NORTHRIM BANCORP INC - Quarter Report: 2003 June (Form 10-Q)

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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 June 30, 2003

[ ] 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		99503
(Address of principal executive offices)		(Zip Code)

(907) 562-0062

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).

Yes [X] No [ ]

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 August 8, 2003 was
5,943,246.

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TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
	ITEM 1.
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II – OTHER INFORMATION
	ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Consolidated Balance Sheets
	- June 30, 2003 (unaudited)	3
	- December 31, 2002	3
	- June 30, 2002 (unaudited)	3
	Consolidated Statements of Income (unaudited)
	- Three and six months ended June 30, 2003 and 2002	4
	Consolidated Statements of Comprehensive Income (unaudited)
	- Three and six months ended June 30, 2003 and 2002	5
	Consolidated Statements of Cash Flows (unaudited)
	- Six months ended June 30, 2003 and 2002	6
	Notes to the Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II	OTHER INFORMATION
Item 5.	Submission of Matters to a Vote of Security Holders	25
Item 6.	Exhibits and Reports on Form 8-K	26
SIGNATURES		27

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

NORTHRIM BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2003, 2002 and December 31, 2002


				June 30,			December 31,			June 30,
				2003			2002			2002

				(unaudited)						(unaudited)
				(In Thousands, Except Per Share Data)
ASSETS
	Cash and due from banks			$	18,295		$	28,078		$	21,676
	Money market investments				10,692			37,502			3,094
	Investment securities held to maturity				1,080			1,281			1,281
	Investment securities available for sale				68,474			78,224			73,440
	Investment in Federal Home Loan Bank stock				1,706			1,774			2,740
	Real estate loans for sale				39,703			7,437			290
	Loans				551,098			527,553			504,169
	Allowance for loan losses				(9,384	)		(8,476	)		(7,545	)

		Net loans			581,417			526,514			496,914
	Premises and equipment, net				11,394			10,481			6,434
	Accrued interest receivable				3,362			3,192			3,577
	Intangible assets				7,186			7,370			7,554
	Other assets				11,341			9,833			9,484

			Total Assets	$	714,947		$	704,249		$	626,194

LIABILITIES
	Deposits:
		Demand		$	163,971		$	151,780		$	134,066
		Interest-bearing demand			54,719			53,365			49,680
		Savings			102,939			104,568			81,667
		Money market			138,174			154,232			117,628
		Certificates of deposit less than $100,000			70,553			75,053			79,115
		Certificates of deposit greater than $100,000			97,554			87,417			91,019

			Total deposits		627,910			626,415			553,175

	Borrowings				5,423			6,365			6,164
	Trust perferred securities				8,000			0			0
	Other liabilities				3,475			3,096			2,595

			Total Liabilities		644,808			635,876			561,934

SHAREHOLDERS’ EQUITY
	Common stock, $1 par value, 10,000,000 shares authorized, 5,957,046; 6,094,536 and 6,127,445 shares issued and outstanding at June 30, 2003, December 31, 2002, and June 30, 2002, respectively				5,957			6,095			6,127
	Additional paid-in capital				44,814			46,614			47,133
	Retained earnings				18,202			14,460			10,197
	Accumulated other comprehensive income - unrealized gain (loss) on securities, net				1,166			1,204			803

			Total shareholders’ equity		70,139			68,373			64,260

			Total Liabilities and Shareholders’ Equity	$	714,947		$	704,249		$	626,194

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002


				Three Months Ended:					Six Months Ended:
				June 30,					June 30,

				2003			2002		2003			2002

				(unaudited)					(unaudited)
				(In Thousands, Except Per Share Data)
Interest Income
	Interest and fees on loans			$	10,652		$	9,812	$	21,148		$	19,440
	Interest on investment securities:
		Assets available for sale			665			906		1,443			1,903
		Assets held to maturity			35			58		79			118
	Interest on money market investments				45			47		61			80

			Total Interest Income		11,397			10,823		22,731			21,541
Interest Expense
	Interest expense on deposits and borrowings				1,728			2,666		3,512			5,357

			Net Interest Income		9,669			8,157		19,219			16,184
Provision for loan losses					936			515		1,365			875

			Net Interest Income After Provision for Loan Losses		8,733			7,642		17,854			15,309
Other Operating Income
	Service charges on deposit accounts				478			425		924			814
	Equity in earnings from RML				886			387		1,350			554
	Equity in loss from Elliott Cove				(116	)		0		(325	)		0
	Other income				529			402		991			837

			Total Other Operating Income		1,777			1,214		2,940			2,205
Other Operating Expense
	Salaries and other personnel expense				3,426			3,108		6,743			6,219
	Occupancy, net				488			471		977			948
	Equipment expense				369			376		748			746
	Marketing expense				312			310		629			622
	Intangible asset amortization expense				92			92		184			184
	Other operating expense				1,499			1,314		3,084			2,532

			Total Other Operating Expense		6,186			5,671		12,365			11,251

			Income Before Income Taxes		4,324			3,185		8,429			6,263
	Provision for income taxes				1,688			1,200		3,250			2,288

			Net Income	$	2,636		$	1,985	$	5,179		$	3,975

	Earnings Per Share, Basic			$	0.44		$	0.32	$	0.86		$	0.65
	Earnings Per Share, Diluted			$	0.43		$	0.31	$	0.84		$	0.63
	Weighted Average Shares Outstanding, Basic				5,959,974			6,122,012		5,998,078			6,115,078
	Weighted Average Shares Outstanding, Diluted				6,184,656			6,368,437		6,200,095			6,351,709

