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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, 2004 Commission File Number 0-33501 Northrim BanCorp, Inc.  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) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o Indicate by check mark if the registrant is an accelerated filer within the meaning of Rule 12b-2
under the Securities Exchange Act of 1934, as amended. Yes  x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(17 C.F.R. 229.405) is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendments to this Form 10-K. Yes o Nox The aggregate market value of common stock held by non-affiliates of registrant at June 30, 2004,
was $116,745,003. The number of shares of registrants common stock outstanding at March 1, 2005, was 6,089,120. Documents incorporated by reference and parts of Form 10-K into which incorporated: The portions
of the Proxy Statement for Northrim BanCorps Annual Shareholders Meeting to be held on May 5,
2005, referenced in Part III of this Form 10-K are incorporated by reference therein.




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Northrim BanCorp, Inc.


Table of Contents


|                                                                                          |  |      |    | 
|----------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                          |  | Page |   
|                                                                                          |  |      |   
|Northrim BanCorp, Inc.                                                                    |  |      |    | 
|About the Company                                                                         |  |      | 1  | 
|Financial Section                                                                         |  |      |    | 
|Selected Financial Data                                                                   |  |      | 5  | 
|Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |      | 6  | 
|Report of Independent Registered Public
    Accounting Firm                               |  |      | 24 | 
|Consolidated Financial Statements                                                         |  |      | 26 | 
|Notes to Consolidated Financial
    Statements                                            |  |      | 30 | 
|Annual Report on Form 10-K                                                                |  |      | 50 | 
|Signatures                                                                                |  |      | 58 | 
|EXHIBIT 10.11                                                                            
|EXHIBIT 23                                                                               
|EXHIBIT 24                                                                               
|EXHIBIT 31.1                                                                             
|EXHIBIT 31.2                                                                             
|EXHIBIT 32.1                                                                             
|EXHIBIT 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s managements expectations about future
events and developments such as future operating results, growth
in loans and deposits, continued success of Northrim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 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 our ability to compete on price and other factors
with other financial institutions; customer acceptance of new
products and services; the regulatory environment in which we
operate; and general trends in the local, regional and national
banking industry 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 Northrim Banks
filings with the FDIC and those identified from time to time 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.


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Northrim BanCorp, Inc.


About the Company


Overview
















| |   |                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Anchorage: We have two major financial
    centers in Anchorage, three smaller branches and two supermarket
    branches.                                                                                                                                                                                                                                       
|
| |  | 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. We are currently analyzing
    additional market opportunities in this 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.                                                                                                                            
|
| |  | 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.                                                                                

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New Core Software System




Elliott Cove Capital Management LLC






Northrim Funding Services




Business Strategies






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Providing Customer First Service: 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.
|
| |  | 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 are a major land development and
    residential construction lender and an active lender in the
    commercial real estate market. Management believes that our
    willingness to provide these services in a professional and
    responsive manner has contributed significantly to our growth.
    Because of                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Pursuing Strategic Opportunities for Additional
    Growth: Management believes that the Bank of
    America branch acquisition 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. 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.
|
| |  | Developing a Sales Culture: In 2003, we
    conducted extensive sales training throughout the company and
    developed a comprehensive approach to sales. In 2004, we
    continued with this sales training in all of our major customer
    contact areas. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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 non-cash deposits from our customers to
    their branch.                                                                                            

Lending Services:


Other Customer Services:


Directors and Executive Officers:


|                            |  |                                                                                                       
|--------------------------- |  | ------------------------------------------------------------------------------------------------------
|Executive Officers/Age      |  | Occupation                                                                                            
|*R. Marc Langland, 63       |  | Chairman, President, & CEO of the Company and the Bank,
    and Director, Alaska Air Group            
|*Christopher N. Knudson, 51 |  | Executive Vice President and Chief Operating Officer of the
    Company and the Bank                  
|Victor P. Mollozzi, 55      |  | Senior Vice President, Senior Credit Officer of the Bank                                              
|Joseph M. Schierhorn, 47    |  | Senior Vice President, Chief Financial Officer, and Compliance
    Manager of the Company and the Bank
|Robert L. Shake, 46         |  | Senior Vice President, Executive Loan Manager of the Bank                                             

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|                       |  |                                                                                                                                                                                           
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Directors/Age          |  | Occupation                                                                                                                                                                                
|Larry S. Cash, 53      |  | President and CEO, RIM Architects (Alaska), Inc.; CEO, RIM
    Architects (Guam), Inc.                                                                                                    
|Mark G. Copeland, 62   |  | Owner and sole member of Strategic Analysis, LLC, a management
    consulting firm                                                                                                        
|Frank A. Danner, 71    |  | Secretary/Treasurer, IMEX, Ltd. dba Dynamic Property (real
    estate firm)                                                                                                               
|Ronald A. Davis, 72    |  | Former Vice President, Acordia of Alaska Insurance (full service
    insurance agency)                                                                                                    
|Anthony Drabek, 57     |  | President and CEO, Natives of Kodiak, Inc. (Alaska Native
    Corporation), Chairman and President, Koncor Forest Products
    Company; Secretary/Director, Atikon Forest Products Company
|Richard L. Lowell, 64  |  | Chairman, Ribelin Lowell Alaska USA Insurance Brokers, Inc.
    (insurance brokerage firm)                                                                                                
|Irene Sparks Rowan, 63 |  | Former Chairman and Director, Klukwan, Inc. (Alaska Native
    Corporation) and its subsidiaries                                                                                          
|John C. Swalling, 55   |  | President, Swalling & Associates, P.C. (accounting
    firm)                                                                                                                              
|Joseph E. Usibelli, 66 |  | Chairman, Usibelli Coal Mine, Inc.                                                                                                                                                        

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Selected Financial Data


|                                          |                            |                                      |          |        |      |  |          |        |  |  |          |        |  |      |          |        |  |  |          |       | 
|----------------------------------------- | -------------------------- | ------------------------------------ | -------- | ------ | ---- |  | -------- | ------ |  |  | -------- | ------ |  | ---- | -------- | ------ |  |  | -------- | ----- | 
|                                          |                           
|                                          |                            | 2004                                 |          |        | 2003 |  |          | 2002   |  |  | 2001     |        |  | 2000 |         
|                                          |                           
|                                          |                            | (In Thousands Except Per Share Data) |         
|Net interest income                       |                            |                                      | $41,271  |        |      |  | $39,267  |        |  |  | $34,670  |        |  |      | $31,349  |        |  |  | $28,279  |      
|Provision for loan losses                 |                            |                                      | 1,601    |        |      |  | 3,567    |        |  |  | 3,095    |        |  |      | 2,300    |        |  |  | 1,284    |      
|Other operating income                    |                            |                                      | 3,792    |        |      |  | 6,089    |        |  |  | 5,199    |        |  |      | 4,766    |        |  |  | 3,426    |      
|Other operating expense                   |                            |                                      | 26,535   |        |      |  | 24,728   |        |  |  | 23,061   |        |  |      | 22,569   |        |  |  | 21,304   |      
|                                         
|                                          | Income before income taxes |                                      |          | 16,927 |      |  |          | 17,061 |  |  |          | 13,713 |  |      |          | 11,246 |  |  |          | 9,117 | 
|Income taxes                              |                            |                                      | 6,227    |        |      |  | 6,516    |        |  |  | 5,171    |        |  |      | 4,138    |        |  |  | 3,284    |      
|                                         
|Net income                                |                            |                                      | $10,700  |        |      |  | $10,545  |        |  |  | $8,542   |        |  |      | $7,108   |        |  |  | $5,833   |      
|                                         
|                                         
|Earnings per share:                       |                            |                                      |          |        |      |  |          |        |  |  |          |        |  |      |          |        |  |  |          |      
|                                          | Basic                      |                                      |          | $1.76  |      |  |          | $1.76  |  |  |          | $1.40  |  |      |          | $1.17  |  |  |          | $0.97 | 
|                                          | Diluted                    |                                      |          | 1.71   |      |  |          | 1.69   |  |  |          | 1.35   |  |      |          | 1.13   |  |  |          | 0.95  | 
|Cash dividends per share                  |                            |                                      | 0.38     |        |      |  | 0.33     |        |  |  | 0.20     |        |  |      | 0.20     |        |  |  | 0.20     |      
|                                         
|Assets                                    |                            |                                      | $800,726 |        |      |  | $738,569 |        |  |  | $704,249 |        |  |      | $620,518 |        |  |  | $547,496 |      
|Loans                                     |                            |                                      | 678,269  |        |      |  | 601,119  |        |  |  | 534,990  |        |  |      | 482,562  |        |  |  | 413,445  |      
|Deposits                                  |                            |                                      | 699,061  |        |      |  | 646,197  |        |  |  | 626,415  |        |  |      | 550,607  |        |  |  | 484,918  |      
|Long-term debt                            |                            |                                      | 2,974    |        |      |  | 3,374    |        |  |  | 3,774    |        |  |      | 1,500    |        |  |  | 1,500    |      
|Trust preferred securities                |                            |                                      | 8,000    |        |      |  | 8,000    |        |  |  |         |        |  |      |         |        |  |  |         |      
|Shareholders equity                      |                            |                                      | 83,358   |        |      |  | 75,285   |        |  |  | 68,373   |        |  |      | 60,791   |        |  |  | 54,299   |      
|                                         
|Book value                                |                            |                                      | $13.69   |        |      |  | $12.44   |        |  |  | $11.22   |        |  |      | $9.95    |        |  |  | $8.90    |      
|Tangible book value                       |                            |                                      | $12.60   |        |      |  | $11.29   |        |  |  | $10.01   |        |  |      | $8.69    |        |  |  | $7.48    |      
|Net interest margin (tax equivalent)      |                            |                                      | 5.88%    |        |      |  | 6.04%    |        |  |  | 5.82%    |        |  |      | 5.88%    |        |  |  | 5.82%    |      
|Efficiency ratio (cash)                   |                            |                                      | 58.07%   |        |      |  | 53.71%   |        |  |  | 56.92%   |        |  |      | 60.19%   |        |  |  | 64.57%   |      
|Return on assets                          |                            |                                      | 1.41%    |        |      |  | 1.50%    |        |  |  | 1.33%    |        |  |      | 1.23%    |        |  |  | 1.10%    |      
|Return on equity                          |                            |                                      | 13.50%   |        |      |  | 14.89%   |        |  |  | 13.32%   |        |  |      | 12.34%   |        |  |  | 11.44%   |      
|Equity/assets                             |                            |                                      | 10.41%   |        |      |  | 10.19%   |        |  |  | 9.71%    |        |  |      | 9.80%    |        |  |  | 9.92%    |      
|Dividend payout ratio                     |                            |                                      | 21.57%   |        |      |  | 19.04%   |        |  |  | 14.29%   |        |  |      | 17.09%   |        |  |  | 20.62%   |      
|Nonperforming loans/portfolio loans       |                            |                                      | 0.97%    |        |      |  | 1.72%    |        |  |  | 1.09%    |        |  |      | 0.77%    |        |  |  | 0.86%    |      
|Net charge-offs/average loans             |                            |                                      | 0.16%    |        |      |  | 0.33%    |        |  |  | 0.36%    |        |  |      | 0.29%    |        |  |  | 0.28%    |      
|Allowance for loan losses/portfolio loans |                            |                                      | 1.59%    |        |      |  | 1.70%    |        |  |  | 1.61%    |        |  |      | 1.55%    |        |  |  | 1.50%    |      
|Nonperforming assets/assets               |                            |                                      | 0.82%    |        |      |  | 1.40%    |        |  |  | 0.81%    |        |  |      | 0.58%    |        |  |  | 0.65%    |      
|                                         
|Number of banking offices                 |                            |                                      | 10       |        |      |  | 10       |        |  |  | 10       |        |  |      | 10       |        |  |  | 10       |      
|Number of employees (FTE)                 |                            |                                      | 272      |        |      |  | 268      |        |  |  | 246      |        |  |      | 234      |        |  |  | 223      |      
|                                         

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Managements Discussion and Analysis of Financial
Condition and


Results of Operation


Overview














Results of Operations


Net Income




Net Interest Income






6



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|                                      |                                                           |                                  |                                            |          |          |          |         |         |       |         |             |       |          |         |  |          |         |          |         |             |          |        |         |       |       |        |  |          |         |          |         |         |       |        |       |       |       |       | 
|------------------------------------- | --------------------------------------------------------- | -------------------------------- | ------------------------------------------ | -------- | -------- | -------- | ------- | ------- | ----- | ------- | ----------- | ----- | -------- | ------- |  | -------- | ------- | -------- | ------- | ----------- | -------- | ------ | ------- | ----- | ----- | ------ |  | -------- | ------- | -------- | ------- | ------- | ----- | ------ | ----- | ----- | ----- | ----- | 
|                                      |                                                          
|Years Ended                           |                                                           | 2004                             |                                            |          |          |          | 2002    |        
|December 31,                          |                                                           |                                  |                                            | 2003     |          |          |        
|                                      |                                                          
|                                      |                                                           | Average                          |                                            |          | Interest |          |         |         |       | Average |             |       | Interest |         |  |          |         | Average  |         |             | Interest |        |         |      
|                                      |                                                           | outstanding                      |                                            |          | 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)                                                  |                                  |                                            | $628,830 |          |          |         | $45,898 |       |         |             | 7.30% |          |         |  | $569,532 |         |          |         | $42,945     |          |        |         | 7.54% |       |        |  | $505,706 |         |          |         | $40,835 |       |        |       | 8.07% |      
|                                      | Securities                                                |                                  |                                            | 64,008   |          |          |         | 2,492   |       |         |             | 3.89% |          |         |  | 69,972   |         |          |         | 2,867       |          |        |         | 4.10% |       |        |  | 76,899   |         |          |         | 3,730   |       |        |       | 4.85% |      
|                                      | Overnight investments                                     |                                  |                                            | 11,633   |          |          |         | 164     |       |         |             | 1.41% |          |         |  | 13,987   |         |          |         | 136         |          |        |         | 0.97% |       |        |  | 17,121   |         |          |         | 269     |       |        |       | 1.57% |      
|                                     
|                                      |                                                           |                                  | Total interest-earning assets              |          |          | 704,471  |         |         |       | 48,554  |             |       |          | 6.89%   |  |          |         | 653,491  |         |             |          | 45,948 |         |       |       | 7.03%  |  |          |         | 599,726  |         |         |       | 44,834 |       |       |       | 7.48% | 
|                                      | Noninterest-earning assets                                |                                  |                                            | 54,788   |          |          |         |         |       |         |             |       |          |         |  | 51,194   |         |          |         |             |          |        |         |       |       |        |  | 44,660   |         |          |         |         |       |        |       |       |      
|                                     
|                                      |                                                           |                                  | Total assets                               |          |          | $759,259 |         |         |       |         |             |       |          |         |  |          |         | $704,685 |         |             |          |        |         |       |       |        |  |          |         | $644,386 |         |         |       |        |       |       |       |       | 
|                                     
|                                     
|Liabilities and Shareholders Equity:
|                                      | Deposits:                                                 |                                  |                                            |          |          |          |         |         |       |         |             |       |          |         |  |          |         |          |         |             |          |        |         |       |       |        |  |          |         |          |         |         |       |        |       |       |      
|                                      |                                                           | Interest-bearing demand accounts |                                            |          | $57,373  |          |         |         | $221  |         |             |       | 0.39%    |         |  |          | $52,955 |          |         |             | $205     |        |         |       | 0.39% |        |  |          | $49,198 |          |         |         | $353  |        |       |       | 0.72% |      
|                                      |                                                           | Money market accounts            |                                            |          | 126,567  |          |         |         | 1,527 |         |             |       | 1.21%    |         |  |          | 134,582 |          |         |             | 1,293    |        |         |       | 0.96% |        |  |          | 131,227 |          |         |         | 2,063 |        |       |       | 1.57% |      
|                                      |                                                           | Savings accounts                 |                                            |          | 139,876  |          |         |         | 2,290 |         |             |       | 1.64%    |         |  |          | 104,158 |          |         |             | 1,182    |        |         |       | 1.13% |        |  |          | 82,061  |          |         |         | 1,514 |        |       |       | 1.84% |      
|                                      |                                                           | Certificates of deposit          |                                            |          | 155,134  |          |         |         | 2,671 |         |             |       | 1.72%    |         |  |          | 164,847 |          |         |             | 3,523    |        |         |       | 2.14% |        |  |          | 172,531 |          |         |         | 6,021 |        |       |       | 3.49% |      
|                                     
|                                      |                                                           |                                  | Total interest-bearing deposits            |          |          | 478,950  |         |         |       | 6,709   |             |       |          | 1.40%   |  |          |         | 456,542  |         |             |          | 6,203  |         |       |       | 1.36%  |  |          |         | 435,017  |         |         |       | 9,951  |       |       |       | 2.29% | 
|                                      | Borrowings                                                |                                  |                                            | 14,525   |          |          |         | 574     |       |         |             | 3.95% |          |         |  | 13,235   |         |          |         | 478         |          |        |         | 3.61% |       |        |  | 6,513    |         |          |         | 213     |       |        |       | 3.27% |      
|                                     
|                                      |                                                           |                                  | Total interest-bearing liabilities         |          |          | 493,475  |         |         |       | 7,283   |             |       |          | 1.48%   |  |          |         | 469,777  |         |             |          | 6,681  |         |       |       | 1.42%  |  |          |         | 441,530  |         |         |       | 10,164 |       |       |       | 2.30% | 
|                                      | Demand deposits and other noninterest-bearing liabilities |                                  |                                            | 186,506  |          |          |         |         |       |         |             |       |          |         |  | 164,091  |         |          |         |             |          |        |         |       |       |        |  | 138,742  |         |          |         |         |       |        |       |       |      
|                                     
|                                      |                                                           |                                  | Total liabilities                          |          |          | 679,981  |         |         |       |         |             |       |          |         |  |          |         | 633,868  |         |             |          |        |         |       |       |        |  |          |         | 580,272  |         |         |       |        |       |       |       |       | 
|                                      | Shareholders equity                                      |                                  |                                            | 79,278   |          |          |         |         |       |         |             |       |          |         |  | 70,817   |         |          |         |             |          |        |         |       |       |        |  | 64,114   |         |          |         |         |       |        |       |       |      
|                                     
|                                      |                                                           |                                  | Total liabilities and shareholders equity |          |          | $759,259 |         |         |       |         |             |       |          |         |  |          |         | $704,685 |         |             |          |        |         |       |       |        |  |          |         | $644,386 |         |         |       |        |       |       |       |       | 
|                                     
|Net interest income                   |                                                           |                                  |                                            |          |          |          | $41,271 |         |       |         |             |       |          |         |  |          |         |          | $39,267 |             |          |        |         |       |       |        |  |          |         |          | $34,670 |         |       |        |       |      
|                                     
|Net interest margin
    (3)           |                                                           |                                  |                                            |          |          |          |         |         |       |         | 5.86%       |       |          |         |  |          |         |          |         |             |          |        | 6.01%   |       |       |        |  |          |         |          |         |         |       |        | 5.78% |      
|                                     

