##### Table of Contents





SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT UNDER
    SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
  Commission File Number 0-33501
  Northrim BanCorp,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Alaska

92-0175752(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer Identification Number)  3111 C Street
 Anchorage, Alaska 99503
 (Address of principal executive
    offices) (Zip Code)
  Registrants Telephone Number, Including Area Code:
 (907) 562-0062
   Securities
    Registered Pursuant to Section 12(b) of the Act:
    None
   Securities
    Registered Pursuant to Section 12(g) of the Act:
    Common Stock, $1.00 Par Value (Title
    of Class)
  o þ
   o þ
   þ o
   Regulation S-K Form 10-K Form 10-K.  Yes o þ
   Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
       Form 10-K Form 10-K




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##### 





Northrim
    BanCorp, Inc.
    Table of Contents
   
 PageNorthrim BanCorp, Inc.About the Company


1Financial SectionSelected Financial Data


5Managements Discussion and Analysis of
    Financial Condition and Results of Operations


7Report of Independent Registered Public
    Accounting Firm


34Consolidated Financial Statements


36Notes to Consolidated Financial Statements


40Annual Report on
    Form 10-K


71EX-10.28EX-23EX-24EX-31.1EX-31.2EX-32.1EX-32.2     Note
    Regarding Forward-Looking Statements
  This report includes forward-looking statements within the
    meaning of Section 21E of the Securities Exchange Act of
    1934, as amended. These forward-looking statements describe
    Northrim Bancorp, Inc.s (the Company)
    managements expectations about future events and
    developments such as future operating results, growth in loans
    and deposits, continued success of the Companys style of
    banking, and the strength of the local economy. All statements
    other than statements of historical fact, including statements
    regarding industry prospects and future results of operations or
    financial position, made in this report are forward-looking. We
    use words such as anticipates, believes,
    expects, intends and similar expressions
    in part to help identify forward-looking statements.
    Forward-looking statements reflect managements current
    plans and expectations and are inherently uncertain. Our actual
    results may differ significantly from managements
    expectations, and those variations may be both material and
    adverse. Forward-looking statements are subject to various risks
    and uncertainties that may cause our actual results to differ
    materially and adversely from our expectations as indicated in
    the forward-looking statements. These risks and uncertainties
    include: the general condition of, and changes in, the Alaska
    economy; factors that impact our net interest margins; and our
    ability to maintain asset quality. Further, actual results may
    be affected by competition on price and other factors with other
    financial institutions; customer acceptance of new products and
    services; the regulatory environment in which we operate; and
    general trends in the local, regional and national banking
    industry and economy. Many of these risks, as well as other
    risks that may have a material adverse impact on our operations
    and business, are identified in our filings with the SEC.
    However, you should be aware that these factors are not an
    exhaustive list, and you should not assume these are the only
    factors that may cause our actual results to differ from our
    expectations. In addition, you should note that we do not intend
    to update any of the forward-looking statements or the
    uncertainties that may adversely impact those statements.
 i




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##### Table of Contents



Northrim
    BanCorp, Inc.
    About the Company  Overview
              
    Anchorage: We have two major financial
    centers in Anchorage, four smaller branches, and one supermarket
    branch. We continue to explore for future branching
    opportunities in this market.
    Fairbanks: We opened our financial center in
    Fairbanks, Alaskas second largest city, in mid-1996. This
    branch has given us a strong foothold in Interior Alaska, and
    management believes that there is significant potential to
    increase our share of that market. In the second quarter of
    2008, we opened another branch in Fairbanks that is located
    within a large newly developed retail area.
    Eagle River: We also serve Eagle River, a
    community outside of Anchorage. In January of 2002, we moved
    from a supermarket branch into a full-service branch to provide
    a higher level of service to this growing market. 1




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##### Table of Contents




    Wasilla: Wasilla is a rapidly growing market
    in the Matanuska Valley outside of Anchorage where we completed
    construction of a new financial center in December of 2002 and
    moved from our supermarket branch and loan production office
    into this new facility.  Elliott
    Cove Capital Management LLC
  start-up
    Northrim
    Funding Services
    Business
    Strategies
    
    Providing Customer First Service: We believe
    that we provide a high level of customer service. Our guiding
    principle is to serve our market areas by operating with a
    Customer First Service philosophy, affording our
    customers the highest priority in all aspects of our operations.
    To achieve this objective, our management emphasizes the hiring
    and retention of competent and highly motivated employees at all
    levels of the organization. Management believes that a
    well-trained and highly motivated core of employees allows
    maximum personal contact with customers in order to understand
    and fulfill customer needs and preferences. This Customer
    First Service philosophy is combined with our emphasis on
    personalized, local decision making.
    High Performance Checking: In the first part
    of 2005, we launched our High Performance Checking
    (HPC) product consisting of several consumer
    checking accounts tailored to the needs of specific segments of
    our market, including a totally free checking product. We
    supported the new products with a targeted marketing program and
    extensive branch sales promotions. Through the concentrated
    efforts of our branch employees, we increased the number of our
    deposit accounts and the balances in them. In the fourth quarter
    of 2006, we introduced HPC for our business checking accounts.
    In 2007 and 2008, we continued to market the HPC products
    through a targeted mailing program and branch promotions, which
    helped us to increase the number of these accounts. In 2009, we
    plan to continue to support the HPC consumer and business
    checking products with a similar marketing and sales program in
    an effort to continue to expand our core deposits.
    Emphasizing Business and Professional
    Lending: We endeavor to provide commercial lending
    products and services, and to emphasize relationship banking
    with businesses and professional individuals. Management
    believes that our focus on providing financial services to
    businesses and professional individuals has and may continue to
    increase lending and core deposit volumes.
    Providing Competitive and Responsive Real Estate Lending:We estimate that we are a major land development and
    residential construction lender and an active lender in the
    commercial real estate market in our Alaskan markets. Management
    believes that our willingness to provide these services in a
    professional and responsive manner has contributed significantly
    to our growth. Because of our relatively small size, our
    experienced senior management can be more involved with serving
    customers and making credit decisions, allowing us to compete
    more favorably for lending relationships. In 2009, we will make
    a substantial effort to decrease our loans measured for
    impairment and other real estate owned (OREO), many
    of which consist of residential construction and land
    development loans. As a result of these efforts and continued
    projected slowness in the residential real estate market, our
    loan balances in the residential construction sector are
    projected to decline in 2009. 2




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##### Table of Contents




    Pursuing Strategic Opportunities for Additional Growth:Management believes that the Bank of America branch
    acquisition in 1999 significantly strengthened our local market
    position and enabled us to further capitalize on expansion
    opportunities resulting from the demand for a locally based
    banking institution providing a high level of service. Not only
    did the acquisition increase our size, number of branch offices,
    and lending capacity, but it also expanded our consumer lending,
    further diversifying our loan portfolio. Although to a lesser
    degree than the Bank of America branch acquisition, we believe
    that the Alaska First acquisition also strengthened our position
    in the Anchorage market. We expect to continue seeking similar
    opportunities to further our growth while maintaining a high
    level of credit quality. We plan to affect our 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 in
    the future.
    Developing a Sales Culture: In 2003, we
    conducted extensive sales training throughout the Company and
    developed a comprehensive approach to sales. In 2007 and 2008,
    the Company continued with its sales calling and training
    efforts and plans to continue with this program in 2009. Our
    goal throughout this process is to increase and broaden the
    relationships that we have with new and existing customers and
    to continue to increase our market share within our existing
    markets.
    Improving Credit Quality: In 2007, we formed
    a Quality Assurance department to provide independent, detailed
    financial analysis of our largest, most complex loans. In
    addition, this department, along with the Chief Lending Officer
    and others in the Loan Administration department, has developed
    processes to analyze and manage various concentrations of credit
    within the overall loan portfolio. The Loan Administration
    department has also enhanced the procedures and processes for
    the analysis and reporting of problem loans along with the
    development of strategies to resolve them. In 2009, we plan to
    continue with these initiatives. In addition, we will devote
    more resources towards the reduction of our nonperforming assets
    and substandard loans.  Services
    Deposit Services:
    
    An indexed money market deposit account;
    A
    Jump-Up
    certificate of deposit (CD) that allows additional
    deposits with the opportunity to increase the rate to the
    current market rate for a similar term CD;
    An indexed CD that allows additional deposits, quarterly
    withdrawals without penalty, and tailored maturity
    dates; and
    Arrangements to courier noncash deposits from our customers to
    their branch.  Lending Services:
  Other Customer Services: 24-hour drive-up, drive-up
 3




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Directors and Executive Officers:
  Executive
    Officers/Age

Occupation*R. Marc Langland, 67

Chairman, President, & CEO of the Company and the Bank;
    Director, Alaska Air Group; Director, Usibelli Coal Mine, Inc.*Christopher N. Knudson, 55

Executive Vice President and Chief Operating Officer of the
    Company and the BankJoseph M. Schierhorn, 51

Executive Vice President, Chief Financial Officer, and
    Compliance Manager of the Company and the BankJoseph M. Beedle, 57

Executive Vice President of the Company and Chief Lending
    Officer of the BankSteven L. Hartung, 62

Executive Vice President of the Company and Quality Assurance
    Officer of the Bank     Directors/Age

OccupationLarry S. Cash, 57

President and CEO, RIM Architects (Alaska, Guam, Hawaii and
    California)Mark G. Copeland, 66

Owner and sole member of Strategic Analysis, LLC, a management
    consulting firmRonald A. Davis, 76

Former Vice President, Acordia of Alaska Insurance (full service
    insurance agency)Anthony Drabek, 61

President and CEO, Natives of Kodiak, Inc. (Alaska Native
    Corporation), Chairman and President, Koncor Forest Products
    Co.; Secretary/Director, Atikon Forest Products Co.Richard L. Lowell, 68

Former Chairman, Ribelin Lowell & Company (insurance
    brokerage firm)Irene Sparks Rowan, 67

Former Chairman and Director, Klukwan, Inc. (Alaska Native
    Corporation) and its subsidiariesJohn C. Swalling, 59

President, Swalling & Associates, P.C. (accounting
    firm)David G. Wight, 68

Former President and CEO, Alyeska Pipeline Service Company, and
    Director, Storm Cat Energy Corporation  4




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##### Table of Contents



Selected
    Financial Data  2008

2007

2006

2005

2004Unaudited(In Thousands Except Per Share Amounts)Net interest income

$45,814

$49,830

$47,522

$43,908

$41,271Provision for loan losses

7,199

5,513

2,564

1,170

1,601Other operating income

11,399

9,954

7,766

4,933

3,893Other operating expense

40,439

35,063

31,476

29,577

26,636Income before income taxes and minority interest

9,575

19,208

21,248

18,094

16,927Minority interest in subsidiaries

370

290

296



Pre tax income

9,205

18,918

20,952

18,094

16,927Income taxes

3,122

7,260

7,978

6,924

6,227Net income

$6,083

$11,658

$12,974

$11,170

$10,700Earnings per share:Basic

$0.96

$1.82

$2.02

$1.70

$1.60Diluted

0.95

1.80

1.99

1.64

1.55Cash dividends per share

0.66

0.57

0.45

0.40

0.36Assets

$1,006,392

$1,014,714

$925,620

$895,580

$800,726Loans

711,286

714,801

717,056

705,059

678,269Deposits

843,252

867,376

794,904

779,866

699,061Long-term debt

15,986

1,774

2,174

2,574

2,974Junior subordinated debentures

18,558

18,558

18,558

18,558

8,000Shareholders equity

104,648

101,391

95,418

84,474

83,358Book value

$16.53

$16.09

$15.61

$13.86

$13.01Tangible book value

$15.06

$14.51

$14.48

$12.65

$11.97Net interest margin (tax equivalent)

