8-K: First Financial Northwest Bank Finalizes Executive Severance Agreements Ahead of Global Federal Credit Union Acquisition

First Financial Northwest Bank amends executive retirement plans and finalizes severance agreements as it prepares for acquisition by Global Federal Credit Union.

Summary

• First Financial Northwest Bank is amending its supplemental executive retirement plans (SERPs) and terminating employment and change in control agreements with its named executive officers in preparation for its acquisition by Global Federal Credit Union.
• The amendments to the SERPs allow the Bank to terminate and liquidate the plans in accordance with Section 409A of the Internal Revenue Code.
• Executives will receive annuity contracts that have been purchased by the Bank to fund the benefits they are entitled to under the SERPs.
• Richard P. Jacobson's SERP amendment provides for accelerated vesting of his normal retirement benefit upon termination of his SERP.
• The Bank has provided each executive with an acknowledgement and release agreement (Release Agreement) providing for the termination of the executives employment or severance agreement in exchange for lump sum cash payments to be made to the executive immediately prior to closing if the Release Agreement is signed and not revoked.
• The closing date of the acquisition is scheduled for April 11, 2025.
• Joseph W. Kiley III will receive a lump sum severance payment of $2,700,152.00 and a lump sum cash payment of $24,750.28 in lieu of continued benefits.
• Richard P. Jacobson will receive a lump sum severance payment of $1,711,030.00 and a lump sum cash payment of $54,064.22 in lieu of continued benefits.
• Dalen D. Harrison will receive a lump sum severance payment of $610,650.00 and a lump sum cash payment of $44,240.43 in lieu of continued benefits.
• Ronnie J. Clariza will receive a lump sum severance payment of $486,450.00 and a lump sum cash payment of $71,524.04 in lieu of continued benefits.
• Simon Soh will receive a lump sum severance payment of $589,950.00 and a lump sum cash payment of $78,963.89 in lieu of continued benefits.

Sentiment

Score: 7

Explanation: The document is factual and related to a planned acquisition. The sentiment is neutral to slightly positive due to the resolution of executive compensation matters.

Positives

• Executives receive substantial severance packages and benefits in lieu of continued coverage.
• The amendments to the SERPs ensure compliance with Section 409A of the Internal Revenue Code.
• The release agreements provide clarity and resolution regarding the termination of employment and severance agreements.
• The acquisition by Global Federal Credit Union provides a strategic exit for First Financial Northwest Bank.

Negatives

• Termination of employment agreements means executives will be leaving the company.
• The lump sum tax gross-up payments are good faith estimates and may not be sufficient to cover future taxes owed by the employees.

Risks

• The closing of the acquisition is subject to customary closing conditions and may not occur as scheduled.
• There is a risk that the lump sum tax gross-up payments may not be sufficient to cover future taxes owed by the employees.
• Executives could revoke the Acknowledgment and Release Agreement.

Future Outlook

The Bank intends to terminate each SERP prior to consummation of the pending asset sale and distribute to Messrs. Kiley and Jacobson the annuity contracts that have been purchased by the Bank to fund the benefits that each executive is entitled pursuant to the SERPs.

Management Comments

• Both the Employee and the Bank desire to resolve all matters, known or unknown, arising out of the Employee's employment with and separation from the Bank according to the terms, conditions and consideration included in this Agreement.
• The Employee acknowledges that the amounts set forth in Section 2 above represent the full amount that the Employee would be entitled to under Section 7(d) of the Employment Agreement.

Industry Context

In the banking industry, acquisitions often lead to changes in executive compensation and retirement plans, as the acquiring institution integrates the acquired company's operations and personnel.

Comparison to Industry Standards

• Severance packages for executives in similar-sized banks acquired by larger institutions typically include cash severance payments, continuation of benefits, and accelerated vesting of stock options or retirement plans.
• The specific terms of the severance agreements, such as the multiple of salary used to calculate the cash severance payment and the duration of continued benefits, can vary depending on the executive's role, tenure, and the specific circumstances of the acquisition.
• For example, when Umpqua Bank acquired Sterling Financial Corporation, key executives received severance packages that included cash payments, accelerated vesting of equity awards, and continuation of benefits.
• Similarly, when Columbia Banking System acquired Pacific Continental Corporation, executives received severance payments and benefits continuation as part of the merger agreement.

Stakeholder Impact

• Shareholders: The acquisition will result in a change of ownership and potentially impact the value of their shares.
• Employees: The acquisition will result in the termination of employment for some executives, while other employees may be integrated into the acquiring company.
• Customers: The acquisition may result in changes to the products and services offered by the bank.
• Suppliers: The acquisition may result in changes to the bank's relationships with its suppliers.
• Creditors: The acquisition may impact the bank's creditworthiness and its ability to repay its debts.

Next Steps

• The Board of Directors intends to take further action prior to closing of the asset sale to terminate the SERPs and to authorize the distribution of the underlying annuities to Messrs. Kiley and Jacobson.
• Executives must sign and not revoke the Release Agreements to receive the severance payments.

Key Dates

Keywords

acquisition, severance, executive compensation, retirement plans, First Financial Northwest Bank, Global Federal Credit Union, merger, banking