Northrim Bancorp Inc. Annual Report 2014

Plain-text annual report

Achieving New Heights 2014 ANNUAL REPORT (cid:144) (cid:144) (cid:144) (cid:144) i MESSAGE TO SHAREHOLDERS When it comes to achieving new heights, our 2014 ﬁ nancial ﬁ gures speak for themselves. Net income was $17.4 million, or $2.54 per diluted share, and we ended the year with $1.4 billion in total assets. Our 2014 net income, asset, portfolio loan and deposit totals ended the year at the highest level we have seen in our 24-year history. Performance was strong in 2014 partially due to the completion of two acquisitions – our merger with Alaska Paciﬁ c Bank on April 1 and our December 1 acquisition of the remaining 76.5% of Residential Mortgage, making it a wholly-owned subsidiary. One-time items such as these increased our net income, however, when we exclude these items, last year still topped our previous historic high in 2006. In addition to acquisition-related growth, we also experienced growth in our core business. In 2014, portfolio loans increased 20% and deposits increased 18%. Portfolio loans and deposits obtained in our merger with Alaska Paciﬁ c Bank represented growth of 17% and 15%, respectively, while core growth in both portfolio loans and deposits was 3%. We ended 2014 with a 0.64% ratio of nonperforming assets to total assets, placing us below the average ratio in our peer group1. Net recoveries on previously charged-off loans of $636,000 also contributed to our ﬁ nancial performance. In 2014’s low-interest environment, our net interest margin was 4.41%, which is above that of our peers2. By diversifying both our revenue sources and our geographic reach in Alaska through products and afﬁ liates, we grew our noninterest income, which accounted for 27% of total revenues in 2014 and 23% of total revenues excluding one-time items. This diversiﬁ cation strategy decreases our dependency on loans and deposits, and offers greater protection from interest rate risk. Going forward, we expect that the acquisition of Residential Mortgage will signiﬁ cantly increase our noninterest income as a percentage of total revenues. 1Data from SNL, average 0.91% 9/30/14, median 0.76%. 2Average as of 9/30/14 is 3.86%, median 3.89%, same source/group as NPA data. 1 and individuals who comprise our state – and helping them to achieve “new heights.” Because, at the end of the day, we cannot measure our success without measuring theirs. Joe Beedle President & CEO, Northrim BanCorp, Inc. President & CEO, Northrim Bank Marc Langland Chairman, Northrim BanCorp, Inc. Chairman, Northrim Bank We remain highly capitalized, while continuing to make strategic investments in growth opportunities. Our liquidity, combined with our capital position, has allowed us to both weather challenges and to take advantage of the right opportunities at the right times for the beneﬁ t of our shareholders, our customers, and the communities we serve. In short, this was a year of accomplishments that enhanced our franchise value through strategic acquisitions, as well as through organic growth made possible by our ﬁ nancial position, our technology, and, most importantly, our people. While we are proud of what we have achieved in the past year, we also understand that “new heights” is not a destination – it is an aspirational, continuous journey. Nor is “new heights” limited to our ﬁ nancial results; rather, it’s about the art of navigating the future and offering a sense of security in uncertain times. It’s about providing leadership and expertise to help ﬁ nd solutions to long- standing issues facing Alaska. It’s about caring for our customers – and in fact, all of the businesses, families 2 2014 FINANCIAL SNAPSHOT Unaudited (in thousands except per share amounts) 2014 2013 2012 2011 2010 Net interest income Provision for loan losses Other operating income Other operating expense Income before income taxes Income taxes Net income Less: Net income attributable to noncontrolling interest Net income attributable to Northrim BanCorp, Inc. Earnings per share: Basic Diluted Cash dividends per share Assets Portfolio loans Deposits Borrowings Junior subordinated debentures Shareholders' equity Book value per share Tangible book value per share(1) Net interest margin (tax equivalent)(2) Efficiency ratio(3) Return on average assets Return on average equity Equity/assets Dividend payout ratio Nonperforming loans/portfolio loans Net charge-offs/average loans Allowance for loan losses/portfolio loans Nonperforming assets/assets Tax rate Number of banking offices[4] Number of employees (FTE)[5] Financial Snapshot Footnotes on page 22 $52,905 $44,034 $42,223 $42,364 $44,213 (636) 20,537 49,375 $24,703 6,836 17,867 459 $17,408 $2.57 2.54 0.70 $1,449,349 924,504 1,179,747 26,304 18,558 164,441 $23.99 $20.48 4.41% 66.84% 1.30% 11.19% 11.35% 27.40% 0.51% (-0.12%) 1.81% 0.64% 28% 14 426 (635) (1,559) 1,999 5,583 12,886 15,432 13,090 12,377 39,866 $17,689 5,277 12,412 39,600 $19,614 6,156 