SecProbe.io

CORRESP
1
filename1.htm

corresp

December 31, 2008

VIA EDGAR AND OVERNIGHT DELIVERY

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549-4561

    Attention:

    Jessica Livingston

    Justin Dobbie

    Re:

    Northrim BanCorp, Inc.

    Form 10-K for the Fiscal Year Ended December 31, 2007

    Filed March 14, 2008

    File No. 000-33501

Dear Ms. Livingston:

On behalf of our client, Northrim BanCorp, Inc., an Alaska corporation (the “Company”), and
pursuant to the applicable provisions of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder, reference is made to your letter dated December 5, 2008, containing
certain comments regarding the above-referenced Form 10-K for the Fiscal Year Ended December 31,
2007, filed on March 14, 2008. We have carefully reviewed and considered each comment contained in
that letter, and would respectfully submit in response the proposed actions indicated below. For
ease of reference, each of your comments is set forth below with our response set forth immediately
below.

Staff Comment No. 1: Item 11. Executive Compensation, Compensation Discussion and Analysis,
page 7 of Definitive Proxy Statement Schedule 14A

We note your response to our prior comment 7. It is unclear that the disclosure of the performance
targets in question would result in competitive harm to the company. We therefore reissue that
comment in full. Prior Staff Comment No. 7: In future filings, with respect to performance based
annual bonuses, please disclose and discuss the specific performance targets relating to return on
equity, the ratio of expenses to assets, net income as compared to budget, earning per share growth
and asset quality and how the company’s annual bonus awards are structured around such performance
targets. Refer to Item 402(b)(2)(v)-(vi) of Regulation S-K. If you did not disclose the performance
targets because you determined that they were confidential

Securities and Exchange Commission

December 31, 2008

Page 2

due to the potential for competitive harm to Northrim BanCorp, as contemplated by Instruction 4 to
Item 402(b) of Regulation S-K, provide us with your confidentiality analysis supplementally and
include detailed disclosure analyzing the level of difficulty necessary to reach each of the
targets contemplated by the Instruction. For more information on the confidentiality of targets,
please refer to the report of the Commission Staff regarding executive compensation disclosure,
released October 9, 2007.

Response:

Summary:

The Company believes that the Company’s performance based annual bonuses based on specific
performance targets with respect to the ratio of expenses to assets, net income as compared to
budget, earning per share growth and asset quality (collectively, the “Information”)
constitute confidential commercial or financial information that, if disclosed, would cause
substantial competitive harm to the Company. In particular, the disclosure of the Information
could be used by the Company’s competitors to derive the Company’s future strategic plans and to a
loss of members of the management team to the Company’s competitors. In future filings, the Company
will include, for excluded targets, more descriptive disclosures of the level of difficulty, or
ease, associated with achieving performance goals, as required by Instruction 4 to

Item 402(b).

Background:

The Company has historically not included a specific performance target with respect to the
Information in its proxy statement or other filings (including those filings disclosing the setting
of performance measures), due to the risk of substantial competitive harm if such specific targets
are disclosed. In particular, the disclosure of the specific performance targets with respect to
the Information could be used by the Company’s competitors to derive the Company’s future strategic
plans, enabling a competitor to alter its strategic plan to more efficiently compete against the
Company, which would cause the Company’s financial performance and results of operations to be
negatively impacted. In addition, the disclosure of the specific performance targets with respect
to the Information would provide the Company’s competitors with information that could be used to
entice members of the Company’s management team to terminate their employment with the Company and
become employed by the Company’s competitors. The loss of any key member of management would
likely have a negative impact on the Company’s financial performance and results of operations.

Historically, the Compensation Committee set the performance targets in connection with the
Company’s strategic plan, with the goal of maximizing shareholder returns. The Compensation
Committee believes that since the performance targets correspond to the Company’s budgeted goals,
the named executive officers (the “NEOs”) are incentivized to cause the Company to achieve
its budgeted goals.

