Total solutions for attracting, retaining, and rewarding top talent SEC PROPOSAL ON EXPANDED EXECUTIVE COMPENSATION DISCLOSURES SEC PROPOSAL SUMMARY

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1 Total solutions for attracting, retaining, and rewarding top talent Second Quarter 2006 THE BOTTOM LINE EXECUTIVE AND DIRECTOR BENEFITS AND BOLI FASB PENSION AND OTHER POSTRETIREMENT BENEFITS ACCOUNTING PROJECT TThe Financial Accounting Standards Board (FASB) has undertaken a project to comprehensively reconsider the accounting for pensions and other postretirement benefits. The Exposure Draft released on March 31, 2006, amends guidance in Statements 87, 88, 106, and 132(R). In addition to the impact to entities with qualified plans, the guidance suggested in the Exposure Draft would also affect entities whose nonqualified plans are subject to FASB Statement No. 87, Employers Accounting for Pensions. Note that the guidance would not impact entities whose nonqualified plans are subject to APB Opinion No. 12. The project is a multi-year two phase project. The first phase of the project (provided in the newly released Exposure Draft) is intended to be completed before the end of 2006 and affects fiscal years ending after December 15, (Continued on next page) SEC PROPOSAL ON EXPANDED EXECUTIVE COMPENSATION DISCLOSURES The SEC has issued a wide-ranging proposal that would mandate comprehensive disclosure of the compensation paid to a company s top executives. The proposal would affect disclosure in proxy statements, annual reports, and registration statements. Some of the highlights to the proposal are the following: SEC PROPOSAL SUMMARY New narrative disclosure contained in a Compensation Discussion and Analysis section which would replace the Compensation Committee Report and the company s stock performance graph New and revised tabular disclosures: Summary Compensation Table includes report of a total compensation dollar amount, plus two supplemental tables: Grants of Performance-Based Awards Grants of All Other Equity Awards Outstanding Equity Awards at Fiscal Year-End Table Option Exercises and Stock Vested Table Retirement Plan Potential Annual Payments and Benefits Table Nonqualified Defined Contribution and Other Deferred Compensation Plans Table Director Compensation Table Require disclosure of whether each director or director nominee is independent Revise Form 8-K reporting requirements for executive compensation events Compensation Committee disclosures similar to current requirements for audit and nominating committees Securities offered through M Holdings Securities, Inc., a registered Broker/Dealer, member NASD/SIPC. M Financial Group is the parent company of M Benefit Solutions and M Holdings Securities, Inc. 1

2 FASB initially decided to focus on the issue of accounting for pensions and postretirement benefits in part to address two deficiencies in the current guidance: 1. Changes in a plan s assets and its related benefit obligation are not currently recognized as they occur. 2. Key information regarding the postretirement plan is contained in the footnotes rather than being reflected in the financial statements. The Exposure Draft proposes the following guidance: BALANCE SHEET Recognize the over-funded or under-funded status of defined benefit postretirement plans as an asset or a liability in the statement of financial position. The asset or liability (over-funded or under-funded status) would be measured as the difference between the fair value of plan assets and the benefit obligation (that is, the Projected Benefit Obligation (PBO) for pensions and the Accumulated Postretirement Benefit Obligation (APBO) for other postretirement benefits). ACTUARIAL GAINS AND LOSSES Previously unrecognized actuarial gains or losses would be recognized as a charge or credit to Other Comprehensive Income (OCI). PRIOR SERVICE COSTS/CREDITS Previously unrecognized prior service costs or credits also would be recognized as a charge or credit to OCI. NET TRANSITION ASSETS/OBLIGATIONS Previously unrecognized net transition assets or obligations would be recognized as an adjustment to the opening balance of retained earnings upon initial adoption of the proposed Statement. PRESENTATION AND CLASSIFICATION Assets from all over-funded plans are aggregated while liabilities from under-funded plans are aggregated separately. The two can not be netted together. In addition, the current and noncurrent portions need to be reported separately on the balance sheet. Recognizing the funded status should be applied retrospectively for all periods in which the financial statements are presented. MEASUREMENT DATE The current guidance that allows plan assets and obligations to be measured as of a date not more than three months prior to the balance sheet date would be eliminated. That is, the over-funded or under-funded status of a plan would be determined as of the date of the financial statements. DISCLOSURE REQUIREMENTS The Exposure Draft requires entities to separately disclose the following: Amounts of prior service cost or credit and net actuarial gain or loss recognized during the period in OCI. Cumulative amounts of prior service cost or credit and net actuarial gain or loss included in accumulated OCI. Amounts related to net periodic benefit cost that were reclassified out of OCI into earnings during the period. Portion of prior service cost or credit and net actuarial gain or loss included in accumulated OCI that will be reclassified to earnings as a component of net periodic benefit cost over the next fiscal year. EFFECTIVE DATE AND TRANSITION All entities are required to recognize the assets and liabilities related to the funded status of a plan for fiscal years ending after December 15, While public companies are required to have a measurement date corresponding to the balance sheet date for fiscal years beginning after December 15, 2006, all other entities are given a one-year extension requiring them to be in compliance for fiscal years beginning after December 15, The FASB s comment period for the Exposure Draft ends on May 31, An M Financial Group Company 2

