Exhibit 10.9

 

LOGO [g263632ex10_9logo.jpg]

Annual Incentive Compensation Plan

AWARD LETTER FOR 2012 – EXECUTIVE

President and Chief Executive Officer

 

To:

 

From:

 

Re:

 

Executive Participants in the Annual Incentive Compensation Plan for 2012

 

Bryan Delong, Director of Human Resources and Administrative Services

 

Executive Performance Award for 2012

You are receiving this Award Letter because you have been selected by the board
of directors to be a Participant in the Bank’s Annual Incentive Plan (the
“Plan”) at the Executive level. This Award Letter describes your Performance
Award for 2012. Capitalized terms that are used but not defined in this Award
Letter will have the meanings given to them in the Plan. In addition, this Award
Letter is subject to the Plan in all respects. In the event of any inconsistency
between this Award Letter and the Plan, the Plan will control.

You should read this Award Letter carefully. If you have any questions, please
contact the human resources department.

 

A.  Executive Performance Measures for 2012

1. Risk Management: Examination Performance (10% Weight)

The Bank will effectively manage a range of risks in 2012. The performance
measures are as follows:

 

Threshold      No unsafe or unsound practice or condition and no repeat findings
on matters requiring board attention*. Target      Develop action plans related
to findings within 60 days of board presentation of report of examination.
Maximum      No decline in composite examination rating and develop action plans
related to findings within 60 days of board presentation of report of
examination**.

*Matters requiring board attention include items noted as unsafe or unsound
practice or conditions, violations, or weaknesses. Items noted as
recommendations or referrals are excluded from this list.

**Performance level was established with the understanding that the FHFA will
introduce a revised examination rating scale during 2012. This change is
expected to make year-over-year comparions, and achivement of maximum
performance, more challenging.

 

2. Risk Management: Return on Equity as a Spread to 3-Month LIBOR (40% Weight)

The Bank will achieve target ROE spread to 3-month LIBOR. ROE Spread to LIBOR
measured as the spread between GAAP ROE and 3-month LIBOR excluding the impact
of OTTI, with a sliding scale to recognize changes in spread and net income due
to changes in 3-month LIBOR. The board of directors may reduce incentive awards
for this goal by as much as 100% if the GAAP ROE spread to LIBOR including OTTI
is less than 150 bps. Spreads will increase by 25 bps if average leverage ratio
is greater than 22 times. If LIBOR index is not available, management will
present a recommendation for a successor index and associated spreads. The
performance measures are as follows:

 

  Page 1 of 12

--------------------------------------------------------------------------------

     

3-Month LIBOR

< .75 %

  

3-Month LIBOR

= to or > .75 %

  

GAAP ROE spread to 3-month LIBOR

Threshold      300 bps    275 bps Target      325 bps    300 bps Maximum     
350 bps    325 bps

3. Risk Management: Market Value of Equity (20% Weight)

The Bank will produce the following MVE/Capital Stock ratios during 2012. The 5
year swap rate as of December 30, 2011, was 1.22%.

 

     

5 Year Swap Rate

< 1.00%

  

5 Year Swap Rate

1.01% to 1.50%

  

5 Year Swap Rate

> 1.50%

Threshold  

   >105    >105    >105

Target  

   >109    >108    >107

Maximum  

   >111    >110    >109

4. Housing Mission: Disbursement of Affordable Housing Funds (15% Weight)

The Bank will disburse the 2012 Affordable Housing Program (AHP) allocation
according to the following schedule:

 

 

    Threshold  

 

  

 

Document commitment of full 10% of AHP allocation by December 31, 2012.

 

Target      Document commitment of full 10% of AHP allocation by December 31,
2012, and document commitment of at least 50% of returned funds received through
September 30, 2012, by December 31, 2012. Maximum      Document commitment of
full 10% of AHP allocation by December 31, 2012, and document commitment of at
least 75% of returned funds received through September 30, 2012, by December 31,
2012.

5. Shareholder Focus: Trusted Advisor (15% Weight)

The Bank will increase the average number of products and services utilized by
shareholders during 2012 as follows:

 

    Threshold      Increase average product utilization by 6%. Target     
Increase average product utilization by 10%. Maximum      Increase average
product utilization by 14%.

