Document:

2004 City Executives Incentive Compensation Program

 EXHIBIT (10)(j) 
  

					
	The Sage Group	  	 	  	 
	CONSULTANTS TO MANAGEMENT	  	 	  	10409 LESLIE DRIVE
	 	  	 	  	RALEIGH, NORTH CAROLINA 27601
	 	  	 	  	(919) 844-9783
	 	  	 	  	E-mail: steve@sagegroupconsulting.com

  
 MEMORANDUM

  

			
	DATE:	  	May 1, 2004
		
	TO:	  	Lee Johnson, President M&F Bank
		
	FROM:	  	Steven A. Savia, CMC
		
	RE:	  	Final 2004 City Executives Incentive Compensation Program
		
	CC:	  	 

  
 This year’s incentive
compensation program will have multiple components. 
  

	 	1.	Executive Plan 

  

	 	2.	City Executive Plan 

  

	 	3.	Loan Production Plan 

  

	 	4.	Branch Customer Service Plan 

  

	 	5.	Corporate Support/Teller Plan 

  
 This memo addresses the Executive Plan. 
  
 Overall for all plans, we will put in place the following: 
  

	 	1.	Threshold level of Net Income - the Threshold level for 2004 will be $1.448 million (2003 = $1.389 million). 

  

	 	2.	Key factor measures for each of the employee participants. Schedule C presents the 2004 executive management measures. 

  

	 	3.	Once the threshold has been exceeded, the overall Bank pool will be created by 65% percent of the increase in net income marginal difference between budgeted net income
($1.484 million) and actual. The City Executive Plan Pool will be composed of 30% of the overall Bank pool. 

  
 The City Executive plan is based on the assumption that the award will be a percent of base salary. The plan has no budget implications since the awards would be made
based on a percentage of the marginal increase beyond the budget. The Bank’s income would therefore always be more than budget if awards were being made. 
  

Schedule A is a listing of the measures that the program will include and where in the Bank’s information system or other reporting processes the data for
those measures is found. 
  

 30 

 SCHEDULE A – PERFORMANCE FACTORS 
  

			
	 Measurement Factor

	 	 Where Available

	 Growth in Average Assets
	 	General Ledger/ Finance
	 Return on Average Assets
	 	General Ledger/ Finance
	 Efficiency Ratio
	 	General Ledger/ Finance
	 Total Deposits
	 	General Ledger/ Finance
	 Total Assets
	 	General Ledger/ Finance
	 Growth in Portfolio Loan Levels
	 	Credit Administration
	 Net Income
	 	General Ledger/ Finance
	 Percent Recovery Of Loan Loss
	 	General Ledger/ Credit Administration
	 Service Charge Income
	 	General Ledger/ Finance
	 Classified Loans as a % of Capital
	 	General Ledger/ Credit Administration
	 Non-Performing Assets as % of Loan Loss Reserve
	 	General Ledger/ Credit Administration
	 Income per Employee
	 	General Ledger/ Finance
	 Assets per Employee
	 	General Ledger/ Finance
	 Level of Earning Assets
	 	General Ledger/ Finance
	 Audit Exceptions
	 	Internal Audit
	 Loan Originations ($)
	 	Loan Production (Retail Bank Admin)
	 Loan Origination (#)
	 	Loan Production (Retail Bank Admin)
	 Average Closing Days
	 	Credit Administration
	 Exceptions From Quality Control
	 	Credit Administration
	 CRA Rating
	 	Compliance
	 Target Customer Calls (#)
	 	Loan Production (Retail Bank Admin)
	 % Loan Portfolio > 30 Days Delinquent
	 	Credit Administration
	 Document Exceptions Not Cleared 30 Days
	 	Credit Administration
	 Operating Losses
	 	General Ledger
	 Transactions per Employee
	 	Operations
	 Loans Processed (#)
	 	Credit Administration
	 Delinquencies as % of Loan Portfolio
	 	Credit Administration
	 Monthly Branch Mystery Shop Score
	 	Operations
	 New Deposit Accounts Opened
	 	Operations/Branch Reports
	 Deposit Accounts Closed
	 	Operations/Branch Reports
	 Loan Referrals
	 	Loan Production (Retail Bank Admin)
	 Branch Profitability
	 	Finance

  
 Each of the above factors relates to
one or more positions in the Bank as a measure of their contribution to the Bank. In some cases the measure is an overall measure of the success of the Bank as a whole (such as Return on Average Assets). In other cases, the measure is more specific
to the nature of the position, e.g., Growth in Portfolio Loan Levels for the Retail Banking Group Executive and City Executives; Number of New Deposit Accounts for Customer Service Representatives and Branch Operations Managers. 
  
