and $899,000 in nonaccrual fee income collected during 2025. The yield excluding these times for 2025 was 28.04%. Average purchased receivables and loan balances at NFS were $54.6 million for 2025 compared to $33.4 million for 2024.
Net Interest Income / Net Interest Margin
Net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings. Changes in net interest income result from changes in volume and spread, which in turn affect our margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Changes in net interest income are influenced by yields and the level and relative mix of interest-earning assets and interest-bearing liabilities.
Net interest income in 2025 was $135.6 million, compared to $113.2 million in 2024. The increase in 2025 as compared to 2024 was primarily the result of increased interest on loans and deposits in other banks which was only partially offset by a decrease in interest income on available for sale securities, as well as an increase in interest expense on deposits, borrowings, and junior subordinated debentures. Interest income on loans increased $25.4 million in 2025 as compared to 2024 due to an increase in interest rates and higher average balances. Interest expense increased $2.0 million in 2025 as compared to the prior year as a result of higher interest rates and higher average interest-bearing deposit and borrowing balances. During 2025 and 2024, net interest margins were 4.69% and 4.28%, respectively. The increase in net interest margin in 2025 as compared to 2024 is primarily the result of an increase in average yields on interest earning assets in 2025 compared to 2024 as a result of higher interest rates, as well as an change in the mix of earning assets which includes a higher percentage of loans in 2025 versus 2024. These factors were only partially offset by an increase in the cost of interest-bearing liabilities.
The following table sets forth for the periods indicated information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities. Average yields or costs, net interest income, and net interest margin are also presented. Average yields or costs are calculated on a tax-equivalent basis:
Years ended December 31,
Average outstanding balance
Interest income / expense
Average Tax Equivalent Yield / Cost (6)
Average outstanding balance
Interest income / expense
Average Tax Equivalent Yield / Cost (6)
Average outstanding balance
Interest income / expense
Average Tax Equivalent Yield / Cost (6)
(In Thousands)
Loans (1),(2)
Loans held for sale
Taxable long-term investments (3)
Interest-bearing deposits in other banks (4)
Total interest-earning assets (5)
Noninterest-earning assets
Total
Interest-bearing demand
Savings deposits
Money market deposits
Time deposits
Total interest-bearing deposits
Borrowings
Total interest-bearing liabilities
Noninterest-bearing demand deposits
Other liabilities
Equity
Total
Net interest income (tax equivalent)
Net interest margin (tax equivalent)
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis
Net interest income and margin, as reported
Average portfolio loans to average-earnings assets
Average portfolio loans to average total deposits
Average non-interest deposits to average total deposits
Average interest-earning assets to average interest-bearing liabilities
1 Interest income includes loan fees. Loan fees recognized during the period and included in the yield calculation totaled $4.9 million, $4.5 million and $4.4 million for 2025, 2024 and 2023, respectively.
2 Nonaccrual loans are included with a zero effective yield. Average nonaccrual loans included in the computation of the average loans were $8.6 million, $5.4 million, and $7.1 million in 2025, 2024 and 2023, respectively.
3 Consists 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, municipal securities, marketable equity securities, and Federal Home Loan Bank stock.
4 Consists of interest bearing deposits in other banks and domestic CDs.
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.
6 Tax-equivalent yield/costs assume a federal tax rate of 21% and a state tax rate of 7.43% for a combined tax rate of 28.43%.
The following table sets forth the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates for the periods indicated. 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 rate:
2025 compared to 2024
2024 compared to 2023
Increase (decrease) due to
Increase (decrease) due to
(In Thousands)
Volume
Rate
Total
Volume
Rate
Total
Interest Income:
Loans
Loans held for sale
Taxable long-term investments
Interest-bearing deposits in other banks
Total interest income
Interest Expense:
Interest-bearing demand
Savings deposits
Money market deposits
Time deposits
Interest-bearing deposits
Borrowings
Total interest expense
Provision for Credit Losses
The provision for credit loss expense is the amount of expense that, based on our judgment, is required to maintain the ACL at an appropriate level under the CECL methodology. The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the notes to Consolidated Financial Statements included in Part II. Item 8 of this report for detailed discussion regarding ACL methodologies for loans, available for sale debt securities, held to maturity securities, loans held for investment, unfunded commitments, and purchased receivables.
