NORTHRIM BANCORP INC - Quarter Report: 2002 September (Form 10-Q)

Northrim Bancorp, Inc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2002

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from_____to____

Commission File Number 000-33501

NORTHRIM BANCORP, INC.

(Exact name of registrant as specified in its charter)


Alaska (State or other jurisdiction of incorporation or organization)		92-0175752 (I.R.S. Employer Identification Number)









3111 C Street Anchorage, Alaska (Address of principal executive offices)		99503 (Zip Code)

(907) 562-0062
(Registrant’s telephone number, including area code)

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

Yes [X] No [ ]

The number of shares of the issuer’s Common Stock outstanding at November 4, 2002 was 6,094,536.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM ONE
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
	ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4 CONTROLS AND PROCEDURES
	ITEM 6 EXHIBITS AND REPORT ON FORM 8-K
SIGNATURES
EXHIBIT 99.1
EXHIBIT 99.2

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION




Item 1.	Consolidated Financial Statements (unaudited)




	Consolidated Balance Sheets




	- September 30, 2002 (unaudited)	3




	- December 31, 2001	3




	Consolidated Statements of Income (unaudited)




	- Three and nine months ended September 30, 2002 and 2001	4




	Consolidated Statements of Comprehensive Income (unaudited)




	- Three and nine months ended September 30, 2002 and 2001	5




	Consolidated Statements of Cash Flows (unaudited)




	- Nine months ended September 30, 2002 and 2001	6




	Notes to the Consolidated Financial Statements	7




Item 2.	Management’s Discussion and Analysis of Financial	11




	Condition and Results of Operations




Item 3.	Qualitative and Quantitative Disclosures About	22




	Market Risk




Item 4.	Controls and Procedures	23




PART II	OTHER INFORMATION




Item 6.	Exhibits and Reports on Form 8-K	24




SIGNATURES		25

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NORTHRIM BANCORP, INC.
PART I — FINANCIAL INFORMATION
ITEM ONE

NORTHRIM BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(in thousands, except share data)


					September 30,			December 31,
					2002			2001

					(unaudited)			(audited)
ASSETS




	Cash and due from banks				$	31,348		$	26,040




	Money market investments					59,918			15,832




	Investment securities held to maturity					1,281			1,832




	Investment securities available for sale					78,279			74,111




	Investment in Federal Home Loan Bank stock					1,744			2,660




	Real estate loans for sale					4,782			19,496




	Loans					511,887			463,066




	Allowance for loan losses					(8,254	)		(7,200	)

		Net loans				508,415			475,362




	Premises and equipment, net					6,408			5,877




	Accrued interest receivable					3,263			3,470




	Intangible assets					7,462			7,737




	Other assets					10,633			7,597

				Total Assets	$	708,751		$	620,518

LIABILITIES




	Deposits:




		Demand			$	139,931		$	128,881




		Interest-bearing demand				51,589			49,916




		Savings				103,754			47,669




		Money market				170,446			139,524




		Certificates of deposit less than $100,000				77,480			86,631




		Certificates of deposit greater than $100,000				90,455			97,986

			Total deposits			633,655			550,607

	Borrowings					5,271			5,682




	Other liabilities					3,437			3,438

			Total liabilities			642,363			559,727

SHAREHOLDERS’ EQUITY




	Common stock, $1 par value, 10,000,000 shares authorized, 6,092,812 and 6,106,823 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively					6,093			6,107




	Additional paid-in capital					46,739			47,023




	Retained earnings					12,425			7,140




	Accumulated other comprehensive income — unrealized gain (loss) on securities, net					1,131			521

			Total shareholders’ equity			66,388			60,791

				Total Liabilities and Shareholders’ Equity	$	708,751		$	620,518

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands, except per share data)


				Three Months Ended:				Nine Months Ended:
				September 30,				September 30,

				2002		2001		2002		2001

				(unaudited)				(unaudited)
Interest Income




	Interest and fees on loans			$	10,660	$	11,091	$	30,098	$	32,938




	Interest on investment securities:




		Assets available for sale			807		890		2,711		2,903




		Assets held to maturity			55		58		173		170




	Interest on money market investments				65		174		145		562

			Total Interest Income		11,587		12,213		33,127		36,573




Interest Expense




	Interest expense on deposits and borrowings				2,528		4,101		7,885		13,537

			Net Interest Income		9,059		8,112		25,242		23,036




Provision for loan losses					980		615		1,855		1,435

			Net Interest Income After Provision for Loan Losses		8,079		7,497		23,387		21,601




Other Operating Income




	Service charges on deposit accounts				444		393		1,258		1,237




	Other income				992		893		2,383		2,244

			Total Other Operating Income		1,436		1,286		3,641		3,481




Other Operating Expense




	Salaries and other personnel expense				3,292		2,980		9,511		9,022




	Occupancy, net				513		519		1,460		1,444




	Equipment expense				322		398		1,068		1,169




	Marketing expense				312		300		934		906




	Supply expense				104		105		314		340




	Intangible asset amortization expense				92		207		276		624




	Other operating expense				1,249		1,275		3,571		3,407

			Total Other Operating Expense		5,884		5,784		17,134		16,912

			Income Before Income Taxes		3,631		2,999		9,894		8,170




	Provision for income taxes				1,404		1,072		3,692		2,993

			Net Income	$	2,227	$	1,927	$	6,202	$	5,177

	Earnings Per Share, Basic			$	0.36	$	0.32	$	1.01	$	0.85




	Earnings Per Share, Diluted			$	0.35	$	0.31	$	0.98	$	0.83




	Weighted Average Shares Outstanding, Basic				6,122,323		6,101,396		6,117,452		6,101,396




	Weighted Average Shares Outstanding, Diluted				6,290,699		6,281,012		6,331,329		6,259,664

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands)


		Three Months Ended:				Nine Months Ended:
		September 30,				September 30,

		2002		2001		2002		2001

		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net income		$	2,227	$	1,927	$	6,202	$	5,177




