Document:

ex_249448.htm

Exhibit 10.3

 

 

 

 

 

 

 

 

 

 

Fiscal 2021 Officer Cash Incentive Plan

 

 

 

 

 

 

 

Objectives

 

The objectives of the First Federal (the “Bank”) Fiscal 2021 Cash Incentive Plan (the “Plan”) are to reward and incent designated officers for their contributions to the performance and success of the Bank. The Plan seeks to reward financial performance which the Management Compensation Committee (the “Committee”) determines to be critical to the Bank’s growth and profitability. This document provides an overview of the elements and features of the Plan. The document operates in conjunction with the Plan participation agreement that is entered into by each employee who is designated for participation in the Plan.

 

The key objectives for the Plan are as follows:

 

	 	
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			Communicate expectations in terms of the Bank’s business goals and results;

			

 

	 	
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			Recognize and reward achievement of the Bank’s short-term performance objectives;

			

 

	 	
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			Motivate and reward high performance;

			

 

	 	
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			Attract and retain talent needed for the Bank’s success;

			

 

	 	
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			Encourage teamwork and collaboration; and

			

 

	 	
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			Ensure incentives are appropriately risk-balanced (i.e., do not unintentionally motivate inappropriate risk taking).

			

 

Plan Year

 

The Plan Year will correspond with the Bank’s fiscal year, January 1, 2021 to December 31, 2021.

 

Eligibility/Participation

 

Eligibility - Eligibility for participation in the Plan will include non-executive officers who impact organization-wide results, excluding those participating in other incentive programs such as retail incentive programs or the executive incentive program. Actual participation will be based upon determinations made by the Committee, which will consider among other matters input from the Chief Executive Officer. To participate in the Plan, the employee must meet the following requirements:

 

	 	
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			Employees hired before October 1st will receive a pro-rata award based on the number of full months employed during the Plan Year.

			

 

	 	
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			Employees hired after September 30th must wait until the following Plan Year to participate.

			

 

	 	
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			Any designated employee must enter into a Plan participation agreement that specifies, with respect to the employee, and for the Plan Year, the annual incentive targets, applicable weightings between corporate and team performance, the performance goals, the corporate performance weightings, the applicable team performance weightings, and such other provisions that the Committee determines to be necessary or appropriate.

			

 

 

 

 

2021 Plan Year Incentive Award Opportunity

 

Each participant is assigned a target award level, expressed as a percentage of “Eligible Earnings” (as defined in the “PAYOUTS” section below – generally base salary determined prior to pretax deferrals), and range that defines their incentive opportunity. Actual awards will be allocated based on specific performance goals defined for each participant and will range from 0% to 150% of the participant’s target incentive opportunity. Performance goals will be determined at “target”, “threshold” and “stretch” levels, where “target” represents the expected level of achievement, “threshold” represents the minimum level of performance for which a payment may be made, and “stretch” represents outstanding performance resulting in a maximum level of payment.

 

Awards may be determined based on a weighted combination of corporate and team performance.

 

2021 Plan Year Incentive Award Opportunity

 

Each participant is assigned a target award level, expressed as a percentage of “Eligible Earnings” (as defined in the “PAYOUTS” section below – generally base salary determined prior to pretax deferrals), and range that defines their incentive opportunity. Actual awards will be allocated based on specific performance goals defined for each participant and will range from 0% to 150% of the participant’s target incentive opportunity. Performance goals will be determined at “target”, “threshold” and “stretch” levels, where “target” represents the expected level of achievement, “threshold” represents the minimum level of performance for which a payment may be made, and “stretch” represents outstanding performance resulting in a maximum level of payment.

 

Awards may be determined based on a weighted combination of corporate and team performance.

 

2021 Plan Year Corporate Performance Measures

 

For the 2021 Plan Year, the Committee has approved the following corporate performance measures based upon the consolidated performance of First Northwest Bancorp (FNWB):

 

	 	
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			Return on Average Equity (“ROAE”), which is defined as Plan Year net income divided by annual average total equity.

			

 

	 	
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			Growth in Total Assets, which is defined as total assets at 12/31/2021 less total assets at 12/31/2020, divided by total assets at 12/31/2020.

			

 

	 	
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			Total Non-Interest Income, which is defined as Non-Interest Income for the year ended 12/31/2021.