 Schedule C is a listing of the City Executive employees that would be included in the City
Executive plan. 
  
 SCHEDULE C – CITY EXECUTIVE PLAN
PARTICIPANTS 
  

			
	 EMPLOYEE

	 	 POSITION

	Acree, Evelyn	 	SVP/City Executive – Winston-Salem
		
	Green, Stanley Jr.	 	SVP/ City Executive - Raleigh
		
	Johnson, Jacque	 	SVP/ City Executive - Charlotte
		
	Smith, Queron	 	SVP/ City Executive - Durham

  

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 The next step is putting the factors with the personnel and their positions. Schedule H below has the measures and the
weighted percentage for each employee participating in the Plan this year. The absolute measures may be different for each individual recognizing the difference in cities. 
  
 SCHEDULE H – CITY EXECUTIVE PLAN PARTICIPANTS – 2004 MEASURES 
  

			
	 EMPLOYEE

	  	 MEASUREMENT FACTORS

	 Acree, Evelyn
	  	 Growth in City Loan Portfolio (30%),
 Total
Deposit Growth for the City (30%),
 City Operations Management (15%)
 •      Non-Interest & Fee Income
 •      Non-Interest Expense
 •      Net City Earnings
 Recovery of Charged-off Loans (5%),
 Business Development Quarterly Goals (10%),
 Average Delinquencies as % of Loan Portfolio (5%)
 Performance
Evaluation (5%)

		
	 Green, Stanley Jr.
	  	 Growth in City Loan Portfolio (30%),
 Total
Deposit Growth for the City (30%),
 City Operations Management (15%)
 •      Non-Interest & Fee Income
 •      Non-Interest Expense
 •      Net City Earnings
 Recovery of Charged-off Loans (5%),
 Business Development Quarterly Goals (10%),
 Average Delinquencies as % of Loan Portfolio (5%)
 Performance
Evaluation (5%)

		
	 Johnson, Jacque
	  	 Growth in City Loan Portfolio (30%),
 Total
Deposit Growth for the City (30%),
 City Operations Management (15%)
 •      Non-Interest & Fee Income
 •      Non-Interest Expense
 •      Net City Earnings
 Recovery of Charged-off Loans (5%),
 Business Development Quarterly Goals (10%),
 Average Delinquencies as % of Loan Portfolio (5%)
 Performance
Evaluation (5%)

		
	 Smith, Queron
	  	 Growth in City Loan Portfolio (30%),
 Total
Deposit Growth for the City (30%),
 City Operations Management (15%)
 •      Non-Interest & Fee Income
 •      Non-Interest Expense
 •      Net City Earnings
 Recovery of Charged-off Loans (5%),
 Business Development Quarterly Goals (10%),
 Average Delinquencies as % of Loan Portfolio (5%)
 Performance
Evaluation (5%)

  

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 AWARD PAYOUTS 
  
 Below is a description of the basis for payouts for the various plans described above. 
  
 City Executive Plan – 
  
 The pool from which this plan’s awards are distributed is based on the 30% of the overall Bank pool or 15% of the total difference between budgeted and actual net
income. The Bank-wide pool from which this plan’s awards are distributed is based on 65% of the difference between budgeted and actual, assuming actual exceeds budget. 30% of that pool is available to the City Executives of the Bank (see
Schedule C, page 4). Thus, if the Bank exceeds its net income threshold of $1.448 million by $200,000, then the Bank-wide pool available for incentive awards is $130,000 of which $30,000 would be available for Executive participants. 
  

 332004 Loan Production Incentive Compensation Program

 EXHIBIT (10)(k) 
  

					
	The Sage Group	  	 	  	 
	CONSULTANTS TO MANAGEMENT	  	 	  	10409 LESLIE DRIVE
	 	  	 	  	RALEIGH, NORTH CAROLINA 27601
	 	  	 	  	(919) 844-9783
	 	  	 	  	E-mail: steve@sagegroupconsulting.com

  
 MEMORANDUM

  

			
	DATE:	  	May 1, 2004
		
	TO:	  	Lee Johnson, President M&F Bank
		
	FROM:	  	Steven A. Savia, CMC
		
	RE:	  	Final 2004 Loan Production Incentive Compensation Program
		
	CC:	  	 

  
 This year’s incentive
compensation program will have multiple components. 
  