The following table presents the major categories of credit loss expense for the periods presented:
(In Thousands)
Provision for credit loss expense on loans held for investment
Provision for credit loss (benefit) expense on unfunded commitments
Provision for credit loss expense on available for sale debt securities
Provision for credit loss expense on held to maturity securities
Provision for credit loss expense on purchased receivables
Total credit loss expense
The provision for credit losses on loans held for investment increased in 2025 compared to 2024 due to increased loan balances as well as an increase in rate primarily due to an increase in nonaccrual and adversely classified loans in 2025 and, to a lessor extent, slightly less favorable economic forecasts. The increase in rate for these factors was largely offset by a change in the mix of the portfolio at the end of 2025 compared to the end of 2024. The provision for credit losses on loans held for investment remained relatively consistent in 2024 compared to 2023 due to continued growth in the portfolio and the fact that forecasted economic conditions remain stable between the two periods. The increase in the provision for credit losses on unfunded commitments in 2025 as compared to 2024 is primarily the result of increased unfunded commitment balances, as well as an increases is estimated funding rates and the mix of unfunded commitments. The decrease in the provision for credit
losses on unfunded commitments in 2024 compared to 2023 in primarily due to a change in the mix of unfunded commitments during that period. The ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration.
See the “Loans and Lending Activity” section under “Financial Condition” and Note 6 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report for further discussion of these decreases and changes in the Company’s ACL.
Other Operating Income
The following table details the major components of other operating income for the years ended December 31:
(In Thousands)
$ Change
% Change
$ Change
% Change
Other Operating Income
Purchased receivable income
Mortgage banking income
Gain on sale by Pacific Wealth Advisors
Bankcard fees
Service charges on deposit accounts
Gain (loss) on marketable equity securities
Gain (loss) on sale of securities
Other income
Total other operating income
2025 Compared to 2024
The most significant item contributing to the increase in other operating income in 2025 was an increase in purchased receivable income, followed by the gain on sale of all of the operating assets of PWA. Mortgage banking income, service charges on deposit accounts, and bankcard fees also increased. These increases were partially offset by a decrease in gain on marketable equity securities and gain on sale of securities.
Purchased receivable income increased in 2025 as compared to 2024 primarily due to the acquisition of SCF in October 2024. Purchased receivable income from operations at SCF increased to $19.7 million in the full year 2025 compared to $2.7 million for the two months in 2024 following the acquisition of SCF. Additionally, purchased receivable income from operations at NFS increased to $6.1 million in 2025 compared to $4.4 million in 2024 primarily due to higher average balances.
Mortgage banking income consists of gross income from the origination and sale of mortgages as well as mortgage loan servicing fees and comprised 33% of total other operating income in 2025 and 57% in 2024. Mortgage banking income increased in 2025 compared to 2024 mainly due to an increase in mortgage loans originated and sold to the secondary market which increased to $776.0 million in 2025 from $609.2 million in 2024 and included $77.0 million in mortgage loans that were held for investment as of December 31, 2024. Additionally, $88.0 million and $108.0 million in mortgages were originated in 2025 and 2024 and were retained as loans held for investment. Production volume outside of Alaska increased $22.0 million in 2025 compared to 2024, while production in Alaska increased $47.8 million in 2025 compared to 2024. Increases in net realized gains on mortgage sales, interest income on home mortgages held for investment, and mortgage servicing revenue were partially offset by a decrease in the fair value of mortgage servicing rights.
Bankcard fees and service charges on deposit accounts increased in 2025 due an increase in the number of the Company's deposit customers which led to higher transaction volume as compared to 2024.
Other Operating Expense
The following table details the major components of other operating expense for the years ended December 31:
(In Thousands)
$ Change
% Change
$ Change
% Change
Other Operating Expense
Salaries and other personnel expense
Data processing expense
Occupancy expense
Professional and outside services
Marketing expense
Insurance expense
Compensation expense - SCF acquisition payments
Operational charge-offs, net recoveries and EFT losses
Intangible asset amortization
OREO (income) expense, net rental income and gains on sale:
OREO operating expense
Impairment on OREO
Rental income on OREO
Losses (gains) on sale of OREO
Subtotal
Other expenses
Total other operating expense
2025 Compared to 2024
Other operating expense increased by 19% in 2025 as compared to 2024. The largest increase was in salaries and other personnel expense. Salaries and other personnel expense increased $5.0 million in the Specialty Finance segment primarily due to a full year of SCF expenses in 2025 and only two months in 2024. Salaries and other personnel expense increased $4.2 million in the Community Banking segment primarily due to higher salaries for normal annual increases, higher medical claims, and higher profit share expense and equity compensation expense, which generally increase when net income increases to reflect higher payouts to employees. Salaries and other personnel expense increased $1.3 million in the Home Mortgage Lending segment due to increased mortgage production which resulted in higher loan officer commissions, as well as higher medical claims. Data processing expense, occupancy expense, insurance expense, marketing expense and professional and outside services also increased in 2025 compared to 2024 due to the increase in branch locations, increased customer and transaction volume, and increased FDIC insurance costs associated with asset growth. Other real estate owned (“OREO”) expense, net of rental income and gains on sale also decreased in 2025 primarily due to no gain on sale of OREO properties as compared to 2024. Operational charge-offs and EFT losses, net recoveries increased in 2025 compared to 2024 due to higher related operational .