Other comprehensive income, net of tax:




	Unrealized gains (losses) on securities:




	Unrealized holding gains (losses) arising during period		362		634		677		910




Less: reclassification adjustment for gains included in net income			34		1		67		28

Comprehensive income		$	2,556	$	2,561	$	6,812	$	6,059

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands)


					Nine Months Ended:
					September 30,

					2002			2001

					(unaudited)			(unaudited)
Operating Activities




	Net income				$	6,202		$	5,177




Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities




	Security (gains) losses					(113	)		(46	)




	Depreciation and amortization of premises and equipment					824			955




	Amortization of software					289			307




	Intangible asset amortization					276			276




	Deferred tax expense (benefit)					(507	)		538




	Deferral of loan fees and costs, net					670			275




	Gain on sale of building					(9	)		(22	)




	Provision for loan losses					1,855			1,435




	(Increase) decrease in accrued interest receivable					207			202




	(Increase) decrease in other assets					(2,820	)		(2,278	)




	Amortization of investment security premium, net of discount accretion					114			64




	Increase (decrease) of other liabilities					8			1,493

				Net Cash Provided by Operating Activities		6,996			8,376

Investing Activities




	Investment in securities:




		Purchases of investment securities:




			Available-for-sale			(74,200	)		(65,107	)




			Held-to-maturity			(120	)		(129	)




		Proceeds from sales / maturities of securities:




			Available-for-sale			70,642			66,754




			Held-to-maturity			1,587			250




	Investments in loans:




		Sales of loans and loan participations				72,983			150,347




		Loans made, net of repayments				(108,561	)		(202,935	)




	Purchases of premises and equipment					(1,355	)		(50	)

				Net Cash Provided (Used) by Investing Activities		(39,024	)		(50,870	)

Financing Activities




	Increase (decrease) in deposits					83,048			31,519




	Increase (decrease) in borrowings					(411	)		353




	Net proceeds from issuance of common stock					133			0




	Net proceeds from repurchase of common stock					(431	)		0




	Cash dividends paid					(917	)		(832	)

				Net Cash Provided (Used) by Financing Activities		81,422			31,040

				Net Increase (Decrease) in Cash and Cash Equivalents		49,394			(11,454	)




	Cash and cash equivalents at beginning of period					41,872			41,310

	Cash and cash equivalents at end of period				$	91,266		$	29,856

Supplemental Information




	Income taxes paid				$	4,175		$	1,765

	Interest paid				$	8,126		$	13,758

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 2002 and 2001

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared by Northrim BanCorp, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with instructions to Form 10-Q under the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2002, are not necessarily indicative of the results anticipated for the year ending December 31, 2002. These financial statements should be read in conjunction with Northrim BanCorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001.

2. STOCK DIVIDEND

Northrim paid a 10% stock dividend on November 30, 2001, to shareholders of record as of November 15, 2001. Earnings per share for the 2001 periods were restated to reflect the stock dividend.

3. STOCK REPURCHASE

In September of this year, the Board of Directors of the Company approved a plan whereby the Company would periodically repurchase for cash up to approximately 5%, or 306,372, of its shares of stock in the open market. The Company purchased 35,000 shares of its stock under this program during the month of September 2002 at a total cost of $431,000. The Company intends to continue to repurchase its stock from time to time depending upon market conditions.

4. ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement No. 142, Goodwill and Other Intangible Assets. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. The provisions of Statement 142 were required to be applied starting with fiscal years beginning after December 15, 2001.

The effect on the Company of Statement 142 for the third quarter of 2002 was the elimination of $116,000 of amortization expense related to goodwill. The expected effect on the Company for 2002 will be the elimination of $464,000 of this amortization expense. However, the Company will continue to accrue a benefit from this amortization expense for tax purposes, as it will continue to deduct it from taxable income. The Company will continue to amortize a core deposit intangible asset, as it believes it has a determinable useful life. Amortization expense related to the Company’s core deposit intangible asset was $92,000 for the third quarter of 2002. Basic and diluted earnings per share would have been $0.33 and $0.32 versus $0.32 and $0.31, respectively, if amortization expense of $116,000 were not recorded in the third quarter of 2001. For the nine-month period in 2001, basic and diluted earnings per share would have been $0.88 and $0.86 versus $0.85 and $0.83, respectively, if amortization expense of $349,000 were not recorded.

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In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Statement No. 145 eliminates the treatment of extinguishment of debt as extraordinary and clarifies the accounting for certain sale-leaseback transactions. The provisions of Statement No. 145 are required to be applied starting with fiscal years beginning after May 15, 2002, with early adoption encouraged. Northrim believes the adoption of Statement No. 145 will have no impact on its financial statements.

In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of Statement No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Northrim believes the adoption of Statement No. 146 will have no impact on its financial statements.

In October 2002, the FASB issued Statement No. 147, Acquisitions of Certain Financial Institutions. This Statement brings all business combinations involving financial institutions, except mutuals, into the scope of Statement No. 141, Business Combinations. Statement No. 147 requires that all acquisitions of financial institutions that meet the definition of a business, including acquisitions of part of a financial institution that meet the definition of a business, must be accounted for in accordance with Statement No. 141 and the related intangibles accounted for in accordance with Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 147 also amends Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions. Statement No. 147 is generally effective immediately and provides guidance with respect to amortization and impairment of intangibles recognized in connection with acquisitions previously within the scope of Statement No. 72. Northrim believes the adoption of Statement No. 147 will have no impact on its financial statements.