7



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##### Table of Contents





|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 5.88%,
    6.04%, 5.82%, 5.88%, and 5.82%, respectively, for 2004, 2003,
    2002, 2001, and 2000.



|                  |                       |                                  |                            |        |                            |        |  |          |       |          |        |        |       |        |  |        |       |        |  |          |         |          |  |        |         |          | 
|----------------- | --------------------- | -------------------------------- | -------------------------- | ------ | -------------------------- | ------ |  | -------- | ----- | -------- | ------ | ------ | ----- | ------ |  | ------ | ----- | ------ |  | -------- | ------- | -------- |  | ------ | ------- | -------- | 
|                  |                      
|                  |                       | 2004 compared to 2003            |                            |        | 2003 compared to 2002      |       
|                  |                      
|                  |                       | Increase (decrease) due to       |                            |        | Increase (decrease) due to |       
|                  |                       | Volume                           |                            |        | Rate                       |        |  | Total    |       |          | Volume |        |       | Rate   |  |        | Total |       
|                  |                      
|Interest Income:  |                       |                                  |                            |        |                            |        |  |          |       |          |        |        |       |        |  |        |       |        |  |          |         |          |  |       
|                  | Loans                 |                                  |                            | $4,265 |                            |        |  | ($1,312) |       |          |        | $2,953 |       |        |  | $4,930 |       |        |  | ($2,820) |         |          |  | $2,110 |        
|                  | Securities            |                                  |                            | (237)  |                            |        |  | (138)    |       |          |        | (375)  |       |        |  | (317)  |       |        |  | (546)    |         |          |  | (863)  |        
|                  | Overnight investments |                                  |                            | (17)   |                            |        |  | 45       |       |          |        | 28     |       |        |  | (43)   |       |        |  | (90)     |         |          |  | (133)  |        
|                 
|                  |                       |                                  | Total interest income      |        |                            | $4,011 |  |          |       | ($1,405) |        |        |       | $2,606 |  |        |       | $4,570 |  |          |         | ($3,456) |  |        |         | $1,114   | 
|                 
|Interest Expense: |                       |                                  |                            |        |                            |        |  |          |       |          |        |        |       |        |  |        |       |        |  |          |         |          |  |       
|                  | Deposits:             |                                  |                            |        |                            |        |  |          |       |          |        |        |       |        |  |        |       |        |  |          |         |          |  |        |        
|                  |                       | Interest-bearing demand accounts |                            |        | $17                        |        |  |          | ($1)  |          |        |        | $16   |        |  |        | $25   |        |  |          | ($173)  |          |  |        | ($148)  |         
|                  |                       | Money market accounts            |                            |        | (71)                       |        |  |          | 305   |          |        |        | 234   |        |  |        | 52    |        |  |          | (822)   |          |  |        | (770)   |         
|                  |                       | Savings accounts                 |                            |        | 483                        |        |  |          | 625   |          |        |        | 1,108 |        |  |        | 343   |        |  |          | (675)   |          |  |        | (332)   |         
|                  |                       | Certificates of deposit          |                            |        | (199)                      |        |  |          | (653) |          |        |        | (852) |        |  |        | (258) |        |  |          | (2,240) |          |  |        | (2,498) |         
|                 
|                  |                       |                                  | Total interest on deposits |        |                            | 230    |  |          |       | 276      |        |        |       | 506    |  |        |       | 162    |  |          |         | (3,910)  |  |        |         | (3,748)  | 
|                  | Borrowings            |                                  |                            | 49     |                            |        |  | 47       |       |          |        | 96     |       |        |  | 241    |       |        |  | 24       |         |          |  | 265    |        
|                 
|                  |                       |                                  | Total interest expense     |        |                            | $279   |  |          |       | $323     |        |        |       | $602   |  |        |       | $403   |  |          |         | ($3,886) |  |        |         | ($3,483) | 
|                 

8



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##### Table of Contents



Other Operating Income




|                         |                                   |                                       |  |     |        |  |  |      |        |  |      |     |        |      |  |    |        |  |  |     |        | 
|------------------------ | --------------------------------- | ------------------------------------- |  | --- | ------ |  |  | ---- | ------ |  | ---- | --- | ------ | ---- |  | -- | ------ |  |  | --- | ------ | 
|                         |                                  
|Years Ended December 31, |                                   | 2004                                  |  |     | 2003   |  |  | 2002 |        |  | 2001 |     |        | 2000 | 
|                         |                                  
|                         |                                   | (In Thousands)                        | 
|Other Operating Income   |                                   |                                       |  |     |        |  |  |      |        |  |      |     |        |      |  |    |        |  |  |    
|                         |                                   | Deposit service charges               |  |     | $1,718 |  |  |      | $1,805 |  |      |     | $1,687 |      |  |    | $1,606 |  |  |     | $1,801 | 
|                         |                                   | Electronic banking fees               |  |     | 608    |  |  |      | 563    |  |      |     | 654    |      |  |    | 652    |  |  |     | 502    | 
|                         |                                   | Equity in earnings from RML           |  |     | 438    |  |  |      | 2,785  |  |      |     | 1,917  |      |  |    | 1,208  |  |  |     | 98     | 
|                         |                                   | Merchant credit card transaction fees |  |     | 414    |  |  |      | 363    |  |      |     | 423    |      |  |    | 400    |  |  |     | 296    | 
|                         |                                   | Other transaction fees                |  |     | 405    |  |  |      | 247    |  |      |     | 283    |      |  |    | 324    |  |  |     | 317    | 
|                         |                                   | Loan service fees                     |  |     | 379    |  |  |      | 416    |  |      |     | 350    |      |  |    | 467    |  |  |     | 318    | 
|                         |                                   | Equity in loss from Elliott Cove      |  |     | (457)  |  |  |      | (554)  |  |      |     | (239)  |      |  |    |       |  |  |     |       | 
|                         |                                   | Other income                          |  |     | 136    |  |  |      | 109    |  |      |     | 11     |      |  |    | 24     |  |  |     | 27     | 
|                        
|                         |                                   | Recurring sources                     |  |     | 3,641  |  |  |      | 5,734  |  |      |     | 5,086  |      |  |    | 4,681  |  |  |     | 3,359  | 
|                         | Gains on sale of SBA loans        |                                       |  |    |        |  |  |     |        |  |      |    |        |      |  |   |        |  |  | 56  |       
|                         | Gain (loss) on sale of securities |                                       |  | 151 |        |  |  | 310  |        |  |      | 113 |        |      |  | 47 |        |  |  | (3) |       
|                         | Gain on sale of ORE               |                                       |  |    |        |  |  | 45   |        |  |      |    |        |      |  | 38 |        |  |  | 14  |       
|                        
|                         |                                   | Other sources                         |  |     | 151    |  |  |      | 355    |  |      |     | 113    |      |  |    | 85     |  |  |     | 67     | 
|                        
|                         |                                   | Total other operating income          |  |     | $3,792 |  |  |      | $6,089 |  |      |     | $5,199 |      |  |    | $4,766 |  |  |     | $3,426 | 
|                        









9



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##### Table of Contents







Expenses


Provision for Loan Losses:


Other Operating Expense:


|                         |                                      |                               |   |        |        |  |   |        |        |  |      |        |        |      |   |        |        |  |   |        |        | 
|------------------------ | ------------------------------------ | ----------------------------- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                         |                                     
|Years Ended December 31, |                                      | 2004                          |   |        | 2003   |  |   | 2002   |        |  | 2001 |        |        | 2000 |  
|                         |                                     
|                         |                                      | (In Thousands)                |  
|Other Operating Expense  |                                      |                               |   |        |        |  |   |        |        |  |      |        |        |      |   |        |        |  |   |       
|                         | Salaries and other personnel expense |                               | $ | 15,708 |        |  | $ | 14,180 |        |  | $    | 13,023 |        |      | $ | 12,135 |        |  | $ | 11,165 |       
|                         | Occupancy, net                       |                               |   | 2,130  |        |  |   | 2,000  |        |  |      | 2,040  |        |      |   | 1,963  |        |  |   | 1,840  |       
|                         | Equipment, net                       |                               |   | 1,372  |        |  |   | 1,504  |        |  |      | 1,405  |        |      |   | 1,508  |        |  |   | 1,497  |       
|                         | Marketing                            |                               |   | 1,201  |        |  |   | 1,205  |        |  |      | 1,136  |        |      |   | 1,153  |        |  |   | 1,034  |       
|                         | Software amortization                |                               |   | 558    |        |  |   | 451    |        |  |      | 400    |        |      |   | 440    |        |  |   | 292    |       
|                         | Intangible asset amortization        |                               |   | 368    |        |  |   | 368    |        |  |      | 368    |        |      |   | 832    |        |  |   | 832    |       
|                         | Supply expense                       |                               |   | 244    |        |  |   | 314    |        |  |      | 492    |        |      |   | 443    |        |  |   | 462    |       
|                         | Legal expense                        |                               |   | 230    |        |  |   | 193    |        |  |      | 197    |        |      |   | 302    |        |  |   | 184    |       
|                         | Cash handling costs                  |                               |   | 171    |        |  |   | 230    |        |  |      | 269    |        |      |   | 327    |        |  |   | 460    |       
|                         | Loan collection and ORE costs        |                               |   | 156    |        |  |   | 161    |        |  |      | 68     |        |      |   | 49     |        |  |   | 124    |       
|                         | Consulting expense                   |                               |   | 89     |        |  |   | 144    |        |  |      | 78     |        |      |   | 104    |        |  |   | 50     |       
|                         | Other expenses                       |                               |   | 4,308  |        |  |   | 3,978  |        |  |      | 3,585  |        |      |   | 3,313  |        |  |   | 3,364  |       
|                        
|                         |                                      | Total other operating expense |   | $      | 26,535 |  |   | $      | 24,728 |  |      | $      | 23,061 |      |   | $      | 22,569 |  |   | $      | 21,304 | 
|                        





10



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##### Table of Contents















Income Taxes:


Financial Condition


Assets


Loans and Lending Activities





General:






11



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##### Table of Contents





Nonperforming Loans; Real Estate
Owned:


|                                                 |                                         |                            |       |        |        |  |       |        |         |  |       |        |        |      |       |        |        |  |       |        |        | 
|------------------------------------------------ | --------------------------------------- | -------------------------- | ----- | ------ | ------ |  | ----- | ------ | ------- |  | ----- | ------ | ------ | ---- | ----- | ------ | ------ |  | ----- | ------ | ------ | 
|                                                 |                                        
|December 31,                                     |                                         | 2004                       |       |        | 2003   |  |       | 2002   |         |  | 2001  |        |        | 2000 |      
|                                                 |                                        
|                                                 |                                         | (In Thousands)             |      
|Nonperforming loans                              |                                         |                            |       |        |        |  |       |        |         |  |       |        |        |      |       |        |        |  |       |       
|                                                 | Nonaccrual loans                        |                            |       | $5,876 |        |  |       | $7,426 |         |  |       | $4,717 |        |      |       | $2,615 |        |  |       | $2,425 |       
|                                                 | Accruing loans past due 90 days or more |                            |       | 290    |        |  |       | 2,283  |         |  |       | 1,019  |        |      |       | 965    |        |  |       | 1,101  |       
|                                                 | Restructured loans                      |                            |       | 424    |        |  |       | 597    |         |  |       |       |        |      |       |       |        |  |       | 48     |       
|                                                
|                                                 |                                         | Total nonperforming loans  |       |        | 6,590  |  |       |        | 10,306  |  |       |        | 5,736  |      |       |        | 3,580  |  |       |        | 3,574  | 
|Real estate owned                                |                                         |                            |      |        |        |  |      |        |         |  |      |        |        |      |      |        |        |  |      |       
|                                                
|                                                 |                                         | Total nonperforming assets |       |        | $6,590 |  |       |        | $10,306 |  |       |        | $5,736 |      |       |        | $3,580 |  |       |        | $3,574 | 
|                                                
|Allowance for loan losses to portfolio loans     |                                         |                            | 1.59% |        |        |  | 1.70% |        |         |  | 1.61% |        |        |      | 1.55% |        |        |  | 1.50% |       
|Allowance for loan losses to nonperforming loans |                                         |                            | 163%  |        |        |  | 99%   |        |         |  | 148%  |        |        |      | 201%  |        |        |  | 174%  |       
|Nonperforming loans to portfolio loans           |                                         |                            | 0.97% |        |        |  | 1.72% |        |         |  | 1.09% |        |        |      | 0.77% |        |        |  | 0.86% |       
|Nonperforming assets to total assets             |                                         |                            | 0.82% |        |        |  | 1.40% |        |         |  | 0.81% |        |        |      | 0.58% |        |        |  | 0.65% |       
|                                                

Nonaccrual, Accruing Loans 90 Days or More Past Due, and
Restructured Loans:






Potential Problem Loans:


Analysis of Allowance for Loan Losses:


12



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##### Table of Contents







|               |       |                          |            |         |          |  |    |            |   |  |          |         |            |        |    |     |          |            |        |        |  |  |            |     |   |        |        |        |          |  |    |     |   |  |        |        |  |  |    |     |  
|-------------- | ----- | ------------------------ | ---------- | ------- | -------- |  | -- | ---------- | - |  | -------- | ------- | ---------- | ------ | -- | --- | -------- | ---------- | ------ | ------ |  |  | ---------- | --- | - | ------ | ------ | ------ | -------- |  | -- | --- | - |  | ------ | ------ |  |  | -- | --- | -
|               |      
|December 31,   |       | 2004 2003 2002 2001 2000 |           
|               |      
|Balance        |       |                          | % of Total |         |          |  |    | % of Total |   |  |          |         | % of Total |        |    |     |          | % of Total |        |        |  |  | % of Total |    
|applicable     |       | Amount                   |            |         | Loans(1) |  |    | Amount     |   |  | Loans(1) |         |            | Amount |    |     | Loans(1) |            |        | Amount |  |  | Loans(1)   |     |   | Amount |        |        | Loans(1) | 
|               |      
|               |       | (Dollars in Thousands)   |           
|Commercial     |       |                          | $5,130     |         |          |  | 39 | %          |   |  | $5,610   |         |            |        | 37 | %   |          |            | $4,285 |        |  |  | 35         | %   |   |        | $4,086 |        |          |  | 34 | %   |   |  | $3,556 |        |  |  | 33 | %  
|Construction   |       |                          | 276        |         |          |  | 18 | %          |   |  | 282      |         |            |        | 17 | %   |          |            | 1,327  |        |  |  | 15         | %   |   |        | 336    |        |          |  | 14 | %   |   |  | 571    |        |  |  | 14 | %  
|Term           |       |                          | 1,634      |         |          |  | 37 | %          |   |  | 413      |         |            |        | 40 | %   |          |            | 275    |        |  |  | 40         | %   |   |        | 410    |        |          |  | 37 | %   |   |  | 389    |        |  |  | 39 | %  
|Loans for sale |       |                          |           |         |          |  | 0  | %          |   |  |         |         |            |        | 0  | %   |          |            |       |        |  |  | 1          | %   |   |        |       |        |          |  | 4  | %   |   |  |       |        |  |  | 0  | %  
|Consumer       |       |                          |           |         |          |  | 6  | %          |   |  | 3        |         |            |        | 6  | %   |          |            | 22     |        |  |  | 9          | %   |   |        | 5      |        |          |  | 11 | %   |   |  | 5      |        |  |  | 14 | %  
|Unallocated    |       |                          | 3,724      |         |          |  |    |            |   |  | 3,878    |         |            |        |    |     |          |            | 2,567  |        |  |  |            |     |   |        | 2,363  |        |          |  |    |     |   |  | 1,687  |        |  |  |    |    
|              
|               | Total |                          |            | $10,764 |          |  |    | 100        | % |  |          | $10,186 |            |        |    | 100 | %        |            |        | $8,476 |  |  |            | 100 | % |        |        | $7,200 |          |  |    | 100 | % |  |        | $6,208 |  |  |    | 100 | %
|              



|    |                                                                
|--- | ---------------------------------------------------------------
|(1) | Represents percentage of this category of loans to total loans.



|                                                                            |                    |                               |                   |         |         |         |         |         |         |         |        |         |         |         |        |       |         |         |        |         |         |         | 
|--------------------------------------------------------------------------- | ------------------ | ----------------------------- | ----------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ----- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                                                            |                   
|December 31,                                                                |                    | 2004                          |                   |         | 2003    |         |         | 2002    |         |         | 2001   |         |         | 2000    |       
|                                                                            |                   
|                                                                            |                    | (In Thousands)                |                  
|Balance at beginning of period                                              |                    |                               | $10,186           |         |         |         | $8,476  |         |         |         | $7,200 |         |         |         | $6,208 |       |         |         | $6,091 |        
|Charge-offs:                                                                |                    |                               |                   |         |         |         |         |         |         |         |        |         |         |         |        |       |         |         |        |        
|                                                                            | Commercial loans   |                               |                   | (1,387) |         |         |         | (2,067) |         |         |        | (1,791) |         |         |        | (687) |         |         |        | (1,322) |        
|                                                                            | Real estate loans  |                               |                   |        |         |         |         | (127)   |         |         |        | (67)    |         |         |        | (748) |         |         |        |        |        
|                                                                            | Consumer loans     |                               |                   | (84)    |         |         |         | (91)    |         |         |        | (257)   |         |         |        | (118) |         |         |        | (82)    |        
|                                                                           
|                                                                            |                    |                               | Total charge-offs |         |         | (1,471) |         |         |         | (2,285) |        |         |         | (2,115) |        |       |         | (1,553) |        |         |         | (1,404) | 
|                                                                           
|Recoveries:                                                                 |                    |                               |                   |         |         |         |         |         |         |         |        |         |         |         |        |       |         |         |        |        
|                                                                            | Commercial loans   |                               |                   | 200     |         |         |         | 279     |         |         |        | 168     |         |         |        | 234   |         |         |        | 229     |        
|                                                                            | Construction loans |                               |                   | 185     |         |         |         |        |         |         |        |        |         |         |        |      |         |         |        |        |        
|                                                                            | Real estate loans  |                               |                   |        |         |         |         | 111     |         |         |        | 48      |         |         |        |      |         |         |        | 2       |        
|                                                                            | Consumer loans     |                               |                   | 63      |         |         |         | 38      |         |         |        | 80      |         |         |        | 11    |         |         |        | 6       |        
|                                                                           
|                                                                            |                    |                               | Total recoveries  |         |         | 448     |         |         |         | 428     |        |         |         | 296     |        |       |         | 245     |        |         |         | 237     | 
|                                                                           
|                                                                            |                    | Charge-offs net of recoveries |                   |         | (1,023) |         |         |         | (1,857) |         |        |         | (1,819) |         |        |       | (1,308) |         |        |         | (1,167) |        
|                                                                           
|Provision for loan losses                                                   |                    |                               | 1,601             |         |         |         | 3,567   |         |         |         | 3,095  |         |         |         | 2,300  |       |         |         | 1,284  |        
|                                                                           
|Balance at end of period                                                    |                    |                               | $10,764           |         |         |         | $10,186 |         |         |         | $8,476 |         |         |         | $7,200 |       |         |         | $6,208 |        
|                                                                           
|Ratio of net charge-offs to average loans outstanding during the
    period |                    |                               | 0.16%             |         |         |         | 0.33%   |         |         |         | 0.36%  |         |         |         | 0.29%  |       |         |         | 0.28%  |        