5.26%

5.89%

5.89%

5.66%

5.88%Efficiency
    ratio(1)

70.07%

58.09%

56.06%

59.80%

58.16%Return on assets

0.62%

1.24%

1.46%

1.33%

1.41%Return on equity

5.85%

11.70%

14.45%

13.17%

13.50%Equity/assets

10.40%

10.00%

10.31%

9.44%

10.41%Dividend payout ratio

68.93%

30.54%

21.43%

22.92%

21.57%Nonperforming loans/portfolio loans

3.66%

1.59%

0.92%

0.86%

0.97%Net charge-offs/average loans

0.86%

0.86%

0.16%

0.18%

0.16%Allowance for loan losses/portfolio loans

1.81%

1.64%

1.69%

1.52%

1.59%Nonperforming assets/assets

3.84%

1.56%

0.79%

0.69%

0.82%Tax rate

34%

38%

38%

38%

37%Number of banking offices

11

10

10

10

10Number of employees (FTE)

290

302

277

272

272   (1)
    In managing our business, we review the efficiency ratio
    exclusive of intangible asset amortiztion (see definition in
    table below), which is not defined in accounting principles
    generally accepted in the United States (GAAP). The
    efficiency ratio is calculated by dividing noninterest expense,
    exclusive of intangible asset amortization, by the sum of net
    interest income and noninterest income. Other companies may
    define or calculate this data differently. We believe this
    presentation provides investors with a more accurate picture of
    our operating efficiency. In this presentation, noninterst
    expense is adjusted for intangible asset amortization. For
    additional information see the Noninterest Expense
    section in Item 7. Managements Discussion and
    Analysis of Financial Condition and Results of Operation
    of this report. 5




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Reconciliation
    of Selected Financial Data to GAAP Financial
    Measures(2)
  Years Ended December 31,

2008

2007

2006

2005

2004Net interest
    income(1)

$45,814

$49,830

$47,522

$43,908

$41,271Noninterest income

11,399

9,954

7,766

4,933

3,893Noninterest expense

40,439

35,063

31,476

29,577

26,636Less intangible asset amortization

347

337

482

368

368Adjusted noninterest expense

$40,092

$34,726

$30,994

$29,209

$26,268Efficiency ratio

70.07%

58.09%

56.06%

59.80%

58.16%   (1)
    Amount represents net interest income before provision for loan
    losses.(2)
    These unaudited schedules provide selected financial information
    concerning the Company that should be read in conjunction with
    Item 7. Managements Discussion and Analysis of
    Financial Condition and Results of Operations of this
    report. 6




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##### Table of Contents



Managements
    Discussion and Analysis of Financial Condition and
    Results of Operation



Overview



We are a publicly traded bank holding company with five
    wholly-owned subsidiaries: the Bank, a state chartered,
    full-service commercial bank; NISC, a company formed to invest
    in both Elliott Cove, an investment advisory services company,
    and PWA, an investment advisory, trust and wealth management
    business located in Seattle, Washington; NCT1 and NST2, entities
    formed to facilitate two trust preferred securities offerings;
    and NBL, which owns and operates the Companys main office
    facility at 3111 C Street in Anchorage. The Bank in
    turn has a wholly-owned subsidiary, NCIC, which has an interest
    in RML Holding Company, a residential mortgage holding company
    and NBG, an insurance brokerage company that provides employee
    benefit plans to businesses throughout Alaska. We are
    headquartered in Anchorage and have 11 branch locations, seven
    in Anchorage, two in Fairbanks, and one each in Eagle River and
    Wasilla. The Bank also operates Northrim Funding Services, a
    division headquartered in Bellevue, Washington with operations
    in the Washington and Oregon markets. We offer a wide array of
    commercial and consumer loan and deposit products, investment
    products, and 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. Then, in
    October of 2007, we acquired 100% of the outstanding stock of
    another local bank, Alaska First. This acquisition resulted in
    us acquiring cash equivalents and investments of
    $42.6 million, outstanding loans of $13.2 million,
    deposits of $47.7 million and borrowings of
    $5.1 million.



One of our major objectives is to increase our market share in
    Anchorage, Fairbanks, and the Matanuska Valley, Alaskas
    three largest urban areas. We estimate that we hold a 24% share
    of the commercial bank deposit market in Anchorage, 7% share of
    the Fairbanks market, and a 10% share of the Matanuska Valley
    market as of June 30, 2008.



Our growth and operations depend upon the economic conditions of
    Alaska and the specific markets we serve. The economy of Alaska
    is dependent upon the natural resources industries, in
    particular oil production, as well as tourism, government, and
    U.S. military spending. According to the State of Alaska
    Department of Revenue, approximately 86% of the Alaska state
    government is funded through various taxes and royalties on the
    oil industry. Any significant changes in the Alaska economy and
    the markets we serve eventually could have a positive or
    negative impact on the Company.



At December 31, 2008, we had assets of over
    $1 billion, a decrease of less than 1% from
    December 31, 2007. Also, we had gross loans of
    $711.3 million at December 31, 2008, a decrease of
    less than 1% from $714.8 million at December 31, 2007.
    Our net income and diluted earnings per share for 2008 were
    $6.1 million and $0.95, respectively, a decrease of 48% for
    each item, respectively, from $11.7 million and $1.80 at
    year end 2007. During the same time period, our net interest
    income decreased by $4.0 million, or 8%, to
    $45.8 million, from $49.8 million for the year ended
    2007. Our provision for loan losses in 2008 increased by
    $1.7 million, or 31% to $7.2 million, from
    $5.5 million in 2007, as our nonperforming loans for 2008
    increased by $14.7 million, or 129%, from
    $11.3 million in 2007 to $26.0 million in 2008. In
    2008 our other operating income increased by $1.4 million,
    or 15%, to $11.4 million from $10 million in 2007.



Critical
    Accounting Estimates



The preparation of the consolidated financial statements
    requires us to make a number of estimates and assumptions that
    affect the reported amounts and disclosures in the consolidated
    financial statements. On an ongoing basis, we evaluate our
    estimates and assumptions based upon historical experience and
    various other factors and circumstances. We believe that our
    estimates and assumptions are reasonable; however, actual
    results may differ significantly from these estimates and
    assumptions which could have a material impact on the carrying
    value of assets and liabilities at the balance sheet dates and
    on our results of operations for the reporting periods.



The accounting policies that involve significant estimates and
    assumptions by management, which have a material impact on the
    carrying value of certain assets and liabilities, are considered
    critical accounting policies. We believe that our most critical
    accounting policies upon which our financial condition depends,
    and which involve the most complex or subjective decisions or
    assessments are as follows:



Allowance for loan losses (the
    Allowance): The Company maintains an
    Allowance to reflect inherent losses from its loan portfolio as
    of the balance sheet date. The Allowance is decreased by loan
    charge-offs and increased by loan recoveries and

7




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Goodwill and other intangibles:
     8




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Equity Value

Weight

Weighted Value(In thousands)Income approach

$90,150

70%

$63,105Management forecastsMarket approach

86,580

30%

25,974Western publicly traded guideline companiesConcluded fair value of equity (weighted)





$89,079Market capitalization plus control premium of 35%





$87,864     Valuation of other real estate owned:
   9




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##### Table of Contents



Results
    of Operations
  Net
    Income
    Net
    Interest Income
         10




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##### Table of Contents



Years Ended December 31,

2008

2007

2006Average

Interest



Average

Interest



Average

Interestoutstanding

earned/

Yield/

outstanding

earned/

Yield/

outstanding

earned/

Yield/balance

paid(1)

rate

balance

paid(1)

rate

balance

paid(1)

rate(In Thousands)Assets:Loans(2)

$702,117

$53,287

7.59%

$710,959

$66,463

9.35%

$712,116

$65,347

9.18%Securities

134,705

5,493

4.08%

98,578

4,619

4.69%

71,164

2,799

3.93%Short term investments

40,082

936

2.34%

39,726

1,985

5.00%

27,665

1,375

4.97%Total interest-earning assets

876,904

59,716

6.81%

849,263

73,067

8.60%

810,945

69,521

8.57%Noninterest-earning assets

108,140





92,065





77,920Total assets

$985,044





$941,328





$888,865Liabilities and Shareholders Equity:Deposits:Interest-bearing demand accounts

$97,171

$578

0.59%

$85,192

$1,188

1.39%

$78,872

$830

1.05%Money market accounts

187,779

3,306

1.76%

186,722

7,378

3.95%

151,871

6,053

3.99%Savings accounts

187,225

3,444

1.84%

234,780

8,756

3.73%

254,209

10,113

3.98%Certificates of deposit

145,153

4,851

3.34%

95,961

4,080

4.25%

94,595

3,322

3.51%Total interest-bearing deposits

617,328

12,179

1.97%

602,655

21,402

3.55%

579,547

20,318

3.51%Borrowings

41,567

1,723

4.15%

30,337

1,835

6.05%

26,052

1,681

6.45%Total interest-bearing liabilities

658,895

13,902

2.11%

632,992

23,237

3.67%

605,599

21,999

3.63%Demand deposits and other noninterest-bearing liabilities

222,247





208,671





193,461Total liabilities

881,142





841,663





799,060Shareholders equity

103,902





99,665





89,805Total liabilities and shareholders equity

$985,044





$941,328





$888,865Net interest income



$45,814





$49,830





$47,522Net interest
    margin(3)





5.22%





5.87%





5.86%   (1)
    
    Interest income included loan fees.(2)
    
    Nonaccrual loans are included with
    a zero effective yield.(3)
    
    The net interest margin on a tax
    equivalent basis was 5.26%, 5.89%, and 5.89%, respectively, for
    2008, 2007, and 2006. 11




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##### Table of Contents



2008 compared to 2007

2007 compared to 2006Increase (decrease) due to

Increase (decrease) due toVolume

Rate

Total

Volume

Rate

TotalInterest Income:Loans

$(817)

$(12,359)

$(13,176)

$(106)

$1,222

$1,116Securities

1,352

(478)

874

1,217

603

1,820Short term investments

18

(1,066)

(1,049)

603

7

610Total interest income

$553

$(13,904)

$(13,351)

$1,714

$1,832

$3,546Interest Expense:Deposits:Interest-bearing demand accounts

$198

$(808)

$(610)

$71

$287

$358Money market accounts

42

(4,114)

(4,072)

1,378

(53)

1,325Savings accounts

(1,517)

(3,795)

(5,312)

(747)

(610)

(1,357)Certificates of deposit

1,325

(553)