Performance is calculated as a ratio where the numerator represents total number
of discrete product and service utilizations and the denominator represents the
eligible shareholder universe. Eligible products and services include advances,
letters of credit, safekeeping services, CIS programs, and shareholder
educational events. The final universe of eligible shareholders with credit
scores 1-9 will be frozen as of December 31, 2012, and will utilize the most
recent credit scores available. New members joining prior to July 1, 2012, will
be added to the universe. In the case of mergers, dissolutions, downgrades to
credit score 10, withdrawals from membership and requests for

 

  Page 2 of 12

--------------------------------------------------------------------------------

membership withdrawals, the disappearing/downgraded shareholder will be removed
from the universe unless the shareholder utilized a product or service prior to
the status change.

 

B.  Executive Base Award Opportunities

Your Base Award Opportunity will correspond to the percentage of your Actual
Earnings for 2012, as set forth below:

 

     Threshold   Target   Maximum President and Chief Executive Officer    32%  
64%   96%

 

C.  Determination and Payment of Earned Award

The Committee will evaluate 2012 performance against the Performance Measures
above and determine your Earned Award based on that performance and your Base
Award Opportunity.

Subject to Section D below, your Earned Award for 2012, if any, will be divided
into a “Current 2012 Incentive” and a “Deferred 2012 Incentive” as follows:

 

Payment    Description

Current 2012 Incentive

   50% of Earned Award for 2012

Deferred 2012 Incentive    

   50% of Earned Award for 2012

Current 2012 Incentive. Your Current 2012 Incentive will be paid promptly after
it has been determined (but in no event later than March 15, 2013).

Deferred 2012 Incentive. Your Deferred 2012 Incentive will be deferred and paid,
together with positive or negative returns as described in the following
paragraph, on the following schedule:

 

Payment Year(1)      Payment

2014

   1/3 of balance (+/- 1-year return)

2015

   1/2 of balance (+/- 2-year return)

2016

   All remaining balance (+/- 3-year return)

 

    (1) Payment will be made no later than March 15 in the year indicated.

Return on Deferred 2012 Incentive. The balance of your unpaid Deferred 2012
Incentive will earn an annual rate of return (which may be positive or negative)
for each full calendar year of deferral during 2013, 2014, and 2015 equal to the
Bank’s return on equity for the applicable year, as determined for financial
statement reporting purposes in accordance with GAAP.

Condition to Payment of Deferred 2012 Incentive. Without limitation on Sections
8.1 or 8.2 of the Plan, it is intended to be a condition to payment of your
Deferred 2012 Incentive that the Bank have the financial capacity to repurchase
excess stock. The board has established the governing measures listed below when
considering the Bank’s financial capacity to repurchase excess stock.

 

Measure    Requirement

 

  Page 3 of 12

--------------------------------------------------------------------------------

Retained Earnings

   Greater than $600 million

MVE/par value of capital stock

   Greater than or equal to 100%

Capital to asset ratio

   Greater than or equal to 4.75%

Net income

   Positive GAAP quarterly net income

Accordingly, if as of the time any payment of your Deferred 2012 Incentive would
otherwise be due under this Award Letter, the board has made the good faith
determination that the Bank does not have such capacity (or earlier
determination of the same remains unchanged), the board may, in its sole
discretion, elect to reduce or eliminate that payment of your Deferred 2012
Incentive.

 

D.  Termination of Employment and Other Terms and Conditions

Forfeiture on Termination. Except as expressly set forth below, if your
employment with the Bank terminates for any reason before you have received
payment of all of your Earned Award for 2012, you will forfeit all remaining
payments (including, for the avoidance of doubt, any unpaid Deferred 2012
Incentive).

Death, Disability, and Permanent Retirement. If you die, become Disabled or
Retire, in each case as determined by the Committee in good faith, you will be
eligible to receive payments under this Award Letter as follows.

