Attached files

file filename
EX-32 - EX-32 - Federal Home Loan Bank of Topekac878-20131231xex32.htm
EX-31.1 - EX-31.1 - Federal Home Loan Bank of Topekac878-20131231ex311fbc03f.htm
EX-31.2 - EX-31.2 - Federal Home Loan Bank of Topekac878-20131231ex312458dc1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K/A

(Amendment No. 1)

 

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

 

OR

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

 

Commission File Number 000-52004

 

FEDERAL HOME LOAN BANK OF TOPEKA

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

Federally chartered corporation

   

48-0561319

(State or other jurisdiction of

incorporation or organization)

   

(I.R.S. Employer

Identification No.)

 

One Security Benefit Pl. Suite 100

Topeka, KS

   

 

66606

(Address of principal executive offices)

   

(Zip Code)

 

Registrant’s telephone number, including area code: 785.233.0507

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, $100 per share par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes   No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer   Accelerated filer   Non-accelerated filer   Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes   No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

 

 

 

 


 

 

Shares outstanding

as of 03/12/2014

Class A Stock, par value $100

5,144,160

Class B Stock, par value $100

7,688,835

 

Registrant’s common stock is not publicly traded and is only issued to members of the registrant. Such stock is issued, redeemed and repurchased at par value, $100 per share, with all issuances, redemptions and repurchases subject to the registrant’s capital plan as well as certain statutory and regulatory requirements. As of June 28, 2013, the aggregate par value of stock held by current and former members of the registrant was $1,409,911,000, and 14,099,110 total shares were outstanding as of that date.

 

Documents incorporated by reference:  None

1

 


 

EXPLANATORY NOTE

 

The Federal Home Loan Bank of Topeka (the “FHLBank”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment No. 1”) to the FHLBank’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Original Filing”) filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2014, solely to (i) revise the information contained in the column titled “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table and footnote 2 thereto contained in Item 11 of Part III of the Original Filing to remove negative amounts in such column and indicate the removal of such amounts in footnote 2 thereto in accordance with the Instruction 3 to Item 402(c)(2)(viii) of Regulation S-K promulgated by the SEC; and (ii) revise the information contained in the column titled “Total” in such Summary Compensation Table solely to reflect the revisions to the column titled “Change in Pension Value and Nonqualified Deferred Compensation Earnings.

 

This Amendment No. 1 includes currently dated certifications from the FHLBank’s principal executive officer and principal financial officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, attached hereto as Exhibits 31.1, 31.2 and 32. Except as specifically referenced herein, this Amendment No. 1 reflects matters as they existed on the date of filing of the Original Filing, does not modify or update disclosures presented in the Original Filing and does not reflect any event occurring after the date of the Original Filing or modify or update those disclosures. Other forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to the FHLBank after the date of the Original Filing, and such forward-looking statements should be read in conjunction with the Original Filing and the FHLBank’s filings with the SEC subsequent to the Original Filing, including any amendments to those filings. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and the FHLBank’s filings with the SEC subsequent to the Original Filing, including any amendments to those filings.

2

 


 

Item 11. Executive Compensation

 

Compensation Discussion and Analysis

Overview of Previous Year Performance and Compensation: Our overall executive compensation philosophy is to attract, retain, and motivate highly-qualified executive officers who will advance: (1) our business objectives to promote our long-term growth and profitability in accordance with achievement of our long-term strategic objectives; and (2) our mission of supporting our members’ interests.

 

We continued to achieve our mission in 2013 as evidenced by our outstanding results. We met or exceeded all of our short-term objectives and continued our strong performance against our long-term objectives as well. These objectives were designed to drive our performance in key areas that align our incentive compensation with our members’ view of our performance and with our ongoing long-term financial stability.

 

The named executive officers in 2013 were comprised of the President and CEO, the Senior Executive Vice President and COO, the Executive Vice President and CRO, the Senior Vice President and General Counsel, and the Senior Vice President and CAO (the Named Executive Officers). In determining the appropriate total compensation package for our Named Executive Officers, we considered the principal objectives of our compensation program as: (1) attracting and retaining highly-qualified and talented individuals; and (2) motivating these individuals to achieve short- and long-term FHLBank-wide performance goals through incentive compensation.

 

In 2013, we demonstrated the value of our executive compensation philosophy by providing competitive compensation opportunities for our Named Executive Officers based on thoughtful adjustments to base salary and on incentive compensation achievable through our Executive Incentive Compensation Plan (EICP). The EICP provides cash-based annual incentives along with deferred incentive awards which promote the achievement of short- and long-term objectives.

 

The achievement of both short- and long-term goals translated to incentive awards earned by our Named Executive Officers in recognition of their contribution to our overall success.

 

Framework for Compensation Decisions: The Compensation Committee of the Board of Directors (Compensation Committee) oversees the compensation of the Named Executive Officers. The Compensation Committee’s responsibilities in 2013 included:

§

Advising the Board of Directors on the establishment of appropriate compensation, incentive and benefits programs, including recommending performance goals for the EICP;

§

Approving the base salaries and salary adjustments of the COO, CRO, General Counsel, and CAO, as recommended by the CEO; and

§

Recommending to the Board of Directors the base salary, including any salary adjustments, of the CEO.

3

 


 

 

Elements of Executive Compensation in 2013: To implement our compensation objectives, the elements of our 2013 compensation program for the Named Executive Officers included: (1) annual base salary; (2) annual and deferred cash incentive award opportunities under our EICP; (3) award opportunities under our LTIP; (4) retirement and other benefits; and (5) limited perquisites.

 

Annual Base Salary – A significant element of each Named Executive Officer’s total compensation is annual base salary, which is designed to reward our Named Executive Officers for past performance and their commitment to future performance and to serve as the foundation for competitive total compensation. Adjustments to annual base salaries for the Named Executive Officers are considered annually and may be made in April following an analysis of our compensation practices and the FHLBank’s performance in the previous year, as well as projections for future years and other factors.

 

Annual and Deferred Cash Incentive Awards – Effective January 1, 2012, we adopted the EICP as a cash-based annual incentive plan with a long-term deferral component that establishes individual incentive compensation award opportunities related to achievement of performance objectives during the performance periods. The EICP establishes two performance periods: (1) a Base Performance Period aligned with the calendar year; and (2) a Deferral Performance Period (or the long-term performance period), which is a three-year period commencing the calendar year following the Base Performance Period. Named Executive Officers may earn an annual cash incentive during a Base Performance Period and a deferred cash incentive during a Deferral Performance Period. For each Base Performance Period, the Board will establish a Total Base Opportunity for Named Executive Officers. The Total Base Opportunity is equal to a percentage of each Named Executive Officer’s annual base salary at the beginning of the Base Performance Period, and is composed of the cash incentive and the deferred incentive. The EICP effectively combines our previous Executive Short Term Incentive Plan (ESTIP) and Long Term Incentive Plan (LTIP). A detailed discussion related to the analysis undertaken in establishing the performance goals for the EICP is provided below under “Establishment of Performance Goals for Incentive Opportunities.”

 

Long Term Cash Incentive Awards – While the EICP long-term deferral component provides incentive awards for achievement of performance indicated through 2016, our Named Executive Officers were eligible as of December 31, 2013 for award opportunities based on the achievement of strategic goals over the three-year performance period of 2011-2013 under our LTIP. Cash incentive awards under the LTIP were tied to measures for our long-term growth and profitability, which were directly related to long-term strategic objectives during this three-year period for carrying out our mission.