771

49

709

758Total interest on deposits

48

(9,270)

(9,223)

751

333

1,084Borrowings

689

(577)

(112)

249

(95)

154Total interest expense

$737

$(9,848)

$(9,335)

$1,000

$238

$1,238   Other
    Operating Income
    Years Ended December 31,

2008

2007

2006

2005

2004(In Thousands)Other Operating IncomeDeposit service charges

$3,283

$3,116

$1,975

$1,800

$1,718Purchased receivable income

2,560

2,521

1,855

993

201Employee benefit plan income

1,451

1,194

1,113



Electronic banking fees

1,193

914

790

632

608Equity in earnings from RML

595

454

649

493

438Loan service fees

476

516

531

374

379Merchant credit card transaction fees

451

509

531

444

414Rental income

463

134

108

100

101Equity in loss from Elliott Cove

(106)

(93)

(230)

(424)

(457)Other transaction fees

380

267

227

214

204Other income

462

312

217

298

136Operating sources

11,208

9,844

7,766

4,924

3,742Gain on sale of securities available for sale, net

146





9

151Gain on sale of other real estate owned, net

45

110





Other sources

191

110



9

151Total other operating income

$11,399

$9,954

$7,766

$4,933

$3,893  12




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##### Table of Contents



13




---



##### Table of Contents



start-up
    Expenses
  Provision for Loan Losses:
  Other Operating Expense:
  Years ended December 31,

2008

2007

2006

2005

2004(In Thousands)Other Operating ExpenseSalaries and other personnel expense

$20,996

$20,700

$19,277

$17,656

$15,708Occupancy, net

3,399

2,957

2,611

2,517

2,231OREO expense, including impairment

2,558

(20)

(5)



Insurance expense

1,779

465

378

451

318Marketing

1,558

1,617

1,641

1,657

1,201Professional and outside services

1,498

1,167

840

923

905Equipment

1,233

1,350

1,350

1,371

1,372Intangible asset amortization

347

337

482

368

368Other expenses

7,071

6,490

4,902

4,634

4,533Total other operating expense

$40,439

$35,063

$31,476

$29,577

$26,636    14




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##### Table of Contents



Share-Based Payment.
               15




---



##### Table of Contents



Income Taxes:
  Financial
    Condition
  Assets
  Loans and Lending Activities
  General:
     16




---



##### Table of Contents



Nonperforming Loans; Other Real Estate Owned:
  December 31,

2008

2007

2006

2005

2004(In Thousands)Nonperforming loansNonaccrual loans

$20,593

$9,673

$5,176

$5,090

$5,876Accruing loans past due 90 days or more

5,411

1,665

708

981

290Restructured loans





748



424Total nonperforming loans

26,004

11,338

6,632

6,071

6,590Real estate owned

12,617

4,445

717

105

Total nonperforming assets

$38,621

$15,783

$7,349

$6,176

$6,590Allowance for loan losses to portfolio loans

1.81%

1.64%

1.69%

1.52%

1.59%Allowance for loan losses to nonperforming loans

50%

104%

183%

176%

163%Nonperforming loans to portfolio loans

3.66%

1.59%

0.92%

0.86%

0.97%Nonperforming assets to total assets

3.84%

1.56%

0.79%

0.69%

0.82%   Nonaccrual, Accruing Loans 90 Days or More Past Due, and
    Restructured Loans:
      Potential Problem Loans:
  Loans Measured for Impairment and OREO:
  Analysis of Allowance for Loan Losses:
   17




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##### Table of Contents



18




---



##### Table of Contents



December 31,

2008

2007

2006

2005

2004% of Total



% of Total



% of Total



% of Total



% of TotalBalance applicable to:

Amount

Loans(1)

Amount

Loans(1)

Amount

Loans(1)

Amount

Loans(1)

Amount

Loans(1)(Dollars in Thousands)Commercial

$5,558

41%

$6,496

40%

$8,208

40%

$6,913

41%

$5,130

39%Construction

1,736

14%

940

19%

330

21%

246

19%

276

18%Real estate term

306

38%

1,661

34%

964

33%

1,214

35%

1,634

37%Home equity lines and other consumer

61

7%

16

7%

6

6%

37

5%



6%Unallocated

5,239

0%

2,622

0%

2,617

0%

2,296

0%

3,724

0%Total

$12,900

100%

$11,735

100%

$12,125

100%

$10,706

100%

$10,764

100%   (1)
    
    Represents percentage of this
    category of loans to total loans.    December 31,

2008

2007

2006

2005

2004(In Thousands)Balance at beginning of period


$11,735



$12,125



$10,706



$10,764



$10,186Charge-offs:Commercial loans


(4,187)



(4,291)



(2,545)



(1,552)



(1,387)Construction loans


(1,004)



(2,982)







(100)



Real estate loans


(1,402)



(599)











Home equity and other consumer loans


(132)



(45)



(72)



(63)



(84)Total charge-offs


(6,725)



(7,917)



(2,617)



(1,715)



(1,471)Recoveries:Commercial loans


577



1,723



1,086



418



200Construction loans


61



50







15



185Real estate loans


3







355



15



Home equity and other consumer loans


50



21



31



39



63Total recoveries


691



1,794



1,472



487



448Charge-offs net of recoveries


(6,034)



(6,123)



(1,145)



(1,228)



(1,023)Allowance aquired with Alaska First acquisition






220











Provision for loan losses


7,199



5,513



2,564



1,170



1,601Balance at end of period


$12,900



$11,735



$12,125



$10,706



$10,764Ratio of net charge-offs to average loans outstanding during the
    period


0.86%



0.86%



0.16%



0.18%



0.16%    19




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##### Table of Contents



Credit Authority and Loan Limits:
    Loan Policy:
  Loans Receivable:
  Loan Portfolio Composition:
  December 31,

2008

2007

2006

2005

2004Percent



Percent



Percent



Percent



PercentAmount

of total

Amount

of total

Amount

of total

Amount

of total

Amount

of total(Dollars in Thousands)Commercial loans


$293,249



41.23%



$284,956



39.87%



$287,281



40.06%



$287,617



40.79%



$267,737



39.47%Real estate loans:Construction


100,438



14.12%



138,070



19.32%



153,059



21.35%



131,532



18.66%



122,873



18.12%Real estate term


268,864



37.80%



243,245



34.03%



237,599



33.14%



252,395



35.80%



252,358



37.21%Home equity lines and other consumer


51,447



7.23%



51,274



7.17%



42,140



5.88%



36,519



5.18%



38,166



5.63%Total


713,998



100.38%



717,545



100.38%



720,079



100.42%



708,063



100.43%



681,134



100.42%Less:Unearned purchase discount






0.00%







0.00%







0.00%







0.00%



(44)



-0.01%Unearned loan fees net of origination costs


(2,712)



-0.38%



(2,744)



-0.38%



(3,023)



-0.42%



(3,004)



-0.43%



(2,821)



-0.42%Net loans


$711,286



100.00%



$714,801



100.00%



$717,056



100.00%



$705,059



100.00%



$678,269



100.00%  20




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##### Table of Contents



MaturityWithin



Over1 Year

1-5 Years

5 Years

Total(In Thousands)Commercial


$164,052



$79,059



$50,099



$293,210Construction


80,140



20,301







100,441Real estate term


46,990



87,758



134,116



268,864Home equity lines and other consumer


2,223



9,526



39,734



51,483Total


$293,405



$196,644



$223,949



$713,998Fixed interest rate


$95,662



$77,390



$52,935



$225,987Floating interest rate


197,743



119,254



171,014



488,011Total


$293,405



$196,644



$223,949



$713,998   Commercial Loans:
  Construction Loans:
  Land Development:
  One-to-Four-Family Residences:
    Commercial Construction:
  Commercial Real Estate:
 21




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##### Table of Contents



Home Equity Lines and Other Consumer Loans:
  Off-Balance Sheet Arrangements  Commitments and
    Contingent Liabilities:
  Investments
    and Investment Activities
  General:
    Investment Portfolio Composition:
  Securities Available For Sale: and/or
  Securities Held To Maturity:
 22




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##### Table of Contents



Amortized

FairDecember 31,

Cost

Value(In Thousands)Securities Available for Sale:2008:Government Sponsored Entities

$115,936

$117,465Mortgage-backed Securities

345

361Corporate Bonds

23,203

23,184Total

$139,484

$141,0102007:U.S. Treasury

$4,977

$4,982Government Sponsored Entities

134,370

134,738Mortgage-backed Securities

466

465Corporate Bonds

7,813

7,824Total

$147,626

$148,0092006:U.S. Treasury

$16,860

$16,840Government Sponsored Entities

70,438

69,971Mortgage-backed Securities

183

182Total

$87,481

$86,993Securities Held to Maturity:2008:Municipal securities

$9,431

$9,502Total

$9,431

$9,5022007:Municipal securities

$11,701

$11,748Total

$11,701

$11,7482006:Municipal securities

$11,776

$11,775Total

$11,776

$11,775    23




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##### Table of Contents



Fair Value, Maturities and Weighted Average
    Yields:
  MaturityWithin





Over1 Year

1-5 Years

5-10 Years

10 Years

Total(Dollars in Thousands)Securities Available for Sale:Government Sponsored EntitiesBalance

$5,001


$105,236



$5,109



$2,119



$117,465Weighted Average Yield

4.15%


3.37%



4.95%



4.74%



3.50%Mortgage-Backed SecuritiesBalance

255






106







361Weighted Average Yield

5.65%


0.00%



4.32%



0.00%



5.22%Corporate BondsBalance

3,932


19,252











23,184Weighted Average Yield

1.55%


5.13%



0.00%



0.00%



4.51%TotalBalance

$9,188


$124,488



$5,215



$2,119



$141,010Weighted Average Yield

3.06%


3.65%



4.94%



4.74%



3.67%Securities Held to Maturity:Municipal SecuritiesBalance

$3,389


$5,484



$629



$



$9,502Weighted Average Yield

3.86%


3.90%



4.02%



0.00%



3.89%     Purchased
    Receivables
  General:
    Policy and Authority Limits:
  Liabilities
  Deposits
  General:
 24




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##### Table of Contents



Average Balances and Rates:
  December 31,

2008

2007

2006

2005

2004Average

Average

Average

Average

Average

Average

Average

Average

Average

Averagebalance

rate paid

balance

rate paid

balance

rate paid

balance

rate paid

balance

rate paid(Dollars in Thousands)Interest-bearing demand accounts


$97,171



0.59%



$85,192



1.39%



$78,872



1.05%



$65,890



0.56%



$57,373



0.39%Money market accounts


187,779



1.76%



186,722



3.95%



151,871



3.99%



139,331



2.78%



126,567



1.21%Savings accounts


187,225



1.84%



234,780



3.73%



254,209



3.98%



207,277



3.02%



139,876



1.64%Certificates of deposit


145,153



3.34%



95,961



4.25%



94,595



3.51%



138,284



2.52%



155,134



1.72%Total interest-bearing accounts


617,328



1.97%



602,655



3.55%



579,547



3.51%



550,782



2.54%



478,950



1.40%Noninterest-bearing demand accounts


212,447







196,313







185,958







182,535







181,731Total average deposits


$829,775







$798,968







$765,505







$733,317







$660,681   Certificates of Deposit:
  Alaska Certificates of Deposit:
  Alaska Permanent Fund:
  Borrowings
  FHLB:
    Federal Reserve Bank:
    Other Short-term Borrowing:
 25