Credit Authority and Loan Limits:




Loan Policy:


13



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##### Table of Contents



Loans Receivable:


Loan Portfolio Composition:


|               |                                             |                          |          |         |          |  |         |        |         |  |          |         |         |        |         |        |          |  |          |         |         |         |          |        |         |        |          |         |          |  |         |        |         |  |          |         |         |  |         |        |         | 
|-------------- | ------------------------------------------- | ------------------------ | -------- | ------- | -------- |  | ------- | ------ | ------- |  | -------- | ------- | ------- | ------ | ------- | ------ | -------- |  | -------- | ------- | ------- | ------- | -------- | ------ | ------- | ------ | -------- | ------- | -------- |  | ------- | ------ | ------- |  | -------- | ------- | ------- |  | ------- | ------ | ------- | 
|               |                                            
|December 31,   |                                             | 2004 2003 2002 2001 2000 |         
|               |                                            
|               |                                             | Percent                  |          |         |          |  | Percent |        |         |  |          | Percent |         |        |         |        | Percent  |  |          |         |         | Percent |         
|               |                                             | Amount                   |          |         | of Total |  |         | Amount |         |  | of Total |         |         | Amount |         |        | of Total |  |          | Amount  |         |         | of Total |        |         | Amount |          |         | of Total | 
|               |                                            
|               |                                             | (Dollars in Thousands)   |         
|Commercial     |                                             |                          | $267,737 |         |          |  | 39.47%  |        |         |  | $220,774 |         |         |        | 36.73%  |        |          |  | $187,312 |         |         |         | 35.01%   |        |         |        | $166,845 |         |          |  | 34.57%  |        |         |  | $138,047 |         |         |  | 33.39%  |       
|               | Real estate loans:                          |                          |          |         |          |  |         |        |         |  |          |         |         |        |         |        |          |  |          |         |         |         |          |        |         |        |          |         |          |  |         |        |         |  |          |         |         |  |         |        |        
|               | Construction                                |                          |          | 122,873 |          |  |         | 18.12% |         |  |          | 102,311 |         |        |         | 17.02% |          |  |          | 82,739  |         |         |          | 15.47% |         |        |          | 68,952  |          |  |         | 14.29% |         |  |          | 58,042  |         |  |         | 14.04% |        
|               | Real estate term                            |                          |          | 252,358 |          |  |         | 37.21% |         |  |          | 239,545 |         |        |         | 39.85% |          |  |          | 212,740 |         |         |          | 39.77% |         |        |          | 177,493 |          |  |         | 36.78% |         |  |          | 162,226 |         |  |         | 39.24% |        
|               | Real estate loans for sale                  |                          |          |        |          |  |         | 0.00%  |         |  |          | 1,395   |         |        |         | 0.23%  |          |  |          | 7,437   |         |         |          | 1.39%  |         |        |          | 19,496  |          |  |         | 4.04%  |         |  |          | 130     |         |  |         | 0.03%  |        
|Consumer loans |                                             |                          | 38,166   |         |          |  | 5.63%   |        |         |  | 39,796   |         |         |        | 6.62%   |        |          |  | 47,415   |         |         |         | 8.86%    |        |         |        | 52,236   |         |          |  | 10.82%  |        |         |  | 57,397   |         |         |  | 13.88%  |       
|              
|               |                                             | Total                    |          |         | 681,134  |  |         |        | 100.42% |  |          |         | 603,821 |        |         |        | 100.45%  |  |          |         | 537,643 |         |          |        | 100.50% |        |          |         | 485,022  |  |         |        | 100.51% |  |          |         | 415,842 |  |         |        | 100.58% | 
|Less:          |                                             |                          |          |         |          |  |         |        |         |  |          |         |         |        |         |        |          |  |          |         |         |         |          |        |         |        |          |         |          |  |         |        |         |  |          |         |         |  |         |       
|               | Unearned purchase discount                  |                          |          | (44)    |          |  |         | -0.01% |         |  |          | (44)    |         |        |         | -0.01% |          |  |          | (44)    |         |         |          | -0.01% |         |        |          | (271)   |          |  |         | -0.06% |         |  |          | (586)   |         |  |         | -0.14% |        
|               | Unearned loan fees net of origination costs |                          |          | (2,821) |          |  |         | -0.42% |         |  |          | (2,658) |         |        |         | -0.44% |          |  |          | (2,609) |         |         |          | -0.49% |         |        |          | (2,189) |          |  |         | -0.45% |         |  |          | (1,811) |         |  |         | -0.44% |        
|              
|Net loans      |                                             |                          | $678,269 |         |          |  | 100.00% |        |         |  | $601,119 |         |         |        | 100.00% |        |          |  | $534,990 |         |         |         | 100.00%  |        |         |        | $482,562 |         |          |  | 100.00% |        |         |  | $413,445 |         |         |  | 100.00% |       
|              



|                         |       |                |          |          |       |  |         |         |  |  |         |         |  |  |          |          | 
|------------------------ | ----- | -------------- | -------- | -------- | ----- |  | ------- | ------- |  |  | ------- | ------- |  |  | -------- | -------- | 
|                         |      
|                         |       | Maturing       |         
|                         |      
|                         |       | Within         |          |          | 1-5   |  |         | After 5 |  |  |        
|                         |       | 1 Year         |          |          | Years |  |         | Years   |  |  | Total   |        
|                         |      
|                         |       | (In Thousands) |         
|Commercial               |       |                | $137,211 |          |       |  | $81,629 |         |  |  | $48,897 |         |  |  | $267,737 |         
|Real estate construction |       |                | 116,679  |          |       |  | 2,648   |         |  |  | 3,546   |         |  |  | 122,873  |         
|                        
|                         | Total |                |          | $253,890 |       |  |         | $84,277 |  |  |         | $52,443 |  |  |          | $390,610 | 
|                        
|Fixed-rate loans         |       |                | $119,968 |          |       |  | $41,233 |         |  |  | $13,529 |         |  |  | $174,730 |         
|Variable rate loans      |       |                | 133,922  |          |       |  | 43,044  |         |  |  | 38,914  |         |  |  | 215,880  |         
|                        
|                         | Total |                |          | $253,890 |       |  |         | $84,277 |  |  |         | $52,443 |  |  |          | $390,610 | 
|                        

Commercial Loans:


14



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##### Table of Contents



Construction Loans:


Land Development:


One-to-Four-Family Residences:


Commercial Construction:


Real Estate Loans for Sale:




Commercial Real Estate:




Consumer Loans:


Off-Balance Sheet Arrangements  Commitments and
Contingent Liabilities:


Investments and Investment Activities


General:




15



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##### Table of Contents



Investment Portfolio Composition:


Securities Available For Sale:


Securities Held To Maturity:




|                               |                            |                |  |        |         |  |  |        |         | 
|------------------------------ | -------------------------- | -------------- |  | ------ | ------- |  |  | ------ | ------- | 
|                               |                           
|                               |                            | Amortized      |  |        | Market  | 
|                               |                            | Cost           |  |        | Value   | 
|                               |                           
|                               |                            | (In Thousands) | 
|Securities Available for Sale: |                            |                |  |        |         |  |  |       
|December 31, 2004:             |                            |                |  |        |         |  |  |       
|                               | U.S. Treasury              |                |  | $5,503 |         |  |  | $5,481 |        
|                               | U.S. Agency                |                |  | 53,628 |         |  |  | 53,656 |        
|                               | Mortgage-backed Securities |                |  | 311    |         |  |  | 312    |        
|                              
|                               |                            | Total          |  |        | $59,442 |  |  |        | $59,449 | 
|                              
|December 31, 2003:             |                            |                |  |        |         |  |  |       
|                               | U.S. Treasury              |                |  | $498   |         |  |  | $500   |        
|                               | U.S. Agency                |                |  | 68,742 |         |  |  | 69,797 |        
|                               | Mortgage-backed Securities |                |  | 418    |         |  |  | 420    |        
|                              
|                               |                            | Total          |  |        | $69,658 |  |  |        | $70,717 | 
|                              
|December 31, 2002:             |                            |                |  |        |         |  |  |       
|                               | U.S. Treasury              |                |  | $3,501 |         |  |  | $3,567 |        
|                               | U.S. Agency                |                |  | 72,086 |         |  |  | 74,058 |        
|                               | Mortgage-backed Securities |                |  | 593    |         |  |  | 599    |        
|                              
|                               |                            | Total          |  |        | $76,180 |  |  |        | $78,224 | 
|                              
|Securities Held to Maturity:   |                            |                |  |        |         |  |  |       
|December 31, 2004:             |                            |                |  |        |         |  |  |       
|                               | Municipal securities       |                |  | $724   |         |  |  | $771   |        
|                              
|                               |                            | Total          |  |        | $724    |  |  |        | $771    | 
|                              
|December 31, 2003:             |                            |                |  |        |         |  |  |       
|                               | Municipal securities       |                |  | $945   |         |  |  | $1,011 |        
|                              
|                               |                            | Total          |  |        | $945    |  |  |        | $1,011  | 
|                              
|December 31, 2002:             |                            |                |  |        |         |  |  |       
|                               | Municipal securities       |                |  | $1,281 |         |  |  | $1,351 |        
|                              
|                               |                            | Total          |  |        | $1,281  |  |  |        | $1,351  | 
|                              



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Market Value, Maturities and Weighted Average
Yields:


|                               |                            |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  |  |         | 
|------------------------------ | -------------------------- | ---------------------- |  |  | ----------- |  |  | ---------- | ------- |  | ------------ |  | ------ | ----- |  |  | ----- |  |  |  | ------- | 
|                               |                           
|                               |                            | Maturing               | 
|                               |                           
|                               |                            | Less than              |  |  | One to five |  |  | Five to 10 |         |  | Due after 10 |  |        |      
|                               |                            | one year               |  |  | years       |  |  | years      |         |  | years        |  |        | Total | 
|                               |                           
|                               |                            | (Dollars In Thousands) | 
|Securities Available for Sale: |                            |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  | 
|                               | U.S. Treasury              |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  |  |        
|                               |                            | Balance                |  |  | $496        |  |  |            | $4,985  |  |              |  | $     |       |  |  | $    |  |  |  | $5,481  | 
|                               |                            | Weighted Average Yield |  |  | 1.82%       |  |  |            | 2.70%   |  |              |  | 0.00%  |       |  |  | 0.00% |  |  |  | 2.62%   | 
|                              
|                               | U.S. Agency                |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  |  |        
|                               |                            | Balance                |  |  | $6,162      |  |  |            | $41,477 |  |              |  | $6,017 |       |  |  | $    |  |  |  | $53,656 | 
|                               |                            | Weighted Average Yield |  |  | 5.00%       |  |  |            | 3.91%   |  |              |  | 4.75%  |       |  |  | 0.00% |  |  |  | 4.13%   | 
|                              
|                               | Mortgage-Backed Securities |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  |  |        
|                               |                            | Balance                |  |  | $          |  |  |            | $      |  |              |  | $     |       |  |  | $312  |  |  |  | $312    | 
|                               |                            | Weighted Average Yield |  |  | 0.00%       |  |  |            | 0.00%   |  |              |  | 0.00%  |       |  |  | 4.48% |  |  |  | 4.48%   | 
|                              
|                               | Total                      |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  |  |        
|                               |                            | Balance                |  |  | $6,658      |  |  |            | $46,462 |  |              |  | $6,017 |       |  |  | $312  |  |  |  | $59,449 | 
|                               |                            | Weighted Average Yield |  |  | 4.76%       |  |  |            | 3.78%   |  |              |  | 4.75%  |       |  |  | 4.48% |  |  |  | 3.99%   | 
|                              
|Securities Held to Maturity:   |                            |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  | 
|Municipal Securities           |                            |                        |  |  |             |  |  |            |         |  |              |  |        |       |  |  |       |  |  | 
|                               |                            | Balance                |  |  | $66         |  |  |            | $301    |  |              |  | $265   |       |  |  | $139  |  |  |  | $771    | 
|                               |                            | Weighted Average Yield |  |  | 3.57%       |  |  |            | 4.18%   |  |              |  | 4.64%  |       |  |  | 5.11% |  |  |  | 4.45%   | 
|                              



Liabilities


Deposits





General:


Average Balances and Rates:


|                                    |                                 |                        |         |          |           |  |       |         |  |  |           |          |  |         |       |       |           |  |         |          |  |  |           |       |  |         |         |          |           |  |       |       |  |  |         |          |  |  |       |       | 
|----------------------------------- | ------------------------------- | ---------------------- | ------- | -------- | --------- |  | ----- | ------- |  |  | --------- | -------- |  | ------- | ----- | ----- | --------- |  | ------- | -------- |  |  | --------- | ----- |  | ------- | ------- | -------- | --------- |  | ----- | ----- |  |  | ------- | -------- |  |  | ----- | ----- | 
|                                    |                                
|December 31,                        |                                 | 2004                   |         |          | 2003      |  |       | 2002    |  |  | 2001      |          |  | 2000    |      
|                                    |                                
|                                    |                                 | Average                |         |          | Average   |  |       | Average |  |  | Average   |          |  | Average |       |       | Average   |  |         | Average  |  |  | Average   |       |  | Average |         |          | Average   | 
|                                    |                                 | balance                |         |          | rate paid |  |       | balance |  |  | rate paid |          |  | balance |       |       | rate paid |  |         | balance  |  |  | rate paid |       |  | balance |         |          | rate paid | 
|                                    |                                
|                                    |                                 | (Dollars in Thousands) |        
|Interest-bearing demand accounts    |                                 |                        | $57,373 |          |           |  | 0.39% |         |  |  | $52,955   |          |  |         | 0.39% |       |           |  | $49,198 |          |  |  | 0.72%     |       |  |         | $45,334 |          |           |  | 1.86% |       |  |  | $41,828 |          |  |  | 2.85% |      
|Money market accounts               |                                 |                        | 126,567 |          |           |  | 1.21% |         |  |  | 134,582   |          |  |         | 0.96% |       |           |  | 131,227 |          |  |  | 1.57%     |       |  |         | 132,950 |          |           |  | 3.44% |       |  |  | 114,928 |          |  |  | 5.41% |      
|Savings accounts                    |                                 |                        | 139,876 |          |           |  | 1.64% |         |  |  | 104,158   |          |  |         | 1.13% |       |           |  | 82,061  |          |  |  | 1.84%     |       |  |         | 34,731  |          |           |  | 2.50% |       |  |  | 30,996  |          |  |  | 3.39% |      
|Certificates of deposits            |                                 |                        | 155,134 |          |           |  | 1.72% |         |  |  | 164,847   |          |  |         | 2.14% |       |           |  | 172,531 |          |  |  | 3.50%     |       |  |         | 190,693 |          |           |  | 5.37% |       |  |  | 186,501 |          |  |  | 5.87% |      
|                                   
|                                    | Total interest-bearing accounts |                        |         | 478,950  |           |  |       | 1.40%   |  |  |           | 456,542  |  |         |       | 1.36% |           |  |         | 435,017  |  |  |           | 2.29% |  |         |         | 403,708  |           |  |       | 4.09% |  |  |         | 374,253  |  |  |       | 5.18% | 
|Noninterest-bearing demand accounts |                                 |                        | 181,731 |          |           |  |       |         |  |  | 159,858   |          |  |         |       |       |           |  | 135,181 |          |  |  |           |       |  |         | 109,748 |          |           |  |       |       |  |  | 98,559  |          |  |  |       |      
|                                   
|                                    | Total average deposits          |                        |         | $660,681 |           |  |       |         |  |  |           | $616,400 |  |         |       |       |           |  |         | $570,198 |  |  |           |       |  |         |         | $513,456 |           |  |       |       |  |  |         | $472,812 |  |  |       |       | 
|                                   

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##### Table of Contents



Certificates of Deposit:


|                    |                               |                |  |         |         |  |  |         |         |  |      |         |         |      |  |         |         |  |  |         |         | 
|------------------- | ----------------------------- | -------------- |  | ------- | ------- |  |  | ------- | ------- |  | ---- | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                    |                              
|December 31,        |                               | 2004           |  |         | 2003    |  |  | 2002    |         |  | 2001 |         |         | 2000 | 
|                    |                              
|                    |                               | (In Thousands) | 
|Remaining maturity: |                               |                |  |         |         |  |  |         |         |  |      |         |         |      |  |         |         |  |  |        
|                    | Three months or less          |                |  | $20,427 |         |  |  | $47,480 |         |  |      | $29,828 |         |      |  | $20,739 |         |  |  | $24,393 |        
|                    | Over three through six months |                |  | 24,673  |         |  |  | 9,017   |         |  |      | 21,505  |         |      |  | 27,531  |         |  |  | 26,227  |        
|                    | Over six through 12 months    |                |  | 25,976  |         |  |  | 19,966  |         |  |      | 15,535  |         |      |  | 30,549  |         |  |  | 27,743  |        
|                    | Over 12 months                |                |  | 11,411  |         |  |  | 19,651  |         |  |      | 20,549  |         |      |  | 19,167  |         |  |  | 9,499   |        
|                   
|                    |                               | Total          |  |         | $82,487 |  |  |         | $96,114 |  |      |         | $87,417 |      |  |         | $97,986 |  |  |         | $87,862 | 
|                   

Alaska Permanent Fund:


Borrowings





FHLB:


Other Short-term Borrowing:


Contract Obligations







|                            |       |                        |       |        |       |  |       |        |  |  |           |        |  |       |        |         |  |  |         |         | 
|--------------------------- | ----- | ---------------------- | ----- | ------ | ----- |  | ----- | ------ |  |  | --------- | ------ |  | ----- | ------ | ------- |  |  | ------- | ------- | 
|                            |      
|                            |       | Payments Due by Period |      
|                            |      
|                            |       | Less than              |       |        | 1-3   |  |       | 3-5    |  |  | More than |        |  |      
|December 31, 2004           |       | 1 Year                 |       |        | Years |  |       | Years  |  |  | 5 Years   |        |  | Total |       
|                            |      
|                            |       | (In Thousands)         |      
|Long-term debt obligations  |       |                        | $400  |        |       |  | $800  |        |  |  | $800      |        |  |       | $8,974 |         |  |  | $10,974 |        
|Operating lease obligations |       |                        | 1,407 |        |       |  | 2,432 |        |  |  | 2,401     |        |  |       | 6,225  |         |  |  | 12,465  |        
|Other long-term liabilities |       |                        | 507   |        |       |  |      |        |  |  |          |        |  |       |       |         |  |  | 507     |        
|                           
|                            | Total |                        |       | $2,314 |       |  |       | $3,232 |  |  |           | $3,201 |  |       |        | $15,199 |  |  |         | $23,946 | 
|                           

|                            |       |                        |       |        |       |  |       |        |  |  |           |        |  |       |        |         |  |  |         |         | 
|--------------------------- | ----- | ---------------------- | ----- | ------ | ----- |  | ----- | ------ |  |  | --------- | ------ |  | ----- | ------ | ------- |  |  | ------- | ------- | 
|                            |      
|                            |       | Payments Due by Period |      
|                            |      
|                            |       | Less than              |       |        | 1-3   |  |       | 3-5    |  |  | More than |        |  |      
|December 31, 2003           |       | 1 Year                 |       |        | Years |  |       | Years  |  |  | 5 Years   |        |  | Total |       
|                            |      
|                            |       | (In Thousands)         |      
|Long-term debt obligations  |       |                        | $400  |        |       |  | $800  |        |  |  | $800      |        |  |       | $9,374 |         |  |  | $11,374 |        
|Operating lease obligations |       |                        | 1,254 |        |       |  | 2,431 |        |  |  | 2,037     |        |  |       | 6,710  |         |  |  | 12,432  |        
|Other long-term liabilities |       |                        | 1,021 |        |       |  | 507   |        |  |  |          |        |  |       |       |         |  |  | 1,528   |        
|                           
|                            | Total |                        |       | $2,675 |       |  |       | $3,738 |  |  |           | $2,837 |  |       |        | $16,084 |  |  |         | $25,334 | 
|                           