 

  1. If you die, become Disabled or Retire during 2012, you will receive a
prorated Earned Award for 2012 as soon as practicable in 2013 after it has been
determined (but in no event later than March 15, 2013). In this case, your
prorated Earned Award for 2012 will not be subject to deferral beyond that time.

 

  2. If you die, become Disabled or Retire in 2013 or a later year, you will
receive (a) your Current 2012 Incentive as scheduled and (b) a lump sum payment
of your unpaid Deferred 2012 Incentive, together with returns through the most
recent date of determination, including the Board’s good faith estimates if
applicable, as soon as practicable (but in no event later than 60 days
thereafter or, if earlier, the originally scheduled time).

For purposes of this Award, the following terms will have the meanings
indicated. “Disabled” means you are, by reason of any medically determined
physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, either
unable to engage in any substantial gainful activity or receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Bank. “Retire” means you
retire from employment with a combination of age and years of service to the
Bank totaling at least 70.

Other Terms and Conditions. Payment of your Earned Award for 2012, if any, is
subject in all respects to the provisions of the Plan, including those
describing circumstances in which an Earned Award otherwise determined based on
performance may be reduced or eliminated in the discretion of the Committee or
the Board.

No Effect on Future Awards. This Award Letter is applicable only to your Award
for 2012. Awards under the Plan for any future year will be subject to the terms
of a different Award Letter, not this Award Letter, unless the Bank specifically
provides otherwise.

 

  Page 4 of 12

--------------------------------------------------------------------------------

 

LOGO [g263632ex10_9logo.jpg]

Annual Incentive Compensation Plan

AWARD LETTER FOR 2012 – EXECUTIVE

Executive Vice President

 

To:

 

From:

 

Re:

 

Executive Participants in the Annual Incentive Compensation Plan for 2012

 

Bryan Delong, Director of Human Resources and Administrative Services

 

Executive Performance Award for 2012

You are receiving this Award Letter because you have been selected by the board
of directors to be a Participant in the Bank’s Annual Incentive Plan (the
“Plan”) at the Executive level. This Award Letter describes your Performance
Award for 2012. Capitalized terms that are used but not defined in this Award
Letter will have the meanings given to them in the Plan. In addition, this Award
Letter is subject to the Plan in all respects. In the event of any inconsistency
between this Award Letter and the Plan, the Plan will control.

You should read this Award Letter carefully. If you have any questions, please
contact the human resources department.

 

A.  Executive Performance Measures for 2012

1. Risk Management: Examination Performance (10% Weight)

The Bank will effectively manage a range of risks in 2012. The performance
measures are as follows:

 

Threshold      No unsafe or unsound practice or condition and no repeat findings
on matters requiring board attention*. Target      Develop action plans related
to findings within 60 days of board presentation of report of examination.
Maximum      No decline in composite examination rating and develop action plans
related to findings within 60 days of board presentation of report of
examination**.

*Matters requiring board attention include items noted as unsafe or unsound
practice or conditions, violations, or weaknesses. Items noted as
recommendations or referrals are excluded from this list.

**Performance level was established with the understanding that the FHFA will
introduce a revised examination rating scale during 2012. This change is
expected to make year-over-year comparions, and achivement of maximum
performance, more challenging.

2. Risk Management: Return on Equity as a Spread to 3-Month LIBOR (40% Weight)

The Bank will achieve target ROE spread to 3-month LIBOR. ROE Spread to LIBOR
measured as the spread between GAAP ROE and 3-month LIBOR excluding the impact
of OTTI, with a sliding scale to recognize changes in spread and net income due
to changes in 3-month LIBOR. The board of directors may reduce incentive awards
for this goal by as much as 100% if the GAAP ROE spread to LIBOR including OTTI
is less than 150 bps. Spreads will increase by 25 bps if average leverage ratio
is greater than 22 times. If LIBOR index is not available, management will
present a recommendation for a successor index and associated spreads. The
performance measures are as follows:

 

  Page 5 of 12

--------------------------------------------------------------------------------

     

3-Month LIBOR

< .75 %

  

3-Month LIBOR

= to or > .75 %

  

GAAP ROE spread to 3-month LIBOR

Threshold      300 bps    275 bps Target      325 bps    300 bps Maximum     
350 bps    325 bps

3. Risk Management: Market Value of Equity (20% Weight)

The Bank will produce the following MVE/Capital Stock ratios during 2012. The 5
year swap rate as of December 30, 2011, was 1.22%.