5. LENDING ACTIVITIES

The following table sets forth the Company’s loan portfolio composition by loan type for the dates indicated:


		September 30, 2002						December 31, 2001						September 30, 2001

		Dollar			Percent			Dollar			Percent			Dollar			Percent
		Amount			of Total			Amount			of Total			Amount			of Total

		(Dollars in thousands)
Commercial		$	182,151			35	%	$	166,845			34	%	$	164,496			35	%




Construction/development			78,005			15	%		68,952			14	%		71,592			15	%




Commercial real estate			203,209			39	%		177,493			37	%		158,004			34	%




Real estate loans for sale			4,782			1	%		19,496			4	%		16,781			4	%




Consumer			50,883			10	%		52,236			11	%		55,912			12	%

	Total		519,030			100	%		485,022			100	%		466,785			100	%

Other, net			(2,361	)					(2,460	)					(1,859	)

	Net loans	$	516,669					$	482,562					$	464,926

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The following table details activity in the Allowance for Loan Losses for the dates indicated:


			Third Quarter				Nine Months
			(Dollars in thousands)				(Dollars in thousands)

			2002		2001		2002		2001

Balance at beginning of period			$	7,545	$	6,469	$	7,200	$	6,208




Charge-offs:




	Commercial			207		142		764		499




	Construction/development			0		0		0		0




	Commercial real estate			67		78		67		354




	Consumer			49		73		211		122

		Total charge-offs		323		293		1,042		975




Recoveries:




	Commercial			19		13		155		133




	Construction/development			0		0		0		0




	Commercial real estate			13		0		33		0




	Consumer			20		7		53		10

		Total recoveries		52		20		241		143




Provision for loan losses				980		615		1,855		1,435

Balance at end of period			$	8,254	$	6,811	$	8,254	$	6,811

Nonperforming assets consist of nonaccrual loans, accruing loans of 90 days or more past due, restructured loans, and real estate owned. The following table sets forth information with respect to nonperforming assets:


				09/30/02		12/31/01		09/30/01

				(Dollars in thousands)
Nonaccrual loans				$	3,291	$	2,615	$	1,371




Accruing loans past due 90 days or more					635		965		1,383




Restructured loans					1,667		—		46

	Total nonperforming loans				5,593		3,580		2,800




Real estate owned					—		—		—

			Total nonperforming assets	$	5,593	$	3,580	$	2,800

		Allowance for loan losses		$	8,254	$	7,200	$	6,811

6. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated by dividing net income by the weighted-average number of common shares used to compute basic EPS plus the incremental amount of potential common stock from unvested stock awards and stock options, determined by the treasury stock method.

-9-

The following table compares average shares and earnings per share for the third quarter and nine months ending 2002 and 2001:


		Three Months Ended						Nine Months Ended
		September 30, 2002						September 30, 2002
		(Dollars in thousands)						(Dollars in thousands)

		Net		Average		Earnings		Net		Average		Earnings
		Income		Shares		Per Share		Income		Shares		Per Share

Net income/average shares issued		$	2,227		6,122			$	6,202		6,117

	Basic EPS		2,227		6,122	$	0.36		6,202		6,117	$	1.01




Incremental shares under stock plans:




	Stock options				169						214

	Diluted EPS	$	2,227		6,291	$	0.35	$	6,202		6,331	$	0.98


		Three Months Ended						Nine Months Ended
		September 30, 2001						September 30, 2001
		(Dollars in thousands)						(Dollars in thousands)

		Net		Average		Earnings		Net		Average		Earnings
		Income		Shares		Per Share		Income		Shares		Per Share

Net income/average shares issued		$	1,927		6,101			$	5,177		6,101

	Basic EPS		1,927		6,101	$	0.32		5,177		6,101	$	0.85




Incremental shares under stock plans:




	Stock options				180						159

	Diluted EPS	$	1,927		6,281	$	0.31	$	5,177		6,260	$	0.83

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NORTHRIM BANCORP, INC.
PART I — FINANCIAL INFORMATION

ITEM TWO

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Form 10-Q includes “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs and assumptions based on currently available information, and we have not undertaken to update these statements except as required by the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. All statements other than statements of historical fact regarding our financial position, business strategy and management’s plans and objectives for future operations are forward-looking statements. When used in this report, the words “will,” “anticipate,” “believe,” “estimate,” “expect,” “should,” and “intend” and words or phrases of similar meaning, as they relate to the Company or management, are intended to help identify forward-looking statements. Although we believe that management’s expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include our ability to maintain or expand our market share or net interest margins, and to implement our marketing and growth strategies. Further, actual results may be affected by our ability to compete 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, including the events of September 11, 2001, and other potential further similar events. In addition, there are risks inherent in the Company’s industry relating to collectibility of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in our other filings with the Federal Deposit Insurance Corporation (the “FDIC”). 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.

OVERVIEW

Northrim BanCorp, Inc. (the “Company”) is a publicly traded bank holding company (Nasdaq: NRIM) with a wholly-owned subsidiary, Northrim Bank (the “Bank”), that is a state chartered, full-service commercial bank. We are headquartered in Anchorage and have 10 branch locations, seven in Anchorage, and one each in Fairbanks, Eagle River and Wasilla. We offer a wide array of commercial bank loan and deposit products, including electronic banking services over the Internet.

We opened the Bank for business in Anchorage in 1990. We opened our second branch, in Fairbanks, in 1996, and our second location in Anchorage in 1997. During the third quarter of 1999, we purchased eight branches located in Anchorage, Eagle River and Wasilla from Bank of America. The Bank became the wholly-owned subsidiary of the Company effective December 31, 2001, when we completed our bank holding company reorganization.

One of our major objectives is to increase our market share in Anchorage and Fairbanks, Alaska’s two largest urban areas. We estimate that we hold a 21% share of the commercial bank deposit market in Anchorage and an 8% share of the Fairbanks market as of June 30, 2001.

In January of 2002, we moved from a supermarket branch into a full-service branch to provide a higher level of service to the growing Eagle River market. We plan to affect our future growth strategy through a combination of growth at existing branch locations, new branch openings, primarily in Anchorage, Wasilla, and Fairbanks, and strategic banking and non-banking acquisitions and investments. We plan to improve our presence in the Wasilla market by consolidating our existing supermarket branch and a loan production

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office into a freestanding branch late in 2002. The Company believes approximately $160,000 of leasehold improvements and lease termination costs will be incurred in 2002. In addition, in 2002, we are exploring other branching options, and are currently analyzing additional market opportunities in the Fairbanks area.