			

 

	 	
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			Coverage Ratio, which is defined Non-Performing Assets plus Loans 90 days Past Due/ Tangible Equity + LLR (%) at 12/31/2021.

			

 

	 	
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			Efficiency Ratio, which is defined as Noninterest expense, less amortization of intangible assets, divided by net interest income on a fully taxable equivalent basis and noninterest income for the Plan Year. Assumes an effective tax rate of 21%.

			

 

Financial performance determination for the corporate performance measures will be made at the holding company level.

 

 

 

 

 

 

Payouts

 

Payouts will be made in a cash lump sum. In order to receive payment, a participant must be employed on the date the payment is processed. Payment of earned incentives under the Plan, if any, will occur within two weeks of the form 10-K filing, following the end of the Plan Year. Incentive awards will be considered taxable income, unless the participant elects to defer payments into the 401(k) or deferred compensation plans.

 

Each participant’s payout is calculated on Eligible Earnings. Eligible Earnings reflect the annualized base salary as of the end of the Plan Year determined prior to any pretax deferrals. The actual incentive calculation is then based on each participant’s performance goals as outlined in the participant’s participation agreement. Actual payouts for each performance goal will be pro-rated between target and stretch levels to reward incremental improvement.

 

Performance of each specific goal is calculated independently to determine the payout for the goal. The sum of the awards for each of the performance goals determines the total incentive award. Performance that meets Threshold but is below Target will be paid at the Threshold rate. Performance that meets Target will be paid at Target rate. Performance exceeding Target to just below Stretch will be determined using straight line interpolation. Performance meeting or exceeding Stretch will be paid at the Stretch rate.

 

Committee Discretion

 

The Committee reserves the right to apply positive or negative discretion to the payments as needed to reflect the business environment and market conditions that may affect First Northwest Bancorp’s financial and stock price performance. The Committee also reserves the right to amend, modify and adjust payouts as necessary, including but not limited to complying with any statutory or regulatory requirements. However, no change may be made regarding when or how the payments are made, if such change would violate any Federal or state law or regulation, specifically including Section 409A of the Internal Revenue Code.

 

General Terms and Conditions 

 

This section provides a general overview of the major terms and conditions of the Plan.  These provisions are subject to change and do not constitute a binding agreement.

 

Effective Date

 

The Plan will become effective on the date it is approved by the Committee. The Plan will be reviewed annually by the Committee, with input from the Bank’s executive management, to ensure proper alignment with the Bank’s business objectives.

 

Plan Administration

 

The Plan is authorized by the Bank Board of Directors and administered by the Committee. The Committee has the sole authority to interpret the Plan and all participation agreements and to make or nullify any rules and procedures, as necessary, for proper administration. Any determination by the Committee will be final and binding on all participants.

 

Program Changes or Discontinuance

 

The Bank has developed the Plan on the basis of existing business, market and economic conditions; current services; and staff assignments. If substantial changes occur that affect these conditions, services, assignments, or forecasts, the Bank may add to, amend, modify or discontinue any of the terms or conditions of the Plan or any participation agreement at any time.

 

 

 

 

The Committee may, at its sole discretion, waive, change or amend any of the Plan or participation agreement provisions as it deems appropriate.

 

Program Funding

 

Plan payouts are made solely from the Bank’s general assets. The Plan is funded and accrued based on holding company performance results for a given year. Achieving higher levels of performance will increase the Plan payouts to participants. Similarly, achieving less than target performance will reduce the Plan payouts.

 

Any rights accruing to a participant or his/her beneficiary under the Plan shall be solely those of an unsecured general creditor of the Bank. Nothing contained in the Plan, and no action taken pursuant to the provisions hereof, will create or be construed to create a trust of any kind, or a pledge, or a fiduciary relationship between the Bank or the Committee and the participant or any other person. Nothing herein will be construed to require the Bank to maintain any fund or to segregate any amount for a participant’s benefit.

 

New Hires, Reduced Work Schedules, Promotions, Transfers, Performance

 

Participants who are not employed by the Bank at the beginning of the Plan Year will receive a pro rata incentive award based on their length of employment during a given year. Employees hired after September 30th will not be eligible to participate until the next Plan Year.

