Exhibit 10.2

 

December 14, 2018

 

Federal Home Loan Bank of Topeka

Executive Incentive Compensation Plan Targets

Goal Metrics, Metric Performance Ranges, Participant Eligibility and Metric
Weights

 

This document specifies goal metrics, metric performance ranges/objectives, and
metric weights for the participants (Participants) in the Executive Incentive
Compensation Plan (Plan).

The Plan targets contained in this document specifically cover the 2019 Base
Performance Period (January 1, 2019 through December 31, 2019) and the 2020 -
2022 Deferral Performance Period (January 1, 2020 through December 31, 2022).

A.

2019 Base Performance Period Metrics. The following goal metrics are assigned to
the Participants under the Plan. All calculations including interest rates will
be rounded to two decimal places.

1.

Adjusted Return Spread on Total Regulatory Capital

Definition: The spread between (a) adjusted net income divided by the daily
average total regulatory capital and (b) the average daily Overnight Federal
funds effective rate (Fed Effective).

Measure:

Adjusted net income is defined as follows:

 

o

Net income calculated under generally accepted accounting principles (GAAP)

 

o

Plus the recorded AHP assessments

 

o

Excluding the impact or adjustment required because of the Accounting Standards
Codification 815 (ASC 815)

 

o

Plus the dividends on redeemable Class A and Class B Common Stock treated as
interest expense under ASC 450

 

o

Minus the prepayment fees

 

o

Minus/plus the realized or unrealized gains/losses on securities (excludes any
charges for other-than-temporary impairment of securities)

 

o

Minus/plus the gains/losses on mortgage loans held for sale

 

o

Minus/plus the gains/losses on early retirement of debt and related derivatives

 

o

Minus/plus any amortization/accretion of premium/discount on unswapped
securities in the FHLBank’s trading portfolio and any investment that is tied to
an economic swap where an upfront fee was not received (not amortized/accreted
under GAAP)

 

o

Less a calculated 10% AHP assessment

Performance Range:

 

Annual Performance Range

Threshold

3.91%

Target

4.73%

Optimum

5.54%

 

2.

GAAP Return Spread on Total Regulatory Capital

Definition: The spread between: (a) GAAP net income divided by the daily average
total regulatory capital; and (b) the Fed Effective rate.

Measure:

 

o

Net income calculated under GAAP.

 

o

Daily average total regulatory capital.

 

o

Divide GAAP net income by daily average total regulatory capital to calculate a
return.

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o

Subtract the average daily Overnight Federal funds effective rate (Fed
Effective) from the GAAP return.

 

Performance Ranges:

 

Annual Performance Range

Threshold

3.51%

Target

4.73%

Optimum

5.94%

 

3.    Adjusted Net Income after Capital Charge

Definition: The dollar amount of adjusted net income as defined in the above
metric that exceeds the cost of the required return on capital.

 

Measure: Adjusted income as defined in the Net Income after Capital Charge
Definition above, less required return on capital. The required return on
capital is the sum of the outstanding regulatory Class B Common Stock times the
average of three-month LIBOR plus 1.00 percent for each day during the year plus
the sum of regulatory Class A Common Stock and retained earnings times the
average of three-month LIBOR for each day during the year.

 

Performance Range:

 

Annual Performance Range

Threshold

$77,588,000

Target

$96,985,000

Optimum

$116,382,000

 

4.

GAAP Net Income after Capital Charge

Definition: The dollar amount of GAAP net income that exceeds the cost of the
required return on capital.

 

Measure: GAAP net income, less required return on capital. The required return
on capital is the sum of the outstanding regulatory Class B Common Stock times
the average of three-month LIBOR plus 1.00 percent for each day during the year
plus the sum of regulatory Class A Common Stock and retained earnings times the
average of three-month LIBOR for each day during the year.

 

Performance Ranges:

 

Annual Performance Range

Threshold

$67,889,000

Target

$96,985,000

Optimum

$126,080,000

 

5.

Member Product Utilization

Definition: Member product utilization is defined as the weighted average 2019
attainment in member utilization in each of three product categories: (1) Line
of Credit or advances; (2) MPF Program; and (3) Letters of Credit. 

 

Measure:  Product utilization is calculated by dividing the number of members at
the end of the year that qualify as a user of one of the three products (as
defined below) at any time during the current year (2019) by the number of
members at the end of the current year (2019). The individual product
utilization is compared  to the target level to arrive at the level of
attainment

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for each of the three products.  The percentage attainment to target for each
product is then multiplied by the weight assigned to each product to arrive at
the overall weighted product utilization goal attainment.  

 

Products and Weighting:

Line of Credit or advances – Weight 50%

A member that uses the line of credit and has an outstanding balance for a total
of 5 days during the year or who takes one (or more) new  advance for a term of
3 or more days (short-term fixed rate, regulator fixed rate, symmetrical fixed
rate, callable, member option, amortizing fixed rate, adjustable, convertible,
structured advance or forward settle advance that settles during the year)
during the year will quality as a using an advance related product.  

 

MPF Program – Weight 25%

A participating financial institution (PFI) that delivers at least one loan
during the year into any one or more of the MPF products will qualify as using
the MPF program. 

 

Letters of Credit – Weight 25%

A member that applies for and we issue to them at least one new Letter of Credit
during the year will qualify as using the Letter of Credit product.  

 

Performance Range:

               

Product Utilization %

Product

Threshold

Target

Optimum

Line of Credit or Regular Advance

66.0%

70.5%

75.0%

MPF Program

23.5%

25.0%

26.5%

Letters of Credit

28.0%

30.5%

33.0%

 

6.    Diversity and Inclusion

Definition: FHLBank’s Diversity and Inclusion (D&I) initiative is defined as the
advancement of D&I, to the maximum extent possible in balance with financially
safe and sound business practices, through inclusion and utilization of
diverse-owned business and individuals within its workforce, as defined in the
D&I Policy, in all business activities of FHLBank.