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002


		Three Months Ended:				Six Months Ended:
		June 30,				June 30,

		2003		2002		2003		2002

		(unaudited)		(unaudited)		(unaudited)		(unaudited)
		(In Thousands)				(In Thousands)
Net income		$	2,636	$	1,985	$	5,179	$	3,975
Other comprehensive income, net of tax:
	Unrealized gains (losses) on securities:
	Unrealized holding gains (losses) arising during period		138		855		44		315
	Less: reclassification adjustment for gains included in net income		29		31		82		33

Comprehensive Income		$	2,745	$	2,809	$	5,141	$	4,257

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002


					Six Months Ended:
					June 30,

					2003			2002

					(unaudited)			(unaudited)
					(In Thousands)
Operating Activities
	Net income				$	5,179		$	3,975
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
	Security (gains) losses					(137	)		(52	)
	Depreciation and amortization of premises and equipment					609			544
	Amortization of software					227			181
	Intangible asset amortization					184			184
	Deferred tax expense (benefit)					(418	)		(351	)
	Deferral of loan fees and costs, net					(36	)		500
	Provision for loan losses					1,365			875
	Equity in earnings from RML					(1,350	)		(554	)
	Equity in loss from Elliott Cove					325			0
	(Increase) decrease in accrued interest receivable					(170	)		(107	)
	(Increase) decrease in other assets					(825	)		(1,981	)
	Amortization of investment security premium, net of discount accretion					154			74
	Increase (decrease) of other liabilities					343			(843	)

				Net Cash Provided by Operating Activities		5,450			2,445

Investing Activities
	Investment in securities:
		Purchases of investment securities:
			Available-for-sale			(28,486	)		(37,799	)
			Held-to-maturity
		Proceeds from sales / maturities of securities:
			Available-for-sale			38,488			39,202
			Held-to-maturity
	Investments in loans:
			Sales of loans and loan participations			94,117			54,392
			Loans made, net of repayments			(150,349	)		(77,319	)
	Investment in RML					0			(16	)
	Investment in Elliott Cove					(250	)		0
	Purchases of premises and equipment					(1,522	)		(1,101	)

				Net Cash Provided (Used) by Investing Activities		(48,002	)		(22,641	)

Financing Activities
	Increase (decrease) in deposits					1,495			2,568
	Increase (decrease) in borrowings					(942	)		482
	Loan to Elliott Cove					(125	)		0
	Net proceeds from issuance of common stock					39			130
	Net proceeds from issuance of trust preferred securities					8,000			0
	Repurchase of common stock					(1,977	)		0
	Dividents received from RML					906			832
	Cash dividends paid					(1,437	)		(918	)

				Net Cash Provided (Used) by Financing Activities		5,959			3,094

				Net Increase (Decrease) in Cash and Cash Equivalents		(36,593	)		(17,102	)
	Cash and cash equivalents at beginning of period					65,580			41,872

	Cash and cash equivalents at end of period				$	28,987		$	24,770

Supplemental Information
	Income taxes paid				$	3,550		$	2,775

	Interest paid				$	3,516		$	5,576

See notes to the consolidated financial statements

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NORTHRIM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 2003 and 2002

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 June 30, 2003, are not necessarily indicative of the results anticipated for the year ending December 31, 2003. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

STOCK REPURCHASE

In September of 2002, 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 211,000 shares of its stock under this program through June 30, 2003, at a total cost of $2.8 million, with 10,000 of those shares repurchased in the second quarter of 2003 at a cost of $150,000. The Company intends to continue to repurchase its stock from time to time depending upon market conditions.

ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. Statement No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133. The Standard has multiple effective date provisions depending on the nature of the amendment to Statement No. 133. The Company believes the adoption of Statement No. 149 will have no impact on its financial statements.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 30, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. The Company believes the adoption of Statement No. 150 will have no impact on its financial statements.

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LENDING ACTIVITIES

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


		June 30, 2003						December 31, 2002						June 30, 2002

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

								(Dollars in Thousands)
Commercial		$	201,743			34	%	$	187,312			35	%	$	177,716			35	%
Construction/development			84,756			14	%		82,739			15	%		66,669			13	%
Commercial real estate			223,966			38	%		212,740			40	%		208,882			41	%
Consumer			41,849			7	%		47,415			9	%		53,388			11	%
Other, net of unearned and discount			(1,216	)		0	%		(2,653	)		0	%		(2,486	)		0	%

	Sub total	$	551,098					$	527,553					$	504,169
Real estate loans for sale			39,703			7	%		7,437			1	%		290			0	%

	Total loans	$	590,801			100	%	$	534,990			100	%	$	504,459			100	%

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


			Second Quarter				Six Months

			2003		2002		2003		2002

			(In Thousands)				(In Thousands)
Balance at beginning of period			$	8,828	$	7,537	$	8,476	$	7,200
Charge-offs:
	Commercial			399		517		592		557
	Construction/development			67		0		67		0
	Commercial real estate			0		36		0		49
	Consumer			41		44		43		113

		Total charge-offs		507		597		702		719
Recoveries:
	Commercial			89		68		189		137
	Construction/development			0		20		0		20
	Commercial real estate			13		0		26		27
	Consumer			25		2		30		5