3 Second Quarter 2006 FINANCIAL DESIGNS LTD. AND IBC EDUCATION FOUNDATION BANKING FORUMS J Jerry Middel and Curtis Coles from Financial Designs Ltd., in association with the Independent Bankers of Colorado (IBC), are putting together banking forums in the following cities during the month of June in Colorado. Their discussion topics will include: Trends in Employee Benefits Managing Healthcare Cost Determining the Total Compensation Mix for Bank Executives Bankers are constantly bombarded with new ideas and concepts for compensating bank executives. Jerry and Curtis will walk through a thorough discussion on the Long-Term Incentives Plan Decision Tree to help bankers determine which plan or plans would best suit their bank. They will point out the nine most common compensation plans both short- and long-term incentive plans. In addition, Jerry and Curtis will also provide information on what companies and banks around Colorado are doing to address the ever increasing cost of providing health care for their employees. If you have questions, please contact: Jerry Middel or Curtis Coles Financial Designs Ltd Sherman Street, Suite 1800 Denver, CO JUNE 8 PUEBLO, CO JUNE 22 DENVER, CO JUNE 23 MONTROSE, CO JUNE 27 FT. MORGAN, CO JUNE 29 LIMON, CO JOIN US! OREGON BANKERS ASSOCIATION AND INDEPENDENT COMMUNITY BANKS OF OREGON 101 ST ANNIVERSARY CONVENTION SUNRIVER RESORT IN CENTRAL OREGON JUNE 25 27,

4 M BENEFIT SOLUTIONS - BANK STRATEGIES ANNOUNCES NEW BOLI ALTERNATIVES FOR COMMUNITY BANKS H Historically, the spectrum of bank-owned life insurance (BOLI) product strategies available to community banks has been somewhat limited. Even as BOLI continues to serve as an excellent tool for financing benefit programs that banks can use to attract, retain, and reward key executives and directors, the selection of product alternatives available to community banks has remained relatively narrow. In an effort to meet the evolving needs of the community bank market, M Benefit Solutions - Bank Strategies is pleased to offer access to two BOLI product strategies previously reserved for the largest financial institutions. The products, offered by two leaders in the BOLI marketplace, New York Life and Sun Life Financial, are as follows: NEW YORK LIFE INSURANCE AND ANNUITY COMPANY (NYLIAC) New York Life Insurance and Annuity Company (NYLIAC) has introduced a new product to complement their strong lineup of BOLI offerings. This new product provides two transparent investment portfolios Quality and Yield designed to more rapidly reflect changes in the interest rate market. The Quality Portfolio focuses on securities with AAA ratings and a duration target of three to five years, and offers 20% risk based capital weighting. The Yield Portfolio focuses on securities with A+ ratings and a target duration of five to eight years. SUN LIFE FINANCIAL Sun Life Financial s new BOLI financing alternative is designed specifically for the community and regional bank market. The product features a Pooled Stable Value investment option designed to provide stable value protection in conjunction with a choice of bank-eligible managed accounts for transaction sizes down to $1 million. Investment choices offered with the Pooled Stable Value wrap are the same bank-eligible sub-accounts used by larger banks for their stable value strategies, including a mortgagebacked securities fund managed by Goldman Sachs Asset Management, and an investment-grade fixed income securities fund managed by Sun Capital Advisers, Inc. These products can be utilized in plans designed to help community banks offset the costs of employee benefits, recover costs associated with the implementation of nonqualified benefit plans, and create an efficient asset/liability management tool, bringing balance sheet advantages that can ultimately enhance earnings per share. For more information on these products, and the services and expertise offered by M Benefit Solutions -, please contact Michael Elliott, Vice President, at or mike.elliott@mben.com. Investors should consider the investment objectives, risks, charges, and expenses of any variable life insurance product carefully before investing. This and other important information about the investment company is contained in each product s prospectus, which can be obtained by contacting Michael Elliott. Please read it carefully before you invest. THANK YOU! Thanks to everyone who stopped by our booth at the 2006 ICBA Convention in Las Vegas. We look forward to seeing you all next year at the 2007 ICBA Convention in Honolulu, Hawaii! An M Financial Group Company 4

5 Second Quarter 2006 M BENEFIT SOLUTIONS - BANK STRATEGIES ADVISOR FIRMS An M Financial Group Company M BENEFIT SOLUTIONS - BANK STRATEGIES 1125 NW Couch Street, Suite 900 Phone: Portland, OR Fax: Contact: Michael Elliott mike.elliott@mben.com FINANCIAL DESIGNS LTD Sherman Street, Suite 1800 Phone: Denver, CO Fax: Contacts: Gerald Middel jmiddel@fdltd.com Curtis Coles ccoles@fdltd.com ECI/BANK BENEFITS 1515 Capital of Texas Hwy, Suite 210 Phone: Austin, TX Fax: Contact: Thomas J. Jordan tjordan@ecicompanies.com EVERGREEN CONSULTING, INC Williams Street Phone: Chattanooga, TN Fax: Contacts: James Cheney jcheney@evergreenadvisors.com Robert Kozloski rkozloski@evergreenadvisors.com LONGFELLOW EXECUTIVE BENEFITS 116 Huntington Avenue, 10 th Floor Phone: Boston, MA Fax: Contact: John Gagnon jgagnon@longfellowbenefits.com 5

6 ABOUT M BENEFIT SOLUTIONS - BANK STRATEGIES M Benefit Solutions -, based in Portland, Oregon, is a division of M Benefit Solutions, a Member Firm of M Financial Group. Please go to for further details regarding this relationship. M Benefit Solutions is a recognized leader in the community bank executive and director benefits and BOLI marketplace. Through a network of firms located in key markets across the country, M Benefit Solutions - helps banks attract, retain, and reward key executives and directors through the design, implementation, and administration of benefit programs that maximize the use of a bank s financial resources. M Benefit Solutions - is the Independent Community Bankers of America s ( ICBA ) Preferred Service Provider for executive and director benefits. For more information, please visit An M Financial Group Company M BENEFIT SOLUTIONS - BANK STRATEGIES M FINANCIAL PLAZA 1125 NW COUCH STREET, SUITE 900 PORTLAND, OR FAX: An M Financial Group Company 6