The Company’s total assets and deposits at September 30, 2002, were $708.8 million and $633.7 million, respectively, increases of 14% and 15%, respectively, from December 31, 2001. Total assets and deposits each increased 21% and 23%, respectively, from September 30, 2001. Net loans were $508.4 million at September 30, 2002, an increase of 7% from December 31, 2001, and 11% from September 30, 2001.

RESULTS OF OPERATION

NET INCOME

Net income for the third quarter ended September 30, 2002, was $2.2 million, or $0.35 per diluted share, an increase in net income of 16%, and 13% increase in diluted earnings per share as compared to $1.9 million and $0.31 in the same period of 2001.

Revenue (net interest income and other operating income) grew $1.1 million, or 12%, to $10.5 million for the third quarter of 2002, compared to $9.4 million for the third quarter of 2001. The provision for loan losses was $980,000 for the third quarter of 2002, compared to $615,000 for the same period one year ago. Other operating expenses increased $100,000 for the third quarter of 2002 from the same period in 2001.

Net income for the nine months ended September 30, 2002, was $6.2 million, an increase of $1 million, or 20% from the nine months ended September 30, 2001. Diluted earnings per share were $0.98, compared to $0.83 in the same period in 2001. The earnings increase for the nine-month period ended September 30, 2002, reflects moderate growth in assets, loans and deposits as compared to the nine months ended September 30, 2001.

NET INTEREST INCOME

Three Months ending September 30, 2002:

Net interest income for the third quarter of 2002 increased $947,000, or 12%, to $9.1 million from $8.1 million in 2001. The following table compares average balances and rates for the third quarter of 2002 and 2001:


			Third Quarter										Third Quarter
			Average Balances										Average Yields/Costs
			(Dollars in thousands)

			2002		2001		Change			2002			2001			Change

Loans			$	519,628	$	465,963	$	53,665			8.18	%		9.51	%		-1.33	%




Short-term investments				16,758		19,955		(3,197	)		1.63	%		3.42	%		-1.79	%




Long-term investments				73,699		64,449		9,250			4.62	%		5.84	%		-1.22	%

	Interest-earning assets			610,085		550,367		59,718			7.57	%		8.86	%		-1.29	%

Non-earning assets				42,293		43,801		(1,508	)

		Total	$	652,378	$	594,168	$	58,210

Interest-bearing liabilities			$	445,492	$	414,739	$	30,753			2.26	%		3.92	%		-1.66	%




Demand deposits				138,647		116,751		21,896




Other liabilities				3,253		4,297		(1,044	)




Equity				64,986		58,381		6,605

		Total	$	652,378	$	594,168	$	58,210


Net tax equivalent margin on earning assets											5.92	%		5.91	%		0.01	%

-12-

Interest-earning assets averaged $610.1 million for the third quarter of 2002, an increase of $59.7 million, or 11%, over the $550.4 million average for the comparable period in 2001. The tax equivalent yield on earning assets averaged 7.57% in 2002, a decrease of 129 basis points from 8.86% for the same period in 2001.

Loans, the largest category of interest-earning assets, increased by $53.7 million, or 12%, to an average of $519.6 million in the third quarter of 2002 from $466 million in the same period of 2001. Commercial loans, real estate term loans and construction loans increased by $20.7 million, $52.4 million and $2.3 million, respectively, on average between the third quarters. Consumer loans declined $4 million and real estate loans held for resale declined $17.6 million on average. The tax equivalent yield on the loan portfolio averaged 8.18% for the third quarter of 2002, a decrease of 133 basis points from 9.51% a year ago due, in large part, to a drop in the prime-lending rate of 125 basis points from September 30, 2001 to September 30, 2002. The Company had $150.8 million in loans indexed to the prime-lending rate on September 30, 2002, or 29%, of total loans as compared to $146.1 million, or 31%, on September 30, 2001. The uncommon drop in interest rates has also led to an increase in refinance activity in the Company’s commercial real estate portfolio, which is typically comprised of longer-term loans. A number of market analysts are predicting that the Federal Reserve will approve a further 25 basis point drop in November 2002 due to recent reports of lower consumer confidence. Continuing refinance activity as a result of lower rates may put further downward pressure on the Company’s interest margin in the future. However, the Company’s net loan fees amortized in the third quarter ended September 30, 2002, totaled $1.1 million, an increase of 22% from fees of $886,000 in the third quarter ended September 30, 2001, primarily as a result of larger loan volumes and an increase in refinance activity.

Interest-bearing liabilities averaged $445.5 million for the third quarter of 2002, an increase of $30.8 million, or 7%, compared to $414.7 million for the same period in 2001. The average cost of interest-bearing liabilities decreased 166 basis points to 2.26% for the third quarter of 2002 compared to 3.92% for the third quarter of 2001. The decrease in the average cost of funds was largely due to the repricing of deposit accounts in response to the Federal Reserve’s rate reductions during 2001. The weighted average life of the Company’s certificate of deposits is less than one year. The cost of these deposits should further decline if market interest rates remain at reduced levels, as deposits originated at higher interest rates during earlier periods mature, and are repriced to the current rates. However, as interest rates approach historically low levels, the Company may not be able to fully reprice these liabilities to maintain its net interest margin. Moreover, interest rates could increase in the future in response to an improvement in the general economy of the United States. An increase in general interest rates could cause an increase in the Company’s deposit accounts which could also have a negative impact on its net interest margin.