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodWithin





OverDecember 31, 2008

1 Year

1-3 Years

3-5 Years

5 Years

Total(In Thousands)Certificates of deposit

$144,726


$27,815



$804



$22



$173,367Short-term debt obligations

14,120














14,120Long-term debt obligations

1,517


3,056



2,502



8,911



15,986Junior subordinated debentures












18,558



18,558Operating lease obligations

844


1,563



845



5,089



8,341Other long-term liabilities

1,811














1,811Total

$163,018


$32,434



$4,151



$32,580



$232,183   Payments Due by PeriodWithin





OverDecember 31, 2007

1 Year

1-3 Years

3-5 Years

5 Years

Total(In Thousands)Certificates of deposit

$71,065


$31,859



$545



$21



$103,490Short-term debt obligations

14,996














14,996Long-term debt obligations

400


800



574







1,774Junior subordinated debentures












18,558



18,558Operating lease obligations

1,867


3,652



3,377



3,209



12,105Other long-term liabilities

950


2,368











3,318Total

$89,278


$38,679



$4,496



$21,788



$154,241   90-day 90-day
  Liquidity
    and Capital Resources
   26




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##### Table of Contents



DilutedDiluted EPS

EPS withoutYears Ending:

as Reported

Stock Repurchase2008

$0.95

$0.832007

$1.80

$1.642006

$1.99

$1.832005

$1.64

$1.562004

$1.55

$1.50   90-day
  90-day
     27




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##### Table of Contents



Adequately -


Well -


Actual


ActualDecember 31, 2008

Capitalized


Capitalized


Ratio BHC


Ratio BankTier 1 risk-based capital


4.00%



6.00%



12.65%



11.79%Total risk-based capital


8.00%



10.00%



13.90%



13.04%Leverage ratio


4.00%



5.00%



11.54%



10.77%    Effects
    of Inflation and Changing Prices
    Market
    for Common Stock
        First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter2008High

$
23.01


$
20.13


$
17.28


$
16.14Low

$
17.75


$
18.11


$
14.15


$
10.052007High

$
28.71


$
28.73


$
28.29


$
24.20Low

$
25.26


$
24.46


$
23.37


$
18.42  28




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##### Table of Contents



Market Price of and Dividends on the Registrants Common
    Equity and Related Stockholder Matters
  Stock
    Performance Graph
    Total
    Return Performance
  
  Period EndingIndex

12/31/03

12/31/04

12/31/05

12/31/06

12/31/07

12/31/08Northrim BanCorp, Inc.

100.00

104.31

105.51

128.12

110.19

55.32Russell 3000

100.00

111.95

118.80

137.47

144.54

90.61SNL Bank $1B-$5B

100.00

123.42

121.31

140.38

102.26

84.81  29




---



##### Table of Contents



Repurchase of Securities
    Equity
    Compensation Plan Information
  Number of SecuritiesNumber of Securities to be

Weighted-Average Exercise

Remaining Available forIssued Upon Exercise of

Price of Outstanding

Future Issuance UnderOutstanding Options,

Options, Warrants and

Equity Compensation PlansWarrants and Rights

Rights

(Excluding SecuritiesPlan Category

(a)

(b)

Reflected in Column (a))Equity compensation plans

493,894


$13.16



63,298approved by security holdersTotal

493,894


$13.16



63,298   Recent
    Accounting Pronouncements
    
    FASB Statement No. 157 (SFAS 157), Fair
    Value Measurements
    FASB Statement No. 159 (SFAS 159), The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115    Business Combinations
  Noncontrolling Interests in Consolidated Financial Statements
    (as amended)
  Disclosures about
    Derivative Instruments and Hedging Activities  an
    amendment of FASB No. 133 Disclosures about Fair Value of Financial Instruments
  No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 Goodwill and Other Intangible Assets
 30




---



##### Table of Contents



FSP 142-3 Business
    Combinations FSP 142-3 FSP 142-3
  No. 03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities (FSP 03-6-1). FSP 03-6-1 Earnings Per Share. FSP 03-6-1 FSP 03-6-1
  FAS 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active (FSP 157-3). FSP 157-3 FSP 157-3 FSP 157-3
  FAS 140-4 Disclosures by Public Entities
    (Enterprises) about Transfers of Financial Assets and Interests
    in Variable Interest Entities (FSP 140-4 FSP 140-4 FSP 140-4 FSP 140-4
  Quantitative
    and Qualitative Disclosure About Market Risk
    12-month
       31




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##### Table of Contents



Estimated maturity or repricing at December 31, 2008Within 1 year

1-5 years

35 years

Total(In Thousands)Interest -Earning Assets:Money market investments

$6,905


$



$



$6,905Domestic certificates of deposit

9,500










9,500Investment securities

87,699


59,977



4,768



152,444Loans:Commercial

229,136


53,955



1,346



284,437Real estate construction

84,943


7,989







92,932Real estate term

143,281


118,276



3,142



264,699Installment and other consumer

18,767


17,679



14,891



51,337Total interest-earning assets

$580,231


$257,876



$24,147



$862,254Percent of total interest-earning assets

67%


30%



3%



100%Interest-Bearing Liabilities:Interest-bearing demand accounts

$101,065


$



$



$101,065Money market accounts

158,114










158,114Savings accounts

166,315










166,315Certificates of deposit

144,148


29,197



22



173,367Short-term borrowings

14,120










14,120Long-term borrowings

2,167


8,741



5,078



15,986Junior subordinated debentures

18,558










18,558Total interest-bearing liabilities

$604,487


$37,938



$5,100



$647,525Percent of total interest-bearing liabilities

93%


6%



1%



100%Interest sensitivity gap

$(24,256)


$219,938



$19,047



$214,729Cumulative interest sensitivity gap

$(24,256)


$195,682



$214,729Cumulative interest sensitivity gap as a percentage of total
    assets

-2%


19%



21%    32




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##### Table of Contents



12-month
  Controls
    and Procedures
  Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
    Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f)
    Internal
    Control  Integrated Framework
     33




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm



The Board of Directors

Northrim BanCorp, Inc.:



We have audited Northrim BanCorp, Inc. and subsidiaries
    (the Company) internal control over financial reporting as of
    December 31, 2008, based on criteria established in
    Internal Control  Integrated Framework issued by the
    Committee of Sponsoring Organizations of the Treadway Commission
    (COSO). The Companys management is responsible for
    maintaining effective internal control over financial reporting
    and for its assessment of the effectiveness of internal control
    over financial reporting, included in the accompanying
    Management Report on Effectiveness of internal Control over
    Financial Reporting. Our responsibility is to express an opinion
    on the Companys internal control over financial reporting
    based on our audit.



We conducted our audit in accordance with the standards of the
    Public Company Accounting Oversight Board (United States). Those
    standards require that we plan and perform the audit to obtain
    reasonable assurance about whether effective internal control
    over financial reporting was maintained in all material
    respects. Our audit included obtaining an understanding of
    internal control over financial reporting, assessing the risk
    that a material weakness exists, and, testing and evaluating the
    design and operating effectiveness of internal control based on
    the assessed risk. Our audit also included performing such other
    procedures as we considered necessary in the circumstances. We
    believe that our audit provides a reasonable basis for our
    opinion.



A companys internal control over financial reporting is a
    process designed to provide reasonable assurance regarding the
    reliability of financial reporting and the preparation of
    financial statements for external purposes in accordance with
    generally accepted accounting principles. A companys
    internal control over financial reporting includes those
    policies and procedures that (1) pertain to the maintenance
    of records that, in reasonable detail, accurately and fairly
    reflect the transactions and dispositions of the assets of the
    company; (2) provide reasonable assurance that transactions
    are recorded as necessary to permit preparation of financial
    statements in accordance with generally accepted accounting
    principles, and that receipts and expenditures of the company
    are being made only in accordance with authorizations of
    management and directors of the company; and (3) provide
    reasonable assurance regarding prevention or timely detection of
    unauthorized acquisition, use, or disposition of the
    companys assets that could have a material effect on the
    financial statements.



Because of its inherent limitations, internal control over
    financial reporting may not prevent or detect misstatements.
    Also, projections of any evaluation of effectiveness to future
    periods are subject to the risk that controls may become
    inadequate because of changes in conditions, or that the degree
    of compliance with the policies or procedures may deteriorate.



In our opinion, Northrim BanCorp, Inc. and subsidiaries
    maintained, in all material respects, effective internal control
    over financial reporting as of December 31, 2008, based on
    criteria established in Internal Control  Integrated
    Framework issued by the Committee of Sponsoring Organizations of
    the Treadway Commission.



We also have audited, in accordance with the standards of the
    Public Company Accounting Oversight Board (United States), the
    consolidated balance sheets of Northrim BanCorp, Inc. and
    subsidiaries as of December 31, 2008 and 2007, and the
    related consolidated statements of income, shareholders
    equity and comprehensive income, and cash flows for each of the
    years in the three-year period ended December 31, 2008, and
    our report dated March 11, 2009 expressed an unqualified
    opinion on those consolidated financial statements.



KPMG LLC SIGNATURE





Anchorage, Alaska

March 11, 2009

34




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
             
     35




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##### Table of Contents



Consolidated
    Financial Statements



NORTHRIM BANCORP, INC.