 

A Transitional Long-Term Incentive Plan (TLTIP) was adopted to transition from our existing LTIP, during the three-year period commencing January 1, 2012 and ending December 31, 2014, to the newly adopted EICP. Thus, the LTIP remained in effect for the 2011-2013 performance period. Following the expiration of the 2011-2013 performance period on December 31, 2013, the TLTIP will provide long-term award opportunities for the 2012-2014 performance period. Following the expiration of the TLTIP, the EICP will provide deferred incentive opportunities to eligible employees for all periods thereafter.

 

Retirement and Other Benefits – We maintain a comprehensive retirement program for our eligible employees comprised of two qualified retirement plans: (1) the Pentegra Defined Benefit Plan for Financial Institutions, a tax-qualified multiple-employer defined-benefit plan (DB Plan); and (2) the Pentegra Financial Institutions Thrift Plan, a defined contribution retirement savings plan qualified under the Internal Revenue Code (IRC) for employees of the FHLBank (DC Plan).

 

In 2013, each of the Named Executive Officers participated in the DB Plan, which required no contribution from any Named Executive Officer. Employees hired after January 1, 2009 are not eligible to participate in the DB Plan. However, because each of our Named Executive Officers was hired prior to January 1, 2009, each remains eligible to participate in the DB Plan.

 

All employees who have met the eligibility requirements can choose to participate in the DC Plan. We match employee contributions based on the length of service and the amount of an employee’s contribution. These employer contributions are immediately 100 percent vested. Matching ratios for all employees, including the Named Executive Officers, under the DC Plan are as follows:

 

 

 

Year 1

No match

Years 2 through 3

100 percent match up to 3 percent of employee’s eligible compensation

Years 4 through 5

150 percent match up to 3 percent of employee’s eligible compensation

After 5 years

200 percent match up to 3 percent of employee’s eligible compensation

 

4

 


 

In response to federal legislation, which imposed restrictions on the pension benefits payable to our executives, we subsequently established a third retirement plan, the Benefit Equalization Plan (BEP) in order to maintain the competitive level of our total compensation for executive officers, including the Named Executive Officers. Generally, the BEP is characterized as a non-qualified “excess benefit” plan, which restores those retirement benefits that exceed the IRC limits applicable to the qualified DB Plan and DC Plan. In this respect, the BEP is an extension of our retirement commitment to our Named Executive Officers and other eligible highly compensated employees that preserves and restores the full pension benefits that, due to IRC limitations, are not payable from the qualified pension plans.

 

As of December 31, 2013, each of the Named Executive Officers would be entitled to receive his or her respective balance of compensation deferred through participation under the BEP within ninety days of any such Named Executive Officer’s termination of employment due to death, disability or retirement and upon a change in control as defined in the BEP and in accordance with IRC Section 409A and applicable regulations. For each Named Executive Officer, these amounts are listed in Table 79 under the column titled “Aggregate Balance at Last FYE.”

 

We are also committed to providing competitive benefits designed to promote health and welfare for all employees (including their families), including the Named Executive Officers. We offer all employees a variety of benefits including medical, dental, vision, prescription drug, life insurance, long-term disability, flexible spending accounts, employee assistance program and travel accident insurance. The Named Executive Officers participate in these benefit programs on the same basis as all other eligible employees.

 

Perquisites – The Board of Directors views limited perquisites afforded to the Named Executive Officers as an element of the total compensation program. Any perquisites provided, however, are not intended to materially add to any Named Executive Officer’s compensation package and, as such, are provided to them primarily as a convenience associated with their respective duties and responsibilities. Examples of perquisites that were provided to the Named Executive Officers in 2013 are the personal use of an FHLBank-owned automobile for the President and limited spousal travel for Named Executive Officers.

 

Categorical types of perquisites provided to the Named Executive Officers in 2013 are presented and detailed in the Summary Compensation Table (see Table 75 under this Item 11) and are more specifically described in the case that aggregate perquisites to any single Named Executive Officer exceeded $10,000.

 

Analysis of Compensation Decisions in 2013: For 2013, the Compensation Committee again determined that appropriate annual base salaries for each Named Executive Officer should be competitive with the salaries of comparable executive positions within financial institutions that the Compensation Committee defined as our peers for purposes of providing guideposts for a competitive compensation analysis, as discussed in more detail below under “Use of Benchmarks.” Adjustments to annual base salaries of the Named Executive Officers for 2013 were based on: (1) each Named Executive Officer’s scope of responsibility and accountability; (2) analysis of our comparator peer groups (as described below); (3) performance of the FHLBank based on achievement levels of FHLBank-wide goals in the prior year; (4) the perceived performance of each Named Executive Officer, as a subjective matter; and (5) other factors such as experience, time in position, general economic conditions, and labor supply and demand conditions.

 

The Compensation Committee also considered guidance and communications from its regulator, the Finance Agency, in determining total compensation for the Named Executive Officers as more specifically addressed below under “Finance Agency Oversight.”

 

Use of Benchmarks – We believe a key to attracting and retaining highly-qualified executive officers is the identification of the appropriate peer groups within which we must compete for executive talent. We have historically recruited nationally in our efforts to attract highly-qualified candidates for the Named Executive Officer positions. To ensure that we are offering and paying competitive compensation to retain our Named Executive Officers, the Board of Directors (and/or Compensation Committee) has periodically retained compensation consultants to assist with comparative analyses of the Named Executive Officers’ total compensation through a review of survey data reflecting potential comparator benchmarks for total compensation. Our Compensation Committee has used such survey data as guideposts in considering and determining competitive levels of base salary and total compensation for our Named Executive Officers among other factors as described above.

 

In 2013, the Compensation Committee considered the competitiveness of the total compensation paid to our Named Executive Officers by reviewing comparative survey data obtained from the compensation consultant, McLagan Partners, Inc. (McLagan). The Compensation Committee looked primarily to McLagan’s FHLBank Custom Compensation Survey and available pay data; and secondarily to a subset of McLagan’s proprietary survey database for financial services institutions. Based on advice of McLagan, the Compensation Committee selected a subset of survey data within McLagan’s proprietary survey database to reflect information about a more narrow survey group of comparator financial services institutions.

5

 


 

The decision to remain competitive primarily with the other FHLBanks and to also consider the broader labor market of a limited group of financial services institutions reflects our belief that the knowledge and skills necessary to effectively perform our Named Executive Officers’ duties may be developed as a result of experience not only at other FHLBanks, but also at a variety of other financial services institutions. We also recognize that Topeka’s geographic location may be a disadvantage in attracting executives, but generally is a positive factor in retaining executives.

 

Of the FHLBank-based survey data and the broader survey data utilized, the Compensation Committee considered the 25th percentile, 50th percentile (median) and 75th percentile compensation ranges for analyzing executive positions similar to those of our Named Executive Officers in considering the competitiveness of our total compensation for the Named Executive Officers. The Compensation Committee generally strives to establish annual base salary and incentive compensation opportunities for our Named Executive Officers in the median range of the survey data reviewed assuming target level performance would be achieved. The ultimate compensation determined appropriate in any given year, however, will depend on the scope of a Named Executive Officer’s responsibilities as compared to similar positions within our identified peer groups, the experience and performance of the individual Named Executive Officer, and our overall performance. Generally, the Compensation Committee and CEO operate to recommend below median pay for poor performance and above median pay for superior performance. While survey information is one factor in setting compensation for our Named Executive Officers, we believe that surveys should not override the need for independent decisions by the Compensation Committee that are consistent with our financial condition and future prospects.