13,458 36,755 $16,700 4,873 11,827 37,624 $13,383 3,918 9,465 87 $12,325 512 $12,946 429 $11,398 399 $9,066 $1.89 1.87 0.64 $2.00 1.97 0.56 $1.77 1.74 0.50 $1.42 1.40 0.44 $1,215,006 $1,160,107 $1,085,258 $1,054,529 671,812 892,136 4,766 18,558 117,122 $18.22 $16.87 4.92% 65.96% 0.90% 7.87% 11.11% 31.41% 1.70% 0.66% 2.14% 2.07% 29% 10 276 770,016 1,003,723 6,527 18,558 144,318 $22.07 $20.86 4.29% 69.64% 1.07% 8.75% 11.88% 34.18% 0.24% (-0.07%) 2.11% 0.35% 30% 10 269 704,213 970,129 4,479 18,558 136,353 $20.94 $19.69 4.40% 68.25% 1.19% 9.85% 11.75% 28.39% 0.64% (-0.21%) 2.33% 0.78% 31% 10 252 645,562 911,248 4,626 18,558 125,435 $19.40 $18.09 4.59% 65.78% 1.09% 9.34% 11.56% 28.67% 1.14% (-0.01%) 2.56% 1.16% 29% 10 269 3 Achieving New Heights NET INCOME ATTRIBUTABLE TO NORTHRIM BANCORP, INC. in thousands TOTAL ASSETS in thousands $20,000 $15,000 $10,000 $5,000 $0 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 $1,500,000 $1,200,000 $900,000 $600,000 $300,000 $0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 PORTFOLIO LOANS in thousands TOTAL CAPITAL RATIO 20% 15% 10% 5% 0% 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014* WELL CAPITALIZED Northrim Bank • 2 0 1 4 A n n u a l R e p o r t • *Decrease reﬂ ects increase in goodwill due to the acquisition of Residential Mortgage, LLC. 4 OPPORTUNITIES TO SOAR In 2014, Northrim achieved two long-term goals – our expansion into Southeast Alaska with the Alaska Paciﬁ c Bank merger, and our increased presence in the home lending market through our acquisition of Residential Mortgage as a wholly-owned subsidiary, making 2014 the most active year for mergers and acquisitions in Northrim’s 24-year history. This growth expanded our footprint so that we now serve the major population centers of the state, and also provided the opportunity to strategically deploy our capital to grow our community banking business and noninterest income. $175 $150 $125 $100 ) s n o i l l i M n i ( $75 $50 $25 $0 $(25) $(50) COMPOSITION OF NORTHRIM BANCORP Capital as of December 31, 2014 $173MM $164MM $45MM -$45MM -$9MM Total Capital Raised Cumulative Earnings Cumulative Dividends Paid Total Equity Repurchases, Equity Compensation, Costs of Capital Raises, and Other Alaska Paciﬁ c Bank Our expansion into Southeast Alaska through the merger with Alaska Paciﬁ c Bank marked the achievement of a long-held vision, as well as the culmination of the hard work and talent of our dedicated team, many of whom hold personal and professional ties to the region. A tremendous amount of effort went into the integration of Alaska Paciﬁ c Bank’s people, systems and customers with ours. The result of the six-month, in-house team effort was a successful conversion, with minimal attrition and no disruption of service. We credit this seamless transition to the fact that customers saw their service enhanced, enjoying the best of two well-respected Alaska community banks. We retained regional management and front-line staff, ensuring continuity of local knowledge and relationships, and offered additional beneﬁ ts including increased loan limits and access to additional products and services through the Northrim family of companies. We are also proud of the successful combination of our two company’s employees and cultures. Early on, we identiﬁ ed similarities in our company cultures, which played a signiﬁ cant role in the smooth, successful integration. Now, we turn our focus to growing from the strong base already established in Southeast Alaska with existing customers and the community at large. FLIGHT PLAN 5 Achieving New Heights Residential Mortgage, LLC Northrim expanded our reach in the residential mortgage lending market with the acquisition of Residential Mortgage in 2014. We have a long, successful history of working together, having held approximately 24% of Residential Mortgage since its inception in 1998. Northrim is now the 100% owner of this well-respected mortgage origination company, which is one of the largest in Alaska. This purchase has been a goal in our long-term strategic plan as it presents another opportunity to advance our vision to be Alaska’s premier ﬁ nancial institution, deploy capital strategically, and increase our ability to provide ﬁ nancial services to our customers. As a wholly-owned subsidiary, there is now an even greater opportunity to be more aligned, strategic partners. It also complements Northrim’s emphasis on construction and land development lending, offers a new source of customers, and expands our presence through Residential Mortgage’s 11 statewide ofﬁ ces. Northrim Bank • 2 0 1 4 A n n u a l R e p o r t • (cid:144) (cid:144) (cid:144) (cid:144) Nuiqsut airport LOCATION 6 PLANNING OUR APPROACH Our portfolio loans grew in 2014, both organically and due to the merger with Alaska Paciﬁ c Bank, resulting in the highest net income in Northrim’s history. Our nonperforming assets, which include nonaccrual loans and other real estate owned, increased in