Consolidated Balance Sheets

December 31, 2008 and 2007 2008

2007(In Thousands Except Share Amounts)AssetsCash and due from banks

$30,925

$30,767Money market investments

6,905

33,039Domestic certificates of deposit

9,500

Investment securities held to maturity

9,431

11,701Investment securities available for sale

141,010

148,009Investment in Federal Home Loan Bank stock

2,003

2,003Total Portfolio Investments

152,444

161,713Loans

711,286

714,801Allowance for loan losses

(12,900)

(11,735)Net Loans

698,386

703,066Purchased receivables

19,075

19,437Accrued interest receivable

4,812

5,232Premises and equipment, net

29,733

15,621Goodwill and intangible assets

9,320

9,946Other real estate owned

12,617

4,445Other assets

32,675

31,448Total Assets

$1,006,392

$1,014,714LiabilitiesDeposits:Demand

$244,391

$224,986Interest-bearing demand

101,065

96,455Savings

58,214

55,285Alaska CDs

108,101

171,341Money market

158,114

215,819Certificates of deposit less than $100,000

76,738

61,586Certificates of deposit greater than $100,000

96,629

41,904Total Deposits

843,252

867,376Borrowings

30,106

16,770Junior subordinated debentures

18,558

18,558Other liabilities

9,792

10,595Total Liabilities

901,708

913,299Minority interest in subsidiaries

36

24Shareholders EquityCommon stock, $1 par value, 10,000,000 shares
    authorized, 6,331,372 and 6,300,256 shares issued and
    outstanding at December 31, 2008 and 2007, respectively

6,331

6,300Additional paid-in capital

51,458

50,798Retained earnings

45,958

44,068Accumulated other comprehensive income-net unrealized
    gains/losses on available for sale on investment securities

901

225Total Shareholders Equity

104,648

101,391Commitments and contingenciesTotal Liabilities and Shareholders Equity

$1,006,392

$1,014,714    36




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##### Table of Contents



NORTHRIM
    BANCORP, INC.
    2008

2007

2006(In Thousands Except Per Share Amounts)Interest IncomeInterest and fees on loans

$53,287

$66,463

$65,347Interest on investment securities-available for sale

5,066

4,120

2,396Interest on investment securities-held to maturity

427

499

403Interest on money market investments

429

2

Interest on domestic certificates of deposit

507

1,983

1,375Total Interest Income

59,716

73,067

69,521Interest ExpenseInterest expense on deposits and borrowings

13,902

23,237

21,999Net Interest Income

45,814

49,830

47,522Provision for loan losses

7,199

5,513

2,564Net Interest Income After Provision for Loan Losses

38,615

44,317

44,958Other Operating IncomeService charges on deposit accounts

3,283

3,116

1,975Purchased receivable income

2,560

2,521

1,855Employee benefit plan income

1,451

1,194

1,113Electronic banking income

1,193

914

790Equity in earnings from mortgage affiliate

595

454

649Equity in loss from Elliott Cove

(106)

(93)

(230)Other income

2,423

1,848

1,614Total Other Operating Income

11,399

9,954

7,766Other Operating ExpenseSalaries and other personnel expense

20,996

20,700

19,277Occupancy, net

3,399

2,957

2,611OREO expense net, including impairment

2,558

(20)

(5)Insurance expense

1,779

465

378Marketing expense

1,558

1,617

1,641Professional and outside services

1,498

1,167

840Equipment expense

1,233

1,350

1,350Intangible asset amortization expense

347

337

482Other expense

7,071

6,490

4,902Total Other Operating Expense

40,439

35,063

31,476Income Before Income Taxes and Minority Interest

9,575

19,208

21,248Minority interest in subsidiaries

370

290

296Income Before Income Taxes

9,205

18,918

20,952Provision for income taxes

3,122

7,260

7,978Net Income

$6,083

$11,658

$12,974Earnings Per Share, Basic

$0.96

$1.82

$2.02Earnings Per Share, Diluted

$0.95

$1.80

$1.99Weighted Average Shares Outstanding, Basic

6,358,595

6,400,974

6,426,002Weighted Average Shares Outstanding, Diluted

6,388,681

6,485,972

6,516,117    37




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##### Table of Contents



AccumulatedCommon Stock

Additional



OtherNumber

Par

Paid-in

Retained

Comprehensiveof Shares

Value

Capital

Earnings

Income

Total(In Thousands)Balance as of January 1, 2006

5,803

$5,803

$39,161

$39,999

$(489)

$84,474Cash dividend declared







(2,780)



(2,780)Stock dividend

291

291

6,690

(6,981)



Stock option expense





390





390Exercise of stock options

38

38

300





338Excess tax benefits from share-based payment arrangements





230





230Treasury stock buy-back

(18)

(18)

(392)





(410)Comprehensive income:Change in unrealized holding (gain/loss) on available for sale
    investment securities, net of related income tax effect









202

202Net Income







12,974



12,974Total Comprehensive Income











13,176Balance as of December 31, 2006

6,114

$6,114

$46,379

$43,212

$(287)

$95,418Cash dividend declared







(3,560)



(3,560)Stock dividend

301

301

6,941

(7,242)



Stock option expense





578





578Exercise of stock options

23

23

50





73Excess tax benefits from share-based payment arrangements





108





108Treasury stock buy-back

(138)

(138)

(3,258)





(3,396)Comprehensive income:Change in unrealized holding (gain/loss) on available for sale
    investment securities, net of related income tax effect









512

512Net Income







11,658



11,658Total Comprehensive Income











12,170Balance as of December 31, 2007

6,300

$6,300

$50,798

$44,068

$225

$101,391Cash dividend declared







(4,193)



(4,193)Stock option expense





597





597Exercise of stock options

31

31

(3)





28Excess tax benefits from share-based payment arrangements





66





66Comprehensive income:Change in unrealized holding (gain/loss) on available for sale
    investment securities, net of related income tax effect









676

676Net Income







6,083



6,083Total Comprehensive Income











6,759Balance as of December 31, 2008

6,331

$6,331

$51,458

$45,958

$901

$104,648    38




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##### Table of Contents



NORTHRIM
    BANCORP, INC.
   2008

2007

2006(In Thousands)Operating Activities:Net income

$6,083

$11,658

$12,974Adjustments to Reconcile Net Income to Net Cash Provided by
    Operating Activities:Security gains

(146)



Depreciation and amortization of premises and equipment

1,384

1,123

1,116Amortization of software

176

240

354Intangible asset amortization

347

337

482Amortization of investment security premium, net of discount
    accretion

72

(500)

(133)Deferred tax benefit

(3,638)

(393)

(1,862)Stock-based compensation

597

578

390Excess tax benefits from share-based payment arrangements

(66)

(108)

(230)Deferral of loan fees and costs, net

(32)

(279)

19Provision for loan losses

7,199

5,513

2,564Purchased receivable loss

193

245

Gain on sale of other real estate owned

(45)

(110)

Impairment on other real estate owned

1,958



Earnings in RML, net of distributions

49

118

(124)Equity in loss from Elliott Cove

106

93

230Minority interest in subsidiaries

370

290

296(Increase) decrease in accrued interest receivable

420

(316)

(519)(Increase) decrease in other assets

1,985

(2,283)

(6,794)Increase (decrease) of other liabilities

(748)

(22)

6,196Net Cash Provided by Operating Activities

16,264

16,184

14,959Investing Activities:Investment in securities:Purchases of investment securities  available-for-sale

(134,237)

(136,393)

(40,643)Purchases of investment securities  held-to-maturity

(1,001)



(10,905)Proceeds from sales/maturities of securities 
    available-for-sale

142,464

100,126

6,608Proceeds from calls/maturities of securities 
    held-to-maturity

3,265

70

65Investment in domestic certificates of deposit

(9,500)



(Investment in) cash proceeds from purchased receivables, net

169

1,501

(8,985)Investments in loans:Sales of loans and loan participations

8,477

8,886

22,601Loans made, net of repayments

(20,359)

(2,502)

(35,762)Proceeds from sale of other real estate owned

2,583

266

Investment in other real estate owned

(3,273)



Alaska First acquisition, net of cash received



12,699

Investment in Elliott Cove

(100)

(100)

(210)Loan to Elliott Cove, net of repayments

108

(48)

58Loan to PWA, net of repayments





385Purchases of premises and equipment

(15,496)

(3,861)

(3,387)Purchases of software, net of disposals

(106)

(183)

(440)Net Cash Used by Investing Activities

(27,006)

(19,539)

(70,615)Financing Activities:Increase (decrease) in deposits

(24,124)

24,786

15,038Proceeds from borrowings

15,124

5,546

Paydowns on borrowings

(1,788)

(401)

(1,913)Distributions to minority interests

(358)

(295)

(267)Proceeds from issuance of common stock

28

73

338Excess tax benefits from share-based payment arrangements

66

108

230Repurchase of common stock



(3,396)

(410)Cash dividends paid

(4,182)

(3,542)

(2,768)Net Cash Provided (Used) by Financing Activities

(15,234)

22,879

10,248Net Increase (Decrease) by Cash and Cash Equivalents

(25,976)

19,524

(45,408)Cash and cash equivalents at beginning of period

63,806

44,282

89,690Cash and Cash Equivalents at End of Year

$37,830

$63,806

$44,282Supplemental Information:Income taxes paid

$5,657

$8,740

$9,296Interest paid

$13,708

$23,105

$21,891Transfer of loans to other real estate owned

$9,395

$4,445

$717Cash dividends declared but not paid

$39

$28

$12    39




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##### Table of Contents



Notes to
    Consolidated Financial Statements  NOTE 1  Organization and Summary of
    Significant Accounting Policies
        Estimates and Assumptions:
  Cash and Cash Equivalents:
  Investment Securities:
      Loans, Recognition of Interest Income and Loan
    Fees:
 40




---



##### Table of Contents



Allowance for Loan Losses:
              Purchased Receivables:
  Premises and Equipment:
  Intangible Assets: Goodwill
    and Other Intangible Assets,
 41




---



##### Table of Contents



Other Assets:
    Other Real Estate Owned:
  Advertising:
  Income Taxes:
  Earnings Per Share:
    2008

2007

2006(In Thousands)Net income

$6,083

$11,658

$12,974Basic weighted average common shares outstanding

6,359

6,401

6,426Dilutive effect of potential comment shares from awards granted
    under equity incentive program

30

85

90Diluted weitghted average common shares outstanding

6,389

6,486

6,516Earnings per common shareBasic

$0.96

$1.82

$2.02Diluted

$0.95

$1.80

$1.99  42




---



##### Table of Contents



Stock Option Plans: Accounting for Stock  Based
    Compensation
  Comprehensive Income:
  Segments:
  Concentrations:
    Consolidation Policy:
  NOTE 2 
    Alaska First Acquisition
   43




---



##### Table of Contents



(In Thousands)Total Purchase Price

$6,250Allocation of purchase priceAlaska Firsts shareholder equity

4,479Estimated adjustments to reflect assets acquired and liabilities
    assumed at fair value:Investments

165Fixed assets

(109)Other assets

(840)Core deposit intangible

1,311Estimated fair value of net assets aquired

5,006Direct acquisition costs

825Goodwill resulting from acquisition

$2,069       (In Thousands)Cash

$18,806Available for sale securities

23,821Loans, net of allowance for losses of $220,000

13,205Other assets

1,565Core deposit intangible

1,311Goodwill

1,244Total Assets

59,952Deposits

47,686Repurchase Agreements

5,123Other liabilities

893Total Liabilities

53,702Net Assets Acquired

$6,250     NOTE 3 
    Cash and
    Due from Banks   44




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##### Table of Contents



NOTE 4 
    Money
    Market Investments    December 31,

2008

2007(In Thousands)Interest bearing deposits at Federal Home Loan Bank (FHLB)

$348

$6,039Interest bearing deposits at Federal Reserve Bank (FRB)

6,557

Fed funds sold



27,000Total

$6,905

$33,039   one-day
  NOTE 5 
    Investment
    Securities    Gross

GrossAmortized

Unrealized

Unrealized

FairDecember 31,

Cost

Gains

Losses

Value(In Thousands)2008:Securities Available for SaleGovernment Sponsored Entities