Income Taxes
The provision for income taxes increased $9.9 million or 99%, to $19.9 million in 2025 as compared to 2024. The increase in 2025 is primarily due to higher pretax income. The Company's effective tax rate increased to 23.6% in 2025 from 21.3% in 2024, primarily due to a decrease in tax exempt income and low income housing tax credits as a percentage of pre-tax income in 2025 compared to 2024.
FINANCIAL CONDITION
Investment Securities
The composition of our investment securities portfolio, which includes securities available for sale, held-to-maturity investments, and marketable equity securities, reflects management’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of interest income. The investment securities portfolio also mitigates credit risk inherent in the loan portfolio, while providing a vehicle for the investment of available funds, a source of liquidity (by pledging as collateral or through repurchase agreements), and collateral for certain public funds deposits. Investment securities designated as available for sale comprised 92% of the portfolio as of December 31, 2025 and are available to meet liquidity requirements in a contingency situation.
Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, mortgage-backed securities, and collateralized loan obligations. Investment securities at December 31, 2025 decreased $68.3 million, or 13%, to $455.8 million from $524.1 million at December 31, 2024. The decrease at December 31, 2025 as compared to December 31, 2024 came from investment maturities and calls that were used to fund growth in portfolio loans. The average maturity of the investment portfolio was approximately 2.0 years at December 31, 2025 as compared to approximately 2.4 years at December 31, 2024. Investment securities may be pledged as collateral to secure public deposits or borrowings. At December 31, 2025 and 2024, $210.3 million and $177.4 million in securities were pledged for deposits and borrowings, respectively.
The following tables set forth the composition of our investment portfolio at December 31 for the years indicated:
(In Thousands)
Amortized Cost
Fair Value
Securities Available for Sale:
U.S. Treasury and government sponsored entities
U.S. Agency Mortgage-backed Securities
Corporate Bonds
Collateralized Loan Obligations
Total
U.S. Treasury and government sponsored entities
Corporate Bonds
Collateralized Loan Obligations
Total
U.S. Treasury and government sponsored entities
Municipal Securities
Corporate Bonds
Collateralized Loan Obligations
Total
Marketable Equity Securities:
Preferred Stock
Total
Preferred Stock
Total
Preferred Stock
Total
Securities Held to Maturity:
Corporate Bonds
Total
Corporate Bonds
Total
Corporate Bonds
Total
The following table sets forth the market value, maturities, and weighted average pretax yields of our investment portfolio as of December 31, 2025:
Maturity
Within
Over
(In Thousands)
1 Year
1-5 Years
5-10 Years
10 Years
Total
Securities Available for Sale:
U.S. Treasury and government sponsored entities
Balance
Weighted average yield (1)
U.S. Agency Mortgage-backed
Balance
Weighted average yield (1)
Corporate bonds
Balance
Weighted average yield (1)
Collateralized loan obligations
Balance
Weighted average yield (1)
Total
Balance
Weighted average yield (1)
Securities Held to Maturity
Corporate bonds
Balance
Weighted average yield (1)
Marketable Equity Securities
Preferred Stock
Balance
Weighted average yield (1)
(1) Weighted average yields have been calculated on an amortized cost basis and not on a tax-equivalent basis.
The Company’s investment in marketable equity securities does not have a maturity date but it has been included in the over 10 years column above.
Loans and Lending Activities
All of our loans and credit lines are subject to approval procedures and amount limitations. These limitations apply to the borrower’s total outstanding indebtedness and commitments to us, including the indebtedness of any guarantor. Generally, we are permitted to make loans to one borrower of up to 15% of the unimpaired capital and surplus of the Bank. The legal lending limit for the Bank was $50.4 million at December 31, 2025. At December 31, 2025, the Company had four relationships whose total direct and indirect commitments exceeded $50.4 million; however, no individual direct relationship exceeded the loans-to-one borrower limitation.