The Company’s net interest income as a percentage of average interest-earning assets (net tax-equivalent margin) was 5.92% for the third quarter of 2002, an increase of 1 basis point from 5.91% for the same period in 2001. The average net tax equivalent yield on interest-earning assets decreased 129 basis points to 7.57% in the third quarter of 2002, from 8.86% in the same period of 2001. The average cost of interest-bearing liabilities decreased 166 basis points in the third quarter of 2002 to 2.26% from 3.92% in the same quarter of 2001. Despite the fact that interest rates on the Company’s interest-bearing liabilities declined more than the rate on its interest-earning assets, the net interest margin only increased one basis point between third quarter 2002 and 2001. A reason for this level of increase is because approximately, 23% and 21% of interest-earning-assets were funded by non-interest-bearing deposits at September 30, 2002 and 2001, respectively, in which interest rate increases or decreases have no effect.

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Nine Months ending September 30, 2002:

The following table compares average balances and rates for the nine-month period ending September 30, 2002 and 2001:


			Nine-month							Nine-month
			Average Balances							Average Yields/Costs
			(Dollars in thousands)

			2002		2001		Change			2002			2001			Change

Loans			$	496,756	$	446,778	$	49,978			8.15	%		9.93	%		-1.78	%




Short-term investments				11,793		17,139		(5,346	)		1.63	%		4.32	%		-2.69	%




Long-term investments				75,450		68,013		7,437			5.15	%		6.06	%		-0.91	%

	Interest-earning assets			583,999		531,930		52,069			7.63	%		9.26	%		-1.63	%

Non-earning assets				43,437		40,176		3,261

		Total	$	627,436	$	572,106	$	55,330

Interest-bearing liabilities			$	431,605	$	406,268	$	25,337			2.45	%		4.45	%		-2.00	%




Demand deposits				129,226		105,101		24,125




Other liabilities				3,396		3,942		(546	)




Equity				63,209		56,795		6,414

		Total	$	627,436	$	572,106	$	55,330


Net tax equivalent margin on earning assets											5.82	%		5.86	%		-0.04	%

Net interest income for the first nine months of 2002 increased $2.2 million, or 10% from $23 million in 2001. The increase was largely due to a $52.1 million increase in average interest-earning assets between the periods, funded in part by a $25.3 million increase in average interest-bearing liabilities. More asset growth was funded by non-interest-bearing sources of funds in 2002 than in 2001. The net tax equivalent yield on interest-earning assets in the first nine months of 2002 declined four basis points to 5.82% from 5.86% for the same period in 2001. The average net tax equivalent yield on interest-earning assets decreased 163 basis points to 7.63% for the first nine months in 2002 from 9.26% in the same nine-month period one year ago. The average cost of interest-bearing liabilities decreased 200 basis points to 2.45% for the first nine months of 2002, from 4.45% for the same six-month period in 2001.

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OTHER OPERATING INCOME

Other operating income (excluding gains on the sale of assets which can fluctuate significantly between periods) for the third quarter of 2002 was $1.4 million, an increase of $93,000 from the third quarter of 2001. For the first nine months of 2002, other operating income increased $131,000, or 4%, from $3.4 million for the same period in 2001.

Deposit service charges increased $51,000, or 13%, from $393,000 in the third quarter of 2001. For the first nine months of 2002, deposit service charges increased $21,000, or 2%, from $1.2 million for the same period in 2001.

Loan servicing fees decreased $25,000, or 20%, from $122,000 in the third quarter of 2001. For the first nine months of 2002, loan servicing fees decreased $92,000, or 27%, from $346,000 for the same period in 2001. These decreases are primarily the result of a drop in the volume of loans purchased from Residential Mortgage LLC (“RML”), the Bank’s affiliated mortgage company.

Electronic banking fees are largely comprised of interchange and surcharge income from the Company’s 16-machine ATM network and debit card transactions. Electronic banking fees decreased $50,000, or 25%, in the third quarter of 2002 compared to the third quarter of 2001. This decrease was due to a change in consumer practices, whereby consumers obtain more cash from point of sale transactions than from ATMs thus producing less fee income. For the first nine months of 2002, electronic banking fees were $461,000, a decrease of 1%, from the same period last year.

Income from Northrim Capital Investments Co. (“NCIC”), a wholly-owned subsidiary of Northrim Bank, increased by $135,000, or 37%, to $502,000 during the third quarter of 2002 as compared to $367,000 in the third quarter of 2001, primarily due to increased refinance activity. NCIC owns a 30% profit interest in RML. The large decrease in interest rates and a strong residential housing market has fueled increases in mortgage originations from refinances and home purchase loans as compared to the same period in 2001. Income from NCIC for the nine months ended September 30, 2002, was $1.1 million, compared to $782,000 in the same period last year, an increase of 35%. The improvement in the nine-month results was due in part to the recovery of $165,000 in legal defense costs related to a lawsuit that was settled earlier in 2002.

Set forth below is a schedule of the components of and change in Other Operating Income between the third quarters of 2002 and 2001:


		Third Quarter							Nine Months
		(Dollars in thousands)							(Dollars in thousands)

		2002		%			2001		2002		%			2001

Deposit service charges		$	444		13	%	$	393	$	1,258		2	%	$	1,237




Loan servicing fees			97		-20	%		122		254		-27	%		346




Income from NCIC			502		37	%		367		1,055		35	%		782




Merchant & credit card fees			131		18	%		111		313		6	%		295




Electronic banking revenue			152		-25	%		202		461		-1	%		468




Other			53		-42	%		91		187		-30	%		269

	Subtotal		1,379		7	%		1,286		3,528		4	%		3,397




Security gains (losses)			57		0	%		0		113		146	%		46




Gain on sale of ORE			0		0	%		0		0		-100	%		38

	Total	$	1,436		12	%	$	1,286	$	3,641		5	%	$	3,481

OTHER OPERATING EXPENSE

Other operating expense for the third quarter of 2002 was $5.9 million, an increase of $100,000 from the same period in 2001. At the beginning of this year, the Company implemented Financial Accounting Standards Board Statement 142 that sets forth the accounting for goodwill and other intangible assets. As a

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result, the Company is no longer amortizing expense related to goodwill effective the beginning of 2002. Amortization expense for other intangible assets for the third quarter of 2002 was $92,000. Other operating expense for the nine months ended September 30, 2002, was $17.1 million, an increase of $222,000, or 1%, from the same period in 2001.