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##### Table of Contents





Liquidity and Capital Resources










|              |  |             |       |  |                  |  |       | 
|------------- |  | ----------- | ----- |  | ---------------- |  | ----- | 
|              | 
|              |  | Diluted     |      
|              |  | Diluted EPS |       |  | EPS without      | 
|Years Ending: |  | as Reported |       |  | Stock Repurchase | 
|              | 
|2004          |  |             | $1.71 |  |                  |  | $1.65 | 
|2003          |  |             | $1.69 |  |                  |  | $1.64 | 
|2002          |  |             | $1.35 |  |                  |  | $1.35 | 
|             







19



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##### Table of Contents





|                          |  |              |       |  |             |  |        |              |  |  |              |  |  |  |        | 
|------------------------- |  | ------------ | ----- |  | ----------- |  | ------ | ------------ |  |  | ------------ |  |  |  | ------ | 
|                          | 
|December 31, 2004         |  | Adequately - |       |  | Well -      |  |        | Actual Ratio |  |  | Actual Ratio | 
|                          |  | Capitalized  |       |  | Capitalized |  |        | BHC          |  |  | Bank         | 
|                          | 
|Tier 1 risk-based capital |  |              | 4.00% |  |             |  | 6.00%  |              |  |  | 11.62%       |  |  |  | 10.18% | 
|Total risk-based capital  |  |              | 8.00% |  |             |  | 10.00% |              |  |  | 12.87%       |  |  |  | 11.44% | 
|Leverage ratio            |  |              | 4.00% |  |             |  | 5.00%  |              |  |  | 10.72%       |  |  |  | 9.40%  | 
|                         



Effects of Inflation and Changing Prices




Market for Common Stock










|     |      |         |  |        |         |  |  |         |  |  |         |        |  |  |  |        | 
|---- | ---- | ------- |  | ------ | ------- |  |  | ------- |  |  | ------- | ------ |  |  |  | ------ | 
|     |     
|     |      | First   |  |        | Second  |  |  | Third   |  |  | Fourth  |       
|     |      | Quarter |  |        | Quarter |  |  | Quarter |  |  | Quarter |       
|     |     
|2004 |      |         |  |        |         |  |  |         |  |  |         |        |  |  |  |       
|     | High |         |  | $25.64 |         |  |  | $25.56  |  |  |         | $21.85 |  |  |  | $23.84 | 
|     | Low  |         |  | $22.64 |         |  |  | $18.65  |  |  |         | $20.01 |  |  |  | $21.83 | 
|2003 |      |         |  |        |         |  |  |         |  |  |         |        |  |  |  |       
|     | High |         |  | $14.74 |         |  |  | $18.16  |  |  |         | $20.24 |  |  |  | $24.00 | 
|     | Low  |         |  | $12.85 |         |  |  | $13.98  |  |  |         | $17.41 |  |  |  | $18.68 | 
|    

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##### Table of Contents



Recent Accounting Pronouncements


Inventory
Costs, Inventory Pricing


Accounting for Real Estate Time-Sharing Transactions, Accounting for Sales of Real Estate Accounting for Real Estate
Time-Sharing Transactions. Accounting for Costs and Initial
Rental Operations of Real Estate Projects,


Exchanges of Nonmonetary Assets,


Share-Based Payment, Accounting for Stock-Based
Compensation. Accounting for Stock Issued to Employees,


Quantitative and Qualitative Disclosure About Market Risk












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|                              |                                                                         |                                                      |                                               |           |             |          |  |           |        |          |          |          |         |          |  |          |        |         |  |          |         |          | 
|----------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------- | --------- | ----------- | -------- |  | --------- | ------ | -------- | -------- | -------- | ------- | -------- |  | -------- | ------ | ------- |  | -------- | ------- | -------- | 
|                              |                                                                        
|                              |                                                                         | Estimated maturity or repricing at December 31, 2004 |                                              
|                              |                                                                         | 0-3 months                                           |                                               |           | 4-12 months |          |  | 1-5 years |        |          | M5 years |          |         | Total    | 
|                              |                                                                        
|                              |                                                                         | (In Thousands)                                       |                                              
|Interest-Earning Assets:      |                                                                         |                                                      |                                               |           |             |          |  |           |        |          |          |          |         |          |  |          |        |         |  |         
|                              | Money market investments                                                |                                                      |                                               | $12,157   |             |          |  | $        |        |          |          | $       |         |          |  | $       |        |         |  | $12,157  |        
|                              | Investment securities                                                   |                                                      |                                               | 312       |             |          |  | 6,411     |        |          |          | 46,747   |         |          |  | 8,005    |        |         |  | 61,475   |        
|                              | Loans:                                                                  |                                                      |                                               |           |             |          |  |           |        |          |          |          |         |          |  |          |        |         |  |          |        
|                              |                                                                         | Commercial                                           |                                               |           | 157,016     |          |  |           | 44,973 |          |          |          | 59,273  |          |  |          | 6,475  |         |  |          | 267,737 |         
|                              |                                                                         | Real estate construction                             |                                               |           | 87,505      |          |  |           | 31,478 |          |          |          | 3,890   |          |  |          |       |         |  |          | 122,873 |         
|                              |                                                                         | Real estate term                                     |                                               |           | 70,743      |          |  |           | 52,184 |          |          |          | 124,815 |          |  |          | 4,616  |         |  |          | 252,358 |         
|                              |                                                                         | Real estate for sale                                 |                                               |           |            |          |  |           |       |          |          |          |        |          |  |          |       |         |  |          |        |         
|                              |                                                                         | Installment and other consumer                       |                                               |           | 11,749      |          |  |           | 3,270  |          |          |          | 10,715  |          |  |          | 12,432 |         |  |          | 38,166  |         
|                             
|                              |                                                                         |                                                      | Total interest-earning assets                 |           |             | $339,482 |  |           |        | $138,316 |          |          |         | $245,440 |  |          |        | $31,528 |  |          |         | $754,766 | 
|                              |                                                                         |                                                      | Percent of total interest-earning assets      |           |             | 45%      |  |           |        | 18%      |          |          |         | 33%      |  |          |        | 4%      |  |          |         | 100%     | 
|                             
|Interest-Bearing Liabilities: |                                                                         |                                                      |                                               |           |             |          |  |           |        |          |          |          |         |          |  |          |        |         |  |         
|                              | Interest-bearing demand accounts                                        |                                                      |                                               | $59,933   |             |          |  | $        |        |          |          | $       |         |          |  | $       |        |         |  | $59,933  |        
|                              | Money market accounts                                                   |                                                      |                                               | 142,181   |             |          |  |          |        |          |          |         |         |          |  |         |        |         |  | 142,181  |        
|                              | Savings accounts                                                        |                                                      |                                               | 170,629   |             |          |  |          |        |          |          |         |         |          |  |         |        |         |  | 170,629  |        
|                              | Certificates of deposit                                                 |                                                      |                                               | 32,834    |             |          |  | 81,580    |        |          |          | 27,945   |         |          |  |         |        |         |  | 142,359  |        
|                              | FHLB advances                                                           |                                                      |                                               |          |             |          |  |          |        |          |          |         |         |          |  | 2,974    |        |         |  | 2,974    |        
|                              | Other borrowings                                                        |                                                      |                                               | 3,504     |             |          |  |          |        |          |          |         |         |          |  |         |        |         |  | 3,504    |        
|                              | Trust preferred securities                                              |                                                      |                                               | 8,000     |             |          |  |          |        |          |          |         |         |          |  |         |        |         |  | 8,000    |        
|                             
|                              |                                                                         |                                                      | Total interest-bearing liabilities            |           |             | $417,081 |  |           |        | $81,580  |          |          |         | $27,945  |  |          |        | $2,974  |  |          |         | $529,580 | 
|                              |                                                                         |                                                      | Percent of total interest-bearing liabilities |           |             | 79%      |  |           |        | 15%      |          |          |         | 5%       |  |          |        | 1%      |  |          |         | 100%     | 
|                             
|                              | Interest sensitivity gap                                                |                                                      |                                               | ($77,599) |             |          |  | $56,736   |        |          |          | $217,495 |         |          |  | $28,554  |        |         |  | $225,186 |        
|                              | Cumulative interest sensitivity gap                                     |                                                      |                                               | ($77,599) |             |          |  | ($20,863) |        |          |          | $196,632 |         |          |  | $225,186 |        |         |  |          |        
|                              | Cumulative interest sensitivity gap as a percentage of total
    assets |                                                      |                                               | -10%      |             |          |  | -3%       |        |          |          | 25%      |         |          |  | 28%      |        |         |  |          |        
|                             





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Critical Accounting Estimates






Controls and Procedures


Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures




Managements Report on Internal Control Over Financial
Reporting






Internal
Control  Integrated Framework.






23



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Report of Independent Registered Public Accounting Firm






Internal Control 
Integrated Framework








Internal Control  Integrated
Framework













24



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##### Table of Contents



Report of Independent Registered Public Accounting Firm












Internal Control 
Integrated Framework











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##### Table of Contents






Consolidated Financial Statements











|                                      |                                                                                                                                                                         |                                                        |                                            |          |          |          |  |          |          |          | 
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------------------------ | -------- | -------- | -------- |  | -------- | -------- | -------- | 
|                                      |                                                                                                                                                                         | 2004                                                   |                                            |          | 2003     |         
|                                      |                                                                                                                                                                        
|                                      |                                                                                                                                                                         | (In Thousands Except Share Amounts)                    |                                           
|Assets                                |                                                                                                                                                                         |                                                        |                                            |          |          |          |  |         
|                                      | Cash and due from banks (Note 2)                                                                                                                                        |                                                        |                                            | $18,936  |          |          |  | $31,298  |         
|                                      | Money market investments (Note 3)                                                                                                                                       |                                                        |                                            | 12,157   |          |          |  | 5,597    |         
|                                      | Investment securities held to maturity (Note 4)                                                                                                                         |                                                        |                                            | 724      |          |          |  | 945      |         
|                                      | Investment securities available for sale (Note 4)                                                                                                                       |                                                        |                                            | 59,449   |          |          |  | 70,717   |         
|                                      | Investment in Federal Home Loan Bank stock (Note 4)                                                                                                                     |                                                        |                                            | 1,302    |          |          |  | 1,546    |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Total Long-term Investments                |          |          | 61,475   |  |          |          | 73,208   | 
|                                      | Real estate loans for sale (Note 5)                                                                                                                                     |                                                        |                                            |         |          |          |  | 1,395    |         
|                                      | Portfolio loans (Note 5)                                                                                                                                                |                                                        |                                            | 678,269  |          |          |  | 599,724  |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Total Loans                                |          |          | 678,269  |  |          |          | 601,119  | 
|                                      | Allowance for loan losses (Note 6)                                                                                                                                      |                                                        |                                            | (10,764) |          |          |  | (10,186) |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Net Loans                                  |          |          | 667,505  |  |          |          | 590,933  | 
|                                      | Premises and equipment, net (Note 7)                                                                                                                                    |                                                        |                                            | 10,583   |          |          |  | 11,107   |         
|                                      | Accrued interest receivable                                                                                                                                             |                                                        |                                            | 3,678    |          |          |  | 3,300    |         
|                                      | Intangible assets (Notes 1 and 8)                                                                                                                                       |                                                        |                                            | 6,634    |          |          |  | 7,002    |         
|                                      | Other assets (Notes 1 and 8)                                                                                                                                            |                                                        |                                            | 19,758   |          |          |  | 16,124   |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Total Assets                               |          |          | $800,726 |  |          |          | $738,569 | 
|                                     
|Liabilities                           |                                                                                                                                                                         |                                                        |                                            |          |          |          |  |         
|                                      | Deposits:                                                                                                                                                               |                                                        |                                            |          |          |          |  |          |         
|                                      |                                                                                                                                                                         | Demand                                                 |                                            |          | $183,959 |          |  |          | $179,461 |         
|                                      |                                                                                                                                                                         | Interest-bearing demand                                |                                            |          | 59,933   |          |  |          | 56,312   |         
|                                      |                                                                                                                                                                         | Savings                                                |                                            |          | 170,629  |          |  |          | 109,740  |         
|                                      |                                                                                                                                                                         | Money market                                           |                                            |          | 142,181  |          |  |          | 137,657  |         
|                                      |                                                                                                                                                                         | Certificates of deposit less than $100,000 (Note 9)    |                                            |          | 59,872   |          |  |          | 66,913   |         
|                                      |                                                                                                                                                                         | Certificates of deposit greater than $100,000 (Note 9) |                                            |          | 82,487   |          |  |          | 96,114   |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Total Deposits                             |          |          | 699,061  |  |          |          | 646,197  | 
|                                      | Borrowings (Note 10)                                                                                                                                                    |                                                        |                                            | 6,478    |          |          |  | 5,143    |         
|                                      | Trust preferred securities (Note 11)                                                                                                                                    |                                                        |                                            | 8,000    |          |          |  | 8,000    |         
|                                      | Other liabilities                                                                                                                                                       |                                                        |                                            | 3,829    |          |          |  | 3,944    |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Total Liabilities                          |          |          | 717,368  |  |          |          | 663,284  | 
|                                     
|Shareholders Equity (Note 16 and 17) |                                                                                                                                                                         |                                                        |                                            |          |          |          |  |         
|                                      | Common stock, $1 par value, 10,000,000 shares
    authorized,
    6,089,120 and 6,050,359 shares issued and outstanding
    at December 31, 2004 and 2003, respectively |                                                        |                                            | 6,089    |          |          |  | 6,050    |         
|                                      | Additional paid-in capital                                                                                                                                              |                                                        |                                            | 45,876   |          |          |  | 45,615   |         
|                                      | Retained earnings                                                                                                                                                       |                                                        |                                            | 31,389   |          |          |  | 22,997   |         
|                                      | Accumulated other comprehensive income-
    net unrealized gains on available for sale investment securities                                                            |                                                        |                                            | 4        |          |          |  | 623      |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Total Shareholders Equity                 |          |          | 83,358   |  |          |          | 75,285   | 
|                                     
|                                      | Commitments and contingencies (Notes 2, 4,
    10, 15, 18, 19, and 22)                                                                                                  |                                                        |                                            |          |          |          |  |          |         
|                                     
|                                      |                                                                                                                                                                         |                                                        | Total Liabilities and Shareholders Equity |          |          | $800,726 |  |          |          | $738,569 | 
|                                     



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|                                     |                                                                          |                                                     |       |         |           |  |       |         |           |  |       |         |           | 
|------------------------------------ | ------------------------------------------------------------------------ | --------------------------------------------------- | ----- | ------- | --------- |  | ----- | ------- | --------- |  | ----- | ------- | --------- | 
|                                     |                                                                          | 2004                                                |       |         | 2003      |  |       | 2002    |          
|                                     |                                                                         
|                                     |                                                                          | (In Thousands Except Per Share Amounts)             |      
|Interest Income                      |                                                                          |                                                     |       |         |           |  |       |         |           |  |       |        
|                                     | Interest and fees on loans                                               |                                                     |       | $45,898 |           |  |       | $42,945 |           |  |       | $40,835 |          
|                                     | Interest on investment securities-assets available for sale
    (Note 4) |                                                     |       | 2,400   |           |  |       | 2,724   |           |  |       | 3,512   |          
|                                     | Interest on investment securities-held to maturity (Note 4)              |                                                     |       | 92      |           |  |       | 143     |           |  |       | 218     |          
|                                     | Interest on money market investments                                     |                                                     |       | 164     |           |  |       | 136     |           |  |       | 269     |          
|                                    
|                                     |                                                                          | Total Interest Income                               |       |         | 48,554    |  |       |         | 45,948    |  |       |         | 44,834    | 
|                                    
|Interest Expense                     |                                                                          |                                                     |       |         |           |  |       |         |           |  |       |        
|                                     | Interest expense on deposits and borrowings (Note 12)                    |                                                     |       | 7,283   |           |  |       | 6,681   |           |  |       | 10,164  |          
|                                    
|                                     |                                                                          | Net Interest Income                                 |       |         | 41,271    |  |       |         | 39,267    |  |       |         | 34,670    | 
|                                    
|Provision for loan losses (Note 6)   |                                                                          |                                                     | 1,601 |         |           |  | 3,567 |         |           |  | 3,095 |        
|                                    
|                                     |                                                                          | Net Interest Income After Provision for Loan Losses |       |         | 39,670    |  |       |         | 35,700    |  |       |         | 31,575    | 
|                                    
|Other Operating Income               |                                                                          |                                                     |       |         |           |  |       |         |           |  |       |        
|                                     | Service charges on deposit accounts                                      |                                                     |       | 1,718   |           |  |       | 1,805   |           |  |       | 1,687   |          
|                                     | Equity in earnings from RML Holding Company                              |                                                     |       | 438     |           |  |       | 2,785   |           |  |       | 1,917   |          
|                                     | Equity in loss from Elliott Cove                                         |                                                     |       | (457)   |           |  |       | (554)   |           |  |       | (239)   |          
|                                     | Other income                                                             |                                                     |       | 2,093   |           |  |       | 2,053   |           |  |       | 1,834   |          
|                                    
|                                     |                                                                          | Total Other Operating Income                        |       |         | 3,792     |  |       |         | 6,089     |  |       |         | 5,199     | 
|                                    
|                                    
|Other Operating Expense              |                                                                          |                                                     |       |         |           |  |       |         |           |  |       |        
|                                     | Salaries and other personnel expense                                     |                                                     |       | 15,708  |           |  |       | 14,180  |           |  |       | 13,023  |          
|                                     | Occupancy, net                                                           |                                                     |       | 2,130   |           |  |       | 2,000   |           |  |       | 2,040   |          
|                                     | Equipment expense                                                        |                                                     |       | 1,372   |           |  |       | 1,504   |           |  |       | 1,405   |          
|                                     | Marketing expense                                                        |                                                     |       | 1,201   |           |  |       | 1,205   |           |  |       | 1,136   |          
|                                     | Intangible asset amortization expense                                    |                                                     |       | 368     |           |  |       | 368     |           |  |       | 368     |          
|                                     | Other expense                                                            |                                                     |       | 5,756   |           |  |       | 5,471   |           |  |       | 5,089   |          
|                                    
|                                     |                                                                          | Total Other Operating Expense                       |       |         | 26,535    |  |       |         | 24,728    |  |       |         | 23,061    | 
|                                    
|                                     |                                                                          | Income Before Income Taxes                          |       |         | 16,927    |  |       |         | 17,061    |  |       |         | 13,713    | 
|                                    
|Provision for income taxes (Note 13) |                                                                          |                                                     | 6,227 |         |           |  | 6,516 |         |           |  | 5,171 |        
|                                    
|                                     |                                                                          | Net Income                                          |       |         | $10,700   |  |       |         | $10,545   |  |       |         | $8,542    | 
|                                    
|                                    
|                                     |                                                                          | Earnings Per Share, Basic                           |       |         | $1.76     |  |       |         | $1.76     |  |       |         | $1.40     | 
|                                    
|                                     |                                                                          | Earnings Per Share, Diluted                         |       |         | $1.71     |  |       |         | $1.69     |  |       |         | $1.35     | 
|                                    
|                                     |                                                                          | Weighted Average Shares Outstanding, Basic          |       |         | 6,079,315 |  |       |         | 6,000,273 |  |       |         | 6,112,144 | 
|                                    
|                                     |                                                                          | Weighted Average Shares Outstanding, Diluted        |       |         | 6,270,615 |  |       |         | 6,225,889 |  |       |         | 6,317,910 | 
|                                    