	 	1.	Executive Plan 

  

	 	2.	City Executive Plan 

  

	 	3.	Loan Production Plan 

  

	 	4.	Branch Customer Service Plan 

  

	 	5.	Corporate Support/Teller Plan 

  
 This memo describes the Loan Production Plan. 
  
 We worked with Wes Christopher to develop a new incentive plan for branch/commercial lenders. This year that plan recognizes the various roles involved in loan
production. It awards a portion of the fee income to those who exceed their budgeted goal. The plan does not include the City Executives, as they will have their own plan this year. 
  
 The Loan Production Plan differs from the Executive and City Executive Plans in that it is based on meeting individual thresholds of loan
production. These thresholds are monthly but are measured quarterly. Thus, a participant that fails to meet a monthly target could make that up during the quarter in which the incentive is granted. 
  
 We also have created a new approach toward rewarding mortgage loan personnel. 
  
 Schedule D on the following page is a listing of the Loan Officer, including Mortgage Loan,
employees that are included in the Loan Production Plan. 
  

 34 

 SCHEDULE D – LOAN OFFICER PLAN PARTICIPANTS 
  

			
	 EMPLOYEE

	  	 LOCATION

	Cato, Leslie	  	Charlotte
		
	Cheek, Julie	  	Durham
		
	Clarke, Brian	  	Raleigh
		
	Daniels, Aubra	  	Sr. Mort. Loan Closer/Jr. Underwriter
		
	Dial-Bethune, Tanya	  	Charlotte
		
	Dowdy, Scottie	  	Durham
		
	Drayton-Harvey, JoAnn	  	Raleigh
		
	Gibson, Sam	  	Raleigh
		
	Greene, Keith	  	Charlotte
		
	Jackson, John	  	Winston-Salem
		
	Nichols, Cheryl	  	Mortgage Loan Production
		
	Pickens, William	  	Corporate Business Development
		
	Reavis, Michele	  	Mortgage Loan Manager
		
	Stroud, James	  	Mortgage Loan Production

  
 For Loan Production Plan
Participants, the measures will be based on individual goals and measured against those goals. This plan is not based on percent of salary. It is built on an incentive for the volume generated and a percent of the fees generated by the loans
originated. Additionally, the loan volume may be divided among multiple participants depending on the origination roles in which they are involved. Schedule I provides a sample of the measures for these participants. 
  
 SCHEDULE I – LOAN PRODUCTION PLAN THRESHOLDS 
  
 A – COMMERCIAL 
  

							
	 EMPLOYEE

	  	QUARTERLY LOAN
VOLUME

	  	 QUARTERLY FEE
 INCOME GOAL

	 Cato, Leslie
	  	$	900,000	  	$	4,500
	 Cheek, Julie
	  	$	900,000	  	$	4,500
	 Clarke, Brian
	  	$	1,500,000	  	$	7,500
	 Dial-Bethune, Tanya
	  	$	900,000	  	$	4,500
	 Dowdy, Scottie
	  	$	900,000	  	$	4,500
	 Drayton-Harvey, JoAnn
	  	$	900,000	  	$	4,500
	 Gibson, Sam
	  	$	1,800,000	  	$	9,000
	 Greene, Keith
	  	$	900,000	  	$	4,500
	 Jackson, John
	  	$	900,000	  	$	4,500
	 Pickens, William
	  	$	1,800,0000	  	$	9,000

  

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 COMMERCIAL LOAN PRODUCTION AWARD PAYOUTS 
  
 Below is a description of the basis for payouts for the various plans described above. 
  
 Loan Officer Plan – 
  
 This plan pays out on a quarterly basis. The pool is based on a schedule that allots a
percentage of the fees collected as a result of loan origination activities. While this is somewhat similar to the 2003 Loan Officer Plan, it differs in a couple of ways: 
  

	1.0	Awards are made only on the difference of actual versus the threshold (thus a loan officer with a threshold of $900,000 will be awarded additional compensation above base
salary for all of the loan value in excess of the $900,000); 

  

	2.0	There are two factors in the computation of award: volume above threshold (0.5 cents on each dollar above the threshold); and, percentage of total fees collected (5 cents for
total fees collected); and, 

  

	3.0	A percentage is allocated to each of the origination functions (identification/referral; negotiation; underwriting; closing). Thus, credit for a loan can be divided among
multiple individuals involved in the loan. Those factors are broken out as follows: 

  

	 	3.1.	Loan Originator – defined as the person who identifies the potential borrower and either follows up the opportunity personally or refers the opportunity to another loan
officer. The finder may not be a loan officer, in which case is provided for under his or her own incentive plan. This factor is valued at 20% of the total credit. 