The Company's loans have grown significantly in recent years. Management attributes higher growth in loans in 2025 and 2024 to our ability to attract new customers through our outreach to the community.
The following table presents growth information for loans and loans excluding Paycheck Protection Program (“PPP”) loans for the periods indicated:
Years Ended December 31,
(In Thousands)
Five Year Compound Growth Rate
Loans
Less: PPP loans
Loans, excluding PPP loans
Percent change, Loans excluding PPP loans
The following table sets forth the composition of our loan portfolio by loan segment as of the dates indicated:
December 31, 2025
December 31, 2024
Dollar Amount
Percent of Total
Dollar Amount
Percent of Total
(In Thousands)
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
Other loans
Total portfolio loans
The following table presents the maturity distribution of our loan portfolio and the rate sensitivity of these loans to changes in interest rates as of December 31, 2025:
By Maturity
Loans Over One Year By Rate Sensitivity
(In Thousands)
Within 1 Year
1-5 Years
5-15 Years
Over 15 Years
Total
Fixed Interest Rate
Variable Interest Rate
Commercial & industrial loans
Commercial real estate
Residential real estate
Other construction
Consumer and other
Total
Information about industry concentrations:
Management utilizes the loan segments included in the tables above within the Company's CECL methodology to assess credit risk. These segments are largely determined by type of loan collateral. The Company also separately monitors concentrations in the loan portfolio based on industries, and these industry concentration are discussed below.
The Company defines "direct exposure" to the oil and gas industry as companies that it has identified as significantly reliant upon activity related to the oil and gas industry, such as oil producers or drilling and exploration companies, and companies who provide oilfield services, lodging, equipment rental, transportation, and other logistic services specific to the industry. The Company estimates that $123.4 million, or approximately 5% of loans as of December 31, 2025 have direct exposure to the oil and gas industry as compared to $99.7 million, or approximately 5% of loans as of December 31, 2024. The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $88.6 million and $45.8 million at December 31, 2025 and 2024, respectively. The portion of the Company's ACL that related to the loans with direct exposure to the oil and gas industry was estimated at $1.6 million and $1.1 million as of December 31, 2025 and 2024, respectively.
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)
December 31, 2025
December 31, 2024
Commercial & industrial loans
Commercial real estate:
Owner occupied properties
Non-owner occupied and multifamily properties
Other loans
Total loans
The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions. At December 31, 2025, the Company had $145.5 million, or 6% of total portfolio loans, in the Healthcare sector; $137.2 million, or 6% in the Accommodations sector; $117.6 million, or 5% of portfolio loans, in the Tourism sector; $97.9 million, or 4% in Retail loans; $89.2 million, or 4% of portfolio loans, in the Aviation (non-tourism) sector; $64.6 million, or 3% in the Restaurants and Breweries sector; and $57.6 million, or 2% in the Fishing sector.