Set forth below is a schedule of the components of and change in Other Operating Expense between the third quarters of 2002 and 2001:


		Third Quarter							Nine Months
		(Dollars in thousands)							(Dollars in thousands)

		2002		%			2001		2002		%			2001

Salaries & benefits		$	3,292		10	%	$	2,980	$	9,511		5	%	$	9,022




Occupancy			513		-1	%		519		1,460		1	%		1,444




Equipment			322		-19	%		398		1,068		-9	%		1,169




Marketing			312		4	%		300		934		3	%		906




Intangible asset amortization-goodwill			0		-100	%		116		0		-100	%		349




Intangible asset amortization-core deposit			92		1	%		91		276		0	%		275




Other expense			1,353		-2	%		1,380		3,885		4	%		3,747

	Total	$	5,884		2	%	$	5,784	$	17,134		1	%	$	16,912

INCOME TAXES

The provision for income taxes increased $332,000, or 31%, to $1.4 million in the third quarter of 2002 compared to the same period in 2001. The effective tax rates for the third quarter of 2002 and 2001 were 39% and 36%, respectively, due to a decline of approximately $1 million on average of tax-exempt assets between periods. The provision for income taxes for the first nine months of 2002 totaled $3.7 million, an increase of $699,000, or 23%, from the same period in 2001. The effective tax rate for each of the first nine months of 2002 and 2001 was 37%.

LENDING ACTIVITIES

LOAN PORTFOLIO COMPOSITION

The following table sets forth the Company’s loan portfolio composition by loan type for the dates indicated:


		September 30, 2002						December 31, 2001						September 30, 2001

		Dollar			Percent			Dollar			Percent			Dollar			Percent
		Amount			of Total			Amount			of Total			Amount			of Total

								(Dollars in thousands)
Commercial		$	182,151			35	%	$	166,845			34	%	$	164,496			35	%




Construction/development			78,005			15	%		68,952			14	%		71,592			15	%




Commercial real estate			203,209			39	%		177,493			37	%		158,004			34	%




Real estate loans for sale			4,782			1	%		19,496			4	%		16,781			4	%




Consumer			50,883			10	%		52,236			11	%		55,912			12	%

	Total		519,030			100	%		485,022			100	%		466,785			100	%

Other, net			(2,361	)					(2,460	)					(1,859	)

	Net loans	$	516,669					$	482,562					$	464,926

ORIGINATION AND SALE OF LOANS

Periodically, the Company invests its excess liquidity in single-family mortgage loans that have been originated by RML and which are committed for resale, generally within 45 days, at preset interest rates prior to the Company’s purchase. At September 30, 2002, these loans totaled $4.8 million, down from $19.5 million at December 31, 2001. RML sold fewer loans to the Company in 2002 because it developed other sources for warehousing its loans.

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PROVISION AND ALLOWANCE FOR LOAN LOSSES

The Company recorded a $980,000 provision for loan losses for the third quarter of 2002, compared to $615,000 for the third quarter of 2001. There was $271,000 in net loan charge-offs during the third quarter of 2002, compared to $273,000 of net loan charge-offs for the same period in 2001. For the first nine months of 2002, net loan charge-offs totaled $801,000, compared to $832,000 for the same period in 2001, for an annualized charge-off rate of 0.21% and 0.25%, respectively.

The Allowance for Loan Losses was $8.3 million, or 1.61% of total portfolio loans outstanding (which excludes $4.8 million of real estate loans for sale), at September 30, 2002, compared to $6.8 million, or 1.52%, of total portfolio loans, at September 30, 2001. The Allowance for Loan Losses represented 148% of non-performing loans at September 30, 2002, as compared to 243% of non-performing loans at September 30, 2001. Management considers the Allowance for Loan Losses to be adequate at this time to absorb inherent losses. Management anticipates additional provisions to the Allowance for Loan Losses in future periods due to expected growth in the loan portfolio and a perceived continued softening of the overall state and local economies.

The following table details activity in the Allowance for Loan Losses for the dates indicated:


			Third Quarter				Nine Months
			(Dollars in thousands)				(Dollars in thousands)

			2002		2001		2002		2001

Balance at beginning of period			$	7,545	$	6,469	$	7,200	$	6,208




Charge-offs:




	Commercial			207		142		764		499




	Construction/development			0		0		0		0




	Commercial real estate			67		78		67		354




	Consumer			49		73		211		122

		Total charge-offs		323		293		1,042		975




Recoveries:




	Commercial			19		13		155		133




	Construction/development			0		0		0		0




	Commercial real estate			13		0		33		0




	Consumer			20		7		53		10

		Total recoveries		52		20		241		143




Provision for loan losses				980		615		1,855		1,435

Balance at end of period			$	8,254	$	6,811	$	8,254	$	6,811

NONPERFORMING ASSETS

Nonperforming assets consist of nonaccrual loans, accruing loans that are 90 days or more past due, restructured loans, and real estate owned. The following table sets forth information with respect to nonperforming assets:

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		09/30/02			12/31/01			09/30/01

		(Dollars in thousands)
Nonaccrual loans		$	3,291		$	2,615		$	1,371




Accruing loans past due 90 days or more			635			965			1,383




Restructured loans			1,667			—			46

Total nonperforming loans			5,593			3,580			2,800




Real estate owned			—			—			—

	Total nonperforming assets	$	5,593		$	3,580		$	2,800


Allowance for loan losses		$	8,254		$	7,200		$	6,811

Nonperforming loans to portfolio loans			1.09	%		0.77	%		0.62	%




Nonperforming assets to total assets			0.79	%		0.58	%		0.48	%




Allowance to portfolio loans			1.61	%		1.55	%		1.52	%




Allowance to nonperforming loans			148	%		201	%		243	%

Nonaccrual, Accruing Loans 90 Days or More Past Due and Restructured Loans. The Company’s financial statements are prepared on the accrual basis of accounting, including recognition of interest income on its loan portfolio, unless a loan is placed on a nonaccrual basis. For financial reporting purposes, amounts received on nonaccrual loans generally will be applied first to principal and then to interest only after all principal has been collected.

