2011 FEDERAL HOME LOAN BANK OF INDIANAPOLIS
EXECUTIVE INCENTIVE COMPENSATION PLAN (STI)
Approved by Board of Directors January 20, 2011
 
 
MISSION GOALS
WEIGHTED VALUE Bank CRM
MINIMUM THRESHOLD
2011 TARGET
MAXIMUM
PROFITABILITY
 
 
 
 
 
 
 
 
 
 
 
           Potential Dividend over our Cost of Funds(1)
35
%
15
%
50 B.P.
100 B.P.
250 B.P.
 
 
 
 
 
 
ADVANCES
 
 
 
 
 
 
 
 
 
 
 
           Member Advance Growth(2)
10
%
5
%
0%
2.8
%
4
%
 
 
 
 
 
 
           New Member Recruitment(3)
5
%
5
%
6 members
8 members
16 members
 
 
 
 
 
 
           Public Unit Deposit Letters of Credit - Members
           Using(4)
5
%
5
%
$100 M
$250 M
$950 M
 
 
 
 
 
 
MORTGAGE PURCHASE PROGRAM
 
 
 
 
 
 
 
 
 
 
 
MPP Production(5)
5
%
2.5
%
$238 M
$325 M
$750 M
 
 
 
 
 
 
MPP Balance(6)
5
%
2.5
%
$6.7 B
$7.0 B
$7.4 B
 
 
 
 
 
 
New or Reactivated Traders(7)
5
%
5
%
5 members
7 members
10 members
 
 
 
 
 
 
COMMUNITY INVESTMENT
 
 
 
 
 
 
 
 
 
 
 
CIP Advances and Letters of Credit Originated(8)
10
%
5
%
$25 M
$50 M
$75 M

 

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MISSION GOALS
WEIGHTED VALUE Bank CRM
MINIMUM THRESHOLD
2011 TARGET
MAXIMUM

 
 INFORMATION TECHNOLOGY(9)
5
%
5
%
2 goals
3 goals
4 goals
 
 
 
 
 
 
 CORPORATE RISK MANAGEMENT
 
 
 
 
 
       
       Economic Value “Added Percentage” for Bank
       Stock(10)
5
%
5
%
0
Average greater than 0 and not all quarters positive
Average greater than 0 and all quarters positive
       CRM Memo and Annual Risk Assessment(11) 
1
%
10
%
2 memos + 1RA
4 memos + 1RA
5 memos + 1RA
       CRM Reports, ORM Reports and IS Reports(11)
1
%
10
%
8 CRM reports, 2 ORM reports, and 1 IS report
10 CRM reports, 3 ORM reports, and 2 IS reports
12 CRM reports, 4 ORM reports, and 3 IS reports
       Special Risk Assessments, Risk Analysis or Risk
       Process Improvements(12)
3
%
15
%
2
 
3
 
4
 
       CRM Proficiency and Efficiency in Reporting (13)
5
%
10
%
Met Expectations for CRM Reporting/
Monitoring
Fully Proficient
Fully Proficient and Efficient

 
 

 

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2011 FEDERAL HOME LOAN BANK OF INDIANAPOLIS
EXECUTIVE INCENTIVE COMPENSATION PLAN
 
Definitions:
 
(1)    
Potential Dividend is defined as adjusted net income as a percentage of average
total capital stock. Adjusted net income is adjusted (i) for the effects of
current and prior period prepayments and debt extinguishments, (ii) to exclude
mark to market adjustments and other effects from SFAS 133, (iii) and to exclude
the effects from SFAS 150. Assumes no material change in investment authority
under FHFA's FMP, regulation, policy, or law.

 
(2)    
Member advances are calculated as the growth in the average daily balance of
advances outstanding to member outstanding balance of advances to members.
Average daily balances are used instead of point-in-time balances to eliminate
activity that may occur at the member level and to reward for the benefit of the
income earned on advances while outstanding. In all scenarios, to achieve target
under the base strategic plan forecast (Board approved Nov. 2010), the average
growth assumes that advances grow in a steady state beginning January 1, 2011.
If a member becomes a non-member due to merger or receivership, the advances
outstanding will still count toward the goal.

 
(3)    
New members are institutions that have a minimum of $50 million in assets (as of
December 31, 2011), are not a member of the Bank on December 31, 2010, and in
2011 join the Bank and buy its required stock.

 
(4)    
Four quarter average of total outstanding PUDLs issued to the Indiana Board for
Depositories to support public unit deposits, assuming the collateral
requirement is effective February 15, 2011. If Indiana changes the law or
implementation, this goal will be re-visited with Board mid-year.

 
(5)    
Mortgage Purchase Program production will be the amount of all conventional MDCs
traded in 2011. Assumes no capital requirement for MPP. It also assumes no
material change in MPP authority under FHFA's FMP, regulation, policy, or law.
When calculating achievement between the minimum threshold and the performance
maximum, no single member can account for more than 25% of conventional
production. FHA production will not be counted in the numerator when doing this
calculation.

 
(6)    
Ending principal balance of all outstanding MPP loans as of December 31, 2011.

(7)    
Members that have never traded or not traded with MPP within the previous 12
months of their 2011 trade would qualify to count toward the goal.

(8)    
Newly-originated Community Investment Cash Advances, including CIP, HomeRetain
and other qualifying advances and CIP qualified letters of credit (excluding
public unit deposit LCs), provided in support of targeted projects as defined in
12 CFR Part 952 and the FHLBank Act.

(9)    
Information Technology goals:

•    
Complete Business Process Map work stream to support Core Banking System (“CBS”)
Requirements and Design efforts in 2011.