 

Consideration of Individual Performance – As an additional factor, the individual performance of each Named Executive Officer is considered by the Compensation Committee and by the CEO in determining whether it is appropriate to increase annual base salaries of our Named Executive Officers based on a subjective determination of the perceived contribution of each Named Executive Officer.

 

Consideration of Internal Pay Equity – A final factor that the Compensation Committee generally considers in determining base salary increases in its effort to retain our Named Executive Officers is the relative difference in compensation between the executive officers as well as the pay relationship between executive officers and other employees at the FHLBank. The Compensation Committee believes that internal pay equity provides an additional perspective to that of peer group survey compensation information. While comparisons to compensation levels of executive positions within our peer groups are the primary basis used to assess the overall competitiveness of our compensation program, we also believe that our executive compensation practices should be internally consistent and equitable.

 

In 2013, the Compensation Committee and the CEO determined that, with respect to competitive pay positioning for purposes of retaining our Named Executive Officers, it was appropriate to increase the base salaries of the Named Executive Officers to maintain competitive total compensation. Consideration was also given to each Named Executive Officer’s scope of responsibility, the perceived performance of each Named Executive Officer and other factors as described above, including the performance of the FHLBank. As a result of the Compensation Committee’s consideration of these factors, the Compensation Committee recommended and the Board approved an increase to our CEO’s base salary of three percent from his prior salary. For the same reasons, the Compensation Committee determined to increase the base salaries for our COO by three percent; the CRO by two percent; and our General Counsel and CAO by five percent. These increases were generally consistent with increases of approximately three percent received by most of our other employees’ base salaries for 2013 due to the financial performance of the FHLBank and individual performance. All recommended salary increases were effective April 1, 2013, subject to review by the Finance Agency. Our General Counsel and CAO received higher increases in base salary for 2013 than the other Named Executive Officers as a result of market-based adjustments in comparison to survey data and in recognition of previous performance.

 

Establishment of Performance Goals for Incentive Award Opportunities in 2013: We believe that well-designed incentive compensation plans provide important opportunities to motivate our Named Executive Officers to accomplish financial and operational goals that promote our mission. Thus, motivating our Named Executive Officers to accomplish business and financial short- and long-term goals that promote a high level of performance for our members is a key objective of our total compensation program. Consequently, our compensation and benefits programs are designed to motivate our Named Executive Officers to engage in the behaviors and performance necessary to deliver our desired results.

 

To effectively motivate the Named Executive Officers to accomplish both short- and long-term goals that promote our performance, we believe that incentive awards must represent pay at risk. In other words, the administration of our incentive compensation plans must be such that awards are distributed only in exchange for accomplishing pre-established, Board of Directors-approved goals, and are distributed only in accordance with such achievement. In 2013, we achieved this compensation objective through attainment of objectives under our EICP and attainment of long-term objectives over the three-year performance period of our LTIP that began in 2011.

6

 


 

EICP – Beginning in the fourth quarter of 2012, goal metrics, metric performance ranges and metric weights for award opportunities under the 2013 EICP were developed. The proposed performance objectives reflected the drivers of our business and mission and were based upon the Compensation Committee’s and management’s discussions with respect to our primary mission and stockholder perceptions of success. The Compensation Committee and management appropriately aligned the performance objectives to the Strategic Business Plan. The Compensation Committee reviewed and analyzed the proposed performance objectives, as appropriate, for 2013 before submitting the objectives to the Board of Directors for approval in December 2012.

 

For the Base Performance Period of January 1, 2013 to December 31, 2013, the Board of Directors approved a Total Base Opportunity equal to a percentage of each Named Executive Officer’s annual base salary at the beginning of the Base Performance Period. Certain Named Executive Officers have a greater and more direct impact than others on the success of the FHLBank; therefore, these differences are recognized by varying the Total Base Opportunity for each Named Executive Officer. The Total Base Opportunity is the amount that may be earned for achieving performance levels under established Performance Measures and is comprised of the Cash Incentive and the Deferred Incentive. The Deferred Incentive is 50 percent of the Total Base Opportunity, which shall be deferred for the Deferred Performance Period, which is the three-year period from January 1, 2014 to December 31, 2016, over which the FHLBank’s performance is measured based on specific parameters. The Cash Incentive is the portion of the Total Base Opportunity that is not the Deferred Incentive and becomes payable after the end of the Base Performance Period upon achievement of established Performance Measures, subject to review by the Director of the Finance Agency.

 

Awards under the EICP may be granted for achievement of Performance Measures corresponding to achievement levels, from threshold, to target, to optimum performance for each goal metric. Threshold represents the minimum achievement level; target represents the expected achievement level; and optimum represents the achievement level that substantially exceeds the target level. Awards may be earned for performance anywhere within these achievement levels as a percentage of base salary that corresponds to actual performance. For performance that falls between any two levels of achievement, linear interpolation is used to ensure that the award is consistent with the level of performance achieved. Named Executive Officers may earn annual awards expressed as a percent of their earned base salary. Table 68 presents the Total Base Opportunity for each Named Executive Officer for each achievement level for the Base Performance Period:

 

Table 68

 

Position

Total Base Opportunity

Threshold Award

Target Award

Optimum Award

CEO

 

60.0 

%

 

80.0 

%

 

100.0 

%

COO

 

45.0 

 

 

65.0 

 

 

85.0 

 

CRO, General Counsel and CAO

 

30.0 

 

 

50.0 

 

 

70.0 

 

 

7

 


 

The Total Base Opportunity Goal Metrics for 2013 are described in Table 69:

 

Table 69

 

 

 

Total Base Opportunity Goal Metric

Definition

Adjusted Return Spread on Class B Common Stock1

The spread between Pre-ASC 815, Pre-AHP adjusted return available for Class B Common Stock (weighted by the amount Class B Common Stock outstanding each day) and the average daily Overnight Federal funds effective rate.

Net Income After Capital Charge1

The dollar amount of adjusted income as defined in the above metric, but Post-AHP assessment, which exceeds the cost of the required return on capital.

Retained Earnings

The dollar amount of our GAAP Retained Earnings as of 12/31/2013. 

Mission Product Utilization

Member usage of mission-oriented products. Mission-oriented products consist of the following: AHP; CICA - CHP and CDP Homeownership Set-aside Programs; and JOBS.

Risk Management – Market, Credit and Liquidity Risks

Management of our risks as determined by the weighted average rating by the Board of Directors in an annual evaluation of the Risk Appetite metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk categories are market, credit, and liquidity risks.

Risk Management – Compliance, Business and Operations Risks

Management of our risks as determined by the weighted average rating by the Board of Directors in an annual evaluation of the Risk Appetite metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk categories are compliance, business and operations risks.

          

1

As part of evaluating our financial performance and measuring EICP performance, we begin with the components of “adjusted income” and “adjusted ROE,” non-GAAP measures defined in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.” We adjust net income reported in accordance with GAAP for the impact of: (1) AHP assessments; (2) fair value changes on derivatives and hedging activities (excludes net interest settlements related to derivatives not qualifying for hedge accounting); and (3) other items excluded because they are not considered a part of our routine operations or ongoing business model, such as prepayment fees, gain/loss on retirement of debt, gain/loss on mortgage loans held for sale and gain/loss on securities. The result is referred to as adjusted income, which can be compared to our peers. For measuring our EICP performance, we further adjust for other items excluded because they are not considered a part of our routine operations or ongoing business model, such as interest expense on mandatorily redeemable capital stock, amortization of derivative option costs and amortization/accretion of premium/discount on unswapped MBS classified as trading. This resulting EICP adjusted income, also a non-GAAP measure of income, is used to compute an EICP adjusted ROE that is then compared to the average overnight Federal funds effective rate with the difference referred to as EICP adjusted ROE spread.