		Total recoveries		127		90		245		189
Provision for loan losses				936		515		1,365		875

Balance at end of period			$	9,384	$	7,545	$	9,384	$	7,545

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:

-8-


		June 30, 2003			December 31, 2002			June 30, 2002

		(Dollars in Thousands)
Nonaccrual loans		$	4,314		$	4,717		$	4,226
Accruing loans past due 90 days or more			3,952			1,019			1,149
Restructured loans			552			—			—

	Total nonperforming loans		8,818			5,736			5,375
Real estate owned			99			—			—

	Total nonperforming assets	$	8,917		$	5,736		$	5,375

Allowance for loan losses		$	9,384		$	8,476		$	7,545

Nonperforming loans to portfolio loans			1.60	%		1.09	%		1.07	%
Nonperforming assets to total assets			1.25	%		0.81	%		0.86	%
Allowance to portfolio loans			1.70	%		1.61	%		1.50	%
Allowance to nonperforming loans			106	%		148	%		140	%

At June 30, 2003, December 31, 2002, and June 30, 2002, the Company had impaired loans of $13 million, $3.1 million, and $4.1 million, respectively. A specific allowance of $1.3 million, $271,000, and $322,800 was established for these periods.

DEPOSIT ACTIVITIES

The Alaska Permanent Fund may invest in certificates of deposit at Alaska banks in an aggregate amount with respect to each bank, not to exceed its capital and at specified rates and terms. The depository bank must collateralize the deposit. At June 30, 2003, the Company held $40.1 million in certificates of deposit for the Alaska Permanent Fund, collateralized by available-for-sale securities and a letter of credit issued by the Federal Home Loan Bank (“FHLB”).

EARNINGS PER SHARE

The Company applies APB Opinion No. 25 in accounting for its plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net income would have been reduced to the pro forma amounts indicated below for the second quarter and six-month period ending June 30, 2003 and 2002:

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		Three Months

		2003			2002

		(Dollars in thousands, except per share data)
Net income	As reported	$	2,636		$	1,985
Less stock-based employee compensation			(50	)		(45	)

Net income	Pro forma	$	2,586		$	1,940

Earnings per share, basic	As reported	$	0.44		$	0.32
	Pro forma	$	0.43		$	0.32
Earnings per share, diluted	As reported	$	0.43		$	0.31
	Pro forma	$	0.42		$	0.30


		Six Months

		2003			2002

		(Dollars in thousands, except per share data)
Net income	As reported	$	5,179		$	3,975
Less stock-based employee compensation			(83	)		(90	)

Net income	Pro forma	$	5,096		$	3,885

Earnings per share, basic	As reported	$	0.86		$	0.65
	Pro forma	$	0.85		$	0.64
Earnings per share, diluted	As reported	$	0.84		$	0.63
	As reported	$	0.82		$	0.61

The per share weighted-average fair value of stock options granted during April 2003, October 2001, and October 2000, was $4.71, $5.51, and $3.20, respectively, on the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions: 2003 — expected dividends of $.38 per share, risk-free rate of 3.83%, volatility of 31.05%, and an expected life of 10 years; 2001 — expected dividends of $.20 per share, risk-free interest rate of 5.83%, volatility of 31.7%, and an expected life of 10 years; 2000 — expected dividends of $.20 per share, risk-fee interest rate of 5.87%, volatility of 32.1%, and an expected life of 10 years.

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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 may include “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder (the “Exchange Act”). 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 Exchange Act, 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. 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”) and those identified from time to time in our filings with the Securities and Exchange Commission. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations.

OVERVIEW

Northrim BanCorp, Inc. is a publicly traded bank holding company (Nasdaq: NRIM) with three wholly-owned subsidiaries, Northrim Bank (the “Bank”), a state chartered, full-service commercial bank, Northrim Investment Services Company (“NISC”), which we formed in November 2002 to hold the Company’s 43% equity interest in Elliott Cove Capital Management LLC (“Elliott Cove”), an investment advisory services company, and Northrim Capital Trust (“NCT”), an entity that we formed in May of this year to facilitate a trust preferred securities offering by the Company. We also hold a 50% equity interest and a 30% interest in the profits and losses of a residential mortgage company, Residential Mortgage LLC (“RML”), through the Bank’s wholly-owned subsidiary, Northrim Capital Investment Corporation (“NCIC”). RML was formed in 1998 and has offices throughout Alaska. 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. The Bank became the wholly-owned subsidiary of the Company effective December 31, 2001, when we completed our bank holding company reorganization. We opened our first branch, in Fairbanks, in 1996, and our second location in Anchorage in 1997. During the second quarter of 1999, we purchased eight branches located in Anchorage, Eagle River and Wasilla from Bank of America. This acquisition resulted in us acquiring $114 million in loans, $124 million in deposits and $2 million in fixed assets for a purchase price of $5.9 million.

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, 2002.

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In January 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. In December 2002, we completed construction of our Wasilla Financial Center and moved from our existing supermarket branch and loan production office. We moved from our supermarket branch in west Anchorage into a freestanding facility in February 2003. In addition, 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 June 30, 2003, were $714.9 million and $627.9 million, respectively, increases of 2% and less than 1%, respectively, from December 31, 2002, due to the seasonal nature of the deposit accounts that affected total deposit balances as well as short-term investment and cash balances. Total assets and deposits each increased 14%, from June 30, 2002. Net loans were $581.4 million at June 30, 2003, an increase of 10% from December 31, 2002, and 17% from June 30, 2002.