part due to the purchase of Alaska Paciﬁ c Bank. We continued to maintain strong loan loss reserves in relation to our nonperforming loans. We stay committed to our goal of growing wisely, which requires a balance between loan growth and credit quality. And as a full-service, community bank, we continue to search for and take advantage of lending and investment opportunities in the communities in which we do business, including areas of low to moderate income. Underscoring all we do is the culture of regulatory compliance throughout our organization and our devotion of ﬁ nancial and human resources to the development of policies and procedures expected of publicly traded, SEC-registered companies like Northrim. LOAN PORTFOLIO NONPERFORMING ASSETS (NPA) in thousands CONSTRUCTIO N 14% M M O C L CIA R E M M O C % 3 3 C O N 7 % S U MER E T A T S L E A E % 46 E R CIAL R $25,000 $20,000 $15,000 $10,000 $5,000 $0 2.07% 1.16% 0.78% 0.64% 0.35% 2010 2011 2012 2013 2014 NPA NPA/ASSETS 7 Achieving New Heights PROPELLING COMMUNITY SUCCESS At Northrim, we know a strong community means a strong community bank. That’s why we are constantly focused on how to help our customers and community achieve new heights. of the University of Alaska, the Institute of Social and Economic Research, and the Alaska Small Business Development Center, along with many other nonproﬁ ts in Alaska. Our employees continue to be actively engaged in the community, giving their time to NeighborWorks® Paint the Town, Salvation Army McKinnell House basic ﬁ nancial literacy training, Teach Kids to Save national program, and Junior Achievement. We hosted our annual economic luncheon in Fairbanks and Anchorage, and added a Juneau event in 2014, at which attendees heard from well-known experts on the national economy, as well as Northrim leaders who offered a state and local perspective. We do that by investing in projects that provide long-term community beneﬁ ts, such as affordable housing and critical infrastructure development. By engaging in discussions and helping develop solutions to long-standing issues that affect us all. By supporting research that provides valuable insights into Alaska’s economy – and sharing that information with our customers and communities online, at events and one-on-one. By encouraging our employees to be active and accessible, and providing continuing education opportunities, so they can offer sound ﬁ nancial advice. And by developing electronic and mobile banking solutions, and helping our customers minimize their information security risks. Fundraising and volunteer efforts are another way we propel community success. In 2014, we saw our highest-ever United Way contribution, with $148,000 raised company-wide through our generous employee giving as well as unique special fundraising events organized by employees in each of our markets. Of special note was the excitement and effort of our new Southeast team, who signiﬁ cantly exceeded their fundraising goal. In addition, our annual White Elephant Auction raised nearly $12,000 for local nonproﬁ ts across the state. We also continued our ﬁ nancial support Kicking off Northrim’s annual United Way employee fundraising campaign. Northrim Bank • 2 0 1 4 A n n u a l R e p o r t • 8 NAVIGATING THE FUTURE As an institution, Northrim has more than 24 years of experience with the Alaska economy. When you consider the combined experience of our people, that number increases exponentially. We’re proud to bring that longevity and knowledge to the table for the beneﬁ t of our customers and state. We took an active leadership role in the effort to support Alaska’s oil tax reform last year, and we’re equally committed to being part of the discussion about ﬁ nding solutions to Alaska’s current ﬁ scal challenges, brought on by the steep drop in oil prices combined with the decrease in oil production. While of concern, the state’s ﬁ scal situation is not new. The state and its citizens have felt the impact of this issue in the past; Alaska is a resource state, and price volatility is, and always has been, part of living and doing business in Alaska. The events of last fall brought this issue back to light with a renewed sense of urgency. In true Alaska spirit, we choose to see this as an opportunity to work together to solve a long-standing problem and arrive on the other side a stronger, more resilient state. We intend to be actively engaged in conversations about ﬁ scal solutions, at the state, local and customer level, sharing our expertise, supporting research and education on the issue, and offering our viewpoint on how to keep our economy healthy. As we navigate the future, we as a bank will watch our costs, manage our risk, and modify our strategies DEPOSITS ALASKA CDS 9% D N A M E D % 4 3 I N 16% T E R E D E M ST-BEARING AND M O N 1 9 % E Y M A R K E T % 12 TIME 1 0 % S A V I N G S as appropriate. We will continue to serve our core industry focus areas, including resources, Alaska