 

The profit-oriented objectives of “Adjusted Return Spread on Class B Common Stock” and “Net Income After Capital Charge” (non-GAAP measures) were based on: (1) the belief that profitability is critical to the long-term viability of the organization; and (2) the understanding that the holders of Class B Common Stock represent the members constituting the primary users of our products and services. The “Risk Management” objectives were included in recognition of the impact that the Named Executive Officers have on management of business, operations, market, credit, liquidity and compliance risks and an effort to reward positive risk management performance as determined by the Board of Directors. We divided the risk management objectives to provide balance and focus in the amount of risk exposure we are willing to accept/retain in pursuit of stakeholder value. The “Retained Earnings” objective reflects our desire to ensure we operate from a position of capital strength and take appropriate steps to protect our members from the potential impairment of the par value of our capital stock. Finally, the performance objective for “Mission Product Utilization” addresses the members’ usage of certain mission-oriented products.

 

8

 


 

Award levels were set at threshold, target and optimum percentages of annual base salary. Table 70 sets forth the specific annual goal performance ranges and the actual achievement for each of our Total Base Opportunity Goal Metrics in 2013:

 

Table 70

 

 

 

 

 

 

Total Base Opportunity Goal Metrics

Annual

Performance

Range

Adjusted Return Spread on Class B Common Stock

Threshold

 

6.24 

%

   

Target

 

11.28 

%

   

Optimum

 

16.32 

%

 

Achievement

 

11.60 

%

Net Income After Capital Charge

Threshold

$

39,780,680 

 

   

Target

$

79,561,359 

 

   

Optimum

$

119,342,039 

 

 

Achievement

$

83,960,990 

 

Retained Earnings

Threshold

$

499,794,258 

 

 

Target

$

539,574,938 

 

 

Optimum

$

579,355,617 

 

 

Achievement

$

567,331,845 

 

Mission Product Utilization1

Threshold

 

305 

 

 

Target

 

360 

 

   

Optimum

 

415 

 

 

Achievement

 

406 

 

Risk Management – Market, Credit and Liquidity Risks (5.0 point scoring scale)

Threshold

 

3.0 

 

   

Target

 

3.5 

 

   

Optimum

 

5.0 

 

 

Achievement

 

4.96 

 

Risk Management – Compliance, Business and Operations Risks (5.0 point scoring scale)

Threshold

 

3.0 

 

   

Target

 

3.5 

 

   

Optimum

 

5.0 

 

 

Achievement

 

4.36 

 

          

1

The performance range for “Mission Product Utilization” is based on the number of our members at the time of mission product usage that qualify as users of a product at any time during the calendar year. Program participation use is credited and remains credited for the entire calendar year irrespective of whether the participating member is subsequently acquired, merged or otherwise terminates its membership.

 

As reflected in Table 70, 2013 was a strong year for us regarding the achievement of our EICP base opportunity performance objectives.

 

Table 71 provides the: (1) metric weight for each Total Base Opportunity Goal Metric as a percent of the Total Base Opportunity for each Named Executive Officer in 2013; and (2) the 2013 goal achievement percentage for all goals.

 

Table 71

 

Performance Objective

Metric Weight

CEO/COO

CRO/CAO

General Counsel

Adjusted Return Spread on Class B Common Stock

 

20 

%

 

10 

%

 

15 

%

Net Income After Capital Charge

 

20 

 

 

10 

 

 

15 

 

Retained Earnings

 

10 

 

 

20 

 

 

10 

 

Mission Product Utilization

 

10 

 

 

10 

 

 

10 

 

Risk Management – Market, Credit, and Liquidity Risks

 

20 

 

 

25 

 

 

25 

 

Risk Management – Compliance, Business, and Operations Risks

 

20 

 

 

25 

 

 

25 

 

 

9

 


 

The final value of the Deferred Incentive portion of the Total Base Opportunity is measured by evaluating Performance Measures as presented in Table 72, which provides a template of how amounts will be calculated for the calendar year 2014 to calendar year 2016:

 

Table 72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum

 

 

Threshold

 

 

Target

 

 

Maximum

 

Total Return1:

 

>8/12 vs. FHLBanks

 

 

8/12 vs. FHLBanks

 

 

5/12 vs. FHLBanks

 

 

2/12 or 1/12 vs. FHLBanks

 

Deferred Incentive

$

 

 

$

 

 

$

 

 

$

 

 

Performance Measure Percentage

 

%

 

75 

%

 

100 

%

 

125 

%

Weighting

 

0.50 

 

 

0.50 

 

 

0.50 

 

 

0.50 

 

Dollar Value (Deferred Incentive x Performance Measure Percentage x Weight)

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Value of Equity (MVE) / Total Regulatory Capital Stock (TRCS)2:

 

>9/12 vs. FHLBanks

 

 

9/12 vs. FHLBanks

 

 

6/12 vs. FHLBanks

 

 

2/12 or 1/12 vs. FHLBanks

 

Deferred Incentive

$

 

 

$

 

 

$

 

 

$

 

 

Performance Measure Percentage

 

%

 

75 

%

 

100 

%

 

125 

%

Weighting

 

0.50 

 

 

0.50 

 

 

0.50 

 

 

0.50 

 

Dollar Value (Deferred Incentive x Performance Measure Percentage x Weight)

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Value (Dollar Value for Total Return + Dollar Value for MVE/TRCS)

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Incentive Opportunity Percentage

Level I (40%)

Level II (32.5%)

Level III (25%)

 

 

%

 

 

%

 

 

%

 

 

%

Deferred Incentive Award (Total Value x Deferred Incentive Opportunity Percentage)

$

 

 

$

 

 

$

 

 

$

 

 

          

1

Total Return equals the Total Dividends, plus the Change in Retained Earnings, divided by the Average Capital. For FHLBank Topeka: Total Dividends is defined as the sum of the actual dividends paid on required Class A Common Stock and all Class B Common Stock during the three-year Performance Period; Change in Retained Earnings is defined as the change in retained earnings from 12/31/2013 to 12/31/2016; and Average Capital is defined as the average daily ending balance of required Class A Common Stock and all Class B Common Stock for dates starting with 01/01/2014 and ending 12/31/2016. For the other FHLBanks, unless determined otherwise by the Compensation Committee: Total Dividends is defined as all dividends paid on all capital stock during the three-year period; Change in Retained Earnings is defined as the change in retained earnings from 12/31/2013 to 12/31/2016; and Average Capital is defined as the average daily ending balance of all capital stock outstanding for dates starting with 01/01/2014 and ending 12/31/2016. For performance comparison purposes, FHLBank Topeka will be ranked against the other FHLBanks, with the highest total return being the best performance, and ranking 1st out of the 12 FHLBanks.

2

Using amounts reported on the Trendbook Analysis from the Finance Agency Call Report System (CRS), MVE/TRCS is calculated by dividing base case MVE by TRCS (TRCS calculated as Total Regulatory Capital minus Retained Earnings) calculated at the end of the Deferral Performance Period. For performance comparison purposes, FHLBank Topeka will be ranked against the other FHLBanks, with the highest MVE/TRCS being the best performance, and ranking 1st out of the 12 FHLBanks.

