exv10w28






EXHIBIT
10.28




NORTHRIM BANK




EXECUTIVE INCENTIVE PLAN




November 3, 1994




 









 








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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