 

Measure: Points are awarded by achievement of the following. One point is
awarded for each:

 

•

Attain a workforce ratio of at least 11.0% business partners of color as of
12/31/2019.

 

•

Increase the number of viable diverse suppliers registered to do business with
FHLBank in Supplier Gateway by 3%.

 

•

80% of business partners attend one D&I Awareness Activity.

 

•

80% of business partners complete one D&I Training.

 

•

Participate in 15 outreach opportunities with potential diverse directors and/or
in Workforce, Vendors, Capital Markets and/or with members.

 

Performance Ranges:

 

Points

Threshold

3 out of 5 points

Target

4 out of 5 points

Optimum

5 out of 5 points

 

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Viable diverse suppliers are those that provide a good or service on the
Commodities List found on the Supplier Gateway website, are registered to do
business with FHLBank in Supplier Gateway and can be located/headquartered
anywhere in the United States.

 

D&I Awareness Opportunities are FHLBank-wide events approved in advance by the
Director of Human Resources and Inclusion (HRI) that educates employees on D&I,
or encourages it among them. These opportunities are typically lunch and learn
events hosted by FHLBank’s Inclusion, Diversity, and Equality Advisory Council
and range in topics from various cultures, religions, and holidays to education
on marginalized communities.

 

D&I Training Opportunities are FHLBank-wide training approved in advance by the
Director of HRI with the purpose of increasing knowledge of and competencies in
content and principles regarding D&I. These opportunities can include, for
example, workshops on the business case for D&I, recognizing and managing
various biases, and bridging generational gaps within the workplace.

 

Outreach opportunities can be conducted by any member of FHLBank staff and must
approved in advance by the Director of HRI. More than one member of FHLBank’s
staff can participate in a single outreach opportunity. Outreach opportunities
include, for example, an in-person meeting with a diverse invidual who might be
a good candidate for FHLBank’s board of directors and/or a meeting with a trade
association to provide education on FHLBank’s desire for a diverse board; an
in-person meeting with a diverse-owned supplier or having a booth at a
diverse-owned supplier fair; participating in in-person meetings with a
diverse-owned broker dealer or participating in the diverse-owned broker-dealer
meeting; or participating in a career fair at a college or university that
serves a predominantly diverse population or providing a presentation to a
classroom at such a college or university.

 

7.  Risk Management – Market, Credit and Liquidity Risks

Definition: Management of FHLBank risks as determined by the weighted average
rating by the board of directors in an annual evaluation of the Risk Appetite
metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk
categories are market, credit and liquidity risks.

 

Performance Ranges

 

Score

Threshold

4.0

Target

4.5

Optimum

5.0

 

Risk Management Metric Weights: The following metric weight for each goal metric
is assigned to the Participants:

Risk Management Category

Weighting

Liquidity Risk

30%

Market Risk

40%

Credit Risk

30%

Total

100%

 

8.

Risk Management – Compliance, Business and Operations Risks

Definition: Management of FHLBank risks as determined by the weighted average
rating by the board of directors in an annual evaluation of the Risk Appetite
metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk
categories are compliance, business and operations risks.

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Performance Ranges

 

Score

Threshold

3.0

Target

4.0

Optimum

5.0

 

Risk Management Metric Weights: The following metric weight for each goal metric
is assigned to the Participants:

Risk Management Category

Weighting

Compliance Risk

30%

Business Risk

35%

Operations Risk

35%

Total

100%

 

B.

2020-2022 Deferral Performance Period.

In order for Participants to be eligible to receive a Final Deferred Incentive
Award for the 2020-2022 Deferral Performance Period, FHLBank must have a Market
Value of Equity (MVE) of not less than 100 percent of FHLBank’s Total Regulatory
Capital Stock (TRCS) outstanding (as defined in FHLBank’s Risk Management
Policy), as of the last day of the Deferral Performance Period. Upon determining
FHLBank has achieved this minimum requirement, the calculation of the Final
Deferred Incentive Award shall be calculated by applying a six percent interest
credit, compounded annually, to the Deferred Incentive.

 

C.

Total Base Opportunity Metric Weights.

Total Base Opportunity Matrix

(As a percent of base)

Participant

Total Base Opportunity 1

 

Threshold

Target

Optimum

Level 1

 

 

 

CEO

37.5

75

112.5

Level 2

 

 

 

General Counsel

27.5

55

82.5

Chief Financial Officer (CFO)

27.5

55

82.5

Chief Administrative Officer (CAO)

27.5

55

82.5

Level 3

 

 

 

Chief Information Officer (CIO)

25

50

75

1 In the event FHLBank’s performance during the Base Performance Period results
in the achievement of a Total Base Opportunity that exceeds 100% of a
Participant’s base salary at the start of the Base Performance Period, the Total
Base Opportunity shall be capped at 100% of the Participant’s base salary.

 

 

D.

Base Opportunity Metric Weights. The following metric weight for each goal
metric is assigned to the Participants:

Objective

Weight

1.Adjusted Return Spread on Total Regulatory Capital

15%

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2.GAAP Return Spread on Total Regulatory Capital

5%

3.Adjusted Net Income after Capital Charge

15%

4. GAAP Net Income after Capital Charge

5%

5. Member Product Utilization

10%

6.Diversity and Inclusion

10%

7.Risk Management - Market, Credit, Liquidity

20%

8.Risk Management - Compliance, Business, Operations

20%

Total

100%