 - 2 -

Securities and Exchange Commission

December 31, 2008

Page 3

To provide a background for understanding the substantial competitive harm that could be caused to
the Company by disclosure of the specific performance targets with respect to the Information, it
is necessary to understand the Company’s strategic planning cycle and the method by which the
Company’s Compensation Committee determines the specific performance targets for participants in
the Company’s Executive Incentive Plan on an annual basis. Historically, the Company’s strategic
goals have been determined on a three year planning basis. The annual budget is then determined by
reference to the larger three year strategic plan set by the Company. In the Autumn of each
calendar year, the Company plans the budget for the following calendar year, which is finalized in
February of each calendar year. In April of each year, the Compensation Committee meets and
determines the specific performance targets for that calendar year, bearing in mind the three year
strategic plan and the annual budget for the specific calendar year. In January following the end
of the calendar year, the Company’s financial performance is reviewed by the Compensation Committee
and a determination is made as to whether the NEOs have satisfied the specific performance targets.
Compensation for satisfaction of the specific performance targets is paid in January following
that determination. However, because the compensation is earned in the prior year, the amounts
earned are disclosed in the Company’s proxy statement under Item 402 for the prior calendar year in
which the compensation was earned by the respective NEOs. The disclosure of the specific
performance targets with respect to the Information would enable a competitor to deduce the
Company’s three year strategic plan and could potentially be used to solicit current NEOs to
terminate their employment with the Company as further explained in the Company’s response.

The specific performance targets with respect to the Information are developed strictly for
internal planning purposes and are not disclosed publicly by the Company in any form. For the
reasons set forth in this response, the Company considers the specific performance targets with
respect to the Information and the factors that go into the calculation of such Information, to be
its confidential, proprietary information. The Company believes that public disclosure of the
Information, whether disclosed in its proxy statement or otherwise, would substantially harm the
Company’s competitive position, which would ultimately impact shareholder value in a negative
manner.

Legal Framework:

The Commission has set forth the procedures and standards under which it will consider a request
for confidential treatment in Rule 24b-2 and 17 C.F.R. § 200.80. Pursuant thereto, a request for
confidential treatment must specify the particular exemption from the Freedom of Information Act
(“FOIA”) providing the grounds upon which it relies (Rule 24b-2; 17 C.F.R. § 200.80; 5
U.S.C. § 552). Among other items, the FOIA exempts from its public disclosure requirements “trade
secrets or commercial or financial information obtained from a person and privileged or
confidential” which otherwise public agencies must make available to the public (5 U.S.C. §
552(b)(4) (“FOIA Exemption 4”). The Company believes that the Information fits within the
three prong test under FOIA Exemption 4 because it is (a) trade secrets or commercial or financial
information, (b) obtained from a person and (c) privileged or confidential. See,

 - 3 -

Securities and Exchange Commission

December 31, 2008

Page 4

Public Citizen
Health Research Group v. Food & Drug Administration, 704 F.2d 1280, 1290 (D.C. Cir. 1983)
(“Public Citizen Health Research Group”).

     (a) Commercial or Financial Information. As stated in Public Citizen Health
Research Group, the D.C. Circuit Court has “consistently held that the terms
‘commercial’ and ‘financial’ in FOIA Exemption 4 should be given their ordinary
meanings.” Id. at 1290. Information is “commercial” if it relates to commerce or
has been compiled in pursuit of profit. See, American Airlines, Inc. v. National
Mediation Board, 588 F.2d 863 (2d Cir. 1978); Public Citizen Health Research
Group. Examples of commercial or financial information include, among other things,
pricing arrangements, development fees, license terms and fees, royalties, warranty
provisions, engineering support agreements and other commercial details.

     (b) Obtained from a Person. The definition of the term “person” includes, among
other things, an individual, a corporation, a partnership, an unincorporated association and a
trust. See, Comstock International (U.S.A.), Inc. v. Export-Import Bank of the United
States, 464 F. Supp. 804, 806 (D.D.C. 1979) (citing 5 U.S.C. § 551(2)).