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|                                |                                                                                                                            |                            |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       |  |        |       |  |   |         |       |        | 
|------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | - | ---------- | - | ----------- | ------- |  | ----- | -------- | - |  | ------------- | ------- | - | ----- |  | ------ | ----- |  | - | ------- | ----- | ------ | 
|                                |                                                                                                                           
|                                |                                                                                                                            | Common stock               |       |   |            |   | Accumulated |         |  |      
|                                |                                                                                                                            |                            |       |   | Additional |   |             |         |  | other |          |   | 
|                                |                                                                                                                            | Number                     |       |   | Par        |   |             | paid-in |  |       | Retained |   |  | comprehensive |         |   |      
|                                |                                                                                                                            | of shares                  |       |   | value      |   |             | capital |  |       | earnings |   |  | income        |         |   | Total | 
|                                |                                                                                                                           
|                                |                                                                                                                            | (In                        |       |   | Thousands) |  
|Balance as of December 31, 2001 |                                                                                                                            |                            | 6,107 |   |            | $ | 6,107       |         |  | $     | 47,023   |   |  |               | $7,140  |   |       |  | $521   |       |  | $ | 60,791  |      
|Cash dividend                   |                                                                                                                            |                            |      |   |            |   |            |         |  |       |         |   |  |               | (1,222) |   |       |  |       |       |  |   | (1,222) |      
|Exercise of Stock Options       |                                                                                                                            |                            | 57    |   |            |   | 57          |         |  |       | 377      |   |  |               |        |   |       |  |       |       |  |   | 434     |      
|Treasury stock buy-back         |                                                                                                                            |                            | (69)  |   |            |   | (69)        |         |  |       | (786)    |   |  |               |        |   |       |  |       |       |  |   | (855)   |      
|Comprehensive income:           |                                                                                                                            |                            |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       |  |        |       |  |   |         |      
|                                | Change in unrealized holding (gain/loss) on available for sale
    investment securities, net of related income tax effect |                            |       |  |            |   |             |        |  |       |          |  |  |               |         |  |       |  |        | 683   |  |   |         | 683   |       
|Net Income                      |                                                                                                                            |                            |      |   |            |   |            |         |  |       |         |   |  |               | 8,542   |   |       |  |       |       |  |   | 8,542   |      
|                                |                                                                                                                            |                            |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       | 
|                                |                                                                                                                            | Total Comprehensive Income |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       |  |        |       |  |   |         |       | 9,225  | 
|                               
|Balance as of December 31, 2002 |                                                                                                                            |                            | 6,095 |   |            | $ | 6,095       |         |  | $     | 46,614   |   |  |               | $14,460 |   |       |  | $1,204 |       |  | $ | 68,373  |      
|Cash dividend                   |                                                                                                                            |                            |      |   |            |   |            |         |  |       |         |   |  |               | (2,008) |   |       |  |       |       |  |   | (2,008) |      
|Exercise of Stock Options       |                                                                                                                            |                            | 111   |   |            |   | 111         |         |  |       | 1,064    |   |  |               |        |   |       |  |       |       |  |   | 1,175   |      
|Treasury stock buy-back         |                                                                                                                            |                            | (156) |   |            |   | (156)       |         |  |       | (2,063)  |   |  |               |        |   |       |  |       |       |  |   | (2,219) |      
|Comprehensive income:           |                                                                                                                            |                            |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       |  |        |       |  |   |         |      
|                                | Change in unrealized holding (gain/loss) on available for sale
    investment securities, net of related income tax effect |                            |       |  |            |   |             |        |  |       |          |  |  |               |         |  |       |  |        | (581) |  |   |         | (581) |       
|Net Income                      |                                                                                                                            |                            |      |   |            |   |            |         |  |       |         |   |  |               | 10,545  |   |       |  |       |       |  |   | 10,545  |      
|                                |                                                                                                                            |                            |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       | 
|                                |                                                                                                                            | Total Comprehensive Income |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       |  |        |       |  |   |         |       | 9,964  | 
|                               
|Balance as of December 31, 2003 |                                                                                                                            |                            | 6,050 |   |            | $ | 6,050       |         |  | $     | 45,615   |   |  |               | $22,997 |   |       |  | $623   |       |  | $ | 75,285  |      
|Cash dividend                   |                                                                                                                            |                            |      |   |            |   |            |         |  |       |         |   |  |               | (2,308) |   |       |  |       |       |  |   | (2,308) |      
|Exercise of Stock Options       |                                                                                                                            |                            | 39    |   |            |   | 39          |         |  |       | 261      |   |  |               |        |   |       |  |       |       |  |   | 300     |      
|Comprehensive income:           |                                                                                                                            |                            |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       |  |        |       |  |   |         |      
|                                | Change in unrealized holding (gain/loss) on available for sale
    investment securities, net of related income tax effect |                            |       |  |            |   |             |        |  |       |          |  |  |               |         |  |       |  |        | (619) |  |   |         | (619) |       
|Net Income                      |                                                                                                                            |                            |      |   |            |   |            |         |  |       |         |   |  |               | 10,700  |   |       |  |       |       |  |   | 10,700  |      
|                                |                                                                                                                            |                            |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       | 
|                                |                                                                                                                            | Total Comprehensive Income |       |   |            |   |             |         |  |       |          |   |  |               |         |   |       |  |        |       |  |   |         |       | 10,081 | 
|                               
|Balance as of December 31, 2004 |                                                                                                                            |                            | 6,089 |   |            | $ | 6,089       |         |  | $     | 45,876   |   |  |               | $31,389 |   |       |  | $4     |       |  | $ | 83,358  |      
|                               



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|                                                                                      |                                                                            |                                                                     |                                                      |         |          |          |  |         |           |          |  |         |           |          | 
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------------------------- | ------- | -------- | -------- |  | ------- | --------- | -------- |  | ------- | --------- | -------- | 
|                                                                                      |                                                                            | 2004                                                                |                                                      |         | 2003     |          |  | 2002    |          
|                                                                                      |                                                                           
|                                                                                      |                                                                            | (In Thousands)                                                      |                                                     
|Operating Activities:                                                                 |                                                                            |                                                                     |                                                      |         |          |          |  |         |           |          |  |        
|                                                                                      |                                                                            | Net income                                                          |                                                      |         | $10,700  |          |  |         | $10,545   |          |  |         | $8,542    |         
|Adjustments to Reconcile Net Income to Net Cash Provided by
    Operating Activities: |                                                                            |                                                                     |                                                      |         |          |          |  |         |           |          |  |        
|                                                                                      | Security (gains), net                                                      |                                                                     |                                                      | (151)   |          |          |  | (310)   |           |          |  | (113)   |          
|                                                                                      | Depreciation and amortization of premises and equipment                    |                                                                     |                                                      | 1,142   |          |          |  | 1,220   |           |          |  | 1,141   |          
|                                                                                      | Amortization of software                                                   |                                                                     |                                                      | 558     |          |          |  | 451     |           |          |  | 400     |          
|                                                                                      | Intangible asset amortization                                              |                                                                     |                                                      | 368     |          |          |  | 368     |           |          |  | 368     |          
|                                                                                      | Amortization of investment security premium, net of discount
    accretion |                                                                     |                                                      | 151     |          |          |  | 266     |           |          |  | 187     |          
|                                                                                      | Deferred tax (benefit)                                                     |                                                                     |                                                      | (1,260) |          |          |  | (1,738) |           |          |  | (1,264) |          
|                                                                                      | Deferral of loan fees and costs, net                                       |                                                                     |                                                      | 163     |          |          |  | 49      |           |          |  | 420     |          
|                                                                                      | Gain on sale of building                                                   |                                                                     |                                                      |        |          |          |  | (12)    |           |          |  | (12)    |          
|                                                                                      | Provision for loan losses                                                  |                                                                     |                                                      | 1,601   |          |          |  | 3,567   |           |          |  | 3,095   |          
|                                                                                      | Equity in earnings from RML                                                |                                                                     |                                                      | (438)   |          |          |  | (2,785) |           |          |  | (1,917) |          
|                                                                                      | Equity in loss from Elliott Cove                                           |                                                                     |                                                      | 457     |          |          |  | 554     |           |          |  | 239     |          
|                                                                                      | (Increase) decrease in accrued interest receivable                         |                                                                     |                                                      | (378)   |          |          |  | (108)   |           |          |  | 278     |          
|                                                                                      | (Increase) in other assets                                                 |                                                                     |                                                      | (2,385) |          |          |  | (525)   |           |          |  | (766)   |          
|                                                                                      | Increase (decrease) of other liabilities                                   |                                                                     |                                                      | (115)   |          |          |  | 848     |           |          |  | 85      |          
|                                                                                     
|                                                                                      |                                                                            |                                                                     | Net Cash Provided by Operating Activities            |         |          | 10,413   |  |         |           | 12,390   |  |         |           | 10,683   | 
|                                                                                     
|Investing Activities:                                                                 |                                                                            |                                                                     |                                                      |         |          |          |  |         |           |          |  |        
|                                                                                      | Investment in securities:                                                  |                                                                     |                                                      |         |          |          |  |         |           |          |  |         |          
|                                                                                      |                                                                            | Purchases of investment securitiesAvailable-for-sale               |                                                      |         | (28,341) |          |  |         | (52,966)  |          |  |         | (96,120)  |         
|                                                                                      |                                                                            | Proceeds from sales/maturities of
    securitiesAvailable-for-sale |                                                      |         | 38,559   |          |  |         | 59,532    |          |  |         | 92,611    |         
|                                                                                      |                                                                            | Proceeds from maturities of securitiesHeld-to-maturity             |                                                      |         | 220      |          |  |         | 335       |          |  |         | 551       |         
|                                                                                      | Investment in Federal Home Loan Bank stock, net                            |                                                                     |                                                      | 244     |          |          |  | 228     |           |          |  | 886     |          
|                                                                                      | Investments in loans:                                                      |                                                                     |                                                      |         |          |          |  |         |           |          |  |         |          
|                                                                                      |                                                                            | Sales of loans and loan participations                              |                                                      |         | 20,036   |          |  |         | 148,376   |          |  |         | 102,274   |         
|                                                                                      |                                                                            | Loans made, net of repayments                                       |                                                      |         | (98,373) |          |  |         | (216,411) |          |  |         | (156,941) |         
|                                                                                      | Investment in Elliott Cove                                                 |                                                                     |                                                      | (250)   |          |          |  | (375)   |           |          |  | (375)   |          
|                                                                                      | Investment in Related Corporate Partners                                   |                                                                     |                                                      |        |          |          |  | (2,956) |           |          |  |        |          
|                                                                                      | Purchases of premises and equipment                                        |                                                                     |                                                      | (618)   |          |          |  | (1,846) |           |          |  | (5,745) |          
|                                                                                     
|                                                                                      |                                                                            |                                                                     | Net Cash Used by Investing Activities                |         |          | (68,523) |  |         |           | (66,083) |  |         |           | (62,859) | 
|                                                                                     
|Financing Activities:                                                                 |                                                                            |                                                                     |                                                      |         |          |          |  |         |           |          |  |        
|                                                                                      | Increase in deposits                                                       |                                                                     |                                                      | 52,864  |          |          |  | 19,782  |           |          |  | 75,808  |          
|                                                                                      | Increase (decrease) in borrowings                                          |                                                                     |                                                      | 1,335   |          |          |  | (1,222) |           |          |  | 683     |          
|                                                                                      | Loan to Elliott Cove                                                       |                                                                     |                                                      | (250)   |          |          |  | (350)   |           |          |  | (125)   |          
|                                                                                      | Proceeds from issuance of common stock                                     |                                                                     |                                                      | 300     |          |          |  | 1,175   |           |          |  | 434     |          
|                                                                                      | Proceeds from issuance of trust preferred securities                       |                                                                     |                                                      |        |          |          |  | 8,000   |           |          |  |        |          
|                                                                                      | Repurchase of common stock                                                 |                                                                     |                                                      |        |          |          |  | (2,219) |           |          |  | (855)   |          
|                                                                                      | Dividends received from RML                                                |                                                                     |                                                      | 367     |          |          |  | 1,850   |           |          |  | 1,161   |          
|                                                                                      | Cash dividends paid                                                        |                                                                     |                                                      | (2,308) |          |          |  | (2,008) |           |          |  | (1,222) |          
|                                                                                     
|                                                                                      |                                                                            |                                                                     | Net Cash Provided by Financing Activities            |         |          | 52,308   |  |         |           | 25,008   |  |         |           | 75,884   | 
|                                                                                     
|                                                                                      |                                                                            |                                                                     | Net Increase (Decrease) by Cash and Cash Equivalents |         |          | (5,802)  |  |         |           | (28,685) |  |         |           | 23,708   | 
|                                                                                      | Cash and cash equivalents at beginning of period                           |                                                                     |                                                      | 36,895  |          |          |  | 65,580  |           |          |  | 41,872  |          
|                                                                                     
|                                                                                      | Cash and Cash Equivalents at End of Year                                   |                                                                     |                                                      | $31,093 |          |          |  | $36,895 |           |          |  | $65,580 |          
|                                                                                     
|Supplemental Information:                                                             |                                                                            |                                                                     |                                                      |         |          |          |  |         |           |          |  |        
|                                                                                      | Income taxes paid                                                          |                                                                     |                                                      | $6,825  |          |          |  | $7,900  |           |          |  | $6,400  |          
|                                                                                      | Interest paid                                                              |                                                                     |                                                      | $7,766  |          |          |  | $6,851  |           |          |  | $10,636 |          
|                                                                                      | Conversion of Elliott Cove loan to equity                                  |                                                                     |                                                      | $625    |          |          |  | $      |           |          |  | $      |          
|                                                                                     



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Notes to Consolidated Financial Statements


NOTE 1  Organization and Summary of
Significant Accounting Policies








Estimates and Assumptions:


Cash and Cash Equivalents:


Investment Securities:




Loans and Loan Fees:


Allowance for Loan Losses:




Premises and Equipment:


30



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Intangible Assets:


Other Assets:


Other Real Estate:


Advertising:


Income Taxes:


Earnings Per Share:


Stock Option Plans:


Comprehensive Income:


Reclassifications:


Segments:


Geographic Concentration and Alaska
Economy:


Consolidation Policy:


31



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|         |                        
|-------- | -----------------------
|NOTE 2  | Cash and Due from Banks





|         |                         
|-------- | ------------------------
|NOTE 3  | Money Market Investments



|                                                           |       |                |        |         |      |  |       |        | 
|---------------------------------------------------------- | ----- | -------------- | ------ | ------- | ---- |  | ----- | ------ | 
|                                                           |      
|December 31,                                               |       | 2004           |        |         | 2003 | 
|                                                           |      
|                                                           |       | (In Thousands) |       
|Domestic CD                                                |       |                | $     |         |      |  | $95   |       
|Interest bearing deposits at Federal Home Loan Bank (FHLB) |       |                | 12,157 |         |      |  | 5,502 |       
|                                                          
|                                                           | Total |                |        | $12,157 |      |  |       | $5,597 | 
|                                                          





|         |                      
|-------- | ---------------------
|NOTE 4  | Investment Securities



|                              |                            |                |        |        |            |  |    |            |        |  |        |     |      |  |        |        |         | 
|----------------------------- | -------------------------- | -------------- | ------ | ------ | ---------- |  | -- | ---------- | ------ |  | ------ | --- | ---- |  | ------ | ------ | ------- | 
|                              |                           
|                              |                            | Gross          |        |        | Gross      |  |    |           
|                              |                            | Amortized      |        |        | Unrealized |  |    | Unrealized |        |  | Market |    
|                              |                            | Cost           |        |        | Gains      |  |    | Losses     |        |  | Value  |    
|                              |                           
|                              |                            | (In Thousands) |       
|2004:                         |                            |                |        |        |            |  |    |            |        |  |        |     |      |  |        |       
|Securities Available for Sale |                            |                |        |        |            |  |    |            |        |  |        |     |      |  |        |       
|                              | U.S. Treasury              |                |        | $5,503 |            |  |    | $         |        |  |        | $22 |      |  |        | $5,481 |        
|                              | U.S. Agency                |                |        | 53,628 |            |  |    | 180        |        |  |        | 152 |      |  |        | 53,656 |        
|                              | Mortgage-backed Securities |                |        | 311    |            |  |    | 1          |        |  |        |    |      |  |        | 312    |        
|                             
|                              |                            | Total          |        |        | $59,442    |  |    |            | $181   |  |        |     | $174 |  |        |        | $59,449 | 
|                             
|Securities Held to Maturity   |                            |                |        |        |            |  |    |            |        |  |        |     |      |  |        |       
|                              | Municipal Securities       |                |        | $724   |            |  |    | $47        |        |  |        | $  |      |  |        | $771   |        
|                             
|Federal Home Loan Bank Stock  |                            |                | $1,302 |        |            |  | $ |            |        |  | $     |     |      |  | $1,302 |       
|                             
|2003:                         |                            |                |        |        |            |  |    |            |        |  |        |     |      |  |        |       
|Securities Available for Sale |                            |                |        |        |            |  |    |            |        |  |        |     |      |  |        |       
|                              | U.S. Treasury              |                |        | $498   |            |  |    | $2         |        |  |        | $  |      |  |        | $500   |        
|                              | U.S. Agency                |                |        | 68,742 |            |  |    | 1,067      |        |  |        | 12  |      |  |        | 69,797 |        
|                              | Mortgage-backed Securities |                |        | 418    |            |  |    | 2          |        |  |        |    |      |  |        | 420    |        
|                             
|                              |                            | Total          |        |        | $69,658    |  |    |            | $1,071 |  |        |     | $12  |  |        |        | $70,717 | 
|                             
|Securities Held to Maturity   |                            |                |        |        |            |  |    |            |        |  |        |     |      |  |        |       
|                              | Municipal Securities       |                |        | $945   |            |  |    | $66        |        |  |        | $  |      |  |        | $1,011 |        
|                             
|Federal Home Loan Bank Stock  |                            |                | $1,546 |        |            |  | $ |            |        |  | $     |     |      |  | $1,546 |       
|                             