 

     

5 Year Swap Rate

< 1.00%

  

5 Year Swap Rate

1.01% to 1.50%

  

5 Year Swap Rate

> 1.50%

Threshold  

   >105    >105    >105

Target  

   >109    >108    >107

Maximum  

   >111    >110    >109

4. Housing Mission: Disbursement of Affordable Housing Funds (15% Weight)

The Bank will disburse the 2012 Affordable Housing Program (AHP) allocation
according to the following schedule:

 

    Threshold      Document commitment of full 10% of AHP allocation by
December 31, 2012.     Target      Document commitment of full 10% of AHP
allocation by December 31, 2012, and document commitment of at least 50% of
returned funds received through September 30, 2012, by December 31, 2012.
Maximum      Document commitment of full 10% of AHP allocation by December 31,
2012, and document commitment of at least 75% of returned funds received through
September 30, 2012, by December 31, 2012.

5. Shareholder Focus: Trusted Advisor (15% Weight)

The Bank will increase the average number of products and services utilized by
shareholders during 2012 as follows:

 

    Threshold      Increase average product utilization by 6%.     Target     
Increase average product utilization by 10%. Maximum      Increase average
product utilization by 14%.

Performance is calculated as a ratio where the numerator represents total number
of discrete product and service utilizations and the denominator represents the
eligible shareholder universe. Eligible products and services include advances,
letters of credit, safekeeping services, CIS programs, and shareholder
educational events. The final universe of eligible shareholders with credit
scores 1-9 will be frozen as of December 31, 2012, and will utilize the most
recent credit scores available. New members joining prior to July 1, 2012, will
be added to the universe. In the case of mergers, dissolutions, downgrades to
credit score 10, withdrawals from membership and requests for

 

  Page 6 of 12

--------------------------------------------------------------------------------

membership withdrawals, the disappearing/downgraded shareholder will be removed
from the universe unless the shareholder utilized a product or service prior to
the status change.

 

B.  Executive Base Award Opportunities

Your Base Award Opportunity will correspond to the percentage of your Actual
Earnings for 2012, as set forth below:

 

     Threshold   Target   Maximum

Executive Vice President

   25%   50%   75%

 

C.  Determination and Payment of Earned Award

The Committee will evaluate 2012 performance against the Performance Measures
above and determine your Earned Award based on that performance and your Base
Award Opportunity.

Subject to Section D below, your Earned Award for 2012, if any, will be divided
into a “Current 2012 Incentive” and a “Deferred 2012 Incentive” as follows:

 

Payment    Description

Current 2012 Incentive

   50% of Earned Award for 2012

Deferred 2012 Incentive    

   50% of Earned Award for 2012

Current 2012 Incentive. Your Current 2012 Incentive will be paid promptly after
it has been determined (but in no event later than March 15, 2013).

Deferred 2012 Incentive. Your Deferred 2012 Incentive will be deferred and paid,
together with positive or negative returns as described in the following
paragraph, on the following schedule:

 

Payment Year(1)      Payment

2014

   1/3 of balance (+/- 1-year return)

2015

   1/2 of balance (+/- 2-year return)

2016

   All remaining balance (+/- 3-year return)

 

    (1) Payment will be made no later than March 15 in the year indicated.

Return on Deferred 2012 Incentive. The balance of your unpaid Deferred 2012
Incentive will earn an annual rate of return (which may be positive or negative)
for each full calendar year of deferral during 2013, 2014, and 2015 equal to the
Bank’s return on equity for the applicable year, as determined for financial
statement reporting purposes in accordance with GAAP.

Condition to Payment of Deferred 2012 Incentive. Without limitation on Sections
8.1 or 8.2 of the Plan, it is intended to be a condition to payment of your
Deferred 2012 Incentive that the Bank have the financial capacity to repurchase
excess stock. The board has established the governing measures listed below when
considering the Bank’s financial capacity to repurchase excess stock.

