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Exhibit 10.6
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HOME FEDERAL BANK
 
 
Description of the Key Features of the Loan Officer Incentive Plan (LOIP)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 

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HOME FEDERAL BANK
 
 
 
Loan Officer Incentive Compensation Plan (LOIP) Description
 
 
 
 
I. Plan Purpose - The LOIP is an annual, cash-based variable incentive
compensation plan. It is specifically designed to encourage participants
(selected Loan Officers) to produce results that enable the Bank to reach
targeted levels of financial performance for the fiscal year. The LOIP provides
participants with an opportunity to earn variable rewards that are contingent on
the net interest income (interest income less interest expense), plus fee income
from loans originated during the performance period, produced from their
identified loan portfolios.
 
 
The CEO and the President will use the LOIP as a part of their overall
management strategy to provide direction and encouragement to participants. The
LOIP will help control the escalation in fixed compensation costs and provide
participants with an opportunity to enhance their overall level of compensation.
This should better enable the Bank to attract, motivate and retain the kinds of
Loan Officers needed to ensure financial success. It should also create
incremental shareholder value through the generation of enhanced earnings.
 
 
The LOIP is administered by the Compensation Committee of the Board of
Directors. Under normal circumstances the plan remains in effect for the current
performance period, the fiscal year. However, the Compensation Committee may
discontinue or modify the plan in its sole discretion subject to the anticipated
benefits created thereby.
 
 
 
II. Performance Period - This is a 12-month plan that is linked with portfolio
performance and loan production targets established for each fiscal year from
July 1 to June 30. However, there are semi-annual payouts. Each year the LOIP is
reviewed and modified to ensure it is consistent with the financial measures in
the annual business plan. Any financial measures that are related to lending
performance in the LOIP are reviewed each year and adjusted to coincide with
changes in participants, their compensation and the LOIP formula.
 
 
 
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III. Plan Participants - The LOIP is intended for certain Loan Officers. The CEO
and the President will review the Loan Officers at the beginning of each fiscal
year and select those who they propose to participate in the LOIP. Recommended
participants are presented to the Compensation Committee for approval. The list
of participating Loan Officers will be maintained in the records of the
Compensation Committee. Participants who join the Bank during the targeted
fiscal year may have special arrangements during the time they are developing
their portfolios.
 
 
IV. Participation Levels - For each fiscal year the LOIP is in effect,
participants will receive 4.00% of the net interest income (interest income less
interest expense) from loans identified as having been originated by the
particular Loan Officer prior to the beginning of the fiscal year. Participants
also receive 6.00% of the net interest income (interest income less interest
expense) plus fee income from loans originated during the performance period.
The CEO and the President will review the participation percentages at the
beginning of each fiscal year and recommend any needed modifications to the
Compensation Committee.
 
 
V. Plan Formula - For each fiscal year, portfolio performance is calculated for
each participating Loan Officer to ensure an accurate determination of portfolio
performance. A sample calculation is provided on an attached spreadsheet.
 
 
Cumulative interest income from loans existing at the beginning of the
performance period is calculated. Interest expense, equal to loan volume times
the most recently available average cost of funds for the Bank, is deducted from
interest income to determine Loan Officer contribution. Loan Officer
contribution is multiplied by the portfolio rating to calculate the income base.
The income base is multiplied by 4.00% to determine the incentive award from
existing loans.
 
 
Cumulative interest income from new loans (those originated during the
performance period) is calculated. Interest expense, equal to loan volume times
the most recently available average cost of funds for the Bank, is deducted from
interest income to determine net interest income. Origination fee income is also
added to determine Loan Officer contribution. Loan Officer contribution is
multiplied by the portfolio rating to calculate the income base. The income base
is multiplied by 6.00% to determine the incentive award from new loans.
 
The incentive awards from existing loans and new loans are added to determine
the total award payment.
 
VI. Loan Portfolio Performance - Loan portfolio performance is calculated to
help ensure that asset quality targets are met. The portfolio quality guidelines
are established by the CEO and the President with input from the Senior Loan
Officer.
 
 
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VII. Plan Communications - Following approval of the LOIP by the Compensation
Committee, the CEO and the President will ensure that all participants are
notified of their participation, target awards, the plan formula, how incentive
awards are calculated and what they may do to positively influence the size of
their awards. During the performance period the CEO and the President will
ensure that all participants are provided with periodic updates on the status of
the LOIP. This enables participants to project the formula awards for which they
are potentially eligible.
 
 
 
 
VIII. Award Determination - Awards are calculated on a semi-annual basis. The
first calculation is made in January, for the period from July 1 through
December 31. The second calculation is made in July, for the period from January
1 through June 30. The award for the first six months is based on portfolio
performance for that period. The calculation for the second six months is made
for the performance period, the fiscal year, less the calculation for the first
six months.
 
 
 
 
IX. Award Payments - As soon as practical, following approval by the
Compensation Committee, incentive awards are paid. The first payment is normally
made in February, following approval by the Compensation Committee. The second
payment is normally made in August, following approval by the Compensation
Committee. The payments are made by separate check and specifically designated
as incentive awards. In order to receive award payments, participants must be
employed in good standing when the payments are made.
 
 
 
 
X. LOIP Review - In June of each year in which the LOIP is in effect, the CEO
and the President, with input from the CFO, will review the LOIP and determine
whether modifications should be proposed for the fiscal year commencing on July
1. Any modifications are reviewed and approved by the Compensation Committee.
The CEO and the President ensure that all participants are informed about any
changes in the plan.
 
 
 
 
XI. CEO, President and Compensation Committee Discretion - The guidelines for
the LOIP build structure into the incentive compensation determination process.
Along with the guidelines, a certain amount of common sense and discretion are
frequently needed. The CEO and the President have the discretion to recommend
certain awards to the Compensation Committee, should they be warranted.
Similarly, members of the Compensation Committee may recommend certain
discretionary awards. This is in keeping with good compensation management
practices.
 
 
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