$115,936

$1,702

$173

$117,465Mortgage-backed Securities

345

22

5

361Corporate Bonds

23,203

251

270

23,184Total

$139,484

$1,975

$448

$141,010Securities Held to MaturityMunicipal Securities

$9,431

$98

$27

$9,502Federal Home Loan Bank Stock

$2,003

$

$

$2,0032007:Securities Available for SaleU.S. Treasury

$4,977

$5

$

$4,982Government Sponsored Entities

134,370

447

79

134,738Mortgage-backed Securities

466



1

465Coporate Bonds

7,813

11



7,824Total

$147,626

$463

$80

$148,009Securities Held to MaturityMunicipal Securities

$11,701

$49

$1

$11,749Federal Home Loan Bank Stock

$2,003

$

$

$2,003  45




---



##### Table of Contents



December 31,

Less Than 12 Months

More Than 12 Months

TotalUnrealized



Unrealized



UnrealizedFair Value

Losses

Fair Value

Losses

Fair Value

Losses(In Thousands)2008:Securities Available for SaleGovernment Sponsored Entities

$4,881

$173

$

$

$4,881

$173Corporate Bonds

14,021

270





14,021

270Mortgage-backed Securities

14

1

106

4

120

5Total

$18,916

$444

$106

$4

$19,022

$448Securities Held to MaturityMunicipal Securities

$2,646

$27

$

$

$2,646

$27   December 31,

Less Than 12 Months

More Than 12 Months

TotalUnrealized



Unrealized



UnrealizedFair Value

Losses

Fair Value

Losses

Fair Value

Losses(In Thousands)2007:Securities Available for SaleGovernment Sponsored Entities

$33,390

$55

$12,671

$24

$46,061

$79Mortgage-backed Securities

150

1





150

1Total

$33,540

$56

$12,671

$24

$46,211

$80Securities Held to MaturityMunicipal Securities

$0

$0

$2,037

$1

$2,037

$1    46




---



##### Table of Contents



WeightedAmortized



AverageCost

Fair Value

Yield(In Thousands)Government Sponsored Entitiese
    Within 1 Year

$5,000

$5,001

4.15%1-5 Years

103,575

105,236

3.37%5-10 Years

5,175

5,109

5.00%Over 10 Years

2,186

2,119

0.00%Total

$115,936

$117,465

3.44%Mortgage-backed Securities
    Within 1 Year

$235

$255

5.65%1-5 Years





0.00%5-10 Years

110

106

4.32%Over 10 Years





0.00%Total

$345

$361

5.22%Corporate Bonds Within 1 Year

$3,994

$3,932

1.55%1-5 Years

19,209

19,252

5.13%5-10 Years





0.00%Over 10 Years





0.00%Total

$23,203

$23,184

4.51%Municipal Securities
    Within 1 Year

$3,360

$3,389

3.86%1-5 Years

5,434

5,484

3.90%5-10 Years

637

629

4.02%Over 10 Years





0.00%Total

$9,431

$9,502

3.89%     Gross

GrossDecember 31,

Proceeds

Gains

Losses(In Thousands)2008:Available-for-Sale Securities

$
23,371

$146

$Held-to-Maturity Securities

$


$

$2007:Available-for-Sale Securities

$
8,900

$

$Held-to-Maturity Securities

$


$

$2006:Available-for-Sale Securities

$


$

$Held-to-Maturity Securities

$


$

$    47




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##### Table of Contents



December 31,

2008

2007

2006(In Thousands)U.S. Treasury

$23

$363

$438Government Sponsored Entities

4,423

3,666

1,948Other

620

91

10Total

$5,066

$4,120

$2,396       NOTE 6 
    Loans    December 31,

2008

2007(In Thousands)Commercial

$293,249

$284,956Real estate construction

100,438

138,070Real estate term

268,864

243,245Home equity lines and other consumer

51,447

51,274Sub-total

713,998

717,545Less: Unearned origination fees, net of origination costs

(2,712)

(2,744)Total loans

711,286

714,801Allowance for loan losses

(12,900)

(11,735)Net Loans

$698,386

$703,066    48




---



##### Table of Contents



MaturityWithin



Over1 Year

1-5 Years

5 Years

Total(In Thousands)Commercial

$156,822

$77,682

$49,933

$284,437Construction

72,631

20,301



92,932Real estate term

45,937

85,633

133,129

264,699Home equity lines and other consumer

2,093

9,462

39,782

51,337Total

$277,483

$193,078

$222,844

$693,405Fixed interest rate

$86,827

$75,738

$51,970

$214,535Floating interest rate

190,656

117,340

170,874

478,870Total

$277,483

$193,078

$222,844

$693,405     December 31,

2008

2007(In Thousands)Balance, beginning of the year

$2,041

$1,123Loans made

818

6,495Repayments or change to nondirector status

1,969

5,577Balance, end of year

$890

$2,041    49




---



##### Table of Contents



NOTE 7 
    Allowance
    for Loan Losses    December 31,

2008

2007

2006(In Thousands)Balance, beginning of the year

$11,735

$12,125

$10,706Allowance aquired with stock purchase



220

Provision charged to operations

7,199

5,513

2,564Charge-offs:Commercial

(4,187)

(4,291)

(2,545)Construction

(1,004)

(2,982)

Real estate

(1,402)

(599)

Installment and other consumer

(132)

(45)

(72)Total Charge-offs

(6,725)

(7,917)

(2,617)Recoveries:Commercial

577

1,723

1,086Construction

61

50

Real estate

3



355Installment and other consumer

50

21

31Total Recoveries

691

1,794

1,472Charge-offs net of recoveries

(6,034)

(6,123)

(1,145)Balance, End of Year

$12,900

$11,735

$12,125      50




---



##### Table of Contents



NOTE 8 
    Premises
    and Equipment    December 31,

Useful Life

2008

2007(In Thousands)Land



$3,201

$2,297Vehicle

3 years

61

61Furniture and equipment

3-7 years

8,861

10,090Tenant improvements

2-15 years

6,469

9,841Buildings

39 years

24,070

6,865Total Premises and Equipment



42,662

29,154Accumulated depreciation and amortization



(12,929)

(13,533)Total Premises and Equipment, Net



$29,733

$15,621     NOTE 9 
    Other
    Real Estate Owned   51




---



##### Table of Contents



NOTE 10 
    Other
    Assets    December 31,

2008

2007(In Thousands)Intangible assets:Goodwill

$7,524

$7,804Core deposits intangible

1,019

1,251NBG customer relationships

777

891Total

$9,320

$9,946Prepaid expenses

$893

$962Software

437

507Deferred taxes, net

13,762

10,595Note receivable from Elliott Cove

557

665Investment in Elliott Cove

82

88Investment in PWA

1,825

1,789Investment in RML Holding Company

4,161

4,209Investment in Low Income Housing Partnerships

6,940

7,639Bank owned life insurance

2,458

2,853Taxes receivable

217

731Other assets

1,343

1,410Total

$32,675

$31,448   Business Combinations (Revised 2007).
     52




---



##### Table of Contents



Year Ending December 31:(In Thousands)2009

$3242010

3002011

2762012

2522013

228Thereafter

416Total

$1,796   start-up
     53




---



##### Table of Contents



December 31,

2008

2007(Unaudited)(In Thousands)AssetsCash

$7,366

$8,564Loans held for sale

77,643

32,697Other assets

9,981

8,170Total Assets

$94,990

$49,431LiabilitiesLines of credit

$73,390

$29,852Other liabilities

4,865

3,997Total Liabilities

78,255

33,849Shareholders Equity

16,735

15,582Total Liabilities and Shareholders Equity

$94,990

$49,431Income/expenseGross income

$17,188

$15,245Total expense

13,930

14,305Joint venture allocations

635

492Net Income

$3,893

$1,432     NOTE 11 
    Deposits      Year Ending December 31:(In Thousands)2009

$144,7262010

18,2532011

9,5622012

4622013

342Thereafter

22Total

$173,367  54




---



##### Table of Contents



NOTE 12 
    Borrowings             55




---



##### Table of Contents



Year Ending December 31:(In Thousands)2009

$15,6372010

1,5242011

1,5322012

1,3492013

1,153Thereafter

8,911Total

$30,106   NOTE 13 
    Junior
    Subordinated Debentures  90-day
  90-day
 56




---



##### Table of Contents



NOTE 14 
    Interest
    Expense    December 31,

2008

2007

2006(In Thousands)Interest-bearing demand accounts

$578

$1,188

$830Money market accounts

3,306

7,378

6,053Savings accounts

3,444

8,756

10,113Certificates of deposit greater than $100,000

2,361

1,583

1,425Certificates of deposit less than $100,000

2,490

2,497

1,897Borrowings

1,723

1,835

1,681Total

$13,902

$23,237

$21,999   NOTE 15 
    Income
    Taxes    Current Tax

Deferred

TotalDecember 31,



Expense

(Benefit)

Expense(In Thousands)2008:

Federal

$5,360

$(2,822)

$2,538State

1,400

(816)

584Total



$6,760

$(3,638)

$3,1222007:

Federal

$6,026

$(303)

$5,723State

1,627

(90)

1,537Total



$7,653

$(393)

$7,2602006:

Federal

$7,828

$(1,436)

$6,392State

2,012

(426)

1,586Total



$9,840

$(1,862)

$7,978     December 31,

2008

2007

2006(In Thousands)Computed expected income tax expense

$3,222

$6,621

$7,333State income taxes, net

380

999

1,031Low income housing credits

(695)

(545)

(322)Other

215

185

(64)Total

$3,122

$7,260

$7,978  57




---



##### Table of Contents



December 31,

2008

2007

2006(In Thousands)Deferred Tax Asset:Provision for loan losses

$18,239

$13,776

$10,499Loan fees, net of costs

1,115

1,126

1,240Unrealized loss on available-for-sale investment securities





201Depreciation and amortization

814

902

826Other real estate owned

907



Other

4,824

3,165

3,224Total Deferred Tax Asset

$25,899

$18,969

$15,990Deferred Tax Liability:Net loan charge offs

$(8,384)

$(5,903)

$(3,386)Unrealized gain on available-for-sale investment securities

(629)

(158)

Intangible amortization

(1,504)

(1,350)

(1,196)Other

(1,620)

(963)

(848)Total Deferred Tax Liability

$(12,137)

$(8,374)

$(5,430)Net Deferred Tax Asset

$39,661

$29,564

$26,550    58




---



##### Table of Contents



NOTE 16 
    Comprehensive
    Income    TaxBefore Tax

(Expense)December 31,

Amount

Benefit

Net Amount(In Thousands)2008:Unrealized net holding gains on investment securities arising
    during 2008

$1,290

$(528)

$762Plus: Reclassification adjustment for net realized gains
    included in net income

(146)

60

(86)Net unrealized gains

$1,144

$(468)

$6762007:Unrealized net holding gains on investment securities arising
    during 2007

$871

$(359)

$512Plus: Reclassification adjustment for net realized gains
    included in net income





Net unrealized gains

$871

$(359)

$5122006:Unrealized net holding gains on investment securities arising
    during 2006

$342

$(140)

$202Plus: Reclassification adjustment for net realized gains
    included in net income





Net unrealized gains

$342

$(140)

$202   NOTE 17 
    Employee
    Benefit Plans         59




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##### Table of Contents



NOTE 18 
    Common
    Stock      NOTE 19 
    Options  10-year
    Shares

Weighted

Range ofUnder

Average

ExerciseOption

Exercise Price

PriceDecember 31, 2005 outstanding

467,402

$11.86

$6.02-$25.94Granted  2006

49,731

18.29Forfeited

(6,528)