 

If a participant changes his/her role or is promoted during the Plan Year, he/she will be eligible for the new role’s target incentive award opportunity on a pro rata basis (i.e., the award will be prorated based on the number of full months employed in the respective positions). In the event of an approved leave of absence, the award opportunity level for the year will be adjusted to reflect the time in active status. For example, a participant on leave status for 13 weeks during a Plan Year will have his or her calculated award reduced by one-fourth (13 weeks/52 weeks) to reflect the period of leave. The manner of adjustment shall be determined solely by the Committee.

 

If an employee is on a performance improvement plan or other performance related disciplinary action, the Bank may, at its discretion, choose to reduce or pay no incentive to a participant. The employee must also have received a total comprehensive performance score of 2.0 or greater in the most recent evaluation period to be eligible for an incentive payout.

 

Clawback

 

The Plan will be subject to the Bank’s clawback policy, as it may be modified from time to time.

 

In the event that the Bank or FNWB is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, the Bank will recover incentive compensation awarded to current or former officers (during the preceding three years) to the extent the original awards exceeded the amounts that would have been paid under the restated results. By accepting participation in this Plan, the employee agrees to be bound by this repayment requirement, and such repayment shall be fully made within 60 days of when requested by the Bank.

 

 

 

 

Death or Disability

 

In the event of a participant’s death during active service or termination due to disability, then to the extent it is determined by the Committee following the end of the Plan Year that the performance goals have been attained, the participant shall be entitled to a full payment based on the actual achievement of performance goals during the entire performance period. Payment under these circumstances, if any, shall be made at the time payments are made to participants who did not terminate service during the Plan Year.

 

Interpretation

 

If there is any ambiguity as to the meaning of any terms or provisions of this Plan or any questions as to the correct interpretation of any information contained therein, the Bank’s interpretation expressed by the Committee will be final and binding.

 

Miscellaneous

 

The Plan will not be deemed to give any participant the right to be retained as an employee of the Bank, nor will the Plan interfere with the right of the Bank to discharge any participant at any time.

 

In the absence of an authorized, written employment contract, the relationship between employees and the Bank is one of at-will employment. The Plan does not alter the relationship.

 

This Plan and the transactions and payments hereunder shall, in all respect, be governed by, and construed and enforced in accordance with the laws of the State of Washington and where applicable Federal law.

 

Each provision in this Plan and any participation agreement is severable, and if any provision is held to be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions shall not, in any way, be affected or impaired thereby.

 

 

 

 

 

 

ACKNOWLEDGMENT

 

I have read, understand and agree to the information outlined in the First Federal 2021 Officer Cash Incentive Plan (“the Plan”), including the Terms and Conditions. I further acknowledge that I have the sole responsibility to maintain copies of any documents referenced in the Plan. I also have the sole responsibility to consult my manager or Human Resources Representative if I have any questions or concerns relating to this Plan.

 

I authorize the Company to deduct, from any compensation I would otherwise be eligible to receive, any outstanding debt I owe to the Company including, but not limited to, overpayments, payroll errors, advances, personal expenses incurred on Company credit cards, moving expenses, and the costs of any equipment not returned to the Company upon Company’s request or upon my last day of employment.

 

Nothing in this Plan, either alone or in conjunction with any other documents, may be construed to create expressly or by implication an employment relationship for a specified duration. The participant or the Company may terminate the participant’s employment for any reason at any time.

 

 

__________________________         

Date                                             

 

___________________________                        __________________________

Employee Signature                                              Manager’s Signature

 

____________________________                      __________________________

Employee’s Printed Name                                     Manager’s Printed Name

 

The original, signed Acknowledgment form will be retained in the employee’s personnel file. The employee should also retain a copy.Document

Federal Home Loan Bank of Des Moines
2021 Executive Incentive Plan Document

CONTENTS

I.Purpose

II.Eligibility

III.Plan Design

IV.Administration of the Plan

V.Miscellaneous Provisions

VI.Definitions

    Exhibit 1 

    Exhibit 2

    
    
    

    

    

    

I.Purpose

The Federal Home Loan Bank of Des Moines (“Bank”) strives to attract, retain and motivate executives of the Bank, and to focus its executives’ efforts on fulfilling the Bank’s mission and vision within a safe and sound framework and in a manner consistent with the Bank’s shared values. This 2021 Executive Incentive Plan (“Plan”) is designed to compensate Bank executives in a manner that recognizes achievement of Bank-wide goals that are aligned with the Bank’s Strategic Business Plan (“SBP”) and provides incentive awards that when combined with base salaries provide a competitive total direct compensation to executives. 