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|     |                            |                     |  |        |                     |  |            |            |      |  |        |            |    |            |  |    |        |  |  |        |         |  |  |     |      | 
|---- | -------------------------- | ------------------- |  | ------ | ------------------- |  | ---------- | ---------- | ---- |  | ------ | ---------- | -- | ---------- |  | -- | ------ |  |  | ------ | ------- |  |  | --- | ---- | 
|     |                           
|     |                            | Less Than 12 Months |  |        | More Than 12 Months |  |            | Total      |     
|     |                           
|     |                            | Unrealized          |  |        |                     |  | Unrealized |            |      |  |        | Unrealized |   
|     |                            | Fair Value          |  |        | Losses              |  |            | Fair Value |      |  | Losses |            |    | Fair Value |  |    | Losses | 
|     |                           
|     |                            | (In Thousands )     | 
|2004 |                            |                     |  |        |                     |  |            |            |      |  |        |            |    |            |  |    |        |  |  |        |         |  |  |    
|     | U.S. Treasury              |                     |  | $5,481 |                     |  |            | $22        |      |  |        | $         |    |            |  | $ |        |  |  | $5,481 |         |  |  | $22 |     
|     | U.S. Agency                |                     |  | 33,726 |                     |  |            | 152        |      |  |        |           |    |            |  |   |        |  |  | 33,726 |         |  |  | 152 |     
|     | Mortgage-backed Securities |                     |  |       |                     |  |            |           |      |  |        |           |    |            |  |   |        |  |  |       |         |  |  |    |     
|    
|     |                            | Total               |  |        | $39,207             |  |            |            | $174 |  |        |            | $ |            |  |    | $     |  |  |        | $39,207 |  |  |     | $174 | 
|    
|    
|2003 |                            |                     |  |        |                     |  |            |            |      |  |        |            |    |            |  |    |        |  |  |        |         |  |  |    
|     | U.S. Treasury              |                     |  | $     |                     |  |            | $         |      |  |        | $         |    |            |  | $ |        |  |  | $     |         |  |  | $  |     
|     | U.S. Agency                |                     |  | 7,980  |                     |  |            | 12         |      |  |        |           |    |            |  |   |        |  |  | 7,980  |         |  |  | 12  |     
|     | Mortgage-backed Securities |                     |  |       |                     |  |            |           |      |  |        |           |    |            |  |   |        |  |  |       |         |  |  |    |     
|    
|     |                            | Total               |  |        | $7,980              |  |            |            | $12  |  |        |            | $ |            |  |    | $     |  |  |        | $7,980  |  |  |     | $12  | 
|    





|                              |                            |                        |  |       |        |  |  |        |         |  |           |       |        |           |  |      |        |  |  |        |         |  |  |        |         | 
|----------------------------- | -------------------------- | ---------------------- |  | ----- | ------ |  |  | ------ | ------- |  | --------- | ----- | ------ | --------- |  | ---- | ------ |  |  | ------ | ------- |  |  | ------ | ------- | 
|                              |                           
|                              |                            | Within                 |  |       | 1-5    |  |  | 5-10   |         |  | Due After |       |        | Amortized |  |      | Market | 
|                              |                            | 1 Year                 |  |       | Years  |  |  | Years  |         |  | 10 Years  |       |        | Cost      |  |      | Value  | 
|                              |                           
|                              |                            | (In Thousands)         | 
|Securities Available for Sale |                            |                        |  |       |        |  |  |        |         |  |           |       |        |           |  |      |        |  |  |        |         |  |  |       
|                              | U.S. Treasury              |                        |  | $499  |        |  |  | $5,004 |         |  |           | $    |        |           |  | $   |        |  |  | $5,503 |         |  |  | $5,481 |        
|                              | U.S. Agency                |                        |  | 6,057 |        |  |  | 41,580 |         |  |           | 5,991 |        |           |  |     |        |  |  | 53,628 |         |  |  | 53,656 |        
|                              | Mortgage-backed Securities |                        |  |      |        |  |  |       |         |  |           |      |        |           |  | 311  |        |  |  | 311    |         |  |  | 312    |        
|                             
|                              |                            | Total                  |  |       | $6,556 |  |  |        | $46,584 |  |           |       | $5,991 |           |  |      | $311   |  |  |        | $59,442 |  |  |        | $59,449 | 
|                             
|                              |                            | Weighted Average Yield |  |       | 4.76%  |  |  |        | 3.78%   |  |           |       | 4.75%  |           |  |      | 4.48%  |  |  |        | 3.99%   |  |  |        |        | 
|                             
|Securities Held to Maturity   |                            |                        |  |       |        |  |  |        |         |  |           |       |        |           |  |      |        |  |  |        |         |  |  |       
|                              | Municipal Securities       |                        |  | $65   |        |  |  | $285   |         |  |           | $245  |        |           |  | $129 |        |  |  | $724   |         |  |  | $771   |        
|                             
|                              |                            | Weighted Average Yield |  |       | 3.57%  |  |  |        | 4.18%   |  |           |       | 4.64%  |           |  |      | 5.11%  |  |  |        | 4.45%   |  |  |        |        | 
|                             

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|                                   |                             |                |         |    |       |  |      |        |  |  |    |    | 
|---------------------------------- | --------------------------- | -------------- | ------- | -- | ----- |  | ---- | ------ |  |  | -- | -- | 
|                                   |                            
|                                   |                             | Gross          |         |    | Gross | 
|                                   |                             | Proceeds       |         |    | Gains |  |      | Losses | 
|                                   |                            
|                                   |                             | (In Thousands) |        
|2004 Available-for-Sale Securities |                             |                | $3,789  |    |       |  | $151 |        |  |  | $ |   
|                                   | Held-to-Maturity Securities |                |         | $ |       |  |      | $     |  |  |    | $ | 
|2003 Available-for-Sale Securities |                             |                | $17,379 |    |       |  | $310 |        |  |  | $ |   
|                                   | Held-to-Maturity Securities |                |         | $ |       |  |      | $     |  |  |    | $ | 
|2002 Available-for-Sale Securities |                             |                | $6,367  |    |       |  | $113 |        |  |  | $ |   
|                                   | Held-to-Maturity Securities |                |         | $ |       |  |      | $     |  |  |    | $ | 
|                                  





|              |       |                |       |        |      |  |       |        |  |  |       |        | 
|------------- | ----- | -------------- | ----- | ------ | ---- |  | ----- | ------ |  |  | ----- | ------ | 
|              |      
|December 31,  |       | 2004           |       |        | 2003 |  |       | 2002   | 
|              |      
|              |       | (In Thousands) |      
|U.S. Treasury |       |                | $67   |        |      |  | $37   |        |  |  | $135  |       
|U.S. Agency   |       |                | 2,319 |        |      |  | 2,666 |        |  |  | 3,336 |       
|Other         |       |                | 14    |        |      |  | 21    |        |  |  | 41    |       
|             
|             
|              | Total |                |       | $2,400 |      |  |       | $2,724 |  |  |       | $3,512 | 
|             





|         |      
|-------- | -----
|NOTE 5  | Loans



|                                 |             |                                                     |          |          |         |  |          |          |         | 
|-------------------------------- | ----------- | --------------------------------------------------- | -------- | -------- | ------- |  | -------- | -------- | ------- | 
|                                 |            
|December 31,                     |             | 2004                                                |          |          | 2003    | 
|                                 |            
|                                 |             | (In Thousands)                                      |         
|Commercial                       |             |                                                     | $267,737 |          |         |  | $220,774 |         
|Real estate construction         |             |                                                     | 122,873  |          |         |  | 102,311  |         
|Real estate term                 |             |                                                     | 252,358  |          |         |  | 239,545  |         
|Real estate loans for sale       |             |                                                     |         |          |         |  | 1,395    |         
|Installment and other consumer   |             |                                                     | 38,166   |          |         |  | 39,796   |         
|                                
|                                 | Sub-total   |                                                     |          | 681,134  |         |  |          | 603,821  |        
|Less: Unearned purchase discount |             |                                                     | (44)     |          |         |  | (44)     |         
|                                 |             | Unearned origination fees, net of origination costs |          |          | (2,821) |  |          |          | (2,658) | 
|                                
|                                 | Total loans |                                                     |          | 678,269  |         |  |          | 601,119  |        
|Allowance for loan losses        |             |                                                     | (10,764) |          |         |  | (10,186) |         
|                                
|                                 | Net Loans   |                                                     |          | $667,505 |         |  |          | $590,933 |        
|                                

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|                               |       |                |          |          |           |  |         |          |  |  |         |          |  |  |          |          | 
|------------------------------ | ----- | -------------- | -------- | -------- | --------- |  | ------- | -------- |  |  | ------- | -------- |  |  | -------- | -------- | 
|                               |      
|December 31,                   |       | Maturity       |         
|                               |      
|                               |       | Within         |          |          |           |  | Over    |          |  | 
|                               |       | 1 Year         |          |          | 1-5 Years |  |         | 5 Years  |  |  | Total   |         
|                               |      
|                               |       | (In Thousands) |         
|Commercial                     |       |                | $135,476 |          |           |  | $81,231 |          |  |  | $46,378 |          |  |  | $263,085 |         
|Construction                   |       |                | 116,612  |          |           |  | 2,648   |          |  |  | 3,546   |          |  |  | 122,806  |         
|Real estate term               |       |                | 59,697   |          |           |  | 55,510  |          |  |  | 135,994 |          |  |  | 251,201  |         
|Installment and other consumer |       |                | 1,426    |          |           |  | 6,728   |          |  |  | 30,012  |          |  |  | 38,166   |         
|                              
|                               | Total |                |          | $313,211 |           |  |         | $146,117 |  |  |         | $215,930 |  |  |          | $675,258 | 
|                              
|Fixed interest rate            |       |                | $165,791 |          |           |  | $59,706 |          |  |  | $44,826 |          |  |  | $270,323 |         
|Floating interest rate         |       |                | 147,420  |          |           |  | 86,411  |          |  |  | 171,104 |          |  |  | 404,935  |         
|                              
|                               | Total |                |          | $313,211 |           |  |         | $146,117 |  |  |         | $215,930 |  |  |          | $675,258 | 
|                              



|                               |  |                |        |  |      |  |        | 
|------------------------------ |  | -------------- | ------ |  | ---- |  | ------ | 
|                               | 
|                               |  | 2004           |        |  | 2003 | 
|                               | 
|                               |  | (In Thousands) |       
|Balance, beginning of the year |  |                | $4,025 |  |      |  | $6,490 | 
|Loans made                     |  |                | 10,349 |  |      |  | 8,233  | 
|Repayments                     |  |                | 11,242 |  |      |  | 10,698 | 
|                              
|Balance, end of year           |  |                | $3,132 |  |      |  | $4,025 | 
|                              



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|         |                          
|-------- | -------------------------
|NOTE 6  | Allowance for Loan Losses



|                                |              |                   |         |         |         |         |         |        
|------------------------------- | ------------ | ----------------- | ------- | ------- | ------- | ------- | ------- | -------
|                               
|December 31,                    |              | 2004              |         | 2003    |         | 2002   
|                               
|                                |              | (In Thousands)   
|Balance, beginning of the year  |              | $10,186           |         | $8,476  |         | $7,200 
|Provision charged to operations |              | 1,601             |         | 3,567   |         | 3,095  
|Charge-offs:                    |              |                   |         |         |         |        
|                                | Commercial   |                   | (1,387) |         | (2,067) |         | (1,791)
|                                | Real estate  |                   |        |         | (127)   |         | (67)   
|                                | Consumer     |                   | (84)    |         | (91)    |         | (257)  
|                               
|                                |              | Total Charge-offs |         | (1,471) |         | (2,285) |         | (2,115)
|                               
|Recoveries:                     |              |                   |         |         |         |        
|                                | Commercial   |                   | 200     |         | 279     |         | 168    
|                                | Construction |                   | 185     |         |        |         |       
|                                | Real estate  |                   |        |         | 111     |         | 48     
|                                | Consumer     |                   | 63      |         | 38      |         | 80     
|                               
|                                |              | Total Recoveries  |         | 448     |         | 428     |         | 296    
|                               
|Charge-offs net of recoveries   |              | (1,023)           |         | (1,857) |         | (1,819)
|                               
|Balance, End of Year            |              | $10,764           |         | $10,186 |         | $8,476 
|                               



|         |                       
|-------- | ----------------------
|NOTE 7  | Premises and Equipment



|                                          |                                   |                |  |          |         |         |        
|----------------------------------------- | --------------------------------- | -------------- |  | -------- | ------- | ------- | -------
|                                         
|December 31,                              |                                   | Useful Life    |  | 2004     |         | 2003   
|                                         
|                                          |                                   | (In Thousands)
|Land                                      |                                   |                |  | $1,443   |         | $1,453 
|Vehicle                                   |                                   | 3 years        |  | 61       |         | 61     
|Furniture and equipment                   |                                   | 5-7 years      |  | 8,660    |         | 8,267  
|Tenant improvements                       |                                   | 2-11 years     |  | 4,025    |         | 3,904  
|Buildings                                 |                                   | 30 years       |  | 6,848    |         | 6,838  
|                                         
|                                          | Total Premises and Equipment      |                |  |          | 21,037  |         | 20,523 
|Accumulated depreciation and amortization |                                   |                |  | (10,454) |         | (9,416)
|                                         
|                                          | Total Premises and Equipment, Net |                |  |          | $10,583 |         | $11,107
|                                         



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|         |             
|-------- | ------------
|NOTE 8  | Other Assets



|                                         |                          |                |         |       |        
|---------------------------------------- | ------------------------ | -------------- | ------- | ----- | -------
|                                        
|December 31,                             |                          | 2004           |         | 2003 
|                                        
|                                         |                          | (In Thousands)
|Intangible assets                        |                          |                |         |      
|                                         | Goodwill                 |                | $5,735  |       | $5,735 
|                                         | Core deposits intangible |                | 899     |       | 1,267  
|                                        
|                                         | Total                    |                | $6,634  |       | $7,002 
|                                        
|Prepaid expenses                         |                          | $543           |         | $395 
|Software                                 |                          | 816            |         | 1,043
|Deferred taxes, net                      |                          | 7,673          |         | 5,981
|Loan to Elliott Cove                     |                          | 100            |         | 475  
|Investment in Elliott Cove               |                          | 375            |         | (43) 
|Investment in RML Holding Company        |                          | 4,191          |         | 4,120
|Investment in Related Corporate Partners |                          | 2,720          |         | 2,956
|Other assets                             |                          | 3,340          |         | 1,197
|                                        
|                                         | Total                    |                | $19,758 |       | $16,124
|                                        







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|                     |                           |                                            |         |         |         |        
|-------------------- | ------------------------- | ------------------------------------------ | ------- | ------- | ------- | -------
|                    
|December 31,         |                           | 2004                                       |         | 2003   
|                    
|                     |                           | (In Thousands)                            
|Assets               |                           |                                            |         |        
|                     | Current assets            |                                            | $50,499 |         | $54,294
|                     | Long-term assets          |                                            | 2,816   |         | 695    
|                    
|                     |                           | Total Assets                               |         | $53,315 |         | $54,989
|                    
|                    
|Liabilities          |                           |                                            |         |        
|                     | Current liabilities       |                                            | $36,419 |         | $43,369
|                     | Long-term liabilities     |                                            | 954     |         | 224    
|                    
|                     |                           | Total Liabilities                          |         | 37,373  |         | 43,593 
|                    
|Shareholders Equity |                           | 15,942                                     |         | 11,396 
|                    
|                     |                           | Total Liabilities and Shareholders Equity |         | $53,315 |         | $54,989
|                    
|                    
|Income/expense       |                           |                                            |         |        
|                     | Gross income              |                                            | $14,425 |         | $20,326
|                     | Total expense             |                                            | 12,714  |         | 10,859 
|                     | Joint venture allocations |                                            | (596)   |         | (572)  
|                    
|                     |                           | Net Income                                 |         | $1,115  |         | $8,895 
|                    





|         |         
|-------- | --------
|NOTE 9  | Deposits





|                         |       |          |         
|------------------------ | ----- | -------- | --------
|                        
|Year Ending December 31:
|                        
|(In Thousands)          
|2005                     |       | $114,412
|2006                     |       | 23,206  
|2007                     |       | 4,447   
|2008                     |       | 219     
|2009                     |       | 74      
|Thereafter               |       | 1       
|                        
|                         | Total |          | $142,359
|                        





|          |           
|--------- | ----------
|NOTE 10  | Borrowings



38



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|          |                           
|--------- | --------------------------
|NOTE 11  | Trust Preferred Securities





|          |                 
|--------- | ----------------
|NOTE 12  | Interest Expense



|                                              |       |                |        |       |        |       |        
|--------------------------------------------- | ----- | -------------- | ------ | ----- | ------ | ----- | -------
|                                             
|December 31,                                  |       | 2004           |        | 2003  |        | 2002 
|                                             
|                                              |       | (In Thousands)
|Interest-bearing demand accounts              |       | $221           |        | $205  |        | $353 
|Money market accounts                         |       | 1,527          |        | 1,293 |        | 2,063
|Savings accounts                              |       | 2,290          |        | 1,182 |        | 1,514
|Certificates of deposit greater than $100,000 |       | 1,620          |        | 1,903 |        | 3,009
|Certificates of deposit less than $100,000    |       | 1,051          |        | 1,620 |        | 3,013
|Borrowings                                    |       | 574            |        | 478   |        | 212  
|                                             
|                                              | Total |                | $7,283 |       | $6,681 |       | $10,164
|                                             

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|          |             
|--------- | ------------
|NOTE 13  | Income Taxes



|             |  |                |  |           |  |          |  |       
|------------ |  | -------------- |  | --------- |  | -------- |  | ------
|            
|             |  | Deferred       |  |          
|             |  | Current Tax    |  | Expense   |  | Total   
|December 31, |  | Expense        |  | (Benefit) |  | Expense 
|            
|             |  | (In Thousands)
|2004:        |  | Federal        |  | $6,139    |  | ($998)   |  | $5,141
|             |  | State          |  | 1,348     |  | (262)    |  | 1,086 
|            
|             |  |                |  | $7,487    |  | ($1,260) |  | $6,227
|            
|2003:        |  | Federal        |  | $6,689    |  | ($1,398) |  | $5,291
|             |  | State          |  | 1,565     |  | (340)    |  | 1,225 
|            
|             |  |                |  | $8,254    |  | ($1,738) |  | $6,516
|            
|2002:        |  | Federal        |  | $5,239    |  | ($917)   |  | $4,322
|             |  | State          |  | 1,196     |  | (347)    |  | 849   
|            
|             |  |                |  | $6,435    |  | ($1,264) |  | $5,171
|            



|                                       |       |                |        |        |        |        |       
|-------------------------------------- | ----- | -------------- | ------ | ------ | ------ | ------ | ------
|                                      
|December 31,                           |       | 2004           |        | 2003   |        | 2002  
|                                      
|                                       |       | (In Thousands)
|Computed expected income tax expense |       | $5,924         |        | $5,971 |        | $4,800
|State income taxes, net                |       | 706            |        | 796    |        | 552   
|Other                                  |       | (403)          |        | (251)  |        | (181) 
|                                      
|                                       | Total |                | $6,227 |        | $6,516 |        | $5,171
|                                      



|                                      |                        |                |        |        |        |        |       
|------------------------------------- | ---------------------- | -------------- | ------ | ------ | ------ | ------ | ------
|                                     
|December 31,                          |                        | 2004           |        | 2003   |        | 2002  
|                                     
|                                      |                        | (In Thousands)
|Provision for loan losses             |                        | $5,612         |        | $4,962 |        | $3,408
|Loan fees, net of costs               |                        | 1,150          |        | 1,062  |        | 1,036 
|Unrealized gain on available-for-sale |                        |                |        |        |        |       
|                                      | investment securities  |                | (3)    |        | (436)  |        | (841) 
|Depreciation                          |                        | 386            |        | 263    |        | 597   
|Other, net                            |                        | 528            |        | 130    |        | (363) 
|                                     
|                                      | Net Deferred Tax Asset |                | $7,673 |        | $5,981 |        | $3,837
|                                     



