EXHIBIT 10.28
NORTHRIM BANK
EXECUTIVE INCENTIVE PLAN
November 3, 1994

 

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NORTHRIM BANK ANNUAL
EXECUTIVE INCENTIVE PLAN
TYPE OF PLAN
Criteria Incentive Plan
PLAN YEAR
January 1 — December 31
PLAN ADMINISTRATION
The plan will be administered by the Compensation Committee (“Committee”) of the
Board of Directors of Northrim Bank (“Bank”).
PLAN PARTICIPATION
Participation in the plan is limited to members of management whose performance
has a significant impact on the success of the Bank.
Participants in the incentive plan must be recommended by the Chairman of the
Board or President and approved by the Committee prior to each plan year.
The minimum factors to be used in evaluating and recommending individuals for
plan participation are as follows:

  •   Head of a department or equivalent responsibilities.     •   Significant
impact on the bottom line of the Bank.     •   Management responsibility.     •
  Record of superior performance and initiative to surpass expectation.     •  
This is an earned benefit and will not necessarily be made to newly hired or
promoted managers who might otherwise be qualified for plan inclusion.

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INCENTIVE AWARD AMOUNTS
Each plan participant will be assigned an incentive award amount established as
a percent of their base salary. Base salary is the annual salary in effect at
the close of the plan year, prior to any deductions, such as for 401(K), salary
deferral, etc. Award amounts will be based on the participants’ officer title
and their corresponding level of responsibilities.
There will be three tiers of incentive award amounts as follows:
TIER 1

     Participants:   President and Chairman.

          Minimum   Target   Maximum
15% Award
  30% Award   40% Award

TIER 2

     Participants:   Senior Vice Presidents and certain Vice Presidents
depending on the scope and impact of their positions.

          Minimum   Target   Maximum
10% Award
  25% Award   35% Award

TIER 3

     Participants:   Vice Presidents and certain Assistant Vice Presidents
depending on the scope and impact of their positions.

          Minimum   Target   Maximum
5% Award
  15% Award   25% Award

The listed award amounts are earned by the plan participants at the completion
of the plan year, if the performance standards achieved for the criteria listed
in the following section are met by the Bank. If the Bank fails to meet the
minimum criteria standards listed, then no award amounts would be made for those
criteria for the plan year. Individual performance measures may be instituted in
certain cases and would be in addition to the bank-wide criteria.

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PERFORMANCE CRITERIA AND STANDARDS
Before any incentive award amounts are awarded, the Bank must meet certain
criteria and standards of performance. The following criteria have been selected
because they impact the financial success of the Bank, and contribute to the
overall safety and soundness of the Bank’s operation.
PERFORMANCE CRITERIA

  •   Return on equity     •   Return on assets     •   Net income     •  
Balance sheet growth     •   Safety & Soundness

Definitions for the criteria are expanded as follows:
Return on Equity- Net income (as defined) divided by average equity for the
calendar year.
Return on Assets- Net income (as defined) divided by average assets for the
calendar year.
Net Income- After-tax income from the annual financial plan inclusive of the
Bank’s mandatory 401(K) match but exclusive of any discretionary 401(K) matches
or incentive awards under the Executive Incentive Plan.
Balance Sheet Growth- The percentage change in total assets from one calendar
year-end to the next. Assets acquired from mergers or acquisitions are excluded
from the growth factor.
Safety and Soundness- This will be comprised of both a liquidity measure and an
asset quality measure. There is a threshold that the liquidity measure must
first meet in order for any award to be paid from this criterion. Asset quality
performance will dictate the level of award.
Liquidity- Calculated in accordance with Alaska Regulations 3 AAC 02.110.
Reserves Against Deposits. This ratio of liquidity to deposits would need to
equal or exceed 18% as measured by an average of the four calendar quarter-ends
for the plan year.
Asset Quality- The sum of: loans delinquent 30 days or more, non-accrual loans
and OREO divided by total loans and OREO. This criterion would be an average of
the first three quarter-end results for the plan year (March 31, June 30, and
September 30). Peer group would be the sum of all Alaska banks from information
provided by the Alaska Division of Banking on a quarterly basis, or a similar
report that provides comparable data.
Performance standards for each criterion are established to provide the “window”
for payment of the incentive award amounts as follows:

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                                          Levels of     Business   Performance
Criteria Achievement—                           Balance   Safety & Amounts Paid
  ROE   ROA   Net Income   Sheet Growth   Soundness
Minimum:
                                       
