Exhibit 10.4
PEOPLES STATE BANK
SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
BASIC PLAN
1. PURPOSE
The purpose of the Senior Management Incentive Compensation Plan
(the Plan) is to maximize the achievement of the Bank's objectives
by providing incentives and awards to those senior-level executives
who attain and sustain consistently high levels of performance which
exceed normal expectations and which contribute to the success and
profitability of the Bank. The Plan is designed to support the key
goals and objectives of the Bank.
2. GENERAL DESCRIPTION
Incentive awards are based on individual and organization-wide
contributions to performance as measured by critical operating
ratios, including selected financial ratios, percentage of loan
growth, percentage of deposit growth, and overall profitability. At
the same time, the Plan provides annual goals which will help the
Bank achieve its strategic goals, as well as provide a performance
review and measurement system.
The incentive formulas are constructed to provide awards consistent
with the increase in profits to the Bank. The incentive formulas
are designed to provide a level of performance award that is
competitive with comparable levels of performance in other
institutions, to assist the Bank in retaining and motivating key
executives, and to ensure the Bank's continued growth and
profitability.
The incentive awards are to be supplemental compensation in the form
of cash paid on an annual basis. The Plan is established in
addition to regular salary and benefits programs. The Plan presumes
an equitable base compensation system and a competitive benefits
program.
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3. ADMINISTRATION
The Board of Directors of the Bank has the responsibility to
definitions interpret, administer, and amend the Plan.
Matters before the Board shall be decided based upon the vote of a
majority of the entire Board. Bank officers who are members of the
Board shall not be entitled to vote on matters relating to the
eligibility for and/or determination of their own incentive
compensation award.
Prior to the beginning of each fiscal year, the Board shall review
and revise, if deemed advisable, the operating rules for
implementing the Plan for the coming fiscal year.
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Computation of incentive awards will be performed by senior
management and reviewed by the Board.
The Board may deem to exclude extraordinary occurrences which
could impact the incentive awards, either positively or negatively,
but are, by their nature, outside the significant influence of Plan
participants. The actions of the Board as to the interpretation,
construction, and administration of the Plan shall be final and
binding for all parties, including the Bank and its employees.
4. PARTICIPANTS
Eligibility for participation in the Plan shall be limited to those
individuals approved by the Board of Directors who, in the judgment
of the President and the Board of Directors, are responsible for
directing functions which have a significant bearing on the growth
and profitability of the Bank.
Prior to the beginning of each plan year, participants may be added
or deleted at the discretion of the Board.
5. DEFINITIONS
For the purpose of determining the amount of the incentive
compensation awards under the Operating Rules, the following
definitions shall apply:
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<circle> PERFORMANCE MEASUREMENT FACTORS - Those key operating
ratios, plus other pertinent measures of total Bank performance, on
which the participants will be evaluated. These factors include:
-NET OPERATING INCOME - After-tax net income adjusted for
extraordinary items.
-NET INTEREST MARGIN RATIO - Interest income minus interest expense
divided by average earning assets.
-LOAN GROWTH PERCENTAGE - The average percentage increase or
decrease in the dollar amount of loans outstanding by the Bank as
compared with the previous year.
-DEPOSIT GROWTH PERCENTAGE - The average percentage increase or
decrease in the dollar amount of deposits in the Bank less public
funds and state deposits as compared with the previous year.
-NON-INTEREST INCOME RATIO - The dollar amount of non-interest
income adjusted for extraordinary items divided by average assets.
-SALARY AND BENEFITS EXPENSE RATIO - The dollar amount of salary
expense plus other personnel expense, not including accrued
incentive compensation divided by average assets.
-OTHER OVERHEAD EXPENSES RATIO - The dollar amount of total
overhead expenses minus salary and benefits expenses divided by
average assets.
-COMMERCIAL PAST DUE PERCENTAGE - The average of the four quarterly
past due percentages on commercial loans.
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-INSTALLMENT PAST DUE PERCENTAGE - The average of the four
quarterly past due percentages on installment loans.