 

For any Performance Period, a Final Award will not be payable if we fail to achieve performance at or above the Performance Measure(s) set by the Compensation Committee or under any of the following circumstances: (1) we receive a composite “4” or “5” rating in our Finance Agency examination in any single year in any single Base Performance Period or Deferral Performance Period; (2) the Board of Directors finds a serious, material safety-soundness problem or a serious, material risk management deficiency exists; (3) during the most recent Finance Agency examination, the Finance Agency identified an unsafe or unsound practice or condition that is material to the financial operation of the FHLBank within a Named Executive Officer’s area(s) of responsibility and such unsafe or unsound practice or condition is not subsequently resolved in favor of the FHLBank by the last day of the Base Performance Period or Deferral Performance Period; or (4) a given participant does not achieve satisfactory individual achievement levels (as determined in the sole discretion of the Compensation Committee) during the Deferral Performance Period. Additionally, the Final Award shall be reduced by one-third for each year during the Deferral Performance Period in which we have negative net income, as defined and in accordance with GAAP.

 

10

 


 

LTIP – Under the LTIP for January 1, 2011 – December 31, 2013, the achievement of base award opportunities is measured over a three-year performance period. Table 73 presents the Base Award Opportunity Percentage for each Named Executive Officer eligible to participate in the Performance Period under the LTIP for January 1, 2011 – December 31, 2013:

 

Table 73

 

 

 

 

 

 

 

 

 

Named Executive Officer

Level

2011-2013

Base Award Opportunity

Percentage

2011-2013

Base Award Opportunity

Percentage Achieved

Andrew J. Jetter

Level I

 

40 

%

 

47.92 

%

David S. Fisher

Level II

 

30 

 

 

35.94 

 

Mark E. Yardley

Level II

 

30 

 

 

35.94 

 

Patrick C. Doran

Level III

 

20 

 

 

23.96 

 

Denise L. Cauthon

Level III

 

20 

 

 

23.96 

 

 

The weighted average achievement for the 2011-2013 performance goals was 119.79 percent. The metric weight for the 2011-2013 performance goals as a percent of the total LTIP award opportunity for all Named Executive Officers and the 2011-2013 goal achievement percentage is included in Table 74:

 

Table 74

 

 

 

 

 

 

 

 

Objective

Metric Weight

2011-2013 Goal

Achievement Percentage

Total Return

 

37.5 

%

 

150.0 

%

Expense Growth

 

25.0 

%

 

66.7 

%

Market Value of Equity/Total Regulatory Capital Stock

 

37.5 

%

 

125.0 

%

 

Why We Choose to Pay These Elements: We believe the Compensation Committee’s analyses described above provided an appropriate process to determine 2013 compensation levels for each Named Executive Officer that reasonably positions us to competitively manage our operations for success and to accomplish our mission.

 

The mix of compensation elements that comprised the total compensation of our Named Executive Officers in 2013, particularly allowed us to provide total compensation that we believe appropriately balanced reasonable guaranteed pay through carefully considered base salary determinations with additional at-risk cash compensation opportunities for the Named Executive Officers. This means that while we strived to match an appropriate level of compensation comparable to that reflected by our perceived peer groups and internal pay analysis through annual base salary and retirement benefits components, we also strived to provide a component of compensation that is at-risk in both the shorter term and the longer term. These at-risk awards represent an opportunity to reward our Named Executive Officers based on the achievement of both our annual and long-term performance goals and the discretion vested in our Compensation Committee.

 

The Committee believes that the Supplemental Thrift Plan, as defined under “Deferred Compensation” in this Item 11, and the defined benefit portion of the BEP provide additional retirement benefits that are necessary for our total compensation package to remain competitive, particularly compared with competitors who may offer equity-based compensation. Additional information regarding these plans can be found in the narratives to the Pension Benefits and Nonqualified Deferred Compensation tables in this Item 11.

 

Severance Benefits: We provide severance benefits to the Named Executive Officers pursuant to our Officer Severance Policy. The policy’s primary objective is to provide a level of protection to officers from loss of income during a period of unemployment. These officers are eligible to receive severance pay under the policy if we terminate the officer’s employment with or without cause, subject to certain limitations. These limitations include: (1) the officer voluntarily terminates employment; (2) the officer’s employment is terminated by us for misconduct; or (3) the officer accepts employment or refuses other employment offered by us at or before the time of termination.

 

11

 


 

Provided the requirements of the policy are met and the Named Executive Officer provides us an enforceable release, the Named Executive Officer will receive severance pay equal to the following amount of his or her final annual base salary indicated for the officer’s title.

 

 

 

President (CEO)

52 weeks

Executive Vice President (COO and CRO)

39 weeks

Senior Vice President (General Counsel and CAO)

26 weeks

 

See “Potential Payments Upon Termination or Change in Control” in this Item 11 for more information related to potential payouts on termination or change in control attributable to each Named Executive Officers as of December 31, 2013.

 

Finance Agency Oversight: Section 1113 of the Recovery Act requires that the Director of the Finance Agency prevent an FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. In 2009, the Finance Agency issued an advisory bulletin establishing certain principles for executive compensation at the FHLBanks and the Office of Finance that include: (1) such compensation must be reasonable and comparable to that offered to executives in similar positions at comparable financial institutions; (2) such compensation should be consistent with sound risk management and preservation of the par value of FHLBank stock; (3) a significant percentage of an executive’s incentive based compensation should be tied to longer-term performance and outcome-indicators and be deferred and made contingent upon performance over several years; and (4) the Board of Directors should promote accountability and transparency in the process of setting compensation. On January 28, 2014, the Finance Agency issued a final rule on executive compensation, which defines “reasonable” and “comparable” compensation and establishes the review and approval process for certain compensation payments and agreements.

 

On April 14, 2011, the Finance Agency issued a joint proposed rule, along with six other federal financial regulators, that could impose additional requirements and restrictions on incentive compensation for our Named Executive Officers. We have taken the proposed rule into consideration in adopting our EICP, effective January 1, 2012. However, it is unknown what requirements will ultimately be enacted by the Finance Agency.

 

The FHLBanks have been directed to provide all compensation actions affecting their Named Executive Officers to the Finance Agency for review.

 

Compensation Committee Report: The Compensation Committee of our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our annual report on Form 10-K.

 

The Compensation Committee

of the Board of Directors

Richard S. Masinton, Chair

Harley D. Bergmeyer

Robert E. Caldwell II

G. Bridger Cox

Thomas E. Henning

Mark J. O’Connor

Mark W. Schifferdecker

 

12

 


 

Table 75 presents the Summary Compensation Table for the Named Executive Officers.