No awards

    <= 11 %     >= 1.0 %     >= 90 %     >= 10 %     >= 100  
below this level

                                       
of achievement
    < 12 %     < 1.2 %   < 100% of budget   < 15% over preceding year   <125% of
peer
Target:
                                       
Business
  >= 12% to     >= 1.2 %     >= 100 %     >= 15 %   Between >= 75%
performance
level at which
competitive awards are
made
    < 15 %   to < 1.5%   < 120% of budget   < 20% over preceding year   to <
100% of peer
Maximum:
Level at which
the maximum
award achievable is
paid out
   
>= 15
%    
>= 1.5%    
>= 120% of budget  
>= 20% over preceding year  
<= 75% of peer

It is intended that the plan criteria and standards should undergo annual
review, upon adoption of the annual business plan, to ensure their effectiveness
is supporting the strategic plan of the Bank and maximizing shareholder returns.
The performance standards for each criterion may be weighed to reflect their
specific value at the various award levels. Standards are assumed to be equally
weighted unless the Committee establishes otherwise.
Awards are earned when the performance standards set for each criterion are met
or exceeded at the various award levels.
For example, let us assume that Participant X earns $60,000 a year and is in
Tier 3 for award amount percentages. Additionally, let us also assume that for
Performance Year 20XX the Bank had an ROE of 11%, an ROA of 1.2%, achieved 80%
of budget, had balance sheet growth of 20% over the preceding year, asset
quality was equal to peer and reserves were 21% of deposits.

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Participant X’s incentive award for Performance Year 20XX would be calculated as
follows:

                                                    20XX     Award            
Award             20XX Criteria   Results     Level     Award %     Weight    
Salary     Award
ROE
    11.0 %   Minimum     5 %     x 20 %     x 60,000       = $600.00
 
                                             
ROA
    1.2 %   Target     15 %     x 20 %     x 60,000       = 1, 800.00
 
                                             
Net Income
    80.0 %     —       —       x 20 %     x 60,000       = —
 
                                             
Growth
    10.0 %   Maximum     25 %     x 20 %     x 60,000       = 3,000.00
 
                                             
Safety & Soundness
    100.00 %   Minimum     5 %     x 20 %     x 60,000       = 600.00
 
                                           

                            100 %           $ 6,000.00
 
                                           

PAYMENT OF AWARDS
Any earned award amounts will be paid in cash upon completion of the CPA audit
for the plan year and Committee approval.
Awards can only be paid if the Bank meets or exceeds the “adequately
capitalized” risk based capital standards at year end. If the Bank is not in
compliance, cash awards will be deferred until such time as capital has been
restored to those standards.
INCENTIVE AWARD LIMITATIONS
The total payment made to plan participants for any plan year shall be the
lesser of (i) the total awards that would have been paid to participants based
on the achievement of the target standards for all criteria listed in the plan
and the accompanying percentage of salary awards, or (ii) 10% of net income
after tax, including the Bank’s mandatory 401(k) match but excluding any awards
paid as part of this plan, or discretionary 401(k) matches.
If the funding in any plan year is limited to the 10% of net income figure, then
individual participant awards will be based on the following ratio:

  •   The individual’s award if no restriction existed     •   / (divide) the
total awards if no restrictions existed     •   * (multiply) 10% of net income
after tax calculated in (ii) above

Example:
Participant X would have received a target bonus for plan year 20XX of $20,000.
However, due to the fact that 10% of net income after tax ($78, 684) was less
than the targeted amount that would have been paid to all participants
($187,000), Participant X’s award would be limited to:
$20,000 / $187, 000 * $78, 684 = $8, 415

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Deferred Payment
Each participant shall have an opportunity to defer receipt of an award pursuant
to the terms and conditions of the Northrim Bank Deferred Compensation Plan.
DISCRETIONARY AWARDS
The Chairman or President of the Bank may recommend to the Committee any other
member of the organization for a discretionary award to recognize superior
accomplishments. This could include payments to newly promoted or hired senior
managers who would normally be included in the plan, but who have been with the
Bank less than one year.
APPLICABLE LAW
This Executive Incentive Plan is adopted by the Bank in the State of Alaska, and
is to be construed and interpreted in accordance with the laws of the State of
Alaska.

                  NORTHRIM BANK    
 
 
  By:   /s/ R. Marc Langland
 
   
 
  Its:   President    
 
           

Adopted by the Board of Directors of Northrim Bank on November 3, 1994.

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