Native Corporations and health care, as well as commercial real estate and residential construction, but also strengthen the bank through continued diversiﬁ cation, exploring opportunities in consumer lending and in the tourism industry, and leveraging our relationships with our afﬁ liates. Through it all, Northrim remains 100% 907, committed to serving and investing in Alaska. We’ll add value to our customers and our state by taking a leadership role, and knowing and understanding the challenges and opportunities of our state. When there are storms on the horizon, we have the vision, the people, the tools and the expertise to navigate them. 9 Tanana Achieving New Heights OUR STATEWIDE FOOTPRINT Chukchi Sea Wainwright Barrow Arct ic Slope Arct ic Slope Prudoe Bay Beaufort Sea Berin g Berin g St rait s St rait s Kotzebue NanaNana Nome BROOKS RANGE lyeska Pipelin e A Hooper Bay Y u ko n River Cal ista Cal ista Bethel Bristol Bay Bristol Bay Dillingham Bering Sea Unalakleet Y ukon River Doyo n Doyo n Y u k o n R i v e r North Pole Delta Junction W R A N G E LL M TNS Fairbanks Alaska RR Wasilla Palmer Valdez Seward Cordova Ah tna Ah tna Chugach Chugach A N G E SK A R A L A Cook Cook Inlet Inlet Anchorage Kenai Soldotna Homer Unalaska Aleu t Aleu t Kodiak Ko niag Ko niag Gulf of Alaska Trans-Alaska Pipeline System Town Northrim Locations Residential Mortgage Locations Alaska Native Regional Corporation Regions Alaska Railroad Skagway Haines Juneau Sealaska Sealaska Sitka Petersburg Wrangell Craig Ketchikan 10 KEEPING A STABLE COURSE Despite the varying conditions, Northrim has kept a stable course, consistently investing in systems, products, services, people and infrastructure, which diversify and sustain us, allowing us to remain competitive. As part of our multi-year plan, we continued to implement technology upgrades in order to enhance our security, our efﬁ ciency, and our ability to offer relevant, secure tools to our customers. The integration of Alaska Paciﬁ c Bank’s network with ours was one example of efforts in this area. Our investments in technology and infrastructure are further showcased by the improvements to the lower level of our Anchorage main ofﬁ ce in 2014. Through upgrades to this area, we enhanced the capability and efﬁ ciency of our disaster recovery operations, communications and training programs. Speciﬁ cally, the technology upgrades to our training rooms helped connect us to our employees statewide and improve our ability to offer remote training to our outer markets, some of which are accessible only by air or water. On the customer side, we launched our mobile app, which included electronic check deposit capture – the next step in mobile banking. The percentage of online banking customers actively using our app currently approaches 30% and continues to increase. In 2014, we also added another level of security to our online banking. Providing secure, convenient electronic and mobile banking continues to be an important emphasis area, especially for our customers in remote locations. In consumer products, we enhanced our already popular Jump-Up CD with special terms and highly competitive promotional rates, and executed a concentrated marketing campaign to promote it, resulting in both core deposit growth and more extensive customer relationships. Our customer referral and acquisition program continued to gain altitude last year, as referrals increased 43% from 505 in 2013 – when we launched the program – to 720 referrals in 2014. Through the program, our loyal customers receive 500 Alaska Airlines miles each time a friend or family member joins Northrim as a new customer – up to 20,000 miles per calendar year. We are in the process of relocating our Anchorage 36th Avenue branch to a more strategic location in the UMed (University/Medical) district. In addition to better serving this high-growth area, our new location will be a prototype for our “branch of the future.” We are also committed to opening a new ﬁ nancial center in Ketchikan. Our “branch of the future” extends beyond the look and feel of our physical locations to encompass our people and how they work with our customers. Part of our bank transformation process focuses on empowering our employees to be universal bankers. In line with our mission, vision and values, this initiative will focus on developing employees who are knowledgeable and capable in all aspects of bank operations, and who are also active and engaged in the community. 