The portion of the Company's ACL that related to the loans with exposure to these industries is estimated at the following amounts as of December 31, 2025:
(In Thousands)
Tourism
Aviation (non-tourism)
Healthcare
Retail
Fishing
Restaurants and Breweries
Accommodations
Total
ACL
Credit Quality and Nonperforming Assets
The following table sets forth information regarding our nonperforming loans and total nonperforming assets for the periods indicated:
December 31,
December 31,
(In Thousands)
Nonaccrual loans - Community Banking
Nonaccrual loans - Home Mortgage Lending
Nonaccrual loans - Specialty Finance
Nonaccrual loans - Total
Loans 90 days past due and accruing - Community Banking
Loans 90 days past due and accruing - Total
Total nonperforming loans - Community Banking
Total nonperforming loans - Home Mortgage Lending
Total nonperforming loans - Specialty Finance
Total nonperforming loans - Total
Nonperforming loans guaranteed by gov't - Community Banking
Nonperforming loans guaranteed by gov't - Total
Net nonperforming loans - Community Banking
Net nonperforming loans - Home Mortgage Lending
Net nonperforming loans - Specialty Finance
Net nonperforming loans - Total
Repossessed assets - Community Banking
Repossessed assets - Total
Nonperforming purchased receivables - Specialty Finance
Net nonperforming assets - Community Banking
Net nonperforming assets - Home Mortgage Lending
Net nonperforming assets - Specialty Finance
Net nonperforming assets - Total
Adversely classified loans, net of gov't guarantees - Community Banking
Adversely classified loans, net of gov't guarantees - Home Mortgage Lending
Adversely classified loans, net of gov't guarantees - Specialty Finance
Adversely classified loans, net of gov't guarantees - Total
Special mention loans, net of gov't guarantees - Community Banking
Special mention loans, net of gov't guarantees - Total
Nonperforming loans, net of government guarantees / portfolio loans
Nonperforming loans, net of government guarantees / portfolio loans, net of gov't guarantees
Nonperforming assets, net of government guarantees / total assets
Nonperforming assets, net of government guarantees / total assets net of gov't guarantees
Loans 30-89 days past due and accruing, net of government guarantees / portfolio loans
Loans 30-89 days past due and accruing, net of government guarantees /
portfolio loans, net of government guarantees
Allowance for credit losses for loans / portfolio loans
Allowance for credit losses for loans / portfolio loans, net of gov't guarantees
Allowance for credit losses for loans / nonperforming loans, net of gov't guarantees
Net loan charge-offs (recoveries) year-to-date - Community Banking
Net loan charge-offs (recoveries) year-to-date - Specialty Finance
Net loan charge-offs (recoveries) year-to-date - Total
Net loan charge-offs (recoveries) year-to-date / average loans, year-to-date annualized
Allowance for credit losses for purchased receivables / purchased receivables
Net purchased receivable charge-offs (recoveries) year-to-date / average
purchased receivables, year-to-date annualized
The Company’s nonperforming assets, net of government guarantees decreased slightly to $11.4 million at December 31, 2025 as compared to $11.6 million at December 31, 2024 as some nonperforming asset were paid off or charged off in 2025 and were replaced by new nonperforming assets. There was interest income of $214,000 and $241,000 recognized in net income for 2025 and 2024, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero.
The following summarizes OREO activity for the periods indicated:
(In Thousands)
Balance, beginning of the year
Transfers from loans
Proceeds from the sale of other real estate owned
Gain (loss) on sale of other real estate owned, net
Impairment on other real estate owned
Balance, end of year
Government guarantees
Balance, end of year, net of government guarantees
The Company did not make any loans to facilitate the sale of OREO in 2025, 2024, or 2023. Our underwriting policies and procedures for loans to facilitate the sale of OREO are no different than our standard loan policies and procedures.
At December 31, 2025, management had identified potential problem loans of $21.2 million as compared to potential problem loans of $1.6 million at December 31, 2024. Potential problem loans are loans which are currently performing that have developed negative indications that the borrower may not be able to comply with present payment terms and which may later be included in nonaccrual, past due, or impaired loans. The increase in potential problem loans at December 31, 2025 from December 31, 2024 was primarily due to the addition of four new potential problem relationships in 2025 that were only partially offset by paydowns to existing potential problem loans.
Allowance for Credit Losses
The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the notes to Consolidated Financial Statements included in Part II. Item 8 of this report for detailed discussion regarding the ACL methodology for loans and unfunded commitments.
The following tables show the allocation of the ACL and the percent of loans in each category to total loans and the ratio of net loan charge-offs to average loans outstanding by loan segment for the years indicated:
% of Loans (1)
Net loan charge-offs (recoveries) to average loans
(In Thousands)
Amount
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
Other loans
Total
1 Represents percentage of this category of loans to total portfolio loans.
% of Loans (1)
Net loan charge-offs (recoveries) to average loans
(In Thousands)
Amount
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
Other loans
Total
1 Represents percentage of this category of loans to total portfolio loans.
The ACL for loans increased to $23.7 million at December 31, 2025 compared to $22.0 million at December 31, 2024 primarily due to an increase in loan balances, net of guarantees. The Company determined that an ACL of $23.7 million, or 1.03% of portfolio loans, is appropriate as of December 31, 2025 based on our analysis of the current credit quality of the portfolio and forecasted economic conditions. 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.
The following table sets forth information regarding changes in the ACL for unfunded commitments for the years indicated:
(In Thousands)
Balance at beginning of period
Provision for credit losses
Balance at end of period
While management believes that it uses the best information available to determine the ACL, unforeseen market conditions and other events could result in an 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.