 

Table 75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and Principal Position

Year

Salary

Non-Equity Incentive Plan Compensation1

Change in Pension Value and Nonqualified Deferred Compensation Earnings2

All Other Compensation3

Total

Andrew J. Jetter4

2013

$

665,750 

 

$

586,898 

 

$

17,716 

 

$

77,840 

 

$

1,348,204 

 

President & CEO

2012

 

646,350 

 

 

604,913 

 

 

813,382 

 

 

55,075 

 

 

2,119,720 

 

   

2011

 

627,500 

 

 

606,062 

 

 

1,169,289 

 

 

55,792 

 

 

2,458,643 

 

David S. Fisher5

2013

 

440,186 

 

 

307,849 

 

 

17,838 

 

 

44,485 

 

 

810,358 

 

SEVP & COO

2012

 

427,875 

 

 

319,683 

 

 

206,265 

 

 

43,805 

 

 

997,628 

 

   

2011

 

416,925 

 

 

324,486 

 

 

214,844 

 

 

40,026 

 

 

996,281 

 

Mark E. Yardley6

2013

 

330,165 

 

 

210,840 

 

 

10,337 

 

 

33,254 

 

 

584,596 

 

EVP & CRO

2012

 

320,925 

 

 

217,346 

 

 

399,674 

 

 

32,748 

 

 

970,693 

 

   

2011

 

312,675 

 

 

226,287 

 

 

609,535 

 

 

30,723 

 

 

1,179,220 

 

Patrick C. Doran7

2013

 

280,021 

 

 

142,437 

 

 

1,230 

 

 

23,105 

 

 

446,793 

 

SVP & General Counsel

2012

 

266,675 

 

 

145,549 

 

 

111,128 

 

 

21,880 

 

 

545,232 

 

   

2011

 

255,025 

 

 

151,455 

 

 

134,988 

 

 

20,033 

 

 

561,501 

 

Denise L. Cauthon8

2013

 

210,301 

 

 

127,635 

 

 

74 

 

 

17,446 

 

 

355,456 

 

SVP & CAO

2012

 

200,275 

 

 

63,268 

 

 

168,000 

 

 

19,175 

 

 

450,718 

 

 

2011

 

189,750 

 

 

71,559 

 

 

250,000 

 

 

14,999 

 

 

526,308 

 

                   

 

 

1

All compensation reported under “non-equity incentive plan compensation” represents performance awards earned pursuant to achievement of performance objectives under the FHLBank’s ESTIP (for 2011), EICP (for 2012 and 2013), and LTIP (for the 2009-2011, 2010-2012, and 2011-2013 performance periods in 2011, 2012, and 2013, respectively). Ms. Cauthon was not a participant in the 2009-2011 LTIP or the 2010-2012 LTIP; however, her 2013 annual incentive was adjusted to account for her transition to the LTIP.

2

The change in pension value will fluctuate with changes in discount rates used to calculate the present value of accumulated benefits and can result in decreases.  However per SEC rules, any net actuarial decreases in pension plan values have been excluded from this column. Nonqualified deferred compensation earnings includes above market earnings attributable to the BEP, which are calculated by multiplying the nonqualified deferred compensation balance as of January 1 of the applicable year by the average rate of return in excess of the long-term applicable Federal rate (120 percent compounded quarterly) published by the IRS.

3

The 2013 components of All Other Compensation are provided in Table 76.

4

Above market earnings attributable to the BEP for Mr. Jetter were $17,716, $29,382, and $15,289 for 2013, 2012, and 2011, respectively. The aggregate change in the value of Mr. Jetter’s accumulated benefit under the FHLBank’s DB Plan was $(86,000), $182,000, and $310,000 for 2013, 2012, and 2011, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the FHLBank’s BEP was $(427,000), $602,000, and $844,000 for 2013, 2012, and 2011, respectively.

5

Above market earnings attributable to the BEP for Mr. Fisher were $5,838, $9,265, and $3,844 for 2013, 2012, and 2011, respectively. The aggregate change in the value of Mr. Fisher’s accumulated benefit under the FHLBank’s DB Plan was $12,000, $74,000, and $84,000 for 2013, 2012, and 2011, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $0, $123,000, and $127,000 for 2013, 2012, and 2011, respectively.

6

Above market earnings attributable to the BEP for Mr. Yardley were $10,337, $16,674, and $8,535 for 2013, 2012, and 2011, respectively. The aggregate change in the value of Mr. Yardley’s accumulated benefit under the FHLBank’s DB Plan was $(95,000), $200,000, and $344,000 for 2013, 2012, and 2011, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $(150,000), $183,000, and $257,000 for 2013, 2012, and 2011, respectively.

7

Above market earnings attributable to the BEP for Mr. Doran were $1,230, $2,128, and $988 for 2013, 2012, and 2011, respectively. The aggregate change in the value of Mr. Doran’s accumulated benefit under the FHLBank’s DB Plan was $(14,000), $72,000, and $92,000 for 2013, 2012, and 2011, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $(17,000), $37,000, and $42,000 in 2013, 2012, and 2011, respectively.

8

Above market earnings attributable to the BEP for Ms. Cauthon were $74 for 2013. The aggregate change in the value of Ms. Cauthon’s accumulated benefit under the FHLBank’s DB Plan was $(111,000), $149,000, and $246,000 for 2013, 2012, and 2011, respectively. The aggregate change in the value of her accumulated benefit under the defined benefit portion of the BEP was $28,000, $19,000, and $4,000 for 2013, 2012, and 2011, respectively.

 

13

 


 

Table 76 presents the components of “All Other Compensation” for 2013 as summarized in Table 75.

 

Table 76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

Perquisites and Personal Benefits1

Individual Disability Insurance

Life Insurance Premiums

Long Term Disability Premiums

FHLBank Contribution to DC Plan

FHLBank Contribution to Defined Contribution Portion of BEP

Total All Other Compensation

Andrew J. Jetter

$

10,830 

 

$

6,733 

 

$

1,435 

 

$

923 

 

$

15,300 

 

$

42,619 

 

$

77,840 

 

David S. Fisher

 

-

 

 

6,456 

 

 

910 

 

 

923 

 

 

15,300 

 

 

20,896 

 

 

44,485 

 

Mark E. Yardley

 

-

 

 

3,946 

 

 

665 

 

 

923 

 

 

15,248 

 

 

12,472 

 

 

33,254 

 

Patrick C. Doran

 

-

 

 

-

 

 

550 

 

 

879 

 

 

15,300 

 

 

6,376 

 

 

23,105 

 

Denise L. Cauthon

 

-

 

 

-

 

 

416 

 

 

666 

 

 

15,300 

 

 

1,064 

 

 

17,446 

 

                   

1

Perquisites and personal benefits are only included if more than $10,000 in aggregate for an individual. Mr. Jetter’s perquisites and personal benefits consist of an FHLBank-provided vehicle, financial and tax planning services, cellular phone reimbursement and expenses for spousal travel.

 

Table 77 presents the Grants of Plan Based Awards Table for the Named Executive Officers.

 

Table 77

 

Name

Plan

Estimated Future Payouts Under Non-Equity Incentive Plan Awards1

Threshold

Target

Maximum

Andrew J. Jetter

EICP-Cash Incentive

$

195,330 

 

$

260,440 

 

$

325,550 

 

President & CEO

EICP-Deferred Incentive Opportunity2

 

195,330 

 

 

260,440 

 

 

325,550 

 

David S. Fisher

EICP-Cash Incentive

 

96,863 

 

 

139,913 

 

 

182,963 

 

SEVP & COO

EICP-Deferred Incentive Opportunity2

 

96,863 

 

 

139,913 

 

 

182,963 

 

Mark E. Yardley

EICP-Cash Incentive

 

48,435 

 

 

80,725 

 

 

113,015 

 

EVP & CRO

EICP-Deferred Incentive Opportunity2

 

48,435 

 

 

80,725 

 

 

113,015 

 

Patrick C. Doran

EICP-Cash Incentive

 

40,485 

 

 

67,475 

 

 

94,465 

 

SVP & General Counsel

EICP-Deferred Incentive Opportunity2

 

40,485 

 

 

67,475 

 

 

94,465 

 

Denise L. Cauthon

EICP-Cash Incentive

 

30,405 

 

 

50,675 

 

 

70,945 

 

SVP & CAO

EICP-Deferred Incentive Opportunity2

 

30,405 

 

 

50,675 

 

 

70,945 

 

                   

1

Amounts reflected for the EICP represent the applicable range of estimated future payouts and do not represent amounts actually earned or awarded for the fiscal year ended December 31, 2013. Award amounts are calculated using the base salaries in effect on January 1 at the beginning of the performance period. The EICP-Cash Incentive, if any, are earned and vested at year end. Awards, if any, under the EICP-Deferred Incentive Opportunity are payable in the year following the end of the three-year performance period. See discussion under EICP under this Item 11 for a description of the terms of the EICP and future payouts.