Restructured loans are those 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 restructured loans 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.

Total nonperforming loans at September 30, 2002, were $5.6 million, or 1.09% of total portfolio loans, an increase of $2 million from $3.6 million at December 31, 2001, and an increase of $2.8 million from $2.8 million at September 30, 2001. The increase in nonperforming loans in the third quarter of 2002 was due in large part to one commercial loan relationship. The Company is taking steps to address this loan. The Company has also implemented procedures to improve the overall credit quality of its loan portfolio.

At September 30, 2002, December 31, 2001, and September 30, 2001, the Company had impaired loans of $4.5 million, $1.8 million, and $1.7 million, respectively. A specific allowance of $1 million, $262,000, and $312,000 was established for these periods.

Potential Problem Loans. At September 30, 2002, the Company had no potential problem loans, as compared to $3.2 million at December 31, 2001, and $2.1 million one year ago. Potential problem loans are loans which are currently performing and are not included in nonaccrual, accruing loans 90 days or more past due, or restructured loans at the end of the applicable period, but about which there has developed serious doubts as to the borrower’s ability to comply with present repayment terms and, which may later be included in nonaccrual, past due, or restructured loans.

CAPITAL

SHAREHOLDERS’ EQUITY

Shareholders’ equity was $66.4 million at September 30, 2002, compared to $60.8 million at December 31, 2001, an increase of 9%.

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CAPITAL REQUIREMENTS AND RATIOS

The Company is 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. As of September 30, 2002, the Company and the Bank met all applicable capital adequacy requirements.

The FDIC has in place qualifications for banks to be classified as “well-capitalized.” As of June 14, 2002, the most recent notification from the FDIC categorized the Bank as “well-capitalized.” There were no conditions or events since the FDIC notification that have changed the Bank’s classification.

The table below illustrates the capital requirements for the Company and its actual capital ratios that exceed these requirements. There is an immaterial difference between the capital ratios for the Bank and the Company.


							September 30, 2002			December 31, 2001

				Well-			Actual			Actual
	Minimum			Capitalized			Ratio			Ratio

Tier 1 risk-based capital		4.00	%		6.00	%		10.25	%		10.25	%




Total risk-based capital		8.00	%		10.00	%		11.50	%		11.74	%




Leverage ratio		4.00	%		5.00	%		8.96	%		8.71	%

STOCK REPURCHASE PLAN

In September of this year, the Board of Directors of the Company approved a plan whereby the Company would periodically repurchase for cash up to approximately 5%, or 306,372, of its shares of stock in the open market. The Company purchased 35,000 shares of its stock under this program during the month of September 2002 at a cost of $431,000. The Company intends to continue to repurchase its stock from time to time depending upon market conditions.

LIQUIDITY AND SOURCE OF FUNDS

DEPOSITS

The Company’s primary sources of funds are customer deposits and to a lesser extent advances from the Federal Home Loan Bank of Seattle (the “FHLB”). These funds, together with loan repayments, loan sales, other borrowed funds, retained earnings and equity are used to make loans, to acquire securities and other assets, and to fund continuing operations.

Deposits are the Company’s primary source of new funds. Total deposits increased $83 million to $633.7 million at September 30, 2002, up 15% from $550.6 million at December 31, 2001, and 23% from $516.4 million at September 30, 2001.

The Company’s deposits generally are expected to fluctuate according to the level of the Company’s market share, economic conditions, and normal seasonal trends. The only deposit category with stated maturity dates is certificates of deposit. At September 30, 2002, Northrim had $167.9 million in certificates of deposit, of which $138 million, or 82%, are scheduled to mature over the next 12 months compared to $148.8 million, or 81%, at December 31, 2001, and to $151.4 million, or 81%, one year ago.

The following table sets forth the scheduled maturities of the Company’s certificates of deposit for the dates indicated:

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	September 30, 2002					December 31, 2001					September 30, 2001

	Dollar		Percent			Dollar		Percent			Dollar		Percent
	Amount		of Total			Amount		of Total			Amount		of Total

	(Dollars in thousands)
Remaining maturity:




Three months or less	$	62,372		37	%	$	41,425		22	%	$	73,695		40	%




Over three through six months		33,380		20	%		45,407		25	%		29,533		16	%




Over six through twelve months		42,279		25	%		61,956		34	%		48,200		26	%




Over twelve months		29,904		18	%		35,829		19	%		34,649		19	%

Total	$	167,935		100	%	$	184,617		100	%	$	186,077		100	%

FHLB AND OTHER BORROWINGS

At September 30, 2002, the Company’s maximum borrowing line from the FHLB was approximately $85 million with $10 million committed to secure public deposits and $3.9 million in long-term advances, compared to $20 million to secure public deposits at December 31, 2001. Additional advances are dependent on 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.

The Company had a $3 million subordinated note and $1.5 million had been drawn on the line. The line was paid off in May of this year.

At September 30, 2002, the Company had no short-term original maturity of one year or less, borrowings that exceeded 30% of shareholders’ equity.

LOANS

Loans, excluding real estate loans for sale, increased to $511.9 million at September 30, 2002, from $463.1 million at December 31, 2001. At September 30, 2002, 53% of the portfolio was scheduled to mature over the next 12 months with 22% scheduled to mature between October 1, 2003, and September 30, 2007. Future growth in loans is generally dependent on new loan demand and deposit growth, and is constrained by the Company’s policy of being “well-capitalized.”