RESULTS OF OPERATIONS

NET INCOME

Net income for the second quarter ended June 30, 2003, was $2.6 million, or $0.43 per diluted share, an increase in net income of 33%, and a 39% increase in diluted earnings per share as compared to $2 million and $0.31 in the same period of 2002. The earnings increase for the three-month period ended June 30, 2003, reflects moderate growth in assets, loans, and deposits along with substantial growth in earnings from the Company’s interest in RML as compared to the three months ended June 30, 2002. The growth in earnings per share was affected by all of these factors as well as the Company’s stock repurchase program under which it has repurchased 211,000 of its shares between September 2002 and June 30, 2003.

Net income for the six months ended June 30, 2003, was $5.2 million, an increase of $1.2 million, or 30% from the six months ended June 30, 2002. Diluted earnings per share were $0.84, compared to $0.63 in the same period in 2002. The earnings increase for the six-month period ended June 30, 2003, reflects moderate growth in assets, loans, and deposits as well as a large growth in earnings from RML as compared to the six months ended June 30, 2002. The growth in earnings per share was affected by all of these factors as well as the Company’s stock repurchase program under which it has repurchased 211,000 of its shares between September 2002 and June 30, 2003.

NET INTEREST INCOME

Net interest income for the second quarter of 2003 increased $1.5 million, or 19%, to $9.7 million from $8.2 million in 2002. The following table compares average balances and rates for the second quarter and six-month period ending June 30, for 2003 and 2002:

-12-


										Second Quarter
			Second Quarter							Average Yields/Costs
			Average Balances							Tax Equivalent

			2003		2002		Change			2003			2002			Change

			(In Thousands)
Loans			$	552,291	$	490,362	$	61,929			7.76	%		8.08	%		-0.32	%
Short-term investments				16,011		10,370		5,641			1.11	%		1.62	%		-0.51	%
Long-term investments				68,513		74,634		(6,121	)		4.15	%		5.23	%		-1.08	%

	Interest-earning assets			636,815		575,366		61,449			7.21	%		7.59	%		-0.38	%

Nonearning assets				49,429		44,986		4,443

		Total	$	686,244	$	620,352	$	65,892

Interest-bearing liabilities			$	462,735	$	425,177	$	37,558			1.51	%		2.51	%		-1.00	%
Demand deposits				150,789		129,018		21,771
Other liabilities				3,992		3,342		650
Equity				68,728		62,815		5,913

		Total	$	686,244	$	620,352	$	65,892


Net tax equivalent margin on earning assets											6.11	%		5.73	%		0.38	%


			Six Months							Six Months
			Average Balances							Average Yields/Costs

			2003		2002		Change			2003			2002			Change

			(In Thousands)
Loans			$	543,736	$	485,130	$	58,606			7.87	%		8.13	%		-0.26	%
Short-term investments				10,804		9,269		1,535			1.11	%		1.63	%		-0.52	%
Long-term investments				73,765		76,414		(2,649	)		4.19	%		5.38	%		-1.19	%

	Interest-earning assets			628,305		570,813		57,492			7.33	%		7.66	%		-0.33	%

Nonearning assets				48,260		43,946		4,314

		Total	$	676,565	$	614,759	$	61,806

Interest-bearing liabilities			$	456,404	$	424,546	$	31,858			1.56	%		2.54	%		-0.98	%
Demand deposits				147,740		124,438		23,302
Other liabilities				3,876		3,470		406
Equity				68,545		62,305		6,240

		Total	$	676,565	$	614,759	$	61,806


Net tax equivalent margin on earning assets											6.19	%		5.76	%		0.43	%

Interest-earning assets averaged $636.8 million for the second quarter of 2003, an increase of $61.4 million, or 11%, over the $575.4 million average for the comparable period in 2002. The tax equivalent yield on earning assets averaged 7.21% in 2003, a decrease of 38 basis points from 7.59% for the same period in 2002.

Loans, the largest category of interest-earning assets, increased by $61.9 million, or 13%, to an average of $552.3 million in the second quarter of 2003 from $490.4 million in the same period of 2002. Commercial loans, real estate term loans, construction loans and real estate loans held for resale increased by $22.2 million, $22.2 million, $16.8 million, and $10.1 million, respectively, on average between the second quarters. Consumer loans declined $9.3 million on average during the same period. The tax equivalent yield

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on the loan portfolio averaged 7.76% for the second quarter of 2003, a decrease of 32 basis points from 8.08% a year ago due, in part, to a drop in the prime-lending rate of 50 basis points from June 30, 2002, to June 30, 2003. The Company had $155.2 million in loans indexed to the prime-lending rate on June 30, 2003, or 26%, of total loans, as compared to $152.1 million, or 30%, on June 30, 2002. The long decline 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. 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 second quarter ended June 30, 2003, totaled $1.3 million, an increase of 71% from fees of $772,000 in the second quarter ended June 30, 2002, as a result of larger loan volumes, an increase in refinance activity, and the collection of $122,000 in prepayment penalties for loans paid off prior to their maturity.