15.38Exercised

(49,632)

9.76December 31, 2006 outstanding

460,973

$12.73

$6.02-$25.94Granted  2007

64,445

16.93Forfeited

(4,349)

17.34Exercised

(32,624)

8.90December 31, 2007 outstanding

488,445

$13.50

$7.17-$25.94Granted  2008

58,127

5.71Forfeited

(5,021)

13.31Exercised

(47,657)

7.56December 31, 2008 outstanding

493,894

$13.16

$7.17-$25.94  60




---



##### Table of Contents



WeightedNumber of

AverageShares

Exercise PriceOutstanding at January 1, 2008

449,665

$14.67Changes during the period:Granted

26,056

12.74Forfeited

(4,539)

14.78Exercised

(40,032)

9.00Outstanding at December 31, 2008

431,150

$15.08Options exercisable at December 31, 2008

362,815

$14.23Unexercisable options at December 31, 2008

68,335

$19.57     WeightedNumber of

AverageShares

Fair ValueOutstanding at January 1, 2008

38,780

$23.66Changes during the period:Granted

32,071

12.74Vested

(7,625)

22.30Forfeited

(482)

24.56Outstanding at December 31, 2008

62,744

$18.23          61




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##### Table of Contents



GrantedStock Options:

Nov. 2008

Nov. 2007

Nov. 2006Expected option life (years)

8.4

8.3

7.4Risk free rate

4.70%

4.37%

4.57%Dividends per Share

$0.40

$0.66

$0.56Expected volatility factor

30.21%

34.12%

37.44%       Years Ended December 31,

2008

2007

2006(Dollars in Thousands)Options:Weighted-average grant-date fair value of stock options granted:

$3.74

$7.55

$9.79Total fair value of shares vested during the period:

296

342

256Total intrinsic value of options exercised:

382

406

672Restricted stock units:Weighted-average grant-date fair value of stock options granted:

$12.74

$23.00

$26.44       Average PeriodUnamortized

to ExpenseExpense

(years)(Dollars in Thousands)Stock options

$340

1.8Restricted stock

662

2.1Total

$1,002

1.9    62




---



##### Table of Contents



Transition Election Related to Accounting for the Tax
    Effects of Share-Based Payment Awards
    (FSP 123R-3),
  NOTE 20 
    Commitments
    and Contingent Liabilities    Year Ending December 31:(In Thousands)2009

$8442010

8292011

7342012

4932013

352Thereafter

5,089Total

$8,341     Year Ending December 31:(In Thousands)2009

$7602010

1562011

1562012

1562013

156Thereafter

Total

$1,384    63




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##### Table of Contents



Off-Balance Sheet Financial Instruments:
    December 31,

2008

2007(In Thousands )Off-balance sheet commitments:Commitments to extend credit

$134,455

$158,569Standby letters of credit

12,752

28,216       NOTE 21 
    Regulatory
    Matters       64




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##### Table of Contents



Consolidated

Actual

Adequately-Capitalized

Well-CapitalizedAmount

Ratio

Amount

Ratio

Amount

Ratio(In Thousands)As of December 31, 2008:Total Capital (to risk-weighted assets)

$123,430

13.90%

$71,039


3
    8.0%

$88,799

310.0%Tier I Capital (to risk-weighted assets)

$112,310

12.65%

$35,514


3
    4.0%

$53,271

3
    6.0%Tier I Capital (to average assets)

$112,310

11.54%

$38,937


3
    4.0%

$48,672

3
    5.0%As of December 31, 2007:Total Capital (to risk-weighted assets)

$120,170

13.57%

$70,845


3
    8.0%

$88,556

3
    10.0%Tier I Capital (to risk-weighted assets)

$109,093

12.32%

$35,420


3
    4.0%

$53,130

3
    6.0%Tier I Capital (to average assets)

$109,093

11.10%

$39,313


3
    4.0%

$49,141

3
    5.0%  Northrim Bank

Actual

Adequately-Capitalized

Well-CapitalizedAmount

Ratio

Amount

Ratio

Amount

Ratio(In Thousands)As of December 31, 2008:Total Capital (to risk-weighted assets)

$115,537

13.04%

$70,882

38.0%

$88,602

310.0%Tier I Capital (to risk-weighted assets)

$104,438

11.79%

$35,444

34.0%

$53,165

36.0%Tier I Capital (to average assets)

$104,438

10.77%

$38,782

34.0%

$48,478

35.0%As of December 31, 2007:Total Capital (to risk-weighted assets)

$113,089

12.80%

$70,681

38.0%

$88,351

310.0%Tier I Capital (to risk-weighted assets)

$102,037

11.55%

$35,337

34.0%

$53,006

36.0%Tier I Capital (to average assets)

$102,037

10.43%

$39,132

34.0%

$48,915

35.0%   NOTE 22 
    Fair
    Value Measurements  instrument-by-instrument
    Fair
    Value Hierarchy
    Level 1:
 65




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##### Table of Contents



Level 2:
  Level 3:
    Cash and Money Market Investments:
  Investment Securities:
  Loans: Accounting by Creditors for Impairment of a Loan
  Purchased Receivables:
  Deposit Liabilities:
  Borrowings:
  Junior Subordinated Debentures:
  Assets subject to non-recurring adjustment to fair value: 157-2.
  Commitments to Extend Credit and Standby Letters of
    Credit:
  Limitations:
 66




---



##### Table of Contents



December 31,

2008

2007Carrying

Fair

Carrying

FairAmount

Value

Amount

Value(In Thousands)Financial Assets:Cash and money market investments

$37,830

$37,830

$63,806

$63,806Domestic certificates of deposit

9,500

9,500



Investment securities

152,444

152,515

161,713

161,761Net loans

698,386

650,270

703,066

701,912Purchased receivables

19,075

19,075

19,437

19,437Accrued interest receivable

4,812

4,812

5,232

5,232Financial Liabilities:Deposits

$843,252

$845,560

$867,376

$866,299Accrued interest payable

903

903

709

709Borrowings

30,106

30,517

16,770

16,673Junior subordinated debentures

18,558

8,211

18,558

23,135Unrecognized Financial Instruments:Commitments to extend credit(a)

$134,455

$1,345

$158,569

$1,586Standby letters of credit(a)

12,752

128

28,216

282   (a)
    
    Carrying amounts reflect the
    notional amount of credit exposure under these financial
    instruments.    Quoted Prices inActive Markets for

Signifcant Other

SignificantIdentical Assets

Observable Inputs

UnobservableTotal

(Level 1)

(Level 2)

Inputs (Level 3)Available-for-sale securities

$141,010



$141,010

Total

$141,010



$141,010

     Quoted Prices inActive Markets for


Signifcant OtherIdentical Assets


Observable Inputs


Significant Unobservable


Total (gains)Total


(Level 1)


(Level 2)


Inputs (Level 3)


lossesLoans measured for
    impairment1

$
35,062






$
21,075


$
13,987


$
(160
)Other real estate
    owned2


10,520











10,520



1,958Total

$
45,582






$
21,075


$
24,507


$
1,798   1
    
    Relates to certain impaired
    collateral dependant loans. The impairment was measured based on
    the fair value of collateral, in accordance with the provisions
    of SFAS 114.2
    
    Relates to certain impaired other
    real estate owned. This impairment arose from an adjustment to
    the Companys estimate of the fair market value of these
    properties based on changes in estimated costs to complete the
    projects. 67




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##### Table of Contents



NOTE 23 
    Quarterly
    Results of Operations (Unaudited)  2008 Quarter Ended

Dec. 31

Sept. 30

June 30

March 31(In Thousands Except Per Share Amounts)Total interest income

$13,864

$14,607

$14,887

$16,358Total interest expense

2,807

3,511

3,421

4,163Net interest income

11,057

11,096

11,466

12,195Provision for loan losses

1,500

2,000

1,999

1,700Other operating income

2,924

3,202

2,835

2,438Other operating expense

10,661

9,895

10,402

9,481Income before income taxes and minority interest

1,820

2,403

1,900

3,452Minority interest in subsidiaries

99

102

94

75Pre tax income

1,721

2,301

1,806

3,377Income taxes

775

751

367

1,229Net Income

$946

$1,550

$1,439

$2,148Earnings per share, basic

$0.15

$0.24

$0.23

$0.34Earnings per share, diluted

$0.14

$0.24

$0.23

$0.34   2007 Quarter Ended

Dec. 31

Sept. 30

June 30

March 31(In Thousands Except Per Share Amounts)Total interest income

$18,242

$18,470

$18,373

$17,982Total interest expense

5,314

6,058

5,986

5,879Net interest income

12,928

12,412

12,387

12,103Provision for loan losses

3,000

725

1,333

455Other operating income

2,730

2,809

2,726

1,689Other operating expense

8,839

8,585

8,680

8,959Income before income taxes and minority interest

3,819

5,911

5,100

4,378Minority interest in subsidiaries

75

85

80

50Pre tax income

3,744

5,826

5,020

4,328Income taxes

1,583

2,200

1,878

1,599Net Income

$2,161

$3,626

$3,142

$2,729Earnings per share, basic

$0.34

$0.57

$0.49

$0.42Earnings per share, diluted

$0.34

$0.56

$0.48

$0.42   NOTE 24 
    Disputes
    and Claims   68




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##### Table of Contents



NOTE 25 
    Parent
    Company Financial Information    Balance Sheets for December 31,

2008

2007

2006(In Thousands)AssetsCash

$5,160

$3,951

$12,629Investment in Northrim Bank

114,623

112,184

97,806Investment in NISC

2,025

1,795

2,530Investment in NCT1

248

248

248Investment in NST2

310

310

310Due from NISC

382

530

110Due from Northrim Building



312

Due from Northrim Bank

14



Other assets

678

1,001

414Total Assets

$123,440

$120,331

$114,047LiabilitiesJunior subordinated debentures

$18,558

$18,558

$18,558Other liabilities

234

382

71Total Liabilities

18,792

18,940

18,629Shareholders EquityCommon stock

6,331

6,300

6,114Additional paid-in capital

51,458

50,798

46,379Retained earnings

45,958

44,068

43,212Accumulated other comprehensive
    income- net
    unrealized gains on available for sale investment securities

901

225

(287)Total Shareholders Equity

104,648

101,391

95,418Total Liabilities and Shareholders Equity

$123,440

$120,331

$114,047   Statements of Income For Years
    Ended:

2008

2007

2006(In Thousands)IncomeInterest income

$115

$518

$578Net income from Northrim Bank

7,813

13,365

14,432Net loss from NISC

(24)

(95)

(170)Other income

30



Total Income

7,934

13,788

14,840ExpenseInterest expense

998

1,421

1,360Administrative and other expenses

1,765

1,691

1,262Total Expense

2,763

3,112

2,622Net Income Before Income Taxes

5,171

10,676

12,218Income tax expense (benefit)

(912)

(982)

(756)Net Income

$6,083

$11,658

$12,974   69




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##### Table of Contents



Statements of Cash Flows For Years
    Ended:

2008

2007

2006(In Thousands)Operating Activities:Net income

$6,083

$11,658

$12,974Adjustments to Reconcile Net Income to Net Cash:Equity in undistributed earnings from subsidiaries

(7,789)

(13,270)

(9,512)Stock-based compensation

597

578

390Changes in other assets and liabilities

611

(1,027)

583Net Cash Used from Operating Activities

(498)

(2,061)

4,435Investing Activities:Investment in Northrim Bank, NISC, NCT1 & NST2

5,795

140

(210)Net Cash Used by Investing Activities

5,795

140

(210)Financing Activities:Dividends paid to shareholders

(4,182)

(3,542)

(2,768)Proceeds from issuance of trust preferred securities





Proceeds from issuance of common stock and excess tax benefits

94

181

568Repurchase of common stock



(3,396)

(410)Net Cash Provided by Financing Activities

(4,088)

(6,757)

(2,610)Net Increase by Cash and Cash Equivalents

1,209

(8,678)

1,615Cash and Cash Equivalents at beginning of period

3,951

12,629

11,014Cash and Cash Equivalents at end of period

$5,160

$3,951

$12,629  70




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##### Table of Contents



Annual
    Report on
    Form 10-K        92-0175752
   (907) 562-0062
            Rule 12b-2
         Rule 12b-2
   Regulation S-K Form 10-K.
         Form 10-K Form 10-K.
 71




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##### Table of Contents



Index
  Part I

PageItem 1.