-REAL ESTATE PAST DUE PERCENTAGE - The ave age of the four
quarterly past due percentages on real estate loans.
-EARNING ASSETS RATIO - The average dollar amount of total earning
assets divided by the average dollar amount of total assets.
-NET CHARGE-OFFS - Net charged-off divided by average total loans
outstanding not including student loans.
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-NON-INTEREST BEARING DEPOSIT RATIO - The year-to-date average
dollar amount of non-interest bearing demand deposits divided by
the average dollar amount of total deposits.
-SPECIFIC OBJECTIVES - The specific goals and objectives which are
established for certain participants.
<circle> THRESHOLD PERFORMANCE - The minimum or maximum performance
level for each factor below or above which no award will be given;
also, the minimum overall performance level for a single performance
ratio chosen to show overall profitability, currently net operating
income.
<circle> INCENTIVE FACTOR WEIGHTING - A percentage for each of the
incentive factors for each participating position which is used to
modify the basic incentive percentage to reflect the relative
importance of the factor to that position.
<circle> POSITION LEVEL MULTIPLIERS - A multiplier used to
recognize the impact that each senior-level officer has on overall Bank
performance.
<circle> DISCRETIONARY / INDIVIDUAL PERFORMANCE ADJUSTMENT - A
multiplier which allows the Board some subjective discretion in the
determination of the final incentive award for each participant.
<circle> EXTRAORDINARY OCCURRENCES - Those events which, in the
opinion of the Board of Directors, are outside the significant
influence of Plan participants and would, by their inclusion, cause a
significant unintended effect, positive or negative, on the Bank's
operating and financial performance results.
6. INCENTIVE COMPUTATION - GENERAL PROCEDURES
The general formula for converting overall Bank results into
individual incentive awards is as follows:
<circle> Incentive dollars for a participant for the plan year
equals:
-The base annual salary of the participant,
-Times the percentage base award,
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-Times the sum of the basic formula percentage for each
performance measure applicable to the participant's position,
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-Times the "Position Level Multiplier,"
-Times the "Individual Performance Adjustment."
No incentive awards will be granted for a fiscal year, regardless
of performance on individual factors, if the Bank's Net Operating
Income is less than an approved minimum for that fiscal year. In
addition, threshold performance levels are established for each
performance measurement factor. Performance minimums and
threshold performance levels are described in the Operating
Rules.
The calculation of the incentive compensation award may also
include a discretionary incentive award adjustment (noted above
as the "Individual Performance Adjustment").
7. PAYMENT OF INDIVIDUAL INCENTIVE COMPENSATION AWARDS
When the Bank's year-end financial results are known, participants
will receive the incentive payment determined by evaluating their
performance for the year using the formula established for their
position. The award will be paid by February 1 following the plan
year-end or earlier if final numbers or specific projections are
available. Applicable withholding of taxes will be deducted from
each payment.
8. PARTIAL PAYMENTS: TERMINATION OF EMPLOYMENT / NEW HIRES
In the event of termination of employment through retirement or
death, the employee shall be considered to have earned one-twelfth
of the annual incentive compensation award of a particular year for
each full month of employment in the fiscal year of his/her
retirement or death.
If a participant dies, any unpaid incentive awards shall be paid to
the estate, or designated beneficiary, in one lump sum.
Participants may not be added to the Plan after June 1 of the plan
year.
If an individual becomes a new participant prior to June 1 during
the plan year, the incentive compensation award will be earned on
the basis of one-twelfth of the annual incentive compensation for
each full month of participation.
In all other cases of termination, the employee forfeits any unpaid
awards.
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9. INCENTIVE COMPENSATION OPERATING RULES
As of the beginning of each fiscal year, the Board shall review and
revise, if deemed advisable, the operating rules of the Plan for the
year then beginning. The Operating Rules shall include the
following:
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a. Identification of employees selected under Paragraph 4 for
participation in the Plan.
b. Position level multipliers, performance measurement factors and
weightings for determining the amount of the incentive
compensation awards for the fiscal year then beginning.
c. Other administrative and procedural rules which the Board
considers appropriate.