Interest-bearing liabilities averaged $462.7 million for the second quarter of 2003, an increase of $37.6 million, or 9%, compared to $425.2 million for the same period in 2002. The average cost of interest-bearing liabilities decreased 1.0% to 1.51% for the second quarter of 2003 compared to 2.51% for the second quarter of 2002. 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 over the last year. 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 cost of 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 6.11% for the second quarter of 2003, an increase of 38 basis points from 5.73% for the same period in 2002. The average net tax equivalent yield on interest-earning assets decreased by 38 basis points to 7.21% in the second quarter of 2003, from 7.59% in the same period of 2002. The average cost of interest-bearing liabilities decreased by 100 basis points in the second quarter of 2003 to 1.51% from 2.51% in the same quarter of 2002. Interest rates on the Company’s interest-bearing liabilities declined more than the rate on its interest-earning assets, which caused its net interest margin to increase over the last year. An additional factor in the improvement in the net interest margin was an increase in demand deposits. In the second quarter of 2003, demand deposits funded 23.7% of the Company’s interest-earning assets versus 22.4% of earning assets in the second quarter of 2002. Finally, as noted above, net loan fees increased to $1.3 million in the second quarter ended June 30, 2003 as compared to fees of $772,000 in the second quarter ended June 30, 2002.

Net interest income for the first six months of 2003 increased by $3 million, or 19% from $16.2 million in 2002. The increase was due in large part to a $57.5 million increase in average interest-bearing assets between the periods, funded in part by a $31.9 million increase in average interest-bearing liabilities. The net tax equivalent margin for the first six months of 2003 increased by 43 basis points to 6.19% from 5.76% for the same period in 2002. The average net tax equivalent yield on interest-earning assets decreased by 33 basis points to 7.33% for the first six months in 2003 from 7.66% in the same six-month period one year ago. The average cost of interest-bearing liabilities decreased 98 basis points to 1.56% for the first six months of 2003, from 2.54% for the same six-month period in 2002.

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OTHER OPERATING INCOME

Set forth below is a schedule of the components of and change in Other Operating Income between the second quarters and six month periods ending June 30, 2003 and 2002:


		Second Quarter								Six Months

		2003			%			2002		2003			%			2002

		(Dollars in Thousands)								(Dollars in Thousands)
Deposit service charges		$	478			12	%	$	425	$	924			14	%	$	814
Loan servicing fees			124			72	%		72		206			31	%		157
Merchant & credit card fees			91			0	%		91		187			3	%		182
Electronic banking revenue			163			1	%		162		304			-2	%		309
Equity in earnings from RML			886			129	%		387		1,350			144	%		554
Equity in loss from Elliott Cove			(116	)		0	%		0		(325	)		0	%		0
Other			102			40	%		73		157			15	%		137
Security gains (losses)			49			1125	%		4		137			163	%		52

	Total	$	1,777			46	%	$	1,214	$	2,940			33	%	$	2,205

Total other operating income for the second quarter of 2003 was $1.8 million, an increase of $563,000 from the second quarter of 2002.

Deposit service charges increased $53,000, or 12%, from $425,000 in the second quarter of 2002.

Loan servicing fees increased $52,000 in the second quarter of 2003 compared to the same quarter of the prior year mainly because of an increase in the volume of loans purchased from RML.

The Company’s share of the earnings from RML increased by $499,000 to $886,000 during the second quarter of 2003 as compared to $387,000 in the second quarter of 2002, primarily due to increased refinance activity. The large decrease in interest rates and a strong residential housing market fueled increases in mortgage originations from refinances and home purchase loans in the second quarter of 2003.

The Company’s share of the loss from Elliott Cove was $116,000 for the second quarter of 2003 and $325,000 for the six month period ended June 30, 2003. These losses reflect the start-up costs for Elliott Cove which began active operations in the fourth quarter of 2002. The Company expects these losses to continue for several years while Elliott Cove builds its assets under management. In July of this year, the Company made a commitment to loan $625,000 to Elliott Cove. The Company expects to advance the funds in installments beginning in September 2003 and ending in February 2004. At the Company’s option, the loan is repayable in July of 2006 or convertible so that the Company’s total equity interest in Elliott Cove would increase to 58% as compared to the 43% interest that it currently owns in Elliott Cove. The Company will earn 5% interest on the loan.

EXPENSES

Provision for Loan Losses

The provision for loan losses for the second quarter of 2003 was $936,000, compared to $515,000 for the same period one year ago. We increased the provision in 2003 because of loan growth, loss inherent in the portfolio, and an increase in non-performing loans. The allowance for loan losses was $9.4 million, or 1.70% of total portfolio loans outstanding (which excludes $39.7 million of real estate loans for sale), at June 30, 2003, compared to $7.5 million, or 1.50%, of total portfolio loans, at June 30, 2002.

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Charge-offs

There were $380,000 in net loan charge-offs during the second quarter of 2003, compared to $507,000 of net charge-offs for the same period in 2002. For the first six months of 2003 net loan charge-offs were $457,000, or 0. 17% of average loans, compared to net loan charge-offs of $530,000 for the same period in 2002.