INVESTMENT SECURITIES

Investment securities totaled $81.3 million at September 30, 2002, an increase of $2.7 million, or 3%, from $78.6 million at December 31, 2001, and an increase of $7 million, or 9 %, from $74.3 million at September 30, 2001. Investment securities designated as available for sale comprised 96% of the investment portfolio at September 30, 2002, as compared to 94% at December 31, 2001, and 95% at September 31, 2001, and are available to meet liquidity requirements. Both available for sale and held to maturity securities may be pledged as collateral to secure public deposits. At September 30, 2002, $37.7 million in securities, or 46%, of the investment portfolio were pledged, as compared to $25.4 million, or 32%, at December 31, 2001, and $24.4 million, or 33%, at September 30, 2001.

CAPITAL EXPENDITURES AND COMMITMENTS

The Company purchased an item processing and imaging system in the second quarter ended June 30, 2002, totaling approximately $600,000. In addition, the Company purchased a limited liability company (“LLC”) for $1.8 million that owns another branch facility in the Anchorage area. The Company intends to dissolve the LLC and account for the new facility as an addition to its fixed assets.

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The Company plans to move its existing supermarket branch and a loan production office that are located in the Wasilla market into a freestanding branch late in 2002. The total commitments for the construction of this branch are $2.2 million.

ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 142, Goodwill and Other Intangible Assets. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. The provisions of Statement 142 were required to be applied starting with fiscal years beginning after December 15, 2001.

The effect on the Company of Statement 142 for the third quarter of 2002 was the elimination of $116,000 of amortization expense related to goodwill. The expected effect on the Company for 2002 will be the elimination of $464,000 of this amortization expense. However, the Company will continue to accrue a benefit from this amortization expense for tax purposes, as it will continue to deduct it from taxable income. The Company will continue to amortize a core deposit intangible asset, as it believes it has a determinable useful life. Amortization expense related to the Company’s core deposit intangible asset was $92,000 for the third quarter of 2002. Basic and diluted earnings per share would have been $0.33 and $0.32 versus $0.32 and $0.31, respectively, if the amortization expense of $116,000 were not recorded in the third quarter of 2001. For the nine-month period in 2001, basic and diluted earnings per share would have been $0.88 and $0.86 versus $0.85 and $0.83, respectively, if the amortization expense of $349,000 were not recorded.

In April 2002, the Financial Accounting Standards Board issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Statement No. 145 eliminates the treatment of extinguishment of debt as extraordinary and clarifies the accounting for certain sale-leaseback transactions. The provisions of Statement No. 145 are required to be applied starting with fiscal years beginning after May 15, 2002, with early adoption encouraged. Northrim believes the adoption of Statement No. 145 will have no impact on its financial statements.

In October 2002, the FASB issued Statement No. 147, Acquisitions of Certain Financial Institutions. This Statement brings all business combinations involving financial institutions, except mutuals, into the scope of Statement No. 141, Business Combinations. Statement No. 147 requires that all acquisitions of financial institutions that meet the definition of a business, including acquisitions of part of a financial institution that meet the definition of a business, must be accounted for in accordance with Statement No. 141 and the related intangibles accounted for in accordance with Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 147 also amends Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets to include in its scope long-term customer-relationship intangible assets of financial institutions. Statement No. 147 is generally effective immediately and provides guidance with respect to amortization and impairment of intangibles recognized in connection with acquisitions previously within the scope of Statement No. 72. Northrim believes the adoption of Statement No. 147 will have no impact on its financial statements.

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ITEM THREE

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate, credit, and operations risks are the most significant market risks, which affect the Company’s performance. The Company relies on loan review, prudent loan underwriting standards, and an adequate allowance for credit losses to mitigate credit risk.

The Company utilizes a simulation model to monitor and manage interest rate risk within parameters established by its internal policy. The model projects the impact of a 100 basis point increase and a 100 basis point decrease, from prevailing interest rates, on the balance sheet for a period of 12 months.

The Company is currently liability sensitive, meaning that interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period. Therefore, a significant increase in market rates of interest could adversely impact net interest income. Conversely, a declining interest rate environment may improve net interest income.

Generalized assumptions are made on how investment securities, classes of loans and various deposit products might respond to the interest rate changes. These assumptions are inherently uncertain, and as a result, the model cannot precisely estimate net interest income nor precisely predict the impact of higher or lower interest rates on net interest income. Actual results may differ materially from simulated results due to factors such as timing, magnitude, and frequency of rate changes, customer reaction to rate changes, changes in market conditions, the absolute level of interest rates, and management strategies, among other factors.

The results of the simulation model at September 30, 2002 indicate that, if interest rates increased an immediate 100 basis points, the Company would experience a decrease in net interest income of approximately $1.1 million over the next 12 months. Similarly, the simulation model indicates that, if interest rates decreased an immediate 100 basis points, the Company would experience an increase in net interest income of approximately $603,000 over the next 12 months.

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ITEM FOUR

CONTROLS AND PROCEDURES

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) within 90 days prior to the filing date of this quarterly report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls that could significantly affect its disclosure controls and procedures since the date of the evaluation.

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ITEM SIX

EXHIBITS AND REPORT ON FORM 8-K

(a)

EXHIBITS


99.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350




99.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

(b)		REPORTS ON FORM 8-K

		On September 12, 2002, the Company filed a Form 8-K reporting Board of Director approval of a stock repurchase program authorizing the repurchase of up to 306,372 shares of the Company’s common stock. A copy of the Company’s News Release announcing the event was attached as an exhibit.

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SIGNATURES

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


NORTHRIM BANCORP, INC.









November 13, 2002		By /s/ R. Marc Langland

		R. Marc Langland President and CEO (Principal Executive Officer)









November 13, 2002		By /s/ Joseph M. Shierhorn

		Joseph M. Schierhorn Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

		I, R. Marc Langland, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Northrim BanCorp, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

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	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the Audit Committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: November 13, 2002









		/s/ R. Marc Langland

		R. Marc Langland Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

		I, Joseph M. Schierhorn, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Northrim BanCorp, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


Date: November 13, 2002









		/s/ Joseph M. Schierhorn

		Joseph M. Schierhorn Chief Financial Officer

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NORTHRIM BANCORP INC - Quarter Report: 2002 September (Form 10-Q)

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