 

  Page 7 of 12

--------------------------------------------------------------------------------

Measure    Requirement

Retained Earnings

   Greater than $600 million

MVE/par value of capital stock

   Greater than or equal to 100%

Capital to asset ratio

   Greater than or equal to 4.75%

Net income

   Positive GAAP quarterly net income

Accordingly, if as of the time any payment of your Deferred 2012 Incentive would
otherwise be due under this Award Letter, the board has made the good faith
determination that the Bank does not have such capacity (or earlier
determination of the same remains unchanged), the board may, in its sole
discretion, elect to reduce or eliminate that payment of your Deferred 2012
Incentive.

 

D.  Termination of Employment and Other Terms and Conditions

Forfeiture on Termination. Except as expressly set forth below, if your
employment with the Bank terminates for any reason before you have received
payment of all of your Earned Award for 2012, you will forfeit all remaining
payments (including, for the avoidance of doubt, any unpaid Deferred 2012
Incentive).

Death, Disability, and Permanent Retirement. If you die, become Disabled or
Retire, in each case as determined by the Committee in good faith, you will be
eligible to receive payments under this Award Letter as follows.

 

  1. If you die, become Disabled or Retire during 2012, you will receive a
prorated Earned Award for 2012 as soon as practicable in 2013 after it has been
determined (but in no event later than March 15, 2013). In this case, your
prorated Earned Award for 2012 will not be subject to deferral beyond that time.

 

  2. If you die, become Disabled or Retire in 2013 or a later year, you will
receive (a) your Current 2012 Incentive as scheduled and (b) a lump sum payment
of your unpaid Deferred 2012 Incentive, together with returns through the most
recent date of determination, including the Board’s good faith estimates if
applicable, as soon as practicable (but in no event later than 60 days
thereafter or, if earlier, the originally scheduled time).

For purposes of this Award, the following terms will have the meanings
indicated. “Disabled” means you are, by reason of any medically determined
physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, either
unable to engage in any substantial gainful activity or receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Bank. “Retire” means you
retire from employment with a combination of age and years of service to the
Bank totaling at least 70.

Other Terms and Conditions. Payment of your Earned Award for 2012, if any, is
subject in all respects to the provisions of the Plan, including those
describing circumstances in which an Earned Award otherwise determined based on
performance may be reduced or eliminated in the discretion of the Committee or
the Board.

No Effect on Future Awards. This Award Letter is applicable only to your Award
for 2012. Awards under the Plan for any future year will be subject to the terms
of a different Award Letter, not this Award Letter, unless the Bank specifically
provides otherwise.

 

  Page 8 of 12

--------------------------------------------------------------------------------

 

LOGO [g263632ex10_9logo.jpg]

Annual Incentive Compensation Plan

AWARD LETTER FOR 2012 – EXECUTIVE

Executive Management Committee – Senior Vice President

 

To:

 

From:

 

Re:

 

Executive Participants in the Annual Incentive Compensation Plan for 2012

 

Bryan Delong, Director of Human Resources and Administrative Services

 

Executive Performance Award for 2012

You are receiving this Award Letter because you have been selected by the board
of directors to be a Participant in the Bank’s Annual Incentive Plan (the
“Plan”) at the Executive level. This Award Letter describes your Performance
Award for 2012. Capitalized terms that are used but not defined in this Award
Letter will have the meanings given to them in the Plan. In addition, this Award
Letter is subject to the Plan in all respects. In the event of any inconsistency
between this Award Letter and the Plan, the Plan will control.

You should read this Award Letter carefully. If you have any questions, please
contact the human resources department.

A.  Executive Performance Measures for 2012

1. Risk Management: Examination Performance (10% Weight)

The Bank will effectively manage a range of risks in 2012. The performance
measures are as follows:

 

Threshold      No unsafe or unsound practice or condition and no repeat findings
on matters requiring board attention*. Target      Develop action plans related
to findings within 60 days of board presentation of report of examination.
Maximum      No decline in composite examination rating and develop action plans
related to findings within 60 days of board presentation of report of
examination**.