•    
Complete Down Stream Data requirements work stream to support CBS Requirements
and Design efforts in 2011.

•    
Implement Automated Regression Testing Tools in 2011 to support CBS.

•    
Complete Requirements and Design documentation for CBS Phase I in 2011.

(10)    
“Value Added %” for Bank stock. Use Average Value Added % for 2011 (calculated
as average of 4 quarters)

Average Value Added %   >  0    (=> Maximum) EVE/PVCS:  is calculated as a ratio
= (Economic Value of Equity) / (Par Value of Capital Stock)
Value Added %  =  (EVE/PVCS)currentQ    minus  (EVE/PVCS)prevQ   plus  Dividends
paid in Qtr as a % of PVCSprevQ 
(11)    
As per the Board meeting schedule, provide the Board the Corporate Risk
Management (“CRM”) memo and present the Annual Risk Assessment Report.

(12)    
#: CRO will propose and CEO will evaluate whether to categorize these as special
and whether work product was acceptable to count toward this goal.

(13)    
CEO evaluated. This will be based on evaluation of efficiency and responsiveness
regarding the level of CRM reporting and assessment services provided to the
Bank, taking into account CRM officer's project deliverables, and both risk and
return for its activities. Efficiency is broader than just meeting budget
expectations for CRM division and entails exhibiting executive vision and
creating/maintaining a high level of cooperation and professionalism with all
operating areas of the Bank, while providing beneficial insight into material
risks. The Board will determine the goal achievement for the CEO.

 

 

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Plan Terms:
 
The Board of Directors finds that this incentive compensation balance between
modest profit incentives and product origination, in combination with a
three-year long term incentive compensation plan having equivalent goals, is
reasonable and total executive compensation is supported by market comparables.
Since 1989, the Bank has provided incentive compensation based on this balanced
deliverable of modest profitability to reward shareholder investment and to
encourage product usage. This balance is consistent with sound risk management
and preservation of the Bank's par value of capital stock. The Board finds that
payments under this Plan are consistent with the principles of Federal Housing
Finance Agency Advisory Bulletin 2009-AB-09 (October 27, 2009) and the Board's
objective of meeting annual and long-term financial performance objectives
without taking undue risks.                            
 
By resolution the Board of Directors may reduce or eliminate a payout that is
otherwise earned under this Plan but not yet paid, if the Board finds that a
serious, material safety-soundness problem, a serious, material risk management
deficiency exists at the Bank or if: (i) operational errors or omissions result
in material revisions to the financial results, information submitted to the
FHFA, or data used to determine incentive payouts; (ii) submission of material
information to the SEC, Office of Finance, and/or FHFA is significantly past
due, or (iii) the Bank fails to make sufficient progress, as determined by the
Board, in the timely remediation of significant examination, monitoring, and
other supervisory findings.
 
For performance results less than the stated threshold, there is no payout for
that particular goal. For performance results equal to or greater than the
stated threshold and less than the target, the respective payout will be the
threshold achievement percentage plus the interpolated percentage between the
threshold and the respective target for that particular goal. For performance
results equal to or greater than the stated target, the respective payout will
be the target achievement percentage plus the interpolated percentage between
the target and the respective maximum for that particular goal.
 
The Board of Directors may amend this plan at any time during or after the plan
year for any reason, including without limitation, emergency or any
unanticipated market conditions outside of management's control. To be eligible
to receive a payment under the plan, the employee must be actively employed on
the date of payment, or be on an approved leave of absence, including FMLA
leave. For new hires added to the plan during the plan year, their payout shall
be pro-rated based on the months worked at the Bank. Employees hired after
October 1 of the plan year are not eligible for the short-term incentive
compensation plan, unless otherwise provided by the Board. In the event a
participant terminates employment during the plan year, he or she will not be
eligible to receive incentive payments under the plan, unless the employee
terminates because of death or disability. In these cases or where the Board
otherwise determines the incentive payment is appropriate, the payment shall be
made on a pro-rata monthly basis earned through the date of termination assuming
fully meets job performance record up to the date of termination.
 
The plan in its entirety is discretionary and may be discontinued by the Board
of Directors at any time. It is not intended to create any vested rights to
employees or their beneficiaries. This plan shall not be considered a contract
and nothing in the plan shall be construed as providing participants any
assurance of continued employment for any definite period of time, nor any
assurance of current or future earnings. This plan shall not, in any manner,
limit the Bank's right to reduce or terminate compensation and/or employment at
its will, with or without cause.
 
For 2011, participation is as follows:
 
 
Short-Term Incentive Plan
Eligible Participants**
Threshold*
Target*
Maximum*
President-CEO
30
%
50
%
70
%
Executive Vice Presidents and Senior Vice Presidents
20
%
30
%
40
%
First Vice Presidents
20
%
25
%
30
%

 
The percentage is measured against the employee's stated annual base salary for
the plan year.
*Note for short-term incentive planning purposes, the Threshold performance
benchmark for overall salary and benefits administration should over a ten year

 

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horizon be achieved approximately ten percent (10%) of the time. For
quantifiable objectives, the Target is based generally on budget forecast
objectives, plus a five percent (5%) stretch, and ordinarily should be achieved.
The Maximum represents truly exceptional performance (e.g., budget +15%)
accomplished approximately ten percent (10%) of the time.
**This plan excludes the Internal Audit staff, including the director.
 
Compensation paid to employees under the plan will be paid to employees no later
than March 15th of the year immediately following the year in which the
compensation is earned, and is not intended to be deferred compensation for
purposes of Section 409A of the Internal Revenue Code of 1986, as amended,
and/or any Regulations adopted thereunder. Compensation will be paid upon
approval by the Board and after review of the calculations by the external
auditor.