  

	 	3.2.	Loan Negotiator – defined as the person who, following up on the opportunity, negotiates the structure of the transaction to the point of presenting the transaction for
underwriting. The value of this factor is 30% of the credit. 

  

	 	3.3.	Loan Underwriter – defined as the person who is responsible for completing all aspects of underwriting the loan for presentation to the Loan Committee for approval,
including documentation of supporting financial data, financial analysis, identification of repayment capability, investigation of collateral value (as appropriate), identification of compliance with Bank policies (and support for approval in spite
of not meeting specific policies if approval is still sought), and preparation of the credit memorandum. This factor is valued at 40% of the credit. 

  

	 	3.4.	Closer – defined as the person who has responsibility for closing tasks on behalf of the Bank, including ensuring that all required documents are properly executed such
that the Bank’s position in being repaid, including access to any supporting collateral, is secure. The value for this factor is 10% of the credit. 

  

	4.0	Example: the Bank obtains a loan for $800,000. Credit toward an individual’s threshold is broken down according to the factors above. 

  

	 	4.1.	Originator - $160,000 

  

	 	4.2.	Negotiator - $240,000 

  

	 	4.3.	Underwriter - $320,000 

  

	 	4.4.	Closer - $80,000 

  

 36 

 A single loan officer could get credit for the entire $800,000 or any portion thereof, depending on the
role played, toward her or his monthly/quarterly threshold. 
  

	5.0	Example: Actual award will be calculated based on volume and actual fees collected. The following example shows how the calculation is made: 

  

	 	5.1.	Threshold = $900,000 

  

	 	5.2.	Roles Credit = $1,350,000 

  

	 	5.2.1.	Finder = $400,000 (Identified $2,000,000 in loans) 

  

	 	5.2.2.	Negotiator = $360,000 (Negotiated $1,200,000 in loans) 

  

	 	5.2.3.	Underwriter = $480,000 (Underwrote $1,200,000 in loans) 

  

	 	5.2.4.	Closer = $110,000 (Closed $1,100,000 in loans) 

  

	 	5.3.	Award Calculation = (5.2 – 5.1) = $450,000 

  

	 	5.4.	Volume = $0.005 on volume over threshold 

  

	 	5.4.1.	($450,000 x $0.005) = $2,250.00 

  

	 	5.5.	Fees Collected (on 5.3 assuming 1%) = $4,500 

  

	 	5.5.1.	($0.05 x $4,500) = $225.00 

  

	 	5.6.	Incentive Award = (5.4.1. + 5.5.1.) = $2,475.00 

  
 B - MORTGAGE LOAN DEPARTMENT 
  
 Incentive payouts (% of basis points of origination fees) 
  

													
	 Monthly volume

	  	$0-$500k

	 	 	$501-$750k

	 	 	$751-$999k

	 	 	$1MM+

	 
	 Nichols, Cheryl
	  	-0-	%	 	-0-	%	 	30	%	 	35	%
	 Stroud, James
	  	 	 	 	 	 	 	 	 	 	 	 
	 Daniels, Aubra
	  	-0-	%	 	2	%	 	3.125	%	 	3.75	%
	 Reavis, Michele
	  	-0-	%	 	3	%	 	3.75	%	 	4.5	%

  
 Case Example 1 
  
 Assume that on each loan we collected a 1% fee on all loans. Also assume that the production
for an individual Mortgage Loan Officer is $850,000. 
  
 Under this example, the
award for the month would be spread as follows: 
  
 Fees Collected: $8,000.00 
  
 Mortgage Loan Officer (Field Producer) Incentive: $2,400.00 ($8,000 x 30%) 
 Mortgage Loan Processor Incentive:
$250.00 ($8,000 x 3.125%) 
 Mortgage Loan Underwriter Incentive: $300.00 ($8,000 x 3.75%) 
  
 Total Incentive Paid Out: $2,950.00 
  

 37 

 Case Example 2 
  
 Assume that on each loan we collected a 1% fee on all loans. Also assume that the production for an individual Mortgage Loan Officer is $1,345,000. 
  
 Under this example, the award for the month would be spread as follows: 
  
 Fees Collected: $13,450.00 
  
 Mortgage Loan Officer (Field Producer) Incentive: $4,035.00 ($13,450 x 30%)

 Mortgage Loan Processor Incentive: $420.31 ($13,450 x 3.125%) 
 Mortgage Loan Underwriter Incentive: $300.00 ($13,450 x 3.75%) 
  
 Total Incentive Paid Out: $2,950.00 
 Fees Retained By Bank: $5,050.00 
  

 38

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