Purchased Receivables
Purchased receivable balances increased at December 31, 2025 to $101.6 million from $74.1 million at December 31, 2024, and year-to-date average purchased receivable balances were $101.0 million and $38.7 million in 2025 and 2024, respectively. Purchased receivable income was $25.8 million and $7.1 million in 2025 and 2024, respectively. The increase in purchased receivable balances at December 31, 2025 and the increase in purchased receivable income as compared to the prior year is primarily due to a full year of results from SCF following the acquisition of SCF on October 31, 2024.
The following table sets forth information regarding changes in the purchased receivable ACL for the years indicated:
(In Thousands)
Balance at beginning of year
Impact from acquisition of Sallyport Commercial Finance, LLC
Adjustment related to PCD collections payable to sellers 1
Charge-offs
Recoveries
Charge-offs net of recoveries
Reserve for purchased receivables
Balance at end of year
Ratio of net charge-offs to average purchased receivables during the period
1 Represents a reduction in the allowance for credit losses on a purchased credit deteriorated purchased receivable acquired in 2024 in connection with the SCF acquisition. Collections received during the period presented above are contractually payable to the sellers under the purchase agreement if collected within one year of the acquisition of SCF. Accordingly, the decrease in the allowance was offset by the recognition of a liability to the sellers, and no benefit was recognized in the provision for credit losses.
Deposits
Deposits are our primary source of funds. Total deposits increased 5% to $2.81 billion at December 31, 2025 from $2.68 billion at December 31, 2024. Our deposits generally are expected to fluctuate according to the level of our market share, economic conditions, and normal seasonal trends.
The following table sets forth the average balances outstanding and average interest rates for each major category of our deposits, for the periods indicated:
Average balance
Average rate paid
Average balance
Average rate paid
Average balance
Average rate paid
(In Thousands)
Interest-bearing demand accounts
Money market accounts
Savings accounts
Certificates of deposit
Total interest-bearing accounts
Noninterest-bearing demand accounts
Total average deposits
The Company's mix of deposits continues to contribute to a low cost of funds with balances in transaction accounts representing 86% of total deposits at December 31, 2025 and 84% at December 31, 2024.
The only deposit category with stated maturity dates is certificates of deposit. At December 31, 2025, we had $402.8 million in certificates of deposit, of which $369.2 million, or 92%, are scheduled to mature in 2026. The Company’s certificates of deposit decreased to $402.8 million during 2025 as compared to $418.4 million at December 31, 2024. The aggregate amount of certificates of deposit in amounts of $250,000 or more at December 31, 2025 and 2024, was $208.2 million and $217.1 million, respectively. The following table sets forth the amount outstanding of certificates of deposits in amounts of $250,000 or more by time remaining until maturity and percentage of total deposits as of December 31, 2025:
Time Certificates of Deposits
of $250,000 or More
Percent of Total Deposits
(In Thousands)
Amount
Amounts maturing in:
Three months or less
Over 3 through 6 months
Over 6 through 12 months
Over 12 months
Total
The Company offers the Certificate of Deposit Account Registry Service® (CDARS®) as a member of IntraFi® Network SM (Network). When a Network member places a deposit using CDARS, that certificate of deposit is divided into amounts under the standard FDIC insurance maximum ($250,000) and is allocated among member banks, making the large deposit eligible for FDIC insurance. The Company had $50.0 million CDARS certificates of deposits at December 31, 2025 and $49.2 million CDARS certificates of deposits at December 31, 2024.
Uninsured deposits totaled $1.1 billion or 38% of total deposits as of December 31, 2025 compared to $1.1 billion or 40% of total deposits as of December 31, 2024.
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 Company’s assets. At December 31, 2025, our maximum borrowing line from the FHLB was approximately 45% of the Bank’s assets, subject to the FHLB’s collateral requirements. Based on the Company's current collateral pledged to the FHLB, less outstanding advances, the Company's borrowing line is $433.1 million as of December 31, 2025. The Company has outstanding
advances of $12.8 million and $13.2 million as of December 31, 2025 and 2024, respectively, which were originated to match fund low income housing projects that qualify for long term fixed interest rates. These advances have original terms of either 18 or 20 years with 30 year amortization periods and fixed interest rates ranging from 1.23% to 3.25%. The Company paid $310,000 and $389,000 in interest on these advances in 2025 and 2024, respectively. Additionally, the Company had a short-term $9.8 million advance from the FHLB outstanding as of December 31, 2024 at an interest rate of 4.62% which resets daily. There were no additional advances outstanding as of December 31, 2025. The Company had an average short-term FHLB advances of $26.2 million in 2025 compared to an average short-term FHLB advances of $9.8 million in 2024. The Company paid $1.2 million and $528,000 in interest expense on short-term advances in 2025 and 2024, respectively.