     (c) Privileged or Confidential. The last prong of the test for confidentiality
under FOIA Exemption 4 requires that the Information be privileged or confidential. When, as here,
information is required to be disclosed to the Government, information is “confidential” for
purposes of FOIA Exemption 4 if such disclosure would be likely either (1) to impair the
Government’s ability to obtain necessary information in the future or (2) to cause substantial harm
to the competitive position of the person from whom the information was obtained. McDonnell
Douglas Corp., 180 F.3d at 305; National Parks and Conservation Association v. Morton,
498 F.2d 765, 770 (D.C. Cir. 1974). To satisfy the second prong of this test, evidence revealing
actual competition and the likelihood of substantial competitive injury is sufficient to
demonstrate the need for confidentiality. CAN Fin. Corp. v. Donovan, 830 F.2d 1132, 1152

D.C. Cir. 1987); Public Citizen Health Research Group, 704 F.2d at 1291; Allnet
Communication Services, Inc. v. Federal Communications Commission, 800 F. Supp 984, 988 (D.D.C.
1992).

Analysis:

The Company believes that the Information would fall within the standards for granting confidential
treatment under Rule 24b-2 and 17 C.F.R. § 200.80.

     (a) The Information clearly constitutes “commercial or financial information” of the
Company, since it was developed in connection with establishing compensation levels for its NEOs
and in furtherance of the Company’s multi-year strategic planning and derived from internal
analyses and projections of the Company’s performance and strategic goals.

 - 4 -

Securities and Exchange Commission

December 31, 2008

Page 5

     (b) The Information was developed by the Company, which is a “person” for purposes of
the FOIA exemption.

     (c) Release of the Information would be likely to cause substantial harm to the
Company’s competitive position. The goals embodied in the Information are based on the Company’s
internal analyses and projections of its performance and reflects the Company’s business strategy
for past years and signals its strategy in connection with the Company’s multi-year strategic
plans. The principal factors that drive the Information include the Company’s multi-year strategic
plans as driven by the annual budget, expectations of loan production activity during the coming
year, the types of loans that will be generated, the pricing of its loans, the volume of loan sales
and gain on sale of loans, amounts of loan losses, growth in deposits and deposit pricing. Also
embodied in the Information is the Company’s expectations of the overall lending and deposit-taking
environments, the levels and movements of interest rates, competitive conditions in the Company’s
markets and other economic factors.

Third parties could use past years’ Information (and the financial information that could be
derived from the specific targets as described above), to the Company’s substantial competitive
disadvantage and commercial harm as follows:

If the Company disclosed its net income to budget target, then its competitors would have specific
information on its budget, since the performance criteria is a percentage of actual to budgeted net
income. By comparing the Company’s actual performance with disclosures about its budget, the
Company’s competitors could deduce the Company’s budget. Also, the Company’s competitors could use
the earnings per share performance criteria along with the net income to budget target to deduce
the current period budget for the Company and compare that on a quarterly basis in the current
year. This information could be used to predict or react to pricing initiatives of the Company for
its deposit and loan products as well as its other services.

If the Company disclosed the criteria for its nonperforming loans to loans, then its competitors
would know the Company’s goals in this area versus its current performance levels. The Company’s
competitors could use this information to more effectively compete against the Company by adjusting
their loan strategies in relation to the Company’s actual performance as compared to these targets.

If the Company disclosed the operating expenses to average assets criteria, then its competitors
could gain information on the goals and plans that the Company has for the current and future
levels of its expenses the largest of which are salary and benefits expenses for its employees.
The Company’s competitors could use this information to more effectively compete against the
Company for its employees or in marketing campaigns or in many other areas covered by the general
expenses in this performance category.

If the Company disclosed all of the above specific target criteria, competitors would be able to
deduce the Company’s future strategic plans, based on the Company’s multi-year strategic

 - 5 -

Securities and Exchange Commission

December 31, 2008

Page 6

planning
process. For example, if the Company’s three year strategic plan is to follow a static approach
whereby the Company will not engage in any acquisitions or seek to expand its market share, the
specific performance targets under the Company’s Executive Incentive Plan would be aligned to
achieve these goals. In this static three year strategic plan, the Compensation Committee would
likely set the ratio of expenses to assets at a moderate target level as the Company would be
attempting to incentivize its NEOs to keep expenses in line because asset growth is not a primary
component of this particular three year strategic plan. In contrast, the net income as compared to
budget would likely be set higher under a static three year plan than the same performance target
under an expansionary three year strategic plan as the Company would be unlikely to incur the
additional expense associated with expanding its markets or market share of certain products by
raising deposit pricing or lowering its loan pricing. The specific target for earning per share
growth would likely be set relatively high as the absence of m