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|          |                     
|--------- | --------------------
|NOTE 14  | Comprehensive Income



|                                                                                    |  |                |          |  |           |  |        |        |  |  |        | 
|----------------------------------------------------------------------------------- |  | -------------- | -------- |  | --------- |  | ------ | ------ |  |  | ------ | 
|                                                                                    | 
|                                                                                    |  | Tax            |          |  |          
|                                                                                    |  | Before Tax     |          |  | (Expense) |  |        | Net    | 
|December 31,                                                                        |  | Amount         |          |  | Benefit   |  |        | Amount | 
|                                                                                    | 
|                                                                                    |  | (In Thousands) |         
|2004:                                                                               |  |                |          |  |           |  |        |        |  |  |        | 
|Unrealized net holding losses on investment securities arising
    during 2004      |  |                | ($900)   |  |           |  | $370   |        |  |  | ($530) | 
|Plus: Reclassification adjustment for net realized gains
    included in net income |  |                | (151)    |  |           |  | 62     |        |  |  | (89)   | 
|                                                                                   
|Net unrealized losses                                                               |  |                | ($1,051) |  |           |  | $432   |        |  |  | ($619) | 
|                                                                                   
|2003:                                                                               |  |                |          |  |           |  |        |        |  |  |        | 
|Unrealized net holding losses on investment securities arising
    during 2003      |  |                | ($676)   |  |           |  | $278   |        |  |  | ($398) | 
|Plus: Reclassification adjustment for net realized gains
    included in net income |  |                | (310)    |  |           |  | 127    |        |  |  | (183)  | 
|                                                                                   
|Net unrealized losses                                                               |  |                | ($986)   |  |           |  | $405   |        |  |  | ($581) | 
|                                                                                   
|2002:                                                                               |  |                |          |  |           |  |        |        |  |  |        | 
|Unrealized net holding gains on investment securities arising
    during 2002       |  |                | $1,278   |  |           |  | ($528) |        |  |  | $750   | 
|Plus: Reclassification adjustment for net realized gains
    included in net income |  |                | (113)    |  |           |  | 46     |        |  |  | (67)   | 
|                                                                                   
|Net unrealized gains                                                                |  |                | $1,165   |  |           |  | ($482) |        |  |  | $683   | 
|                                                                                   



|          |                       
|--------- | ----------------------
|NOTE 15  | Employee Benefit Plans









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|          |             
|--------- | ------------
|NOTE 16  | Common Stock







|          |        
|--------- | -------
|NOTE 17  | Options



|                              |  |          |           |  |          |  |        |          |  |  |              | 
|----------------------------- |  | -------- | --------- |  | -------- |  | ------ | -------- |  |  | ------------ | 
|                              | 
|                              |  | Weighted |           |  |         
|                              |  | Shares   |           |  | Average  |  |        | Range of | 
|                              |  | Under    |           |  | Exercise |  |        | Exercise | 
|                              |  | Option   |           |  | Price    |  |        | Price    | 
|                              | 
|December 31, 2001 outstanding |  |          | 522,342   |  |          |  | $7.99  |          |  |  | $5.61-$14.00 | 
|Forfeited                     |  |          | (10,359)  |  |          |  | 10.49  |          |  |  |              | 
|Exercised                     |  |          | (64,336)  |  |          |  | 5.71   |          |  |  |              | 
|                             
|December 31, 2002 outstanding |  |          | 447,647   |  |          |  | 8.26   |          |  |  | 5.61-14.00   | 
|Granted  2003                |  |          | 104,500   |  |          |  | 14.00  |          |  |  |              | 
|Forfeited                     |  |          | (4,250)   |  |          |  | 11.83  |          |  |  |              | 
|Exercised                     |  |          | (125,937) |  |          |  | 5.72   |          |  |  |              | 
|                             
|December 31, 2003 outstanding |  |          | 421,960   |  |          |  | 10.40  |          |  |  | 5.61-14.00   | 
|Granted  2004                |  |          | 49,838    |  |          |  | 19.81  |          |  |  |              | 
|Forfeited                     |  |          | (6,750)   |  |          |  | 13.38  |          |  |  |              | 
|Exercised                     |  |          | (59,957)  |  |          |  | 6.73   |          |  |  |              | 
|                             
|December 31, 2004 outstanding |  |          | 405,091   |  |          |  | $12.05 |          |  |  | $5.61-$14.00 | 
|                             









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|                                       |            |      |             |           |      |  |         |         |  |  |         |         |  |  |        |        | 
|-------------------------------------- | ---------- | ---- | ----------- | --------- | ---- |  | ------- | ------- |  |  | ------- | ------- |  |  | ------ | ------ | 
|                                       |           
|                                       |            | 2004 |             |           | 2003 |  |         | 2002    | 
|                                       |           
|Net income (in thousands)              |            |      | As reported |           |      |  | $10,700 |         |  |  | $10,545 |         |  |  | $8,542 |       
|Less stock-based employee compensation |            |      |             |           |      |  | (163)   |         |  |  | (198)   |         |  |  | (168)  |       
|                                      
|                                       | Net income |      |             | Pro forma |      |  |         | $10,537 |  |  |         | $10,347 |  |  |        | $8,374 | 
|                                      
|Earnings per share, basic              |            |      | As reported |           |      |  | $1.76   |         |  |  | $1.76   |         |  |  | $1.40  |       
|                                       |            |      | Pro forma   |           |      |  | $1.73   |         |  |  | $1.72   |         |  |  | $1.37  |       
|Earnings per share, diluted            |            |      | As reported |           |      |  | $1.71   |         |  |  | $1.69   |         |  |  | $1.35  |       
|                                       |            |      | Pro forma   |           |      |  | $1.68   |         |  |  | $1.66   |         |  |  | $1.33  |       



|          |                                       
|--------- | --------------------------------------
|NOTE 18  | Commitments and Contingent Liabilities



|                         |       |  |        |         | 
|------------------------ | ----- |  | ------ | ------- | 
|                         |      
|                         |      
|Year Ending December 31: |      
|(In Thousands)           |      
|2005                     |       |  | $1,407 |        
|2006                     |       |  | 1,286  |        
|2007                     |       |  | 1,146  |        
|2008                     |       |  | 1,180  |        
|2009                     |       |  | 1,221  |        
|Thereafter               |       |  | 6,225  |        
|                        
|                         | Total |  |        | $12,465 | 
|                        







Off-Balance Sheet Financial Instruments:


43



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##### Table of Contents







|                               |                              |                |  |          |      |  |   |         | 
|------------------------------ | ---------------------------- | -------------- |  | -------- | ---- |  | - | ------- | 
|                               |                             
|December 31,                   |                              | 2004           |  |          | 2003 | 
|                               |                             
|                               |                              | (In Thousands) | 
|Off-balance sheet commitments: |                              |                |  |          |      |  |   |        
|                               | Commitments to extend credit |                |  | $137,480 |      |  | $ | 122,264 | 
|                               | Standby letters of credit    |                |  | 4,590    |      |  |   | 4,217   | 





NOTE 19  Regulatory Matters








44



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|                                         |  |                |        |             |             |  |        |                  |  |   |        |  |  |        |       |  |       |   |        |  |  |  |        | 
|---------------------------------------- |  | -------------- | ------ | ----------- | ----------- |  | ------ | ---------------- |  | - | ------ |  |  | ------ | ----- |  | ----- | - | ------ |  |  |  | ------ | 
|                                         | 
|                                         |  |                |        | Adequately- |             |  |       
|Consolidated                             |  | Actual         |        |             | Capitalized |  |        | Well-Capitalized | 
|                                         | 
|                                         |  | Amount         |        |             | Ratio       |  |        | Amount           |  |   | Ratio  |  |  | Amount |       |  | Ratio |  
|                                         | 
|                                         |  | (In Thousands) |       
|As of December 31, 2004:                 |  |                |        |             |             |  |        |                  |  |   |        |  |  |        |       |  |       |   |        |  |  |  |        | 
|Total Capital (to risk-weighted assets)  |  | $              | 93,814 |             |             |  | 12.87% |                  |  | $ | 58,315 |  |  |        | M8.0% |  |       | $ | 72,894 |  |  |  | M10.0% | 
|Tier I Capital (to risk-weighted assets) |  | $              | 84,682 |             |             |  | 11.62% |                  |  | $ | 29,150 |  |  |        | M4.0% |  |       | $ | 43,726 |  |  |  | M6.0%  | 
|Tier I Capital (to average assets)       |  | $              | 84,682 |             |             |  | 10.72% |                  |  | $ | 31,598 |  |  |        | M4.0% |  |       | $ | 39,497 |  |  |  | M5.0%  | 
|As of December 31, 2003:                 |  |                |        |             |             |  |        |                  |  |   |        |  |  |        |       |  |       |   |        |  |  |  |        | 
|Total Capital (to risk-weighted assets)  |  | $              | 84,057 |             |             |  | 12.83% |                  |  | $ | 52,413 |  |  |        | M8.0% |  |       | $ | 65,516 |  |  |  | M10.0% | 
|Tier I Capital (to risk-weighted assets) |  | $              | 75,845 |             |             |  | 11.58% |                  |  | $ | 26,199 |  |  |        | M4.0% |  |       | $ | 39,298 |  |  |  | M6.0%  | 
|Tier I Capital (to average assets)       |  | $              | 75,845 |             |             |  | 10.37% |                  |  | $ | 29,256 |  |  |        | M4.0% |  |       | $ | 36,569 |  |  |  | M5.0%  | 

|                                         |  |                |        |             |             |  |        |                  |  |   |        |  |  |        |       |  |       |   |        |  |  |  |        | 
|---------------------------------------- |  | -------------- | ------ | ----------- | ----------- |  | ------ | ---------------- |  | - | ------ |  |  | ------ | ----- |  | ----- | - | ------ |  |  |  | ------ | 
|                                         | 
|                                         |  |                |        | Adequately- |             |  |       
|Northrim Bank                            |  | Actual         |        |             | Capitalized |  |        | Well-Capitalized | 
|                                         | 
|                                         |  | Amount         |        |             | Ratio       |  |        | Amount           |  |   | Ratio  |  |  | Amount |       |  | Ratio |  
|                                         | 
|                                         |  | (In Thousands) |       
|As of December 31, 2004:                 |  |                |        |             |             |  |        |                  |  |   |        |  |  |        |       |  |       |   |        |  |  |  |        | 
|Total Capital (to risk-weighted assets)  |  | $              | 83,284 |             |             |  | 11.44% |                  |  | $ | 58,241 |  |  |        | M8.0% |  |       | $ | 72,801 |  |  |  | M10.0% | 
|Tier I Capital (to risk-weighted assets) |  | $              | 74,160 |             |             |  | 10.18% |                  |  | $ | 29,139 |  |  |        | M4.0% |  |       | $ | 43,709 |  |  |  | M6.0%  | 
|Tier I Capital (to average assets)       |  | $              | 74,160 |             |             |  | 9.40%  |                  |  | $ | 31,557 |  |  |        | M4.0% |  |       | $ | 39,447 |  |  |  | M5.0%  | 
|As of December 31, 2003:                 |  |                |        |             |             |  |        |                  |  |   |        |  |  |        |       |  |       |   |        |  |  |  |        | 
|Total Capital (to risk-weighted assets)  |  | $              | 73,748 |             |             |  | 11.22% |                  |  | $ | 52,583 |  |  |        | M8.0% |  |       | $ | 65,729 |  |  |  | M10.0% | 
|Tier I Capital (to risk-weighted assets) |  | $              | 65,508 |             |             |  | 9.97%  |                  |  | $ | 26,282 |  |  |        | M4.0% |  |       | $ | 39,423 |  |  |  | M6.0%  | 
|Tier I Capital (to average assets)       |  | $              | 65,508 |             |             |  | 8.97%  |                  |  | $ | 29,212 |  |  |        | M4.0% |  |       | $ | 36,515 |  |  |  | M5.0%  | 

NOTE 20  Fair Value of Financial
Instruments




Cash and Money Market Investments:


Investment Securities:


Loans:


Deposit Liabilities:


FHLB Advance:


Commitments to Extend Credit and Standby Letters of
Credit:


45



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Limitations:


|                                    |                                   |                |  |          |       |  |  |          |  |  |       |          |  |  |  |          | 
|----------------------------------- | --------------------------------- | -------------- |  | -------- | ----- |  |  | -------- |  |  | ----- | -------- |  |  |  | -------- | 
|                                    |                                  
|                                    |                                   | 2004           |  |          | 2003  | 
|                                    |                                  
|                                    |                                   | Carrying       |  |          | Fair  |  |  | Carrying |  |  | Fair  |         
|                                    |                                   | Amount         |  |          | Value |  |  | Amount   |  |  | Value |         
|                                    |                                  
|                                    |                                   | (In Thousands) | 
|Financial Assets:                   |                                   |                |  |          |       |  |  |          |  |  |       |          |  |  |  |         
|                                    | Cash and money market investments |                |  | $31,093  |       |  |  | $31,093  |  |  |       | $36,895  |  |  |  | $36,895  | 
|                                    | Investment securities             |                |  | 61,475   |       |  |  | 61,522   |  |  |       | 73,208   |  |  |  | 73,274   | 
|                                    | Net loans                         |                |  | 667,505  |       |  |  | 667,969  |  |  |       | 590,933  |  |  |  | 582,204  | 
|                                    | Accrued interest receivable       |                |  | 3,678    |       |  |  | 3,678    |  |  |       | 3,300    |  |  |  | 3,300    | 
|                                   
|Financial Liabilities:              |                                   |                |  |          |       |  |  |          |  |  |       |          |  |  |  |         
|                                    | Deposits                          |                |  | $699,061 |       |  |  | $698,801 |  |  |       | $646,197 |  |  |  | $645,029 | 
|                                    | Accrued interest payable          |                |  | 337      |       |  |  | 337      |  |  |       | 320      |  |  |  | 320      | 
|                                    | Other borrowings                  |                |  | 6,478    |       |  |  | 6,478    |  |  |       | 5,143    |  |  |  | 5,143    | 
|                                    | Trust preferred securities        |                |  | 8,000    |       |  |  | 8,000    |  |  |       | 8,000    |  |  |  | 8,000    | 
|                                   
|Unrecognized Financial Instruments: |                                   |                |  |          |       |  |  |          |  |  |       |          |  |  |  |         
|                                    | Commitments to extend credit      |                |  | $137,278 |       |  |  | $1,373   |  |  |       | $122,264 |  |  |  | $1,223   | 
|                                    | Standby letters of credit         |                |  | 4,792    |       |  |  | 48       |  |  |       | 4,217    |  |  |  | 42       | 
|                                   



|          |                                
|--------- | -------------------------------
|NOTE 21  | Quarterly Results of Operations

|                            |                            |                                         |        |        |          |   |        |         |  |   |          |        |  |   |        |        | 
|--------------------------- | -------------------------- | --------------------------------------- | ------ | ------ | -------- | - | ------ | ------- |  | - | -------- | ------ |  | - | ------ | ------ | 
|                            |                           
|2004 Quarter Ended          |                            | Dec. 31                                 |        |        | Sept. 30 |   |        | June 30 |  |   | March 31 |       
|                            |                           
|                            |                            | (In Thousands Except Per Share Amounts) |       
|Total interest income       |                            | $                                       | 13,202 |        |          | $ | 12,119 |         |  | $ | 11,859   |        |  | $ | 11,374 |       
|                           
|Total interest expense      |                            |                                         | 2,300  |        |          |   | 1,920  |         |  |   | 1,580    |        |  |   | 1,485  |       
|                           
|                           
|                            | Net interest income        |                                         |        | 10,902 |          |   |        | 10,199  |  |   |          | 10,279 |  |   |        | 9,889  | 
|                           
|Provision for loan losses   |                            |                                         | 600    |        |          |   | 143    |         |  |   | 429      |        |  |   | 429    |       
|                           
|Other operating income      |                            |                                         | 1,114  |        |          |   | 885    |         |  |   | 955      |        |  |   | 836    |       
|                           
|Other operating expense     |                            |                                         | 6,850  |        |          |   | 6,545  |         |  |   | 6,507    |        |  |   | 6,631  |       
|                           
|                            | Income before income taxes |                                         |        | 4,566  |          |   |        | 4,396   |  |   |          | 4,298  |  |   |        | 3,665  | 
|                           
|Income taxes                |                            |                                         | 1,699  |        |          |   | 1,699  |         |  |   | 1,536    |        |  |   | 1,293  |       
|                           
|                           
|                            | Net Income                 |                                         |        | $2,867 |          |   |        | $2,697  |  |   |          | $2,762 |  |   |        | $2,372 | 
|                           
|                           
|Earnings per share, basic   |                            |                                         | $0.47  |        |          |   | $0.44  |         |  |   | $0.45    |        |  |   | $0.39  |       
|                           
|                           
|Earnings per share, diluted |                            |                                         | $0.46  |        |          |   | $0.43  |         |  |   | $0.44    |        |  |   | $0.38  |       
|                           

46



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|                            |                            |                                         |         |        |          |  |         |         |  |  |          |        |  |  |         |        | 
|--------------------------- | -------------------------- | --------------------------------------- | ------- | ------ | -------- |  | ------- | ------- |  |  | -------- | ------ |  |  | ------- | ------ | 
|                            |                           
|2003 Quarter Ended          |                            | Dec. 31                                 |         |        | Sept. 30 |  |         | June 30 |  |  | March 31 |       
|                            |                           
|                            |                            | (In Thousands Except Per Share Amounts) |        
|Total interest income       |                            |                                         | $11,615 |        |          |  | $11,602 |         |  |  | $11,397  |        |  |  | $11,333 |       
|                           
|Total interest expense      |                            |                                         | 1,557   |        |          |  | 1,613   |         |  |  | 1,728    |        |  |  | 1,784   |       
|                           
|                           
|                            | Net interest income        |                                         |         | 10,058 |          |  |         | 9,989   |  |  |          | 9,669  |  |  |         | 9,549  | 
|                           
|Provision for loan losses   |                            |                                         | 829     |        |          |  | 1,373   |         |  |  | 936      |        |  |  | 429     |       
|                           
|Other operating income      |                            |                                         | 1,225   |        |          |  | 1,925   |         |  |  | 1,777    |        |  |  | 1,163   |       
|                           
|Other operating expense     |                            |                                         | 6,214   |        |          |  | 6,150   |         |  |  | 6,186    |        |  |  | 6,178   |       
|                           
|                           
|                            | Income before income taxes |                                         |         | 4,240  |          |  |         | 4,391   |  |  |          | 4,324  |  |  |         | 4,105  | 
|                           
|Income taxes                |                            |                                         | 1,594   |        |          |  | 1,672   |         |  |  | 1,689    |        |  |  | 1,561   |       
|                           
|                           
|                            | Net Income                 |                                         |         | $2,646 |          |  |         | $2,719  |  |  |          | $2,635 |  |  |         | $2,544 | 
|                           
|                           
|Earnings per share, basic   |                            |                                         | $0.44   |        |          |  | $0.46   |         |  |  | $0.44    |        |  |  | $0.42   |       
|                           
|                           
|Earnings per share, diluted |                            |                                         | $0.42   |        |          |  | $0.44   |         |  |  | $0.43    |        |  |  | $0.41   |       
|                           

Sum may not necessarily tie to Consolidated Statements of
Income due to rounding.


