FIRST FEDERAL SAVINGS BANK OF THE MIDWEST
Executive Officer Compensation Program
Statement of Policy
It is the policy of First Federal Savings Bank of the Midwest to
attract and retain competent and qualified executive officers who will provide
the leadership and management skills required to attain the long range goals of
the institution. The Board of Directors recognizes the importance of a
compensation program which encourages and rewards achievement and provides
incentives for continued performance excellence. As such, First Federal will
recognize an executive officer's demonstrated commitment to the long-term
objectives of the Bank through a program which consistently rewards performance
at the upper level of comparable institutions.
General
Executive officer compensation is comprised of two components, base
compensation and incentive compensation. Base compensation shall be established
at a level which is commensurate with the level of responsibility of the
position and an acceptable level of performance by the incumbent. Incentive
compensation shall be used as the method to reward quantifiable performance
which exceeds that which is expected within the general responsibilities of the
position. For purposes of this compensation program, the two components of
compensation are discussed separately.
Base Compensation
It is the policy of First Federal to provide a level of base
compensation which is commensurate with the position and the demonstrated
abilities of the individual executive officer. As such, a base compensation
range has been established that provides a minimum and a maximum level
considered appropriate for each executive officer position covered by this
policy, see Appendix A. The individual level of base compensation within each
range is considered a function of the position and the past experience, level of
achievement and the anticipation of continued performance of the officer. The
base compensation ranges shall be reviewed by the Board of Directors at least
annually and revised as considered appropriate.
On an annual basis, the Board shall determine the level of base
compensation for each executive officer within the guidelines outlined in former
FHLBB R #42 Memoranda (Exhibit 1) and Section 310.3 of the Office of Thrift
Supervision Thrift Activities Regulatory Handbook (Exhibit 2). All relevant
supporting information relied on by the Board in determining such levels shall
be retained and available for future reference.
Comparative compensation information shall be derived from such
comprehensive sources as SNL Securities, MCS Associates, Savings and Community
Bankers of America, The American Banker and major accounting firms. Use of
comparative sources shall not be limited to those listed. Information shall be
utilized which is considered pertinent, taking into consideration the operations
of this institution.
A review of individual performance shall also include factors which
demonstrate conformity with the responsibility for the safe and sound operation
of the Bank. The relevance of specific factors will vary based on the individual
position and will include such items as compliance with internal policies,
accepted business practices and regulatory requirements; observed leadership and
administrative abilities; the level of technical competence demonstrated in
carrying out the responsibilities of the position; and the ability to plan and
respond to changing circumstances. Quantitative goals are not established for
these factors in the determination of base compensation; however, such goals are
to be used in the determination of incentive compensation where applicable. The
goals and objectives as outlined in the Bank's strategic business plan shall
also be a factor in the measurement of individual performance.
Incentive Compensation
A program of incentive compensation has been established to reward
those officers who provide a level of performance for the Bank which warrants
recognition in the form of compensation above base compensation amounts.
On an annual basis, the Board of Directors shall award incentive
compensation to those individual executive officers for which such compensation
is considered appropriate. The Board is not required to authorize incentive
compensation to eligible executive officers even if all guidelines are met, if
in the Board's discretion, the officer's performance does not warrant such
award. The Board shall follow the guidelines listed below as a basis for its
decision to award such incentive compensation.
Guidelines for Incentive Compensation
1. The Bank must, at fiscal year end, have a level of capital which is at
least 125% of the regulatory minimum for each of the capital
requirements.
2. The Bank's return on average assets must be at least equal to 1.00%. In
the event that an acquisition, or other significant non-routine
occurrence, were to cause this requirement not to be met, the Board is
authorized to exercise discretion in the award of incentive
compensation, provided that all other requirements have been met. For
purposes of determining compliance with this requirement, net
non-operating income shall not account for greater than 25% of total
income.
3. The Bank's return on average equity must be at least equal to 9.00%.
For purposes of determining compliance with this guideline, return on
equity shall be determined based either on an assumed capitalization of
the Bank at 8.00% of average assets, or on actual capitalization if
less than 8.00%. Also for purposes of this guideline, earnings shall be
reduced by the assumed earnings on capital in excess of 8.00% (net of
tax, and based on the average earning asset yield for the period) and
shall be increased by the amount of any amortization of goodwill.