The Plan is effective for the calendar year beginning January 1, 2021.  Awards earned during the Performance Period under the Plan (“Plan Awards”) fall into two separate subcategories: “Annual Awards” and “Deferred Awards.” (See Section VI., Definitions, for a description of these terms).  

The Plan shall remain in effect until the Human Resources and Compensation Committee (“HRC”) of the Board of Directors (“Board”) terminates, replaces or amends the Plan.  

II.Eligibility

All regular full-time officers, including Vice Presidents, Senior Vice Presidents, Executive Vice Presidents and the President and CEO are eligible to participate in the Plan, with the exception of the Internal Audit Department officers who may be eligible to participate in a separate incentive plan as approved by the Board’s Audit Committee. Temporary employees, interns or independent contractors are not eligible to participate in the Plan.   

III.    Plan Design

The Plan includes two components:

•    Bank-wide business performance goals aligned with the Bank’s SBP. These will be quantitative goals tied to the Bank’s business and mission activities, including members, operational risk management, corporate governance, finance and diversity and inclusion.  

•    Individual and/or team goals for achievement of other objectives tied to the strategic priorities and initiatives in the Bank’s SBP applicable for Vice Presidents only.   

Each calendar year the HRC shall establish one or more Bank-wide performance goals, consistent with the SBP in effect during the Performance Period. Each goal will be weighted, and shall have a threshold, target, and maximum level of performance, as appropriate.  

Each calendar year, Vice Presidents will develop individual and/or team goals in alignment with the strategic imperatives and strategies included in the SBP.  

Recognizing that circumstances and priorities may change, management may submit to the HRC recommended revisions to Bank-wide performance goals.  The HRC will evaluate the submission and determine whether the Bank-wide performance goals should be amended. Management may authorize changes to individual and/or team goals throughout the Performance Period as priorities and circumstances dictate.

Bank-wide performance goal achievement levels that discretely fall in between threshold, target and maximum performance levels will be interpolated, unless otherwise directed in the design of a particular performance goal.

For Vice Presidents, the total incentive award is based on a weighted average of the Bank-wide performance goals and individual and/or team goals. 

The following chart provides the threshold, target and maximum Plan Award percentage payout opportunities for executives in the Bank, and associated weights for Bank-wide performance goals and individual and/or team goals. The chart also provides the portion of each Plan Award that is a Deferred Award.
 
																		
	
Classification	2021 Threshold/ Target/ Max
Plan Award as a % of Base Salary	Bank-wide Performance Goal
% of Total Plan Award	Individual and/or Team Goal
% of Total Plan Award	% of 2021 Plan Award   Paid Annually	% of 2021 Plan Award  Deferred
	Tier 1 (President and CEO)
	50.0 / 85.0 / 100.0	100%	0%	50%	50%
	Tier 2 (Executive Team)
	30.0 / 50.0 / 70.0; or 
40.0 / 60.0 / 80.0
	100%	0%	50%	50%
	Tier 3 (SVPs)
           	20.0 / 40.0 / 60.0; or 
30.0 / 50.0 / 70.0
	100%	0%	50%	50%
	Tier 4 (Corporate VPs)
           	17.5 / 35.0 / 52.5; or 
20.0 / 40.0 / 60.0	80%	20%	70%	30%

The actual threshold, target, and maximum achievement levels for the Bank-wide performance goals in the Plan are presented in Exhibit 1 (attached). 

Bank-wide performance goals for the President and CEO, Executive Team and Senior Vice Presidents are weighted at 100% based on the Bank-wide goals in Exhibit 1.

As noted above, for executives in the Plan, a portion of the Plan Award will be paid as an Annual Award in the year following the Performance Period and as a Deferred Award at the end of the Deferral Period.  The Deferred Award is designed to ensure that executives do not take short-term measures in 2021 to secure incentive compensation that could be detrimental to the long-term value of the Bank.  This will ensure that executives continue to operate the Bank in a profitable and prudent manner for the long-term value of its members. 
 
For the 2021 Performance Period, the 2021 Deferred Award is to be paid in 2025.  The Deferred Award earned during the Performance Period will be impacted by safety and soundness measures. See Exhibit 2 (attached) for more information on the final determination of the Deferred Award. 
  