*Matters requiring board attention include items noted as unsafe or unsound
practice or conditions, violations, or weaknesses. Items noted as
recommendations or referrals are excluded from this list.

**Performance level was established with the understanding that the FHFA will
introduce a revised examination rating scale during 2012. This change is
expected to make year-over-year comparions, and achivement of maximum
performance, more challenging.

 

2. Risk Management: Return on Equity as a Spread to 3-Month LIBOR (40% Weight)

The Bank will achieve target ROE spread to 3-month LIBOR. ROE Spread to LIBOR
measured as the spread between GAAP ROE and 3-month LIBOR excluding the impact
of OTTI, with a sliding scale to recognize changes in spread and net income due
to changes in 3-month LIBOR. The board of directors may reduce incentive awards
for this goal by as much as 100% if the GAAP ROE spread to LIBOR including OTTI
is less than 150 bps. Spreads will increase by 25 bps if average leverage ratio
is greater than 22 times. If LIBOR index is not available, management will
present a recommendation for a successor index and associated spreads. The
performance measures are as follows:

 

  Page 9 of 12

--------------------------------------------------------------------------------

     

3-Month LIBOR

< .75 %

  

3-Month LIBOR

= to or > .75 %

  

GAAP ROE spread to 3-month LIBOR

Threshold      300 bps    275 bps Target      325 bps    300 bps Maximum     
350 bps    325 bps

3. Risk Management: Market Value of Equity (20% Weight)

The Bank will produce the following MVE/Capital Stock ratios during 2012. The 5
year swap rate as of December 30, 2011, was 1.22%.

 

     

5 Year Swap Rate

< 1.00%

  

5 Year Swap Rate

1.01% to 1.50%

  

5 Year Swap Rate

> 1.50%

Threshold  

   >105    >105    >105

Target  

   >109    >108    >107

Maximum  

   >111    >110    >109

4. Housing Mission: Disbursement of Affordable Housing Funds (15% Weight)

The Bank will disburse the 2012 Affordable Housing Program (AHP) allocation
according to the following schedule:

 

    Threshold      Document commitment of full 10% of AHP allocation by
December 31, 2012. Target      Document commitment of full 10% of AHP allocation
by December 31, 2012, and document commitment of at least 50% of returned funds
received through September 30, 2012, by December 31, 2012. Maximum      Document
commitment of full 10% of AHP allocation by December 31, 2012, and document
commitment of at least 75% of returned funds received through September 30,
2012, by December 31, 2012.

5. Shareholder Focus: Trusted Advisor (15% Weight)

The Bank will increase the average number of products and services utilized by
shareholders during 2012 as follows:

 

    Threshold      Increase average product utilization by 6%. Target     
Increase average product utilization by 10%. Maximum      Increase average
product utilization by 14%.

Performance is calculated as a ratio where the numerator represents total number
of discrete product and service utilizations and the denominator represents the
eligible shareholder universe. Eligible products and services include advances,
letters of credit, safekeeping services, CIS programs, and shareholder
educational events. The final universe of eligible shareholders with credit
scores 1-9 will be frozen as of December 31, 2012, and will utilize the most
recent credit scores available. New members joining prior to July 1, 2012, will
be added to the universe. In the case of mergers, dissolutions, downgrades to
credit score 10, withdrawals from membership and requests for membership
withdrawals, the disappearing/downgraded shareholder will be removed from the
universe unless the shareholder utilized a product or service prior to the
status change.

 

  Page 10 of 12

--------------------------------------------------------------------------------

B.  Executive Base Award Opportunities

Your Base Award Opportunity will correspond to the percentage of your Actual
Earnings for 2012, as set forth below:

 

     Threshold   Target   Maximum

Senior Vice President

   22%   43%   65%

C.  Determination and Payment of Earned Award

The Committee will evaluate 2012 performance against the Performance Measures
above and determine your Earned Award based on that performance and your Base
Award Opportunity.