2

The final value of the EICP-Deferred Incentive Opportunity may be $0 if threshold metrics are not met, 75 percent of initial deferral at threshold, 100 percent at target and 125 percent at maximum.

 

Forfeiture Provisions – A Named Executive Officer, in the discretion of the Compensation Committee, may be required to forfeit an award earned under the EICP if the Named Executive Officer is: (1) discharged from employment with the FHLBank for Good Cause as defined under the EICP; (2) engages in competition with the FHLBank or interferes with the business relationships of the FHLBank during his employment or following his termination; (3) discloses confidential information of the FHLBank; or (4) refuses to report to the FHLBank any discoveries or improvements conceived by the Named Executive Officer during the course of employment that relate to the business of the FHLBank.

 

14

 


 

Pension Benefits: Table 78 presents the 2013 Pension Benefits Table for the Named Executive Officers.

 

Table 78

 

 

 

 

 

 

 

 

 

 

 

 

Name

Plan Name

Number of Years of Credited Services

Present Value Of Accumulated Benefit

Payments During Last Fiscal Year

Andrew J. Jetter

Pentegra Defined Benefit Plan for Financial Institutions

 

25.583 

 

$

1,265,000 

 

$

-

 

President & CEO

FHLBank Benefit Equalization Plan

 

25.583 

 

 

3,759,000 

 

 

-

 

David S. Fisher

Pentegra Defined Benefit Plan for Financial Institutions

 

6.917 

 

 

301,000 

 

 

-

 

SEVP & COO

FHLBank Benefit Equalization Plan

 

6.917 

 

 

476,000 

 

 

-

 

Mark E. Yardley

Pentegra Defined Benefit Plan for Financial Institutions

 

28.250 

 

 

1,442,000 

 

 

-

 

EVP & CRO

FHLBank Benefit Equalization Plan

 

28.250 

 

 

1,218,000 

 

 

-

 

Patrick C. Doran

Pentegra Defined Benefit Plan for Financial Institutions

 

8.667 

 

 

295,000 

 

 

-

 

SVP & General Counsel

FHLBank Benefit Equalization Plan

 

8.667 

 

 

143,000 

 

 

-

 

Denise L. Cauthon

Pentegra Defined Benefit Plan for Financial Institutions

 

23.333 

 

 

783,000 

 

 

-

 

SVP & CAO

FHLBank Benefit Equalization Plan

 

23.333 

 

 

51,000 

 

 

-

 

 

Our DB Plan covers all full time employees of the FHLBank as of January 1, 2009 who have met the eligibility requirements of: (1) attainment of age 21; (2) completion of twelve months of employment; and (3) employed by the FHLBank as of December 31, 2008, including the Named Executive Officers. Employees are not fully vested until they have completed five years of employment. The regular form of retirement benefits provides a single life annuity; a lump-sum payment or other additional payment options also available to a limited degree for those Named Executive Officers who were employed prior to the plan change in 2003. The benefits are not subject to offset for social security or any other retirement benefits received.

 

The DB Plan provides a normal retirement benefit at or after age 65 where a Named Executive Officer has met the vesting requirement of completing five years of employment equal to 2.0 percent of his/her highest three-year average salary multiplied by his/her years of benefit service, up to 30 years. Three Named Executive Officer participants (Mr. Jetter, Mr. Yardley and Ms. Cauthon) are eligible to receive benefits in excess of 2.0 percent because of a plan change in 2003. The amount in excess of 2.0 percent is a calculated “frozen add-on” determined at the time of the plan change. The formula for this “frozen add-on” is the old benefit formula as of August 31, 2003 minus the new benefit formula as of September 1, 2003. Earnings are defined as base salary plus overtime and bonuses, subject to an annual IRC Section 401(a)(17) limit of $255,000 on earnings for 2013. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit option selected. The annual IRC Section 415(b)(1)(A) benefit limit is $205,000 for 2013. Benefits are payable in the event of retirement, death, disability, or termination of employment if vested. Only the portion of the benefit accrued before September 1, 2003 is payable as a lump sum to employees who have attained age 50, otherwise benefits are paid in installments.

 

Early retirement benefits are payable at a reduced rate. Upon termination of employment prior to age 65, Named Executive Officers meeting the five year vesting and age 45 early retirement eligibility criteria are entitled to an early retirement benefit. Each of the Named Executive Officers is eligible for early retirement. The early retirement benefit amount is calculated by taking the normal retirement benefit amount and reducing it by 3.0 percent times the difference between the age of the early retiree and age 65. If the Named Executive Officer was employed prior to September 1, 2003 and his/her age and benefit service added together totaled 70 (Rule of 70), the normal retirement benefit amount would be reduced by 1.5 percent for each year between the age of the early retiree and age 65 for the portion of the normal retirement benefit accrued prior to September 1, 2003.

 

The FHLBank’s BEP is, in part, a non-qualified defined benefit plan. The defined benefit portion of the BEP provides benefits under the same terms and conditions as the DB Plan. However, the BEP does not limit the annual earnings or benefits of the Named Executive Officers. Benefits that would otherwise be provided under the BEP are reduced by benefits provided under the DB Plan.

 

Our contributions to the DB Plan through June 30, 2013, represented the normal cost of the plan. Funding and administrative costs of the DB Plan charged to compensation and benefits expense were $2,510,000 in 2013. The DB Plan is a multiemployer plan and therefore is not required to disclose the accumulated benefit obligations, plan assets and the components of annual pension expense.

 

15

 


 

The measurement date used to determine the current year’s benefit obligation was December 31, 2013. The present value of the accrued benefit of the DB Plan, calculated through September 1, 2003, was valued at 50 percent of benefit value using the 2000 RP Mortality table (generational table for annuities) and 50 percent of benefit value using the 2000 RP Mortality table (statistical mortality table for lump sums), discounted to the current age of each Named Executive Officer at 4.95 percent interest. The present value of benefits accrued after September 1, 2003 are multiplied by a present value factor which uses the 2000 RP Mortality table (generational table for annuities) discounted to the current age of each Named Executive Officer at 4.95 percent interest. As of December 31, 2013, the actuary’s calculations utilized: (1) the projected unit credit valuation method; (2) the 2000 RP Mortality table (generational mortality table); (3) a 5.03 percent average salary increase adjustment; and (4) a 4.75 percent discount rate as the primary assumptions attributable to valuation of benefits under the DB portion of the BEP.

 

Deferred Compensation: Table 79 presents the 2013 Nonqualified Deferred Compensation Table for the Named Executive Officers. Our fiscal year (FY) is 2013, with a fiscal year end (FYE) of December 31, 2013.