11 Achieving New Heights i 5 1 0 2 g n n e p O - h c n a r B y t i n u m m o C s i t O e k a L Northrim Bank • 2 0 1 4 A n n u a l R e p o r t • (cid:144) (cid:144) (cid:144) (cid:144) Kahiltna Glacier LOCATION 12 ASCENDING VALUE Through Northrim’s related companies and divisions, we create noninterest income and protect against interest rate volatility. We also seek to continually improve the value we offer our customers by providing a full suite of services, including health beneﬁ ts, wealth management and investment services, mortgages and asset-based lending. Through our 50.1% ownership of Northrim Beneﬁ ts Group, LLC (Northrim Beneﬁ ts Group), we help businesses develop competitive employee health beneﬁ t programs, including medical, vision, dental and long-term care plans. Enroll Alaska, a new division established in 2013, continues to offer education and help individual Alaskans and families enroll in health insurance plans to meet new requirements under the Affordable Care Act. The company experienced year-over-year growth in 2014, as we started to see the potential impacts of Enroll Alaska. While the division has not yet met its full potential, we are stil l proud of the valuable service it offers the community. We own a 23% interest in Paciﬁ c Wealth Advisors, LLC, the holding company for Paciﬁ c Portfolio Consulting, LLC and Paciﬁ c Portfolio Trust Company (Paciﬁ c Portfolio). Part of the Northrim family since 2006, Paciﬁ c Portfolio serves high-net-worth individuals, families and institutions. With more than 100 years of combined experience, Paciﬁ c Portfolio brings a long history of expertise to our customers. Now with ofﬁ ce space in the Northrim Anchorage main ofﬁ ce, Paciﬁ c Portfolio continues to expand its presence in Alaska. The company, which saw its assets under advisement reach $3 billion in 2014, contributed $200,000 to other operating income in 2014, compared to $25,000 in 2013. Northrim’s share of net income from Northrim Beneﬁ ts Group increased to $459,000 in 2014 from $87,000 in 2013. 13 Achieving New Heights Northrim Bank • 2 0 1 4 A n n u a l R e p o r t • 14 ACHIEVING NEW HEIGHTS While Grounded in our Mission, Vision, Values MISSION MISSION MISSION TO BE ALASKA’S MOST TRUSTED FINANCIAL INSTITUTION We are committed to adding value for our customers, communities, and shareholders. VISION VISION VISION TO BE ALASKA’S PREMIER BANK AND EMPLOYER OF CHOICE We will be a leader in financial expertise, products and services, focused on continuous improvement and market growth. VALUES VALUES VALUES PROUD TO BE ALASKAN WE ARE WE ARE WE ARE ENGAGED We are Alaskan managed. We embody Alaska’s frontier spirit and values, and strongly support our communities. SUPERIOR CUSTOMER FIRST SERVICE We have a sincere appreciation for our customers. We want to build lasting customer relationships through professional, prompt, and caring service. GROWTH We achieve more because we are dynamic, proactive, and innovative. ACCOUNTABLE We take personal responsibility. We do what we say we will do. ALIGNED We look for growth opportunities for our customers, our institution and our employees. We strive to be better, personally and professionally. We value alignment within teams and across departments. Together we are stronger. INTEGRITY We are trustworthy, reliable, and ethical, and provide our customers with secure, confidential services. We do what is right. Achieving New Heights 15 Our Customer First Service Award winners in the newly remodeled lower level of our Anchorage headquarters building. Georg Wheeler Human Resources Cheryl Fellman Branch Administration- Southeast Kelvin Tjon Information Technology Aimee Hinther SouthSide Financial Center Melanie Hall Customer Service Center Margaret Cunningham Commercial Loans Michele Bear Electronic Business Services Mary Castro Electronic Business Services AIMING HIGH Superior Customer First Service Just as a pilot relies on a host of others – air trafﬁ c control, ground maintenance, passenger service and others – for the safe and efﬁ cient operation of a ﬂ ight, so does Northrim count on all of our employees to provide superior customer ﬁ rst service. It’s a core value at Northrim – it’s why we started and why we’ve grown over the past 24 years. From the front-line employees to those operating behind the scenes, we have an organization full of people who truly care about our customers, and who provide friendly, creative, ﬂ exible service to meet their needs. Our quarterly Customer First Service Awards honor those employees who go above and beyond. We thank the team members who received these awards in 2014, and look forward to celebrating more in the coming year. (cid:144) (cid:144) (cid:144) (cid:144) • 2 0 1 4 A n n u a l R e p o r t • Northrim Bank 16 Larry Cooper SVP, Commercial Lending Manager Joe Beedle President & CEO Audrey Amundson ASVP, Planning & Organizational Development Michael Martin SVP, Business and Community Development Ofﬁcer & In-House Legal Counsel Catherine Claxton SVP, Commercial Real Estate Lending Manager Mark Edwards SVP, Commercial Loan Unit Manager & Bank Economist 17 Suzanne Whittle SVP, Information Services & Compliance Manager Latosha Frye SVP, Chief Financial Ofﬁcer Jay Blury VP, Marketing & Communications Director EYES ON THE HORIZON Alaska is one of the toughest places to ﬂy – but also one of the most rewarding. And Alaska’s aviation history is ﬁlled with brave, smart, innovative pilots. These pilots knew