Subject to Section D below, your Earned Award for 2012, if any, will be divided
into a “Current 2012 Incentive” and a “Deferred 2012 Incentive” as follows:

 

Payment    Description

Current 2012 Incentive

   50% of Earned Award for 2012

Deferred 2012 Incentive    

   50% of Earned Award for 2012

Current 2012 Incentive. Your Current 2012 Incentive will be paid promptly after
it has been determined (but in no event later than March 15, 2013).

Deferred 2012 Incentive. Your Deferred 2012 Incentive will be deferred and paid,
together with positive or negative returns as described in the following
paragraph, on the following schedule:

 

Payment Year(1)      Payment

2014

   1/3 of balance (+/- 1-year return)

2015

   1/2 of balance (+/- 2-year return)

2016

   All remaining balance (+/- 3-year return)

 

    (1) Payment will be made no later than March 15 in the year indicated.

Return on Deferred 2012 Incentive. The balance of your unpaid Deferred 2012
Incentive will earn an annual rate of return (which may be positive or negative)
for each full calendar year of deferral during 2013, 2014, and 2015 equal to the
Bank’s return on equity for the applicable year, as determined for financial
statement reporting purposes in accordance with GAAP.

Condition to Payment of Deferred 2012 Incentive. Without limitation on Sections
8.1 or 8.2 of the Plan, it is intended to be a condition to payment of your
Deferred 2012 Incentive that the Bank have the financial capacity to repurchase
excess stock. The board has established the governing measures listed below when
considering the Bank’s financial capacity to repurchase excess stock.

 

Measure    Requirement

Retained Earnings

   Greater than $600 million

MVE/par value of capital stock

   Greater than or equal to 100%

Capital to asset ratio

   Greater than or equal to 4.75%

Net income

   Positive GAAP quarterly net income

 

  Page 11 of 12

--------------------------------------------------------------------------------

Accordingly, if as of the time any payment of your Deferred 2012 Incentive would
otherwise be due under this Award Letter, the board has made the good faith
determination that the Bank does not have such capacity (or earlier
determination of the same remains unchanged), the board may, in its sole
discretion, elect to reduce or eliminate that payment of your Deferred 2012
Incentive.

D.  Termination of Employment and Other Terms and Conditions

Forfeiture on Termination. Except as expressly set forth below, if your
employment with the Bank terminates for any reason before you have received
payment of all of your Earned Award for 2012, you will forfeit all remaining
payments (including, for the avoidance of doubt, any unpaid Deferred 2012
Incentive).

Death, Disability, and Permanent Retirement. If you die, become Disabled or
Retire, in each case as determined by the Committee in good faith, you will be
eligible to receive payments under this Award Letter as follows.

 

  1. If you die, become Disabled or Retire during 2012, you will receive a
prorated Earned Award for 2012 as soon as practicable in 2013 after it has been
determined (but in no event later than March 15, 2013). In this case, your
prorated Earned Award for 2012 will not be subject to deferral beyond that time.

 

  2. If you die, become Disabled or Retire in 2013 or a later year, you will
receive (a) your Current 2012 Incentive as scheduled and (b) a lump sum payment
of your unpaid Deferred 2012 Incentive, together with returns through the most
recent date of determination, including the Board’s good faith estimates if
applicable, as soon as practicable (but in no event later than 60 days
thereafter or, if earlier, the originally scheduled time).

For purposes of this Award, the following terms will have the meanings
indicated. “Disabled” means you are, by reason of any medically determined
physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, either
unable to engage in any substantial gainful activity or receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Bank. “Retire” means you
retire from employment with a combination of age and years of service to the
Bank totaling at least 70.

Other Terms and Conditions. Payment of your Earned Award for 2012, if any, is
subject in all respects to the provisions of the Plan, including those
describing circumstances in which an Earned Award otherwise determined based on
performance may be reduced or eliminated in the discretion of the Committee or
the Board.

No Effect on Future Awards. This Award Letter is applicable only to your Award
for 2012. Awards under the Plan for any future year will be subject to the terms
of a different Award Letter, not this Award Letter, unless the Bank specifically
provides otherwise.

 

  Page 12 of 12