In the event that an acquisition, or other significant non-routine
occurrence, were to cause this requirement not to be met, the Board is
authorized to exercise discretion in the award of incentive
compensation, provided that all other requirements have been met. For
purposes of determining compliance with this requirement, net
non-operating income shall not account for greater than 25% of total
income.
4. The Bank's ratio of classified assets to tangible capital must not
exceed 35%. Classified assets are defined as those assets classified,
under current policies and regulations, as substandard and doubtful as
reported on the appropriate lines of the quarterly thrift financial
report.
5. The Bank's interest rate risk exposure, as determined quarterly by the
Office of Thrift Supervision and based on Thrift Bulletin No. 13
guidelines for the measurement of interest rate risk exposure, must not
allow the Bank's capital position to fall below minimum capital
requirements.
6. The composite CAMEL rating, as reported to the Bank by the Office of
Thrift Supervision, reflects the regulatory perception of the
institution's overall strength and compliance with regulatory
requirements. As such, a CAMEL rating of 1 or 2 is considered
acceptable to allow consideration of incentive compensation.
7. Prior to the approval of any incentive compensation, the Board shall
have reviewed all independent audit reports, Office of Thrift
Supervision reports of examination, Federal Deposit Insurance
Corporation reports of examination and any relevant documents related
to such audits and examinations which have occurred during the period
for which the incentive compensation is considered. The Board's review
of those documents should be directed toward a determination of
management's safe and sound implementation and compliance with policies
and procedures, and the frequency and significance of any violation of
law or regulation.
As part of the documentation in support of awarding incentive
compensation, the Board shall include its summary conclusions in regard
to the review of these reports.
Amount of Incentive Compensation
If the foregoing criteria have been met and individual performance is
considered to warrant, the following schedule shall be used to determine the
allowable incentive compensation to be paid to executive officers.
If Return on Average Equity Incentive Compensation Award
Equals or Exceeds: as a % of Base Compensation
------------------ ---------------------------
Cash Stock Options
---- -------------
9.00 % 10% -
9.25% 11% -
9.50% 12% -
9.75% 14% -
10.00% 16% 10%
10.25% 18% 12%
10.50% 20% 14%
10.75% 22% 16%
11.00% 24% 18%
11.25% 26% 20%
11.50% 28% 20%
11.75% 30% 20%
12.00% 32% 20%
In the event that return on average equity exceeds 12.25%, incentive
compensation awards shall be determined at the discretion of the Board of
Directors, with the cash award not to exceed 50% of the individual executive
officer's base compensation.
The award of stock options under this plan is subject to the approval
of such awards by the First Midwest Financial, Inc. Stock Option Committee, and
is dependent on the availability of such stock options. In the event that stock
options are not available in amounts sufficient to meet total awards, the
available stock options will be awarded on a pro-rata basis to recipients. The
number of stock options to be awarded shall be determined by taking the
indicated percentage times base compensation, divided by a fixed price of
$6.6667 per share, such fixed price to be adjusted for any subsequent change in
outstanding shares by reason of reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger, consolidation or any
change in corporate structure. The exercise price of stock options awarded under
this plan shall be the closing average bid/ask market price on the effective
date of grant.
Review and Authorization
The executive officer compensation program shall be reviewed by the
Board of Directors on an annual basis and will be revised as considered
necessary. The minutes of the meeting of the Board shall reflect the review and
the nature of any revisions.
Authorization for changes in base compensation and the payment of
incentive compensation shall be documented in the minutes of the meeting at
which the Board makes such authorization. Information used in support of such
authorization shall be made a part of the board minutes.
Appendix A
Schedule of Base Compensation Ranges
Executive Officer Positions
Position Minimum Midpoint Maximum
-------- ------- -------- -------
Chairman of the Board, President & CEO $138,400 $173,000 $207,600
Executive Vice President, Secretary & COO $120,800 $151,000 $181,200
Senior Vice President, Treasurer & CFO $ 84,800 $106,000 $127,200
Exhibit 1
[INTENTIONALLY OMITTED]
Exhibit 2
[INTENTIONALLY OMITTED]