they wouldn’t get to their destination if the conditions weren’t right. But at the same time, they understood they would never arrive if they didn’t take off. We believe this same spirit runs through the veins of our leadership. Since our founders laid the framework of Northrim, this spirit has stayed with us and has helped us to successfully navigate that delicate balance between risk and return. We are proud of the longevity and loyal service of our employees, especially our leadership team. With their involvement and expertise, we have come so far and achieved so much. Like any good pilot, we take the time to enjoy the view, but we always keep an eye on the horizon. For us, that means planning for the future. Just as Northrim wants to be the bank of choice for our customers, we also want to be the employer of choice. We strive to attract the best talent, educate them, give them opportunities and encourage them to innovate and grow so that our next generation of leaders can continue the legacy of achieving new heights. Amber Zins SVP, Internal Audit Manager Joe Schierhorn EVP, Chief Operating Ofﬁcer & Corporate Secretary Lynn Wolfe ASVP, Operations & Branch Administration Jim Miller ASVP, Senior Credit Ofﬁcer Dan Lowell SVP, Northrim Funding Services Division Manager Ellen Izer SVP, Human Resources Director Carolyn Jennings SVP, Branch & Electronic Channel Delivery Manager Ben Craig ASVP, Chief Technology Ofﬁcer Steve Hartung EVP, Chief Credit Ofﬁcer 18 BOARD OF DIRECTORS Marc Langland Director since 1990 Chairman Joe Beedle Director since 2011 President & CEO Larry Cash Director since 1995 Mark Copeland Director since 1990 Chairman, Audit Committee Ronald Davis Director since 1997 Chairman, Compensation Committee Anthony Drabek Director since 1991 Karl Hanneman Director since 2014 Richard Lowell* Director since 1990 David McCambridge Director since 2011 Irene Sparks Rowan Director since 1991 John Swalling Director since 2002 Lead Director Chairman, Governance & Nominating Committee Linda Thomas Director since 2014 David Wight Director since 2006 Marc Langland Chairman, Northrim BanCorp, Inc. Chairman, Northrim Bank Joe Beedle President & CEO, Northrim BanCorp, Inc. President & CEO, Northrim Bank Larry Cash President & CEO, RIM Architects, LLC since 1986 Mark Copeland Owner of Strategic Analysis, LLC, a management consulting ﬁ rm, since 1999 Member of Copeland, Landye, Bennett and Wolf, LLP, a law ﬁ rm, for 30 years prior to that time Ronald Davis CEO and Administrator, Tanana Valley Clinic until his retirement in 1998 Secretary/Treasurer, Canoe Alaska, from 1996 to 1999 Vice President, Acordia of Alaska Insurance, from 1999 to 2003 Anthony Drabek President and CEO, Natives of Kodiak, Inc., an Alaska Native corporation, from 1989 to 2010 Chairman and President, Koncor Forest Products Company, from 1986 to 2011 Karl Hanneman Alaska General Manager, Livengood Gold Project since 2010 Director, Fairbanks Chamber of Commerce since 2011 Director, Usibelli Coal Mine, Inc. since 2011 Richard Lowell President, Ribelin Lowell and Company, an insurance brokerage ﬁ rm, from 1985 to 2004 David McCambridge Audit Partner, KPMG LLP, from 1991 until retirement in 2010 Director, The Tanaka Foundation since 1985 Director, Great Alaska Council Boy Scouts of America, from 1993 to 2012 Director, Alaska Kidney Foundation since 1999 John Swalling President and Director, Swalling & Associates, PC, an accounting ﬁ rm, since 1991 Director, Swalling Construction Co. Inc. since 1975 Linda Thomas Vice President & COO Alaskan Brewing Company since 1994 Bartlett Regional Hospital Board of Directors, Past President Juneau Chamber of Commerce, Past President Irene Sparks Rowan Director, Klukwan, Inc., an Alaska Native corporation, from 1988 to 2000, and 2009 to 2010 Director, Alaska Moving Image Preservation Association since 2011 David Wight President and CEO, Alyeska Pipeline Service Company from 2000 to 2005, following a 40-year career with the Amoco Corporation, which became BP in 1998 Director, Storm Cat Energy, from 2006 to 2011 * Director Lowell passed away on February 10, 2015. He was with the bank since day one and his leadership and guidance will be greatly missed. 19 NORTHRIM BANK OFFICERS Executive Ofﬁ cers Marc Langland, Chairman**** Joe Beedle, President & Chief Executive Ofﬁ cer* Joe Schierhorn, Chief Operating Ofﬁ cer & Corporate Secretary**** Latosha Frye, Chief Financial Ofﬁ cer* Steve Hartung, Chief Credit Ofﬁ cer* Administrative Senior Vice Presidents Audrey Amundson, Planning & Organizational Development**** Ben Craig, Chief Technology Ofﬁ cer* Jim Miller, Senior Credit Ofﬁ cer*** Lynn Wolfe, Operations & Branch Administration**** Senior Vice Presidents Amber Zins, Internal Audit Manager* Carolyn Jennings, Branch & Electronic Channel Delivery Manager*** Catherine Claxton, Commercial Real Estate Lending Manager**** Dan Lowell, Northrim Funding Services Division Manager** Ellen Izer, Human Resources Director Larry