Bank-wide Performance Goals

As a cooperative, the Bank needs to satisfy the expectations of members as both shareholders and customers. Fulfilling that cooperative mission must be done in a prudent manner so as to preserve the par value of capital stock, which is the rationale for including operational risk management and corporate governance measures among the Bank’s performance goals.

Given the environment in which the Bank operates, the Board will periodically review achievement on the incentive goals and the HRC may consider changes to the goals as appropriate and subject to the review and non-objection of the FHFA.  Structural changes in the financial services sector driven by factors largely outside the Bank’s control (such as legislative changes) may necessitate wholesale changes in how the Bank’s executives are rewarded.

The threshold, target, and maximum achievements levels for the Bank-wide performance goals listed in the attached Exhibit 1 are calibrated based on results from previous years and projections in the Bank’s SBP. 

2021 Individual and/or Team Performance Goals
The nature of individual and/or team goals varies depending on the Vice President’s role in the organization. For example, a Vice President in the Enterprise Risk Management Division might have individual and/or team goals focused on improving the Bank’s risk management infrastructure, while a Vice President in the Member’s Division might be focused on developing new or enhanced products for the members.  

Payout Determination

Annual and Deferred Awards earned during the Performance Period are payable in 2021 and 2025, respectively, and are subject to HRC approval. Notwithstanding the formulaic computations of the Plan payouts based on incentive goal achievement levels, actual payouts under the Plan are subject to the HRC’s review and approval and are made at the HRC’s discretion subject to prior review and non-objection by the Federal Housing Finance Agency (“FHFA”) for the Bank’s Named Executive Officers (“NEOs”). 

The HRC may consider a variety of objective and subjective factors to decide on the appropriate payouts including but not limited to: (i) operational errors or omissions that result in material revisions to the financial results, information submitted to the FHFA or data used to determine incentive payouts; (ii) untimely submission of information to the Securities and Exchange Commission (“SEC”), Office of Finance (“OF”), or the FHFA; (iii) failure to make sufficient progress, as determined by the FHFA, in the timely remediation of examination, monitoring, and other supervisory findings and matters requiring attention; or (iv) failure to make sufficient progress in improving FHFA examination ratings.    

The HRC shall consider the relevant facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to the Bank’s financial and operational performance and financial reporting responsibilities.

The HRC also may determine a participant is not eligible to receive part or all of any Plan Award payouts.  Events that may justify such HRC action may include, but are not limited to, the following:  

•a participant’s failure to achieve a “meets expectations” or higher evaluation of overall job performance during a Performance Period;

•a participant becomes subject to disciplinary action or probationary status at the scheduled time of a Plan Award payout; or

•a participant’s failure to comply with regulatory requirements or standards, internal control standards, the standards of his or her profession, any internal Bank standard, or failure to perform responsibilities assigned under the Bank’s SBP. 

As soon as feasible after the conclusion of each Performance Period, the HRC shall review the Bank’s performance against its Bank-wide performance goals, and if appropriate, shall approve the payout, if any.  

As soon as feasible after conclusion of each Performance Period, the responsible officer will determine the achievement and performance levels of individual and/or team goals for Vice Presidents.  The Executive Team of the Bank will review, approve and submit to Human Resources the Plan Awards for their areas of responsibility. The Executive Team and Human Resources will together calibrate the individual and/or team payouts across the Bank.  Human Resources, after considering each participant’s performance against individual’s goals, shall recommend to the HRC the payout levels for approval. 

Plan Awards are determined based on the participant’s actual eligible earnings at the end of the plan year and shall not exceed the participant’s annual base salary. Eligible earnings excludes any bonus, incentive compensation, severance payments, or long-term disability insurance payments paid in the current year.  In the event a participant receives a raise during a calendar year, the participant’s compensation for the year will reflect the actual wages paid to the participant for the year and shall not exceed the participant’s annual base salary. A participant who has a hire date prior to the beginning of the Performance Period is eligible to receive a full Plan Award.  A participant who has a hire date after the beginning of the Performance Period is eligible to receive a prorated Plan Award based on the executive’s eligible earnings earned during the Plan Year and not to exceed the executive’s annual base salary.  A participant hired on or after October 1 of the Performance Period is not eligible to receive a Plan Award for the Performance Period in which they were hired.