After approval by the Board of Directors, Bank management shall, as
soon as practical, inform each of the participants under the Plan of
the Operating Rules for the fiscal year then beginning.
10.PERFORMANCE PROGRESS REPORTING
The Bank's President, or his designee, will be responsible for
written quarterly reporting to the Board of Directors of Bank
performance during the course of the year. This data is to be made
available to the Board within 30 days of its date of availability.
11.AMENDMENT OR TERMINATION OF PLAN
The Board of Directors may modify, amend, or terminate this Plan at
any time effective at the end of a fiscal year. The modification,
amendment, or termination of the Plan shall in no way affect a
participant's right to unpaid incentive compensation awards for the
year prior to termination or modification.
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SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
OPERATING RULES
1. GENERAL
The following Senior Management Incentive Compensation Plan
Operating Rules will be in effect during 2000 and until
revised. These Operating Rules are subject to change by the Board
of Directors. It is anticipated, however, that the rules will be
revised only when significant changes occur in the Bank's operations
which interrupt the basic continuity of the Plan.
2. PARTICIPANT INCENTIVE PERFORMANCE MEASURES AND WEIGHTINGS
Exhibit A lists the Plan participants, position level multipliers,
performance measurement factors, and weightings for each participant
for each performance measure.
3. INCENTIVE FORMULAS
The performance measures and weightings, including projected data
used for calculating the individual incentive compensation awards,
are shown in Exhibits B through D. Exhibit E shows the projected
incentive compensation at various levels of net operating income.
4. THRESHOLD PERFORMANCE LEVELS
Thresholds of performance have been established for each performance
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measure and are included in each incentive formula.
IN ADDITION TO THE INDIVIDUAL PERFORMANCE MEASUREMENT FACTOR
THRESHOLDS, A MINIMUM NET OPERATING INCOME OF $3,217,319 MUST BE
ATTAINED FOR THE INCENTIVE YEAR 2000 BEFORE ANY INCENTIVE AWARD CAN
BE MADE, REGARDLESS OF INDIVIDUAL PERFORMANCE RESULTS.
Exhibits F through S detail the historical data used for calculating
each performance measure. The threshold level is the percentage or
dollar amount below or above which no award will be made for that
factor.
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5. INDIVIDUAL PERFORMANCE ADJUSTMENTS
Individual performance adjustments may be used to adjust an
individual incentive award upward as far as 1.50 times the
extended award for contributions exceeding the average level in the
judgment of management and/or the Board of Directors.
6. EFFECTIVE DATE
This Plan is effective January 1, 2000.
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<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Senior Management Incentive Compensation Plan
Participants, Performance Measurement Factors, and Weightings
Salary
Net Net Non- and Other
Operating Interest Loan Deposit interest Benefits Overhead
INCOME MARGIN GROWTH GROWTH INCOME EXPENSE EXPENSES
<S> <C> <C> <C> <C> <C> <C> <C>
Chief Executive Officer 30 15 5 5 5 10 10
Senior Financial Officer 15 20 0 0 5 10 10
Senior Commercial Officer 10 15 15 5 10 5 5
Senior Retail Officer 10 15 10 10 10 5 5
Senior Operations Officer 15 10 0 0 15 15 25
Senior Credit Officer 15 15 0 5 5 5 10
</TABLE>
<TABLE>
<CAPTION>
Real Non-
Estate Net Interest
Commercial Installment Past Earning Charge- Bearing Specific
PAST DUE PAST DUE DUE ASSETS OFFS DEPOSITS OBJECTIVES TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chief Executive Officer 5 0 0 5 0 0 10 100%
Senior Financial Officer 0 0 0 15 0 10 15 100%
Senior Commercial Officer 10 0 0 5 5 5 10 100%
Senior Retail Officer 0 5 5 5 5 5 10 100%
Senior Operations Officer 0 0 0 10 0 0 10 100%
Senior Credit Officer 5 5 5 10 10 0 10 100%
</TABLE>