Other Operating Expense

The following table breaks out the components of and change in Other Operating Expense between the second quarters and six-month periods ending June 30, 2003 and 2002:


		Second Quarter							Six Months

		2003		%			2002		2003		%			2002

		(Dollars in Thousands)							(Dollars in Thousands)
Salaries & benefits		$	3,426		10	%	$	3,108	$	6,743		8	%	$	6,219
Occupancy			488		4	%		471		977		3	%		948
Equipment			369		-2	%		376		748		0	%		746
Marketing			312		1	%		310		629		1	%		622
Professional and outside services			302		-14	%		350		570		-16	%		678
Software amortization and maintenance			238		50	%		159		473		49	%		318
Intangible asset amortization-core deposit			92		0	%		92		184		0	%		184
Other expense			959		19	%		805		2,041		33	%		1,536

	Total	$	6,186		9	%	$	5,671	$	12,365		10	%	$	11,251

Total other operating expense for the second quarter of 2003 was $6.2 million, an increase of $515,000 from the same period in 2002.

The major reasons for the changes within this category of expenses were as follows: First, salaries and benefits increased by $318,000, or 10%, due to increases in full time equivalent workers and wage increases over the prior period. Second, professional and outside services decreased by $48,000, or 14%, because the Company moved its check processing system back in-house in May 2002, which resulted in a savings on outside services of $74,000 that were partially offset by increases in other areas. Third, software amortization on check sorting equipment and maintenance expense increased due to larger and more complex systems. Finally, other expenses increased by $154,000, or 19%, due in part to $60,000 in tax expenses that the Company has accrued to account for a dispute with the Internal Revenue Service over its 1998 and 1999 tax returns. The other portion of the $154,000 increase in other expenses resulted in part from a $47,000 increase in operational charge-offs.

Income Taxes

The provision for income taxes increased $488,000, or 41%, to $1.7 million in the second quarter of 2003 compared to $1.2 million in the same period in 2002. The effective tax rates for the second quarter of 2003 and 2002 were 39% and 38%, respectively. The increase in effective rate was due to a decline of approximately $1.7 million on average of tax-exempt assets between periods. The provision for income taxes increased $962,000, or 42%, to $3.3 million in the first six months of 2003 compared to $2.3 million in the same period in 2002. The effective tax rates for the first six months of 2003 and 2002 were 39% and 37%, respectively.

-16-

FINANCIAL CONDITION

ASSETS

Loans and Lending Activities

General: Our loan products include short- and medium-term commercial loans, commercial credit lines, construction and real estate loans, consumer loans, and credit cards. We emphasize providing financial services to small- and medium-sized businesses and to individuals. From our inception, we have emphasized commercial, land development and home construction, and commercial real estate lending. These types of lending have provided us with needed market opportunities and higher net interest margins than other types of lending. However, they also involve greater risks, including greater exposure to changes in local economic conditions, than certain other types of lending.

Loans are the highest yielding component of earning assets. Average loans were $61.9 million, or 13%, greater in the second quarter of 2003 than in the same period of 2002. Loans comprised 87% of total earning assets at June 30, 2003, compared to 85% of total earning assets at June 30, 2002. The yield on loans averaged 7.76% for the quarter ended June 30, 2003, compared to 8.08% during the same period in 2002.

Growth in the loan portfolio for the six-month period ending June 30, 2003, compared to the same period in 2002 was $86.3 million, or 17%. Commercial loans increased $24 million, or 14%, commercial real estate loans increased $15.1 million, or 7%, construction loans increased $18.1 million, or 27%, and real estate loans for sale loans increased $39.4 million, or 13,591% during the second quarter of 2003 as compared to the same period in 2002. Consumer loans decreased $11.5 million, or 22%, during the same period. Funding for the growth in loans during the second quarter of 2003 came from an increase in interest-bearing liabilities and from non-interest-bearing sources of funds and capital.

We began a program in 1998 of purchasing single-family mortgage loans originated from our affiliated mortgage company, RML. These loans, which are committed for sale to mortgage investors, have generally been held by the Company for less than 45 days. At June 30, 2003, these loans totaled $39.7 million compared to $290,000 on June 30, 2002.

Loan Portfolio Composition: Loans, excluding real estate loans for sale, increased to $551.1 million at June 30, 2003, from $527.6 million at December 31, 2002. At June 30, 2003, 53% of the portfolio was scheduled to mature over the next 12 months with 34% scheduled to mature between July 1, 2004, and June 30, 2008. 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.”

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

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		June 30, 2003						December 31, 2002						June 30, 2002

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

		(Dollars in Thousands)
Commercial		$	201,743			34	%	$	187,312			35	%	$	177,716			35	%
Construction/development			84,756			14	%		82,739			15	%		66,669			13	%
Commercial real estate			223,966			38	%		212,740			40	%		208,882			41	%
Consumer			41,849			7	%		47,415			9	%		53,388			11	%
Other, net of unearned and discount			(1,216	)		0	%		(2,653	)		0	%		(2,486	)		0	%

	Sub total	$	551,098					$	527,553					$	504,169
Real estate loans for sale			39,703			7	%		7,437			1	%		290			0	%

	Total loans	$	590,801			100	%	$	534,990			100	%	$	504,459			100	%

Nonperforming Loans; Real Estate Owned: 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:


		June 30, 2003			December 31, 2002			June 30, 2002

		(Dollars in Thousands)
Nonaccrual loans		$	4,314		$	4,717		$	4,226
Accruing loans past due 90 days or more			3,952			1,019			1,149
Restructured loans			552			—			—