Unless otherwise directed by the HRC, Plan Award payouts shall be made in a lump sum through regular payroll distribution, typically within 75 days after the end of the Performance Period (in the case of an Annual Award) or Deferral Period (in the case of the Deferred Award), but in any event by the end of the calendar year following the Performance Period or Deferral Period, as applicable, for which payout approval has been received. Appropriate provisions shall be made for any taxes that the Bank determines are required to be withheld from any payment under applicable laws or other regulations of any governmental authority, whether federal, state or local.  

Executives whose employment ends before any Plan Award payout will not be eligible for award payouts under the Plan unless otherwise provided for herein or in any Executive Employment Agreement. The HRC has the sole discretion to determine whether a payout is made to the participant, and the amount of any such payout.  

Executives whose termination occurs as the result of death or Disability shall be eligible to receive a prorated Plan Award for the Performance Period in which the termination occurs in an amount based upon the executive’s eligible earnings earned during the Plan Year.  The prorated Plan Award for the Performance Period will be determined based upon actual achievement levels for Bank-wide performance goals and Target achievement levels for individual and/or team goals, and will not be subject to the deferred goals and modifier. Such executives will also be eligible to receive Deferred Awards earned but not yet approved for payout from periods occurring prior to the Performance Period.  All payouts of Deferred Awards from prior periods will be based on actual achievement levels attained during such periods, and will not be subject to the achievement of the deferred goals and modifier. All awards will be payable in a single lump sum typically within 75 days, but in any event by the end of the calendar year, following the end of the Performance Period that the death or Disability occurred.  

Executives whose termination occurs as the result of a Retirement or Reduction in Force are eligible to receive a prorated Plan Award for the Performance Period in which the termination occurs in an amount based upon the executive’s eligible earnings earned during the Plan Year unless otherwise provided for herein or in any Executive Employment Agreement.  The prorated Plan Award will be determined based upon actual achievement levels for Bank-wide performance goals and Target achievement levels for individual and/or team goals, and will not be subject to the deferred goals and modifier. Such executives will also be eligible to receive Deferred Awards earned but not yet approved for payout from periods occurring prior to the Performance Period. The amount of payouts on Deferred Awards from prior periods, as well as any portion of the prorated Plan Award that constitutes Deferred Awards, will be determined in accordance with the terms of the Plan unless otherwise provided for herein or in any Executive Employment Agreement.  All payments will be made typically within 75 days, but in any event by the end of the calendar year, following the Performance Period or Deferral Period, as applicable.

An executive who is promoted or demoted during a Performance Period may receive a prorated Plan Award based on the actual time in each position during the Performance Period. All payments will be made typically within 75 days, but in any event by the end of the calendar year, following the Performance Period or Deferral Period, as applicable.

An executive who receives an Annual Award under the Plan may defer the payment of the Annual Award by executing a timely deferral election under the BEP as long as they meet the eligibility requirements to participate in the BEP.  Any election to defer the payment of an Annual Award must be made in compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and Treasury regulations relating thereto (“Section 409A”), and the BEP.  No election to defer the payment of an Annual Award shall become effective until twelve (12) months after the deferral election is made, and the payment of the Annual Award must be deferred for a period of at least five (5) years beyond the date such Annual Award would otherwise have been paid.

In the event an executive is considered a Specified Employee, payment of benefits under this Plan shall not commence until six months following the executive’s separation from service as defined under Section 409A. 

IV.    Administration of the Plan

The Bank’s Board of Directors is ultimately responsible for the Plan, including its amendment, replacement or termination. The HRC has the full power and authority of the Board to construe, interpret and administer the Plan. Any decision arising out of or in connection with the construction, interpretation or administration of the Plan lies within the HRC’s absolute discretion and is binding on all parties.   

The HRC shall:

•Approve Bank-wide performance goals.

•Approve the range of potential payout opportunities for Plan participants.

•After the end of a Performance Period, approve any Annual Awards.

•After the end of the Deferral Period, approve any Deferred Awards for qualifying eligible officers.

•Render any decisions necessary with regard to the interpretation of the Plan.

Day-to-day administration of the Plan is delegated to those in the Bank responsible for Human Resources functions.  

V.     Miscellaneous Provisions

The Plan, in whole or in part, may at any time or from time to time be amended, suspended or reinstated and may at any time be terminated by the HRC.

No amendment, suspension or termination of the Plan shall, without the consent of the participants, affect the rights of the participants to any payout previously approved by the HRC.