Cooper, Commercial Lending Manager Mark Edwards, Commercial Loan Unit Manager & Bank Economist* Michael Martin, Business & Community Development Ofﬁ cer & In-House Counsel Suzanne Whittle, Information Services & Compliance Manager*** Vice Presidents Allen Hippler, Construction Loan Ofﬁ cer V Annette DeLong, Construction Loan Unit Manager Barb Ervin, Core Applications Group Manager** Bill Staley, Commercial Loan Ofﬁ cer V Bradley Kiefer, Commercial Loan Ofﬁ cer IV Cheryl Fellman, Regional Sales & Service Manager Darci Ornellas, Regional Sales & Service Manager*** Daryl Lowe, Commercial Loan Ofﬁ cer V Glenna Hartman, Credit Administration Ofﬁ cer III*** Heidi Moes, Item Processing Operations Manager** Heidi Roesler, Human Resources Talent Manager** Janet Holland, Project Manager*** Jason Criqui, Commercial Loan Ofﬁ cer V Jay Blury, Marketing & Communications Director* Jeanine Lillo, Controller** Jim Culley, Commercial Loan Unit Manager John Blasco, Commercial Loan Ofﬁ cer IV Josh King, Northrim Funding Services Assistant Division Manager* Kathy Martin, Construction Loan Ofﬁ cer IV*** Katie Bates, Electronic Channel Delivery Manager** Kelly Lykins-Longlet, Risk Manager** Kelly McCormack, Commercial Loan Ofﬁ cer IV* Kim Farrell Brewington, Commercial Cash Management Ofﬁ cer*** Linda Uttech, Facility Manager Lisa Adams, Northrim Funding Services Operations Manager* Mhay Sy, Credit Ofﬁ cer* Missie Yost, Branch Administration Operations Manager Paula Grau, Commercial Lending Administrative Support Manager** Ray Dinger, Commercial Real Estate Loan Ofﬁ cer V*** Sharon Wright, Loan Support Services Manager*** Sue Wolfe, Commercial Real Estate Loan Ofﬁ cer V Tammy Kosa, Regional Sales & Service Manager** Tom Sullivan, Commercial Loan Unit Manager Zac Hays, Commercial Loan Ofﬁ cer V Assistant Vice Presidents Adam Baxter, Loan Quality Assurance Ofﬁ cer Amanda Jensen, Loan Support Services Manager Amanda LeDesma, Branch Manager Anita DeVore, Branch Manager II** Aracelis Bell, Northrim Investment Services Relationship Manager** Barb Snell, Electronic Banking Operations Manager Ben Schulman, Small Business Loan Ofﬁ cer Bill Simpson, Special Credits Ofﬁ cer II*** Brigitte Lampert, Branch Manager* Chris Chambos, Branch Manager Dawn Hoxie, Branch Manager**** Delores Siah, Branch Manager Erin Gage, Branch Administration Assistant Operations Manager*** Esther Fouts, Accounting Supervisor**** Fran Ponge, Call Center Supervisor** Gerlie Monta-Guevarra, Branch Manager Holly Burns, Northrim Funding Services Relationship Manager** Jessica Podolinsky, Training & Development Manager Josie Thayer, Electronic Business Services Manager* Judy Schnese, Audit Supervisor* Karen Kreider, Construction Loan Ofﬁ cer III** Lisa Orndorff, Electronic Business Services Manager Lynn Akers, Northrim Investment Services Relationship Banker** Marc Guevarra, Lending Branch Manager I Maria Kirksey, Deposit Compliance Ofﬁ cer* Marsha Fry, Commercial Real Estate Loan Ofﬁ cer III**** Nancy Wilson, Community Development, Information Security & Compliance Manager** Oziel Villasenor, Branch Manager* Reynold Udarbe, Branch Manager Rick Pinkerton, Loan Review Ofﬁ cer** Rodlynn Smallwood, Call Center Manager* Sean Christian, Strategic & Planning Manager* Sherilee Keopuhiwa, Branch Manager Tammi Whistler, Loan Administrative Ofﬁ cer Teressa Saaiman, Branch Manager Tina Hohnstein, Special Credits Ofﬁ cer II*** Tori Brandon, Credit Administration Ofﬁ cer II**** Trevor Bradford, Consumer & Small Business Loan Manager Willy Dodd, Commercial Loan Ofﬁ cer III AVP and above as of 1/22/15: * Five-year employee, ** Ten-year employee, *** Fifteen-year employee, **** Twenty-year employee (cid:144) (cid:144) (cid:144) (cid:144) • 2 0 1 4 A n n u a l R e p o r t • Northrim Bank 20 Ketchikan LOCATION 21 Achieving New Heights INFORMATION AND ADDRESSES Annual Meeting: May 28, 2015, 9:00 am Hilton Anchorage Hotel - 500 W. 3rd Avenue Anchorage, AK Stock Symbol: Northrim BanCorp, Inc. (NASDAQ: NRIM) Auditor: Moss Adams LLP Transfer Agent & Registrar: American Stock Transfer & Trust Company LLC (800) 937-5449, info@amstock.com Legal Counsel: Davis Wright Tremaine LLP Investor Requests: For stock information and SEC filings, copies of earnings & dividend releases, click on “Investor Relations” section at northrim.com Investor Information: Call our Corporate Secretary at (907) 562-0062 or write Corporate Secretary, Northrim Bank PO Box 241489, Anchorage, AK 99524-1489 This report has not been approved or disapproved for accuracy or adequacy by the Federal Deposit Insurance Corporation, Federal Reserve Bank, Securities and Exchange Commission, or any other regulatory authority. Equal Opportunity Employer Cautionary note regarding forward-looking statements This report may include “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, which are not historical facts. These forward-looking statements describe management’s expectations about future events and developments such as future operating results, growth in loans and deposits, continued success of the Northrim BanCorp Inc.’