Federal Reserve Bank : The Federal Reserve Bank of San Francisco (the “Federal Reserve Bank”) is holding $70 million of investment securities as collateral to secure advances made through the discount window as of December 31, 2025. There were no discount window advances outstanding at December 31, 2025 or 2024. The Company paid less than $1,000 in interest in 2025 and 2024 on this agreement.
Other Short and Long-term Borrowings: The Company had no short or long-term borrowings outstanding other than the FHLB advances noted above as of December 31, 2025 or 2024.
The Company is subject to provisions under Alaska state law which generally limits the amount of outstanding debt to 15% of total assets or $490.6 million at December 31, 2025 and $454.1 million at December 31, 2024.
Subordinated Debentures
On December 16, 2005, the Company’s subsidiary, NST2, issued trust preferred securities in the principal amount of $10 million. As of December 31, 2025, these securities carry an interest rate of 90-day CME SOFR plus tenor spread adjustment of 0.26% plus 1.37% per annum, adjusted quarterly. The securities have a maturity date of March 15, 2036, and are callable by the Company on or after March 15, 2011. These securities are treated as Tier 1 capital by the Company’s regulators for capital adequacy calculations. The interest cost to the Company on these securities was $594,000 in 2025 and $695,000 in 2024. At December 31, 2025, the securities had an interest rate of 5.99%. The Company entered into an interest rate swap in the third quarter of 2017 to hedge the variability in cash flows arising out of its junior subordinated debentures, 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 million of junior subordinated debentures held under NST2 at 3.72% through its maturity date. Net of the impact of the interest rate swap, interest expense on these securities was $372,000 in 2025 and $381,000 in 2024. The Company also had interest expense of $18,000 in 2025 and $22,000 in 2024 on common securities related to junior subordinated debt.
In November of 2025, the Company issued and sold $60.0 million in aggregate principal amount of its 6.875% Fixed-to-Floating Rate Subordinated Notes due 2035 (the “Subordinated Notes”). The Subordinated Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. The Notes mature on December 1, 2035 and bear interest at a fixed rate of 6.875% per year, from November 26, 2025 to, but excluding, December 1, 2030 or the date of earlier redemption, payable semi-annually in arrears. From and including December 1, 2030 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month SOFR, plus 3.48% per annum, payable quarterly in arrears. As provided in the Subordinated Notes, the interest rate on the Subordinated Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR. The interest cost to the Company on these debentures was $401,000 in 2025. The Company incurred debt issuance costs of $1.4 million which will amortize through December 1, 2035. The amortization expense amounted to $14,000 in 2025. Prior to December 1, 2030, the Company may redeem the Subordinated Notes, in whole but not in part, only under certain limited circumstances set forth in the indenture governing the Subordinated Notes. On or after December 1, 2030, the Company may redeem the Subordinated Notes, in whole or in part, at its option, on any interest payment date. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, together with any accrued and interest on the Subordinated Notes being redeemed to, but excluding, the date of redemption. The Subordinated Notes are not subject to redemption at the option of the holder. Principal and interest on the Subordinated Notes are subject to acceleration only in limited circumstances in the case of certain and -related events with respect to the Company. The Subordinated Notes are unsecured, subordinated obligations of the Company, are not obligations of, and are not guaranteed by, any subsidiary of the Company, and rank junior in right of payment to the Company’s current and future senior indebtedness. The Subordinated Notes are intended to qualify as Tier 2 capital of the Company for regulatory capital purposes.