No participant has the right to alienate, assign, encumber, or pledge his or her interest in any payout under the Plan, voluntarily or involuntarily, and any attempt to do so is void.

This document is a complete statement of the Plan and supersedes all prior plans, representations and proposals written or oral relating to its subject matter.  The Bank is not bound by or liable to any participant for any representation, promise or inducement made by any person which is not expressed in this document. 

This Plan shall not be considered a contract of employment 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 compensation.  This Plan shall not, in any manner, limit the Bank’s right to terminate compensation and employment at its will, with or without cause.

Participation in the Plan and the right to receive awards under the Plan shall not give a participant any proprietary interest in the Bank or any of its assets.  Nothing contained in the Plan shall be construed as a guarantee that the assets of the Bank shall be sufficient to pay any benefits to any person.  A participant shall for all purposes be a general creditor of the Bank.  Each payment shall be from the general assets of the Bank.

The Plan shall be construed in accordance with and governed by the State of Iowa except to the extent superseded by federal law.

It is intended that the awarding, vesting and payment of any award will comply with Section 409A, so as not to subject any participant to the payment of any interest or tax penalty, provided, however, that neither the Bank, the HRC, the Board, or any directors, officers, employees, consultants or other agents shall be liable to a participant or otherwise responsible for any such interest and tax penalties.  Neither the Bank nor the executive may accelerate a payment into a calendar year not specified in the Plan nor defer or postpone a payment into a year following the calendar year specified in the Plan, except as may be permitted by Section 409A. 
  
VI.    Definitions. 

As used in this document, the following definitions apply: 
(a)“Annual Award” is the portion of the Plan Award that can be earned during the Performance Period and paid in the calendar year following the Performance Period. 

(b)“BEP” shall mean the Federal Home Loan Bank of Des Moines Benefit Equalization Plan, as amended and restated from time to time.

(c)     “Deferral Period” is the three calendar year period after which the Deferred Award can be paid.  The Deferral Period begins January 1 immediately following the Performance Period (January 1, 2022 - December 31, 2024).     

(d)    “Deferred Award” is the portion of the Plan Award that can be earned during the Performance Period and paid in the calendar year following the Deferral Period subject to the applicable safety and soundness measures. 
(e)    “Disability” shall mean that an executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, and which has rendered the executive incapable of performing his or her duties to the Bank, receiving benefits under a disability plan sponsored by the Bank, for a period of not less than three (3) months.
(f)    “Performance Period” is the one calendar year period during which a Plan Award can be earned (January 1 - December 31, 2021).  
(g)    “Plan Award” is the award that can be earned during the Performance Period.
(h)    “Reduction in Force” is a decision by the Bank to reduce the number of Bank executives, which results in the involuntary termination of one or more Bank executives for reasons unrelated or not exclusively related to the performance of such employee or employees. 
(i)    “Retirement” means an executive’s voluntary termination of his/her employment based on the attainment of at least age 55 and completion of at least 5 years of service with the Bank or as permitted under Section 409A of the Internal Revenue Code of 1986, as amended.  With respect to a Plan participant who is eligible to receive a Deferred Award, the date of such executive’s retirement as well as other terms and conditions that provide for an orderly transition must be mutually agreed to by the executive and the Bank in order for the executive to meet the definition of Retirement as provided herein.

Exhibit 1

Excerpt from the “2021 Executive Incentive Plan Document” (Plan): Notwithstanding the formulaic computations of the Plan payouts based on incentive goal achievement levels, actual payouts under the Plan are subject to the HRC’s review and approval and are made at the HRC’s discretion subject to prior review and non-objection by the Federal Housing Finance Agency (“FHFA”) for the Bank’s Named Executive Officers (“NEOs”).

The Board of Directors has the final decision on incentive awards. The Board may consider a variety of objective and subjective factors to decide on the appropriate payouts including but not limited to:

(i)operational errors or omissions that result in material revisions to the financial results, information submitted to the FHFA or data used to determine incentive payouts;

(ii)untimely submission of information to the Securities and Exchange Commission (“SEC”), Office of Finance (“OF”), or the FHFA;

(iii)failure to make sufficient progress, as determined by the FHFA, in the timely remediation of examination, monitoring, and other supervisory findings and matters requiring attention; or

(iv)failure to make sufficient progress in improving FHFA examination ratings.