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 “anticipate,” “believe,” “expect,” “intend” and similar expressions in part to help identify forward-looking statements. Forward-looking statements reflect management’s current plans and expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations, and those variations may be both material and adverse. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: the general condition of, and changes in, the Alaska economy; factors that impact our net interest margin; and our ability to maintain asset quality our ability to implement our marketing and growth strategies; our expected cost savings, synergies, and other financial benefits from the merger of Northrim with Alaska Pacific might not be realized within the expected time frames and costs or difficulties relating to integration matters might be greater than expected; our expected cost savings, synergies and other financial benefits from the acquisition of Residential Mortgage Holding Company, LLC might not be realized within the expected time frames and costs or difficulties relating to integration matters might be greater than expected; and our ability to execute our business plan. Further, actual results may be affected by competition on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy as those factors relate to our cost of funds and return on assets. In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in Item 1A. Risk Factors, and in our filings with the Securities and Exchange Commission. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations. 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, other than as required by law. Financial Snapshot Footnotes: (1) Tangible book value per share is a non-GAAP ratio that represents shareholder’s equity, less intangible assets, divided by common stock outstanding. (2) Tax-equivalent net interest margin is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 41.11% in all years presented. (3) In managing our business, we review the efficiency ratio exclusive of intangible asset amortization, which is not defined in accounting principles generally accepted in the United States (“GAAP”). The efficiency ratio is calculated by dividing noninterest expense, exclusive of intangible asset amortization, by the sum of net interest income and noninterest income. Other companies may define or calculate this data differently. We believe this presentation provides investors with a more accurate picture of our operating efficiency. In this presentation, noninterest expense is adjusted for intangible asset amortization. (4) Number of banking offices does not include Northrim Benefits Group or Residential Mortgage, LLC locations. (5) FTE includes employees of Northrim Bank, Northrim Benefits Group, and Residential Mortgage, LLC. Refer to the company’s Annual Report on Form 10k available in the “Investor Relations” section of nothrim.com, for reconciliations of non-GAAP financial ratios to comparable GAAP measurements. Northrim Bank • 2 0 1 4 A n n u a l R e p o r t • (cid:144) (cid:144) (cid:144) (cid:144) 22 ANCHORAGE Northrim Headquarters PO Box 241489 Anchorage, AK 99524 (907) 562-0062 (800) 478-2265 outside Anchorage northrim.com Midtown Financial Center 3111 C Street Huffman Branch 1501 E. Huffman Road Jewel Lake Branch 9170 Jewel Lake Road SouthSide Financial Center 8730 Old Seward Highway EAGLE RIVER Eagle River Branch 12812 Old Glenn Highway, Suite CO3 FAIRBANKS Fairbanks Financial Center 360 Merhar Avenue JUNEAU Juneau Financial Center 2094 Jordan Avenue Juneau Downtown Branch 301 North Franklin BELLEVUE, WASHINGTON Northrim Funding Services 170 120th Avenue N.E., Suite 202 PO Box 50245 Bellevue, WA 98015 (425) 453-1105 AFFILIATED COMPANIES Elliott Cove Capital Management LLC 1000 2nd Avenue, Suite 1440 Seattle, WA 98104 (206) 267-2683 elliottcove.com KETCHIKAN Tongass Branch 2442 Tongass Avenue Northrim Beneﬁts Group, LLC 3111 C Street, Suite 500 Anchorage, AK 99503 (907) 263-1401 northrimbeneﬁts.com Elliott Cove Insurance Agency LLC 1000 2nd Avenue, Suite 1440 Seattle, WA 98104 (206) 267-2683 elliottcove.com Enroll Alaska 3111 C Street, Suite 500 Anchorage, AK 99503 (907) 770-5100 enrollingalaska.com 23 Northrim BanCorp, Inc. n o r t h r i m . c o m ACHIEVE MORE West Anchorage Branch & Small Business Center 2709 Spenard Road Seventh Avenue Branch 517 W. 7th Avenue, Suite 300 36th Avenue Branch 811 E. 36th Avenue WASILLA Wasilla Financial Center 850 E. USA Circle, Suite A SITKA Sitka Financial Center 315 Lincoln Street, Suite 206 Residential Mortgage, LLC Headquarters 100 Calais Drive Anchorage, AK 99503 (907) 222-8800 residentialmtg.com Paciﬁc Portfolio Consulting, LLC and Paciﬁc Portfolio Trust Company Two Union Square 601 Union Street, Suite 4343 Seattle, WA 98101 (206) 623-6641 paciﬁc-portfolio.com

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