NOTE 22  Disputes and Claims




47



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##### Table of Contents



NOTE 23  Parent Company Financial
Information




|                                |                                         |                                                                  |                                            |         |         |         |  |         |         |         |  |        |         |         | 
|------------------------------- | --------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------ | ------- | ------- | 
|                                |                                        
|Balance Sheets for December 31, |                                         | 2004                                                             |                                            |         | 2003    |         |  | 2002    |        
|                                |                                        
|                                |                                         | (In Thousands)                                                   |                                           
|Assets                         
|                                | Cash                                    |                                                                  |                                            | $8,735  |         |         |  | $7,910  |         |         |  | $564   |        
|                                | Investment in Northrim Bank             |                                                                  |                                            | 80,797  |         |         |  | 73,133  |         |         |  | 67,376 |        
|                                | Investment in NISC                      |                                                                  |                                            | 552     |         |         |  | (54)    |         |         |  | 262    |        
|                                | Investment in NCT1                      |                                                                  |                                            | 248     |         |         |  | 248     |         |         |  |       |        
|                                | Other assets                            |                                                                  |                                            | 252     |         |         |  | 504     |         |         |  | 3      |        
|                               
|                                |                                         | Total Assets                                                     |                                            |         | $90,584 |         |  |         | $81,741 |         |  |        | $68,205 |        
|                               
|                               
|Liabilities                    
|                                | Subordinated debt                       |                                                                  |                                            | $8,248  |         |         |  | $8,013  |         |         |  | $     |        
|                                | Taxes payable and other payables        |                                                                  |                                            | (1,084) |         |         |  | (1,581) |         |         |  | (239)  |        
|                                | Other liabilities                       |                                                                  |                                            | 62      |         |         |  | 24      |         |         |  | 71     |        
|                               
|                                |                                         | Total Liabilities                                                |                                            |         | 7,226   |         |  |         | 6,456   |         |  |        | (168)   |        
|                               
|Shareholders Equity            |                                         |                                                                  |                                            |         |         |         |  |         |         |         |  |       
|                                | Common stock                            |                                                                  |                                            | 6,089   |         |         |  | 6,050   |         |         |  | 6,095  |        
|                                | Additional paid-in capital              |                                                                  |                                            | 45,876  |         |         |  | 45,615  |         |         |  | 46,614 |        
|                                | Retained earnings                       |                                                                  |                                            | 31,389  |         |         |  | 22,997  |         |         |  | 14,460 |        
|                                | Accumulated other comprehensive income- |                                                                  |                                            |         |         |         |  |         |         |         |  |        |        
|                                |                                         | net unrealized gains on available for sale investment securities |                                            |         | 4       |         |  |         | 623     |         |  |        | 1,204   |        
|                               
|                                |                                         |                                                                  | Total Shareholders Equity                 |         |         | 83,358  |  |         |         | 75,285  |  |        |         | 68,373  | 
|                               
|                                |                                         |                                                                  | Total Liabilities and Shareholders Equity |         |         | $90,584 |  |         |         | $81,741 |  |        |         | $68,205 | 
|                               

|                                      |                                   |                |                                |        |        |         |       |        |        |         |       |       |       |        | 
|------------------------------------- | --------------------------------- | -------------- | ------------------------------ | ------ | ------ | ------- | ----- | ------ | ------ | ------- | ----- | ----- | ----- | ------ | 
|                                      |                                  
|Statements of Income for Years Ended: |                                   | 2004           |                                |        | 2003   |         |       | 2002   |       
|                                      |                                  
|                                      |                                   | (In Thousands) |                               
|Income                                |                                   |                |                                |        |        |         |       |        |        |         |       |      
|                                      | Interest income                   |                |                                | $177   |        |         |       | $83    |        |         |       | $11   |      
|                                      | Net income from Northrim Bank     |                |                                | 11,659 |        |         |       | 11,306 |        |         |       | 8,884 |      
|                                      | Net loss from NISC                |                |                                | (269)  |        |         |       | (565)  |        |         |       | (238) |      
|                                      | Other income                      |                |                                | 1      |        |         |       | 7      |        |         |       |      |      
|                                     
|                                      |                                   | Total Income   |                                |        | 11,568 |         |       |        | 10,831 |         |       |       | 8,657 |       
|Expense                               |                                   |                |                                |        |        |         |       |        |        |         |       |      
|                                      | Interest expense                  |                |                                | 387    |        |         |       | 243    |        |         |       |      |      
|                                      | Administrative and other expenses |                |                                | 954    |        |         |       | 588    |        |         |       | 354   |      
|                                     
|                                      |                                   |                | Total Expense                  |        |        | 1,341   |       |        |        | 831     |       |       |       | 354    | 
|                                      |                                   |                | Net Income Before Income Taxes |        |        | 10,227  |       |        |        | 10,000  |       |       |       | 8,303  | 
|Income tax expense (benefit)          |                                   |                | (473)                          |        |        |         | (545) |        |        |         | (239) |      
|                                     
|                                      |                                   |                | Net Income                     |        |        | $10,700 |       |        |        | $10,545 |       |       |       | $8,542 | 
|                                     

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|                                                 |                                                      |                                           |        |          |       |  |        |          |       |  |      |         |       | 
|------------------------------------------------ | ---------------------------------------------------- | ----------------------------------------- | ------ | -------- | ----- |  | ------ | -------- | ----- |  | ---- | ------- | ----- | 
|                                                 |                                                     
|Statements of Cash Flows for Years Ended:        |                                                      | 2004                                      |        |          | 2003  |  |        | 2002     |      
|                                                 |                                                     
|                                                 |                                                      | (In Thousands)                            |       
|Operating Activities:                            |                                                      |                                           |        |          |       |  |        |          |       |  |      |        
|                                                 | Net income                                           |                                           |        | $10,700  |       |  |        | $10,545  |       |  |      | $8,542  |      
|Adjustments to Reconcile Net Income to Net Cash: |                                                      |                                           |        |          |       |  |        |          |       |  |      |        
|                                                 | Equity in earnings from subsidiaries                 |                                           |        | (11,390) |       |  |        | (10,741) |       |  |      | (8,645) |      
|                                                 | Changes in other assets and liabilities              |                                           |        | 398      |       |  |        | (641)    |       |  |      | (187)   |      
|                                                
|                                                 |                                                      | Net Cash Used from Operating Activities   |        |          | (292) |  |        |          | (837) |  |      |         | (290) | 
|Investing Activities:                            |                                                      |                                           |        |          |       |  |        |          |       |  |      |        
|                                                 | Investment in NISC & NCT1                            |                                           |        | (250)    |       |  |        | (973)    |       |  |      | (500)   |      
|                                                 | Purchases of software and equipment                  |                                           |        |         |       |  |        | (11)     |       |  |      |        |      
|                                                
|                                                 |                                                      | Net Cash Used by Investing Activities     |        |          | (250) |  |        |          | (984) |  |      |         | (500) | 
|Financing Activities:                            |                                                      |                                           |        |          |       |  |        |          |       |  |      |        
|                                                 | Dividends paid to shareholders                       |                                           |        | (2,308)  |       |  |        | (2,008)  |       |  |      | (1,222) |      
|                                                 | Dividends received from Northrim Bank                |                                           |        | 3,375    |       |  |        | 4,969    |       |  |      | 3,160   |      
|                                                 | Proceeds from issuance of trust preferred securities |                                           |        |         |       |  |        | 8,000    |       |  |      |        |      
|                                                 | Proceeds from issuance of common stock               |                                           |        | 300      |       |  |        | 425      |       |  |      | 271     |      
|                                                 | Repurchase of common stock                           |                                           |        |         |       |  |        | (2,219)  |       |  |      | (855)   |      
|                                                
|                                                 |                                                      | Net Cash Provided by Financing Activities |        |          | 1,367 |  |        |          | 9,167 |  |      |         | 1,354 | 
|                                                
|Net Increase by Cash and Cash Equivalents        |                                                      |                                           | 825    |          |       |  | 7,346  |          |       |  | 564  |        
|                                                
|Cash and Cash Equivalents at beginning of period |                                                      |                                           | 7,910  |          |       |  | 564    |          |       |  |     |        
|                                                
|Cash and Cash Equivalents at end of period       |                                                      |                                           | $8,735 |          |       |  | $7,910 |          |       |  | $564 |        
|                                                

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Annual Report on Form 10-K



























50



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Index


|         |  |                                                                                                                         |  |                      
|-------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ---------------------
|         |  |                                                                                                                         |  | Page                 
|         |  | Part I                                                                                                                  |  |                      
|Item 1.  |  | Business                                                                                                                |  | 1-4, 6-18, 52-55     
|         |  | General                                                                                                                 |  | 1-4, 52-55           
|         |  | Investment Portfolio                                                                                                    |  | 15-17, 32-34, 45     
|         |  | Loan Portfolio                                                                                                          |  | 11-15, 34-36         
|         |  | Summary of Loan Loss Experience                                                                                         |  | 11-15, 34-36         
|         |  | Deposits                                                                                                                |  | 17-18, 38            
|         |  | Return on Equity and Assets                                                                                             |  | 5                    
|         |  | Short Term Borrowings                                                                                                   |  | 18, 38-39            
|        
|Item 2.  |  | Properties                                                                                                              |  | 56                   
|        
|Item 3.  |  | Legal Proceedings                                                                                                       |  | None                 
|        
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                     |  | None                 
|         |  | Part II                                                                                                                 |  |                      
|        
|Item 5.  |  | Market for Registrants Common Equity and Related
    Stockholder Matters and Issuer Purchases of Equity Securities     |  | 19, 20, 31, 42-43, 50
|        
|Item 6.  |  | Selected Financial Data                                                                                                 |  | 5                    
|        
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                               |  | 6-23                 
|        
|Item 7a. |  | Quantitative and Qualitative Disclosures about Market Risk                                                              |  | 21-23                
|        
|Item 8.  |  | Financial Statements and Supplementary Data                                                                             |  | 26-49                
|        
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure                                |  | None                 
|        
|Item 9a. |  | Conclusion Regarding the Effectiveness of Disclosure Controls
    and Procedures                                        |  | 23                   
|         |  | Management-Report on Internal Control Over Financial Reporting                                                          |  | 23                   
|         |  | Report of Independent Registered Public Accounting Firm:
    Effectiveness of Internal Control Over Financial Reporting |  | 24                   
|         |  | Part III                                                                                                                |  |                      
|        
|Item 10. |  | Directors and Executive Officers of the Registrant                                                                      |  | *                    
|        
|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 Accountant Fees and Services                                                                                  |  | *                    
|         |  | Part IV                                                                                                                 |  |                      
|        
|Item 15. |  | Financial Statements and Exhibits                                                                                       |  | 56                   



51



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General




Competition








52



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##### Table of Contents





|                                       |       |                        |      |    |          |  |           |              |  |  |     |      | 
|-------------------------------------- | ----- | ---------------------- | ---- | -- | -------- |  | --------- | ------------ |  |  | --- | ---- | 
|                                       |      
|Market Share in Greater Anchorage Area |      
|                                       |      
|                                       |       | Number of              |      |    | Total    |  |           | Market share | 
|Financial institution                  |       | branches               |      |    | deposits |  |           | of deposits  | 
|                                       |      
|                                       |       | (Dollars in thousands) |     
|Northrim Bank                          |       |                        | 8(1) |    |          |  | $594,877  |              |  |  | 21% |     
|Wells Fargo Bank Alaska                |       |                        | 18   |    |          |  | 1,270,164 |              |  |  | 41% |     
|First National Bank Alaska             |       |                        | 12   |    |          |  | 930,227   |              |  |  | 30% |     
|Key Bank                               |       |                        | 6    |    |          |  | 190,687   |              |  |  | 6%  |     
|Alaska First Bank & Trust              |       |                        | 2    |    |          |  | 52,083    |              |  |  | 2%  |     
|                                      
|                                       | Total |                        |      | 46 |          |  |           | $3,038,038   |  |  |     | 100% | 
|                                      



Employees and Key Personnel






Alaska Economy








53



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Supervision and Regulation










54



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##### Table of Contents































55



---



##### Table of Contents



Properties




|                                                                                  |  |             |  |                            
|--------------------------------------------------------------------------------- |  | ----------- |  | ---------------------------
|Locations                                                                         |  | Type        |  | Leased/Owned               
|                                                                                 
|Midtown Financial Center: Northrim Headquarters
    3111 C Street, Anchorage, AK  |  | Traditional |  | Leased                     
|                                                                                 
|SouthSide Financial Center
    8730 Old Seward Highway, Anchorage, AK             |  | Traditional |  | Land leased; building owned
|                                                                                 
|36thAvenue Branch
    811 East
    36thAvenue, Anchorage, AK                      |  | Traditional |  | Owned                      
|                                                                                 
|Huffman Branch
    1501 East Huffman Road, Anchorage, AK                          |  | Supermarket |  | Leased                     
|                                                                                 
|Jewel Lake Branch
    4000 West Dimond Blvd., Anchorage, AK                       |  | Supermarket |  | Leased                     
|                                                                                 
|Seventh Avenue Branch
    550 West Seventh Avenue, Anchorage, AK                  |  | Traditional |  | Leased                     
|                                                                                 
|West Anchorage Branch/ Small Business Center
    2709 Spenard Road, Anchorage, AK |  | Traditional |  | Owned                      
|                                                                                 
|Eagle River Branch
    12812 Old Glenn Highway, Fire Lake Plaza, Eagle River, AK  |  | Traditional |  | Leased                     
|                                                                                 
|Fairbanks Financial Center
    714 Fourth Avenue, Suite 100, Fairbanks, AK        |  | Traditional |  | Leased                     
|                                                                                 
|Wasilla Financial Center
    850 E. USA Circle, Suite A, Wasilla, AK              |  | Traditional |  | Owned                      

Financial Statements and Exhibits


Financial Statements






| |                                                             
| | ------------------------------------------------------------
| | Consolidated Balance Sheets as of December 31, 2004 and 2003









56



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Exhibits




|        |       |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ----- | ---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                 
|Number  |       | Name of Document
|        | 3.1   |                  |  | Amended and Restated Articles of
    Incorporation(1)                                                                                                                                                                                                                                                                                                                                                                              
|        | 3.2   |                  |  | Bylaws(1)                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 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.                                                                                                                                           
|        | 10.1  |                  |  | Employee Stock Option and Restricted Stock Award
    Plan(1)                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.2  |                  |  | 2000 Employee Stock Incentive
    Plan(1)                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.3  |                  |  | Amended and Restated Employment Agreement with R. Marc
    Langland(2)                                                                                                                                                                                                                                                                                                                                                             
|        | 10.4  |                  |  | Amended and Restated Employment Agreement with Christopher N.
    Knudson(2)                                                                                                                                                                                                                                                                                                                                                       
|        | 10.5  |                  |  | Amended and Restated Employment Agreement with Victor P.
    Mollozzi(2)                                                                                                                                                                                                                                                                                                                                                           
|        | 10.6  |                  |  | Employment Agreement with Joseph
    Schierhorn(2)                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.7  |                  |  | Plan and Agreement of Reorganization between the Registrant and
    Northrim Bank dated as of March 7,
    2001(2)                                                                                                                                                                                                                                                                                                                 
|        | 10.8  |                  |  | Supplemental Executive Retirement Plan dated July 1, 1994,
    as amended January 8,
    2004(3)                                                                                                                                                                                                                                                                                                                                   
|        | 10.9  |                  |  | Supplemental Executive Retirement Deferred Compensation
    Plan(2)                                                                                                                                                                                                                                                                                                                                                                
|        | 10.10 |                  |  | 2004 Stock Incentive
    Plan(3)                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.11 |                  |  | Employment Agreement with Robert
    Shake(4)                                                                                                                                                                                                                                                                                                                                                                                      
|        | 21    |                  |  | Subsidiaries Northrim Bank
    Northrim Investment Services Company
    Northrim Capital Trust 1                                                                                                                                                                                                                                                                                                                                   
|       
|        | 23    |                  |  | Consent of KPMG
    LLP(4)                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 24    |                  |  | Power of
    Attorney(4)                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 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(4)                                                                                                                                                                                                                                                                         
|        | 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(4)                                                                                                                                                                                                                                                                         
|        | 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(4)                                                                                                                                                                                                                                                                         
|        | 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(4)                                                                                                                                                                                                                                                                     
|       
|        |       |                  |  | (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 10-K for the year
    ended December 31, 2002, filed with the SEC on
    March 19, 2003(3)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.(4)Filed
    with this Form 10-K

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##### Table of Contents






Signatures






| |                       
| | ----------------------
| | Northrim BanCorp, Inc.



| |    |                     
| | -- | --------------------
| | By | /s/ R. Marc Langland

| |                                                
| | -----------------------------------------------
| | R. Marc Langland                               
| | Chairman, President and Chief Executive Officer





| |                                                
| | -----------------------------------------------
| | Principal Executive Officer:                   
|
| | /s/ R. Marc Langland                           
| | R. Marc Langland                               
| | Chairman, President and Chief Executive Officer
|
| | Principal Financial Officer:                   
|
| | /s/ Joseph M. Schierhorn                       
| | Joseph M. Schierhorn                           
| | Senior Vice President, Chief Financial Officer,
| | Compliance Manager                             



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



| |                         
| | ------------------------
| | By /s/ R. Marc Langland,
| | as Attorney-in-fact     
|
| | March 11, 2005          

58



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##### Table of Contents



Investor Information


Annual Meeting


|          |  |                                                                         
|--------- |  | ------------------------------------------------------------------------
|Date:     |  | Thursday, May 5, 2005                                                   
|Time:     |  | 9 a.m.                                                                  
|Location: |  | Hilton Anchorage Hotel
    500 West Third Avenue
    Anchorage, AK 99501

Stock Symbol




Auditor




Transfer Agent and Registrar




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:
















http://www.northrim.com


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