 

Table 79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

Executive Contributions in Last FY1

Registrant Contributions in Last FY

Aggregate Earnings in Last FY

Aggregate Withdrawals/ Distributions

Aggregate Balance at Last FYE2

Andrew J. Jetter

President & CEO

$

72,175 

 

$

42,619 

 

$

71,163 

 

$

-

 

$

1,365,292 

 

David S. Fisher

SEVP & COO

 

37,773 

 

 

20,896 

 

 

25,784 

 

 

-

 

 

508,737 

 

Mark E. Yardley

EVP & CRO

 

20,343 

 

 

12,472 

 

 

39,877 

 

 

-

 

 

755,150 

 

Patrick C. Doran

SVP & General Counsel

 

6,376 

 

 

6,376 

 

 

5,888 

 

 

-

 

 

118,667 

 

Denise L. Cauthon

SVP & CAO

 

-

 

 

1,064 

 

 

413 

 

 

-

 

 

8,611 

 

                   

1

All amounts are also included in the salary column of the Summary Compensation Table.

2

The total amount reported as preferential (above market) earnings in the aggregate balance at last FYE reported as compensation to each NEO in the Executive Group in our Summary Compensation Tables for previous years (2006-2012) was $96,201 for Mr. Jetter, $15,825 for Mr. Fisher, $41,466 for Mr. Yardley, and $4,296 for Mr. Doran. The amounts reported as preferential (above market) earnings for the current year are presented in Table 75.

 

The BEP is also, in part, an unfunded, nonqualified deferred compensation plan (the Supplemental Thrift Plan). The Supplemental Thrift Plan allows the Named Executive Officers, who so choose, to receive a credit for elective contributions in excess of the maximum permitted by the IRC limitations in the FHLBank’s DC Plan in which they participate. If portions of the Named Executive Officer’s regular DC Plan account contributions are returned after the end of the preceding year because of IRC limitations, the Named Executive Officer is credited with make-up contributions under the Supplemental Thrift Plan equal to the Named Executive Officer’s returned portions.

 

The Supplemental Thrift Plan allows Named Executive Officers to receive a rate of return based on our return on equity for the previous year. For 2013, the rate of return earned on the Supplemental Thrift Plan was 5.59 percent, which was our return on equity for 2012.

 

Named Executive Officers are at all times 100 percent vested in their Supplemental Thrift Plan accounts. In the event of unforeseen emergencies, they may request withdrawals equal to the lesser of the amounts necessary to meet their financial hardships or the amount of their account balances. Upon retirement or termination of employment with the FHLBank, the Named Executive Officer’s account balance would be paid in a lump sum, as soon as practicable.

 

Potential Payments Upon Termination/Change in Control: Table 80 represents a description of the elements of potential payments upon termination or change in control and the total amount that would be payable to the Named Executive Officers as of December 31, 2013 had their employment been terminated unless on or prior to that date: (1) the Named Executive Officer voluntarily terminated employment; (2) the Named Executive Officer’s employment was terminated by the FHLBank for misconduct; or (3) the Named Executive Officer accepted employment elsewhere or refused other employment offered by the FHLBank at or before the time of termination. Additional material conditions to the receipt of severance payments upon termination or change of control are discussed under “Severance Benefits” in the Compensation Discussion and Analysis section of this Item 11.

 

16

 


 

All termination payment amounts are payable as a lump sum. The total termination payment amount equals the number of weeks of base salary as described under Severance Benefits under the Compensation Discussion and Analysis section of this Item 11, any earned but unpaid incentive awards, the respective aggregate balance that would be payable under our nonqualified deferred compensation plans within ninety days of a Named Executive Officer’s termination of employment due to death, disability or retirement, and the payment that may be due under our BEP, as described under Pension Benefits in this Item 11, upon a change in control as defined in the BEP, each as of December 31, 2013.

 

Table 80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Officer

Severance Amount1

Earned and Unpaid 2013 Incentive Awards

Deferred Compensation Payable

Payout Under BEP

Total Termination Payment Amount

Andrew J. Jetter

$

670,633 

 

$

586,898 

 

$

1,365,292 

 

$

3,759,000 

 

$

6,381,823 

 

David S. Fisher

 

332,561 

 

 

307,849 

 

 

508,737 

 

 

476,000 

 

 

1,625,147 

 

Mark E. Yardley

 

249,440 

 

 

210,840 

 

 

755,150 

 

 

1,218,000 

 

 

2,433,430 

 

Patrick C. Doran

 

141,698 

 

 

142,437 

 

 

118,667 

 

 

143,000 

 

 

545,802 

 

Denise L. Cauthon

 

106,417 

 

 

106,515 

 

 

8,611 

 

 

51,000 

 

 

272,543 

 

                   

1

Severance amount equals the number of weeks of base salary as described under Severance Benefits under the Compensation Discussion and Analysis under this Item 11.

 

Director Compensation: Table 81 presents the Director Compensation Table for our 2013 Board of Directors.

 

Table 81

 

 

 

 

 

Name

Fees Earned or Paid in Cash

Harley D. Bergmeyer

$

75,000 

 

Robert E. Caldwell II

 

85,000 

 

G. Bridger Cox

 

100,000 

 

James R. Hamby

 

85,000 

 

Thomas E. Henning

 

85,000 

 

Andrew C. Hove, Jr.

 

75,000 

 

Michael B. Jacobson

 

75,000 

 

Jane C. Knight

 

75,000 

 

Richard S. Masinton

 

85,000 

 

Neil F. M. McKay

 

75,000 

 

L. Kent Needham

 

75,000 

 

Mark J. O’Connor

 

75,000 

 

Thomas H. Olson Jr.

 

75,000 

 

Mark W. Schifferdecker

 

85,000 

 

Bruce A. Schriefer

 

75,000 

 

 

Director Fees – The Board establishes on an annual basis a Board of Directors Compensation Policy governing compensation for Board meeting attendance. Our 2013 Board of Directors Compensation Policy (2013 Policy) was adopted December 14, 2012 and became effective January 1, 2013. This policy was established in accordance with the Bank Act and Finance Agency regulations that were amended in 2008 to remove the statutory cap on director compensation. The applicable statutes and regulations allow each FHLBank to pay its directors reasonable compensation and expenses, subject to the authority of the Director of the Finance Agency to object to, and to prohibit prospectively, compensation and/or expenses that the Director of the Finance Agency determines are not reasonable. Our 2013 Policy provided that directors shall be paid a meeting fee for each day in attendance at a regular meeting of the Board of Directors up to a maximum annual compensation amount as set forth in the 2013 Policy.

 

In determining reasonable compensation for our directors, we participated in an FHLBank System review of director compensation, which included a study prepared by McLagan. FHLBank director compensation that was established by the Board under the 2013 Policy reflected this analysis. The 2013 Policy establishes annual compensation limits of $100,000 for the Chairman, $85,000 for the Vice Chairman and Committee Chairs and $75,000 for all other directors.

 

17

 


 

Director Expenses – Directors are also reimbursed for all necessary and reasonable travel, subsistence and other related expenses incurred in connection with the performance of their duties. For expense reimbursement purposes, directors’ official duties can include:

§

Meetings of the Board and Board Committees;

§

Meetings requested by the Finance Agency;

§

Meetings of FHLBank System committees;

§

FHLBank System director orientation meetings;

§

Meetings of the Council of Federal Home Loan Banks and Council committees; and

§

Attendance at other events on behalf of the FHLBank.

 

Total travel expenses in the amount of $219,000 were paid for our directors in 2013 for travel integrally and directly related to the performance of the directors’ duties.

18

 


 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

   

Federal Home Loan Bank of Topeka

   

   

 Date: March 28, 2014

By: /s/Andrew J. Jetter

   

   

   

Andrew J. Jetter

   

President and Chief Executive Officer

 

19