Business

1-4, 7-26, 73-80General

1-4, 73-80Investment Portfolio

22-24, 40, 45-48, 65-67Loan Portfolio

7-8, 16-22, 40-41, 48-50, 65-67Summary of Loan Loss Experience

16-22, 40-41, 48-50, 65-67Deposits

24-26, 54-55, 65-67Return on Equity and Assets

5Short-term Borrowings

25-26, 55, 65-67Item 1A.

Risk Factors

78-79Item 1B.

Unresolved Staff Comments

NoneItem 2.

Properties

80Item 3.

Legal Proceedings

68Item 4.

Submission of Matters to a Vote of Security Holders

NonePart IIItem 5.

Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities

26-30, 60Item 6.

Selected Financial Data

5-6Item 7.

Managements Discussion and Analysis of Financial Condition
    and Results of Operations

7-33Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

31-33Item 8.

Financial Statements and Supplementary Data

36-70Item 9.

Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure

NoneItem 9A.

Controls and Procedures

33Item 9B.

Other Information

NonePart IIIItem 10.

Directors, Executive Officers and Corporate Governance

*Item 11.

Executive Compensation

*Item 12.

Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters

*Item 13.

Certain Relationships and Related Transactions

*Item 14.

Principal Accounting Fees and Services

*Part IVItem 15.

Exhibits, Financial Statement Schedules

81-84    72




---



##### Table of Contents



General
      Competition
       73




---



##### Table of Contents



Number of



Market share ofFinancial institution

branches

Total deposits

deposits(Dollars in Thousands)Northrim Bank

8(1)

$800,229

24%Wells Fargo Bank Alaska

14

1,361,773

41%First National Bank Alaska

10

756,542

23%Key Bank

4

411,135

12%Total

38

$3,329,679

100%   (1)
    
    Does not reflect our Fairbanks or
    Wasilla branches  Employees
    and Key Personnel
      Alaska
    Economy
       74




---



##### Table of Contents



and/or
  Supervision
    and Regulation
       75




---



##### Table of Contents



76




---



##### Table of Contents



30-day 30-day
         77




---



##### Table of Contents



Risk
    Factors
      Effect of Recent Government Legislation:
  Unprecedented Volatility in the Financial
    Markets:
  
    We expect to face increased regulation of our industry,
    including as a result of the EESA. Compliance with such
    regulation may increase our costs and limit our ability to
    pursue business opportunities.
    Competition in our industry could intensify as a result of the
    increasing consolidation of financial services companies in
    connection with current market conditions.
    We may be required to pay significantly higher FDIC premiums
    because market developments have significantly depleted the
    insurance fund of the FDIC and reduced the ratio of reserves to
    insured deposits.  The Residential Real Estate Portfolio is Expected to
    Produce Lower Earnings:
  Adequacy of Loan Loss Allowance:
 78




---



##### Table of Contents



Changes in Market Interest Rates:
  Growth and Management:
  Concentration:
    Regulation:
  Competition: and/or
  Credit Risk:
 79




---



##### Table of Contents



Properties
    Locations

Type

Leased/OwnedMidtown Financial Center: Northrim Headquarters
    3111 C Street, Anchorage, AK

Traditional

Land leased; building ownedSouthSide Financial Center
    8730 Old Seward Highway, Anchorage, AK

Traditional

Land leased; building owned36th Avenue Branch
    811 East 36th Avenue, Anchorage, AK

Traditional

OwnedHuffman Branch
    1501 East Huffman Road, Anchorage, AK

Supermarket

LeasedJewel Lake Branch
    9170 Jewel Lake Road, Anchorage, AK

Traditional

LeasedSeventh Avenue Branch
    550 West Seventh Avenue, Anchorage, AK

Traditional

LeasedWest Anchorage Branch/Small Business Center
    2709 Spenard Road, Anchorage, AK

Traditional

OwnedEagle River Branch
    12812 Old Glenn Highway, Fire Lake Plaza, Eagle River, AK

Traditional

LeasedDowntown Fairbanks Branch
    714 Fourth Avenue, Suite 100, Fairbanks, AK

Traditional

LeasedFairbanks Financial Center
    360 Merhar Avenue, Fairbanks, AK

Traditional

OwnedWasilla Financial Center
    850 E. USA Circle, Suite A, Wasilla, AK

Traditional

Owned   Financial
    Statements and Exhibits
               80




---



##### Table of Contents



Exhibits
  Index to Exhibits
  ExhibitNumber

Name of Document3.1

Amended and Restated Articles of
    Incorporation(1)3.2

Amended and Restated
    Bylaws(2)4.1

Form of Common Stock
    Certificate(1)4.2

Pursuant to Section 6.0(b)(4)(iii)(A) of
    Regulation S-K,
    copies of instruments defining 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.4.3

Indenture dated as of December 16,
    2005(5)4.4

Form of Junior Subordinated Debt Security due
    2036(5)10.1

Employee Stock Option and Restricted Stock Award
    Plan(1)10.2

2000 Employee Stock Incentive
    Plan(1)10.7

Plan and Agreement of Reorganization between the Registrant and
    Northrim Bank dated as of March 7,
    2001(3)10.8

Supplemental Executive Retirement Plan dated July 1, 1994,
    as amended January 8,
    2004(4)10.9

Supplemental Executive Retirement Deferred Compensation
    Plan(3)10.10

2004 Stock Incentive
    Plan(4)10.12

Capital Securities Purchase Agreement dated December 14,
    2005(5)10.13

Amended and Restated Declaration of Trust Northrim
    Statutory Trust 2 dated as of December 16, 2005(5)10.16

Amended and Restated Employment Agreement with R. Marc
    Langland(6)10.17

Amended and Restated Employment Agreement with Joseph M.
    Schierhorn(6)10.18

Amended and Restated Employment Agreement with Christopher N.
    Knudson(6)10.19

Amended and Restated Employment Agreement with Joseph M.
    Beedle(6)10.21

Supplemental Executive Retirement Plan dated July 1, 1994,
    as amended January 1,
    2005(7)10.22

Deferred Compensation Plan dated January 1, 1995, as
    amended January 1,
    2005(7)10.23

Supplemental Executive Retirement Deferred Compensation Plan
    dated February 1, 2002, as amended January 1,
    2005(7)10.24

Employment Agreement with Steven L.
    Hartung(8)10.25

Supplemental Executive Retirement Plan dated July 1, 1994,
    as amended May 1, 2008, effective as of January 1,
    2005(9)10.26

Deferred Compensation Plan dated January 1, 1995, as
    amended May 1, 2008 effective as of January 1,
    2005(9)10.27

Supplemental Executive Retirement Deferred Compensation Plan
    dated February 1, 2002, as amended May 1, 2008
    effective as of January 1,
    2005(9)10.28

Northrim Bank Executive Incentive Plan dated November 3,
    1994(10)21

SubsidiariesNorthrim BankNorthrim Investment Services CompanyNorthrim Capital Trust 123

Consent of KPMG
    LLP(10)24

Power of
    Attorney(10)31.1

Certification of Chief Executive Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of
    2002(10)31.2

Certification of Chief Financial Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of
    2002(10)32.1

Certification of Chief Executive Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of
    2002(10)32.2

Certification of the Chief Financial Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of
    2002(10)     (1)

    
    Incorporated by reference to the Companys
    Form 8-A,
    filed with the SEC on January 14, 2002  (2)

    
    Incorporated by reference to the Companys
    Form 8-K,
    filed with the SEC on September 7, 2007(3)

    
    Incorporated by reference to the Companys
    Form 10-K
    for the year ended December 31, 2002, filed with the SEC on
    March 19, 2003 81




---



##### Table of Contents



(4)

    
    Incorporated by reference to the Companys
    Form 10-K
    for the year ended December 31, 2003, filed with the SEC on
    March 15, 2004(5)

    
    Incorporated by reference to the Companys
    Form 10-K
    for the year ended December 31, 2005, filed with the SEC on
    March 16, 2006(6)

    
    Incorporated by reference to the Companys
    Form 10-K
    for the year ended December 31, 2006, filed with the SEC on
    March 16, 2007(7)

    
    Incorporated by reference to the Companys
    Form 10-Q
    for the quarter ended September 30, 2007, filed with the
    SEC on November 8, 2007(8)

    
    Incorporated by reference to the Companys
    Form 8-K,
    filed with the SEC on January 15, 2008(9)

    
    Incorporated by reference to the Companys
    Form 8-K,
    filed with the SEC on May 8, 2008(10)

    
    Filed with this
    Form 10-K 82




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##### Table of Contents



Signatures
    Northrim BanCorp, Inc.
  By
    /s/  R.
    Marc Langland         
            Form 10-K,
  Larry S. Cash


R. Marc LanglandMark G. Copeland


Richard L. LowellRonald A. Davis


Irene Sparks RowanAnthony Drabek


John C. SwallingChristopher N. Knudson


David G. Wight   By
    /s/  R.
    Marc Langland     83




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##### Table of Contents



Investor
    Information
  Annual
    Meeting
  Date:

Thursday, May 14, 2009Time:

9 a.m.Location:

Hilton Anchorage Hotel 
    500 West Third Avenue
    Anchorage, AK 99501   Stock
    Symbol
    Auditor
    Transfer
    Agent and Registrar
  1-800-937-5449
  Legal
    Counsel
    Information
    Requests
    
    Visit our home page, www.northrim.com, and click on the
    For Investorssection for stock information
    and copies of earnings and dividend releases.
    If you would like to be added to Northrims investor
    e-mail list
    or have investor information mailed to you, send a request to
    investors@nrim.com or call our Corporate Secretary at
    (907) 261-3301.  Written requests should be mailed to the following
    address:
    99524-1489
  (907) 562-0062
 (907) 562-1758
 E-mail:
 http://www.northrim.com
 84