	Total nonperforming loans		8,818			5,736			5,375
Real estate owned			99			—			—

	Total nonperforming assets	$	8,917		$	5,736		$	5,375

Allowance for loan losses		$	9,384		$	8,476		$	7,545

Nonperforming loans to portfolio loans			1.60	%		1.09	%		1.07	%
Nonperforming assets to total assets			1.25	%		0.81	%		0.86	%
Allowance to portfolio loans			1.70	%		1.61	%		1.50	%
Allowance to nonperforming loans			106	%		148	%		140	%

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 June 30, 2003, were $8.8 million, or 1.6% of total portfolio loans, an increase of $3.1 million from $5.7 million at December 31, 2002, and an increase of $3.4 million from $5.4 million at June 30, 2002. The increase in nonperforming loans in the second quarter of 2003 resulted in large part from the remaining portions of two relationships being categorized as non-performing. These two relationships comprise 52% of the non-performing loan totals, and it is anticipated that they will remain in a non-performing status for the near-term.

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Potential Problem Loans: At June 30, 2003, the Company had identified $2.8 million of potential problem loans, as compared to $2.9 million at December 31, 2002, and $550,000 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.

Analysis of Allowance for Loan Losses: The Allowance for Loan Losses was $9.4 million, or 1.70% of total portfolio loans outstanding (which excludes $39.7 million of real estate loans for sale), at June 30, 2003, compared to $7.5 million, or 1.50%, of total portfolio loans at June 30, 2002. The Allowance for Loan Losses represented 106% of non-performing loans at June 30, 2003, as compared to 140% of non-performing loans at June 30, 2002. Management believes that at June 30, 2003, the allowance for loan losses is adequate to cover losses that are reasonably likely in light of our current loan portfolio and existing and expected economic conditions. 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:


			Second Quarter				Six Months

			2003		2002		2003		2002

			(In Thousands)				(In Thousands)
Balance at beginning of period			$	8,828	$	7,537	$	8,476	$	7,200
Charge-offs:
	Commercial			399		517		592		557
	Construction/development			67		0		67		0
	Commercial real estate			0		36		0		49
	Consumer			41		44		43		113

		Total charge-offs		507		597		702		719
Recoveries:
	Commercial			89		68		189		137
	Construction/development			0		20		0		20
	Commercial real estate			13		0		26		27
	Consumer			25		2		30		5

		Total recoveries		127		90		245		189
Provision for loan losses				936		515		1,365		875

Balance at end of period			$	9,384	$	7,545	$	9,384	$	7,545

Investment Securities

Investment securities, which include Federal Home Loan Bank stock, totaled $71.3 million at June 30, 2003, a decrease of $10 million, or 12%, from $81.3 million at December 31, 2002, and a decrease of $6.2 million, or 8%, from $77.5 million at June 30, 2002. Investment securities designated as available for sale comprised 96% of the investment portfolio at June 30, 2003, and December 31, 2002, and 95% at June 30, 2002, 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 June 30, 2003, $51.6 million

-19-

in securities, or 74%, of the investment portfolio were pledged, as compared to $40.7 million, or 32%, at December 31, 2002, and $37.7 million, or 50%, at June 30, 2002.

LIABILITIES

Deposits

General: Deposits are the Company’s primary source of new funds. Total deposits increased $1.5 million to $627.9 million at June 30, 2003, up less than 1% from $626.4 million at December 31, 2002, and up 14% from $553.2 million at June 30, 2002. 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.

Certificates of Deposit: The only deposit category with stated maturity dates is certificates of deposit. At June 30, 2003, the Company had $168.1 million in certificates of deposit, of which $127.5 million, or 76%, are scheduled to mature over the next 12 months compared to $117.2 million, or 72%, at December 31, 2002, and to $136.8 million, or 80%, one year ago.

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


		June 30, 2003					December 31, 2002					June 30, 2002

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

		(Dollars in Thousands)
Remaining maturity:
Three months or less		$	21,081		13	%	$	33,413		21	%	$	33,648		20	%
Over three through six months			68,087		41	%		39,768		24	%		53,545		31	%
Over six through twelve months			38,365		23	%		43,987		27	%		49,592		29	%
Over twelve months			40,574		24	%		45,302		28	%		33,349		20	%

	Total	$	168,107		100	%	$	162,470		100	%	$	170,134		100	%

Alaska Permanent Fund: The Alaska Permanent Fund may invest in certificates of deposit at Alaska banks in an aggregate amount with respect to each bank, not to exceed its capital and at specified rates and terms. The depository bank must collateralize the deposit. At June 30, 2003, the Company held $40.1 million in certificates of deposit for the Alaska Permanent Fund, collateralized by available-for-sale securities and a letter of credit issued by the Federal Home Loan Bank (“FHLB”).

Borrowings

Federal Home Loan Bank: At June 30, 2003, the Company’s maximum borrowing line from the FHLB was approximately $75.1 million with $5 million committed to secure public deposits and $3.6 million in long-term advances, compared to $5 million to secure public deposits and $3.8 million in long-term advances at December 31, 2002. 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.

Other Short-term Borrowing: At June 30, 2003, the Company had no short-term (original maturity of one year or less) borrowings that exceeded 30% of shareholders’ equity.

-20-

CAPITAL

Shareholders’ Equity

Shareholders’ equity was $70.1 million at June 30, 2003, compared to $68.4 million at December 31, 2002, an increase of 3%. The Company earned net income of $5.2 million during the six-month period ending June 30, 2003. However, the Company’s equity was decreased by dividends paid and declared that totaled $1.4 million and the stock repurchase plan outlined below.