Liquidity and Capital Resources
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 2026. 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 December 31, 2025, the Company has 40.0 million authorized shares of common stock, of which approximately 22.1 million are issued and outstanding, leaving approximately 17.9 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 $145.9 million, or 4% of total assets at December 31, 2025 compared to $62.7 million, or 2% of total assets as of December 31, 2024. The increase in cash and cash equivalents is primarily due to an increase in deposits, the issuance of subordinated debt, and the maturity available for sale investments, net of purchases in 2025. These cash proceeds were only partially offset by an increase in loans and loans held for sale and increase in purchased receivables in 2025. The Company had cumulative other comprehensive income, net of tax, of $619,000 in 2025 compared to $7.0 million cumulative other comprehensive loss, net of tax, in 2024. The increase is primarily attributable to unrealized gains and losses on available for sale securities. As of December 31, 2025, the weighted average maturity of available for sale securities is 2.0 years compared to 2.4 years at December 31, 2024. At December 31, 2025, $198.0 million available for sale securities mature within one year, $89.6 million mature in 2027, and $55.9 million mature in 2028. Our total unfunded commitments to fund loans and letters of credit at December 31, 2025 were $661.1 million. We do not expect that all of these loans are likely to be fully drawn upon at any one time. At December 31, 2025, certificates of deposit totaling $369.2 million and $28.7 million, respectively, contractually mature in 2026 and 2027, 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 liquidity; however, future circumstances or events may cause higher than anticipated withdrawal of deposits or draws of commitments to fund new loans. Management believes that cash requirements to fund future non-deposit liabilities, including operating lease liabilities, other liabilities, or borrowings as of December 31, 2025, are not material to the Company's liquidity position as of December 31, 2025.
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 December 31, 2025, our liquid assets, which include investments and loans maturing within a year, were $1.06 billion. Our funds available for borrowing under our existing lines of credit were $578.6 million. 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.
As shown in the Consolidated Statements of Cash Flows included in Part II. Item 8 of this report, net cash provided by operating activities was $139.3 million in 2025 and net cash used by operating activities was $8.7 million in 2024. In 2025, proceeds from the sale of loans held for sale net of proceeds used in originations, as well as net income were largely the source of net cash provided. In 2024, net cash was used primarily in connection with origination of loans held for sale, which was only partially offset by net income and net proceeds from the sale of loans held for sale. Net cash used by investing activities was $223.4 million in 2025 primarily due to an increase in loans and purchased receivables and purchases of available for sale securities. These uses of cash were only partially offset by proceeds from maturities and sales of investment securities. Net cash used by investing activities was $197.6 million in 2024 primarily due to increases in loans and the acquisition of SCF. Financing activities provided cash of $167.3 million in 2025 and $150.6 million in 2024, respectively. Financing activities provided cash in 2025 due to increases in deposits and the issuance of subordinated debt that were only partially offset by the repayment of borrowings and the payment of cash dividends to shareholders. Financing activities provided cash in 2024 due to increases in deposits that were only partially offset by the repayment of borrowings and the payment of cash dividends to shareholders.
Throughout our history, the Company has periodically repurchased for cash a portion of its shares of common stock in the open market. The following table presents the amount of common shares repurchased and the weighted average price paid per share for the periods indicated:
Years Ending:
Common Shares Repurchased
Weighted Average Price
At December, 31, 2025, there were zero shares available under the previously announced stock repurchase program. The Company may continue to repurchase its stock from time-to-time depending upon market conditions, but we can make no assurances that we will continue this program and the Board of Directors has not presently authorized any repurchases of its common stock for 2026.
The table below shows the cumulative effect the repurchase of common shares since the inception of the Company on diluted earnings per share:
Years Ending:
Diluted
EPS as
Reported
Diluted EPS without Stock Repurchase
Regulatory Capital Requirements: 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 December 31, 2025, 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 in 2025 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 2026 exceeding the FDIC’s requirements for the “well-capitalized” classification. Some capital ratios for the Company exceed those for the Bank primarily because the $10 million trust preferred securities offering and the $60 million in Subordinated Notes are included in the Company’s capital for regulatory purposes, although they are accounted for as a long-term debt in our consolidated financial statements. These items are not accounted for on the Bank’s financial statements nor are they included in its capital. As a result, the Company has $70 million more in regulatory capital than the Bank at December 31, 2025 and $10 million more at December 31, 2024, respectively, which explains most of the difference in the capital ratios for the two entities. Note that the $10 million in trust preferred securities qualifies as Tier 1 capital, and the $60 million in Subordinated Notes qualifies as Tier 2 capital for these purposes.
Minimum Required Capital
Well-Capitalized
Actual Ratio Company
Actual Ratio Bank
December 31, 2025
Total risk-based capital
Tier 1 risk-based capital
Common equity tier 1 capital
Leverage ratio
See Note 23 of the Consolidated Financial Statements included in Part II. Item 8 of this report for a detailed discussion of the capital ratios. The requirements for "well-capitalized" come from the Prompt Correction Action rules. See Part I. Item 1 Supervision and Regulation. 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.