The HRC shall consider the relevant facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to the Bank’s financial and operational performance and financial reporting responsibilities.

															
	Bank-wide Goals and Weightings	Description of Measure	2021
Threshold	2021
Target	2021
Maximum
	Core Product Utilization (20%)

	The Core Product Utilization (CPU) measures utilization of core products by all bank members, including all advances, LOCs and all MPF (including on balance sheet and off balance sheet). The CPU is measured daily for Advances, LOCs and off balance sheet MPF, and monthly for on balance sheet MPF. The monthly utilization metric is then averaged for the annual calculation

	64.8%	67.3%	70.1%
	Reduce Operational Risk (35%)	Threshold:
i.Implement EVOLV STARs Mortgage Ledger modules such that EVOLV is the system of record for these products by Q3 2021 reporting  

Target = Threshold plus the following:
ii.Transition mortgage and advances data to the Hub
iii.Implement three risk reducing information security enhancements by year end as outlined in the 2021-2023 Strategic Plan

Maximum = Target plus the following:
iv.Reduce the net overall number of significant EUCs by 25%

	Threshold	Threshold + Target	Target + Max
	Enhance Corporate Governance (15%)	Threshold:
i.Enterprise Risk Management Policy (ERMP) is updated to align with the 2021 approved Risk Appetite Statement 

Target = Threshold plus the following:
ii.Satisfactorily address all exam findings due for remediation on or before September 30, 2021

Maximum = Target plus the following:
i.Implement Service Now modules for IT change management and project management as outlined in the IT Strategic Plan
ii.Create and implement an Information Technology Risk Dashboard
iii.Create an inventory of business processes aligned with the Bank’s Strategic Business Plan focusing on key processes that impact our financial strength 
iv.Map an additional 8 sub-processes aligning with our key processes

	Threshold	Threshold + Target	Target + Max

															
	Bank-wide Goals and Weightings	Description of Measure	2021
Threshold	2021
Target	2021
Maximum
	Spread Between Adjusted Return on Capital Stock and Overnight SOFR While Maintaining Market Value Sensitivity within Limits (20%)	The spread between overnight SOFR and Adjusted Return on Capital Stock (AROCS) for 2021.  GAAP net income is adjusted for the impact of 1) market adjustments relating to derivative and hedging activities and instruments held at fair value; 2) realized gains (losses) on investment securities; and 3) other non-routine and unpredictable items, including asset prepayment fee income, debt extinguishment losses, merger related expenses, and net gains on litigation settlements. This measures, on an adjusted basis, the dividend percentage above overnight SOFR that could be paid to members if 100% of earnings were to be paid as dividends.

The Bank’s actual market value sensitivity must be within limits on a monthly basis. If the Bank is outside the market value sensitivity limits, the payout would be determined based upon the number of months within the limits.	>2.50%	≥4.00%	≥5.00%
	Diversity and Inclusion (10%)

 
	Threshold:
•Increase or maintain diverse spend at > 12%

Target = threshold plus the following:
•Achieve Discretionary debt activity with MWDOB dealers of > 6%

Maximum = Target plus the following:
•Maintain or grow diverse (ethnicity) representation > 2020 year-end percentage (18.5%)
•Maintain or grow female representation > 2020 year-end percentage (46.1%)
•Increase utilization of diverse vendors by 5% over 2020 year-end total (12.81%)

	Threshold	Threshold + Target	Target + Max
					

Exhibit 2

Deferred Award Payout Determination

The Deferred Award earned in 2021 will be paid in 2025.  The actual amount of the award paid in 2025 will be based on the Bank’s sustained achievement of 2021 safety and soundness measures as follows:

•No operational errors or omissions that result in material revisions to the financial results, information submitted to the FHFA or data used to determine incentive payouts;

•No submission of information to the Securities and Exchange Commission (SEC), Office of Finance (OF), or the FHFA is significantly past due;

•Sufficient progress, as determined by the FHFA, in the timely remediation of examination, monitoring, and other supervisory findings and matters requiring attention;

•Sufficient progress is made in improving FHFA examination ratings; or

•The Bank has sufficient capital to pay dividends and repurchase member stock.

The HRC shall consider the relevant facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to the Bank’s financial and operational performance and financial reporting responsibilities.

The eligible Deferred Awards will be paid in 2025 based on a four percent interest rate that is credited annually.

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