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 June 30, 2003, 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 13, 2003, 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 following table illustrates the capital requirements for the Company and its actual capital ratios that exceed these requirements:


							June 30, 2003			December 31, 2002

				Well-			Actual			Actual
	Minimum			Capitalized			Ratio			Ratio

Tier 1 risk-based capital		4.00	%		6.00	%		11.37	%		10.25	%
Total risk-based capital		8.00	%		10.00	%		12.62	%		11.50	%
Leverage ratio		4.00	%		5.00	%		10.11	%		8.65	%

Stock Repurchase Plan

In September of last 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 211,000 shares of its stock under this program through June 30, 2003, at a total cost of $2.8 million, with 10,000 of those shares repurchased in the second quarter of 2003 at a cost of $150,000. The Company intends to continue to repurchase its stock from time to time depending upon market conditions.

Trust Preferred Issuance

On May 8, 2003, the Company’s newly formed subsidiary, Northrim Capital Trust I, issued trust preferred securities in the principal amount of $8 million. These securities carry an interest rate of LIBOR plus 3.15% that is initially set at 4.45% and adjusted quarterly. The securities have a maturity date of May 15, 2033 and are callable by the Company within the first five years. These securities are treated as Tier 1 capital by the Company’s regulators for capital adequacy calculations

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CAPITAL EXPENDITURES AND COMMITMENTS

None.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board issued Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. Statement No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement No. 133. The Standard has multiple effective date provisions depending on the nature of the amendment to Statement No. 133. The Company believes the adoption of Statement No. 149 will have no impact on its financial statements.

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ITEM THREE

QUANTITATIVE AND QUALITATIVE 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. However, due to the historically low level of interest rates, the Company may be unable to pass additional declines through to its deposit customers which could have an adverse effect on its 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 June 30, 2003, indicate that, if interest rates increased an immediate 100 basis points, the Company would experience a decrease in net interest income of approximately $618,000 over the next 12 months. Similarly, the simulation model indicates that, if interest rates decreased an immediate 100 basis points, the Company would experience a decrease in net interest income of approximately $301,000 over the next 12 months.

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ITEM FOUR

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our principal executive and financial officers supervised and participated in this evaluation. Based on this evaluation, our principal executive and financial officers each concluded that the disclosure controls and procedures are effective in timely alerting them to material information required to be included in the periodic reports to the Securities and Exchange Commission. The design of any system of controls is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any of our plans, products, services or procedures will succeed in achieving their intended goals under future conditions. In addition, there have been no significant changes in our internal controls or in other factors known to management that could significantly affect our internal controls subsequent to our most recent evaluation. We have found no facts that would require us to take any corrective actions with regard to significant deficiencies or material weaknesses.

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PART II – OTHER INFORMATION

ITEM FIVE

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Northrim BanCorp, Inc. held its Annual Shareholders’ Meeting on May 1, 2003. The matter voted on by shareholders was the election of directors.

ELECTION OF DIRECTORS

The following individuals were nominated and elected by the shareholders to serve as directors until the 2004 election of directors or until their successors are elected and have qualified:


Larry S. Cash		R. Marc Langland
Mark G. Copeland		Richard L. Lowell
Frank A. Danner		Irene Sparks Rowan
Ronald A. Davis		John C. Swalling
Anthony Drabek		Joseph E. Usibelli
Chris N. Knudson


DIRECTOR	FOR		WITHHOLD		NONVOTES		TOTAL SHARES

CASH, LARRY S.		5,244,783		355,719		477,444		6,077,946
COPELAND, MARK G.		5,591,986		8,516		477,444		6,077,946
DANNER, FRANK A.		5,277,921		322,581		477,444		6,077,946
DAVIS, RONALD A.		5,590,359		10,143		477,444		6,077,946
DRABEK, ANTHONY		5,591,817		8,685		477,444		6,077,946
KNUDSON, CHRISTOPHER N.		5,277,467		323,035		477,444		6,077,946
LANGLAND, R. MARC		5,276,736		323,766		477,444		6,077,946
LOWELL, RICHARD L.		5,245,368		355,134		477,444		6,077,946
ROWAN, IRENE SPARKS		5,592,523		7,979		477,444		6,077,946
SWALLING, JOHN C.		5,591,817		8,685		477,444		6,077,946
USIBELLI, JOSEPH E.		5,592,402		8,100		477,444		6,077,946

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ITEM SIX

EXHIBITS AND REPORTS ON FORM 8-K


(a)	EXHIBITS

	4.1	Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt and preferred securities are not filed. The Company agrees to furnish a copy thereof to the Securities and Exchange Commission upon request.

	31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

(b)	REPORTS ON FORM 8-K

	On May 12, 2003, the Company filed an 8-K dated May 8, 2003, enclosing a press release announcing its receipt of $7.8 million from its participation in a pooled trust preferred offering.

	On April 18, 2003, the Company filed an 8-K dated April 16, 2003, enclosing a press release announcing its earnings for the first quarter ended March 30, 2003.

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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.


August 13, 2003	By	/s/ R. Marc Langland

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

August 13, 2003	By	/s/ Joseph M. Schierhorn

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

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NORTHRIM BANCORP INC - Quarter Report: 2003 June (Form 10-Q)

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